Leveraging Free Trade Agreements: Revealing the Hidden Cost Savings
Learn how Benjamin Moore saved millions by automating the NAFTA qualification process.
Sponsored by Amber Road
Most Read Articles
Supply chain management: A look back, a look ahead
It is widely accepted that change is inevitable, and certainly most logistics and supply chain management practitioners would agree. But no one has a crystal ball (or, as some of us old-timers might remember, a "Magic 8 Ball") to tell us how we personally or as a company should respond to change. What we can do, however, is examine some of the major events of the past, learn from them, and then use them to guide us in forecasting and shaping the future. In other words, if history is a good predictor of the future, we can get a pretty good idea of what might transpire in the next few decades based on what has already occurred.
Indeed, several events in the past 50 years have not only shaped the development of the supply chain management (SCM) profession as we know it today but will also likely affect developments in the future. This article will first take a look back at those important historical events—some of which could be termed "watershed events" in the development of SCM—and then will consider where they may lead us in the future.
The historical perspective
Most relevant to this article is the founding of the present-day Council of Supply Chain Management Professionals (CSCMP). In 1963, the National Council of Physical Distribution Management (NCPDM) was formed by a group of forward thinkers from industry and academia. It was the first time that physical distribution practitioners could assemble in a formal way to discuss strategies and tactics related to their profession. Always oriented toward education and research, the organization changed its name and focus in 1985 to the Council of Logistics Management (CLM) as the profession expanded to become logistics management. In 2005, the organization changed its name and focus again, this time to CSCMP, reflecting the fact that logistics had become part of a broader process called supply chain management. To this day, the organization continues to be the premier source for leading-edge education, research, and practices in the areas of logistics and supply chain management.
In the mid-1970s, two academics from The Ohio State University, Bernard "Bud" La Londe and Paul Zinszer, conducted a landmark study on customer service for NCPDM. This study was the first effort to identify the various customer service strategies and tactics employed by organizations. It highlighted the role of physical distribution and logistics in what would become a key element of SCM—customer service and satisfaction. In essence, customer service became the cornerstone of logistics, and when SCM developed a decade later, it formed the foundation for customer satisfaction strategies and programs.
In the United States during the late 1970s through the early 1980s, the major transportation modes were deregulated through a series of legislative initiatives: the Airline Deregulation Act of 1978, Motor Carrier Act (1980), Staggers Rail Act (1980), and Shipping Act of 1984. These laws allowed transportation companies for the first time to offer cost and service packages that could best meet both their own and their customers' needs. This change fostered improvements in carrier strategies and tactics that, in turn, facilitated the implementation of such programs as quick response (QR), just-in-time (JIT), crossdocking, efficient consumer response (ECR), and others.
Meanwhile, during the latter part of 1979, the first personal computer (PC) was sold in a retail store. The PC revolutionized all facets of business, but it had an especially strong impact on physical distribution, logistics, and ultimately SCM. For the first time, organizations of all sizes did not have to rely exclusively on mainframes and minicomputers to manage their operations and analyze market data. Given the relatively modest cost of PCs, enhanced data processing capabilities could be implemented by almost any organization regardless of size. While initial software offerings to accompany the introduction of the PC were limited, it wasn't long before software became available for every facet of the supply chain. Once organizations were able to use low-cost PCs to run enterprise resource planning (ERP), efficient consumer response (ECR), customer relationship management (CRM), transportation management systems (TMS), warehouse management systems (WMS), total quality management (TQM), and other programs, their operations could become more efficient and effective, resulting in significant benefits to both customers and the organizations that served them.
In the mid-1980s, an awareness of SCM began to develop as businesses recognized the important role of logistics as well as other activities and processes in serving customers. This orientation helped achieve better intra-company coordination among traditional functional areas and inter-company collaboration and coordination with suppliers, vendors, and customers. The intra-company linkages that were established within organizations allowed synergies to develop among operations, marketing, accounting/finance, logistics, and other areas. Even today, organizations are still discovering the many "win-win" linkages that effective and efficient SCM creates and then delivers to their constituencies.
When terrorists attacked the World Trade Center in New York and the Pentagon in Washington, D.C., in 2001, logistics and supply chain professionals recognized that the world had become less safe, and organizations were forced to become much more aware of risk and uncertainty as they affected supply chains. While risk and uncertainty had always been a part of business intelligence and a consideration in decision-making, the terrorist attacks in the United States and in other countries around the world moved these issues front and center. Contingency planning became a requirement rather than something that was "nice but not necessary."
Terrorism was not the only concern driving companies to pay more attention to risk. Because businesses of all kinds were now operating in a global marketplace with vendors, suppliers, and customers located worldwide, risks and uncertainties expanded significantly. Supply chains had become more efficient, effective, and responsive, but they had also become much more complex and more vulnerable to disruptions caused by such things as natural disasters, labor strikes, power outages, political instability, and cyber-attacks on the Internet, to name just a few.
