In association with The Times, Raconteur has recently published a very insightful report, entitled Supply Chain Resilience 2021. It covers many interesting stories. For example, the report urges us to rethink just-in-time ordering, because “the global semiconductor shortage has highlighted the pitfalls of procuring parts right at the moment they’re needed”. Another interesting article in the report asks what the supply chain industry can learn from the Greensill Capital collapse: “Greensill Capital, the ill-fated provider of supply chain finance, claimed to be offering vital support for hard-pressed small firms, but is SCF all that good for SMEs?” A third article I would like to highlight is about net-zero logistics: “The decarbonisation of supply chains is as critical to [a country’s] net-zero ambitions as it is difficult to achieve, but innovations are emerging to address the problem areas of air freight, shipping and road haulage.” Much of the report is in line with my own view of resilience.
The Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) was released today. Bringing together the latest advances in climate science, it addresses the most updated physical understanding of the climate system. Even without this new IPCC report, it should be clear that our planet is in an existential crisis: The scale and intensity of the recent floods in Germany have broken all records and the ongoing fires in Greece have reached biblical proportions; Greek Prime Minister Kyriakos Mitsotakis said these fires showed “the reality of climate change”. Devastating fires are also raging in Russia, Italy, Turkey, and various other places. Attribution studies show that the recent record-breaking heatwaves in Siberia and Western North America would have been impossible without man-made climate effects (Ciavarella et al., 2020; Philip et al., 2021). Much of the greenhouse gas emissions are generated in global supply chains. Possible solutions to the climate crisis, thus, include new supply chain structures, processes, and business models. Yet, despite the existential threat to our species from this crisis, our discipline has so far been strangely silent. Therefore, I hope that as many SCM scholars as possible will now read the 42-page Summary for Policymakers of the new IPCC report from cover to cover. Our discipline simply cannot continue to ignore the elephant in the room.
Intergovernmental Panel on Climate Change (2021): Summary for Policymakers. In: Climate Change 2021: the Physical Science Basis. Contribution of Working Group I to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change. Geneva, Switzerland. https://www.ipcc.ch/report/ar6/wg1/#SPM
A new World Economic Forum report, entitled Net-Zero Challenge: The Supply Chain Opportunity and co-authored with Boston Consulting Group, showcases “the opportunity that all companies have for huge climate impact through action to decarbonize global supply chains”. This report argues that addressing supply-chain emissions enables many companies to impact “a volume of emissions several times higher than they could if they were to focus on decarbonizing their own direct operations and power consumption alone”. Among the major findings of the report: (1) Many companies can multiply their climate impact by decarbonizing supply chains; (2) Eight supply chains account for more than 50% of global emissions; (3) Net-zero supply chains would hardly increase end-consumer costs; (4) But: decarbonizing supply chains is hard. The report contains a step-by-step guide, which shows nine major initiatives every company can undertake. These initiatives were identified through interviews with a large number of global companies that, according to the authors, lead the way in reducing supply-chain emissions.
Our guest post today comes from Christoph Flöthmann, an expert in strategic and digital procurement, who has recently co-authored a new report.
Digitalization already has a major impact on procurement, as we write in our new report: 21st Century Procurement Skills. Thanks to artificial intelligence (AI) and robotic process automation (RPA), process-mining tools can be used to reshape and analyze all kinds of processes. Dashboards, governed by analytics bots, help to detect and prevent maverick buying in real-time without any human input. This is ultimately driving procurement effectiveness, efficiency and compliance. However, the digital transformation can only succeed if procurement has bright talents with the right skills in place who steer AI and manage the remaining high-value-adding tasks: First, digital fluency is a new meta-competency that enables managers to reach their targets by being in command of digital tools. Second, the ability for complex and collaborative problem-solving will be key to master the challenges posed by both digitalization and uncertain markets. Because AI and RPA take over tasks that are rather simple and require a low level of human collaboration, the procurement professionals’ scope is about to shift to highly complex and highly collaborative tasks such as developing and approving category strategies. Finally, procurement needs transformational leaders that are able to empower their teams to strive for developing and applying their new skill sets.
Dr. Christoph Flöthmann is a consultant in Roland Berger’s Operations Competence Center. In 2018, he and his project team were finalists at the World Procurement Awards in London for developing and implementing a digital procurement strategy platform. Before becoming a consultant, he completed his Ph.D. at Copenhagen Business School and Kühne Logistics University, specializing in research on competencies and careers in supply chain management.
“Accelerating technology and automation are resulting in wholesale transformation of the supply chain profession.” This is the key message of EY’s new report, titled Supply Chain: Skills for the Digital Era. It is not long, but definitely a good read. The report states that “[p]rocesses with repeatable elements such as planning, monitoring and forecasting can all be automated and enhanced by robotics, artificial intelligence and advanced analytics”. The authors observe that this leads to a transformation of supply chain management: “Where performance improvement in the past may have focused on the optimisation of individual operational areas, it now needs to harness a broader view that understands, for example, how supply chain impacts on profitability.” The report ends by identifying four future personas for the supply chain, based on their mindset (data-driven vs. vision-led) and style (investigative vs. collaborative): There are technologists, orchestrators, analysts and innovators. Does our research and teaching cover all of them?
DHL has recently released the fifth edition of their Global Connectedness Index, which provides an analysis of globalization, measured by international flows of capital, trade, information and people. In spite of growing anti-globalization tensions in many countries, the report indicates that globalization hits a new record high, as the aforementioned flows all intensified significantly for the first time since 2007. It is also found that the Netherlands, Singapore, Switzerland, Belgium and the United Arab Emirates are the most connected countries. Europe tops the regional ranking, while a group of Southeast Asian countries beats the expectations by the widest margin. “Surprisingly, even after globalization’s recent gains, the world is still less connected than most people think it is,” comments one of the report’s co-authors, Steven A. Altman. “This is important because, when people overestimate international flows, they tend to worry more about them. The facts in our report can help calm such fears and focus attention on real solutions to societal concerns about globalization.”
“Cigarette production and consumption have seen dramatic growth in recent decades and although the health effects of smoking are widely recognized, its impacts on the environment are largely overlooked”, the authors of a new World Health Organization report argue, which is titled Cigarette Smoking: An Assessment of Tobacco’s Global Environmental Footprint Across Its Entire Supply Chain (pdf). The report explicitly takes a supply chain perspective: “From tobacco cultivation and curing, to cigarette manufacturing, distribution, consumption and discarding, every stage in the global tobacco supply chain involves considerable resource inputs, and results in the production of wastes and emissions. Consequently, tobacco puts pressure on the planet’s already stressed natural resources and its fragile ecosystems, threatening the livelihoods and future development of communities around the world.” What I learned from the report is that “tobacco’s total environmental footprint is comparable to that of entire countries and its production is often more environmentally damaging than that of essential commodities such as food crops”.
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.
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”.