The United Kingdom has been one of the key links in EU supply chains for more than 40 years. BBC Newsnight has recently reported on how Brexit could break that chain and what the consequences could be for manufacturers. I like the video and have used it for my Supply Chain Risk Management course to discuss this topic with my students.
Exports can be decomposed into a foreign value added (FVA) and a domestic value added (DVA) component. FVA is a key measure of the importance of global supply chains. It refers to the imported goods and services incorporated in a country’s exports. DVA relates to the contribution of a country’s own (i.e. domestic) factors of production. The 2018 World Investment Report, recently published by UNCTAD, shows that “[f]rom 1990 until 2010, the share of FVA in total exports rose continuously, contributing to the growth in global trade” and, “in the past decade, for the first time in 30 years, the growth […] has come to a halt, with the share of FVA declining to 30 per cent in 2017”. But what are the reasons for a declining importance of the “extended workbench” model? First, the model is based on arbitrage; however, the economic success of emerging countries has led to an increase in labor costs. Second, manufacturing in high-wage countries is becoming increasingly profitable due to recent advances in robotics.
The Guardian has recently published an interesting article with a provoking title: Why We Should Bulldoze the Business School. The author writes: “[In] the business school, both the explicit and hidden curriculums sing the same song. The things taught and the way that they are taught generally mean that the virtues of capitalist market managerialism are told and sold as if there were no other ways of seeing the world.” The author demands “an entirely new way of thinking about management, business and markets” and argues: “If we want those in power to become more responsible, then we must stop teaching students that heroic transformational leaders are the answer to every problem, or that the purpose of learning about taxation laws is to evade taxation, or that creating new desires is the purpose of marketing. In every case, the business school acts as an apologist, selling ideology as if it were science.” To what extent does that also apply for our SCM courses?
The circular economy is gathering momentum: In the future this model could, for example, mean that smartphones will not be sold and consumed anymore, but companies like Apple and Samsung will then keep scarce resources and sell a smartphone service to users instead of a product to consumers. These users will then be required to bring back the phone after a specified amount of time. California Management Review has now published a special issue on the circular economy. Several of the articles of that special issue refer to supply chains and supply chain management; and several of the authors have published in SCM journals before. This indicates that “supply chain thinking” and “circular thinking” are increasingly stimulating each other. I would even go so far to say that the 21st century’s supply chain management has to shift from linear to circular. This also has implications for our research. What we might need to re-think is whether the “chain” in “supply chain management” is still the right expression.
A new research report, provided by Mighty Earth, argues that “[deforestation] is the result of a long supply chain that starts on the South American frontier and ends on European plates”. The report is titled The Avoidable Crisis. It reveals that a small group of companies controls the global agricultural trade: “These companies collectively control the majority of global grain trade […]. In addition to their role in trade, these companies also play a more direct role in driving ecosystem conversion by providing plantation owners with financing, fertilizer, infrastructure, and other incentives for new deforestation to expand their supply base. Given their outsized role, these companies have the power to insist that suppliers protect native ecosystems and land rights. But so far, these companies have prioritized reckless expansion over even easy conservation wins.” The authors argue that “[the] EU must send a strong signal to the market by requiring that companies implement measures for transparency and traceability into their supply chains”.
Are business success and sustainability contradictory? A new white paper by Schmidpeter & Bungard, sponsored by DHL, is rather optimistic and argues that both goals can instead be mutually beneficial. The paper is titled Unlock the True Value of Your Supply Chain: Business Success through Sustainable Supply Chain Management. The authors state: “Sustainable Supply Chain Management (SSCM) can help drive positive business change by helping companies save costs, strengthen ‘license to operate’ and generate additional revenue streams.” But the authors also acknowledge that “[a]lthough there are good tools and best practices available for integrating sustainability into your business, there is no silver bullet that will let you realize the benefits of SSCM overnight”. They also acknowledge that the Sustainability department should not do it alone: “The topic of sustainability should be on the agenda for every leader and employee within a company”. The white paper might partly be quite optimistic, but it provides several good practices from business reality.
Today I present my personal predictions for supply chain management in 2018. Sustainability and digitization will certainly top the SCM agenda! First, much more action is needed to combat global warming. SCM could play a key role to cope with this challenge, as a “supply chain” rather than “company” perspective helps to understand that upstream greenhouse gas emissions may occur anywhere in the world. Unfortunately, time is slowly running out! New technologies like blockchain, ID systems like bluenumber and standards like ISO 24000 could help us make a breakthrough. Second, we might see increased momentum to move beyond the machine learning hype. Machine learning could soon be integrated in all kinds of value-creating processes. But while IT giants like Google, Amazon and SAP highlight the strengths and opportunities of such technologies, we should also take the weaknesses and threats into consideration: Will robots take our children’s jobs? And what does all this mean for SCM? 2018 will bring some more questions and hopefully even more answers.
It is widely known that the term “supply chain management” was popularized by Keith Oliver, among others, in the early 1980s. Interestingly, in a 2003 strategy+business article, Oliver has revealed that, looking for a catchy phrase, his consulting team originally proposed the term “integrated inventory management” (I2M). While, in our modern understanding, SCM is focused not only on intra- but also inter-organizational coordination and typically takes a more strategic perspective, “I2M” already focused on “tearing down the functional silos that separated production, marketing, distribution, sales, and finance to generate a step-function reduction in inventory and a simultaneous improvement in customer service”. Later, at a key steering committee meeting, Oliver’s team introduced “I2M” but “the phrase failed to resonate with participants”. One of the managers, a Mr. Van ’t Hoff, challenged Oliver to explain what he meant by “I2M”. I am not sure whether Mr. Van ’t Hoff is aware of it, but this moment marked the birth of the term “supply chain management”:
Among the best ways to teach supply chain management is by discussing different types of real-world supply chains. In their interesting report, Enabling Trade: From Valuation to Action, the World Economic Forum (in collaboration with Bain & Company) present several supply chains that could be discussed. The introdution makes one point clear: “The overall benefits to nations, producers and consumers are clear. However, making it happen is not as simple – particularly because supply chains cut across multiple stakeholders, requiring collaboration and leadership that goes beyond local constituents and borders.” This is where the report delves deeper into examples of practical application. Among the examples presented in the report is the avocado supply chain. This example demonstrated how “a number of supply chain improvements have enabled Kenyan avocados to be profitably exported to high-value markets in the European Union”. It illustrates that supply chains “must be able to react to changes in market dynamics in order to maintain a virtuous cycle”.