The operation and management of today’s global supply chain continues to challenge executives worldwide. While the extended supply chain can make the world seem a whole lot smaller, its changeability, lengthy complexity, and vulnerability can baffle the most astute of operations managers trying to tame it. Many describe the long chain as a constantly moving target in continual flux as U.S. companies do things like continue to merge with other companies and move from one overseas sourcing and manufacturing locale to another in the constant quest for the lowest-cost labor and materials. Changing consumer expectations require supply chains that are more flexible and nimble than ever before. Today’s successful global supply chains are collaborative and involve people, processes, and technologies.

The supply chain experts we interviewed identified about a dozen trends currently under study (see sidebar). Following is an examination of those trends in detail, offering a peek into what could affect supply chains in the near future.

Taming the chain

“Given how quickly and continuously everything is changing these days, it is essential to understand analytically the functioning of supply chains and to be able to know what strategies will produce the best results,” notes John Langley, PhD, Supply Chain Executive Forum Director of ISyE’s Supply Chain & Logistics Institute at Georgia Tech. “This requires greater attention to creating supply chain solutions that are effective and efficient.”



Outsourcing Technology (SaaS)

While outsourcing logistics services like warehousing, transportation, and distribution has played a major role in optimizing the supply chain, Langley believes we will see more outsourcing of technology, especially in software as a service (SaaS). “There used to be a ‘feel-good’ element in owning your own software,” he says. “We are moving from this old way of doing things to outsourcing by figuring out when it makes sense. For instance, examining your corporate core competencies-and what you are good at doing-against the financial ramifications of outsourcing technology. There are many good commercial opportunities available for companies to consider.”

The trend to provide software as a service in the supply chain and logistics arena will grow, adds Don Ratliff, PhD, executive director for the Supply Chain & Logistics Institute at Georgia Tech. “It will be outsourcing of a different type from what we’ve had before such as for routing trucks, rather than actually owning the software to do this,” he says. “Currently, we see companies passing their delivery requirements to a service via the Internet and receiving optimized routes in return. I believe this service focus for delivering both the technology and the solutions is the biggest change we will continue to see happening.”



IT Integration

The next level of potential supply chain improvement in efficiencies, resilience, and impact on carbon footprints will be the integration of real-time data and software, reports Chelsea ‘Chip’ White, PhD, H. Milton and Carolyn J. Stewart Chair, School of Industrial & Systems Engineering at Georgia Tech. “This integration will explicitly consider real-time control, based on real-time data using optimization or control software.”

Real-time information used for real-time supply chain control and optimization will be the wave of the future, continues White. “There are huge amounts of data coming in real-time because of IT from tractors, inventory systems, at customers’ sites, and at suppliers’ sites. Companies need to know how to use all of this information so that, in real-time, they can make decisions to adjust the way they control and manage their supply chains. We are backing into it without really knowing it as well as we ought to.”

These real-time decisions can help solve the age-old dynamic routing and dynamic touring for solving a dynamic traveling salesman problem, White explains. “I can give two operational examples. First relates to how to route trucks in an urban area from point A to point B through heavily congested areas. Rerouting can be done en route, based on current traffic data. Another example relates to pickup and delivery in a congested area. How about doing this dynamically as a driver arrives at one stop and then evaluates what the traffic looks like before deciding which stop to go to next?”

IT integration between merged and acquired companies is another area of concern, notes Dr. Robert Lieb, professor of supply chain management at Northeastern University in Boston. “There is no sign that global consolidation will end as retailers, manufacturers, and 3PLs get bigger. This means that companies are constantly involved in a process of trying to integrate the entities they acquire into their organization.”



Measuring ROI

All supply chain decisions should be justified in terms of their economic effect, advises Langley. When U.S. companies fled to China for their manufacturing requirements, the top reason was wages there were lower than anywhere in the world. “But what happens when a region becomes so popular its supply and demand causes wage rates to increase?” he asks. “You also have to recognize that you are a half a world away from North American markets and that there are consequential costs such as shipping from China at 12,000 miles away. This decision might not mitigate the labor savings because you have extra shipping costs, an impact of uncertainty in your supply chain, and you might have to carry safety stock close to your customers. So I am an advocate of making sure you identify the benefits as well as the hidden costs. In order to make a good decision based on ROI, you need to make a comprehensive calculation, which is a lot of hard work. If you really want to improve your customer service decisions, you can’t make decisions made solely on cost, where the service element is given lip service at best.”

