Global Supply Chains Have Changed—Here’s How to Adapt
Ensuring US companies can compete globally in the 21st century will depend in large part on the success of a wide network of supply chain leaders (SCLs) around the nation collaborating with their supply chain partners. The economic case is clear. To learn more about this evolving practice, Ashford offers a Supply Chain Management Degree.
According to research by Ankaria (2008), procurement costs run 75% to 80% of the cost of manufacturing vehicles. Parker, a guest columnist for Muller (2015), notes that material costs are approximately 70% of a manufacturer’s total expenses. Ignoring even small savings in material cost can translate into waste that directly affects the bottom line. In addition, America’s SCLs must optimize supply chain economic performance in an environment of material shortages, a growing global middle class, terrorism, natural disasters demands for social responsibility, and increasing international competition (Autry, Goldsby, & Bell, 2013). Enterprises have emphasized technological solutions such as Big Data, Enterprise Resource Planning, Customer or Supply Relationship Management systems, and so on. While technology is an important supply chain management enabler, it is not a total solution by itself. Four fundamentals of collaboration are necessary to manage the complexities modern supply chains. These include knowledge sharing (K), analytics use (A), innovation management (I), and relationship building (KAIR®).
Figure 1. KAIR
Figure 1 illustrates the concept of supply chain collaboration using the elements of KAIR. Relationship building establishes the foundation to share knowledge and use analytics among organizations. In turn, knowledge sharing and analytics will help supply chain partners drive innovation, which has always been an inherent strength of the US in global competitiveness.
While a good model, enterprises may find KAIR a challenge. Suppliers vying for the same customers and customers buying from suppliers who sell to their competitors do not set the stage for KAIR. Because of this, companies have had significant difficulties finding a way to share knowledge (Jayaram & Pathak, 2013). Bowman (2014) points out that companies have not yet received the wake-up call to manage risks in spite of expensive recalls and natural disasters. Bowman, citing Leclerc as a leading authority in risk management, notes that companies seem to have short-term memory, and have instead remained focused on quarterly earnings. Further, Cecere (2015) offers evidence that Sales and Operations Planning is hard to do within an organization, let alone across the supply chain that keeps it afloat.
Table 1. Elements of KAIR to Manage Across Organizational Boundaries
Organizations use a variety of means to share knowledge. Sales and Operations Planning (S&OP) is an opportunity for sales and operations to come together in order to share knowledge and solve cross-functional problems -- expanding the team may prove helpful to increase knowledge sharing within an organization (Cecere, 2015). SCLs can use the same principle to integrate management teams across the supply chain, including procurement managers, logisticians, carriers, and suppliers. The S&OP principle may also be used to identify risks, develop solutions, and create contingency plans (Wenger, McDermott, & Snyder, 2002).
Today’s organizations commonly share tactical information via electronic data interchange (EDI) – but it is time to share more. SCLs need to exchange analytics based on performance metrics, market forecasts, and results of predictive analytics that enable prediction of specific events. Quality processes need to span organizations along the supply chain. Siegel (2015) reports that the grocery chain Tesco uses predictive analytics to understand which customers use coupons and those who will discard them. SCLs can use similar analytics to predict transit times, on-time delivery, claims performance, product inventory levels, and various quality metrics.
Innovation can lead to competitive advantages. Managing innovation includes monitoring and responding, or creating and executing. Organizations need to monitor and respond to innovative disruption (Valacich and Schneider, 2014). For example, it is expected that 3D printing will revolutionize supply chains, and that the companies that do not make the change may not survive (D’Aveni, 2015). On the other hand, the complexities entailed in innovation may require supply chain partners to collaborate. The Chinese government is seeking to transform a transaction-based economy to an innovative economy through multi-company collaboration (Chen, Brennan, & Zeng, 2013). State-sanctioned programs like these provide even further challenges to American companies operating in an environment where government fostered collaboration is not the norm, or may even be discouraged.
The foundation of KAIR rests upon relationships among SCLs along the supply chains. A culture of trust, respect, and openness must pervade the supply chain. Partners need to treat confidential and proprietary data with care. Supply chain partners need to consider the success of the network through extensive and sustained collaboration (McMurray, 2014). Ankaria (2008) stressed the importance of supplier knowledge in order to manage costs through cross-functional teams that cross company boundaries.
After studying 179 Taiwanese firms, Lin (2014) found that both socialization and technology innovation drive supply chain integration. A study taking place in the US may show similar results. Socialization includes all aspects of KAIR. McMurray (2014) reported that Dr. Melnyk from Michigan State University “argues that future success will depend on the supply chain’s ability to deliver a mix of responsiveness, security, sustainability, resilience, and innovation” (p. 8). It will likely be up to SCLs to build the foundations using KAIR.
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