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.
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:
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.
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
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.
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.
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.
The marketing and supply chain management interface: A marriage of convenience
Supply chain management and marketing are inextricably linked, write DR MYLES WAKEHAM and CARL WAKEHAM. Organisations should use their supply chain management capabilities and capacities as a basis to support and build their brands and ultimately strengthen their marketing mix strategies.
Supply chain management (SCM) is the process and activity of sourcing requisite inputs that an organisation requires to create need-satisfying products and service, and the ultimate delivery of such offerings to targeted customers such as businesses, intermediaries (retailers and wholesalers) and consumers.
SCM is the inter-woven co-ordination and integration of the flow of materials, information and money and includes the various logistics activities, the transformation process (operations) and finally, business processes. Without effective SCM, organisations cannot deliver on the promises that they make to their customers; nor can they deliver superior value and cost reduction, which represents the mantra of effective and efficient SCM.
Poor supply chain management results in the failure of all organisational strategies, including the marketing strategies that are designed, implemented and controlled to appease the needs of up and down-stream supply chain partners and customers.
Marketing, on the other hand, is the activity, set of institutions and processes for creating, communicating, delivering, and exchanging offerings that have value for targeted customers and society at large. It is therefore focused on anticipating customer needs and then satisfying them and that of the organisation by creating and selling need-satisfying offerings.
SCM focuses on the efficiency of supply by reducing costs, and the effectiveness of supply by generating superior customer service and value relative to competitor endeavours. Marketing, however, is more focused with the demand side of an organisation, although it has a major influence on product design, and therefore is also strongly related to the inputs of operations, which are converted during the transformation process into finished goods and services.
The synergies between marketing and SCM are therefore strong as collectively they can be used to create a sustainable competitive advantage by boosting customer value, reducing costs and by providing better-than-foe customer-centric service, which, can translate into increased revenue and profits. In essence, the co-dependence of SCM on marketing and vice versa is so close that without SCM, marketing strategies will never be realised as SCM has a powerful influence on all four of the marketing mix variables, namely, product, price, promotion and distribution (place).
In terms of the four Ps, marketers produce products that are desired and needed by customers at a price that that they can afford and which will provide value-for-money. They use promotion to create awareness of their offerings, then attempt to generate product trial and re-trial so that their customer may hopefully morph into loyalists and product and brand advocates. An important additional aspect of the marketing mix is place (distribution), which allows marketers to deliver the right product, to the right person, at the right place, at the right time, in the right condition, in the right quantities and at the right price. In reality SCM provides time, place and possession utility whereas marketing facilitates form utility as it is associated with the conceptualisation, design and the development of physical offerings.
The great divide
The major problem with the great divide between SCM and marketing in many organisations is that supply partners, and particularly manufactures, have scant visibility of the demand side of the business. This leads to inaccurate forecasting, the underutilisation or overloading of organisational capacity, the carrying of too much or too little stock (resulting in either increased carrying costs or stock outs), an escalation in costs and finally poor service delivery. The argument for combining supply chain management and marketing is a compelling one as marketing endeavours have a significant impact on SCM.
For example, pricing, promotion, as well as product mix variables impact profoundly on supply chain costs and delivery times; whereas, supply chain costs strongly influence organisation’s profitability, which could result in a drop in product innovation and revenue. Therefore, if organisations integrate SCM with marketing they can outperform their competitors on a wide range of performance criteria such as revenue growth, market share, customer service, customer acquisition and retention and return on assets (ROA).
There is little debate that marketing’s strength lies in understanding consumer behaviour and the factors, which affect the way in which customers perceive value. Its strength also lies in the uncovering of the differing needs of various customer groups (market segments), the translation of them into product and service bundles to meet those differing wants and needs by means of the facilitation of customised products and services production and the marketing of the offerings through customer value propositions.
If both sides of supply and demand are individualised and separated, the supply side will view demand as having an external origin and will fail to recognise that demand is influenced by the organisation’s customers pull and interface. In addition, if consistent and timely information does not flow from the downstream customer to the supply side of the equation, the organisation will not be able to respond to the differentiated needs of individual customers and customer segments.
