Can trade change the way we see globalization?

Many voices have been prophesying the end of globalization. Koert Debeuf, political analyst and visiting research fellow, CRIC, Oxford University, writes in the aftermath of the Paris attacks on 13 November 2015: “The world has left the path of globalization and is taking the trail of tribalization.” Are we facing a new trend?

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Globalization is a multidimensional phenomenon – the interconnectedness, interdependence and integration of cultures, markets and individuals. The emergence and growth of the global net of diverse national economies has brought new perspectives and prosperity to countries, companies and citizens. Although the trade flows are changing and the growth has slowed after the global financial crisis, connectivity is the key enabler of modern life.

Despite all connectedness and convergence, the world remains diverse. And that diversity is a major source of creativity; it drives innovation and progress, growth and prosperity. Connections and interactions within and among groups with a multitude of races, ethnicities, genders and sexual orientations are driving creativity and innovation in companies and across geographies. Competition makes us focus and keeps us contributing to economic growth.

However, diversity and competition are also leading to anxiety and conflict.

There is a need to strike the right balance between growth and prosperity on the one hand and preservation and protection on the other. What are the specific roles governments, businesses and resources play in this respect?

Borders aren’t always barriers

In the wake of the 9/11 attacks in New York, and more recently in Paris and Brussels, governments have attempted to protect citizens by raising the barriers at their borders. The intentions are good, but the practice risks burdening the economy or even excluding their own consumers, investors, brands and manufacturers from the many benefits and opportunities created by international trade and globalization.

However, today’s governments may not have the mandate to make this decision themselves. One of the deep-rooted desires of humanity is to exchange with other people and travel the world. As we see in the ongoing “hacktivist” challenges to the national firewalls, people will not give up on finding ways to access what is kept away from them – even if they simultaneously fear losing the security provided by national borders.

Borders do not need to be barriers. Modern technology has reached a stage where both security and fluidity is possible. Despite open borders, local cultures persist – as many examples show. Nations should continue to set the rules based on local codes, interests and needs, while regional and international bodies, such as the ASEAN and the World Trade Organization, help to prepare, negotiate and execute international frameworks and implement tested tools for secure borderless flow of goods and people, capital and data.

This often challenged but widely used model requires from the various actors – mainly governments and international organizations – empathy, creativity, diplomacy and pragmatism.

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Small businesses with global goals

Multinational companies have been developing the capacity to thrive in global commerce for some time. Thanks to internet, small and mid-sized companies have also gained access to the global markets. Although the physical supply chain still struggles to overcome the various hurdles to make international commerce easy and truly a reality, many online platforms and sites already exist to serve sellers and buyers, independent of location.

On the back of international agreements and with the help of supply-chain service providers, global brands have built global sourcing, manufacturing and distribution networks. The diverse range of companies competing in today’s worldwide markets do not only design, manufacture and provide us with the goods we enjoy – but also offer jobs in the many countries in which they operate.

Therefore, not only are global companies likely to object to regulation that significantly restricts their ability to manufacture and sell abroad, but smaller players, employees and consumers might well join the effort to maintain access to resources, products and customers in the digital global market.

Global solutions to global problems

On the one hand, the planet needs preservation and protection: if we do not act there will be more plastic than fish in terms of weight in the world’s oceans by 2050. On the other hand people need food, shelter, healthcare, education and jobs: in 2015, 836 million people around the world were living on less than $1.25 a day. While there are grave concerns about the effect of industrialization and consumption on resources and the environment, there is no doubt that poverty should be eradicated. And as the poor often live on the most affordable and hence vulnerable land, one obstacle to ending poverty is climate change.

We can observe that no barrier, no net, no firewall is large, long or strong enough to keep pollution, micro-plastics, terrorists and other threats away. Considering the magnitude of today’s environmental threats, there is a need to act fast and collectively. The world needs a cross-disciplinary and cross-industry effort, not only to effectively respond to the global environmental and resource challenge but also to other crises, such as pandemics, conflicts and the refugee challenge.

COP21, the Bali package and many other initiatives and agreements show that governments and enterprises are willing to stand together to develop more effective global frameworks and mechanisms. We need to strengthen the global platforms of collaboration and impact on which international organizations and governments, businesses and academia can co-create the most effective and balanced global solutions.

Ultimately, globalization is not an on/off exercise but the ongoing responsible management of global conventions and national codes, global markets and diverse economies, global commons and inclusive global growth. This requires confident and capable actors with strong identities not afraid to open up and willing and able to respect the different cultures while complying with international treaties and law. Even more so, globalization should be the golden path that connects and lifts the diverse global community to the next level of prosperity.

Image: REUTERS/Edgar Su

This blog was originally posted on the World Economic Forum Agenda.

Supply chain safety or the genetic code of everything

In a recent Forbes article we could read that the CDC estimates that approximately one in six Americans get sick each year from foodborne diseases, leading to roughly 3,000 deaths. This is well in line with the horrifying stories of the milk powder scandals and 300,000 thousand affected babies. The news about shortcomings and effects of irresponsible behavior in respect to the supply chain is taking its toll. Apparently is our knowledge about the origin and the risks of materials, parts and products limited. What can be done to better protect our lives?

