This year’s Nobel Memorial Prize in Economics goes to Paul R. Milgrom and Robert B. Wilson “for improvements to auction theory and inventions of new auction formats”. Wilson “developed the theory for auctions of objects with a common value – a value which is uncertain beforehand but, in the end, is the same for everyone”. Examples for this include the volume of minerals in a particular area and the future value of radio frequencies. Milgrom “formulated a more general theory of auctions that not only allows common values, but also private values that vary from bidder to bidder”. He demonstrated that an auction format “will give the seller higher expected revenue when bidders learn more about each other’s estimated values during bidding”. I am sure their work will now attract even more attention in the SCM discipline, because auctions already play an important role in many supplier–buyer relationships. Let us not forget the important work on auctions that has already been conducted in our discipline, for example by Wagner & Schwab (2004), Hartley and her coauthors (2006) and Carter & Kaufmann (2007), to name just a few.
The McKinsey Global Institute (MGI) has recently published a new report: Risk, Resilience, and Rebalancing in Global Value Chains. The authors show that becoming more resilient does not have to mean sacrificing efficiency. Their research highlights the many options for strengthening resilience. They argue that “[companies] have an opportunity to emerge from the current crisis more agile and innovative.” They also write: “Intricate supplier networks that span the globe can deliver with great efficiency, but they may contain hidden vulnerabilities. Even before the COVID‑19 pandemic, a multitude of events in recent years temporarily disrupted production at many companies. Focusing on value chains that produce manufactured goods, this research explores their exposure to shocks, their vulnerabilities, and their expected financial losses. We also assess prospects for value chains to change their physical footprint in response to risk and evaluate strategies to minimize the growing cost of disruptions.” I found this report to be very insightful.
The IPCC defines the world’s remaining carbon budget as the cumulative net global anthropogenic CO2 emissions to the time that emissions reach net zero that would result in limiting global warming to a given level, accounting for the impact of other anthropogenic emissions. In other words, it allows us to calculate how much CO2 can still be released to limit global warming to a maximum of 1.5°C and 2°C, respectively. Currently, emissions equivalent to 42 gigatonnes (Gt) of CO2 are released globally every year. The following MCC Carbon Clock shows that time is ticking very fast and that we urgently would need to decarbonize our global supply chains.
Norrman & Jansson’s (2004) case study on Ericsson’s supply chain risk management (SCRM) practices is definitely part of the canon of SCM literature. After 15 years, it was time for an update. Together with Andreas Norrman, I visited Ericsson in Stockholm to investigate their SCRM practices. The results can now be found in our new article, The Development of Supply Chain Risk Management over Time: Revisiting Ericsson. Our article demonstrates how Ericsson’s SCRM practices have developed, indicating that improved functional capabilities are increasingly combined across silos and leveraged by formalized learning processes. Important enablers are IT capabilities, a fine-grained and cross-functional organization, and a focus on monitoring and compliance. Major developments in SCRM are often triggered by incidents, but also by requirements from external stakeholders and new corporate leaders actively focusing on SCRM and related activities. Although our article did not focus on SCM in the era of COVID-19, decision-makers can learn about many practices and tools that might also be useful to cope with the current situation.
Norrman, A. & Wieland, A. (2020). The Development of Supply Chain Risk Management over Time: Revisiting Ericsson. International Journal of Physical Distribution & Logistics Management. https://doi.org/10.1108/IJPDLM-07-2019-0219
The world is currently watching the shocking cases of police violence in the United States. But racism also exists on a smaller, more subtle level. In a recent interview, Terry Esper, a logistics scholar from The Ohio State University, shares his experience with racism and gives us excellent advice.
Many observers are currently talking about how we could go back to normal as quickly as possible. But what is “normality” and is it desirable? Should we really turn to cost reduction and just-in-time processes again? Wasn’t that the reason to put all medical supply eggs in the China basket? Didn’t that make our supply chains extremely vulnerable? We should accept the corona crisis as a warning sign, as an opportunity to fundamentally question the structure of our global supply chains. The corona crisis has fortunately led to effective political measures worldwide. Based on scientific knowledge, political decision-makers seem to be able to anticipate the catastrophic consequences of not taking such measures. These measures certainly hurt, but they are necessary. Unfortunately, effective measures to flatten the curve of the climate and biodiversity crises have so far largely failed to materialize. The corona crisis has shown us that we cannot look at global supply chains in isolation, but can only understand them in a larger context, and we have understood that they require reformation. Hopefully we will be able to transfer this understanding to other crises. Instead of going back to normal, we should anticipate the catastrophic consequences of the old model and reimagine our global supply chains accordingly, thereby having the larger picture in mind. If we can do that, then there is at least something good about the corona crisis, however tragic it is overall. This transformation of our economic system should also guide our academic work in the months to come. Stay healthy!
I am currently listening to Containers, an 8-part audio documentary about how global trade has transformed ourselves and the economy. Herein, journalist Alexis Madrigal leads us “through the world of ships and sailors, technology and tugboats, warehouses and cranes”. I am sure this documentary will be interesting also for many of the readers of this blog.
When I made my predictions last year, the first one being about new technologies, the second one related to our planetary boundaries, I certainly underestimated the pace of these developments.
The first prediction has now already materialized in many companies across the globe. More and more supply chain managers I have talked to have implemented innovative solutions, such as robotic process automation and process mining. What I can also see are more and more business models that rely on machine learning.
The second prediction came true in an oppressive way: Europe was hit by an unprecedented heat wave, Southern Africa by a terrifying drought. The Amazon – on fire. Siberia – on fire. And now? Australia is on fire; it is estimated that, so far, at least 480,000,000 mammals, birds and reptiles were killed. This is not a Mad Max movie; the world is in climate crisis. Political leadership is lacking from some of those countries with the highest per-capita emissions, including the U.S. and, tragically, Australia. What gives hope is the emergence of a global climate movement.
Instead of just repeating my predictions from last year, I would like to recommend three books related to these topics (see link). Visionary companies and courageous supply chain managers don’t look back, they don’t waste time with 20th-century business models. They look forward and are part of an exciting journey that shapes a digital, post-carbon economy. They will turn challenges into first-mover advantages and create great business opportunities. Isn’t this what SCM is all about?
I wish you a good start into the new year!
The whole world can see it clearly. A wind of change is currently blowing through the air and the past eventful weeks have almost turned it into a storm: The IPCC published its Special Report on the Ocean and Cryosphere in a Changing Climate; world leaders at the Climate Action Summit in New York demonstrated growing recognition that the pace of climate action must be rapidly accelerated; climate activist Greta Thunberg received the Right Livelihood Award “for inspiring and amplifying political demands for urgent climate action reflecting scientific facts”; several million people across the globe joined the Global Climate Strike; Germany followed other countries by introducing a carbon price; and the European Investment Bank decided to divest from fossil fuel projects. It is becoming increasingly clear that the fossil era, which has long shaped the global power structure, is coming to an end. While late movers are now desperately trying to conserve the obsolete fossil solutions of the 20th century with the help of trade barriers, those states relying on green technologies are gaining significant influence. The task of our discipline is now to adapt our theories, methods and practices to this new reality. Exciting times are ahead!