Your first seminal book was called Living Supply Chains. What did you mean by ‘living’?
Years ago, people only thought about a very small part of the supply chain. It was called ‘finished goods distribution’ back then. Now when we talk about supply chains we start from the raw materials and go all the way through to the end user and beyond, actually. So what I was saying – and what I‘m still saying – is that effectively supply chains are like the body‘s central nervous system; but what flows through their veins are finances, information, and product. I realized early on that supply chains aren‘t driven by technology and they aren‘t driven by infrastructure. Those things are just enablers. What they‘re driven by is people making decisions: customers at one end, suppliers at the other and enterprises in the middle. Not many people understood the word ‘living’, though, so we came up with another word for my next book: dynamic.
Why do you believe the ‘one-size fits all’ supply chain is ‘seriously flawed’?
One of the big problems is that a business can‘t cost-effectively service the whole market with a single supply chain configuration. The more it tries to capture a marketplace with that approach, the more exceptions will arise – and that drives cost up. In fact the more you try to standardize things, the worse it gets. And paradoxically you end up with a higher cost than if you‘d stayed in bed and done nothing. You have to align with your marketplace. That means you first of all have to understand what your marketplace is telling you; and then you link your marketplace with your marketing strategies, your product, your supply chains and your corresponding logistics.
You‘ve talked about the importance of understanding buying behaviors. How many are there?
There‘s a relatively small number. There are ‘loyal’ or ‘collaborative’ customers who trust the brand and don‘t care if they pay a premium for it; ‘transactionals‘ who are constantly looking around for the lowest price; and ‘opportunistic‘ customers who are unpredictable and demanding, but driven by immediate satisfaction and want things now. Then there is ‘transitory‘ buying behavior, as market situations force a change in buying behavior, at least temporarily. That’s the dynamic bit we have to cope with.
As a business you can look at your market – whatever it is you are selling – and you identify what the structure is: what percentage of your customers are loyal, what percentage are transactional, etc. Using this method you can then reverse-engineer your processes, and precisely build your supply chains. Whereas, in the past, it‘s just been one great big guess.
In your experience, what keeps supply chain managers awake at night?
The fear of unplanned disruptions, whether they are caused by an internal computer failure or external factors such as natural disasters. More and more senior managers look to the area of logistics and supply chain as a way to cut costs; but the more costs you cut the more you lessen your ability to recover from a major disaster – the kind that puts companies out of business.
A famous example I mention in my book is the major fire in the year 2000 at the Philips New Mexico plant that was making chips for both Nokia and Ericsson. Nokia was clever and found out about it early; but by the time Ericsson was clued in, all the remaining stocks had been soaked up by Nokia. Risk management is the single biggest worry.