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The effects of social issues on the supply chain

The effects of social issues on the supply chain

While consumers might not consider it when doing a grocery run, there are many processes that go into delivering value to consumers. In 2021, the supply chains that service consumer markets involve many players and often span more than one country – if not more than one continent. The purpose of Supply Chain Management (SCM) is to improve the profitability of businesses by streamlining these processes. The supply chain has many aspects that need attention, not just the economic, technical and legal ones. The biggest of these is the growing ethical and social interest from consumers about how products are sourced, produced and delivered.

Moral Rules

Any product or process-related facets of a business that have an impact on human safety, well-being, and community development are considered to be social issues. Labor conditions, child labour, human rights, health and safety, minority empowerment (including marginalised groups), and gender are a few examples.

The Global Web Index confirms that consumer awareness around social and environmental issues is at an all-time high. NGOs and civil society are demanding ethical and accountable behaviour from corporate players and this mindset is beginning to reflect in consumer buying patterns as can be seen in the infographic below:

demanding ethical and accountable behaviour

As businesses begin to reimagine their chain of supply, the hope is (from a consumers perspective) is that this will lead to better standards of living, better working environments and guaranteed safety for workers globally which in turn should lead to a better world.

Ethical cunsumer

As companies start taking these social pressures more seriously, they should do so responsibly and with the right intentions. Consumers social expectations go further than just what stickers are placed on products and see through shallow brand promises made by those that just want to fill their pockets. What consumers want and expect from brands more than anything is long-term change and commitment.

While the average consumer may not have a full understanding of the intricacies of SCM, they certainly have their own subjective perceptions of businesses, suggests the Regent .

A Business Wire article further explains that consumers expect corporations to deliver goods and services and to deliver them against a commitment to ethical practices. Businesses who are ‘caught’ in controversy about the ethics of their operations face an inescapable reckoning across social and digital media platforms. Such controversies threaten to erode the consumer’s trust in the brand and with it their likelihood to purchase. For this reason, it is crucial that decision-making at all levels of the supply chain takes into account how best to address social issues.

At a surface level there appears to be great tension between the interests of external stakeholders who demand accountability and businesses whose goal is to improve profitability. Forbes suggests that if social issues are regularly considered in decision-making and processes in the supply chain, they can be a strength instead of a liability waiting to happen.

In conclusion, social issues should be factored into the SCM process in a way that attempts to balance the expectations of external and internal stakeholders. There are numerous ways in which this can be achieved, including through improved business reporting on corporate social responsibility (CSR), implementing codes of conduct, and collaborating with suppliers about social issues in a similar manner.

Developing a trust culture, fostering commitment, collaborating, and developing a solid foundation will be necessary for addressing social issues in the supply chain.

Logistics and Supply Chain Management when unrest hits South Africa

When unrest hits SA - IMM Blog Image

The recent unrest in South Africa and particularly in KwaZulu-Natal and Gauteng demonstrates how fragile the local, national and international supply chain and pipelines are. After experiencing the continued onslaught of COVID-19, the latest and almost unabated riots, pillage and attacks on people and property have created even greater impacts on general life in South Africa as well as critical shortages of food, medication, vaccines, fuel and other vitals in many suburbs in KwaZulu Natal and Gauteng. It goes without saying that political undercurrents can cause disruptions in sourcing, manufacturing and transportation in a supply chain, denying people of the fulfilment of much-needed physiological and security needs as per Maslow’s famous Hierarchy.

 

Supply chain management’s (SCM) solid foundation lies in logistics and the 13 activities pertaining thereto. Its main objectives are to get the right product, to the right place, to the right customer, in the right quantities, at the right price, in the right condition and very importantly the right time. When unexpected riots and mayhem occur, every single right is negatively affected because need-satisfying products and services cannot reach customers who have become deprived of possession utility, even though they have the means to pay for the offerings.

 

PicknPay Looting - IMM Blog Image

 

The thought of potential deprivation as a result of such havoc has the unpleasant consequence of herd behaviour, leading to Maslow’s hierarchy becoming almost meaningless as people procure not what they need but rather what they want. The resultant chaotic ‘feeding-frenzy’ behaviour plays into the hands of the perpetrators of the unrest as what little is left for the community to buy after the wake of the unmasked marauders’ looting, is selfishly purchased by inconsiderate consumers, without giving any thought to the elderly, the poor and needy, the infirmed and the shoppers behind them.

 

As mentioned above, because of the violent upheaval, the right products are not reaching desperate consumers and businesses resulting in even basic consumables such as bread, vegetables, milk, eggs and so on being deprived because of shortages at retail level and the hi-jacking of trucks trying their best to deliver their cargos.

 

The right places sadly have been burned down and destroyed and the content stolen not by the starving but by vandals who blindly obey those who are hungry for power. The right customers (in this case consumers and business owners) have been denied possession utility as the offerings are not being delivered to their retailers or even their homes (as a result of online buying), with the result that people are literally starving as the freebooters purposely and violently plunder the stores and transport trucks.

