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1、B R I E F I N G P A P E RRethinking Supply Chains for Greater Efficiency,Resiliency,and SustainabilitySponsored byS P O N S O R P E R S P E C T I V EIts hard to comprehend the magnitude,speed,and breadth of the supply chain disruptions we have faced over the past few years.Predictability and stabili
2、ty belong to the past.The ability to become agile and resilientin a synchronized and automated fashion with partners across the supply chainis essential for success,even survival.Economic slowdowns,wars,pandemic,supply delays,and inventory shortages are among the many challenges that have pressured
3、companiesof all sizes,industries,and regionsto assess their strategies for the supply chain in the short,mid,and longer term.Do you move production onshore/nearshore?Is your product in the right place at the right time?How can you ensure profitability when your supply chain costs are rising?How will
4、 your suppliers react to the diverse challenges within your industry?Are all your suppliers compliant with the increasingly stringent environmental,social,and governance(ESG)regulations?In this complex landscape,its clear that there are three major priorities for supply chains:building resiliency,co
5、ntaining costs,and driving ESG performance.How can companiesand their supply chain leadersmanage all three of these challenging priorities without compromising on any of them?There is no easy answer,no one-size-fits-all solution.GEP has sponsored research by Harvard Business Review Analytic Services
6、 to explore the innovative strategies and digital solutions organizations can deploy to lower costs,improve efficiencies,and drive sustainability.The supply chain of today(and of the future)requires fearless leaders who will take bold steps to advance corporate aspirations.Through detailed interview
7、s with senior executives of companies making transformational changes to their supply chains,this report provides insights into how major businesses are reinventing their supply chains through innovation,technology,and collaboration and emerging stronger and more agile to fight the next unknown.I be
8、lieve the insights and learnings in this report will help you build high-performance,resilient,and sustainable supply chains.ABOUT GEPGEP delivers transformative supply chain solutions that help global enterprises become more agile and resilient,operate more efficiently and effectively,gain competit
9、ive advantage,boost profitability,and increase shareholder value.Fresh thinking,innovative products,unrivaled domain expertise,and smart,passionate peoplethis is how GEP Software,GEP Strategy,and GEP Managed Services together deliver supply chain solutions of unprecedented scale,power,and effectiven
10、ess.Headquartered in Clark,N.J.,GEP has offices and operations centers across Europe,Asia,Africa,and the Americas.To learn more,visit .David DoranVice President,ConsultingGEPRethinking Supply Chains for Greater Efficiency,Resiliency,and SustainabilityH I G H L I G H T SSupply-side pressure may be ea
11、sing,but new challenges have emerged as companies try to balance slow growth,cost reduction,and resiliency,all while becoming a more sustainable enterprise.Companies must employ new technology and collaborate with suppliers to improve their ability to forecast and respond to continued crises and dis
12、ruptions with agility.Technology based on artificial intelligence and machine learning allows companies to analyze real-time data and drive changes necessary to manage their priorities,challenges,and goals.Operating supply chains with a greater focus on efficiency,resiliency,and sustainability is a
13、priority after supply chains in recent years have been disrupted by one problem after another,including the Covid-19 pandemic,the war in Ukraine,and inflation rates not seen in four decades.Supply-side pressure may be easing,but new challenges have emerged as companies try to balance slow growth,cos
14、t reduction,and resiliency,all while becoming a more sustainable enterprise.Companies have had to accept that a constant state of disruption is their new normal,and to deal with it,they now need to build more resilient and agile supply chains.In particular,constant supply chain disruptions make fore
15、casting extremely challenging,raising a companys risk levels.To manage inventory levels in such an environment,organizations need to embrace new technology and maintain collaborative relationships with their suppliers.They may also need to shorten their supply chains,even at the risk of higher cost.