By 2010, the end of "cheap oil" was having an especially strong impact on manufacturing and transportation. "Cheap" transportation became a historical artifact as oil prices soared to over US $100 per barrel. While oil prices have shown significant variability in the past few years, it seems clear that the days of oil priced at less than US $40 per barrel are gone forever. This has resulted in rising costs for manufacturing, transportation, and warehousing, prompting the restructuring of supply chain networks worldwide. Accordingly, nearshoring and offshoring have become much more important strategic issues for many organizations.
Additionally, the rising importance of such issues as sustainability, reverse logistics, product stewardship, and energy conservation have placed additional burdens on the supply chain because of its significant consumption of natural resources and its potential for impacting the environment. Political intervention via new laws and restrictions will most likely keep these issues at the forefront of public policy issues affecting supply chain operations.
A look into the future
The combination of these and many other events and developments has brought supply chain management to where it is today, and it will be the basis for what SCM will become in the future. As logistics and supply chain professionals prepare for the future, they will face a number of challenges and issues. Most notably, they will have to deal with continuous upgrades in technology; the growing importance of "big data" and data analytics in SCM; increasingly widespread uncertainty and the associated need for a greater focus on risk management; growing government involvement in business (in regard to taxes, inflation, debt, and infrastructure, for example); and labor shortages at all levels.
Technology improvements have been of tremendous benefit to supply chain professionals. From sophisticated software and wireless systems to smart phones, iPads, and other devices that seem to be getting smaller, cheaper, and more mobile all the time, technology has had, and will continue to have, a significant impact on SCM and its components. Many managerial decisions that could only be made over a few weeks or a few days in the past must be made in just a few hours or even a few minutes today, and they may have to be made within seconds in the not-too-distant future. To assist the supply chain professional in making decisions more quickly, technology will allow both line and staff personnel to access large amounts of data, quickly analyze that data, and the use that information to determine the best course of action for a particular circumstance. The concept of quick response will become more widespread as organizations are able to respond to situations more rapidly.
The increasing availability of large amounts of data will assist supply chain decision-makers to respond more quickly. For decades, the availability of data has been growing exponentially each year. In 2006, IBM estimated that by 2010, knowledge would double every 11 hours.1 In 2010, Eric Schmidt, Google's chief executive officer, was quoted as saying, "Every two days we create as much information as we did from the dawn of civilization up until 2003."2
While it is hard to say just how much data is being generated, and how quickly, it is not hard to imagine that more data will become available, given the increasing variety of data sources we now have and the fact that many of those sources are capable of producing enormous quantities of data. How, then, will organizations be able to keep up with such growth? The answer will be better use of "big data" analytics. ("Big data" refers to large quantities of information about operational transactions, often held in disparate repositories or databases.)
A 2012 Bloomberg Businessweek survey reported that companies are using business analytics to aid in decision-making to a much larger degree than in the past, and that businesses that use analytics more extensively believe that it improves their performance.3 Potential uses of big data analytics are myriad and include strategy/planning, finance, marketing, sales, information technology, product development, customer service/support, and human resources, to name a few. Organizations that are able to more effectively analyze large amounts of data quickly will likely realize competitive advantages over those that do not. This is one reason employees will be required to know how to access, analyze, and evaluate large amounts of data—and why those skills will be requirements of educational and training systems in the future.
One benefit of using the latest technologies to analytically evaluate a large volume of data is that it will help to reduce uncertainty and risk. This will become increasingly critical as the world becomes a riskier place in which to operate. During the past few years alone, we have seen global recession, massive unemployment in Europe, political turmoil in a number of countries, a fear of the future by many consumers worldwide, and significant uncertainty among businesses as to what the future will hold for them and their customers. Moreover, global events, including the earthquakes in China, oil spills in the Gulf of Mexico, exponential increases in the prices of precious metals and commodities, and widespread unemployment or underemployment, among others, have made the business climate more uncertain and supply chain decision-makers more cautious.
The ability of supply chain professionals to effectively manage extended supply chains that are often global in scope will therefore become increasingly important, and contingency planning will have to become more than just a catchphrase. Technology and analytics will be important enablers by making the almost impossible task of collecting, analyzing, and understanding large volumes of data a bit easier. However, supply chain professionals will still have to make sense of all the data available to them and make the right decisions that benefit their companies, their supply chains, and their customers.
At about the same time those technology-related issues are developing, government involvement in business will likely become more significant. Tax rates, unemployment, the level of inflation or deflation, the amount of government debt, the condition of a country's infrastructure, and other macro issues are the purview of governments and not of businesses. Recent developments in the eurozone, including Greece, Cyprus, Italy, and other European Union (EU) countries, regarding unemployment, debt restructuring, and bank solvency, impact all sectors of the economy, including supply chains. As a result, the future role of government in business affairs is becoming more variable and more uncertain.