 

Because of the illegal actions of these uncaring ransackers, there is a dire dearth of food, mediation, fuel and essential services, resulting in the right quantities not being forthcoming, thereby providing selfish opportunists scope to charge what they will (up to R70 for a loaf of bread and R80 for a litre of petrol) … making a joke of getting offerings to customers at the right price. What does come through, when it does, is oftentimes of poor quality, especially perishable products such as fresh vegetables and fruit (not the right condition), which usually arrive late (if one is lucky), resulting in the products not arriving when customers need and want them.

 

Game Looting - IMM Blog Image

Although attempting to pen this comment is like shooting at a moving target, one thing is certain and that is the ramifications of this chaos, both social and financial, will be felt for years to come.

 

From a Supply Chain Management perspective, the once solid supply pipeline has become permanently fractured as offshore and onshore organisations ponder whether to operate under this fragile blanket of uncertainty, move offshore to a safer and more secure environment or even conduct business with South Africa at all. Either way, all South Africans will bear the brunt of escalating prices, longer and more uncertain lead times, input shortages and above all reputational damage that will take eons to heal.

 

Covid-19’s impact on supply networks is slowing down the fight against climate change

Solar Energy

 

covid-19Solar energy developers around the world are slowed down by a spike in the costs of materials, labour and transporting as the world economy recovers from the Covid-19 pandemic (read more about that here). . An Economic Times India article suggests the zero-emissions solar energy market is showing slower growth at a time when world governments are ramping up their efforts against climate change, and marks a reversal to growth after a decade of lowering prices. One of the greatest challenges to solar energy manufacturers is the soaring cost of steel, which has risen three times in the past year, not to mention the unsteady cost of transportation and the uncertainty of when materials will become available for manufacturing to continue. The pandemic has caused inflation to occur at a staggering rate and many industries are struggling to keep up.

What does this mean for climate change

An online poll by Power Technology readers showed that 54.1% believe a pandemic induced recession could hurt renewable energy development, which in turn, puts us further behind in addressing the climate crisis. With the Covid-19 outbreak hitting the global supply chain and single companies alike, renewable energy growth is expected to slow, with projects consistently being delayed or cancelled as a result. The consequence of this is globally the fight against climate change as per the Paris Agreement, will be put on hold for an extended period of time. While the pandemic has forced us to slow down, the rate of climate change has not. A Time article explains that “Every day, due to rising water levels, some part of the world must evacuate to higher ground.”

 

Climate Change

Demand for solar energy

The demand for solar energy is higher now than ever before. More countries are facing longer, hotter summers and the energy source itself can easily be distributed and rerouted into national electricity lines as Australia has already done. The booming demand for solar energy is however only as in demand as it is available and affordable. With the rising costs of solar energy materials and installations, more and more companies and individuals alike could turn it away for a longer period of time than what the earth can afford. Without renewable energy sources like solar energy, the world depends heavily on non-renewable sources like oil and coal. If we don’t act now, Octopus Energy predicts that global oil deposits will deplete by 2052 and coal and natural gasses are expected to last only until 2060 (read more here).

 

Global warming, pandemic

How the pandemic has affected global warming and in turn, slowed down supply chains

Global logistics industry leaders, EY, conducted a survey on the impact of Covid-19 on the industry and its effects on the job market. The report comes as no surprise that only 2% of companies surveyed stated they were fully prepared for the pandemic. 72% of those affected reported experiencing serious disruptions, while 17% reported significant disruptions (55% reported mostly negative effects). The graph provided by EY illustrates this finding.

Pandemic Chart

Although many employees were requested to work remotely, others – especially in factory settings – had to make new arrangements to ensure physical distancing and were required to wear personal protective equipment (PPE). High-tech industries and industrial products manufacturers are investing heavily in technology to limit employee exposure to COVID-19.  Additionally, 47% of all companies reported workforce disruptions due to the pandemic. These are just a few examples of changes affecting supply chains across various sectors. Thus it’s unsurprising that more logistics companies are looking to further empower their labourers through reskilling to help the workforce readjust to the new normal the pandemic has forced the industry into. A Price Waterhouse and Cooper report from April 2020 suggests that there has been a global decline in transport activity and this in itself has forced many workers in the supply chain to be jobless for months on end due to lockdowns. However, in 2021 it is evident that the demand for at-home deliveries has increased.

Conclusion

The Covid 19 pandemic has put immense strain on the world’s resources. Solar energy production has not been spared. We are already in a race against time to reverse global warming. We must seek ways to shorten supply chains by sourcing locally available materials to create renewable energy sources that are  sustainable and more robust against something as unpredictable as a global pandemic. Who knows when the next one could hit.

Supply Chain Management trends in 2021 to take us to infinity and beyond

Supply chain Man image

The number one factor to impact, well anything, in 2020 was of course COVID-19. Supply chains were not spared. International trade ground to a halt with the volume of Global trade in May of last year down by 17.7% compared to the same month in 2019, economies crumbled and global GDP for 2020 contracted by an estimated 4.3% and Supply Chain Managers were throwing their demand forecasts out the window.

