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ASCM Insights

Episode 21: The State of Global Supply Chains

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Bob: Welcome to The Rebound, where we'll explore the issues facing supply chain managers as our industry gets back up and running in a post -COVID world. This podcast is hosted by Abe Eshkenazi, CEO of the Association for Supply Chain Management and Bob Trebilcock, editorial director of Supply Chain Management Review.

 

Remember that Abe and Bob welcome your comments. Now, to today's episode. Welcome to today's episode of The Rebound, the state of the global supply chain. I'm Bob Trebilcock. 

 

Abe: And I'm Abe Eshkenazi.

 

Bob: Joining us today is Nick Vyas. Nick is an associate professor of clinical data sciences and operations at the University of Southern California, as well as the founder and the executive director of USC Center for Global Supply Chain Management. ASCM, Abe's organization, recognized Nick as a supply chain leader in its excellence awards. Nick, welcome.

 

Nick: Bob and Abe, it's great to be with you guys.

 

Bob: It's great to have you, Nick. Between trade wars and tariffs, global supply chain managers were struggling to redefine and redesign their networks even before COVID. While we appear to be making headway on the pandemic, and there's a new administration in the White House, the future of global supply chains is still uncertain. 

 

On the same day that the Suez Canal opened again for traffic, The New York Times and The Wall Street Journal reported about ongoing trade tensions between the US and China. What's more, both publications reported on China's budding efforts to forge trade alliances between other autocratic regimes including Russia, Turkey, Iran, North Korea, and Colombia.

 

Now the idea was to counter US and European alliances. It reminded me of a meeting of Spectre in a James Bond movie, where the world's bad guys plot global domination. Nick, I know you travel across the globe extensively every year, and that you've been involved in supply chain initiatives in the past and current administration. How do you assess the state of global supply chains?

 

Nick: Bob, when we look at the state of the global supply chain management, the COVID has suddenly exposed structural issues that we have ignored for last 30 years. Let me emphasize what do I mean by the structural issues. 

 

The conversations we're having today, they're happening across the globe. The countries have found themselves that in the name of mass productions, the cheaper, better, faster goods and services, we become overly reliant on a single country node, finding ourselves in a very vulnerable state.

 

This has exposed us that a linear faster, cheaper supply chain really marginalized the concept of resiliencies and redundancies of supply chain. This has created a two-pronged monster. From a supply chain standpoint, we look at this as an issue that we have to deal with in terms of the resiliency, which is what the supply chain professionals should be looking at it.

 

The second issue, this has created China to be the most dominant player in building the future supply chain, both in terms of the physical infrastructure, as well as the digital infrastructure. We now see the Western democracies and allies finding themselves in a spot where they need to address this both of these issues at the same time.

 

Abe: Nick, you indicated that these are structural issues, indicating that they've been around for quite a while. We've got the president issuing an executive order right now calling out for the review of supply chains.

 

I think we all agree that the rhetoric is the right statement to be making about our valuation on the supply chains, but we're in the early stages. What can you discern from the executive order and do you think that this is going to have an impact?

 

Nick: Abe, one of the most impressive things that I found under this new administration is that they're staying away from the rhetorics and posturing on the trade, but they're actually going after the substance. 

 

The executive order, what it's known as authority, and 365 Day Review, is really an in-depth analysis of understanding the information and communication technology, ICT, industrial base, telecommunications, energy. So the key verticals. Not only looking at the current supply chain, but understanding where the raw material is coming from.

 

How are we sourcing? What technology platforms are we using? Taking this holistic look at the vulnerability of supply chain that we have taken it for granted over last 30 years, this administration through the executive orders is really doing that in-depth holistic review. I think it's long overdue, and I think at the end of it, if we as a country and the Congress come together as the United States of America, I think this can really fix or at least set the stage for us for next decades or so to reestablish and re-emerge as a supply chain dominance in this area. 

 

Bob: Nick, one of the words we hear over and over again these days is digital transformation. I'm not sure that everybody knows what it means, even within their own organizations, and probably everyone defines it a little bit differently, but it's something everybody's talking about. 

 

My understanding is you co-chair a Committee at the Department of Commerce looking at digital transformation. As part of this broader supply chain initiative, what's your charge and what's the committee looking at? What are you going to try to accomplish?

 

Nick: The committee really focuses on the competitiveness of the US supply chain. How do we continue to stay engage with the industry best practices and keep America's supply chain competitive? 

