Irene Rosberg
Global Supply Chain Ecosystems: Strategies for Competitive Advantage in a Complex World. A new book by Mark Millar underlines make-or-break role of distribution systems
By: Irene Rosberg*
The expression “global supply chain management” might sound dull, but an ever-changing combination of complexity and volatility makes the responsibilities involved exciting and challenging, insists Mark Millar in his comprehensive study of what has become a strategic item on the agenda in the boardrooms of all major businesses.
Supply chains are the enablers of international cargo flows, bringing economic and social benefits, and leading to a steady improvement in the standard of living for millions, he argues.
Mr Millar has made his book itself something of a veritable “supply chain” of the A to Z of his special subject, ranging from an overview of modern logistics, to the impact of outsourcing, ‘offshoring’, ‘reshoring ‘and all the other ‘shoring’ developments, to incisive takes on Asia, Africa and other goods-hungry slices of the globe.
Written with a clarity that is refreshing to those accustomed to ploughing through ponderous economic prose, the volume is packed with case studies that will be eagerly analysed by industry practitioners, of whom there is a steadily increasing number.
The author’s insightful approach stems from his substantial experience and connections in the eastern hemisphere and elsewhere: amid his consultancy and board commitments he is a visiting lecturer at Hong Kong Polytechnic University. His 20 years in the B2B sector in Asia/Pacific have been distilled in his Asia Supply Chain Insights corporate briefings.
What is different about the field of ‘supply chain’ is that there is scarcely any ‘establishment’ of the kind that provides a foundation for other management disciplines such as sales, purchasing, marketing, corporate social responsibility and business development. Supply chain management has chunks of each embedded in its pursuit.
The certainty in this shifting landscape is that leading companies increasingly consider their supply chains as strategic – as a business enabler, as a revenue driver and as a differentiator. Mr Millar emphasises that in many sectors, companies compete on the basis of their supply chains, as much as on their physical products. For many businesses, particularly those in high-technology and consumer electronics, time to market and effective distribution channels are critical factors for success.
World-class organisations no longer perceive the supply chain merely as tactical support for business as usual, but take a holistic position that their supply chain is what drives the business, says Mr Millar. The supply chain comprises every single function that enables getting products to customers.
He approvingly quotes Prakesh Menon, formerly of Myer, Australia’s largest department store group, where he led a transformation that delivered $25m to the bottom line, as saying that “the supply chain is the business.”
Thus, we see supply chain managers in the new internal role of ‘chief supply chain officer’ and appointed to corporate boards, where strategy and performance becoming standing agenda items. Only 10 years ago, it was highly unusual for companies to have supply chain representation at board level.
Authors who pull up incontestable examples usually quote technology company Apple, and Mr Millar highlights a compelling instance. Before becoming Apple chief executive, Tim Cook was an acknowledged expert in the “quiet but critical” world of supply chain management. His level of operational expertise continues to be critical to Apple’s leadership in global markets, where the supply chain drives competitive advantage through time to market and simultaneous product releases.
With that in mind, it is clear that a ‘presence at the table’ means that supply chain leaders have to learn to speak the language of the boardroom. There has in particular to be dialogue with the chief financial officer, because the supply chain has material impact on many aspects of the profit and loss, and balance sheet statements.
Despite the arrival of supply chain representation at board level, there is some way to go before the whole board considers supply chain to be an incarnation of the business. Marketing and supply chain together are becoming the primary engines of a business. Although supply chain is likely to be responsible for 63% to 90% of a company’s total spend, organisations typically measure and report financial metrics in terms of department or product.
Modern supply chains have become complex, multi-layered, interconnected systems, and that is why Mr Millar describes them as ecosystems. Greater use of collaborative partnerships, outsourcing and off-shoring has created elongated networks that require more management, and controls that are more sophisticated than ever.
In the past, supply chains were vertically integrated in local communities of suppliers and customers, with individual cities or regions specialising in traditional sectors – for example, automotive in Detroit, steel in Sheffield, shipbuilding on the River Clyde. The decline of what might be called linear chains means that the suppliers, manufacturers and service providers that work together to service the supply chain of one client could well be fiercely competing against each other to win business from a different client.
