The Misunderstood Global Supply Chain
By Joe McBeth VP, Global Supply Chain, Jabil
Aug 15, 2016
Despite the rise of the Intelligent Digital Supply Chain, there are a few common myths about supply chain management that still linger:
Capturing and leveraging Big Data will buffer me from global competition, right? Wrong.
The career opportunities in supply chain management are limited, right? Wrong.
I only need to concern myself with my own independent supply chain, right? Wrong.
Supply chain management is mostly about purchasing, right? Wrong.
Keeping my inventories at the lowest level is always a smart move, right? Wrong.
It’s more about cost management, than about profit and revenue, right? Wrong.
These common myths about the fast-changing field of supply chain management still permeate and dominate much of the business world today. But, if you manufacture or sell goods – or even if you provide a service – then you may want to check the conventional wisdom. In today’s digitally driven marketplace, almost nothing moves without a supply chain. Even if your business has not yet been forced to compete in a global economy, or adapt quickly to changing demand and price points, don’t assume that day will never come. Thanks in part to the Industrial Internet of Things, the Cloud, the smart factory and other trending technologies, businesses in every industry will eventually face increasing complexity in their supply chain. Or, at the very least, their ability to manage complexity will define how well they can compete and succeed.
The purchasing myth
Back in the 1980s, the phrase “supply chain” was less widely used than “purchasing.” Either way, those involved in the practice were often viewed as clerks. Businesses that required a bit more sophistication in their supply chain may have defined the job more as materials management. Both of these functions represent only a modest part of the overall picture that is today’s supply chain. Further, they entirely miss the increasingly strategic role that supply chain management now offers.
Today’s supply chain management is closer to finance than operations. Supply chain professionals manage investments, cash utilization, risk mitigation, taxes, import/export and compliance, among other tasks. The supply chain now employs engineers, finance experts, statisticians, analysts and commercial leads.
Supply chain management as a career choice
The outdated perception that supply chain management is still primarily a purchasing job prevents many young professionals from considering it as a career. This is compounded by the fact that only a handful of universities offer appropriate courses. As a result, there is a distinct shortage of qualified individuals ready to step into such roles today.
Dr. Yossi Sheffi, a professor at the Massachusetts Institute of Technology (MIT) and director of its Supply Chain Management Program, has written that there is a shortage of supply chain heads, with the ratio of six openings to every qualified person. A graduating engineer typically wouldn’t think, “I’m going to get into supply chain.” He or she is more likely to think, “I’m going to get into manufacturing.” In reality, companies like Jabil employ entire teams of engineers to help manage its supply chain. It’s a skill set that is in very high demand.
Managing the supply chain is increasingly becoming a career track in big companies today, and involves professionals with job titles such as “director of finance – supply chain.” There’s really no career role that has commercial acumen that couldn’t come from or go into supply chain. The impact that supply chain professionals can make on a company’s financial metrics are huge.
The impact of Big Data
Two or three decades ago most supply chain decisions were made by individuals leveraging institutional knowledge and industry experience rather than hard data. The human element is still vital. But if you’re try to manage the complexity of today’s supply chains based only on gut, you’re going to lose.
Digital technology has made Big Data – that stream of real-time information from globally networked machines, warehouses and sales reports – a critical source for success. This is especially true for streamlining efficiency and mitigating risk in global supply chains. But businesses need to do more than simply tap into data. They need tools to actively derive actionable intelligence from it. The relative ability a company has in this regard will be a major factor in how well they can predict the next big thing, and then act on it before the competition.
The ‘unique supply chain’ fallacy
Many businesses still believe theirs is a unique and isolated supply chain. But this attitude obscures the risks inherent in an increasingly linked and integrated global economy. It can further blind you to how events in other industries potentially affect your business. Just because you “only make cars,” for instance, doesn’t mean you’re not competing for the same base resources and services supporting healthcare devices. The more global you are, the more likely you are to appreciate the significant overlap between sectors.
The risk of razor-thin inventories
Many managers responsible for managing purchasing fixate on controlling costs and, therefore, do all they can to keep inventories as low as possible. Traditionally, these decisions were made without data that would allow you to optimize your inventory investment and understand the correct nodes to hold this cost. This could be geographic or it could be across the balance sheets of multiple companies in that supply chain. But the logic of the past can actually increase financial risk.
Assume your weighted average cost of capital is usually about 1-2% percent per month. Let’s say, for example, a single sourced part that is required to complete the production of a sub-assembly that you make and sell for $1000, is part of a final product that sells for $100,000. If you cannot fulfill even one order because you can’t obtain that key part when you need it, the potential loss of revenue and profit from one lost sale dwarfs the inventory cost if you analyze the total profit loss of the final product.
The silo effect within companies can blind managers to the big picture, which may rely on demands outside their area of responsibility. Today’s supply chain can no longer afford to take this approach, and must have insight throughout the company’s entire pipeline of resources.
Although cash and cost are usually the key metrics for supply chain management, the fact is that profit and revenue are actually more important. If you do the math correctly, you will eventually ask: How much risk will I take in managing assets and costs to generate the potential for profit and increased revenue?
The companies that really get it tend to create incentive structures around profit and revenue for their supply chain teams. Managing a very tight balance sheet, but restricting profit, is not an acceptable answer.
Few realize that strong supply chains not only contribute to bottom-line profit, they also create revenue. What if your supply chain intelligence allowed you to be proactive fulfill demand before others could? Not only does this create the opportunity to gain market share but you also have the opportunity to do it at a higher margin.
The most critical risk is within your own four walls
People assume that the biggest risk in creating product lies in manufacturing. But the risks are far more complex and the number of nodes or opportunities for failure are exponentially bigger in the supply chain. The simple truth is that it’s easier to manage what’s within your own four walls. Supply chain professionals manage risk outside your own four walls.
There’s no doubt it can be challenging to keep up with the warp-speed changes in this era of networked, digitized and globalized business. But never lose sight of the fact that intelligent, optimized supply chain management provides the backbone to any successful business today.
Joe McBeth holds a BS from Michigan State University and an MBA in Material Logistic Management (SCM) from Broad College of Business. In his 20+ years within the contract manufacturing arena, he has led the supply chain function for multiple industries including automotive, consumer products, enterprise and infrastructure and industrial.