Differentiated demand for products and services is a key input to supply chain management as without these outputs there will be little need for SCM. The consequences of such information gap are substandard product and service development, and ineffective product and service delivery. Stock-outs caused by the mismatch between the demand and supply and the high price of products due to inefficient supply chain management will definitely have a serious impact on the brand’s reputation and as importantly revenue and profits.
The impact of SCM on the marketing mix
The impact of SCM on the marketing mix variables, as asserted before, is profound. From an offering (product or service) perspective, the organisation needs inputs such as raw materials, components, spare parts, energy, information and other required injections that are required to produce stock and services.
Supply chain facilitates such inputs by selecting qualified and reliable suppliers who provide affordable materials for the transformation of customer-needed outputs. Procurement, which is an important SCM function, ensures the end quality of the final offering by bringing in quality raw materials and other requisite augmentations. An integral part of a product is the brand under which it falls.
For example, Toyota as a world-renowned brand has several products under its ‘umbrella’ namely Corolla, Tazz and Fortuna etcetera. With brand strategy in mind, it is not possible to build a successful branding strategy by solely focusing on logos, slogans or advertising campaigns while ignoring the role of supply chain management.
Organisations should use their supply chain management capabilities and capacities as a basis to support and build their brands and ultimately strengthen their marketing mix strategies. It can ensure that the organisation’s brand is not undermined by fulfillment deficiencies in the supply chain. SCM has the strong impact on the organisation’s marketing mix strategy as it greatly influences brand promise, the customer buying experience and overall customer value proposition.
Hence, an organisation’s brand promise must align with its supply chain management capabilities. It is necessary for marketing managers to pay more attention to their supply chains. They must be accountable for aligning the product and brand promise with the organisation’s supply chain management capacity and capability, as it has a powerful impact on its customer value proposition.
SCM also has a marked influence on price as procurement, transportation and warehousing ensure that the aforementioned inputs are secured as inexpensively as possible and when and where the buying organisation needs them. As the final price of goods include fixed, variable and semi-variable costs, plus the requisite level of margin, if SCM input costs increase, the price of goods and services will likewise escalate, which could drive customers away to opposition offerings.
It could also reduce profits of the organisation if it bears the escalation. Transportation, as stated before, essentially provides time, possession and place utility, which could have a dramatic impact on price if fuel prices in RSA continue to increase and if interest rates rise, which could affect the lease payments of capital goods such as trucks, warehousing and so on.
SCM is already involved in the organisation’s place element of its 4Ps. Distribution includes (amongst other logistics activities), warehousing, customer service and transport. Warehousing comprises of activities relating to the space needed to hold or maintain inventories. Goods must be stored for later sales and consumption, unless customers need them immediately.
Generally, the greater time lag there is between production and consumption, the larger the amount of inventory is required. If a business can consistently provide its customers with the desired quantities and quality of offerings, where and when they are needed, it can gain market share over its competitors. A business might be able to sell its offerings at a lower price as a result of logistics efficiencies or provide a higher level of customer service as a result of logistics effectiveness or both; thereby gaining a competitive advantage. Tied in with warehousing and customer service is the important logistics activity of transportation.
Once the product is released from the warehouse, it needs to be distributed, based upon its distribution strategy (sole, limited and intensive). Transport as can be expected is needed to get the offering to the targeted customer, be it a business, an intermediary or a consumer. Warehousing ensures that the right quantity and quality of final goods are delivered post production, which ensures that customer service is being generated. Therefore, SCM plays an important part not only in the storage and delivery of the final good but also the transportation of inbound inputs, which are needed by production/operations to create end products for the consumer.
Although not sufficiently recognised and acknowledge, the last P in the marketing mix, namely, promotion and SCM should have a strong interface. Much promotion that is undertaken by organisations tends to concentrate on the features, advantages and potential benefits of a product or brand and very little is used to promote the services which should accompany the brand, namely on-time-in-full delivery.
Synergy between SCM and promotions
Many organisations lack the synergy between SCM and promotions. A central aspect of many organisations’ marketing communication strategies is to issue pamphlets, direct mail and advertisements to attract customers to stores (a pull strategy). Such promotion normally increases store traffic but if the marketing drive is not supported by SCM, customers might find that the items on sale are not there and could leave the retail outlet disgruntled and dissatisfied.
