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

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.

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- improve supply chain efficiency. The key is to select the right
verage information technology by sharing data across their software based on need. Some companies still use different
mutual supply chains. The resulting channel is more effi- applications for different areas of the supply chain (procure-
cient because activities are better coordinated. On a large ment, transportation, etc.). This can lead to integration issues
scale, Procter & Gamble can track its products on Walmart’s and adversely impact supply chain efficiency. However, these
shelves through register scanner information provided by sat- days software applications that can address the entire supply
ellite links. The system offers Procter & Gamble real-time chain are available.
information that is used to manage its operations more ef- Selecting the right software application can help the sup-
ficiently. Figure 1 indicates this system’s information flow. ply chain become more agile and reduce processing times.
Drones are one of the most recent examples in product Supply chain management must consider that consumer
transportation to cut delivery costs and improve efficiency. buying patterns can change rapidly. Agile supply chains are
In August 2016, Domino’s Pizza successfully delivered a piz- flexible to consumer demand. The transportation industry
za order to a suburban New Zealand couple using a drone. could become more agile in its practices. The industry could
The company expects drones to be an essential addition to upgrade its IT systems to automate more of its operations,
its delivery fleet and generate new jobs for pilots and other include comprehensive shipment information and streamline
drone-related positions. its business processes.
Innovation adds value to an organization. Successful sup- Big data analytics is playing a large role in supply chains
ply chain innovation improves processes. Continuous im- today and is revolutionizing the industry in several ways. It is
provement initiatives in the supply chain need strong back- enabling complex supplier networks to collaborate and create
ing from the highest levels of management. Some companies knowledge-sharing networks. In transportation, big data an-
have applied lean manufacturing tools in their supply chains, alytics is being used to optimize delivery routes. The systems
translating into quicker flow and delivery time. Lower in- plan truck delivery routes based on historical traffic patterns.
ventory levels can lead to better product control and shorter Recent advances in geoanalytical mapping techniques allow
lead-times. companies to analyze millions of data points and model hun-
Toyota provides an excellent example of continuous im- dreds of potential route scenarios.
provement in supply chain management. Toyota develops Amazon uses big data analytics to fulfill orders quickly by
partnerships with its suppliers and dealers to encourage sup- linking with manufacturers and tracking their inventory. Big
ply chain improvement. Toyota places a heavy emphasis on data analytic systems select warehouses nearest the consumer
the need to modify and optimize its production processes to reduce shipping costs by up to 40 percent. In addition,
constantly, leading workers to bring innovative ideas to the graph theory (the study of graphics) is used to help determine
table. the best delivery schedule, route and product groupings to
reduce shipping costs further.
Leveraging technology
Leading manufacturing and retailing companies leverage Going green with supply chain management
technology for supply chain efficiency, translating into cost Today, consumers are becoming more aware of environ-
savings. A variety of software programs are available to help 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 beneficial, other “learn by doing” experiences provided by
consume, and companies should answer their questions in some companies, such as working alongside a seasoned sup-
terms of green supply chain management. Companies also ply chain manager and reflecting on his or her learnings,
have a good opportunity to take care of the environment and could provide practical insights.
earn profits at the same time. Green supply chain manage-
ment can be defined as integrating environmental logic into Strong regulatory compliance
supply chain management. The role of compliance has become more important in to-
An example of applying green supply chain management is day’s supply chain. Government agencies around the world
the company Maersk, the world’s largest container shipping continue issuing rules and regulations that affect supply
company. Maersk has a global population of 20,000 suppli- chain operators. Companies need to make sure they have
ers with contracts in place. Of its suppliers, Maersk deems a strong and well-implemented program in place. The cost
1,500 of them as having a high risk of causing environmental of noncompliance can be high, with fines and penalties as-
problems. Based on their high-risk environmental category, sessed. Other costs can include returned items and customer
Maersk engages with those 1,500 through a combination of complaints for noncompliant products, which also points
audits, self-assessments and documentation reviews to ensure toward the need to implement new tracking systems.
responsible procurement. In 2012, Maersk reached its 2020 As emerging economies continue to grow, manufactur-
goal of reducing carbon dioxide emissions by 25 percent per ers are finding new markets that they did not know before;
