Engineering 21st Century Global Logistics and Supply Chains
Logistics and supply chain professionals are faced with myriad challenges in the globally interconnected, technologically advanced and environmentally aware 21st century. This article sets out some of the key business challenges being faced across various sectors and argues that supply chain management (SCM) thinking remains an important paradigm in addressing these and other related challenges. However, there is significant evidence of a divergence between theory and practice in this area; a number of suboptimal approaches are highlighted, the adoption of which by firms in the past has contributed to this divergence.
The article goes on to argue that the adoption of engineering principles offers the potential to address this conundrum by putting innovation at the core of contemporary logistics and SCM. Two examples of this – systems thinking in supply chain design and reengineering, and threedimensional concurrent engineering (3DCE) – are introduced and their potential explored. The article concludes by proposing some potentially fruitful avenues for future innovation.
Background – business challenges
It is impossible to articulate an exhaustive list of the business challenges being faced by firms in 2016. They vary considerably between different sectors given the different pressures being faced but there are some which appear to exist across the majority of industries.
Competition is more intense than ever. Markets have become more sophisticated and customers more discerning. The international economic and business environment has become more volatile, a fact that is plain to see in an Irish context with the Celtic Tiger followed by one of the deepest recessions ever witnessed in a developed economy and subsequently by a modest improvement in growth in recent years. This volatility at an international levels matters because business has become increasingly international – often global – in complexion in recent years as a result of structural change in the economic environment. In this context, it is often impossible to define the “nationality” of products (and services) as they have become genuinely international in terms of their provenance. The natural environment is under pressure as a result of climate change, population growth and other factors. It is now well understood the logistics and supply chain activities contribute greatly to greenhouse gas (GHG) emissions and that “business as usual” is simply no longer an option if a sustainable future is to be achieved.
As firms have focussed strategically on the identification and development of core competencies, those activities deemed to be “noncore” have increasingly been outsourced. This process of vertical disintegration has resulted in supply chain architectures becoming more virtual. The “big data” challenge has been well documented in recent years. Data is being collected at all stages in supply chains and it has become widely recognised that transforming these data into usable and useful information is a critical success factor. In this context, technology – particularly information and communication technology (ICT) – has a potentially pivotal role to play. Recent years have seen a proliferation of ICT tools, particularly in a logistics and supply chain context. This effective implementation of this technology undoubtedly has the potential to enable higher levels of integration between supply chain processes and to improve business performance. However, there is evidence that the potential afforded by ICT is not being fully exploited for a variety of reasons.
Finally, more and more sectors are being faced with the pressures alluded to above. When the SCM concept was introduced in the early 1980s relatively few sectors (for example, automotive and consumer electronics) were affected by these challenges. It is not a coincidence that many of the pioneers of SCM were from these industries and that the development of much of the early body of knowledge in the field emerged from this experience. In 2016, most firms across most sectors are grappling with similar challenges and exploring how lessons can be learned from the early pioneers. A common thread across all of the challenges referred to above is complexity, i.e. businesses and supply chains have become more and more complex in recent years. In many ways, high levels of complexity have become the “new normal”; the big question is how this complexity can be handled, particularly in terms of how supply chains are designed, planned and executed.
What is SCM and why is it important?
There are many and varied definitions of supply chain management (SCM). My definition is based on the Four Fundamentals as depicted graphically in Figure 1. This recognises that the objectives of SCM are to optimise total supply chain cost and investment, and to meet (if not exceed) customer service requirements in targeted market segments. Furthermore, it must be recognised that these traditional objectives need to be achieved in an environmentally responsible manner. SCM philosophy is concerned with replacing traditionally fragmented supply chains with more integrated configurations. This is true of internal supply chain activities (e.g. procurement and logistics), as well as of activities that span company boundaries upstream and downstream. The operationalisation of this philosophy requires that the key flow systems in a supply chain be managed holistically; the key flows in question are materials (i.e. products), money and information. Finally, SCM requires that firms reappraise their internal and external customer/supplier relationships. In this context, there has been a shift away from “zerosum game” thinking based on adversarial relationships to more “winwin” approaches based on collaboration and partnerships.
SCM, as defined by the Four Fundamentals, is important as it has the potential to significantly improve the performance of firms. That improvements in financial, market and environmental performance are possible with the effective implementation of SCM thinking is well documented in the academic literature. My experience in this regards strongly supports this contention, as does research carried out by the National Institute of Transport and Logistics (NITL) over the last decade or so in an Irish context. However, there is significant evidence that a divergence exists between theory and practice, and that many firms are not adopting the SCM practices articulated in the Four Fundamentals. This is a subject that I wrote about in some detail in a previous LinkLine article and a detailed discussion is beyond the scope of this article. However, that SCM remains relatively underimplemented in firms does raise questions about the suboptimal approaches that have been used in past (and, indeed, that continue to be used in some cases!).