Part of the objective is how do we come up with digital transformations and emerging technologies that we see and we witness in our supply chain world in terms of the near term, short term and in the long term? What is it that we need to have in place to encourage the best practices, provide the policy guidance and promote healthy incentives for companies to adopt this new measures?

 

In combination of these things, hopefully, we'll be able to put some recommendations together from the Department of Commerce to the Secretary's office, which can then get integrated into the executive order review, under President Biden's.

 

Big thing I think what we have to think about this digital transformation, and the physical transformation through the infrastructures. Both of these things has to really couple together and be married together. How can we look at this in a silo?

 

What China has shown through the Belt and Road Initiative, that they first focus-- the first phase of the BRI, the Belt and Road Initiative was to build a physical infrastructure. Connect the roads, waterways, and airways into the large continents across the world.

 

The second part of it truly, it's the digital transformations. Building the standards, building blockchains and AI and ML. Really overlaying those on the physical infrastructure. If you imagine now that you have a robust physical infrastructure, and you have a digital infrastructure on top, and you then get to build the standards. 

 

You get to then dictate what those standards will be, I think that could be a huge issue on the global trade if US and its allies do not have some sort of a say so. Or not only say so, but also to have some influence or what the standards should be, but also takes into consideration all the democratic values that we cherish.

 

Bob: Nick, I'd like to ask you a quick follow up that goes to what you were just talking about. If you remember, a couple of years ago, you did two articles for me about global supply chains, and how you were looking at the future that you based on for compass points.

 

I just wondered one, if you could walk us through what those were, but then also how they might be influencing your thinking as you're part of the supply chain initiative? 

 

Nick: Bob, it's ironic that we're now reflecting back few years ago when we spoke about it. Those four distinct points that we revisited, the four compass points were online marketplaces, global trade, emerging technologies, and omnichannel.

 

Look, we're here in 2021 and each of these compass points are now more relevant post COVID than they were before the COVID. You think about online marketplaces, and how much of that has played a significant role since we wrote this article.

 

I think urbanization of supply chain is just the tip of the iceberg. We will continue to find ourselves that the marketplace-driven supply chain opportunities will continue to drive the optimization. We have still tremendous friction in our supply chain, laden with inefficiencies from sourcing to last mile delivery.

 

We still have an incredible amount of intermediaries and different touch points where people are still pushing papers in 2021. I think you're likely to see this trend continue to go with that.

 

The second point, which is global trade, more than ever, the COVID has exposed us so this conversation is real. The imbalance of global trade where the western democracies for 30 years fell asleep behind the wheel can no longer be allowed and how well does this play into it?

 

I think we see the conversations not only in US, but globally. Global trade will become the center of the discussions. Emerging technologies, I think, if we look at and touch on that just briefly, the blockchain, AI, ML and digitization as a whole, I think COVID has created a larger rate of participation, because of the COVID, that we had to accept the digital world as our real world, and we have done a good job of adapting to that. 

Last but not the least, the omnichannel that's really seen the retail numbers, those with the click and brick has done very well, especially starting out with click on the online marketplace has been rewarded, enhanced some growth in the top line and the bottom-line revenue. 

 

I think reflecting on that article, obviously, we didn't have the foresight of the pandemic but I think all of those points are much more relevant post-COVID in the real world. 

 

Abe: Nick, let me pick up on some of those topics. Bob alluded to this in the setup for the conversation about the various alliances that are being developed, first with the US and a lot of the Western countries, as well as China and some of their allies. 

 

Oftentimes, we hear about uneven playing fields when government action or government partnerships are with private partnerships, so this is a particularly vexing issue, when we're seeing some of the discussion on tariff and trade wars, the National Defense Act, nearshoring, reshoring, a lot of this has to affect global trade. 

 

When we're seeing some of the friction that's occurring right now within the global theater, are we seeing this as a recurrence of what we saw in the '70s and in the '80s, and the '90s, with oil and some of the challenges that we saw with global positioning and posturing? Give me a sense of what you're seeing there.

 

Nick: My view on this particular topic is it stretches back beyond 1970s '80s and '90s, on the oil dependencies on some region, this goes even deeper than one particular sector or the commodity. 

 

I think it actually emanates from this concept in our western democracies, that the government is a bad thing, that we tend to have a connotation about the role of government meaning the smaller it is, the better we are, because we have this synonymous of government as a bureaucracy. 

