Between Q4 2019 and Q1 of 2020, headlines that address the global supply chain painted a productive and positive picture of the flow of goods and services. As recently as January, stories about the supply chain led with headlines like How artificial intelligence is improving the pharma supply chain. This stands in stark contrast to supply chain stories from today like The supply chain is breaking and Pandemic highlights role of digital readiness in mitigating supply chain risks.
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We felt it important to carefully explore some of the underlying issues that have caused such a difference in tone and optimism about the supply chain over such a short period of time.
To help us understand this, we're joined by Professor Nick Vyas. Professor Vyas is a leading authority on end-to-end global supply chain management. Today, he is the co-founder and executive director of global supply chain management studies at the University of Southern California's Marshall School of Business. Before his career in academia, professor Vyas led complex business transformations for fortune 100 companies like Toys R Us, Sears and Duty Free International. He's a thought leader who regularly speaks at conferences about global trade and disruptive technology as it relates to global supply chain management. And fortunately he joins us now.
Professor Vyas, welcome to the podcast. I'd like to begin with a broad question about the key stakeholders we'll discuss throughout this conversation.
In your view, where do responsibilities lie in order to ensure healthy supply chain management across key stakeholders?
When we think about the supply chain, truly the responsibility starts at the top, at the C suite, meaning they have to embrace strategic decisions of what strategic vision is in terms of what supply chain networks should look like and what are the key objective functions that we need to prioritize. And then subsequently, once we have done that, how are we going to make investments, capital infrastructure improvement, and then tactical execution to make sure that those things are in place.
When we think about the supply chain, truly the responsibility starts at the top, at the C suite...
What occurs to us is that, as organizations test their return to work policy, they will face choices when it comes to how their supply chain returns with them. For example, they can either consolidate everything and rely on a few key suppliers, which can be efficient and simple but could create a dependency risk or they could open up to a multitude of suppliers which might create other challenges such as having to work with hundreds of small suppliers in different ways. Do you expect a shift in companies sourcing strategies going forward?
I expect the supply chain, post-COVID, to be a very different supply chain. Let me qualify what I mean by that... I think the disruptions we have seen in global supply chains are partly to do with what the virus has actually exposed us to in terms of some of the restrictions and shelter in place policies, but it has a lot to do with how we designed our supply chain networks, especially over the last 20-25 years.
We became so one dimensional in driving the solution network design that we suddenly did not plan for a lot of the contingencies and mitigation. So to bifurcate that further, supplier diversification and supply chain diversification will have to become the primary objective of the future supply chain design for every organization.
I think the disruptions we have seen in global supply chains are partly to do with...how we designed our supply chain networks, especially over the last 20-25 years.
Was your decision to pivot from managing supply chains for some of the biggest companies to heading into it an academic background or field; was the reason for that tied to your view that the last 25 years or so, as you said, has caused some of these problems that we face and that we need to train the next generation of supply chain experts?
Absolutely. I was fortunate enough to take three large legacy organizations, what I would actually call the darlings of decades of American landscape, through mergers and acquisitions on both sides of being bought and buying organizations and integrating.
In running supply chains what I realized is that we were so focused on the cost. We were so focused on trying to find the cheapest resources, relaxed policies and governance and other environmental underpinnings that we literally designed ourselves into a humongous mousetrap, which by the way, 25 years later we ended up, as a civilization, catching ourselves in our own mousetrap in which we realized there was no agility, no resiliency, and certainly no diversification was factored in.
So, when I transitioned from corporate to academia, it was truly based on the vision of how we can actually create the next generation of leaders so they understand that supply chains are not about focusing on the one particular metric, but it is a balanced approach and it is a balanced scorecard. We owe it to our shareholders, we owe it to our society, we owe it to our stakeholders that we have a deeper and wider horizon scan to factor these things in and, and be somewhat mindful about how we make decisions.
I'd like to touch on some of the things you've had to say about globalization and ask you some questions that pertain to this; prior to your career in academia you managed the supply chain for some notable fortune 100 organizations: Toys R Us/Babies, R Us, Sears and Duty-Free International. And in that time you spoke of globalization as a flattening of the world. So I wanted to ask these questions. Having experienced the supply chain function from these different perspectives, both in the trenches and at a strategic level, are the shortages and uncertainties and inconsistencies that we see today comparable with any other period that you've witnessed? And if so, how?
Well, that's a great question.
If I were to reflect on this, through my journey or the last three decades, what comes to mind is that we suddenly have actually come to an inflection point just before we hit the COVID-19 pandemic in which, basically, we had realized that supply chain centricity had shifted and it shifted relatively fast, over two decades.
What we did is move what were very decentralized, very diversified nodes of the supply chain across multitudes of continents and regions into a very predominant China centric supply chain. Very little attention was paid to understanding its long term implication. In a way, we became so heavily dependent on Chinese manufacturing capacity that a lot of the core competency in terms of the manufacturing expertise and R&D expertise and other second and first tier supplier confidence… all of this started to shift with this redesign of the supply chain over the last 20 years. And that truly changed the landscape of how we view the supply chain today versus what it was actually 20-25 years ago.