Suboptimal approaches of the past
Developing an exhaustive list of these suboptimal approaches is probably impossible but a number have been evident to me across a range of sectors. First, firms sometimes copy inappropriate solutions because they have been successful in other contexts. This is the “best practice” trap. Just because something has worked in one firm at a particular point in its development does not necessarily mean that it will work elsewhere. Every firm and every supply chain is unique in certain ways – unique products, processes, people and cultures – making it naïve in the extreme to follow socalled “best practice”, thereby copying approaches and solutions that are wholly inappropriate. This problem is compounded by the habit of seeking magic solutions, silver bullets and panaceas. Widely implemented and understood approaches such as justintime (JIT), vendormanaged inventory (VMI), consignment stocking and enterprise resource planning (ERP), all potentially have a role to play in improving supply chain capability and performance but no single practice or technology can on its own revolutionise a supply chain and magically improve its performance. To borrow an idea from The Hitchhiker’s Guide to the Galaxy by Douglas Adams, we seem intent on finding our equivalent of 42!
There is also evidence that firms have not always been good at identifying and addressing their real deficiencies and challenges. In this context, failure to identify the root causes of problems and thereby facilitate radical change can be an issue. Furthermore, firms often tackle problems in isolation from each other without understanding the interactions that often exist between them. In other words, problems are addressed in quite a piecemeal manner rather than in a logical and systematic way. All of the above factors have contributed to the development of a strong emphasis on planning and execution activities in logistics and SCM, including the deployment of appropriate technology enablers, but with little focus on supply chain design.
Engineering the way forward
All of the above raises the question of how best firms can move forward in addressing the many challenges that they face. A good place to start would be by asking the right question:
What is the optimum supply chain configuration given that I have certain unique strengths and weaknesses, and that the market and the wider business environment are likely to throw up particular opportunities and threats?
My contention is that developing a sensible answer to this question requires us to adopt an engineering approach.
What is engineering and what do engineers do? According to the Royal Academy of Engineering (RAE):
∙ Engineers make things, they make things work and they make things work better.
∙ Engineers use their creativity to design solutions to the world’s problem.
∙ Engineers help build the future.
These concepts are all vitally important if meaningful change is to be made possible in addressing our logistics and supply chain challenges. Engineering is not just about science and technology. Yes, it does have a strong scientific basis but it also requires – as noted by the RAE – a high level of creativity. A cursory glance of the great engineering achievements in history give testament to this fact. My own educational and career history provides further evidence of this. For example, I hold the degree of BAI from the University of Dublin. This peculiarly Trinity qualification – the Baccalaureus in Arte Ingeniaria or Bachelor in the Art of Engineering – recognises that engineering is fundamentally about the effective marriage of scientific rigour with the creativity inherent in the arts. Interestingly, a number of famous holders of the BAI gained their reputation more in the creative arts than in the scientific realm (notably the composer Percy French and the artist Nathaniel Hone the Younger).
In short, my contention is that dealing with logistics and supply chain complexity (the “new normal”) requires a focus on effective application of robust engineering design principles. Such principles are evident in the design of complex products in, for example, the automotive, consumer electronics and aerospace sectors, but appear to be quite lacking in logistics and SCM. Don Hicks of Llamasoft contends that most supply chains are a “series of historical accidents” and are unfit for purpose. We all work hard to make the best of this less than perfect lot. We do what we can in terms of planning and execution to mitigate the built in deficiencies. The adoption of engineering and design principles in logistics and SCM has the potential to facilitate a fundamental rethinking of current thinking and lead to the radical redesign of supply chain logistics architectures and configurations. Two examples of this relate to systems thinking in supply chain design and re- engineering and three dimensional concurrent engineering (3DCE).
Systems thinking in supply chain improvement
Companies have long realised the need for companywide approaches to organisation design and redesign. The development of systems engineering approaches to manufacturing system redesign in the 1970s and 1980s was followed by the focus on organisational reengineering, often based on business processes, in the 1990s and 2000s. A common feature of all of these approaches is a recognition that “the whole is greater than the sum of the parts”. In other words, optimising subsystems (whether those subsystems are functional departments, production sites or individual processes in the manufacturing cycle) can result in a suboptimised total system. There are numerous examples of companies who have generated significant improvements in competitive advantage as a result of the application of this “total systems” thinking.
One critical weakness of these traditional companywide business improvement models is that they focus largely on a company’s internal operations and business processes. As a result of the increasingly complex global supply chains of which companies are part, improving one’s own business is no guarantee of success in today’s business environment. The systems approach to supply chain design and/or reengineering is an extension of traditional systems approaches beyond the operations of an individual company to the wider supply chain. It is about analysing the existing configuration of a supply chain, planning improvements to that configuration and then putting these improvements into practice. In short, Supply chain design/reengineering = analysis + planning + implementation.