GDP

The global pandemic has both battered the supply chain industry and at the same time brought to the fore how vital it is. Discussions that revolved around lean management and the almighty JIT system have been replaced with finding ways to make supply chains more resilient to change and more agile so as to be able to adapt to unforeseen change more quickly.

Here is what the experts are predicting will trend in the supply chain management industry in 2021.

The rise of the machine

Robots don’t get sick (although they too are susceptible to viruses) they also have a number of other advantages over humans: they work faster, don’t need breaks, and make less mistakes. Amazon currently has over 200 000 autonomous mobile robots (AMRs) moving stock around their warehouses. Drones are beginning to be used to make light deliveries and driverless trucks are about to come rumbling over the horizon. Development of these technologies will continue to grow.

Robot Image

But automation isn’t only about robots. It can come in the form of software too. Enterprise Resource Planning (ERP) software or Warehouse Management Systems (WMS) are helping more and more SMEs go paperless and improve their supply chains.

AI will continue to develop, and process more big data allowing Supply Chain Managers to develop more efficient systems, and make more accurate projections as well as respond to changes faster – saving time and money.

There will be more ways to track, manage and report on the exact status of inventory with technologies such as GPS and Radio Frequency Identification (RFID) tags. These developments in the Internet of Things (IoT) arena will feed data to AI systems so that they can develop process models which in turn will enable the robots to make more autonomous decisions.

Other digital developments that are being repackaged for use in Supply Chain management are Smart Contracts, which are transaction protocols that are meant to be executed when certain conditions are met automatically. Wider adoption of blockchain, with research suggesting it can save the food and beverage industry $31 billion by 2024 alone.

Cloud-based technology will enable users to work from anywhere and will be especially beneficial to smaller organisations that cannot afford to invest in costly and extensive infrastructure.

Automation

What about the humans?

The humans will be at home, not because they have been replaced by robots but rather because the COVID-19 pandemic resulted in many countries including South Africa enforcing strict lockdown periods. Many companies were forced to find ways to allow their employees to work from home and it is anticipated that this trend will continue. There are many advantages to working from home such as better work-life balance, increased productivity/better focus, less stress and avoiding the commute, to name a few. The lockdowns meant companies had to invest in infrastructures that could support remote working. There are of course also advantages for the organisations as they no longer have to facilitate a large staff contingency, and research has shown that contrary to initial fears, productivity as a whole increases when people work from home.

Human Image

SCM Dojo also predicts there will be more focus on employee development across the following 3 dimensions:

  • Technical Supply Chain Competencies (also includes Materials Management & Logistics)
  • Digital Supply Chain Knowledge, and
  • Soft Skills

The Age of Ecommerce is Upon Us

The combination of people being locked down and working from home resulted in an astounding jump in online retail purchases. Even helping to make Jeff Bezos the world’s first man with a net value of over $200 Billion. To put it another way ecommerce experienced 10 years of growth in just 3 months.

Ecommerce image

And this is not expected to slow down. In fact, a global growth rate of 8.1% is expected between 2020 and 2024 with Turkey in the lead with a 20.2% forecast.

 

Ecommerce 2

Source Statista

B2B online transactions will also grow and are expected to reach $1.8 trillion by 2023.

Consumers will also increasingly turn to their social media platforms for retail therapy with recent developments such as Facebook’s and Instagram’s Shops.

Disaster-proof supply chains.

Remember at the beginning of last year when suddenly toilet paper became a rare commodity, or when SAB had to dump millions of litres of beer because of lockdown?

Shelves Image

These are two classic examples of the unexpected impact that COVID-19 had on supply chains. Supply chains are now being re-engineered to be more agile and able to respond to unforeseen circumstances more quickly.

Organisations are using AI and machine learning to develop models that can be used to predict future events and prepare for it.

Organisations are looking to supplier diversification to bolster their supply chain. What this means is they are hedging their bets between international and local suppliers to get the best balance of price, production capacity, shipping costs, lead times and quality so that if one channel closes down they can increase demand on the other.

Conclusion

2021 will mostly be about recovering from the whirlwind that was 2020. It’s time to take stock and build better, more robust, agile and diverse supply chains. We will do it using robots, powered by AI and informed by IoT while we work from home on cloud-based systems and keep the wheels of commerce turning with our online purchases. Necessity has forced us to find new and innovative ways to overcome the roadblocks the pandemic has put in front of us and now we are set to leverage these solutions as the trends in SCM in 2021. The future remains a mystery but two things we know for sure: The world will never be the same and whatever the future holds, Supply Chain Management will, as always, be at the centre of it all.

Supply Chain Meme

Are you interested in a career in Supply Chain Management? The IMM has a number of Supply Chain Management academic programmes and short courses to suite your requirements and your pocket. Visit our website for more details or call us on 0861 466 476 to speak to one of our consultants.

IMM Launches Brand New Supply Chain Management Qualifications

IMM Launches Brand New Supply Chain Management Qualifications

Never before has the active integration and coordination of superior supply chain activities, that provide the best value for customers, been as important as it is right now. As an unprecedented 2020 draws to a close, with an uncertain future for businesses across the globe, it has become abundantly clear that competent and proficient Supply Chain Management (SCM) is a major catalyst when it comes to sustainable economic growth.

