Professor John Gattorna makes the case for considering
the impact of human decisions when managing supply
chains in today's fast-changing business environment.
Supply chain professionals worldwide are struggling to manage during a time of unprecedented change; what was standard practice yesterday is ineffective today. To succeed in this volatile business environment, companies need to implement a new supply chain model, says Dr. John L. Gattorna. In his latest book, Dynamic Supply Chain Alignment: A New Business Model for Peak Performance in Enterprise Supply Chains Across All Geographies, Gattorna and his co-authors suggest a model that addresses not only technology and infrastructure concerns but also recognizes the influence of "the human dimension" —the decisions and choices made by people at all levels of a company and throughout the supply chain.
Known around the world as a leading thinker, author, and lecturer on supply chain management, Gattorna owned a consulting firm in his native Australia that specialized in logistics and marketing. From 1995 to 2002, he led the consulting firm Accenture's logistics strategy practice in the Asia Pacific region. Since then, he has taught at several Australian universities. The author of such widely used books as Living Supply Chains: How to Mobilize the Enterprise Around Delivering What Your Customers Want and Handbook of Supply Chain Management, he is a frequent speaker at conferences and universities worldwide.
In an interview with Editor James A. Cooke, Dr. Gattorna discussed some of the new book's principal ideas.
You and your co-authors raise the idea of dynamic alignment, a new business model for
peak performance in supply chains. Can you briefly describe this model?
The model breaks with convention. It is constructed of four levels and mixes the soft —human behavior —with the hard —assets and technology. Essentially, the model contends that for companies to deliver sustained operational and financial performance, you need four dimensions to be aligned. They are: an especially deep understanding of your customers' buying preferences in the served market; appropriate value propositions for the different behavioral segments identified in your marketplace; the internal, cultural capability inside the business to execute these value propositions; and finally, the leadership style of the top team, which is so important in shaping the required (and sometimes conflicting) subcultures. The model also looks at source markets on the supply side, and it proposes the alignment of the business with suppliers as well. So it has both a demand-side component and a supply-side component.
Why do companies need to adopt this new model?
Current practices, even in the so-called best companies, focus on technology, infrastructure, hard assets, processes, and the like. But they fail to recognize the critical importance of human behavior and decision making throughout the supply chain. At least 50 percent of the activity in enterprise supply chains is driven by humans making choices and decisions. On the outside, it is customers and suppliers, and on the inside, it is employees, management, and boards of directors. Yet where have we allowed for this major influence in the design and operation of contemporary supply chains?
To be blunt, this "human dimension" is at best ignored, and at worst, we see companies in denial about the role of human decision making and behavior. In effect, it is like an engine firing on half its cylinders. Until companies can come to grips with how to link their customers with their internal workings and leadership, the best we can hope for is 10- to 20-percent alignment, which is very wasteful.
What we have to recognize is that the old "one size fits all" model is dead, and that it must be replaced by a multiple-supply chain alignment model that can deliver around an 80-percent fit with the marketplace, even in changing and volatile trading environments. This approach provides new meaning to the word "flexibility."
Are any companies using this model right now?
Zara in Spain is mixing an agile supply chain on the demand side with a lean supply chain on the supply side. Adidas in Europe implemented some alignment principles for the 2006 FIFA (International Federation of Association Football) World Cup in Germany, and it managed to reduce its lead times by 80 percent. Dell is in the middle of reviewing its go-to-market strategy and how it will align with its changing customer base, which is made up of consumer, business, corporate, and educational segments. Ditto for Nokia, which is in the midst of a major transformation to catch up lost ground conceded to Apple.
Parts of DHL in Asia/Pacific have implemented the dynamic alignment model, with stunning results. ... Several companies in Brazil have also transformed themselves using alignment principles, assisted by Axia Consulting in Brazil. Elgeka, a major distributor of branded consumer products in Greece, is embracing alignment for its business on both the supply side and the demand side. ... And the numbers grow daily as the word spreads. ... The common theme is that in each case the leadership has a close understanding of, and empathy with, the customers and suppliers.
In the book, you make this statement: "Out with balanced scorecards in the supply chain, and in with biased KPIs." What do you mean by that?
Despite the fact that balanced scorecards have been widely applied in businesses, in my opinion the system is too general and unfocused. As such, a lot of effort goes into collecting the required data, but this generally is poorly interpreted and ineffectual in the execution.