With countries becoming more interrelated and interdependent politically, militarily, and economically, governments' actions will increasingly affect global commerce, and supply chain professionals will have to consider the impacts of government decisions on their industries, on their companies, and on their customers. For example, in the United States, some companies are hiring more part-time employees in order to minimize mandatory health care costs, while in many countries, organizations choose to locate production facilities, sales offices, or other corporate entities outside their home countries because of corporate tax rates and environmental regulations they consider to be too onerous. Supply chain professionals must factor these and other government-influenced issues into their decisions, such as where to locate warehouses and distribution centers, what types of transportation modes to use, whether to source locally or offshore, and many others. Likely, industry associations will have to become more proactive in influencing and helping to craft government regulations, policies, and practices, perhaps through formal lobbying efforts.
From a human resources perspective, the future seems both bright and difficult. Supply chain management will continue to be a very good career option for both men and women. Customers will always need products and services, and supply chain professionals are the ones who make sure those goods and services get delivered. However, it appears that the future supply of labor will not meet the anticipated demand. This is not limited to the ongoing shortage of truck drivers, which is expected to worsen as the existing pool of drivers retires and few young people enter the profession. A chilling report issued by the Georgia Center of Innovation for Logistics in late 2012 predicted a significant shortage of labor for the logistics sector. While the paper reported that the U.S. logistics industry was expected to create more than one million jobs between 2013 and 2016 (a good statistic), the nation's colleges and universities were expected to generate only about 75,000 workers annually to fill those jobs (a bad statistic), thus creating a significant shortfall.4
Other studies report similar findings. A 2012 Gartner Supply Chain Research report predicted a shortage of skilled workers for procurement and sourcing jobs by 2016.5 The U.S. Bureau of Labor Statistics in 2011 projected a 15-percent shortfall in people to fill jobs in the warehousing and storage sector.6 In Canada, information released in 2012 by the Canadian Supply Chain Sector Council indicated that there were approximately 27,000 unfilled supply chain jobs in Canada, and that an additional 360,000 positions would need to be filled in the next five years.7
In fact, this phenomenon is occurring worldwide. The rapidly developing economies of the BRIC countries (Brazil, Russia, India, and China), while attractive markets, are also experiencing talent shortages, especially at the middle management level. However, there is no significant systematic effort to resolve the existing and potential future shortage of workers.8
A bright but challenging future
In sum, supply chain professionals will have to face "the good, the bad, and the ugly" in the future. The "good" is that SCM can provide significant benefits to organizations and their customers, and a large number of employees will have to be hired to fill all types of supply chain positions. The "bad" is that it will be more difficult to plan, implement, and control supply chain operations because of various risk and uncertainty factors, such as labor shortages, increasing government involvement in business, and other uncertainties in the global marketplace.
The "ugly" is that, while everyone knows that efficient and effective supply chains are vital to the growth and development of economies, industries, and organizations, it will not be easy to achieve that. Technology will be available to assist, but people will have to know how to most effectively use that technology. And yes, there will be data available to provide supply chain decision-makers with the information they need to make the best decisions. However, the tidal wave of data that will be available will tax the managerial capabilities of most supply chain professionals.
Thus, the future is bright, yet it is not without challenges. Personally, I believe that supply chain professionals will do what they have always done—rise to the challenge!
1. IBM, The toxic terabyte: How data dumping is threatening business (2006).
2. MG Siegler, "Eric Schmidt: Every Two Days We Create As Much Data As We Did Up To 2003," TechCrunch (August 4, 2010).
3. Bloomberg Businessweek Research Services, "Making Business Analytics Work: Lessons from Effective Analytics Users," Bloomberg Businessweek (2012).
4. The Georgia Center of Innovation for Logistics, The Logistics of Education and Education of Logistics: Exploring the Supply and Demand of the Logistics Workforce (October 30, 2012).
5. Mickey North Rizza, "Procurement and Sourcing Has Talent! Or Does It?" SupplyChainBrain (March 13, 2012).
6. Dematic, "Planning for the Looming Labor Shortage: A Supply Chain Perspective," Maximum Experience/Minimal Risk, Vol. 6, Issue 4 (undated).
7. Canadian Supply Chain Sector Council, 2012 HR Study Update (March 2012).
8. Boston Consulting Group, "Markets of Developing Nations Are Very Attractive, But Lack of Talent Is a Problem," SupplyChainBrain (April 12, 2012).
Join the Discussion
After you comment, click Post. If you're not already logged in, you will be asked to log in or register.
We Want to Hear From You! We invite you to share your thoughts and opinions about this article by sending an e-mail to ?Subject=Letter to the Editor: Quarter 2013: Supply chain management: A look back, a look ahead"> . We will publish selected readers' comments in future issues of CSCMP's Supply Chain Quarterly. Correspondence may be edited for clarity or for length.