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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.

 

p18 Corona Virus map page

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/

Supply chains have been changed, possibly forever

1 - SupplyChain-01

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”.

SupplyChain 2

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.

SupplyChain 3

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.”

Supply Chain Management during the COVID-19 pandemic

Supply Chain Management during the COVID-19 pandemicThe 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:

  1. 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;
  2. 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;
  3. 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;
  4. 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?
  5. 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
  6. 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:

  1. 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;
  2. 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
  3. 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.

Green Logistics – It’s the Same Idea, Just A Cleaner Method

Green Logistics web

Estimated Reading Time – 3.5 Minutes

It’s time to face the truth – if we don’t take better care of our planet, it won’t take care of us for much longer. Global warming is no longer ‘the next generation’s problem’ – it’s happening now, and we need to stop it before it’s too late.

Logistics has been one of the biggest waste-producing industry out there. According to a report, the transport industry is on the list of top 5 sectors that produce the most human-induced pollution. Overall, the road transport sector produces an estimated 72 percent of the logistics industry’s carbon dioxide emissions.

The Industry Is Changing – Here’s How

Today the main objective of Logistics remains the same – to move things from point A to point B. But the intent is to do it better, in regard to emissions, carbon footprint etc. This move toward a greener way of transport is known as Green Logistics or Eco Logistics.

How the logistics industry can become eco-friendly:

  • Use environmentally friendly packaging materials that can be returned and reused. This will not only save the company money but will also reduce the amount of discarded packaging waste. A good example would be to use wooden pallets that can be returned and reused multiple times.
  • Aim to fit more into one box by arranging items in a particular way.
  • Instead of driving long distances to deliver small loads, wait until there is a considerable number of items to avoid wasting fuel.
  • Before setting off to deliver goods, determine the best (and fastest) route to each destination.
  • Make use of reverse logistics, the practice of refurbishing, recycling, and ultimately reselling returned products.
  • Choose the best transportation method. Believe it or not, air transportation causes the most environmental damage. The best options are rail and road transportation.

Tip: To make road travel even more eco-friendly, ensure that delivery vehicles are always clean. This increases fuel efficiency.

Why It’s A Great Idea to Go Green

If you’re still not convinced as to why eco-logistics is the best option, here are just a few of the benefits that businesses can enjoy.

  • Businesses that showcase their dedication to environmental preservation will not only see an increase in customer satisfaction and revenue but will also enjoy a competitive advantage.
  • Businesses will save money by eliminating the use of packaging material and reducing supply chain costs.
  • There will be more job opportunities due to an increase in the logistics process.
  • And finally, employees will be more productive knowing that they are doing their part to help save the environment.

 

These three brands are among a multitude of others that have already started going green –

“We utilize our expertise to make your logistics greener and more sustainable – giving you an edge over the competition. We can also help you find ways to apply circular-economy principles to eradicate waste and retain more of the value that goes into your products.” – DHL South Africa

Sustainability at Nike is more than a single-product principle. It’s an ethos we are embedding and scaling across our company and infusing into every brand, every category and every product from start to finish. In doing so, we are creating a culture of sustainability across the company.” – Nike

“Our products, services, processes and facilities are planned and operated to incorporate objectives and targets and are periodically reviewed to minimize to the extent practical the creation of waste, pollution and any adverse impact on employee health or the environment. Protection of health and the environment is a Company-wide responsibility of employees at all levels” – Ford

If you would like to help save our planet, become part of the exciting and ever-expanding supply chain industry with a fully accredited BCom in International Supply Chain Management from IMM graduate school. Don’t miss out! Applications for 2020 are still open! Enrol today:  https://imm.ac.za/online-application/

Outsourcing – The New Link in Supply Chain Management

Outsourcing – The New Link in Supply Chain Management

Life as we know it depends on it. Getting our food and water, clothes and medicine from supplier to consumer rely on it. Successful supply chain management is vital for the success of most businesses because it ensures customers get what they want when they want it.