With this in mind, the IMM Graduate School has added two brand new, cutting-edge SCM qualifications to their offering. What makes these new programmes significant is that they are accredited by the internationally recognised Chartered Institute of Logistics and Transport (CILT); a first for any SCM qualification in South Africa. This offers valuable professional recognition worldwide.

The Higher Certificate in Supply Chain Management is an introductory course (NQF 5) which provides students with a holistic understanding of both supply chain and business management. Along with the CILT accreditation, the Higher Certificate is also accredited and registered with the DHET/CHE/SAQA.

The BCom Honours in Supply Chain Management is the most up-to-date SCM qualification in the world, with modules that cover many never before inclusions, namely;

  • A brand new, uniquely tailored SCM Management Synchronisation and Orchestration model.
  • Additional SLC’s in terms of SCM services not found in traditional textbooks.
  • An entire chapter devoted to Supply Chain Analytics, including all the formulae pertaining thereto.
  • A customer-centric downstream approach, as opposed to upstream supply partners.
  • Artificial intelligence, digitalisation and blockchain technology which is collectively covered for the first time in any SCM qualification.

The BCom Honours also includes the design of brand new responsive organisational structures hinging on the fact that so many companies are now working remotely due to Covid-19, an integral part of a future-focused approach to SCM, that is really only coming to light as businesses start to react to new ways of managing their structures. Also new to this particular qualification is an entire Ethics and Risk Management module, again stemming from a new approach to Covid-19 business practices, that no textbook in the world has yet included.

Registration for both programmes is now open, so for more information or to register please visit imm.ac.za.

Higher Certificate in Supply Chain Management

Higher Certificate in Supply Chain Management

SAQA ID: 117683

Our Higher Certificate in Supply Chain Management is an IMM Qualification on NQF level 5 and is quality assured by the Council on Higher Education (CHE). You have 12 months to complete the qualification although should you require it for whatever reason you may complete the qualification within 4 years.

Supply chain management is the management of the flow of materials, goods and services and includes the transformation process, which converts inputs such as materials and components into final products and services.

Logistics, which is an integral part of supply chain management, lies at the centre of almost every consumer requirement worldwide. In South Africa it is a scarce skill – the country is in drastic need of skilled talent in this field, with a shortage of somewhat 130 000 logistics managers recorded. One global study estimates that demand for supply chain professionals exceeds supply by six to one.

Once qualified you will have learnt the fundamental skills required to engage in the processes and inter relationships across the supply chain so as to create sustainable value for organisations. The Higher Certificate also provides you with a ‘foot in the door’ in a variety of industries that is desperate for these skills.

After completion of your Higher Certificate, you can continue your learning with IMM Graduate School and apply to do our BCom in International Supply Chain Management and then follow on with our BCom Honours in Supply Chain Management. Your learning path with IMM Graduate School is clearly laid out and will open many career opportunities for you.
I’m interested…

Qualification: NQF level 5. 135 credits
Duration: Min. 1 year. Max. 4 years.

Full qualification cost from:
R28 900*
View breakdown

Programme Exit Level Outcomes

There are seven learning outcomes in this programme

  • Demonstrate an elementary understanding of literacy with respect to academic writing, technology, numeracy and communications.
  • Display an elementary but broad scope of knowledge in the field of Supply Chain and be able to link supply chain activities to the functioning of organisations.
  • Associate and describe within a business context the systems within which organisations operate and be able to link these to supply chain opportunities.
  • Explain the typical elementary methods and procedures involved in supply chain.
  • Explain the theories typically applied in the field of business management.
  • Solve elementary supply chain and business problems in organisations.
  • Access, process and apply elementary business information, considering ethical behaviour.

CILT Logo

IMM Graduate School’s Higher Certificate in Supply Chain Management is accredited by the Chartered Institute of Logistics and Transport (CILT), the global body of international professionals for everyone who works within supply chain, logistics and transport.

Modules

The Higher Certificate in Supply Chain Management consists of seven modules:

  • Fundamentals of Supply Chain Management (20 credits)
  • Academic Literacy (15 credits)
  • Fundamentals of International Trade (20 credits)
  • Fundamentals of Transport and Logistics (20 credits)
  • Fundamentals of Operations Management (20 credits)
  • Fundamentals of Business Management (20 credits)
  • Fundamentals of Business Numeracy (20 credits)

Fees

Fees for Certificate ProgrammesSA Fee per module
New student registration fee (once-off payment)R1 950.00 (non-refundable)
Semester feeR700.00 (non-refundable)
Assessment fee per moduleR3 650.00

View other African country fees


* Assumes completion over a 1 year period and
** Prices subject to increases on an annual basis
* The above pricing applies to distance learning and excludes eTutorials and Contact Tutorials offered by the IMM Graduate School. For a complete breakdown of costing, please contact an IMM Graduate School regional office and we will be able to assist in providing you with a full cost breakdown.