Ratliff adds that companies should deal prudently with inventory. “What we have traditionally done is say the cost of inventory is some percentage of the value of the product,” he says. “That is true, just as long as you can get capital. But if you can’t, the cost of carrying inventory goes to infinity. So all of the analytics around inventory presume that capital is available and as long as this is true, your analysis works.”

The Goldilocks factor

The recession caused financial setbacks for many carriers and 3PLs, states Lieb. “So these companies are focusing on how to ‘right-size’ their organizations.” Lieb explains companies are examining their service profiles to determine whether their size is right, given the volatility of world markets. “Some companies brought substantial new capacity online just as everything began to fall apart. So the global recession was sobering and I think deciding what is the right size for those companies will be a major driver for global 3PLs and logistics companies.”

Gone is the old way of thinking relative to any customer being a good customer. This kind of thinking, explains Lieb, means that growth manages you rather than the other way around. “Companies are now looking at what is a manageable growth rate and they are a lot more astute in identifying industries and companies that are profitable to work with. I am seeing a lot of customer selectivity emerging where 3PLs and carriers will focus on a limited number of industries.”

Companies are collaborating with groups of customers or individual companies to make them more profitable by tailoring services, continues Lieb. They are also rethinking relationships with companies that had squeezed every penny out of them during the recession.

Trade hubs: lifeline to SMEs?

President Obama’s recent promise to double U.S. exports within the next five years means global trade will need to undergo some fundamental changes, notes Ratliff. “The way I see us doing this is getting small and medium-sized enterprises (SMEs) involved by creating major trade hubs in various geographical regions. The U.S. has not invested very much to help these companies do more exporting. It is not that SMEs don’t have products to export-it is just that the logistics, marketing, and financial aspects are difficult for them to handle, particularly when they try to get into markets they don’t understand. After all, most of our exports are done by big companies, with the top 250 companies accounting for more than half of all U.S. exports.”

A major driver for the focus on large regional trade hubs is the expansion of the Panama Canal, which will be completed by 2014, continues Ratliff. “This will allow bigger ships with bigger cargoes to pass through. Large ships are efficient only when they don’t have to make a lot of stops. So if they load at one location and unload at another location, their cargo can feed into these trade hubs and achieve greater efficiencies.”

Ratliff and his colleagues are currently developing a research center in Panama to determine how the region can be established as a larger trade hub than it is now. “It could be developed to be a stronger hub, particularly for U.S. exports. Our capability to do this very much depends on whether the U.S. government wants to invest in these kinds of projects.”

Near-sourcing: the new China?

White reports that ‘reverse globalization’ is becoming a trend as companies move away from China to other geographies for sourcing and manufacturing requirements. “This is happening as hidden costs begin to reveal themselves in these long global supply chains,” he explains. “When you consider the amount of variability involved and the length of time it takes to get from origin to destination, it becomes apparent that companies need to increase their buffer stock. This has changed inventory policies. Consequently, the amount of growth in trade with China is not as great as the amount of trade crossing the U.S.-Mexico border.”

China was a low-cost area a decade or more ago, when wage and benefit levels were low and there was an abundance of labor, notes Lieb. “Eventually what happens, regardless of where in the world you locate, is that as more and more businesses are attracted to the market, the price of labor rises. When this happens, companies tend to move to the next attractive location.” He reports there is much interest in stable African nations, expected to be popular locations for sourcing and manufacturing within the next decade.

Companies are rethinking their long distribution systems and sourcing patterns, particularly in response to the rise and fall of fuel costs, adds Lieb. “Near-sourcing is something we will see more of. It was going to happen anyway because of the rise in labor costs in China.” North American companies are considering pulling back into NAFTA, despite the instability concerns in Mexico. “They are looking at a replenishment cycle of only two to four days operating out of maquiladoras-opposed to a twenty-five day ocean voyage from China to the U.S.”