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Authenticity is the first step. In order to ensure authenticity, safety, security and quality of the food we eat and the products we use, there is not only the one solution needed but a bundle of protective measures. In addition to the obvious standards and efficient certification processes, we are in need of pragmatic laws and regulation. We also require reliable product tracing technology allowing the seamless follow through and detailed information about the products – about the score against the standard – and insights in the organisations involved; these can be transportation companies, traders and manufacturers. The effective protection requires data sharing, and maybe the need to establish an independent and efficient data market.

The ultimate protection of our health requires the genetic code of everything!

What we need is the full set of information of each and every product – the unique product fingerprint which can be compared with the database of safe practices. We need the measurement of truth, the proof of compliance with standards, laws and regulations. Imagine that all products we consider buying carried the QR code providing pre-checked information, including the origin, the quality and the manufacturing process. Imagine that through the internet every smart phone user would be able to retrieve the specific information about the meat we eat, the soap we love, and the paint used in the offices, the apartments, and the public buildings we are living in or we are visiting.

Total Supply Chain Visibility: a vision in the making?

Governments and organisations like the Consumer Goods Forum are working to develop and share best practices. The United States passed the Consumer Product Safety Improvement Act (CPSIA) to establish safety standards and requirements for children’s products. The supplier certifications accepted by the Global Food Safety Initiative (GFSI) aim at delivering safe food to citizens worldwide. The private sector plays its role too. Large companies help small farmers to fulfill requirements. There are around 700 global certification programmes. Probably too many, creating complexities which might slow down processes and cause unnecessary costs.

Laws and regulations have been put in place elevating traceability beyond just a value-added to the supply chain. In the European Union traceability has been obligatory for all businesses in the food chain since January 2005. In the United States of America, the Bioterrorism Act came into effect for larger companies in 2005 and for smaller players in 2006, with similar requirements regarding records to identify previous sources. Traceability becomes the new standard in the modern supply chain.

Most companies are mapping the parts of the supply chain under their control. However, the exercise needs to go beyond the borders of direct responsibility and control. We need visibility of the whole flow. Starting upstream at the mines and fields, going further along the various steps of manufacturing and assembling of products or the processing of food down to the buyers and subsequent cycles of usage. Unfortunately, in the eye of catastrophes such as the salmonella outbreaks companies sometimes appear ill-equipped to respond quickly.

With the new age of digitisation, with the emergence of sensors in almost everything – from electronics and vehicles to cloth and wallpaper governments, organisations and companies can gather and compile enormous quantities of data. More importantly the information can be transmitted to the internet where various applications can enrich, analyse, organise, and store the records. Through product identification, unique tracking numbers and labeling, we are able to link materials, parts, products and food back to specific data relating to the production, and distribution. Through the new technologies we have access to the entire cycle history. Held available in internet platforms, users can swiftly and easily retrieve this information by smart devices like phones, watches and other wearables. The proof of traceability might soon be the minimum standard for doing business in the digital age.

Where are the hurdles? Traditionally, individuals and companies struggle to exchange information and data. Furthermore, there are standardisation gaps and security concerns. Privacy protection is a challenge too. One solution might be a data market. Similar to the stock exchange this place of clear rules and supervision would allow to safely and swiftly exchange and monetise the data gathered or produced by the different parties. The data market would be an incentive to generate and share even more data.

There is much to gain!

Beyond our own individual safety, many opportunities lure in the world of the retrievable genetic code of everything. Players along the value chain, like raw material providers, suppliers, manufacturers and food processors can differentiate themselves from competition through visibility and an enlarged safety offer. Logistics and transportation companies can enhance their vertical knowledge and build new services around data management and the orchestration of the relationships along the supply and value chain. New services and players will emerge. TrueTag and CLEARthru are examples of this development.

Despite all technology and process innovation, we still need to act upon the new wealth of information and knowledge to protect ourselves. The responsibility for the health and wellbeing of the planet and society will stay with us and the many other consumers and buyers everywhere on the globe. It is up to us all to accept or reject. Finally: as most tracing technology has been available for so long, we might wish to consider to push a bit harder on the implementation and utilisation.

4 things to know about the new era of global trade

As Otaviano Canuto, the executive director of the IMF, wrote in the Huffington Post, “world trade suffered another disappointing year in 2015, experiencing a contraction in merchandise trade during the first half and only low growth during the second half”. After the boom of previous years and since 2008, world trade has been rising slower than GDP. In light of the lingering effects of the global financial crises, China rebalancing towards domestic consumption and the lack of new BRIC-like global growth engines, companies and governments need to adjust their strategies.
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The main characteristics of the new era of global trade are relatively mature value and supply chains, increasing regionalization and localization of production, the rise of non-tariff barriers after a period of significant tariff reductions, and an e-commerce boom, which often struggles to overcome the hurdles in international business. Digitization appears to be the key enabler of modern times, and an important lever to capture value in the new era of global trade. It is digitization that opens up new horizons for product design and management, manufacturing, retail, and the repurposing of goods. However, we need open and courageous leaders in government and business to make the change happen and capture the opportunity in the following main areas of development.

