What are the biggest threats and challenges for SCM?

There are many threats and challenges for Supply Chain Management. But to measure is to know. The “biggest” threat is determined by how you measure the size of that threat. Then you can compare those measurement results, as you sometimes do on a risk matrix. After all, that’s kind of what it comes down to. You define the measurement scales together with the risk matrices for the organizations. Only now it has to be done for the entire supply chain.

In this post I write my own opinion, not that of any organization.

How to handle that?

This measurement can be done in many domains. For example:

Strategic:

• Sensitivity to political decisions
• Financial
• Organizational
• In terms of culture
• In terms of time
• Vulnerability to all kinds of disasters: natural and human causes or both (Natech)

Tactical:

• Competitive
• Required information
• In terms of information security

Operational:

• Avoidance / prevention of the seven types of ‘waste’

For risks associated with these topics, you then must draw up scales that measure the opportunities and impacts. That makes it more quantitative.

Discussion of the proposed domains.

I discuss some threats and challenges, which are never complete.

Strategic:

• Political sensitivity

This brings you into contact with the day-to-day practice of the supply chain. After all, it can be called ‘Global’, and the different countries have different rules regarding production and transport rules and safety. Due to political circumstances, the threats in one country can also be called different from another. In Colombia it is easier to get hit by a ‘stray’ bullet than in Belgium. The laws and regulations regarding counterfeiting are also different.

A major political threat is terrorism. To this end, critical infrastructure, for example, is important as a target of terrorist attacks. This infrastructure can be power stations, road networks, ports, airports, etc. The susceptibility of the objects can be estimated using the so-called ‘forced choice method’ analysis. From the terrorist’s point of view, you can then consider the aspects of economic damage, fear, and visibility as parameters. There were also differences of susceptibility between the attacks on the twin towers (2001/09/11), the attack at Zaventem Airport (2016/03/16) and those at Istanbul Atatürk Airport (2016/06/28).

• Financial sensitivity

Financially, there are several possible challenges: is the focus on profit maximization across the entire supply chain or across each company individually? Or is it a large turnover? That profit depends on costs such as inventory costs, transport costs, fluctuating value of foreign currency for international players, costs of compliance in transport and storage, and delivery and production in different countries, for different countries and customers. But there are other financial challenges, such as payment terms, capital needs, uncertainty in demand, the importance of sustainability for the customers.

• Organizational

Probably the biggest organizational threats to supply chain management are complexity and globalization: these are now globally distributed for economies of scale and are therefore subject to many different regulations, which can even contradict each other.

A second challenge here is inventory management. In fact, one now even must assess the world situation, including political developments and the evolution of customer demands, in order to know how much to stock if one does not want to run out of raw materials. These customer requirements also have an impact on the products in terms of sustainability and environmental considerations.

A third challenge here is the collaboration within the supply chain between multiple players in the creation of the product and its delivery to the customer. Here, too, a good knowledge of local legislation and the methods in which compliance is measured is important. For each component at any time in the chain and at any location, one must be sure that the product, its production, quality, and transport processes are compliant and can be delivered on time to the next link in the chain.

• Culture

A great project manager in Brazil can be completely misunderstood in Germany. Their challenge is sometimes to operate in and for an international context. To this end, the Value Survey Model Framework is important. It talks about ‘Power distance’, individualism vs collectivism, masculinity vs femininity, uncertainty-avoidant behaviour, long-term orientation, and tolerance vs limitations.

‘Power distance’ is the readiness of less powerful members of the group to accept the inequality of power. An example of ‘high power distance’ is China. Decisions are made hierarchically. It is therefore important to know the decision-makers at such partner companies.

Individualism ensures one’s own performance and self-determination, teamwork is possible to the extent that it benefits the group members. In collectivism, the individual identifies with the group, teamwork is for the benefit of the group, own advantages are often sacrificed. There is greater social involvement.

Masculinity versus femininity: this is about values that are often seen as masculine vs feminine. Competition, heroism… versus caring, group harmony and consensus… Sometimes one attitude is desirable, sometimes the other.

Uncertainty-avoidance behavior has to do with how the organization handles situations when the outcome of the action is unprecedented. Thus, an organization may have a risk-averse or risk-seeking attitude. Risk-avoiding behaviour that is too high can for example be detrimental to innovation.