16、And they may have to do that even as they face new regulations in the United States and Europe that require them to be transparent about their sustainability goals and metrics.“There are still disruptions taking place and an uneasiness in the supply chain,as people are still a bit skittish and have
17、a lack of confidence since the pandemic,”said Gary La Point,a professor of supply chain practice at the Whitman School of Management at Syracuse University.“I think any company not thinking about redesigning its supply chain is asleep at the wheel.”However,this difficult landscape imposes three majo
18、r supply chain priorities that may sometimes compete.Enterprises must find ways to become more efficient,mitigating higher costs despite the inflationary setting.Companies 1Briefing Paper|Rethinking Supply Chains for Greater Efficiency,Resiliency,and SustainabilityHarvard Business Review Analytic Se
19、rvicesmust employ new technology and collaborate with suppliers to improve their ability to forecast and respond to continued crises and disruptions with agility.Lastly,these companies must adapt to increasing pressure to meet environmental,social,and governance(ESG)goals.The most difficult part for
20、 companies today may be figuring out how to simultaneously manage all three of these challenging priorities without having to compromise on any one of them.Old technology,which is still dominating supply chain planning,must be either reconsidered or replaced even as new strategies are implemented to
21、 deal with this complex environment.“The priority is how you blend all three together,because achieving one without the other is not really the right thing to do for any organization these days,”said Peter Anderson,the chief supply chain officer at WestRock Co.,an Atlanta-based Fortune 500 corrugate
22、d packaging company.Added Joanna Kostecka,vice president of global operations planning and materials management at Hewlett Packard Enterprise Co.(HPE),“What we are finding is that as you work on resiliency,agility,and ESG,youre more likely to find that your costs will drop,because when your supply c
23、hain is agile and resilient,you are going to have a lot fewer stockouts and last-minute shortages that can prove very,very costly.”Finding New Ways to OperateThe challenges posed by supply chain disruptions often require rethinking various elements of a supply chain.WestRock,for example,has undertak
24、en various changes,some simpler than others.For starters,the company has begun loading railcars in a way that takes more advantage of their space,increasing the average weight of the product that trains can move by an additional four tons per boxcar.WestRock is also trying to never run empty trucks;
25、when they drop off finished product to customers,they then pick up waste from them to take to WestRocks recycling plants to be reused for new products.“We can do circular routes with our trucks and make sure that were working completely across the supply chain,connecting our mills,our processing fac
26、ilities,and now recycling plants with our customers and our suppliers,”WestRocks Anderson said.Other organizations are reducing their supply chains length by“reshoring”(or nearshoring)to bring inventories closer to their end markets and“restoring”their supply chains to bolster local inventories.Acco
27、rding to the Whitman Schools La Point,companies are moving away from long supply chains and making their supply chains shorter.There are a few ways companies are doing this.One way is reshoring,where companies bring manufacturing back to the U.S.However,reshoring is much“We can do circular routes wi
28、th our trucks and make sure that were working completely across the supply chain,connecting our mills,our processing facilities,and now recycling plants with our customers and our suppliers,”said Peter Anderson,the chief supply chain officer at WestRock Co.easier said than done.When manufacturing wa
29、s sent overseas,enterprises lost that capacity to manufacture in the U.S.;in many cases,that capacity was lost forever.Machines were sold or scrapped,workers were let go,and no new training for these jobs has taken place in two decades.Reshoring can be a significant capital investment,not to mention
30、 the challenge of finding a qualified workforce.Automation along with technology will help address this major issue of a lack of qualified workers and allow the U.S.to compete with low-cost labor in other parts of the world,but this shift does not come without a potentially sizable cost.Another tact
31、ic to shorten the supply chain is nearshoring,where manufacturing is brought back to a location close to the U.S.,such as Mexico.Labor costs are a little higher,but lead time is significantly reduced,and therefore average inventory can be reduced.If inventory is reduced,companies have more cash.A mo
32、re recent trend to shorten supply chains has been“nearstoring,”where material is still manufactured overseas but is now stored in large quantities close to the point of use or sale to offset uncertainties in the supply chain.La Point explained that in the past,some organizations,such as automobile p
33、roducers,operated with a just-in-time supply chain,which meant that they could get supplies delivered in a very tight window of every 15 to 30 minutes.Right now,there is a lack of confidence the supply chain can deliver consistency of service.Organizations have gone from“just in time”to“just in case
34、,”he said.Nearstoring is one contributing reason why the warehouse vacancy rate in the U.S.was only about 3%in the first quarter of 2022,according to a research report from Flexport Inc.,a San Francisco-based supply chain company.There is almost no available warehouse capacity.2Briefing Paper|Rethin
35、king Supply Chains for Greater Efficiency,Resiliency,and SustainabilityRight now,there is a lack of confidence the supply chain can deliver consistency of service.Organizations have gone from“just in time”to“just in case.”Gary La Point,professor of supply chain practice,Whitman School of Management
36、at Syracuse UniversityHarvard Business Review Analytic ServicesCollaboration is imperative as reshoring takes hold and much low-cost sourcing from Asia is being scaled back.“That means we lose economies of scale and costs will go up.However,because were talking more to suppliers and more people are
37、starting to work together,its offsetting some of those costs,”WestRocks Anderson noted.It has also contributed to excess inventory,which reduces available cash,La Point said.A more strategic play is a model adopted by Kenosha,Wis.-based tool and equipment manufacturer Snap-On Inc.Snap-On manufacture
38、s in the regions in which it sells.If the company is selling a product in Asia,for example,it is being manufactured in Asia,so the supply chains are kept short and less susceptible to disruptions.Unlike many others,Snap-On experienced very few supply chain problems during the pandemic,La Point said.