This is particularly the case when marketing goes on a two-for-one campaign to find that production and logistics cannot keep up with the surge in unexpected demand. There is a threat that after repeated experiences of this nature, customers might ignore promotion campaigns and even migrate to retail outlets that offer more reliable service and product access.
There is strong emerging evidence that the way a marketing mix strategy is designed and the way in which organisations support it with their supply chain management capabilities can be a real source of competitive advantage or a marketing and SCM nightmare. The success of an organisation’s marketing mix strategy depends on fulfilling the promise of delivering the right product to the right place at the right time.
An organisation’s SCM strengths, capacities and capabilities can make or break its ability to fulfill a promise that is made to its customers. As a result, SCM has a powerful impact on the success or failure of its marketing mix strategy. Organisation’s, irrespective of what they produce (product or service), should regard supply chain management as a market strategy differentiator, a customer service differentiator or as a profit center, as opposed to strictly a cost of doing business. SCM should therefore be seen not as a cost but rather as an investment in the brand and the organisation as it assists to enhance ROI.
Supply chain managers should have clear understanding of the SCM and marketing interface and their roles in the effective execution of their organisations’ marketing mix strategies. In short, marketing managers should know their organisations’ supply chain management capacities and capabilities and their limitations while supply chain managers should know the firm’s brand promises and marketing strategies, and as importantly their roles in fulfilling them. By doing this collectively, its transforms the organisation from a mediocre institution to one that is customer-focused and demand driven.
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Cyber-threats are increasing with the transformation of digital life in the wake of the pandemic. A risk-based approach is needed to safeguard the software and systems that underlie digital supply chains. The procurement process, third-party agreements and source code are areas of concern, write GEORGES DE MOURA and CHRISTOPHE BLASSIAU.
The ongoing digital transformation has opened up a whole new way of living and working. As deeper performance insights and new levels of connectivity allow businesses to reap the benefits of breakthrough technologies, the world is becoming faster, more flexible and more efficient.
This shift is creating a global ecosystem where physical and digital things are increasingly connected, from critical infrastructure assets to people and data.
A study by Gartner finds that in 2019, 60% of organisations worked with more than 1 000 third parties, and those networks are only expected to grow. Other research by Deloitte shows that 40% of manufacturers had their operations affected by a cyber-incident during 2019. And in 2018, the average financial impact of a data breach in the manufacturing industry was $7.5 million.
Moreover, global technology supply chains are increasingly diverse and complex, resulting in changes in the overall risk for critical systems that support national defence, vital emergency services and critical infrastructure.
In December 2020, a global cyber-intrusion campaign was uncovered by a leading cybersecurity firm that compromised first the source code and then subsequently updates to SolarWinds’ Orion Platform, a widely deployed IT management software product. The corrupted update was downloaded by thousands of SolarWinds customers and spanned US government agencies, critical infrastructure entities and private-sector organisations. Though this cyber-attack may be unprecedented in scale and sophistication, it is consistent with a number of persistent trends in using supply chain vectors. This incident further reinforced the threat to global digital supply chains and the strategic imperative for public and private sector stakeholders to ensure trust in the digital ecosystem. It is critical that the software that drives the digital ecosystem is both trusted and secured. By reducing the risks and protecting the digital economy, our society will be able to realise the digital dividends of the Fourth Industrial Revolution.
The following core principles will contribute to a more secure and resilient supply chain and help move the needle on mitigating this complex and multifaceted challenge:
1. Embed security and privacy in the procurement process and life cycle Having a mature third-party risk-management policy and practice will ensure cybersecurity and privacy are constantly considered and addressed with mature, consistent, repeatable and effective measures. These three precepts will embed them in every phase of the life cycle: Cybersecurity and privacy are built-in requirements of the procurement processes from sourcing to off-boarding All procurement contracts shall stipulate and contain clear and precise clauses that enforce continual compliance with cybersecurity and privacy requirements. Security and privacy obligations shall be continuously reviewed and optimised to keep up with the evolving threats.
