Keys to stellar supply chain management

Innovation, technology, the environment and

regulatory compliance all play a role
By Diana Berry

42 ISE Magazine | www.iise.org/ISEmagazine

S Supply chain management is three decades old and
still evolving. While there is no standard defini-
tion, BusinessDictionary.com defines supply chain
management as the “management of material and
information flow in a supply chain to provide the
highest degree of customer satisfaction at the
lowest
possible cost. Supply chain management requires the
com-mitment of supply chain partners to work closely
to coor-dinate order generation, order taking and order
fulfillment. They thereby create an extended
enterprise spreading far be-yond the producer’s
location.”
Over the years, the supply chain management field has
changed significantly, global markets have evolved and
busi-ness complexity has increased. In previous years,
supply chain management focused solely on reducing
cost. Today, the purpose of supply chain management
also includes creat-ing and maximizing customer value.
Supply chain manage-ment allows companies to
differentiate themselves and create competitive
advantages.
The supply chain of the future will need to be managed in
an era of constant change and uncertainty. Today, we live in
a very dynamic world. In the past, forecasting was easier
because demand was more stable. The modern supply chain
will need to become more responsive to demand change.
Let’s examine some practical tips for managing your
supply chain efficiently, taking into consideration current
trends in the industry. Successful supply chain management
requires organizations to embrace innovation, leverage
technology, incorporate the principles of green supply chain
management and implement a strong regulatory compliance
program.
FIGURE 1
Sharing equals supply chain efficiency
Procter & Gamble and Walmart’s collaboration shares data access across their mutual supply chains,
providing a flow of real-time information that increases efficiency. This schematic shows the information
flow.
Embracing innovation
Innovation is the use of a new method or technology that
results in more productive and efficient processes, and em-
bracing innovation is an important key in supply chain man-
agement. A good example of a company that embraces
inno-vation is Cardinal Health, a healthcare service
organization. Cardinal Health is committed to reducing
healthcare costs while supporting caregiving services.
Cardinal Health opened a supply chain innovation
lab em-ploying the internet of things (IoT) approach
dedicated to reducing $5 billion in waste in the
healthcare device supply chain. The new lab serves as
a hub for innovation, such as smart sensors and near-
field communication, to bring cre-ative and care-
centered technologies to the most challenging
healthcare issues.
Innovation needs to be nurtured in an environment of
trust among all parties involved in the supply chain. Col-
laboration between suppliers, transportation providers
and manufacturers is a critical aspect of a well-managed
supply chain, with all groups working toward a common
goal. In-creased collaboration between supply chain
buyer and seller leads to increased efficiency. Richard
Markoff, corporate supply chain standards and audits
director at L’Oréal, said the success of the L’Oréal
supply chain depends on collaboration with its partners,
both upstream and downstream, to react quickly to
changing market needs. Collaboration also cre-ates an
environment of innovative problem-solving in the
supply chain.
As illustrated in Figure 1, Procter & Gamble and
Walmart provide a good example of collaboration between
a manu-
 August 2017 | ISE
Magazine 43
KEYS TO STELLAR SUPPLY CHAIN MANAGEMENT

Pies in the sky

Domino’s expects drone
deliveries to generate new
jobs for pilots and other
drone-related positions.

Denmark’s Maersk partners with 1,500 of its high-risk suppliers to

mitigate their environmental effects, integrating green principles into
the world’s largest container shipping company’s supply chain
management.