But supply chain management is not just about the movement of resources from point A to Point B. There’s a lot more to it.

Supply chain management, when done right, boosts customer service and overall satisfaction by making sure that the right product is delivered to the right person – on time and in good working order. Effective supply chain management is also great for customer service and aftersales support as it helps to build customer loyalty.

Outsourcing in Supply Chain Management

You know what they say – if you want something done right, you need to do it yourself. This is usually true, but because supply chain management is all about strategy and efficiency, it often makes sense for businesses to outsource their supply chain tasks to a skilled third party.

Some of the reasons to consider outsourcing to a 3rd party logistics (3PL) provider are:

It’s cost-effective: When business owners think about outsourcing a business task, they often cringe at the thought of how much it will cost. But the truth is that businesses can save a lot of money by outsourcing their supply chain management since these companies often already have advanced infrastructure and well-developed networks in place

The business will have a competitive advantage: On its own, a business’s supply chain tools and resources may be limited, but the third-party partner will offer additional solutions, expertise, and resources that wouldn’t otherwise be available. They could also have greater negotiating power than the average business owner which means that they will be able to reduce operation costs.

The customer’s demands will be met more effectively: Most importantly, the responsibility of meeting customer demand is shifted onto the outsourced company and can be manged with clear KPI’s. This means that there is more time to focus on business growth and overall profit.

While there are plenty of benefits to outsourcing supply chain management, hiring a less competent partner may do more harm than good. Here are some potential risks to be aware of:

There may be hidden costs involved: While outsourcing supply chain management can be cost-effective, there may be unexpected expenses such as an increase in shipping costs or a tax increase along the way. Be sure to consider both upfront and hidden costs when doing a feasibility assessment of outsourcing to a 3PL

Product quality may suffer: This tends to happen if the outsourced organisation lacks industry experience, uses lower quality products, doesn’t assess potential risks, or just cuts corners in general. This could also lead to a decrease in brand equity and productivity in the long run. Be sure to research your prospective 3PLs reputation before entrusting them with your reputation and make sure there are clear KPI’s and quality measures in place

There might be some security risks involved: You will be giving the 3PL access to a lot of sensitive information and you will need to ensure that your company’s interests are protected with iron clad contractual non-disclosure clauses in your contract. Furthermore, businesses with access to customer data need to be careful when involving a third-party organisation. The customer’s privacy must always be protected.

Types of 3PL partners

Before choosing an outsourced partner, consider your specific business needs. This will determine the type of 3PL provider you’ll need. There are 4 levels of 3PL integration to choose from:

  • The Standard provider: The is the most basic 3PL provider. This company offers services such as warehouse management and distribution.
  • The service developer: The service developer offers more unique services such as product tracking and custom managing.
  • The customer adaptor: These providers are specifically requested by the client and take full control of logistics duties.
  • The customer developer: These 3PL providers integrate themselves with the client and take complete control of all logistics duties by performing detailed tasks. This is the highest level a 3PL provider can reach in terms of processes and business activities.

Lastly, once you have determined what type you 3PL partner you’ll need, you’ll need to narrow it down even further. Ask these 5 questions before making a final decision:

  1. What are my unique business needs?
  2. How much experience do they have in this specific industry?
  3. Do they prioritise good customer service and communication?
  4. Do they have a strong safety record?
  5. Do they have a good reputation?

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Global Supply Chain Management: An essential tool for competitiveness in the global marketplace

Global Supply Chain Management - An essential tool for competitiveness in the global marketplace

For an organisation to underestimate the complexity of global supply chain management would be at its peril, and could ultimately result in financial suicide, says Dr Myles Wakeham.

Over the past decade or so, businesses have reacted to the demands of Internationalisation and globalisation. In every sector and industry, suppliers, manufacturers, wholesalers and retailers have fragmented throughout the world in order to conduct business overseas and thereby increase sales and profits, reduce costs, and improve production and output in an extremely cut-throat international business arena.