2. Take a risk-based approach in assessments of third parties A risk-based approach will help guide the third-party acceptance/rejection decision-making process, and helps efficiently and accurately mitigate cybersecurity threats third parties pose to the broader ecosystem. A risk-based approach improves the assessment of third parties’ security posture. By applying risk measurement and ratings tools and other trusted methodologies, organisations can better identify and rank third-party relationships by risk criticality. It ensures an accurate appreciation of risk, helps establish the measures third parties must take to mitigate their risks before entering an agreement with an entity and enable regular and/or continuous security performance monitoring. It contributes to a collaborative and valuable outcome for an organisation and its broader ecosystem. It helps tailor mitigation plans and scale efforts and resources that ensure trustworthy, secure, privacy-protective and resilient products, systems and services. But it also helps third parties better understand gaps in their own security posture and, ultimately, demonstrate their cybersecurity maturity to their customers and stakeholders.
3. Implement a source code policy and secure-by-design development Such a policy aims to reduce the risks around the development, management and distribution of software and software source code, which must go beyond defending intellectual property and address customer impact. It will help protect and strengthen trust in the digital ecosystem so businesses, governments and individuals can all have trust in, contribute to and benefit from the digital economy.
The policy should apply to all source code written by or on behalf of an organisation and must ensure that any source code is not tampered with, does not contain any known unmitigated security vulnerabilities and contains a licence that is compatible with the company’s other policies. It also prevents source code from being dynamically linked to third-party hosted source repositories. When third-party code is used as part of a software/firmware solution, the organisation is responsible for change management as part of a secure development process.
The policy also controls and governs all aspects of how the source code is stored and transmitted, including, but not limited to authorization and access, residency, protection at rest and protection in transit. Ensuring compliance to this policy will help reduce the threat of source code leakage, improves secure access and enables the traceability of any third-party code. Additionally, source-code development must include security and privacy in the design phase, and evidence of threat modelling must be documented.
The policy should be based on widely recognised frameworks such as the NIST framework to establish secure-by-design development practices, covering four areas: 1. Ensure that the organisation’s people, processes and technology are prepared to perform secure software development at the organisation level and, in some cases, for each individual project. 2. Protect all components of the product from tampering and unauthorised access 3. Produce well-secured products that have minimal security vulnerabilities in its releases.
4. Identify vulnerabilities in product releases and respond appropriately to address them and prevent similar vulnerabilities from occurring in the future.
By regularly assessing the security posture of third parties, from early sourcing stages, to security due diligence and periodically throughout the duration of a collaborative relationship, an organisation will be able to maintain trust with its customers and business partners across the supply and value chains.
A common understanding and approach to existing and emerging threats will enable industry and government actors to implement appropriate countermeasures to mitigate supply chain security risks. In the fallout of the SolarWinds incident, it is crucial all stakeholders in the supply and value chains embrace a risk-informed cybersecurity approach to ensure a secure and resilient ecosystem.
The IMM Graduate School, one of Africa’s foremost online education providers specialising in marketing, supply chain and business disciplines, has added two new supply chain management qualifications to its arsenal: A Higher Certificate in Supply Chain Management and BCom Honours in Supply Chain Management. For more information, click here.
Global technology supply chains are increasingly diverse and complex, resulting in changes in the overall risk for critical systems that support national defence, vital emergency services and critical infrastructure.
By reducing the risks and protecting the digital economy, our society will be able to realise the digital dividends of the Fourth Industrial Revolution.
BIO Georges de Moura is Head of Industry Solutions, Platform for Shaping the Future of Cybersecurity and Digital Trust at the World Economic Forum. Christophe Blassiau is Senior Vice-President, Cybersecurity and Global CISO, at. Schneider-Electric.
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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.
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.
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.
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.
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
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.
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.
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?
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.
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.
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.
Leveraging your supply chain to ensure a burgeoning bottom line
The IMM Graduate School is adding two new SCM qualifications to its arsenal: A Higher Certificate in Supply Chain Management and BCom Honours in Supply Chain Management. They will be accredited by the internationally recognised Chartered Institute of Logistics and Transport, a first for any SCM tertiary qualification in South Africa.
Although supply chain management (SCM) and the pivotal role that it plays in business hasn’t always been widely recognised in the past, an unprecedented 2020, with its Covid-19 pandemic, has made it abundantly clear that competent and proficient SCM is a significant catalyst when it comes to economic growth, both locally and internationally.
