TRB Symposium Embracing Global Complexity to Drive

Competitive Advantage in a Networked

Economy

October 21, 2013

Robert Handfield, PhD

Director, Supply Chain Resource Cooperative

Bank of America Distinguished Professor

Agenda

• The study

• How is complexity increasing?

• Strategies to deal with complexity

• Final Thoughts

Trends and Strategies in Logistics and Supply Chain Management:

Creating End to End Strategies for a Networked Economy

Partners

Prof. Sidong Zhang, Prof. Jiazhen Huo (Tongji University)

Prof. Paulo Fleury, Prof. Cesar Lavalle (Univ. Rio),

Prof. Ravi Shankar (IIT Delhi)

Prof. Victor Sergeev (HSE Moskau)

Jos Marinus (ELA, President)

Prof. Paulo Resende (FDC Cabral, Brazil)

Professor Hauzhe Chen, (ECU, USA)

Professor Meng Lu, (DinaLog, The Netherlands)

Prof. Dr.

Robert B. Handfield

Prof. Dr.

Hans-Christian Pfohl

Prof. Dr.-Ing.

Frank Straube

Dr.

Andreas Wieland

We began by interviewing 60 global

Supply Chain Officers….

4

4

Then completed a multi-lingual survey of 1700

executives across the global …

13%

28%

34%

6%

4%

12%

3%

USA

Brazil

Western Europe

Eastern Europe

Asia (except China)

China

Africa/Middle East

We found the world is becoming a

very complex place indeed!

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#1 TREND: INCREASED CUSTOMER EXPECTATIONS

low high

1 1.5 2 2.5 3

Customer Expectations

Networked Economy

Cost Pressure

Globalization and Complexity

Talent Shortfalls

Volatility

Sustainability

Increased Risk and Disruption

Emergence of New Technologies

Lack of Reliable Logistics Infrastructure

Increased Government Regulation

Cultural Challenges

Today

Five Years

Complexity is Occurring in Many Forms

• Local content requirements are driving companies to work with new

suppliers and new manufacturing environments (e.g. complete knockdown

production in emerging countries)

• Growth of markets in Brazil, Russia, India and China are also the most

complex to navigate due to unpredictable regulations, transportation

infrastructure, and risks

• Part numbers and product designs offer more customized options driving

part proliferation and inventory control challenges

• Greater concern over multi-tier network disruptions (Thailand floods,

Tsunami) as well as control over supply networks

• Increasing volatility and unpredictability in demand combined with

currency, commodity, and financial risks

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Synchromodality is a tool to give your customers a very reliable flow to allow you to decide at the last minute to switch a shipment and use the train, barge or road, when there is a hiccup.

#1 LOGISTICS OBJECTIVE - Meeting Customers

Requirements for Customized Logistics Solutions

0% 5% 10% 15% 20% 25%

Meet Customer Requirement

On-Time Delivery

Green Logistics

Delivery Time

Innovation

CSR

Logistics Cost

Logistics Quality

Schedule Flexibility

Cost pressures are also increasing!

37%

32%

17%

14%

0% 10% 20% 30% 40% 50%

Increase

Stay Constant

Decrease

Do Not Know

Network Innovation Complexity

• Product networks are becoming more complex, as organizations

need to create more diverse sets of product/service bundles

customized to local market requirements.

• Explosion of new channels, fragmenting existing sales channels and

distribution requirements

• E-commerce is driving smaller packages to more customers

• Customized inbound logistics requirements that are customer-

specific, and which vary by region and country

• Product bundling with other channel participants to create

innovative new market opportunities

11

It is not just growth of production volumes, but the doubling or tripling of volumes in existing plants, new production plants in BRIC”s, a dramatic increase in the number of models, ,more part numbers, and diverse channels….

How are companies embracing complexity?

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Talent Management, End to End

Integration and Integrated Planning is the focus

low high

1 1.5 2 2.5 3

Talent Management

End-to-End Integration

Integrated Planning

Global Network Visibility

Technology Investments

Cost-to-Serve Models

Governance and Process Standards

Rapid Decision-Making

Corporate Social Responsibility

Horizontal/Vertical Cooperation

Frequent Network Adaption

Green Logistics

Outsourcing/Insourcing

Government Cooperation

Today

Five Years

Aligning People, Process, Technology and

Network Strategies to Embrace Complexity

PEOPLE Talent Management

Rapid Decision-Making

PROCESS Governance Process Standards

Integrated Planning

TECHNOLOGY Technology Investments

NETWORK Horizontal/Vertical Cooperation

Outsourcing/Insourcing

PEOPLE: Having the Right People Empowered to Act and Deal with

Logistics Complexity, Corporate Sustainability, and Ability to Learn New

Technologies is Fundamental.