With companies still stung by the effects of the recession, they are considering shortening their supply chains and redesigning them with fewer links to take cost out of their networks. Lieb adds that another phenomenon is occurring in China as a result of the explosion of the Chinese domestic market. Specifically, “Some companies have decided to continue manufacturing in China, but instead of exporting the products, they are producing them for the Chinese market.”

Got talent?

Without a doubt, today’s global supply chains require nimble thinking and resourceful experts capable of managing the many moving parts that comprise a global supply chain. These requirements are markedly different from the skills and expertise managers required 10 to 20 years ago, notes Chris Caplice, executive director of MIT’s Center for Transportation & Logistics. “Because companies are operating across different cultures, geographies, and industries, they have to deal with soft issues,” he explains. “Supply chain management traditionally has been a hard, analytical type of practice where you are involved in activities that are well-suited to operations research and hard analysis such as optimizing routes and minimizing inventory costs. Now, it requires a more coordinated effort working with numerous partners. What had historically been a support, cost-based focus has now become more of a people-management and leadership role.”

Reflecting these changes, educators recognize that today’s supply chain curricula require a different approach. “One of the classic issues is that people in disciplines like sales think differently from supply chain guys, who are very analytical and operations oriented,” explains Caplice. “Teaching the supply chain guys that they need to employ relational leadership is the big challenge today; we need people who can work the correlations and do the math at the same time as they walk the corridors. I have never seen a project fail because the optimization didn’t converge or the simulation didn’t work. Today, it is about coming up with the right vice president to deal with the human side of the situation. You just can’t outsource the change management-someone has to lead in the change.”

Having recruited and nurtured these versatile individuals, companies cannot afford to lose this well-trained talent, especially when the organization invested lots of resources in that specialized training. Caplice recently ran a panel of five CEOs and asked them what keeps them up at night. “Every single one said it’s talent attraction and talent retention. Over the last two years or so there has been very little turnover across all industries because job opportunities have been scarce. Most companies have survived by keeping costs under control and by increasing productivity, but pay scales have remained largely flat. People were working harder, doing more, and being trained in other functions-without being compensated in a way that reflects these gains. When markets begin to open and companies begin hiring again, these people will jump ship and CEOs are worried about retaining the people they have trained so well over the last few years.”

The recession led to substantial layoffs in the supply chain management field, notes Lieb. “This means there is a lot of talent in the marketplace. The challenge for many companies as the economy edges back will be to re-staff and rebuild the logistics and supply chain infrastructure they had prior to the recess. This will be costly and time consuming.”

Managing disruptions

Supply chains should be resilient, with a business continuity plan (BCP) in place in the event of destructive events such as fires, floods, earthquakes, or other situations affecting supply chain operation, advises Ravi Anupindi, program director for the Master of Supply Chain Management at the Ross School of Business at the University of Michigan. “If something happens somewhere along your supply chain, you need to understand how you will recover from the event,” he says. “So you have to have a process infrastructure in place that can help you react to your warning system. For instance, you need to develop a mitigation plan and have a good risk engine that uses the event and the supply capabilities as input in order to assess the level of risk you face.”

The problem is that most companies are operating without such a continuity plan. “It is still nascent in the industry,” reports Anupindi. “The reason could be related to cost and to the infrequency of these events, which can lead a company to rationalize that these events add to the cost of doing business. When smaller events happen, companies just buffer their inventory.” The aftermath of any destructive event could have severe financial implications beyond lost revenues because by the time a company can recover from an event, it may lose significant market share.”

There are examples of well-prepared companies with a BCP in place who actually steal market share away from competitors by responding quicker to a destructive event occurring to a supplier’s supply chain, reports Anupindi. For instance, a few years ago a Philips NV microchip plant in New Mexico suffered from a fire that caused significant supply chain disruptions. Both Nokia and Ericsson used this supplier, but Nokia had a successful BCP in place that allowed the company to respond quickly to the disruption in their supply chain. Ericsson, unfortunately, was unable to react as quickly and suffered losses of over $400 million. Nokia quickly absorbed some of Ericsson’s market share.

Beyond the BCP, companies should understand just how resilient their supply chains are and which of their products are high-risk elements by understanding their product architecture, advises Anupindi. “For example, instead of single-sourcing a high revenue impact component, use more than one supplier. Ask why you use a single source and know if there is an alternate site where you can get that component. Have an assessment of supplier risk and product risk, and understand how much revenue will be at stake if there is a disruption to sourcing a particular product or component. All of this has to be supported by strong analytics.” Anupindi notes that successful companies move this kind of thinking up to the product design stage so design decisions can be made with potential supply chain risks in mind.