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Bachelor of Commerce (BCom) Honours in Supply Chain Management

Bachelor of Commerce (BCom) Honours in Supply Chain Management

SAQA ID: 117085

Our Bachelor of Commerce (BCom) Honours in Supply Chain Management is an IMM Graduate School qualification on NQF level 8 and is quality assured by the Council on Higher Education (CHE) South Africa. The minimum time to complete this postgraduate qualification is a year and the maximum time is 4 years.

Supply chain managers are responsible for managing relationships with suppliers, manufacturers, distributors and the final consumer. In this role you will be involved in the production of the product, managing inventory and ensuring that the final product reaches the right customer at the right time. The key purpose of your role is to see that the needs of your business and customers are met.

With the supply chain arena struggling from a lack of suitable and available talent for management positions, companies worldwide are stepping up efforts to recruit qualified and skilled professionals for these roles. According to a survey by Deloitte Consulting, among executives of multinational companies, 71% reported difficulty finding senior leadership for their supply chains.

This qualification will empower you with the competencies (knowledge, insight, skills, values and attitudes) necessary to positively contribute to the management of a modern integrated supply chain. Once you have acquired these skills, there is a good chance that you will be snapped up or promoted into a management role.

After completion of your BCom Honours in Supply Chain Management, you will be equipped with the necessary knowledge and skills to manage and assertively approach a plethora of unorthodox situations in each of the core supply chain areas.
I’m interested…

Qualification: NQF level 8. 130 credits
Duration: Min. 1 years. Max. 4 years.

Full qualification cost from:
R49 430*
View breakdown

Programme Exit Level Outcomes

There are six learning outcomes in this programme

  • Evaluate advanced supply chain management integration strategies across organisations and companies.
  • Demonstrate an understanding of complex strategies and their application in supply chain management.
  • Demonstrate the use of a wide range of specialised skills to solve complex supply chain problems.
  • Conduct research with the aim of solving supply chain problems.
  • Demonstrate an understanding of the general principles of managing processes of purchase and supply, and the necessary information technology that underlie this, and to apply these principles.
  • Analyse the wider supply chain environment and identify the prevalence of risks.

CILT Logo

IMM Graduate School’s BCom Honours in Supply Chain Management is accredited by the Chartered Institute of Logistics and Transport (CILT), the global body of international professionals for everyone who works within supply chain, logistics and transport.

Modules

The BCom Honours in Supply Chain Management comprises of six compulsory modules and one elective module and is structured as follows:

Core Modules

  • Advanced Cost Management (20 credits)
  • Advanced Research: Theory (20 credits)
  • * Advanced Supply Chain Business Processes (20 credits)
  • Advanced Supply Chain Management (20 credits)
  • * Advanced Supply Chain Research: Report (30 credits)
  • Advanced International Trade (20 credits)

Fees

Fees for (BCom) Honours in Supply Chain ManagementSA Fee per module
Application fee for Honours (non-IMM Graduate School graduates)R730.00 (non-refundable)
Application fee for Honours (IMM Graduate School graduates)R365.00 (non-refundable)
New student registration fee (once-off payment)R1 950.00
Semester feeR700.00 (non-refundable)
Module fee (Excluding below)R6 500.00 per module
Advanced Supply Chain Research ReportR12 850.00

View other African country fees


* Assumes completion over a 3 year period and
** Prices subject to increases on an annual basis
* The above pricing applies to distance learning and excludes eTutorials and Contact Tutorials offered by the IMM Graduate School. For a complete breakdown of costing, please contact an IMM Graduate School regional office and we will be able to assist in providing you with a full cost breakdown.

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The relationship between, and the importance of, a Value Chain; a Supply Chain and Supply Chain Management.

SUPPLY CHAIN

By Dr Myles Wakeham and Annie Beckerling

The recent outbreak of the Covid 19 pandemic has highlighted the importance of Supply Chain Management (SCM), as a sudden increase in demand for certain products and a complete standstill in demand for others has left many suppliers reeling. However the man in the street can still find it difficult to distinguishing the features that contrast a value chain, a supply chain and finally supply chain management (SCM).. Although there is a strong relation amongst these three activities, there are key differences that make them stand apart from one another.

Essentially, a value chain is a set of activities that a firm performs in order to deliver need-satisfying products or services to a defined market or markets. It is also known as a high-level model of how businesses receive inputs and then processes such inputs via the conversion process (operations) into finished goods and services. This is achieved by adding value to the inputs in such a way that the morphed final offerings will hopefully satiate varying customer needs, better than the competitor. The ultimate objectives of the value chain are the appeasement of both customer needs and wants (in the form of superior goods and services), and, as importantly, revenue and profits for the enterprise.

Created by Michael Porter in 1985, the value chain consists of primary and support activities. Primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and service. The key goal of these activities is to create value that exceeds the cost of performing the activity, thereby generating higher organisational sales and profits. Support activities on the other hand comprise procurement, human resources, finance, technology development, and the firm’s infrastructure. These ancillary activities within Porter’s Value Chain, assist the primary activities by forming the foundation of the organization on which the primary activities operate. A support activity such as financial management for example is of great importance for primary activities as without finance, these activities cannot be performed. Likewise, without effective Human Resources Management, the organisation will not have the requisite human capital to produce the required goods and services, market them and finally distribute them to…

  • The right organisation.
  • At the right time they are need.
  • To the right person who will be using the goods; and
  • At the right price so that their delivery to the targeted end-customer via fellow supply partners will enjoy the value that the offering has been designed to deliver.

