Harvard on ‘Supply Chain’ – TEN YEARS AGO!


The October 2010 Harvard Business Review magazine published five stand alone articles under the banner RADICALLY REINVENT YOUR SUPPLY CHAIN. Extracts from three of these articles follow.

There truly is something to this '10 year' thing. Several years ago, we had a 'genius panel' of 6 current or former presidents of AAPN. The question – "what in your opinion will be the SAME 10 years from now". We'll spend the 2020's working on the same thing we taken action on for the last 20 years, how to build the 21st Century Supply Chain. 

We can do this because AAPN remains the only supply chain network in the industry, the town square at the center of ‘being the change you want to see’. And only a supply chain organized industrially into a proven network, what the industry refers to as an NGO, can bring all the minds, resources, passion and progress together, as we have done.

Harvard has always argued for the power of networking, the responsibility you have to do so. Yes, they admit that the higher you go, the less time you perceive that you have. But that only makes networking a more critical factor in your very survival. Yes, we use hunting as an analogy of ‘bagging the big one’. But success is more like farming, carefully cultivating your network over time, building relationships. As one quote says below, “The best businesses don’t just hire the sharpest people, they keep expanding their expertise by partnering with NGO’s that have deeper and broader knowledge.” This industry's supply chain NGO is us, AAPN.

Quotes follow with my notes or paraphrases in parentheses:

Firms often take a piecemeal approach to sustainability…..(the small incremental steps they take) may seem worthwhile, but may generate unintended consequences such as higher financial, social or environmental costs.

(these actions are in response to) various stakeholders – customers, shareholders, boards, employees, government, NGO’s (I would add suppliers and community, if not country).

Changing light bulbs are ‘substitution’ actions – and can even have costly side effects.

Companies need a more holistic approach – (that can include) fundamentally different relationships with business partners and even collaboration with multiple companies to create new industry structures.

(this can include) even linking up with competitors to tackle challenges of scale – the result can be a greener supply chain that requires less capital, has much lower operating costs, and provides a competitive advantage (this is effect is our mission statement)

(companies must) Regard sustainability as integral to the operation of their supply chains, along with inventory, cycle time, quality, and the costs of materials, production and logistics.

Start by mapping supply chain operations, consider their potential social impact, achieve the right balance of environmental, social and conventional operations considerations.

Internally, start by identifying overlapping activities…..priorities may be different, the metrics to track progress will have to be more comprehensive (silos within the enterprise).

Work with your suppliers' suppliers – sometimes the critical payers in your supply chain may be several links away (this is what makes AAPN exclusive, we host the entire supply chain, end-to-end, in the room for 2 days, for over three decades of cumulative meetings).

Sometimes sustainability challenges are too great for the supply chain of one enterprise to tackle on its own … When multiple supply chains use the same materials, consume the same resources, or face the same threats, collaboration can bring cost-efficient, innovative solutions. (or serve the same market, share the same geography, work in the same industries, have the same suppliers, or operate under the same politics) .

The core managers overseeing the supply chain, not a peripheral CSR group, most own and tackle it aggressively as they do cost, quality, speed and dependability. Companies that take such a holistic approach will steal the march on reactive, substitutive competitors. They will be sustained.

Sustainability starts to get real when people realize its strategic (in other words, top down).

You need employees who are innovative – who have the skill and the vision to redesign products, processes and business models – and who understand the business context (the author adds “if you’re stuck in the (making money) mindset, on short term financial performance, you won’t get very far").

It starts with asking “who are we?” and “why are we here?”

You can’t build a new vision without a strong, community-oriented culture – which by the way is rare – the gap between that idea and the way most managers manage is enormous.

First understand the larger system, then second, learn to work with people you haven’t worked with before…..the system is too complicated for one person to grasp, it crosses to many boundaries, internal and external.

Most companies believe sustainability is about being less bad…..the environmental movement is a big culprit in this, so much rhetoric about how bad business is that people inside companies feel guilty and guilty people aren’t going to do bold things.

How do you change a supply chain? First, you focus on the nature of the relationships. In most supply chains, 90% of them are still transactional. If I’m a big manufacturer or retailer, I pressure my upstream suppliers to get their costs down. There’s very little trust and very little ability to innovate together. That must change. (as AAPN member Suzy Ganz of Lion Brothers preaches, “if what you want is a strategic relationship and what they want is a transactional relationship, run like hell”. AAPN member Barbara zeins of Gerson & Gerson, who wrote the landmark presentation 9 BIG FAT GARMENT LIES, recently added a 10th lie, "Lie #10: you can build a strong supply chain without trust").

Second, you work with NGO’s. They’ll give you access to expertise you can’t get internally….. NGO’s can provide knowledge. The best businesses don’t just hire the sharpest people, they keep expanding their expertise by partnering with NGO’s that have deeper and broader knowledge. (that’s AAPN, and only AAPN)

It starts when the CEO steps back to reconsider the organization’s relationship to the world. Gradually, they build a network of people who are fascinated by the problem and excited about finding a solution. (No need to build a network from scratch, we have one ready-made).

The key is not your position, it’s your passion, your ability to form networks and your organizational savvy. This is where young people sometimes run aground: they’ve get energy and passion but don’t have a clue about the culture of the organization or where the natural pockets of power are.

When making supply chain decision, most managers rely on the discounted cash flow (DCF) model to help them evaluate alternatives. The trouble with this approach is that DCF typically undervalues flexibility. As a result, companies end up with supply chains that are lean and low cost as long as everything goes according to plan – but horribly expensive if the unexpected occurs. (reference something like……coronavirus?).

….you can void this trap by complementing a DCF analysis with a real options valuation which allows you to put a dollar figure on flexibility in the supply chain.

(sourcing (closer to home) gives) two key advantages: flexibility in timing production commitments and the ability to directly manage problems.