Logistics Quarterly Magazine - Volume 15, Issue 3, 2009 - Who’s Got My Supply Chain’s Back? - LQ Archives
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“Who’s Got My Supply Chain’s Back?”

Some pundits have called 2008 the “perfect supply chain storm.” Given this economic context, this article asks: how are many of the world’s global business leaders now evaluating risk, their vulnerability to it, and steps to becoming stronger competitors emerging from the recession?

By David Abney

For many thrill seekers, summer means roller coasters—the vertical crawl skyward in anticipation of the stomach-in-your-throat, gravity-defying plunge to follow.

For global business and supply-chain leaders though, the Ferris wheel may present a more appealing journey—a steady, sustaining ascent, gentle adjustments and pauses from time to time, and a panoramic, 360-degree view of the surroundings.

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In other words, the thrill of risk is no match for the steady predictability of meeting each quarter’s earnings expectations!

As we approach the end of the decade, a look back to the middle years —2005 to 2008—shows a relatively calm era of global expansion. Many supply chains continued their inexorable stretch across hemispheres described in Tom Friedman’s “flattened” world. Best of all, Gross World Product expanded an average of five percent a year, or an impressive $11 trillion.

Then in 2008, the global roller coaster cranked up and took the world for a wild ride. Early in the year, toys made in Asia arrived at U.S. consumer markets with defects, blind-siding major brands. Last summer, we found ourselves in the midst of a heat wave of rising energy prices and $4 gasoline at the pump. Pirates struck in the Indian Ocean and on Wall Street. And, last fall, the collapse of credit and housing markets pushed economies worldwide into a stunning free fall.

Some described 2008 as the year of the “perfect supply chain storm.”

In light of this recent history, the question becomes, how are many of the world’s global business leaders now evaluating risk, their vulnerability to it, and likely next steps to becoming stronger competitors emerging from the recession?

To learn their views, UPS sponsored a face-to-face and online survey of 350 C-level and senior leaders of global companies. The study was conducted by The Economist Intelligence Unit and released last fall.

The first thing we learned was that only one in six of the senior executives reported their company was prepared to deal with serious risk. Four in 10 said their mid-decade supply chain expansion and increase in complexity had outpaced their ability to manage risk.

The executives agreed that many risks in a global era couldn’t be anticipated—like geopolitical instability, terrorism and natural disasters. But they also cited a few they could see coming and that could be proactively managed, like impending environmental compliance regulations.

In terms of action steps, a priority often repeated by the business leaders centered on re-inventing relationships with suppliers.

In The World is Flat, Tom Friedman described those relationships as “outsourcing” and “insourcing.”

Those commonly used terms seemed to aptly describe the middle-decade requirements when cost often dominated in determining supply chain relationships. Our Economist survey respondents now say accountability for risk mitigation must share billing at the top of their priority lists.

Now the world partner—rather than outsourcer—may better describe a relationship that has the supply chain’s back by minimizing risk.

The senior leaders said they intended to narrow supplier partnerships to key, best-in-class specialists. The survey participants envision their suppliers evolving from a lean and mean supporting team to a dream team.

Of course, delivering supply chain value will always include cost-efficiency. But in a new, post-recession normal, value is also likely to be defined by financially solid partners who provide contingencies against the unexpected; who provide risk-management professionals who can make the right decisions at critical times; and who take the lead in developing and adopting sound environmental practices, along with developing tools to help customers do the same.

When you think about partnerships, great individuals have always been supported by partners who could help them meet difficult and unexpected challenges. Abe Lincoln led the U.S. through its most turbulent history with the help of one of the American presidency’s strongest cabinets; successful doctoral students rely on the guidance of teams of experienced academic advisors; and great golfers like Tiger Woods and Phil Mickelson have employed long-time caddies who’ve guided them around the world’s most high-risk golf courses.

These and other successful individuals have had partners who not only help them excel, but who also don’t let them fail. These partners bring resiliency to the value equation. Why should it be any different in supply chain success?

When it comes to resiliency from a transportation industry view, one expectation customers tell us is increasingly important—in many cases more important than speed—is predictability.

For example, a common risk factor for delay in ocean transport is port congestion. Hypothetically, let’s say it normally takes 27 days for a shipment to go from an Asian port to inland U.S. destinations if everything goes smoothly.

Then, let’s say in the event of port congestion gridlock, a transportation partner has the ability to re-route goods from west coast U.S. ports to southwest or southeast ports like Houston or Savannah and then transport by ground from there to inland destinations. This may take 32 days. But it’s a certainty.

Increasingly, customers are fine with a promise of 32 days for certainty versus 27 days and no plan B capability should there be a delay. The most important thing is to have a schedule everyone can count on and forecast to—the ability to deliver when you say you’ll deliver, no excuses. The transportation provider then has his customer’s back in terms of everyone’s expectations on the receiving end.

Another key to delivering resiliency is visibility and its supporting technologies. Visibility played a key role in UPS recently taking over the assets and operation of two former Merck distribution centers—one in Reno and one in Atlanta. The pharmaceutical maker now electronically tracks the flow of its supply chain from order to cash through UPS’s transportation network.

A transportation partner must be able to mesh its technology with customer systems to achieve 360-degree order-to-cash visibility across all transportation modes. It’s a big reason UPS has invested more than a billion dollars a year for the last 15 years in refining its operational and customer technology platforms and applications.

While technology is one formidable ally to the resilient supply chain, another is redundancy. The two-site, interchangeable distribution center model in the Merck example takes the “single point of failure” risk of bad weather or unexpected events out of the picture. And of course, when a company like Merck relies on a partner’s resources, it can take fixed assets off the books and improve return on asset ratios to strengthen the balance sheet.

Still another area of risk focus ahead for our Economist survey senior executives is establishing green practices throughout their supply chains. It’s a growing expectation voiced by a number of key constituents including: consumers, business customers, investors, and of course, regulators and lawmakers.

In light of that, it’s no surprise that nearly half of our respondents plan to step up the integration of sustainable environmental and social practices throughout their supply chains. It’s no longer a matter of “if.” It’s a matter of “what” and “how.”

The good news is that going lean often also means getting green. At UPS, practices to eliminate waste, reduce costs, and manage risks have yielded green benefits as well. Three notable areas in which UPS has embraced green practices across its transportation operations include: ground and air network fleets; packaging; and the design and retrofitting of buildings.

Within the company, we’ve launched a program called Decision Green to challenge our 425,000 employees to make decisions in their personal and work lives that reduce waste and conserve energy. More than nine in 10 of our employees say they’re now weighing environmental considerations as a value they bring to their day-to-day work.

For customers, we’ve developed a Carbon Footprint Analysis tool that provides them a greater awareness of their company’s overall impact on the environment. It gives them a road map to determine steps to take going forward.

The characteristics I’ve described—predictability, visibility, flexibility, redundancy and developing environmental sustainability—can all be instrumental in building resiliency into supply chains. They imply a change ahead in the metrics used to measure supply chain accountability.

Most of all, they point toward an evolution in supply chain leadership strategy that holds the promise of some long-awaited Ferris wheel satisfaction: steady gain and retention of customers, sustained revenue and profitability growth, and escalating shareowner value.

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