A major change has occurred in that local and nationally represented firms have moved from marketing local goods internationally to sourcing raw materials, services and goods to sell to local and international customers. This change was the result of the introduction of new technologies, improved information, more cost-efficient transport, reduced trade barriers and barriers to investments and as importantly, the emergence of large markets like India and China.

The objective of supply chain management (SCM) is to effectively manage and control the flow of goods, information and finance through business linkages in the most cost-efficient manner. Effective SCM reduces costs, diminishes waste, prevents over-production and helps ensure that the organisation is satisfying its customers by providing superior value.

It is therefore an essential tool for competitiveness in a global marketplace. An organisation that underestimates the complexity of global SCM would imperil itself, ultimately resulting in financial suicide.

Co-ordinating the flow of materials, information and finance through the various players in the supply chain, involves many challenges such as:

  • Conflicting business goals, objectives and needs;
  • The inherent uncertainty entrenched in every supply chain as the more expansive the supply chain becomes, the greater the risk;
  • Changing legislative, social, cultural, economic, political and ecological environments;
  • Uncertain demand and seasonality;
  • Increasing cost of materials and components and the shortage of some materials;
  • The management of production and transportation of goods over long distances;
  • Currency fluctuations;
  • The protection of intellectual property;
  • The monitoring of supply partners’ business practices and financial stability over long distances;
  • Accessing finance and insurance;
  • Compliance with international regulations and standards (e.g. quality standards, import and export restrictions, safety and packing regulations and labelling regulations vary around the globe). For companies new to international trade, ensuring that materials provided by a foreign supplier will meet all domestic entry regulations can be a daunting undertaking. Trade intermediaries and customers have spread around the globe, as companies strive to lower their costs, increase their profits and improve productivity in a highly competitive global marketplace;
  • Product quality (in some countries the standard of quality is low;
  • Language and cultural barriers;
  • Time zones and delays;
  • No international law, so disputes could lead to expensive litigation.

Companies decide to enter international markets for a variety of reasons, which require different strategies, a variety of performance objectives and as importantly, forms of market entry. These can vary from exporting directly from South Africa to consumers in selected countries, to setting up shop in the chosen countries by means of manufacturing plants, service organisations, retailers and so on.

The reasons to enter the international marketplace and thereby enjoy new export opportunities, are:

  • To extend the longevity of existing offerings that have reached their maturation and decline stage of their lifecycles in the home country;
  • To increase sales and profits;
  • Short-term (vulnerable to periodic fluctuations) and long-term security (excess capacity can be used to increase sales and reduce costs by means of economies of scale);
  • Increasing innovation. Internationalisation can help fund new product development;
  • To earn hard currencies like Euros and US dollars;
  • Economies of scale. Exporting is an excellent way to expand a business with products that are widely accepted around the world;
  • Under certain circumstances, a company might undertake an international market entry not solely for financial reasons, but to learn. For example, Spur and Nando’s entered the UK to learn about the highly contested fast food industry and to take advantage of opportunities to position their offerings in the market;
  • Competitive attack (take on competitors in order to obtain market entry);
  • Government incentives. It is common for governments to “incentivise” their country’s companies to export;
  • The internet has opened the door for companies to trade all over the world. Previously it was too expensive to do this. Now you do not even need to have a physical presence in a country in order to do business;
  • The freelance economy. The ‘gig’ economy is one of the reasons why companies go global. Many companies are now hiring teams they will never meet in person;
  • Cultures are homogenising. They are becoming more and more similar as Western and Eastern influences permeate markets. Today the Chinese eat Big Macs, the Indians dine on pasta, the English consume curry and the Australians love biltong;
  • Increase the prestige of the company’s brand and overall customer reach;
  • Reduced cost to do business elsewhere (the cost of labour in China is relatively inexpensive)

Save on taxes (tax havens allow for increased profitability)

Using Blockchain to secure the weak link in supply chain management

Using Blockchain to secure the weak link in supply chain management

If you find that Blockchain is a difficult subject to wrap your head around, you’re not alone. A Google search will produce hundreds of results trying to give a simple explanation of blockchain, but you could still end up being confused. We did the legwork for you and consolidated our findings into a simple and clear explanation.

