TRB Symposium Embracing Global Complexity to Drive Competitive Advantage in a Networked Economy October 21, 2013 Robert Handfield, PhD Director, Supply

TRB SymposiumEmbracing Global Complexity to Drive Competitive Advantage in a Networked

Economy

October 21, 2013

Robert Handfield, PhDDirector, 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

PartnersProf. 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

4

We began by interviewing 60 globalSupply Chain Officers….

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

6

We found the world is becoming avery complex place indeed!

#1 TREND: INCREASED CUSTOMER EXPECTATIONS

low high

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

1 1.5 2 2.5 3

Five Years

Today

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

8

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

Meet Customer Requirement

On-Time Delivery

Green Logistics

Delivery Time

Innovation

CSR

Logistics Cost

Logistics Quality

Schedule Flexibility

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

Cost pressures are also increasing!

Increase

Stay Constant

Decrease

Do Not Know

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

37%

32%

17%

14%

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….

12

How are companies embracing complexity?

Talent Management, End to EndIntegration and Integrated Planning is the focus

low high

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

1 1.5 2 2.5 3

Five Years

Today

Aligning People, Process, Technology andNetwork Strategies to Embrace Complexity

PEOPLETalent Management


PROCESSGovernance Process Standards

Integrated Planning

TECHNOLOGYTechnology Investments

NETWORKHorizontal/Vertical Cooperation


Tech

nology Inve

stments

Global Netw

ork Visib

ility

Cost to Serve

End to End Integration

Network Adaptation

Network Cooperation

Process

Standards

Integrated Planning

Network

Adaptation

Corporate Responsibility

Green Logistics

Government Cooperation

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 TMCorrelation with RDM

TalentShortfalls

.38

.27

NewTechnologies

.36

.26

SustainabilityPressure

.36

.25

CostPressure

.11

.19

Increased Riskand Disruption

.23

.25

CustomerExpectations

.18

.20

Globalization &complexity

.20

.18




Integrated Planning




P1 – Talent ManagementP2 – Rapid Decision-Making

Talent Management

Employee Training

University Recruiting Events

Social Media Recruiting

Print Media Recruiting

Marketing of Logistics

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

Five Years

Today

Top Performers Engage More with Universities

Funding of Research Projects Involvement in Research1.2

1.25

1.3

1.35

1.4

1.45

1.5

1.55

1.6

1.65

University Investments (1 = Yes, 2 = No)

Top PerformersOther Companies

Wanted: Rational, Long-term, Global Specialists

Emotional - Rational

Short-term

- Long-te

rm

Generalists-S

pecialist

s

Loca

l - Intern

'l Thinkers

1.4

1.45

1.5

1.55

1.6

1.65

1.7

1.75

1.8

1.85

Employee Characteristics Sought

Top PerformersOther Companies

PROCESS: Globally Integrated Adaptable Processes With Technology Embrace Volatile Environments

Correlation with PSCorrelation with IPCorrelation with NA

Globalization &Complexity

.22

.25

.21

TalentShortfalls

.34

.26

.28

Poor LogisticsInfrastructure

.34

.26

.26

Volatility.19.22.18


.34

.35

.28

NetworkedEconomy

.23

.25

.20

NewTechnologies

.32

.37

.42




Integrated Planning




PR1 - Global Process StandardsPR2 - Integrated PlanningPR3 - Network Adaptation

Driving Decision Agility

20

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

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

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

Analytics and Big Data Investments

Social Networks (Internally, B2B)

Business Analytics Platforms as a Service

Network Redesign Software/Systems

Product Life Cycle Management

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

Five Years

Today

NETWORK: End to End Integration and Adaptation Enables Aligned Actions Across Your Global Business Partners

Correlation with E2ECorrelation with OSCorrelation with HVC


.32

.21

.32

TalentShortfalls

.29

.15

.30

CulturalIssues

.27

.24

.28


.32

.22

.27

NetworkedEconomy

.38

.18

.27

NewTechnologies

.47

.23

.39




Integrated Planning




N1 - End to End Integration

N2 - Outsourcing /Insourcing

N3 - Hor/Vert Cooperation

N3 Corporate Responsibility

N3 Green Logistics

N3 Government Cooperation

GovernmentRegulation

.33

.22

.39


.59

.44

.37

Correlation with CRCorrelation with GLCorrelation 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 Foundationfor 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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Documents

TRB Symposium Embracing Global Complexity to Drive Competitive Advantage in a Networked Economy October 21, 2013 Robert Handfield, PhD Director, Supply