The strength that underpins Porter’s Value Chain Analysis is its approach, as it focuses on the customers as the central theme of the business rather than on departments or people. Being a system approach to operating a business, the system links other systems, people, departments and activities to one another and demonstrates how the approach impacts on value creation, costs and profits. Consequently, the analysis makes a clear picture of where the sources of value and loss of revenue can be found in the organisation.

The supply chain is the network of individuals, firms, technology and resources that are involved in the creation and distribution of offerings from the source of the inputs (raw materials, components and so on) via the distribution network to the final consumer. The main challenges of the supply chain, or better still the supply network, are the ever-changing needs of the consumer, its complexity (especially international supply chains), supply risk and as importantly supplier risk. The recent outbreak of the Covid 19 pandemic has underscored the importance of a smooth-running and seamless supply network as without it operating effective and efficiently, more people would have been struck down by the virus. This would have undoubtedly increased the morbidity and mortality rate throughout the world as well as the negative impact the outbreak has had on the global economy.

Supply chain management (SCM) is about creating value. Early efforts at managing supply chains often focused on cost reduction in order to make the chain leaner. Unfortunately, these efforts sometimes reduced the ability to create value thereby negating the key purpose of the supply chain. In essence, there is more to creating value through effective SCM than simply wrestling costs out of supply chain’s primary or support activities. Being an agile supply chain in a modern context, is probably more important than wrangling lower costs as it translates into quicker market entry and better customer service.

There should be value-creating activities that reinforce supply-partner and customer centrism. Because there can be many supply partners in the equation, managing supply chains requires a balancing act among competing and oftentimes self-serving interests. To illustrate this, note the following example. The seller of raw materials (supply chain inputs) would naturally like to enjoy the highest possible price he can muster from the manufacturer in order to maximise profits. The manufacturer on the other hand might probably demand to procure the goods at the lowest possible cost in order to be competitive in the marketplace after he has incurred the time and cost to produce the goods. It is these conflicting requirements that require supply partners to be flexible so that these opposing needs may be realize.

The above is underpinned by the advent of the recent Covid 19 virus and how the interest of supply partners can differ, even in a life-threatening emergency such as the pandemic. In the USA, where the outbreak has reached mammoth proportion, Federal and local governments competed for life-saving Personal Protective Equipment (PPE) hoping to procure such goods at the lowest possible prices. However, because of supply and demand issues, and pure unadulterated opportunism, sellers put up the prices of their PPE goods to exorbitant levels in order to maximise profits at the expense of the people who were ill and dying in hospitals and old age homes. The sad reality is that there was no cohesion and coordination on a macro scale regarding to the procurement and delivery of such essential equipment, apparel and medication. Instead of Federal Government (central government) acting as the catalyst for the acquisition of such goods and services, it competed against states and hospitals, thereby increasing the cost and delaying the delivery of the imported life-saving offerings from Europe and the East.

SCM can be defined as the design, planning, execution, control, and monitoring of supply chain management systems, with the objective of generating value by synchronizing supply with demand and measuring performance on an international basis. Where once it was considered to be a philosophy, in today’s terms it has become an essential business activity that is designed to ensure the delivery of superior value-add services so that all the players in the chain may benefit there from.

The supply chain, not only links organizations e.g. suppliers, producers, and customers. It produces upstream and downstream flows, which move products, information and payment (cash) out of and into organisations.

The value chain however integrates a variety of supply chain activities throughout the product/service life cycle; from the marketing function determining customer needs and wants, operations converting inputs into goods and services and finally to outbound logistics, which consists of order processing, warehousing and distribution. The main intent of a value chain is to increase the value of a product or service as it passes through stages of development and distribution before reaching the end user. So, through effective supply chain mapping and streaming, organisations in the supply network can accurately direct their mutual efforts at providing value-add services to the next-in-line customer. The above hopefully illustrates the relationship of the three critical business activities, their relevance and as importantly how they provide value to all the members of the network, including the end consumer.

Virtual IMM Fridays – Marzia Stropoli

Marzia Storpioli.

IMM Graduate School lecturer: Supply Chain Management.

Dior’s shift from designer clothes to designer face masks. How Supply Chain re-invent themselves to survive this pandemic.

Coronavirus and the end of the global supply chain

Coronavirus and the end of global supply chains
Coffee illustrates how complex supply chains have become ©MAURO PIMENTEL/AFP/Getty Images

Posted by Paul Simpson

Coronavirus has shown how fragile our cost-driven, just-in-time processes really are. With practitioners adapting to survive while planning more resilient systems for the future, will procurement ever be the same?

When the first container ship arriving from China at the port of Vancouver was cancelled in January this year, it didn’t seem particularly significant. By mid-March, when China’s struggle with Covid-19, aka coronavirus, had become so all-consuming that 30 more journeys had been cancelled, Vancouver’s port officials were facing a crisis of historic magnitude.