Where does blockchain come from

Blockchain technology was created by a pseudonymous person named Satoshi Nakamoto in 2008 but only became popular in 2009 when bitcoin was released. No one knows who Satoshi Nakamoto really is, even though people often come forward claiming to have created blockchain technology, no one has been able to prove it.

 

How does it work

Using Blockchain to secure the weak link in supply chain management bSource:  Zignuts

Fundera explains it best – “Blockchain is a technology that allows individuals and companies to make instantaneous transactions on a network without any middlemen (like banks). Transactions made on blockchain are completely secure, and, by function of blockchain technology, are kept as a record of what happened.”

Think of blockchain as a ‘chain of blocks’ linked together in a specific order and each block contains data that is secured with software code. It’s often referred to as a ledger or record of transactions that allows for information to be copied but not distributed meaning that each piece of data can only have one owner.

Usually, when a transaction is completed, a third-party entity such as a bank verifies the transaction. With blockchain technology, however, all transactions are encrypted using cryptography (a way of encrypting and decrypting information using complex maths). This information is stored in multiple locations and updated constantly.

Blockchain – What it is and isn’t

Blockchain is:

  •           The technology behind bitcoin.
  •           A method of trading with anyone from anywhere.
  •           A network of computers, all with access to the same transaction history.
  •           Technology that stores information indefinitely.
  •           Immune to hacking and counterfeiting.

Blockchain isn’t:

  •           A cryptocurrency.
  •           A programming language.
  •           Cryptographic codification.
  •           Artificial Intelligence or machine learning technology.

Blockchain in Supply Chain Management

Many current supply chain management systems are outdated and unable to keep up with industry requirements, they are slow and prone to fraud and hacking, are expensive, and unreliable. This is where blockchain technology becomes useful.

While Blockchain technology is usually associated with Bitcoin transactions it can be used to record any transactional data securely. Blockchain can therefore be used to improve supply chain processes in numerous ways, for example:

  • Tracking and changing purchase orders, receipts, and shipment documents.
  • Documenting the quantity and transfer of goods as they move from one point to another.
  • Verifying product certifications.
  • Linking physical products with serial numbers or digital tags.
  • Sharing manufacturing data with suppliers and vendors.

Blockchain technology is already being used in various industries. Here are two examples of blockchain in use:

Blockchain in the diamond supply

The diamond industry is currently facing a major problem when it comes to the extraction methods used and the miners working conditions. Diamonds are sometimes mined under extremely violent and unstable conditions – especially in Africa. The sale of these diamonds often funds conflicts in the area and lead to further violence among miners.

De Beers, the world’s largest diamond producer has already started using blockchain for this exact reason. Their program, Tracr, has already tracked 100 diamonds successfully from the mine all the way to the jeweller. Those involved in the process constantly upload photos and information on each jewel as it’s moved from point A to point B. Since each diamond is closely tracked and monitored, illegal activities can be put to an end.

Blockchain and wine supply

Forbes estimated that a whopping 30 000 bottles of counterfeit wine are sold in China per hour. These wines often contain additives and are considered too dangerous for consumption. To solve this problem, companies Origintrail and Tagitsmart have started making use of blockchain.

By using the pilot version of their program, more than 15 000 unique bottles of wine were tracked from production to sale. The goal is to use QR codes to stop the production of illegitimate wine as well as allow the consumer to scan the code and read all the information on their purchase.

Blockchain technology is still being tested which means that, as we learn more about it, more industries will start making use of it to secure their business processes.

Start your career, or if you are already working, boost your career with a leading internationally recognised qualification in Supply Chain Management from the IMM Graduate School. Applications for 2020 are now open. https://imm.ac.za