As 2017 approaches, the world looks to have unprecedented changes. A surprise Presidential election, continued uncertainty in the global economy, and the rise of several technological innovations which have the potential to disrupt supply chains. Smart leaders have already started to plan their responses. While many people will start thinking of their personal New Year’s resolutions for the coming year, here are 10 supply chain resolutions that smart leaders should consider.
1. Monitor supply chain complexity – Supply chains have seen record recalls—just ask Samsung about its phones and washing machines, Volkswagen about its diesel engines, and dozens of car manufacturers about their Takata airbags. It isn’t just tech products and regulatory cheating motivating recalls; the food, toy, and pharmaceutical industries have long had a trend of increasing recalls. Much of the blame results from increasing complexity of supply chains which gives rise to the phenomenon of “normal accidents.” The traditional responses of increased quality assurance and compliance steps can actually make the problem of increasing complexity (and bad accidents) worse! Processes and organizations need to be redesigned, sometimes radically, in order to simplify interactions. Companies address complexity already by reducing human input (increasing automation), consolidating suppliers, reshoring and, increasingly, simpler product designs. Make sure you keep an eye on opportunities to reduce supply chain complexity!
2. Engage more with government – Private capital governs most of the world’s resources—but as industries become more closely tied together, they have also found it more difficult to keep up with the huge volume of safety, environmental, performance, ethical, and other standards that society expects, especially when they must manage these standards across multiple entities and usually across many countries. Governments at all levels increasingly offer services and platforms to coordinate and facilitate supply chains, such as in Customs/Homeland Security, food safety, tracking ethical sourcing, etc. Smart supply chain managers will influence their own destinies by engaging with government at all levels from local economic development to transportation and safety and labor safety, wages, and lifestyles. Make sure you’re leading from the front, and not waiting for orders to come down! Most companies that complain about regulatory and policy uncertainty haven’t made the time to make their voices heard.
3. Write better contracts – You know that supply chain management has hit the big time when you see its principles influence who gets a Nobel Prize. This year Oliver Hart and Bengt Holmström shared a Nobel for their work in contract theory. The Nobel committee specifically focused on Hart’s work on incomplete contracts, focusing on which party should have the control rights for key decisions in the face of unexpected eventualities. Sound useful to know? Holmström developed the informativeness principle for how to reward performance when the buyer has limited insight into the supplier’s actions. In 2009 Oliver Williamson won a Nobel for his work regarding how transaction costs relate to how firms decide to manage transactions both internally and between firms. A few good playbooks exist for how to use the contract as a focus for good supply chain management practice—smart leaders will re-look whether they’re using the right contract structures to incentivize the right behaviors within their companies and throughout the supply chain.
4. Be more transparent – Transparency will grow because society cares. Companies need to look closely at their CSR initiatives to make sure that they’re really “walking the walk” in their daily operations and not just “talking the talk.” People expect their products to be safe, environmentally friendly, and ethically produced. The danger for most companies happens because of the supplier several times removed that they don’t know about; companies should map their supply chains to preempt unpleasant surprises—but also to discover new opportunities. Most importantly, companies need to be transparent about their supply chain practices. Advances such as the Industrial Internet of Things and social media make it easy for activists and hacktivists to see what you’re doing, and also make it easier for you to share when you’re doing right. Time to decide who you’d rather put in charge of sharing your information!
5. Become more lean – The past few decades saw a revolution in lean manufacturing. But that’s just the beginning! Proliferation of SKUs and shrinking order sizes has been a trend for decades now, but it is getting ready to go into overdrive. The advent of technologies like 3D printing, robotics (especially self-driving transportation), and drones mean that it will soon be affordable to design and produce an order size of one and to have it delivered quickly for a wide range of products. This future is still years away, but companies like Amazon and CVS are figuring out how to succeed in a world where order sizes are very small and replenished quickly and frequently. Expect increasing downward pressures on inventory levels as the year progresses. This may be the deciding factor for which retailers survive as American retail foot traffic continues to decline as consumer buying habits change. Retailers will have to be able to change their inventory more quickly to survive, and all levels of the supply chain will have to become more “lean” than ever in order to adapt quickly enough to customer demands.
6. Focus less on producing a product, and more on providing an experience! – Another trend that’s been happening for a while that will intensify in the next couple of years: customers are no longer satisfied with taking on all the risk in a purchase experience. If they, for example, buy a diesel car that promises high mileage and cleaner emissions, they hold the manufacturer responsible for providing the promised ownership experience. No matter how small a part you play in delivering that final experience, you will suffer just as much for a poor outcome. This long-term relationship orientation will continue to intensify as social media matures as a core component of society. This higher standard combined with increasingly complex and interdependent supply chains means that brand reputation and managing customer relationships will become more and more important even for companies that historically haven’t engaged on these fronts. Know how your input matters to the final end customer’s experience before advances in analytics and information sharing take you by surprise, and you will be more successful.
7. Know what your workers are really worth – Automation is the future! McDonald’s already replaced order takers with automated kiosks in expensive European markets, and the “$15 per hour” and living wage movements in the U.S. means that kiosks have started to replace workers in the U.S. too. Society can’t ignore the benefits of using fewer resources to provide for many. What does this mean to supply chain managers? Labor has historically been the largest expenditure in a supply chain, but supply chain managers will increasingly have to manage assets and technology such as self-driving trucks, warehouse robots, and automated order-taking technology, similar to what is replacing workers at some McDonald’s. This will shift attention from variable costs such as labor to fixed costs of investment in capital. Knowing when and where to make the change to automation begins with knowing the value of each worker.