What I am suggesting instead is that, once you know that you have to service three or four different customer types in terms of buyer behavior, this automatically defines the matching supply chain configurations that will be required to achieve multiple alignment. And as we configure each type of supply chain and develop the necessary capabilities, we will, among other things, decide which KPIs (key performance indicators) are most appropriate to drive the behavior of internal staff in the desired direction. The KPIs are specific to the type of customer and the relevant supply chain.
So, for example, for those customers who are collaborative, we incentivize our people first for retaining them as long as possible, and second, for increasing our share of wallet. Those are the two KPIs that matter, and the rest fade into insignificance. That's what I mean by "bias."
You wrote that by 2030, there will be a need for differentiated service offerings and a supporting portfolio of supply chain types. Can you expand on that idea?
By 2030, I think, many of the alignment ideas —as applied to the overall business and within that context, the enterprise supply chains —that I propose in the book will be widely embraced by companies that have consciously reset their supply chain strategies. In particular, companies that will be thriving will be those that have moved away from treating supply chain as a specialist function to treating supply chain thinking as more of a business philosophy that must be adopted in some part by all functions. At that stage, supply chains will be the business, and the business will be supply chains.
Editor's Note:Dynamic Supply Chain Alignment: A New Business Model for Peak Performance in Enterprise Supply Chains Across All Geographies, published by Gower Publishing, is available through a variety of outlets, including online booksellers, the Chartered Institute of Logistics and Transport, the Chartered Institute of Purchasing and Supply, and other organizations.
Container imports at U.S. ports are seeing another busy month as retailers and manufacturers hustle to get their orders into the country ahead of a potential labor strike that could stop operations at East Coast and Gulf Coast ports as soon as October 1.
Less than two weeks from now, the existing contract between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance covering East and Gulf Coast ports is set to expire. With negotiations hung up on issues like wages and automation, the ILA has threatened to put its 85,000 members on strike if a new contract is not reached by then, prompting business groups like the National Retail Federation (NRF) to call for both sides to reach an agreement.
But until such an agreement is reached, importers are playing it safe and accelerating their plans. “Import levels are being impacted by concerns about the potential East and Gulf Coast port strike,” Hackett Associates Founder Ben Hackett said in a release. “This has caused some cargo owners to bring forward shipments, bumping up June-through-September imports. In addition, some importers are weighing the decision to bring forward some goods, particularly from China, that could be impacted by rising tariffs following the election.”
The stakes are high, since a potential strike would come at a sensitive time when businesses are already facing other global supply chain disruptions, according to FourKites’ Mike DeAngelis, senior director of international solutions. “We're facing a perfect storm — with the Red Sea disruptions preventing normal access to the Suez Canal and the Panama Canal’s still-reduced capacity, an ILA strike would effectively choke off major arteries of global trade,” DeAngelis said in a statement.
Although West Coast and Canadian ports would see a surge in traffic if the strike occurs, they cannot absorb all the volume from the East and Gulf Coast ports. And the influx of freight there could cause weeks, if not months-long backlogs, even after the strikes end, reshaping shipping patterns well into 2025, DeAngelis said.
With an eye on those consequences, importers are also looking at more creative contingency plans, such as turning to air freight, west coast ports, or intermodal combinations of rail and truck modes, according to less than truckload (LTL) carrier Averitt Express.
“While some importers and exporters have already rerouted shipments to West Coast ports or delayed shipping altogether, there are still significant volumes of cargo en route to the East and Gulf Coast ports that cannot be rerouted. Unfortunately, once cargo is on a vessel, it becomes virtually impossible to change its destination, leaving shippers with limited options for those shipments,” Averitt said in a release.
However, one silver lining for coping with a potential strike is that prevailing global supply chain turbulence has already prompted many U.S. companies to stock up for bad weather, said Christian Roeloffs, co-founder and CEO of Container xChange.
"While the threat of strikes looms large, it’s important to note that U.S. inventories are currently strong due to the pulling forward of orders earlier this year to avoid existing disruptions. This stockpile will act as an essential buffer, mitigating the risk of container rates spiking dramatically due to the strikes,” Roeloffs said.