39、Tom Derry,CEO of the Institute for Supply Management(ISM),said that a recent survey by his not-for-profit organization found that a majority of companies,both in manufacturing and in services,are looking to diversify their exposure away from China.He said that there is a rebalancing of supply chains
40、 from being a“China-centric,globally extended supply chain to one thats much more regional in nature.”FIGURE 1Collaborating to Improve ResiliencyCollaboration with suppliers is also becoming more important as forecasting in this environment becomes difficult.WestRock has deepened its relationship wi
41、th suppliers and customers over the past 12 months by sharing planning and transportation data to provide better services to customers and help suppliers optimize their costs.Anderson says such collaboration is imperative as reshoring takes hold and much low-cost sourcing from Asia is being scaled b
42、ack.“That means we lose economies of scale and costs will go up.However,because were talking more to suppliers and more people are starting to work together,its offsetting some of those costs,”he noted.Meanwhile,Spring,Texas-based technology company HPE has implemented a“one network visibility platf
43、orm”that connects all of its partners across multiple levels of its supply chain on a near-term basis so that the company has a digital connection with everyone and has near-real-time visibility everywhere,which is“really key,”said Kostecka,the global operations vice president.ISMs Derry observed th
44、at in the 30 years leading up to 2020,companies wanted to leverage their spend volume,so they would find the lowest-cost supplier and the lowest-cost country and give them as much of their volume as they could in order to get the lowest per-part price.However,companies have now learned that because
45、of geopolitical risks,geographic concentration risks,and climate risks,they were forgetting to factor the possibility of disruption into their planning.Companies are now setting up secondary suppliers,the idea being that if they need to redirect production volumes from their primary suppliers to the
46、ir secondary ones,they can do so without losing a lot of momentum,he said.Organizations are no longer just building relationships with their Tier 1 suppliers,either.“A third strategy being used 4Briefing Paper|Rethinking Supply Chains for Greater Efficiency,Resiliency,and SustainabilityHarvard Busin
47、ess Review Analytic Servicesto build resiliency is creating direct business relationships with your sub-tier suppliers,”Derry said.He explained that usually companies would have a direct relationship with their Tier 1 suppliers,those suppliers would manage relationships with the Tier 2 suppliers,the
48、 Tier 2 suppliers would manage relationships with the Tier 3 suppliers,and so on.However,companies are now going directly to those sub-tier suppliers if they have a critical nexus in their supply chain.“So,”he added,“if push comes to shove,they can guarantee supply from that nexus supplier in a way
49、they couldnt if they were merely relying on their upper-tier suppliers to manage that relationship by guaranteeing volumes.”Using Intelligent Technology to Increase VisibilityAlong with the need to collaborate,technological improvements are now front and center at many companies as they look to opti
50、mize their supply chains.Technology based on artificial intelligence and machine learning(ML)allows companies to analyze real-time data and drive changes necessary to manage their priorities,challenges,and goals.“Technology is going to be the solution,”Derry said.“Theres good technology that is enab
51、ling companies to get more real-time visibility into where risks lurk in their supply chain and more real-time opportunities to either deal with in real time or proactively make changes to their supply chains,which is light-years ahead of where we were at the start of 2010.”Derry added,“Were going t
52、o have credible,respected,global databases of suppliers across industries that will enable us to detect disruptions in real timefrom labor,climate,supply shortages,and other sources of riskand be able to react in a much more proactive way.”HPE,for example,is implementing an advanced planning system
53、with dynamic scenario capabilities that is powered by AI and ML.This systemtogether with the regional inventory hub program for its strategic,high-value commodities such as memory,central processing units,solid-state drives,and hard disk driveswill enable the company to deploy what it calls“agile ma
54、terials management.”Agile materials management refers to the ability to see risks earlier with near-real-time visibility into placed purchase orders,commitments from suppliers for purchase orders,and shipment tracking information and to adjust its decision making more quickly for better outcomes for
