Supply Chain Misconceptions
Paul Trudgian Ltd | Supply Chain & Logistics Consultancy 1 Comment

In the supply chain industry we often make decisions based on generalised information which we take as fact. This can be a dangerous business as in reality many of these ‘truths’ are often misconceived, misinterpreted, or in the worst situations, simply untrue. In this article we explore five misconceptions and misinterpretations and offer the actual facts to support better decision making in the supply chain.

Misconception 1: Corporate Social Responsibility will always result in greater profits

The myth that Corporate Social Responsibility (CSR) will always improve your bottom line has been becoming a concrete belief over the last five years.

We in the supply chain are now often operating under the illusion that improving our CSR will always improve our profit margins. So, we feel it makes financial, as well as ethical, sense to use fairer trade regimens, take greater care over global workforces and reduce our chemical and pollutant waste and more.

We’re not suggesting that CSR isn’t absolutely imperative from a business stand-point and strategic vision. However, it isn’t so clear cut that implementing CSR initiatives will always result in cost-efficiencies and greater profit.

It’s important that we are realistic about this. CSR initiatives shouldn’t only be considered within the bubble of financial performance alone. They should be considered in a wider, longer-term, and realistic way. This will enable us to drive sustainable initiatives which meet our hopes for CSR, rather than short-term ‘gimmick’ nods towards it.

This also involves looking more realistically towards our customer-base and actively cultivating a customer base which itself values CSR. These are the customers who will make your CSR initiatives profitable.

The truth: CSR initiatives may improve cost-effectiveness but require careful evaluation and tailoring to your customer base.

Misconception 2: The supply chain has a skills shortage due to being unattractive to Millennials

Talk about recruitment in the supply chain and attention turns to the up-and-coming generations. We talk about labour shortages at management and junior levels. We talk about the seismic shifts in skills needed. We talk about future-proofing our industry.

All these factors are true to some degree and we must take steps to solve these current problems. However, what we’re forgetting is that this isn’t a new problem per se. The supply chain has always been at the cutting edge of innovation. We’ve always needed talent that has the propensity for development, not simply the ability to do today’s job. It’s always been necessary to look at our workforces and consider how we will flex and adapt to changes.

Realising this isn’t a new or unique problem makes it less worrisome.

The truth: Every industry, supply chain included, has to adapt to changes in their workforce over time. Knowing this is a perpetual problem forces us to accept that problem-solving our future recruitment needs is simply part of the job.

Misconception 3: Blockchain is all we need for traceability

You can’t move in the supply chain industry at the moment without coming up against discussion about blockchain. This year you’ve really needed to stand up and listen. However, it’s overwhelming because the market is receiving a huge influx of new start-ups touting their trade. You’re operating on the back foot feeling like you’re missing out on an essential thing.

This is because every single discussion concerning blockchain will tell you that you need it for traceability. Surely this is right given the big names which have signed up to it? It makes sense – digital tracking has to be more accurate than previous systems, yes?

Well it certainly enables traceability of the information put in at Point A. However, what it doesn’t necessarily do is match up, yet, with regulatory processes that assure that the information being entered at that point is actually factually correct. Whilst there’s no doubt traceability is aided, you still need to be monitoring and certifying your upstream supply partners.

The truth: Blockchain will be incredible for traceability if we can verify the information entered at the start of the chain.

Misconception 4: Functional excellence will solve all your problems

Supply chains are inherently multi-dimensional but crucially, co-dependent. One area of the supply chain achieving functional excellence can actually negatively impact on the functional excellence of another.

Let’s look at an example. Let’s start upstream and look at sourcing. To achieve functional excellence in sourcing, on paper, what you need to be looking at is price. Sourcing will look like they have achieved functional excellence if costs are low. However, this may pose problems further down the chain, say for manufacturing, achieving functional excellence. If they are working with cheaper components which cost less does this make the manufacturing process more difficult? Does it slow down output or create greater waste?

Due to this knock-on effect it’s impossible to force performance for each section of the chain based on functional excellence alone without realising how they interact with one another.

In reality this is a really tough nut to crack. Within each area of the supply chain you will have management driven by the fundamental belief that they need to strive for functional excellence in their area in isolation. It doesn’t always directly benefit them to consider the wider implications of this on the supply chain as a whole.

The truth: functional excellence should be considered in the wider context of integrated business planning, and never sought out for its own sake alone.

Misconception 5: Excellent forecasting reduces inventory levels

There’s no doubting that the supply chain has become enormously better at and more equipped for forecasting. We’ve now got technology, such as machine learning, that has fuelled great strides in this area. Hand in hand with this we have created inventory optimisation systems. It’s easy to therefore think that the ultimate outcome of this is lower inventory and lower associated costs.

However, this isn’t quite how it works in reality. In reality, the technology and tools available to us don’t necessarily, in practice, reduce inventory levels. Once again this is because these systems don’t operate in isolation.

In practice, there are a variety of different factors which affect inventory level, including those which aren’t necessarily being taken in to account with machine learning. For example, if new sales channels are added then this will have a knock-on effect outside of the machine learning approach.

The truth: we need to use forecasting tools to our advantage but realise that inventory levels are affected by more factors.

By taking a realistic approach to the misconceptions and misinterpretations in the industry we are better equipped to make the best strategic decisions.

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