Worker shortages, ongoing port delays across the globe and other disruptions have triggered demand volatility across the entire supply chain. Add in inflation and raw material shortages, and the picture painted is dire looking. But Douglas J. Kent, executive vice president of strategy and alliances at the nonprofit Association for Supply Chain Management, said there are solutions to mitigate these challenges.
Kent oversees ASCM’s global partners and is responsible for growing and fortifying the organization’s strategic alliances. He has more than 35 years of transformational advisory experience with large global organizations. Kent is an expert in supply chain planning, risk optimization and supply chain visibility. And he said the industry has never seen the level of disruptions it is experiencing right now.
Here, Kent explains the role of the ASCM, shares insights into what’s impacting the supply chain, and why being resilient and having a business continuity plan is essential to navigating tough times.
WWD: Tell us a little about the ASCM, and its members.
Douglas Kent: We’re a little bit of a unique association in that we satisfy a multitude of stakeholders, which include individuals and individual learners who are seeking to accredit themselves in supply chain management. We also have a large number of corporate members, which are usually multimillion-dollar multinational organizations that are seeking best practices around their supply chain transformation. This would include the entire ecosystem — retailers and those who service them, both from a channel perspective and also from a supplier perspective.
We develop standards for ensuring that our supply chains are not only operating economically sound but also we’re doing so in a sustainable way, which, for retailers, is also incredibly important.
WWD: The ASCM mission is educational and not lobbying?
D.K.: We do nothing in the lobbying space. We’re not like the NRF, if you will. But they’re our partners, and they might manage more on the policy front. We do work with members to make sure that both their profitability and scalability needs are being met through different education and training and advisory-like services.
WWD: What is occurring in the supply chain? What are the issues facing retailers?
D.K.: We’ve never been faced with the combination of demand and supply shocks at the same time. The pandemic and the volatility in demand created by it have revealed the need for changing the operating model. A scarcity of raw materials, and ineffective transportation links, which have been massively disrupted by ports, also show that it’s a multimodal problem. While we have port delays, we also have rail and truck driver shortages — all at an unprecedented level. So when you have this demand volatility and supply variability again, shocks that are happening simultaneously, businesses get scared.
The same example that we as individuals had around hoarding toilet paper can be applied to the retailer side. This leads to artificially inflated demand, which is being done in order to protect ourselves on the supply volatility side. This is what we see playing out. And it’s not just retailers. We’re also seeing the potential of having aged inventory and overages of inventories.
WWD: Who is most impacted? And what are some of the strategies retailers can deploy?
D.K.: About six months into the pandemic, we built a collaborative study with The Economist Intelligence Unit to study resiliency and where organizations are failing. We looked at the strategic and operational aspects of resiliency that companies need to do to not just bounce back from these disruptive events but bounce forward into a new model.
All businesses are being affected by disruptions upstream and downstream in the supply chain. For SMEs, though, it’s especially challenging. They don’t have the cash reserves to be able to make certain strategic decisions and compete against larger retailers by offering same-day delivery or free returns, for example. This puts too much pressure on profitability, which is already under pressure from inflation.
WWD: What else do retailers need to consider? And how are larger companies impacted?
D.K.: There are a number of key things that came out of our study. One of the first things that we saw was the real need to have strengthened supplier relationships, which is part of a larger strategic relationship management piece. But just because you’re bigger doesn’t mean you’re better. In many instances, the bigger customers are also the ones that are least profitable because of waving the big stick and knocking down prices.
And sometimes, when you’re in a situation of supply allocation, it isn’t always the bigger ones who win. It can also be the one that is a better partner, the one who is strategically trying to be more accurate in sharing demand information.
Another key takeaway from the study was the need to build business continuity playbooks, which address “If this should happen, this is what I will do.” And this is needed for any size business. For larger businesses, though, getting a decision made is not the easiest, whereas another company could, if they had a playbook strategy already developed, know what to do during a disruption.
The third takeaway is the importance of triple bottom line responsibility, and that includes the economic, environmental and ethical sustainability piece of that puzzle. And some of the bigger players are being called out on that right now, particularly around sustainability. Just think about the environmental impact of a 20 to 30 percent return rate that many companies are seeing.
There are organizations that are developing more circular business models in response. But again, I think bigger companies are going to have to answer to this more effectively because you can’t sit out here, drive a business model that’s negatively impacting sustainability, and then throw out these high-level sustainability aspirational goals.
The operationalizing of those two things doesn’t match up. How do you take an aspirational goal and really combat it at an operational level? I can’t just say, “I’m investing in electric vehicles and sustainable warehouses,” while at the same time having a business model that sees e-commerce returns growing 20 percent. Those things don’t match up.
But, as an industry, we’re working on getting smarter about that and working to meet these challenges.