55、 customers and stakeholders.Meanwhile,HPEs regional inventory hub program relocates its inventory holdings from more than 20 locations globally to just three,improving the companys ability to meet its plans.This shift will give HPE“almost real-time data visibility,dramatically reducing its reaction
56、time when adjustments are needed,”Kostecka said.“Technology is going to be the solution.Theres good technology that is enabling companies to get more real-time visibility into where risks lurk in their supply chain and more real-time opportunities to either deal with in real time or proactively make
57、 changes to their supply chains,which is light-years ahead of where we were at the start of 2010,”said Tom Derry,CEO of the Institute for Supply Management(ISM).These new technologies,which are all major investments,will mean“more accurate forecasts,a more right-sized and optimized inventory,and bet
58、ter predictability with customers,”she said.With the scenario-planning system that HPE is implementing,the company will be able to do such planning on the fly.So answers that once took people“hours,if not days”to come up with in Excel(and by that time may have been outdated,because the situation had
59、 changed),“you will be able to get in a matter of minutes,”Kostecka said.WestRock is making significant investments in new tools to gain more visibility into rail,road,and sea transportation to see when shipments are going to arrive and whether or not the company needs to take other courses of actio
60、n in case of delays.The new tools will also allow the company to link its transportation movements to make its circular supply chain possible.Lastly,the new tools will help the company with compliance,governance,and assessing risks with suppliers.Anderson noted that the company has plans for the nex
61、t two years to significantly use more AI and ML for supply chain planning and linking to supplier networks to improve predictive forecasting.The effort will see WestRock,over the next five years,move to a single integrated approach for its planning,manufacturing,and financial systems with other“best
62、 of breed”systems,which will include tools for visibility,risk management,and advanced optimization,among other things,bolted around 5Briefing Paper|Rethinking Supply Chains for Greater Efficiency,Resiliency,and Sustainability“What we are finding is that as you work on resiliency,agility,and ESG,you
63、re more likely to find that your costs will drop,because when your supply chain is agile and resilient,you are going to have a lot fewer stockouts and last-minute shortages that can prove very,very costly.”Joanna Kostecka,vice president of global operations planning and materials management at Hewle
64、tt Packard Enterprise Co.(HPE)Harvard Business Review Analytic Servicesthe sides to give the company“the flexibility and agility that we need in the future,”Anderson said.“We are now on a journey of putting new tools and capabilities in place to provide visibility,supply planning,compliance across t
65、he sourcing space,and an implementation of end-to-end processes across the organization,”Anderson explained.Derry noted that ML will be a near-term relevant technology because it can be trained on existing dictionaries and human labeling of data,so it can help classify suppliers,disruptions,and risk
66、s.ML can also help make forecasting more accurate,as algorithms can be used to augment demand forecasts from customers with data from other forecasts,such as for weather patterns and macroeconomic changes.New developments in AI,such as the AI language model ChatGPT,could further support the supply c
67、hain in areas such as data analysis,pattern identification,forecasts,predictive trends,chatbot interface,and collaboration.The new technology is going to be key for companies as they come under increased scrutiny to plan for and meet their ESG goals,with new financial reporting requirements from the
68、 Securities and Exchange Commission(SEC)expected to be finalized and take effect later this year.Derry said this new requirement is“very significant”because for the first time,if companies make a public commitment to greenhouse gas emissions reductions,being carbon neutral,reducing waste in their su
69、pply chain,reducing water consumption,or any other similar environmental goals,the SEC“will require companies to subject those disclosures to the same level of rigor that financial disclosures are subjected to in their external audit process for SEC reporting purposes.”Derry explained that this disc
70、losure requirement means a company must be able to prove to its external auditors that its data is accurate and reliable,and if its not,the company could be subject to enforcement action or fines from the SEC.“Thats a huge step up from where we are today,which is voluntarily setting and reporting on