Long-term orientation: short-term wishes are sometimes in conflict with long-term strategy. In some cultures, people often opt for short-term wishes at the expense of long-term strategies. Openness to long-term strategy favours the large, decisive progressive changes. Long-term vision also manifests itself in attempts to maintain long-term relationships.

Tolerance vs. limitations: In a tolerant environment, human desires for pleasure and vanity are widely accepted, while morals and social norms are more likely to be treated benevolently.

Each of these provides cultural challenges to achieve the best performance.

• Vulnerability to disasters

Originally, disasters were divided into natural disasters and disasters with human origin. However, a hybrid form has emerged: NaTech disasters. Until now, these have mainly been disasters that have a natural cause in their origin, such as an earthquake or a ‘landslide’, but in which technical installations are affected, such as a nuclear power plant or an oil storage facility. It is then hit so hard that it causes a huge disaster. Another type, which has not yet been conclusively proven but is made very plausible, is when a human intervention causes a natural disaster. The great example here is global warming, which threatens the entire world’s ecosystem.

An example of a human problem was the multiple stranding of a ship in the Suez Canal, causing many other ships to record serious loss of time.

Tactical:

• Competitive

Competition is not only on the sales side, but sometimes also on the purchasing side. For example, the competitor for purchasing goods is someone from a completely different sector. For example, after covid19 it became clear that there was a shortage of computer chips for cars due to fewer orders, so the production of chips had thrown itself into the game market during covid. One conclusion of some brands was therefore to consider insourcing chip production for their cars. Several parts were also temporarily replaced by mechanical parts instead of electronic ones, such as speedometers.

• Required information

In my opinion, what this is about is not only how you produce the products, what you need to do that, and how you market and deliver them, but also: what needs does the customer have?

That need can also be created. The car is an example of this. There was cart and horse. The German engineer Carl Benz applied for the first patent for an automobile. Ford, however, has listened to the customer: more to the deep needs than to what they literally said. He also made it affordable and accessible to more people with mass production.

• Information security

This is important for protecting inventions, production processes, etc. against counterfeiting as well as for preventing becoming a victim of cybercrime. Standards such as those of NIST, ISO and the like help with this. Information security is a world, which requires a good knowledge of IT on the one hand and a thorough knowledge of the organization’s processes on the other.

Operational:

• In terms of time

In terms of time, the aim is to produce and deliver the goods within the shortest possible time. Customers want to have more and more tailor-made products available ‘ready-to-use’ on simple demand. In addition, during covid19, home deliveries instead of in the store developed, which (almost) killed many self-employed people with their stores.

The total time lapse has to do with all steps from the production of the product, over transports of semi-finished products, to final production and delivery to the customer. There are too many processes involved to discuss this properly. What is useful to know is that there is a limited collection of process categories that play a role in the overall supply chain. These are: Plan, Source, Make, Deliver, Return, and Enable. This is the so-called SCOR Framework: Supply Chain Operations Reference.

• Avoidance / prevention of the seven types of ‘waste’

Supply chain generally has seven types of ‘waste’. This is measured in different ways, depending on the type of ‘waste’. These types of waste are:

1. Unnecessary transport of material from one processing point to the next.
2. More material available in the inventory than necessary. This can include raw materials, semi-finished products, work-in-progress, and finished products.
3. Any type of movement or displacement that does not add value. For example, because equipment is not present in the right place.
4. Waiting, as in a period that passes in which there is no processing for the purpose of value creation.
5. Overproduction: when more was produced than the internal and external customers need combined.
6. Overprocessing, a process weakness in terms of the sequence of process steps followed, content, technologies used, and resources.
7. Defects, if the intended value creation was not achieved immediately.

Conclusion

To measure the challenges and associated threats, there are many angles. Each of these perspectives has several possible sub-topics. They all require one or more indicators. This makes it difficult for an organization to create an overview on its own to have an overview of what is important for its survival throughout the supply chain. That is why it is better if the entire supply chain would cooperate, each organization with its own parts. That they would be able to share their grey rhinos, strategic, tactical, and operational risks with others in a secure way.

To this end, shared values are important. But where openness is often at the top of the list of values, it is not there when it comes down to it. That is why governments also have a role to play here, to make several things mandatory worldwide with regulations. Without that obligation, it may not be humanly possible to achieve that openness.