container from 2007 levels. Toyota also has been called the however, with this opportunity comes a clear need to stay
world’s best global green brand since 2010 by demonstrating up to date with import requirements. A strong compliance
dedication to supply chain sustainability. program should include a formal process to answer import
Supply chain companies such as UPS continue to expand and export requirements to ensure regulations are met. Or-
their environmentally friendly practices, shifting from pe- ganizations can benefit from implementing trade manage-
troleum to cleaner-burning, lower-carbon alternative fuels ment databases that include:
that also make good economic sense. UPS invests constantly
in the green fleet, using a range of technologies that include • Classifying products across businesses
renewable diesel and renewable natural gas. According to • Maintaining a compliant file of sensitive bills of materials
company studies, its fleet with natural gas vehicles reduces • Expediting customs clearance and centralizing and con-
emissions by 6 percent to 11 percent. trolling global trade logistics
The successful implementation of green supply chain
management concepts would not be possible without po- Fines for noncompliance can total millions of dollars de-
sitioning the right talent in the right places to drive ef- pending on the industry. An example is the case of aero-
fective execution on daily operations. Excellence requires space manufacturers and distributors that navigate a com-
outstanding competencies. Competencies required in sup- plex export process and can face expensive fines. Another
ply chain are expertise in transportation, warehousing, example is a leading oil company that paid $100 million
inventory management and production planning. Other in fines after exporting energy equipment to sanctioned
needed skills are strong business acumen, global mindset, countries. Many countries have export control regulations
technical savvy, analysis and influence. Many supply chain that restrict sales for certain end users or certain countries,
practitioners come from business backgrounds and are not individuals and entities.
well-grounded in logistics theory. Most of the supply chain When shipping internationally, for example from the
practitioners in the future have probably never experienced United States to Mexico, the government rules of impor-
working in a manufacturing setting. Employees in house tation are strict. If the number of parts indicated on the
will need training in the form of simulations, games, at- commercial invoice does not match with the physical in-
tending industry events, learning from their peers and ex- spection in customs, the customer will be assessed fines. It
posure to different supply chain areas to understand how all is in a company’s best interest to work with trade manage-
the pieces fit together. ment experts that can provide guidance and quick resolu-
Most supply chain practitioners have experienced the tion when fines are imposed and to prevent future fines.
beer game. The beer game is an experiential learning busi-
ness simulation game created by a group of professors at Four steps to a better supply chain
MIT Sloan School of Management in the 1960s to dem- In summary, the keys to stellar supply chain management
onstrate a number of key principles of supply chain man- include:
agement. It is played by teams of at least four players, and
it takes at least one hour to complete. While the game is • 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
complex. Partners don’t share data; nor do they have standards or
industrywide agreements. And many are worried that data sharing
increases security problems.
McKinsey & Co. has estimated approximately $17 billion
of waste in port and carrier business processes alone. But the
report’s research partners (the Business Performance Innovation
Network, XVELA and Cargotec Corp.) wrote that the opportunities
are even greater when looking at the inefficiencies in the wider
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 – Establish a strong compliance program in the organi-
downstream, in the supply chain, working toward the zation.
same goal and sharing best practices to improve pro- – Partner with experts in trade management that can
cesses constantly. help mitigate the risks of fines, court actions and cus-
– Secure backing from high-level executives in the or- tomer complaints. 
ganization.
• Leveraging technology Diana Berry is a trade management services specialist at UPS.
– Implement software applications best suited for spe- She earned her bachelor’s degree in industrial engineering in her
cific needs. native country of Colombia and her MBA from the University
• Incorporating green supply chain management princi- of North Carolina at Chapel Hill. She also is a lean Six Sigma
ples green belt and is certified in global corporate social responsibility
– Invest in research and development of green technolo- from the Thunderbird School of Global Management. Berry was
gies. president of IISE’s Sustainable Development Division and is the
– Position the right talent in the right places. Provide in- founder and a current board member of the IISE Logistics and Sup-
house training to apply the concepts of green supply ply Chain Division. She currently serves as program chair for the
chain management. 2018 IISE Annual Conference and as governing board member of
• Implementing a strong regulatory compliance program 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
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print, download, or email articles for individual use.

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