Correlation with TM

Correlation with RDM

Talent

Shortfalls

.38

.27

New

Technologies

.36

.26

Sustainability

Pressure

.36

.25

Cost

Pressure

.11

.19

Increased Risk

and Disruption

.23

.25

Customer

Expectations

.18

.20

Globalization &

complexity

.20

.18

PEOPLE Talent Management

Rapid Decision-Making

PROCESS Governance Process Standards

Integrated Planning

TECHNOLOGY Technology Investments

NETWORK Horizontal/Vertical Cooperation

Outsourcing/Insourcing

P1 – Talent Management

P2 – Rapid Decision-Making

Talent Management

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Employee Training

University Recruiting Events

Social Media Recruiting

Print Media Recruiting

Marketing of Logistics

Today

Five Years

Top Performers Engage More

with Universities

1.2

1.25

1.3

1.35

1.4

1.45

1.5

1.55

1.6

1.65

Funding of Research Projects Involvement in Research

University Investments (1 = Yes, 2 = No)

Top Performers

Other Companies

Wanted: Rational, Long-term, Global Specialists

1.4

1.45

1.5

1.55

1.6

1.65

1.7

1.75

1.8

1.85

Emotional - Rational Short-term - Long-term

Generalists-Specialists Local - Intern'lThinkers

Employee Characteristics Sought

Top Performers

Other Companies

PROCESS: Globally Integrated Adaptable Processes

With Technology Embrace Volatile Environments

Correlation with PS

Correlation with IP

Correlation with NA

Globalization &

Complexity

.22

.25

.21

Talent

Shortfalls

.34

.26

.28

Poor Logistics

Infrastructure

.34

.26

.26

Volatility

.19

.22

.18

Increased Risk

and Disruption

.34

.35

.28

Networked

Economy

.23

.25

.20

New

Technologies

.32

.37

.42

PEOPLE Talent Management

Rapid Decision-Making

PROCESS Governance Process Standards

Integrated Planning

TECHNOLOGY Technology Investments

NETWORK Horizontal/Vertical Cooperation

Outsourcing/Insourcing

PR1 - Global Process Standards

PR2 - Integrated Planning

PR3 - Network Adaptation

Driving Decision Agility

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One of the biggest challenges is how to balance consistency in execution yet still tapping into the creativity and flexibility that I’d want if I was running that operation. And so we have been in search of that right balance and there is no easy answer to it. If we get our minds right on how things should work and how they work best and we teach that across our enterprise, our leaders will be more apt to approach similar problems from a similar mindset.

We define the processes that must be in place, and the policies that must be followed, and finally the playbooks that act almost as a user guide on how to think through the overall requirements and get them done! We then have a global SIOP function to optimize global requirements across regional requirements, especially around our global product lines. But we recognize that they will be interpreted and acted on differently at a regional level. So we are structured regionally to drive the deployment of our global strategies, to optimize freight flows, and deal with regionally-specific issues.

Growth in New Technology

0% 5% 10% 15% 20% 25% 30% 35%

RFID

Inventory Optimization Software

Network Redesign Software/Systems

Advanced Planning Systems

Business Analytics Platforms as a Service

Analytics Data Collection Planning

Smart Sensors

Object Recognition Technologies

Social Networks (Internally, B2B)

Product Life Cycle Management

Transport Management Systems

2D Code Technologies (e.g. Barcode, Data Matrix Code)

Warehouse Management Systems

IT Security / Cyber Protection Technologies

Enterprise Resource Planning Systems

Analytics and Big Data Investments

-10% 0% 10% 20% 30% 40% 50% 60% 70%

Social Networks (Internally, B2B)

Business Analytics Platforms as a Service

Network Redesign Software/Systems

Product Life Cycle Management

Today

Five Years

NETWORK: End to End Integration and Adaptation Enables

Aligned Actions Across Your Global Business Partners

Correlation with E2E

Correlation with OS

Correlation with HVC

Sustainability

Pressure

.32

.21

.32

Talent

Shortfalls

.29

.15

.30

Cultural

Issues

.27

.24

.28

Increased Risk

and Disruption

.32

.22

.27

Networked

Economy

.38

.18

.27

New

Technologies

.47

.23

.39

PEOPLE Talent Management

Rapid Decision-Making

PROCESS Governance Process Standards

Integrated Planning

TECHNOLOGY Technology Investments

NETWORK Horizontal/Vertical Cooperation

Outsourcing/Insourcing

Government

Regulation

.33

.22

.39

Sustainability

Pressure

.59

.44

.37

Correlation with CR

Correlation with GL

Correlation with GC

Sustainable Footprints Remain Critical

Crop Cultivation

Blending Chemicals

Production Printing Packing Transportation Warehousing Disposal

Environmental Footprint of a Product

The environmental footprint of a product accumulates all carbon emissions along the supply chain.

Sustainability is part of our product roadmap from product development to green logistics and customer application. We don’t view it as a trend, we view it as a right to operate, just like safety.

Final Thoughts: People are the Foundation

for Agile and Resilient Supply Chains

• “…most important thing is to work on the capability of our people and increase competencies…”

• “…put a lot of importance on continuous training….and we see a high regional variation in turnover…”

• “….education is high in India, but practical application of knowledge to daily situations and problems in the workplace is not good…”

• “….we can’t afford to lose good people, so we try to take care of them as they are in demand in Brazil…”

• “…strengthened ties to elite Chinese universities and a selective hiring process…”

• “…in Russia we hire for their mindset and willingness to learn, not their supply chain experience. Then we bring them to our Western locations and train them how to do business….”

• “….we have to move people out of traditional functional silos so that they are able to speak to people outside of supply chain…”

• “…you need a backbone cadre of B players who are solid but who have low turnover…they will deliver reliably 90% performance. Once you have that base, you can deal with the volatility of human capital.”

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