facturer and a retailer. The companies found a way to le- Toyota provides an excellent example
verage information technology by sharing data across of continuous im-provement in supply
their mutual supply chains. The resulting channel is more chain management. Toyota develops
effi-cient because activities are better coordinated. On a partnerships with its suppliers and
large scale, Procter & Gamble can track its products on dealers to encourage sup-ply chain
Walmart’s shelves through register scanner information improvement. Toyota places a heavy
provided by sat-ellite links. The system offers Procter & emphasis on the need to modify and
Gamble real-time information that is used to manage its optimize its production processes
operations more ef-ficiently. Figure 1 indicates this constantly, leading workers to bring
system’s information flow. innovative ideas to the table.
Drones are one of the most recent examples in
product transportation to cut delivery costs and Leveraging technology
improve efficiency. In August 2016, Domino’s Pizza Leading manufacturing and retailing
successfully delivered a piz-za order to a suburban companies leverage technology for supply
New Zealand couple using a drone. The company chain efficiency, translating into cost savings.
expects drones to be an essential addition to its A variety of software programs are available
delivery fleet and generate new jobs for pilots and to help
other drone-related positions.
Innovation adds value to an organization. Successful
sup-ply chain innovation improves processes.
Continuous im-provement initiatives in the supply
chain need strong back-ing from the highest levels of
management. Some companies have applied lean
manufacturing tools in their supply chains, translating
into quicker flow and delivery time. Lower in-ventory
levels can lead to better product control and shorter
lead-times.
improve supply chain efficiency. The key is to select the right
software based on need. Some companies still use different
applications for different areas of the supply chain (procure-
ment, transportation, etc.). This can lead to integration issues
and adversely impact supply chain efficiency. However, these
days software applications that can address the entire supply
chain are available.
Selecting the right software application can help the sup-ply
chain become more agile and reduce processing times. Supply
chain management must consider that consumer buying patterns
can change rapidly. Agile supply chains are flexible to consumer
demand. The transportation industry could become more agile in its
practices. The industry could upgrade its IT systems to automate
more of its operations, include comprehensive shipment
information and streamline its business processes.
Big data analytics is playing a large role in supply chains today
and is revolutionizing the industry in several ways. It is enabling
complex supplier networks to collaborate and create knowledge-
sharing networks. In transportation, big data an-alytics is being
used to optimize delivery routes. The systems plan truck delivery
routes based on historical traffic patterns. Recent
advances in geoanalytical mapping techniques allow
companies to analyze millions of data points and model
hun-dreds of potential route scenarios.
Amazon uses big data analytics to fulfill orders
quickly by linking with manufacturers and tracking
their inventory. Big data analytic systems select
warehouses nearest the consumer to reduce shipping
costs by up to 40 percent. In addition, graph theory (the
study of graphics) is used to help determine the best
delivery schedule, route and product groupings to
reduce shipping costs further.
Going green with supply chain
management
Today, consumers are becoming more aware of environ-
mental or green issues such as pollution and global
warming.

44 ISE Magazine | www.iise.org/ISEmagazine

They want to know more about the goods and services
they consume, and companies should answer their
questions in terms of green supply chain management.
Companies also have a good opportunity to take care of
the environment and earn profits at the same time. Green
supply chain manage-ment can be defined as integrating
environmental logic into supply chain management.
An example of applying green supply chain management
is the company Maersk, the world’s largest container
shipping company. Maersk has a global population of
20,000 suppli-ers with contracts in place. Of its suppliers,
Maersk deems 1,500 of them as having a high risk of
causing environmental problems. Based on their high-risk
environmental category, Maersk engages with those 1,500
through a combination of audits, self-assessments and
documentation reviews to ensure responsible procurement.
In 2012, Maersk reached its 2020 goal of reducing carbon
dioxide emissions by 25 percent per container from 2007
levels. Toyota also has been called the world’s best global
green brand since 2010 by demonstrating dedication to
supply chain sustainability.
Supply chain companies such as UPS continue to
expand their environmentally friendly practices, shifting
from pe-troleum to cleaner-burning, lower-carbon
alternative fuels that also make good economic sense.
UPS invests constantly in the green fleet, using a range
of technologies that include renewable diesel and
renewable natural gas. According to company studies, its
fleet with natural gas vehicles reduces emissions by 6
percent to 11 percent.
The successful implementation of green supply chain
management concepts would not be possible without po-
sitioning the right talent in the right places to drive ef-
fective execution on daily operations. Excellence requires
outstanding competencies. Competencies required in sup-ply
chain are expertise in transportation, warehousing, inventory
management and production planning. Other needed skills are
strong business acumen, global mindset, technical savvy, analysis
and influence. Many supply chain practitioners come from
business backgrounds and are not well-grounded in logistics
theory. Most of the supply chain practitioners in the future have
probably never experienced working in a manufacturing setting.
Employees in house will need training in the form of simulations,
games, at-tending industry events, learning from their peers and
ex-posure to different supply chain areas to understand how all the
pieces fit together.
Most supply chain practitioners have experienced the beer
game. The beer game is an experiential learning busi-ness
simulation game created by a group of professors at MIT Sloan
School of Management in the 1960s to dem-onstrate a number of
key principles of supply chain man-agement. It is played by teams
of at least four players, and it takes at least one hour to complete.
While the game is
beneficial, other “learn by doing”
experiences provided by some companies, • Classifying products across businesses
such as working alongside a seasoned sup- • Maintaining a compliant file of sensitive bills of materials
ply chain manager and reflecting on his or • Expediting customs clearance and centralizing and
her learnings, could provide practical con-trolling global trade logistics
insights.
Fines for noncompliance can total millions of
Strong regulatory compliance dollars de-pending on the industry. An example is the
The role of compliance has become more case of aero-space manufacturers and distributors that
important in to-day’s supply chain. navigate a com-plex export process and can face
Government agencies around the world expensive fines. Another example is a leading oil
continue issuing rules and regulations that company that paid $100 million in fines after
affect supply chain operators. Companies need exporting energy equipment to sanctioned countries.
to make sure they have Many countries have export control regulations that
a strong and well-implemented program in place. restrict sales for certain end users or certain countries,
The cost of noncompliance can be high, with individuals and entities.
fines and penalties as-sessed. Other costs can When shipping internationally, for example from the
include returned items and customer complaints United States to Mexico, the government rules of impor-
for noncompliant products, which also points tation are strict. If the number of parts indicated on the
toward the need to implement new tracking commercial invoice does not match with the physical in-
systems. spection in customs, the customer will be assessed fines.
As emerging economies continue to grow, It is in a company’s best interest to work with trade
manufactur-ers are finding new markets that manage-ment experts that can provide guidance and
they did not know before; however, with this quick resolu-tion when fines are imposed and to prevent
opportunity comes a clear need to stay up to future fines.
date with import requirements. A strong
compliance program should include a formal Four steps to a better supply chain
process to answer import and export In summary, the keys to stellar supply chain
requirements to ensure regulations are met. Or- management include:
ganizations can benefit from implementing
trade manage-ment databases that include: • Embracing innovation