71、 ESG goals,”he added.The European Union also has disclosure requirements that will necessitate technological help,as its standards are viewed as even tougher.Intelligent AI-powered platforms,systems,and tools will also help address another major issue facing companiesa lack of qualified workers to f
72、ill their jobs,which has made reshoring difficult for organizations.In addition,technology will be needed to address the related issue of competing with low-cost labor in other parts of the world,said La Point.Meeting Multiple GoalsWhile at first glance a company meeting its ESG goals and also tryin
73、g to cut costs and improve the resiliency and ISMs Derry noted that machine learning will be a near-term relevant technology because it can be trained on existing dictionaries and human labeling of data,so it can help classify suppliers,disruptions,and risks.efficiency of its supply chains may sound
74、 like conflicting plans,WestRock and HPE are finding that these objectives are mutually supportive and provide a return on investment.WestRock says that its new approach to truck routing not only improves efficiency but also helps meet its ESG goals.The company asks itself,“How do we reduce waste ac
75、ross the organization,which correspondingly has a reduction from an environmental perspective,has a cost savings perspective,and also then drives a different way of thinking about governance in the organization?”Anderson said.Kostecka seconds that view,noting that companies must engage in cost savin
76、gs,improve resiliency,and meet ESG goals“regardless of the state of the economy or the business.It isnt a pick-one proposition.”HPE has found that as it has reassessed and diversified its relations with suppliers and brought new technology to bear on sourcing,it has been presented with a unique oppo
77、rtunity to evaluate the companys ESG risks as well as the resiliency and cost of its supply chain.Kostecka insists that the goals for cost cutting,resiliency,agility,and ESG are“actually convergent rather than divergent.”ConclusionIf theres one lesson concerning supply chains to learn from the past
78、few years,it is that disruption isnt going to disappear and that companies need to do all they can to react quickly when issues arise,making resiliency and agility more important than ever.Meanwhile,organizations will be under increasing pressure to address environmental concerns as the world deals
79、with climate change and progressively more difficult weather.Kostecka said that she has always witnessed disruption while working in supply chains for the past 20 years,but its scale in the past few years has been unprecedented,uncovering weak spots for every company.In HPEs case,disruption has 7Bri
80、efing Paper|Rethinking Supply Chains for Greater Efficiency,Resiliency,and SustainabilityHarvard Business Review Analytic ServicesHPEs Kostecka insists that the goals for cost cutting,resiliency,agility,and ESG are“actually convergent rather than divergent.”led to a focus on understanding the many l
81、ayers and depth of its supply chain so that it can better understand its risks and how to mitigate them via multi-sourcing strategies,design changes,strategic partnerships with suppliers,changing how to position materials,and so on.HPE isnt alone in such a focus,which will require new tools and tech
82、niques to enable companies to be much more agile and have much better visibility across their supply chains.“I think we as a supply-chain group of individuals have probably moved the ball more forward in the last three years since the advent of Covid than we did in the previous 10 years,”Anderson sa
83、id,describing both the challenges supply-chain practitioners have faced and the progress theyve made as“monumental.”In essence,he explained,“We had to start thinking about how we do things differently,how we engage with our partners differently,and what technology will give us much better visibility
84、 and create the flexibility and agility that our customers need.”8Briefing Paper|Rethinking Supply Chains for Greater Efficiency,Resiliency,and SustainabilityA B O U T U SHarvard Business Review Analytic Services is an independent commercial research unit within Harvard Business Review Group,conduct
85、ing research and comparative analysis on important management challenges and emerging business opportunities.Seeking to provide business intelligence and peer-group insight,each report is published based on the findings of original quantitative and/or qualitative research and analysis.Quantitative s
86、urveys are conducted with the HBR Advisory Council,HBRs global research panel,and qualitative research is conducted with senior business executives and subject matter experts from within and beyond the Harvard Business Review author community.Email us at hbranalyticserviceshbr.org.hbr.org/hbr-analytic-servicesCopyright 2023 Harvard Business School Publishing.MCCRE36950423