That consumer goods weren’t being unloaded from China as per the schedule was less of a concern than the fact that Canada, which usually filled those containers with lentils and peas, had two months’ worth of crops stuck in port (historically, roughly a third of Canada’s crops have been exported in containers). Imports were also disrupted: one local food company had to pay a premium for spices from Thailand which arrived a month behind schedule. Brazil’s coffee makers suffered too as the missing containers made it hard for them to ship their products to China.

The problems of countries and companies along just one shipping route indicate why some economists, notably Simon MacAdam at consultancy Capital Economics, are predicting a 20% dip in trade volumes this year. That is significantly worse than the last recession in 2009, when volumes fell by 13%.

The bottlenecks in Vancouver did not grab headlines in the same way as various countries’ difficulties in speeding up production of ventilator kits. But as Professor Tim Benton, research director of the Chatham House think tank’s energy, environment and resources programme, says, they remind us: “We have created a global supply chain that, for all its financial efficiencies, has very little resilience.”

Coffee is a case in point. One industry estimate, cited by The Economist, suggests that 29 companies across 18 countries need to collaborate to make “one humble cup”. That may, Benton observes, work financially for the companies concerned – and for consumers who can buy their favourite brand at a lower cost – but it cannot, in any true sense of the word, be described as efficient. A hurricane, strike or outbreak of coronavirus at any of those 29 companies could severely disrupt the supply chain, and the spread of the virus into Latin America has already led to huge spikes in commodity prices as buyers anticipate lockdowns and shuttered businesses. And that’s without the kind of surge in consumer demand that led to a rise of more than 20% in British supermarket sales during March 2020.

 

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All those photographs of empty shelves, explicitly condemning shoppers for panic buying and hoarding, obscure the fact, Benton says, that governments are hoarding too. “Kazakhstan banned exports of wheat flour, Thailand has stopped exporting eggs, Vietnam has suspended rice exports and Russia is talking about limiting grain exports to protect supplies,” he says. “It’s not clear how many more governments will follow suit, but if they keep putting their nation first, the
situation can only get worse.” Protectionist policies, coupled with panic buying, could create a self-perpetuating cycle of rising food prices.

What many analysts referred to as the “hidden costs of globalisation” were becoming visible even before the pandemic struck. “There was a clear sense that we had reached peak globalisation,” says Andrew Missingham, the co-founder of creative management consultancy B+A. “The political shocks of 2016, protectionist trade policies and climate change were already asking fundamental questions about that model.” Some of the foundations which businesses took for granted no longer exist in a pandemic age. “If you look at a business like ours, for example, it was predicated on three factors – the internet, cheap flights and free movement of people – and two of those no longer apply,” says Missingham.

Since the last global economic crisis in 2007-2008, many parts of the procurement profession have performed Herculean labours, protecting profits, companies and jobs by cutting billions of dollars in cost from the world’s supply chains. They did that, primarily, by seeking out places where they could make things at the lowest cost – often in China – and minimising inventory by applying lean manufacturing or ‘just-in-time’ principles.

The result is a global supply chain that is interconnected, intricate and sometimes unfathomable. As Duncan Brock, group director, CIPS, says: “The interwoven nature of modern supply chains means it is almost impossible to say for certain just how reliant we are on China for manufacturing and assembly.” Companies that placed such trust in Chinese suppliers that they used single-sourcing now face severe disruption.

Diverse sourcing strategies

“One key lesson from the pandemic is the importance of spreading the risk,” says Tim Lawrence, supply chain expert at PA Consulting. “Companies should avoid clustering suppliers in one region and around similar supply chains, reconsider whether it makes sense to create isolated supply chains and understand the location risks in every tier of the supply chain. Your supply chain may not be as diverse as you like to think – for example, your alternative suppliers may themselves be reliant on tier 3 or tier 4 suppliers in the same region.”

The obvious, if laborious, way to avoid such problems is to map your supply chain. “It isn’t easy,” admits Lawrence.

“It took Airbus five years to do it with the A320 passenger aircraft. And supply chains change so fast that the map might be out of date on the day you complete it, but digital technologies – especially 5G, data analytics and artificial intelligence – are proving increasingly helpful. They can improve visibility and connectivity, generate early warnings, and help free up supply chain leaders to focus on the strategic issues.”

Strategic questions would include assessing when it makes sense to keep the supply chain within the business. “There are certain components that are so critical to the business that the most secure supply chain might be to vertically integrate them,” says Lawrence.

As global supply chains hit bottlenecks many neither envisaged or expected, Missingham predicts: “We will see a lot more decentralisation, regionalisation and localisation.” Some pundits have talked of a ‘great reset’, where reshoring becomes the new norm. In an increasingly automated workplace, labour costs are no longer as critical when locating factories. Last year, multinational toolmaker Stanley Black & Decker shifted production of its Craftsman tools from China to Fort Worth, Texas, without increasing costs.

Brock expects new sourcing strategies to emerge but warns that any ‘reset’ will take time: “This may be the last straw for global sourcing as supply chain managers look local but, to put this in context, 290 of Apple’s 800 suppliers are based in China so such a strategy would take years to implement.”