We call it the systems approach for two reasons. Firstly, we want our supply chains to display the characteristics of a system. One dictionary describes a system as “a set of connected things or parts; an organised group of things; orderliness”. The italics are mine because they highlight those aspects of the definition which provide some pointers to problems which exist in supply chains and, hence, to the type of change which might be required. In other words, we want: the different elements of our supply chain to be connected effectively: our supply chain to be properly organised in a logical manner; and, the overall architecture to be characterised by orderliness.
Secondly, we should tackle the reengineering task in a systematic manner with dedicated resources and with proper attention to detail. This typically requires an appropriate combination of topdown and bottomup approaches. The former ensures that supply chain configurations are in line with overall strategic objectives and priorities; the latter that proper attention has been paid to detailed operational issues.
Three dimensional concurrent engineering (3DCE)
In many ways threedimensional concurrent engineering (3DCE) can be considered as a further extension of systems thinking. Product design was traditionally carried out in a highly sequential and silobased manner. The inevitable result was excessively lengthy timestomarket for new products. The new product introduction (NPI) process developed to adopt more of a focus on product manufacturability (design for manufacture or DFM) with the move to socalled concurrent (or simultaneous) approaches. 3DCE extends this beyond the production process to incorporate a supply chain dimension. As depicted in Figure 2, 3DCE is concerned with the simultaneous design of products, processes and supply chains.
This approach is based on the adage that “the supply chain begins on the drawing board”. It recognises that in addition to production processes being specified during the design process, supply chain components also need to be determined. These components include aspects of sourcing, supplier identification and supplier relationship management (SRM), as well as distribution network design, logistics service provider (LSP) identification and customer relationship management (CRM). In this way, 3DCE extends DFM to “Design for Total Supply Chain Management” (DFTSCM) and aims to create a more integrated NPI process. Such processes offer the potential of reduced timetomarket for new products, as well as other cost and customer service benefits.
Some concluding comments
The dynamic and competitive business environment requires that firms continuously reassess their supply chain capability and performance. In the old adage – standing still equals falling behind! In other words, organisations need to change to retain or enhance competitive advantage. This should never be about change for the sake of change; rather it should be focussed on the development of change processes that make demonstrable positive impacts on key supply chain performance indicators in the areas of cost and customer service in particular. In this context, innovation across all aspects of the supply chain in the key, i.e. the identification of new and better ways of doing things. However (and as noted above), there is evidence of a divergence between theory and practice in relation to SCM implementation. This is where the engineering approach has the potential to make a big difference. The adoption of systems thinking in the design and reengineering of supply chain offers the potential of significant improvement as a result of tackling the challenges in a logistical and holistic manner. 3DCE takes this a step further by putting supply chain and logistics issues at the centre of new product design and introduction processes. This also offers huge potential given that the supply chain starts on the drawing board. Finally, my experience suggests that people and learning are the most important critical success factors in making this happen. The adoption of innovative approaches requires logistics and supply chain professionals who are equipped with the right skills, knowledge and competencies. This has implications for education and training, as well as for wider staff development initiatives in our profession.
Edward Sweeney, BA, BAI, MPhil, PhD, PGCert, FCILT, FCMI, FRSA is Professor of Logistics and Head of the Engineering Systems and Management (ESM) Group at Aston University in Birmingham, UK. He was also recently appointed Director of the newly launched Aston Logistics and Systems Institute. He is a committee member of CILT West Midlands region and was elected Chair of the CILT’s Logistics Research Network (LRN) by his peers in 2015. He is a former winner of the “Member of the Year” award of CILT in Ireland and of the James Cooper Memorial Cup of CILT(UK) for the best PhD thesis on a supply chain or logistics topic in the UK or Ireland.
Edward joined Aston from the National Institute for Transport and Logistics (NITL) in Dublin where he was Director. He has also held fulltime academic posts at the University of Warwick and the University of Technology, Malaysia (UTM), as well as visiting positions at several institutions in Asia and North America. He is currently Visiting Professor at the University of Kuala Lumpur (UniKL). His research has been widely published and he sits on the editorial boards of several leading international logistics journals. Edward has worked in close collaboration with many of the world’s leading companies across many sectors including electronics, food and drink, life sciences and logistics. His current work focusses on the issues of supply chain sustainability and integration, with particular reference to the divergence between theory and practice. This article is based on the invited CILT alumni lecture that he delivered at the Engineers’ club in Dublin in November 2015.
Professor Edward Sweeney FCILT