I remember very distinctly a story that we were trying to source toys in one particular category. And I remember having a conversation with the buyer in that particular category. The options were that we could actually take the entire product line, and this was hundreds of thousands of units, and divide it up between Latin America, Southeast Asia and China. Then, the cost difference was, relatively, within 10-15 cents, at best.
We decided to put 100 hundred percent capacity into China. I realized, even at that point, when I was questioning, does it make sense? And obviously a pandemic was not in my mind at that point because of the diversification. It was far from it, rather, but I knew the risk of a factory shut down or some geopolitical tensions or some financial fluctuation in terms of currency fluctuations.
...the trend that we’ve seen in organizations, really part of globalization, was a supply chain not as the forethought, but always an afterthought.
My goal was an 80-10-10 or 70-20-10 sort of a diversification portfolio. And at that point we could not even gain the traction of communication beyond what was the total cost of ownership and what was the cheapest way we can get the product from point A to point B. Subsequently, as you know, the lead paint issues that surfaced for Toys R Us, which ended up becoming a huge liability and PR issue for us, may have been linked to chasing the cheapest cost and subsequent exposure thereafter.
So, yes, I think that suddenly, the trend that we’ve seen in organizations, really part of globalization, was a supply chain not as the forethought, but always an afterthought.
Almost a ticking time bomb?
It certainly was ticking and we kept feeding the fuel to this time bomb.
I'd like to stay on the theme of globalization. As the world is looking to speed up the pace of innovation and if we look specifically at healthcare to reduce the time to a COVID-19 vaccine, through having scientists working collaboratively - at a global scale on a diverse set of approaches - what do you see as are the key challenges in the supply chain that can really help accelerate success in a vaccine? What needs to happen in the supply chain to help the research scientists who were trying to work together accomplish their goal of a vaccine sooner?
So, Greg, that's an amazing question. If we think about speed to market, it is underpinned by the supply chain and quite often gets misconstrued.
I often get asked, during this COVID crisis, is the reason for the disruptions we're seeing in the supply chain because we're inefficient? And the answer is no. Supply chain efficiency has nothing to do with the resiliency. To link this back to what we can do to get a vaccine to the market, how do we establish the speed to market so that we can actually have the vaccine for the mass population? The answer is, we need to really underpin the supply chain and align the supply chain to make sure that our sourcing, our manufacturing, our ultimate distribution network and our transportation network leading up to the end consumer point… that could be a hospital or it could be clinics or it could be a variety of different nodes, but we'll map those out and really align and plan the resource allocation to make sure that we have best-in-class resource allocations, best in class practices and professionals underpinned to move the vaccine to the consumer at the speed, reliability and the cost and quality that we would need.
I often get asked, during this COVID crisis, is the reason for the disruptions we're seeing in the supply chain because we're inefficient? And the answer is no. Supply chain efficiency has nothing to do with the resiliency.
We certainly want to ensure that a cold chain, especially for the vaccine, and the temperature has been maintained and that the integrity of the transportation network has been maintained and making sure that people understand the importance of those protocols. Because unlike the regular supply chain, the pharmaceutical and cold supply chain may actually require additional factors to consider.
So, I believe in order for us to really penetrate the success of the vaccine being available to the marketplace and then available to the people, it would have to be underpinned by incredible planning, designing and execution of the supply chain.
So I'd like to pivot towards technology. You have described an evolution in the supply chain that has brought capabilities to deliver goods in days and even hours. You've even mentioned that the use of delivering by drones is a matter of when, not if. So here are my questions as it relates to technology. In your opinion, why hasn't effective supply chain management had the same progression in healthcare and life science as it has in consumer products? And, what do you see as the major challenges and setbacks that may have caused this lack of progression?
Those leading the change in setting the trend of driving disruption are rewarded at a much greater rate than those being disrupted...
When we compared the evolution and evolutionary phase cycle, consumer (markets), and many of the verticals have done an incredible job and probably the reason is strictly survival of the fittest, the competition and market penetration and market size. Those leading the change in setting the trend of driving disruption are rewarded at a much greater rate than those being disrupted and we've seen that. So, that opened up a huge marketplace for those companies; the new-comer and the fresh-comer had an attitude to be the lead change driver. We saw e-commerce, for example, and the omni-channel really changing the way we source, we manufacture, we consume and change the way society actually behaves and that continued to fit into this evolutionary cycle.
Life science and healthcare, on the other hand, I think we have not been exposed to those external threats. There has been a very static demand pattern. In some cases it is so static that it's predictable so that the healthcare industry and specifically the supply chain is literally driven by a distributor model. You have a strong relationship with one, two or maybe and best case three distributors who will manage your needs and will cater to your needs and will suffice all your demand with very little variability that they have to encounter.
Life science and healthcare, on the other hand...have not been exposed to those external threats. There has been a very static demand pattern... This pandemic really showed us that all healthcare supply chains, at best, are less than an average of what the capability is...
That created almost a status quo mindset in the health care and life science sector. What we see that prevented them from adopting innovations in technology and some of these emerging trends that we have seen in other parts of the supply chain much more gracefully being adopted, is a lack of its presence on the healthcare and life science side.
I think what happened, COVID-19 really exposed the structural deficiencies. This pandemic really showed us that all healthcare supply chains, at best, are less than an average of what the capability is in the rest of the supply chain progressions we made.
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End of part 1.
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