In many ways, the headlines from Labor Day weekend 2019 succinctly encapsulated the concurrent challenges facing the supply management profession.
Continuing protests in Hong Kong. More tariffs turbulence, including President Donald Trump’s “hereby order” of U.S. companies to move manufacturing and sourcing from China. Economic indicators hinting at a looming slowdown, if not a recession. And a hurricane overwhelming the Bahamas and taking aim at the Atlantic coast.
While procurement professionals have always had to deal with trade wars, geopolitical events or natural disasters, rarely have they had to grapple with so many potential roadblocks, simultaneously. Whether this the new normal for supply management is to be determined. But it’s certainly a new era — one that will likely redefine global supply chains, says Shay Scott, Ph.D., MBA, executive director of the Global Supply Chain Institute at the University of Tennessee at Knoxville, Tennessee, where he is also a faculty member.
“It is the era we live in now,” Scott says. “For the optimist, it creates a time of unparalleled opportunity for companies and supply management organizations to differentiate themselves from competitors. For pessimists, it’s a challenging environment where if you don’t really pay attention, there can be disastrous consequences.”
While global supply chains, in some form, are here to stay, they might have become too complex, Scott says. Regionalization has become more of a focus as companies sense an end to the era of (1) lower trade barriers and (2) cheap labor and shipping, as well as the increased geopolitical- and natural disaster-related risk that comes with longer supply chains.
For example, executives and supply managers didn’t need Trump’s “hereby order” — which came in a tweet, and its legal authority is debatable — to explore moving sourcing and production operations from China; they’ve been doing so for at least a year.
“There’s certainly increasing complexity in supply chains,” he notes. “And many companies are getting a handle on what it takes to manage a supply chain of that complexity. It’s not that they became that way organically — they realized the impact of the things they created. (Companies have) chased low costs, cheaper labor and fewer factories. In doing so, transit times were lengthened and risks raised because with fewer nodes, you’ve got a bigger problem if something happens to one. There are plenty of examples of companies which didn’t manage that well, and it had tremendous impact to their business. So, everyone else is saying, ‘Maybe things are a little too complex.’ ”
The primary driver, Scott says, is digitization. New technologies are already having a significant impact on supply management, changing what procurement jobs look like, the skill sets necessary for them, and the nature of employee/employer and buyer/supplier relationships. Such technologies can help organizations break down a global supply chain into regional structures, creating increased visibility and agility as well as helping meet rising consumer expectations.
“(Regionalization) is a better risk-management strategy,” Scott says. “You add consumers who have increasing choices and demands — and they’re increasingly unforgiving. So, there’s more of a commercial reason to have a supply chain with more resiliency built into it, because if you don’t deliver, customers are gone.”
After years of being cost-centric, companies are striving to put their products on the paths of least resistance to customers, who have more choices than ever before.
A new era, and maybe the new normal.
“With the backdrop of all these (current events), we’re entering an age of the supply chain as a primary means of competitive advantage,” Scott says. “So, when you look at the protests in Hong Kong or the trade issues, the companies operating in those environments realize why their supply chains are so important.”