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Summary of the articles related to topic 2 of the course Collab. in SCM and Adv. Topic s
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Summary of the articles related to topic 2 of the course Collab. in SCM and Adv. Topics
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Understanding Global Supply Chain and Resilience: Theory and Practice1. Is reshoring of production activities happening in North America and Western Europe? If
so, what has been the role of trade and political changes of the last decade?
While investment activity in manufacturing in these markets has increased, the primary
investors are foreign firms are also seeking proximity to customers in these attractive
markets. For Western European and North American firms, even import tariffs on raw
materials or finished goods did not stimulate substantial reshoring activity, and in a few
cases, the increased sourcing costs and/or retaliatory tariffs drove companies to expand
in their foreign-based competitors’ territories.
2. How have trade tariffs and the COVID-19 pandemic affected attitudes regarding China as
a sourcing location?
Global supply chain managers realized the significant risks due to their extensive
dependence on China. Recent times have seen cost increases due to trade tariffs and
expensive logistics (on top of the ongoing erosion of China’s ability to provide a
seemingly endless supply of inexpensive labor), leading to shortages and longer lead
times resulting from COVID’s impacts on China’s ports and manufacturing facilities. For
some industries (e.g., apparel, toys), finding alternative sourcing locations is rather easy
and often multi-sourcing has already started. But for others, China’s available production
capacity, ability to ramp to volume for new products, and their multi-tier-deep
ecosystem of qualified suppliers erect formidable barriers to switching to new sources in
the short-term. The “China Plus One” compromise sourcing strategy has been a goal for
some time for certain industries, but progress has been slowed as COVID’s impact was
obviously not limited to China.
3. To what extent do companies prioritize resilience in designing and executing their supply
chain strategies? Do we see active commitment to resilience after 2019?
The increased frequency of disruptive events combined with increased severity of the
last 10 years (2011 Japanese earthquake and tsunami, 2011 Thailand flooding, 2017
Hurricane Harvey, etc., and the COVID-19 pandemic being an event of unprecedented
magnitude) has sensitized companies and managers to disruption risks. Many
organizations remain in a survival and short-term response mode as of this writing,
measuring any reasonable response as a success with the usual measures of agility (TTR
and profit loss). However, in our framing, resilience involves thinking about the long
term, and using lessons of past events to inform strategies and resource investments
that will prepare their supply chains to survive and even thrive in the face of knowable
and unknowable future shocks. We have empirically identified substantial obstacles to
enhancing resilience, even though in many cases the roadmap to that destination is
readily available and well understood. After the recovery from a disruptive event,
managers and financial markets prefer to think about the next quarter’s performance.
We hear a lot about resilience, but we often do not see the actions needed to build the
necessary redundancy and operational flexibility. These actions are perceived to be too
“expensive” in the eyes of investors and markets.
4. What is our advice to supply chain managers about building resilience for the current
uncertainty-fraught environment?
Our research is very clear in eschewing a “one-size-fits-all” answer. Modern supply
chains are diverse and complex, and each supply chain’s product, process and
organizational attributes will dictate its resilience strategies. The mapping articulated by
our “bespoke resiliency” Triple-P framework is a key contribution of our empirical
research. Thus, our advice to managers is to use the framework as follows:
(a) Position your supply chain along the dimensions of “supply chain process
heterogeneity” and “degree of vertical integration.” This will affiliate your supply chain
, with one of three archetypes: Product complexity, Partner complexity, and Process
complexity.
(b) Assess the gap between your current supply chain and the recommendations of our
framework for the archetype. This analysis might call for greater standardization of
processes, gaining better control through increased ownership of activities, or working
more closely with trusted partners.
(c) Based on your positioning, understand the main obstacles for achieving resilience.
Then study the best practices for increasing resilience of this archetype. Some
adaptation for your environment will be necessary.
(d) To monitor the progress towards resilience, use the metrics described in our Sect. 5.
Consulting reports tend to write their recommendations at an industry level and suggest that
companies should emulate the approaches of the “Top 25” world-class companies as distilled into a
list of 10–15 points. This perhaps caters to the tendency of top executives to prefer uniformity of
practices and measures. But this is not consistent with what our research leads us to recommend.
Global companies typically manage a complex portfolio of products and serve a diversity of markets,
requiring that different business units and their managers pursue resilience in a bespoke fashion.
5. Are lean production and supply chain practices inappropriate when resilience is a
priority? Should companies increase inventories and install excess (i.e., underutilized)
capacity to prepare for future disruptions?
In the eyes of the media and popular press, the supply chain failures during the COVID-19 pandemic
are an indictment of lean principles and practices. This viewpoint at best lacks nuance and may also
simply misunderstand lean production. Our Triple-P framework argues that lean practices actually
enhance resilience for at least two of the archetypes. This is not an issue for the Product complexity
archetype. For the Product complexity archetype, resilience is built into the product design,
automation of processes, excess capacity that is funded by high margins, and strong relationships
with a small circle of qualified suppliers. The need for inventories is primarily at the input material
level, and global access to these inventories might be constrained in some disruptions.
For the Partnership complexity archetype, which relies on a few key partners for success in general,
resilience comes from strengthening these relationships, visibility into partner operations, and
coordination in responding to any disruption. High interdependency, short lead time, a committed
relationship with keiretsu suppliers are actually key elements of the Toyota Production System that
is known more broadly as lean production. Toyota and its suppliers problem-solve cooperatively
during stable times and crisis times alike. After 2011’s devastating Japanese earthquake, tsunami,
and brush with nuclear disaster, which disabled almost 90% of production capacity at car companies
like Toyota and Nissan, Toyota was able to fully recover in unexpected ways in less than 3 months.
The current pandemic has caused shortages in semiconductor chips that have become critical
components in automobiles, but these companies have thus far derived some level of protection
from their proactive planning and strong partnerships with suppliers. Lean processes, continuously
improved, supported by a culture of attention to quality and deep commitment to relationship with
suppliers, have proven to be resilient.
The same holds true for the Process complexity archetype. Some of their products are functional,
and true lean supply chains, with characteristics to the above, will quickly recover without huge
buffer inventories. Buffers buy short-term agility, but visibility and collaborative problem-solving buy
future resilience. The implementation challenges for this archetype are: suppliers are smaller and
less visible, frequently undercapitalized and located in areas with weak infrastructure. A larger
number of suppliers in diversified locations may be necessary. It is important to help the existing
suppliers finance their inventories and allocate business or even provide infusions of capital to
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