So, what is SCM and how are businesses able to embrace the ongoing learnings from last and this year and leverage their SCM to make their bottom line swell?
SCM practices are essentially the management of upstream and downstream activities with maximum efficiency, with a view to amplifying the customer experience and enhancing customer value. The aim is to achieve not only a sustainable competitive edge but also one that is superior to competitors within the same class of business.
Upstream activities relate to the source of the business’ inputs – such as raw materials, suppliers and the processes for managing important supply chain partner relationships effectively and cost effectively. In contrast, downstream activities consist of the business’ processes associated with the distribution and delivery of final products to the final consumer via the organisation’s distribution channel. Competent SCM also includes the management of procurement (inputs), operations, warehousing and transportation logistics.
Traditionally, organisations could rely on the loyalty of their customers, but increasingly, a shift towards service delivery instead of brand loyalty has become the first and foremost differentiator in customer expectations – and buying patterns. It’s worth remembering B2B customers are not as brand loyal as consumers.
So, back to the original question – how can businesses leverage their SCM to reduce costs, grow their bottom line and retain customers?
New thinking needed
For a start, new thinking is needed with a definite shift in the application of old methodologies. With elongated supply pipelines, increased supply and supplier risk and extreme fluctuations in currencies, the only true way to maximise the benefits of SCM strategies are to ensure superior customer value, service delivery and the management of the integral logistical functions within the SCM cycle.
The adage of the customer is king has never rung so true, and the fusing of high-quality operations and superior customer service will be the clincher when it comes to distinguishing features what features in the eye of your consumer.
Service SCM is one of the highest growth areas worldwide, so it is evident that although there are still substantial skills shortages within the field globally, businesses – nationally and internationally – are realising that services SCM is most definitely the key to improving overall company performance.
“It doesn’t matter if you’re a small or large organisation, proficient SCM provides an open-ended opportunity to enhance the customer experience,” says Marzia Storpioli, lecturer at the IMM Graduate School and leading subject matter expert. “The value added by excellent service, delivered by an agile and responsive supply chain, will most certainly result in far greater customer retention – something each organisation is desperately seeking.”
Mitigating risk and introducing further success into an organisation’s SCM strategy means taking a hard look at management practices. Technology plays a massive role in today’s markets and for any business to have a hope of remaining competitive, the appropriate technology processes and systems must be put in place.
The technological advancements associated with the Fourth Industrial Revolution (4IR) – which include artificial intelligence (AI), robotics, Internet of Things (IoT), automation, blockchain and cloud computing – are disrupting and transforming all end-to-end processes within the supply chain. Business leaders can no longer focus on developments and trends in their sectors alone but need to understand potential transformations and disruptions in the entire world of suppliers, customers and markets.
Education and training a vital component
Education and training are vital components in the understanding of the complexity of SCM, especially as company leads start to realise that process and system changes – which will impact their suppliers, markets, capabilities and daily operational readiness – must be implemented if they want to stay ahead of the curve.
The IMM Graduate School, one of Africa’s foremost online education providers specialising in marketing, supply chain and business disciplines, is adding two new SCM qualifications to its arsenal: A Higher Certificate in Supply Chain Management and BCom Honours in Supply Chain Management.
“The key differentiator to the standard SCM modules and the postgrad offering will be the accreditation by the internationally recognised Chartered Institute of Logistics and Transport (CILT), a first for any SCM qualification in South Africa,” explained IMM senior lecturer and researcher and SCM subject matter expert, Dr Myles Wakeham.
“Along with a full spectrum of groundbreaking educational modules, offering a new perspective on SCM in light of global changes, a module solely dedicated to AI, digitalisation and blockchain technology will be introduced for the first time in any SCM course. Another progressively innovative module will address ethics and risk management in the supply chain, which has to date, seldom been included in any learning material within any SCM course.”
As the world settles into its ‘new normal’, companies will fall into two very divided categories. Those that don’t learn dig their heels in and hope that there will be no further disruptions. Then there are those that have learned from this economic crisis and invested in their future by interrogating their systems, supply networks and customer service standards to redefine the road map, so that afore-planned objectives may be reached with solid solutions if and when new disruptions occur.