August 2017 | ISE

Magazine 45
KEYS TO STELLAR SUPPLY CHAIN MANAGEMENT

Maritime shippers
could save a bundle
Digitized data sharing could offer at least 55 percent improvement

in five key areas for maritime shipping firms, according to a new

report.
“Competitive Gain in the Ocean Supply Chain: Innovation
That’s Driving Maritime Operational Transformation” surveyed
more than 200 executives and professionals, including terminal
operators, carriers, ship owners, logistics providers, shippers, port

authorities and other members of the global ocean supply chain.

The authors found that poor data sharing hampers efficiency
in five key areas that need process improvement: carrier-to-
terminal coordination and planning, supply chain visibility and
information sharing, terminal operations, cargo flow visibility and
predictability, and coordination across carrier alliances.
But a number of roadblocks impede such a transformation.
The industry is slow to change. Legacy systems are costly and
 industrywide agreements. And many are worried that data sharing
compl
ex. increases security problems.
Partne
rs McKinsey & Co. has estimated approximately $17 billion
don’t
share of waste in port and carrier business processes alone. But the
data; report’s research partners (the Business Performance Innovation
nor do
they Network, XVELA and Cargotec Corp.) wrote that the opportunities
have
standa are even greater when looking at the inefficiencies in the wider
rds or
ecosystem.
The surveyed professionals thought that solutions
would
include big data and analytics, the industrial internet of things,

new software management systems, cloud services and

automation.

– Develop partnerships with suppliers, upstream
and downstream, in the supply chain, working
toward the same goal and sharing best practices
to improve pro-cesses constantly.
– Secure backing from high-level executives in
the or-ganization.
• Leveraging technology
– Implement software applications best suited for
spe-cific needs.
• Incorporating green supply chain management
princi-ples
– Invest in research and development of green
technolo-gies.
– Position the right talent in the right places.
Provide in-house training to apply the concepts
of green supply chain management.
• Implementing a strong regulatory compliance
program
– Establish a strong compliance program in the
organi-zation.
– Partner with experts in trade management that
can help mitigate the risks of fines, court actions
and cus-tomer complaints.
Diana Berry is a trade management services specialist at
UPS. She earned her bachelor’s degree in industrial
engineering in her native country of Colombia and her MBA
from the University of North Carolina at Chapel Hill. She
also is a lean Six Sigma green belt and is certified in global
corporate social responsibility from the Thunderbird School
of Global Management. Berry was president of IISE’s
Sustainable Development Division and is the founder and a
current board member of the IISE Logistics and Sup-ply
Chain Division. She currently serves as program chair for the
2018 IISE Annual Conference and as governing board
member of the IE Body of Knowledge.

46 ISE Magazine | www.iise.org/ISEmagazine

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Industrial Engineers and its content may not be copied or emailed to multiple sites or
posted to a listserv without the copyright holder's express written permission. However,
users may print, download, or email articles for individual use.