Diversifying a supplier base is not always straightforward. Companies may be required, Brock says, to form alliances within their sector to develop new sources of supply where choice is limited or existing suppliers are clustered in the same region. Unilever has opted to protect the suppliers it already has, announcing a £420m cashflow relief scheme to expedite payments to SMEs in its network and offering credit to small retailers.

Learning just in time

Just-in-time manufacturing – reducing inventories to 15-30 days of stock or even less – has been a multi-billion-dollar boon for the global economy. Lawrence does not foresee a wholesale rejection of just-in-time or lean, but a reappraisal based on a more realistic assessment of the potential cost to the business: “There will be certain components and materials where you decide that it is more efficient, in the broad sense, to have six to eight weeks’ stock than three or four.”

Popularised by Robert Hall in his 1987 book Zero Inventories, the just-in-time philosophy always sat uncomfortably alongside procurement’s cautious ‘just in case’ approach to buying inventory. Dazzled by the savings, many companies ignored the fact just-in-time made it much harder for procurement to understand how extensive, responsive and opaque supply chains really were. This truth came home in February when a South Carolina hospital ran out of surgical gowns. Its traditional supplier in China had contamination concerns over its stock – not related to coronavirus – but when managers tried to buy replacements, with the pandemic escalating, they struggled.

But in the middle of a crisis this severe, there is also a temptation to overestimate how profoundly our behaviour as individuals, companies and organisations will change. The 2007-2008 depression signalled, as so many people forecast at the time, the end of the road for a certain type of free market capitalism. It seemed a reasonable proposition at the time but it didn’t work out that way. The idea of getting back to ‘business as usual’ can induce a certain complacency.

In this crisis, many managers – not just in procurement – will argue that nobody could have seen this coming. That is true, up to a point. Nobody could have predicted how quickly and radically Covid-19 would change the way we live and work. Yet, for those companies which were paying attention, the signs were there to be interpreted.

The US grocery chain H-E-B began monitoring what was happening in China in the second week of January. After two weeks of analysing various sourcing reports and maintaining close, constant contact with companies in China, the retailer redrafted the disaster plans it had used for the swine flu outbreak in 2009 and Hurricane Harvey in 2017 to confront coronavirus.

As Craig Boyan, H-E-B’s president, told Texas Monthly: “Chinese retailers sent some pretty thorough information about the early days of the outbreak, how that affected grocery retail, how employees were addressing sanitisation and social distancing, how quarantine affected the supply chain, how shopping behaviour changed and what steps they wished they’d taken to get ahead earlier in the cycle.”

Using that information, H-E-B promptly took various steps: forming a remote working committee to coordinate policy and actions, reducing opening hours to give more time to put product on shelves, rationing certain product purchases and paying local beer distributors to bring eggs to its stores. Even so, Boyan admits, they did not resolve every challenge: “We’re still struggling to get eggs and we still have a hard time understanding why toilet rolls were the first things to go out of stock.”

Planning to fail

If the coronavirus is a black swan event, there is an obvious temptation to plan on the basis that it will never happen again – or at least not in our working lives. The call of the next quarter’s targets can often sound more compelling, but Lawrence says supply chain leaders need to change their mindset. “It is easy to focus on the small things that happen often, or may come up in the next three to six months, and plan scenarios for those, but to be honest you could delegate that task to the technology. As this pandemic shows, it would pay companies to look at the really big things that don’t happen very often and run scenarios for those.”

Understanding risk is partly about what supply chain leaders know but also, Missingham says, about what they do with what they know: “People working in supply chains are, in my experience, real experts in the people, challenges and opportunities they face – be that individual components or particular raw materials. The problem is that that knowledge is too narrowly held within organisations. In future, one of the important jobs for supply chain specialists will be to educate a broader part of the business.”

Covid-19 has shed an unforgiving light on every flaw in the world’s supply chain. The pandemic has shut factories, stalled shipments, fuelled labour shortages, closed borders and will, the United Nations estimates, cost the global economy at least $1trn. “In times of crisis and uncertainty, it is hard for businesses to plan but supply chain managers who act now and keep a close eye on such data as the purchasing managers indices as they make plans can mitigate the damage,” says Brock.

Yet in future, when supply chain leaders have the breathing space to think, let alone plan, for the long term, they might conclude that prevention is the best form of mitigation. Companies which neglect the opportunity to fundamentally rethink their supply chains do so at their own peril.

That is especially true, Benton argues, when it comes to defining a more sustainable, healthy and environmentally friendly food production system.

As he says: “The question is not ‘will it happen?’ The question is ‘when will it happen?’ We could have started to create a sustainable, equitable and nutritious food system in 2003, after the outbreak of SARS. It could happen now or it could happen in 10 years’ time when the next crisis occurs, but for the sake of our health, and the health of our planet, it cannot not happen.” What goes for the food industry, you suspect, goes for the other sectors of the global economy.

Article originally published on https://www.cips.org/supply-management/analysis/2020/april/the-end-of-the-global-supply-chain/