It really is clear to see which out of the two strategies will emerge as the winner.
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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.
Coronavirus and the end of the global supply chain
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.
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.
The competition is no longer between brands or even between companies; it is between supply chains (networks). Supply chains in the time of coronavirus have changed, possibly forever. MARZIA STORPIOLI reports.
Supply chain management has been likened to a philosophy, a concept rather than an essential service.
Historically, companies relied on strong brands and good products to win over the consumer. Competitive advantage was gained by the organisation based on the strength of its brands and its reputation for quality products.
But as the COVID-19 pandemic continues its inexorable march across the globe, supply chain management is no longer being considered merely a concept, but rather a life-saving essential service used for the cohesion of all supply chains so that they may work in concert with one another in order to satiate the needs and wants of people and businesses at all times, including times of crises.
It’s useful to remember wars have been won and lost by the implementation and control of either effective and efficient supply chain management, or the lack of using it to its full potential, as was experienced during the Napoleonic Wars and World War ll. There is little doubt that the post-COVID-19 world will be decidedly different to life as we knew it prior to this scourge befalling us.
There’s no doubt most nations were caught unprepared by its rapid advance. In South Africa, consumers – like those across the globe – adapted their buying behaviour to “cope with this rapidly evolving situation”, as Nielsen researchers put it.
Retail outlets – supermarkets, pharmacies and wholesalers – were unable to satisfy consumer demand for sanitiser products, demonstrating the inability of supply chains within South Africa, and globally, to respond to a meteoric increase in demand for hand washes and sanitiser products, household and industrial bleaches and surface cleaning solutions driven by the global crisis.
Just-in-time (JIT) and lean manufacturing, once seen as the pinnacle of achievement in supply chain performance, may no longer be effective. They were implemented across most global supply chains in the face of mounting pressure to reduce supply chain costs – the aim being to continually strive for increasing levels of efficiency while reducing costs overall.
Efficient, but not robust
These supply chains are operating on razor-thin margins, so much so that they are no longer robust and unable to respond to ‘shocks’ in the system, and have limited capacity to respond to disruption in their supply chains. They are efficient, but they are not robust.
If the disruption continues, eventually these supply chains will stall – manufacturing will stop due to a lack of raw materials or spare parts.
Today, companies that achieve a sustained competitive advantage (Zara, 3M and Dell) are those who have invested significantly in developing responsive logistics capabilities. They are demand-driven and designed from the customer backwards (rather than from operational capability forward – forecast driven). Their supply chains are agile and responsive to changes in consumer behaviour.
Talking of consumer behaviour, self-preservation reigned ahead of South Africa’s national lockdown as the ‘haves’ stockpiled goods at the expense of the poor, the needy, the aged and the sick.
Imagine if the world did not have an effective and efficiently run supply chain to constantly channel food, fuel and other essentials to replace those that have been exhausted because of this ‘feeding frenzy’. There would be further chaos, indescribable misery, an uncontrolled mortality rate and above all, a world economic recession that would surpass the 1929 financial crash!
With the pandemic spreading to South Africa a few months after the initial outbreak in China, Nielsen was able to research global markets, delivering insights into how retailers are dealing with challenges brought about by coronavirus.
Turning a crisis into an opportunity
The research shows that retailers are facing three primary challenges: insufficient inventory of some categories, difficulty in logistics and distribution, and inadequate staff to deliver orders.
Those able to organise resources and respond actively to the epidemic and launch measures to “help turn crisis into opportunity” will thrive. These, Nielsen reported, included “flexible co-ordination of participants in the supply chain, ensuring the efficiency of product supply, showing care and concern for employees, rationally deploying staff, adjusting the store’s operating hours, expanding businesses through online channels and in community and strengthening corporate brand marketing to enhance consumers’ trust and creating a favourable impression”.
Nielsen has identified six key consumer behaviour threshold levels that tie directly to “concerns around the novel coronavirus outbreak. These thresholds offer signals of spending patterns, particularly for emergency pantry items and health supplies with these patterns being mirrored across multiple markets”.
