A broken supply chain will kill you, your business, and your country: In March of 2021 before the coming of vaccines, I had caught severe COVID-19 and nearly died. There was no ambulance, no hospital rooms, no medicines and not enough health-care support. I survived fighting for my life for a month. I refused to die with a cause of death labeled as “supply chain issues.” It would have been the height of irony, given that I was a leader of supply chain advocacy.
Companies and countries are expected to face continuing supply chain challenges in managing risk, controlling cost of goods, and improving the value they provide. We will continue to struggle with inflation and looming recession, demand volatility, supply disruptions, fraud and corruption, geopolitical tensions, talent availability, leadership issues, sustainability and climate hazards. What I fear most is the reversal of globalization and wars. Supply chain management will be a key success factor that will determine whether we survive and succeed.
The CEO mandate
In our Procurement & Supply Institute of Asia (Pasia) discussions, it was shared to me that CEOs are very keen on two supply challenges: 1. making product available for sales and 2. lowering the cost of goods. You would be surprised at how many CEOs think they are entitled to perfect supply, and how many think that every supply chain has a bottomless warehouse full of products. Many CEOs come from sales or marketing backgrounds. It’s not their fault. The supply chain industry doesn’t train them well, and they don’t have anyone on their board with an intensive, practical and world-class supply chain background.
Supply chain is now on center stage. Every time we open our news or social media platforms, supply chain captures all our attention. The harsh truth: CEOs, business executives and national leaders don’t seem to fully comprehend what supply chain is all about. Supply chain now impacts nearly everything!
Who then is to blame for the current supply issues in your business or country? The recent survey results from Coleman Parkes Research this month indicate that the key causes are (multiple causes not mutually exclusive):
Global political unrest (e.g., conflict with Russia, Taiwan), 58 percent
- Lack of raw materials, 44 percent
- Rising fuel and energy costs, 40 percent
- Changes in regulation and compliance, 36 percent
- Rising interest rates, 34 percent
- Lacking contingency plans across the supply chain industry, 34 percent
- Pandemic/health concerns, 32 percent
- Inflation and rising costs, 31 percent
- Reliance on distant foreign suppliers, 30 percent
- Labor shortage issues, 30 percent
- Climate issues, 28 percent
- Remote working, 25 percent.
When companies were asked what they would do when supply chain costs increase, the replies were (multiple options not mutually exclusive):
- Wage/recruitment freezes, 61 percent
- Staff job cuts, 50 percent
- Increase selling price of goods/services, 46 percent.
Are we ready for this?
The company’s balance sheet, income statement and cash flow depend heavily on supply chain execution. Inventory levels, carrying cost, the unit cost to serve the customer, asset management, production cost, cost of goods sold, inbound and outbound costs, and customer satisfaction all impact our financials. In supply chain, we juggle three flows: information flow, physical flow and cash flow. It’s a complex arena where training and experience can mitigate difficulties and ensure success. CEOs and government leaders need to know what they can demand from their supply chain.
When asked, “How would you describe the current state of your businesses’ supply chain?,” respondents replied:
- In need of no improvement, 0 percent
- In need of significant improvement, 3 percent
- In need of some improvement, 39 percent
- In need of a lot of improvement, 49 percent.
In summary: Challenges lie ahead and immediate proactive actions are needed to respond, elevate and fortify our supply chains.
A national supply chain agenda
Reverse globalization is developing. The United States has passed laws compelling chipmakers to bring their manufacturing back to homeland. They are spending billions of dollars creating the infrastructure they need to be self-sufficient. This will become increasingly impactful in the coming years.
From a macroeconomic view, most of the solutions lie in focusing on fiscal and monetary policies to meet economic demands. We need structural reforms for end-to-end supply chain structures and execution. This is true for individual businesses, entire industries and nations.
Another thing that bothers me is that in all my engagements, clients think supply chain is about logistics management. This is a very limited view as logistics is already part of execution. A lot of work and analysis must be done upfront in the planning, which sets the pace and tone for achieving the right results. We need to educate stakeholders that supply chain is about supply chain planning, procurement, manufacturing and logistics. End-to-end supply chain is best described as “plan, source, make, deliver and return.”
Some recommendations for businesses:
1. Include supply chain in your business agenda and make it a priority.
2. Integrate and orchestrate your supply chain: plan -source-move.
3. Provide leadership and fast track talent development.
4. Develop and implement better processes.
5. Digitalize and automate.
6. Build ethical practices and drive sustainability.
For the country:
1. Create a governance focal point that leads oversight of regulations that affect the country’s supply chain.
2. Develop a national supply chain strategy and road map beyond merely logistics road maps.
3. Organize appropriately with the right people, processes and technology.
4. Establish supply chain visibility (i.e. demand and supply data analytics, market and industry trends, etc.)
5. Have appropriate measures to assure supply, quality and minimize the cost of goods and services for the people and business.
6. Review and update procurement laws. Adopt best practices, such as strategic sourcing.
7. Digitize and automate.
8. Drive ethics and sustainability. INQ
The author chairs the Management Association of the Philippines Trade, Industry & Tourism Committee. He is also the chair and CEO of Pasia, TransProcure Corp., and Pasia Shared Services. He is a supply chain icon in Asia for his works and advocacy of ethics, excellence and e-enablement in supply chains. Feedback at map@map.org.ph and charlie.villasenor@transprocure.com.