Look at Apple again: its iPhone 6 supply chain involves some 786 suppliers in 31 countries, 60 of whom are in the US and 349 in China. Boeing’s extended global supply chain procures 783m parts per year, involving a total spend of $28bn, across 5, 400 factories employing 500, 000 people.
Supply chain managers strive to balance speed, cost and quality, but they cannot be optimised simultaneously. One of the three will always have to be compromised, in order to benefit the other two, says Mr Millar. For example, if a solution is fast and cheap, then it will most likely have to compromise on quality. The classic trade-off is the contrast in speed and price between air freight and ocean freight.
Carbon footprint – total greenhouse gas emissions caused by the supply chain – has become a top consideration. The ‘ecosystems’ to which Mr Millar refers are significant users of oil. Whether storing goods or transporting them by road, rail, sea or air, the chain consumes fuel and generates pollution. Although consumers tend to look the other way, most companies now consider green supply chain practices as an element of competitive advantage. Green practices can and do reduce costs, and therefore contribute to increased profits. Mr Millar concludes: “It makes sense all round to go green.”
One of his most detailed chapters is headed: “The Asian era is here and now.” It is easy to consider Asia as one market, but in fact it is a collection of markets varying widely in maturity and complexity. The new territories that companies are targeting are at vastly different levels of maturity and sophistication in their supply chain capabilities, logistics networks and transport infrastructure.
On top of such challenges, multinationals need to deal with multi-modal distribution in hinterland regions, for which they need partners with local market knowledge. Mr Millar examines at length the special position of China, where moving products from an inland factory for export might involve a journey of 2, 000 km to container ports on the east coast. By inland waterway that can take more than two weeks – longer than it takes to transport the same goods from Shanghai to Los Angeles.
Of the much-touted New Silk Road as a conduit for trade between Europe and the Far East, Mr Millar refers to the sheer length and complexity of the journey. It is little wonder that his book uses the word ‘challenge’ so many times, in this case for the task facing even the most advanced transport and logistics service providers. The route travels through some of the world’s most inhospitable landscapes, and crosses numerous countries with differing cultures, languages and customs. Add to the mix instances of political instability, bureaucracy, corruption and theft, and one sees considerable risk in progress towards a successful, reliable and efficient trade route.
Even a highly successful Silk Route could handle only a small percentage of total freight – the new routes are likely to be most attractive for companies shipping smaller volumes, or in niche markets where time is important such a specialised electronics and the fashion industry.
The global centre of economic gravity is shifting eastwards. By 2050 the Asia region will account for 50% of global GDP growth, and by 2030 home to 55% of the world’s middle class. China is no longer as cheap as it was thought or manufacture, and Western companies are rethinking their globalisation strategies, looking at options for reconfiguring the supply chain. Some production will move closer to the consumer markets, calling for a more regional approach. As to Africa, is it “the next Asia?” Mr Millar discerns in Africa green shoots for improved logistics, despite many obstacles.
His tour de horizon roams through the talent pool of human capital; innovation and technological developments;, inland container ports; and other factors expanding the ‘ecosystem.’
Wisely, he devotes much attention to risk, for as the chains extend across international boundaries, they become more vulnerable to seemingly random events. The trend towards leaner supply chains with lower stock holdings has contributed to vulnerability to sudden shortages. Catastrophic risks including weather events, traffic accidents and piracy have to be mitigated and the likely costs of disruption and reputational risk assessed. Nor are things critical simply when goods are being stored or moved – they are a the mercy of inter-related networks including IT systems, finance, energy supplies, telecoms, transport and other service networks, any of which can fail, causing severe knock-on effects.
Global Supply Chain Ecosystems: Strategies for Competitive Advantage in a Complex World by Mark Millar is published by Kogan Page. www.koganpage.com
*Irene Rosberg is programme director the Executive MBA in Shipping & Logistics (the Blue MBA), Copenhagen Business School. Since 2001, the Blue MBA, as the programme is familiarly known, has graduated 162 executives from 35 countries, and has been praised by many shipping leaders as a key driver for the efficient modernization of the industry.