As African countries such as South Africa and Kenya announced their country-specific responses to the outbreak, Nielsen found that global consumers were adapting their purchase behaviour to cope with the rapidly evolving situation.
“As patterns begin to emerge in response to news events of this nature, it will be imperative for companies to learn from these scenarios so they can sustain growth even in times where COVID-19 is deeply impacting people’s lives. These patterns will help provide leading and trailing indicators to those trying to understand how people will respond as developments continue to play out at different times in different countries,” said Scott McKenzie, Nielsen’s global intelligence leader, adding that this would be critical to understand as stores worked to maintain supply levels of in-demand items.
South Africans entered threshold #5 ‘Restricted Living’ on Friday 27 March 2020. Consumer behaviour at this stage was characterised by severely restricted shopping and constraints due to supply shortages, delivery fulfilment challenges and caps on product quantities, Nielsen reported.
The lessons learned
Of the retailers surveyed by Nielsen on their attitudes towards business for the rest of the year, 67% said they would make efforts to expand online channels and accelerate home-based business / retail warehouse layout.
“Fifty-three [percent] said they would change their product mix according to the shopping habits of consumers and increase the inventory and on-shelf number of health, disinfectant and protection products,” Nielsen reported. “Forty-three percent of the retailers say that they would work on their supply chains, especially those for fresh food, strengthen the ties with various brands and enhance communication efficiency.”
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The COVID-19 virus has brought humanity, as we have come to know it, to its knees. Where kindness, sharing and caring once prevailed, now self-preservation reigns in shopping malls throughout the world as the “have’s” stockpile their larders with vitals at the expense of the poor, the needy, the aged and the sick. Shopping trolleys are filled to the brim not because there is a dire and urgent need to satisfy physiological needs but rather the wanton greed to plunder shopping shelves without giving any consideration for the shoppers in the queues behind them. Imagine if the world did not have an effective and efficiently run supply chain to constantly channel food, fuel and other essentials to replace those that have been exhausted because of the “feeding frenzy” of the uncaring and those who have sufficient funds to purchase what and when they like and the transport to procure such offerings. There would be further chaos, indescribable misery, an uncontrolled mortality rate and above all a world economic recession that would surpass the 1929 financial crash!
Historically, Supply Chain Management (SCM) has been likened to a philosophy… a concept rather than an essential service. As a relatively new mindset, it incorporates thirteen logistics activities and business processes to ensure cohesion amongst supply chain members and a continued flow of products, information and money. Wars have been won and lost by the implementation and control of either effective and efficient Supply Chain Management or the lack of using it to its full potential as was experienced during the Napoleonic Wars and WW2. There is little doubt that the world post-COVID-19 virus will be decidedly different to life as we have come to know prior to this adverse scourge befalling us. Therefore SCM will not be considered merely a concept but rather a life-saving essential service that will be used for the cohesion of all supply chains so that they may work in concert with one another in order to satiate the needs and wants of people and businesses at all times, including times of crises.
Besides the challenges brought upon us by the current pandemic, what other challenges are looming in the years ahead? Some of the key issues (certainly not all) are:
Technology (automation, robotics and the 4th Industrial Revolution). According to Klaus Schwab, the Founder and Executive Chairman of the World Economic Forum (2017), the 4th Industrial Revolution is characterized by “… new technology fusing the physical, digital and biological worlds, thereby impacting on all disciplines”. With the ease of new entrants into the market and capturing it (it took Facebook 6 years to generate $1billion and Google 5 years), new entrants will generate more products, which will need to be warehoused, transported and distributed. This will add an immense amount of pressure on existing global and national supply chains, thereby necessitating a SCM revolution that will be able to cope with such metamorphosis;
Pressure on the reduction of costs and the increased desire for quality. Herein lies the greatest paradox of all as consumers and business customers demand low prices for products and services, yet insist on increased quality. With the ever-escalating price of fuel, vehicles and running costs, supply chain members are going to have to seek ways to maintain and if possible, decrease their cost. This could be achieved by vertical integration, horizontal integration (by buying competitors to enjoy economies of scale) and the use of fuel-efficient and sustainable vehicles and even self-propelled trucks (already being used) to reduce labour and associated costs;
Globalisation and the effective and efficient management of the elongated and complex supply network. Lengthy supply chains are fraught with risk and uncertainty, especially in this turbulent and uncertain world we all currently reside in. Here risk management is going to play an important role in identifying and mitigating risks (supplier risks, supply risks and interest rate risks etc.) so that global business may operate under an umbrella of relative certainty;
Shorter lead time as a result of consumer demand and rapid changes in consumer behaviour. There is no doubt that we live in a world for the need of instant gratification. What we see today is what we buy today, especially as a result of consumers having access to virtually unlimited credit. We therefore buy what we want even though we cannot afford it. The rapid changes that are taking place in consumer behaviour as a result of AI’s impact on the generic consumer behaviour process (desire for products and services are created and not identified as per the process) are also fueling the need for a more agile, responsive, sustainable, customer-centric and cost-efficient supply chains. Where once agility was sufficient to satisfy needs, how much quicker must organisations produce and distribute goods so that they may arrive at the Right place, to the Right person, in the Right condition, at the Right time and at the Right price?