 

What China has shown that you can actually be not democratic, but still be much more efficient in execution of your national agendas, and we see that, that as to how do we really strike this balance of our democratic values, but also encourage and participate in public-private partnership. 

 

I think when we start to look at it, we're going to have to really have not only a paradigm shift, but what I call paradigm break here to view this, but this has to be very collaborative efforts, where the role of government should be defined as somebody who facilitates the change, encourages the policies, and then also provides the resources and infrastructure and other essential elements for the society to become successful.

 

These are multi-pronged approaches and we need to really reframe our thinking because we simply will not be able to solve the problems of the future and building stronger supply chains in our world, if we continue to operate from the same paradigms of the '60s '70s '80s, and '90s. 

 

Bob: Nick, we've talked about a whole lot of things, many of which involve government, which the supply chain manager may think, well, I've got nothing to do with it, it's out of my purview. So as a practical matter, as the Biden administration is looking at supply chains, as we have Department of Commerce committees looking at digital transformation, why should that this matter to us as supply chain professionals?

 

Nick: Well, we as the supply chain professionals, owe not only our company and our profession but to other countries and the future generation, that infrastructure is the backbone of our supply chain industry. You simply cannot operate a first-world supply chain with a third-world infrastructure. 

 

We lost 30 years. Both sides of the political spectrum, we speak about infrastructure, the importance of it during the campaign year, and then nothing happens, so if we look at the state of our infrastructure, we are C or below-grade on our roads, the highways, the ports, the innovations, the technology, R&D, to name few and we simply cannot be the leader in a first-world democratic society with ignoring the infrastructure. 

 

We have to really talk about this, talk about in holding our government accountable for it, but when they step up to the plate, like the current plan for this administration, by investing $2.1 trillion, we need to come as a united force in supporting the value of that investments for the future of supply chain because we simply, individually cannot play the role at the highest level unless the ecosystem has been supported by the government as a whole.

 

Abe: Nick, you bring up a really interesting point here and you alluded to this in one of your responses that we really leaned ourselves into the situation here with just-in-time, lower inventory costs, and efficiency and deliveries almost daily. We were focused on a very efficient supply chain and in a lot of respects, we had a very efficient supply chain. 

What we weren't prepared for was obviously the pandemic and the just-in-case and the surges and the shifts in demand that occurred here. As we're responding and as you pointed out, resiliency being a significant part of a supply chain manager's focus right now, how do you embrace resiliency and this focus on doing it right, and doing good, at the same time for the sustainability when the pressure, as you just described is getting us back into some sort of normalization, whatever that may be but again, all the data points are pointing towards fix it today, be agile, be responsive. Where does sustainability fit in this discussion?

 

Nick: Abe, I think one of the fundamental things we need to do is to redefine the total cost of ownership, the TCO, it's simply the TCO can never now be looked at as a lowest cost of goods acquisition, which is what we have done for last 30 years.

 

We shipped our sourcing strategy or manufacturing strategy from point A to point B, simply based on the cost. Disregarding its environmental impact, its corporate social responsibility impact, and many other things. You think about [unintelligible 00:16:42] outsourcing started from things got tough here, because we are at stricter environmental law. We find the place where there is absolutely no regard of those environmental laws. 

 

We've found here that we value some of the labor practices, while we then go to the source, where there is very little regard or complete disregard to this labor law. When you start to factor those things in, of course, your TCOs, the total cost of ownership in this case will be very cheap and that puts a profit over the right equation. 

 

I think what we're likely to see is that through a very holistic approach of redefining those that the sustainability is not an option but needs to be part of the variable, that we've put that in the forefront along with the cost.

 

Corporate Social Responsibility can no longer be just a buzzword but we need to put that into practice by showing that our separate supply chain network design incorporates this decision. When you start to add up all these different variables, all of a sudden, your supply chain network design may look very different than the last 30 years what we have practiced. 

 

Abe: Nick, I think we could continue this conversation on for another two to three hours and talk about all the challenges and opportunities that we have as supply chain managers. Thank you for your time today. Really appreciated your perspective and ongoing conversation. 

 

We hope you'll be back for our next episode for The Rebound, I'm Abe Eshkenazi.

 

Bob: I'm Bob Trebilcock. 

 

Abe: All the best. Stay safe and healthy, everyone. Thanks.

 

Nick: Thank you, Bob and Abe. 

 

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