Changing mission

Another trend causing new challenges relates to the mission change, notes Caplice at MIT. “Supply chain management used to be a function devoted to a great extent on minimizing cost,” he explains. “That is still important, but these days the function also has to be a strategic enabler.” He cites the example of Chiquita, which had shipped primarily to supermarkets where bananas sell for about 60 cents a pound. “Now, you find that bananas are selling for $1 each at airports, Starbucks, and other smaller points of distribution. So, supply chains are being asked to be more flexible to enable certain strategies; this is a very different approach from the lowest-cost-per-unit mission. To hit the margins in being able to sell bananas for the same price as a candy bar at $1 each, your supply chain needs to deliver smaller shipments more frequently to many more points. The mission is no longer to create a supply chain that minimizes total cost-it is all about flexibility now. We are seeing more and more products moving to this approach because the demand is there.”

Another trend relates to how commoditized products like cell phones are becoming fashion items, continues Caplice. “The average life cycle for some of these products is only six months, which requires faster and faster turns. So, companies have to be able to respond quickly to fashion trends because they don’t know what will be hot or what will fail. This means you can’t rely on the old trick of building economies of scale and pushing inventory into your warehouses. The supply chain needs to be much more nimble and agile than ever before.”

Clearly, operating and managing global supply chains today requires strategies for collaboration that include people, processes, and technologies. “Those companies that have figured out how to collaborate effectively will be among those who achieve their business objectives,” says Langley. “Those who reject the essence of collaboration are destined to be among the ‘has-beens.’” wt



Contributing writer April Terreri writes frequently on a variety of transportation and logistics issues.

Sidebar: And the Top Trends Are...

We asked six noted supply chain experts and researchers from three universities-Georgia Tech, MIT, Northeastern, and the University of Michigan-what the top trends are in the industry. Here are their responses:



•    Supply Chain Optimization

•    IT Integration

•    Measuring Supply Chain ROI

•    Implementation of Collaborative Business Relationships

•    ‘Right-Sizing’ Companies

•    Developing Regional Trade Hubs to Facilitate SMEs in Global Trade

•    Movement toward Near-Sourcing-or Reverse Globalization-to Shorten the Global Supply Chain

•    Developing Appropriate Talent and Expertise

•    Managing Disruptions through Business Continuity Planning

•    Supply Chain Mission Change – Strategic Enablers

•    Relational Leadership Requirement

•    Firm Structure Changes

•    Sustainability

Sidebar: Supply Chain Sustainability

A ‘green’ supply chain is defined as encompassing the following phases: plan, buy, make, move, and sell, according to Ravi Anupindi, program director of the Master of Supply Chain Management Program at the Ross School of Business at the University of Michigan. “When you take environmental issues into consideration, not only does it affect how these phases are executed, it also expands the model to add the consumption phase,” he explains. “The environmental footprint of consumption is influenced by the product’s design-which in turn affects how the supply chain works in terms of cost, complexity, and efficiency. Environmental considerations also add a post-consumption phase of return, reuse, and/or recycle. Adding these phases in a supply chain starts a reverse flow, transforming the supply chain into a closed-loop system.”

Three key drivers for supply chain sustainability include regulation (or fear of it), efficiency, and customer opportunity, states Anupindi. “Today we know we can operate sustainably without it costing us more to do so. For instance, the lean revolution in manufacturing-with its focus on reducing waste-has obvious environmental benefits.”

Companies are discovering they can make business decisions that are not only good for their bottom line, but are good for the environment as well. For instance, companies are considering moving by rail rather than by truck whenever possible. They are also sensitive to reducing the amount of packaging they use to ship products. Doing this can result in getting more products on a truck, reducing the number of trucks required to ship goods and reducing cost and emissions as well.

Sustainability thinking should permeate the entire organization, advises Anupindi. “For instance, we learned from the quality movement that quality is not solely the responsibility of the quality control group. It is every employee’s responsibility. Sustainability could be a source of innovation in both process and product, and hence a source of competitive advantage.”