Effective inventory and throughput management in a global context. With a world exploding with over-population and the need for finished goods and services, the question is how much inventory should an organisation carry? It is a well-known fact that carrying too much inventory incurs additional carrying costs whilst carrying an insufficient quantity increases the likelihood of retail outages and escalated order costs. With most forecasting being historically inaccurate, how can organisations prophesize future demand so that capacity can be managed to meet such demand? Some pundits see the solution to be JIT production and distribution whilst other see the answer to be further collaboration and integration, increased information sharing and joint demand forecasting amongst all players in the supply chain. Whatever the solution may be, throughput management needs to be “managed” so that the Rights that are reflected above may be realised otherwise customers will migrate to competitors that can offer quicker response times and miniscule outages; and
Build ‘robustness’. A robust supply chain is one that can withstand ‘shocks’, such as the current disruption caused by the COVID-19 pandemic. In their search for continuous improvement and reduction of costs, what the acclaimed writer Margaret Heffernan calls ‘the myth of infinite efficiency’, supply chains that have adopted Lean or JIT methodologies now find they lack robustness. They have no ‘extra’, there is no slack that can be used to mitigate the effects of the unexpected. This essential characteristic has been driven out by the persistent downward pressure on costs. These businesses operate on razor-thin margins (of time, of money, and of resources generally) and their supply chains are not robust – they are very exposed to disruption. Supply chains need to build robustness by balancing cost-efficiency with flexibility and resilience. They need to develop stronger relationships with other chain members instead of focusing on extracting the lowest prices from them. The future is becoming more difficult to predict and forecasting less effective. Disruptions and unforeseen events are inevitable. Supply chains have become longer and more complex. Unless they gain robustness, these supply chains will not be ‘fit’ enough to mitigate the risk of crippling disruptions.
The industries that are most at risk are:
The transport industry as it will be faced with ensuring that the above Rs are implemented and controlled. As a result of AI, it is estimated that by 2025 thousands of motorcars and trucks will be driverless. The negatives from a trucking perspective includes job losses, less ownership and the possibility of hacking and cyber-attacks. In the summer of 2015 (the year Tesla was launched), two hackers demonstrated their ability to hack a moving car; controlling its dashboard functions, steering, brakes etc. all via the vehicle’s entertainment system (Schwab, 2017). It is believed that all modes of transport (especially road) will be faced with shorter lead times, which will certainly burden transportation and the rest of the logistics functions;
Manufacturing as it depends on raw materials, components and spare parts to produce goods and services via the transformation process. As markets expand exponentially and as 3D printing becomes more of a reality than a rarity, product design and production could be performed at a consumer’s home. Eventually it could even become an office or even a home appliance. If this is the case then the demand for logistics services such as transportation, warehousing and demand management could even decrease in line with the reduction in production; and
The services industry. It is estimated that 85% of all jobs in the USA are service oriented. As there is such a wide spectrum of service providers ranging from hotels, hairdressers, hospitals etc., the growth of services and service providers will increase exponentially with an associated decline in manufacturing (as a result of 3D, robotics, and outsourcing etc.), This will put a burden on the supply chain as it will have to keep up with such growth in the service industry.