In addition, forecasts for a fairly modest winter peak shopping season could take the edge off the impact of a strike. “With no significant signs of peak season demand strengthening, these strikes might not have as intense an impact as historically seen. However, the overall impact will largely depend on the duration of the strikes, with prolonged disruptions having the potential to intensify the implications for supply chains, leading to more pronounced bottlenecks and greater challenges in container availability, " he said.
A coalition of freight transport and cargo handling organizations is calling on countries to honor their existing resolutions to report the results of national container inspection programs, and for the International Maritime Organization (IMO) to publish those results.
Those two steps would help improve safety in the carriage of goods by sea, according to the Cargo Integrity Group (CIG), which is a is a partnership of industry associations seeking to raise awareness and greater uptake of the IMO/ILO/UNECE Code of Practice for Packing of Cargo Transport Units (2014) – often referred to as CTU Code.
According to the Cargo Integrity Group, member governments of the IMO adopted resolutions more than 20 years ago agreeing to conduct routine inspections of freight containers and the cargoes packed in them. But less than 5% of 167 national administrations covered by the agreement are regularly submitting the results of their inspections to IMO in publicly available form.
The low numbers of reports means that insufficient data is available for IMO or industry to draw reliable conclusions, fundamentally undermining their efforts to improve the safety and sustainability of shipments by sea, CIG said.
Meanwhile, the dangers posed by poorly packed, mis-handled, or mis-declared containerized shipments has been demonstrated again recently in a series of fires and explosions aboard container ships. Whilst the precise circumstances of those incidents remain under investigation, the Cargo Integrity Group says it is concerned that measures already in place to help identify possible weaknesses are not being fully implemented and that opportunities for improving compliance standards are being missed.
By the numbers, overall retail sales in August were up 0.1% seasonally adjusted month over month and up 2.1% unadjusted year over year. That compared with increases of 1.1% month over month and 2.9% year over year in July.
August’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.3% seasonally adjusted month over month and up 3.3% unadjusted year over year. Core retail sales were up 3.4% year over year for the first eight months of the year, in line with NRF’s forecast for 2024 retail sales to grow between 2.5% and 3.5% over 2023.
“These numbers show the continued resiliency of the American consumer,” NRF Chief Economist Jack Kleinhenz said in a release. “While sales growth decelerated from last month’s pace, there is little hint of consumer spending unraveling. Households have the underpinnings to spend as recent wage gains have outpaced inflation even though payroll growth saw a slowdown in July and August. Easing inflation is providing added spending capacity to cost-weary shoppers and the interest rate cuts expected to come from the Fed should help create a more positive environment for consumers in the future.”
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”
A new survey finds a disconnect in organizations’ approach to maintenance, repair, and operations (MRO), as specialists call for greater focus than executives are providing, according to a report from Verusen, a provider of inventory optimization software.
Nearly three-quarters (71%) of the 250 procurement and operations leaders surveyed think MRO procurement/operations should be treated as a strategic initiative for continuous improvement and a potential innovation source. However, just over half (58%) of respondents note that MRO procurement/operations are treated as strategic organizational initiatives.
That result comes from “Future Strategies for MRO Inventory Optimization,” a survey produced by Atlanta-based Verusen along with WBR Insights and ProcureCon MRO.
Balancing MRO working capital and risk has become increasingly important as large asset-intensive industries such as oil and gas, mining, energy and utilities, resources, and heavy manufacturing seek solutions to optimize their MRO inventories, spend, and risk with deeper intelligence. Roughly half of organizations need to take a risk-based approach, as the survey found that 46% of organizations do not include asset criticality (spare parts deemed the most critical to continuous operations) in their materials planning process.
“Rather than merely seeing the MRO function as a necessary project or cost, businesses now see it as a mission-critical deliverable, and companies are more apt to explore new methods and technologies, including AI, to enhance this capability and drive innovation,” Scott Matthews, CEO of Verusen, said in a release. “This is because improving MRO, while addressing asset criticality, delivers tangible results by removing risk and expense from procurement initiatives.”
Survey respondents expressed specific challenges with product data inconsistencies and inaccuracies from different systems and sources. A lack of standardized data formats and incomplete information hampers efficient inventory management. The problem is further compounded by the complexity of integrating legacy systems with modern data management, leading to fragmented/siloed data. Centralizing inventory management and optimizing procurement without standardized product data is especially challenging.
In fact, only 39% of survey respondents report full data uniformity across all materials, and many respondents do not regularly review asset criticality, which adds to the challenges.