Whether it’s a need for speed, sharing resources or making an emotional connection with suppliers and customers, today’s logistics businesses are rising to the challenges of an ever-changing world
Professor of supply chain strategy at the Centre for Logistics and Supply Chain Management, Cranfield University School of Management
What is the principal challenge facing supply chains today?
Severe pressure on resources. Many raw materials are in short supply. Oil is starting to run short, so prices will keep rising. Money is tight, so organisations can’t afford new machinery or large inventories. Lack of space and skilled manpower can be a major constraint. Even water is a scarce and under-appreciated resource.
What can we do about it?
One solution is to rethink the way we use resources. Instead of the “consumption” model – buy something, use it, throw it away – we need a more sustainable model where resources are shared or rented. Does every household need its own lawnmower? Does every company need its own warehouse, factory and vehicle fleet? Or could asset sharing and collaborative working increase efficiency and reduce wastage and transport utilisation?
What other new approaches could supply chains take?
Embrace new technologies and economies of scale – for example, 3D printing could enable spare parts to be manufactured locally instead of being shipped around the globe. And products could be shipped in cheap, “vanilla” forms and then tailored for local markets.
Instead of buy something, use it, throw it away, we need a more sustainable model where resources are shared or rented
Do we have the skills to meet these challenges?
Supply chain skills are another scarce resource. Traditional supply chain skills were technical: inventory management, requirements planning, transport and so on. But the order-winner today is “emotional” intelligence: the ability to build relationships and collaborate with suppliers, customers and even competitors to create more sustainable supply chains.
How can we develop these “emotional” skills?
At Cranfield, we teach both technical and emotional skill sets in our MSc in logistics and supply chain management, and we find that it is possible to develop emotional intelligence in people with a technical supply chain background. Another useful approach is to bring in people from diverse backgrounds, such as marketing and finance, because they understand other aspects of the business such as cost-to-serve.
Managing director of premium freight supplier Evolution Time Critical
Emergency logistics is relatively new. What is it?
We’re on call 24/7 for anyone who suddenly needs goods delivered in a hurry and on time. It may be some silicon chips in a briefcase or the whole front-end module of a car. We can put someone on a plane within hours, or charter our own transport, anywhere on the planet.
Sounds rather drastic – why is it necessary?
Holding just a few days’ or hours’ inventory makes good business sense for manufacturers. But if parts are delayed or arrive faulty, or there’s a last-minute change, the manufacturer is very vulnerable: stopping production at a car factory can cost €1m an hour. The cost of our services is insignificant by comparison.
The more that companies know they can rely on premium delivery, the more calculated risks they can take with their supply chain
So basically you’re digging people out of a hole?
Not necessarily. The more that companies know they can rely on premium delivery, the more calculated risks they can take with their supply chain and the leaner they can run. Some manufacturers deliberately design their process to incorporate premium freight. They say: “If we’re not using your services, we’re not running lean enough.”
Who uses premium freight?
The main sector is automotive, which pioneered just-in-time manufacturing. But we also work in aerospace, marine, telecoms, pharmaceuticals, oil and gas – any industry in which fast, on-time delivery is critical. We were particularly busy when the Icelandic ash cloud played havoc with air freight, and during last winter’s heavy snow we saved our customers €30m (£26m) in lost production.
What’s the secret?
Obviously you need good IT and communication systems, but really it’s all about our people. We have a vast number of partners and contacts on call worldwide, and we promise to respond within 15 minutes with a solution to customer enquiries. You also have to be able to think laterally under pressure – and be content to have no fingernails and no hair!
CEO of The International Association for Contract and Commercial Management (IACCM)
Why should global supply chains be on the board agenda?
According to research by IBM, CEO s say the most serious challenge they face is managing global interconnections and complexity. Companies are being forced to look further afield for customers and suppliers, which can give rise to reputational and regulatory risks, threats to intellectual property, an increased chance of broken or missing links, and the challenge of meeting customer expectations.
Why do businesses have such trouble managing these issues?
Very few have the right management and measurement systems. There’s a lot of talk about supply chain risk but this isn’t reflected in actual priorities. You can hardly expect procurement managers to worry about supply chain risk when their reward structure is focused mainly on buying things cheaper. And current methods are not good at dealing with volatile markets and demand levels.
Is there also a communication problem?
Yes, because most organisations are better at communicating internally than externally. This is also true of IT systems such as enterprise resource planning (ERP), which are principally designed to manage internal resources and often don’t ‘talk’ to trading partners’ systems. Leading-edge businesses realise the need to share knowledge and information to create greater transparency with the organisations in their supply chain.
The old model of managing your supply chain through intimidation and harsh contracts is outmoded
How can organisations build more successful and sustainable relationships?
The old model of managing your supply chain through intimidation and harsh contracts is outmoded. The longer the supply chain, the more important it is to show respect, understand cultural differences, and operate on a human level. In China, for example, a failure to develop personal relationships threatens trust and respect – and therefore represents a source of risk. Agility and flexibility require greater collaboration.
What are the contractual implications of this?
Contracts should support relationships, not undermine them, and focus on reducing the probability of things going wrong rather than merely dealing with the consequences. Our research shows that the most common problems arise from acceptance and delivery – usually because the requirements weren’t made sufficiently clear – and disagreement over change-management procedures.