1. The new customer experience: “fast products”

Today’s customers demand fast products, such as fast fashion with quickly changing models. In fact, this works well for brands wanting to avoid the high inventory and high risks they encounter when they have to make big bets on the right designs for an entire fashion season, for example. Fast products require short supply chains. Consequently, production needs to move closer to the markets and shops to meet the shorter lead times from sketch to shelf. Zara, for example, “adapts couture designs, manufactures, distributes and retails clothes within two weeks of the original design first appearing on catwalks”. In creating the new customer experience, the management of the supply chain becomes a critical source of competitive edge.

Companies that wish to play in the “fast economy” will require new factories close to the markets and new distribution platforms. Those countries that provide the most fluid import and export ecosystem will be high on investors’ lists. In particular, countries in regions close to large markets, such as Central America, South-East Asia and North Africa might wish to review their strategies to capture the value of this trend.

2. Multilayer global manufacturing and supply platforms

Digitization helps the fast economy. In the past, brands tended to centralize manufacturing for better manageability and quality control. The power of information technology, the internet of things, big data and the cloud provides a new level of collaboration and empowerment throughout the value and supply chain. One example is the Flex Pulse Centre. The enhanced visibility allows companies to move factories closer to the customer without risking sudden surprises. In the continuous process, the global supply chain is converting towards a more and more dense and integrated platform of short, medium and long distance cargo moves – with regional and local distribution centres along the way. With the fast economy some intercontinental flows of goods will become regional and local traffic. However, the new factories will continue to require global supply, as not all materials and resources will come from sources nearby.

These multilayer global manufacturing and supply platforms still have many black holes. Some blackouts of visibility are caused by governmental security concerns, for example in freezones, others by the lack of digital infrastructure. There are opportunities for business and government through public-private partnerships to establish not only the digital architecture but also the trust to fully leverage the available technology. It goes without saying that the smooth and seamless movements of goods in and out of countries through the reduction or elimination of tariff and non-tariff border barriers is essential for establishing denser platforms and making countries and locations more attractive.

3. Scaling up market participation: International e-commerce

The era of “platformization” allows for a more inclusive economy. Global e-commerce platforms such as eBay or Alibaba can connect millions of manufacturers and billions of consumers, making the global market accessible to even the smallest manufacturer and providing the broadest choice to all consumers. In addition to much broader and better match-making, middlemen are cut out which allows for higher margins on the sales and lower prices on the purchasing side. It also reduces the risk of corruption. However, the concept only works if the underlying logistics and transportation platforms support the digital transactions.

Unlocking the potential of international ecommerce requires efficient and cost-effective logistics and smooth customs processes through the paperless digital export and import processing. On the import side there is a need for effective tools to be able to process and analyse information about shippers and products moved. These tools reduce clearing times, even enable pre-clearance, and help to manage the risks that come along with lower value goods, which fall often below the threshold of more diligent customs clearance processes. In addition, governments need to ensure healthy competition and avoid the formation of digital monopolies. Platforms can also be used to foster the job-creating small and midsized business landscape.

4. Repurposing of goods

Although there is a need to analyse the entire value chain, as sometimes even long-distance transport might be less carbon intense than local production, tightening the supply chain in many cases saves energy and emissions. Hence, the trend towards localization and regionalization helps with resources and the environment. However, new technology and digitization can go well beyond the simple shortening of the supply chain.

The new visibility in the supply chain not only helps identify leakages and misuse but enables new operating and business models, ranging from optimizing delivery routes to tapping into unused capacity enabled by the many platforms of the sharing economy. Additional potential lies in the resources locked in the products which are thrown away every day: electronics, paper and plastics. Asset tracking could help unlock a potential value of about $52 billion annually for consumer electronics and household appliances alone. Repurposing products will be a major challenge and opportunity for governments and companies in the years ahead.

In the modern interconnected and interdependent world, we need seamless global visibility and fluidity of the flow of goods. Businesses seek and will find new sources of value in tracking products throughout the first lifecycle and the recovery for the repurposing. By creating a repurposing capability, the public and private sectors have a unique opportunity to position themselves as modern and responsible players.

In the past, developed and developing countries have benefitted from globalization, with China as the most recent role model of trade-driven growth. Some low-cost labour countries might still be able to repeat China’s success, others need to look for new models. While globalization has driven the rise of emerging markets and global players, it has also paved the way for today’s dense multilayer value and supply platforms, which are the basis of our modern life.

Companies and governments need to update knowledge and adjust strategies. We must keep in mind that despite all the technological possibilities, it is our skills, wisdom and courage that will help develop new business models and drive the necessary policy reforms. As Sachin Maini once said: “While technology makes it possible to do much more than we could without it, it can’t help us decide what to do.”

This blog was originally posted on the World Economic Forum Agenda.

How safe are global supply chains from terrorist attack?

The recent Paris attack reminded the world that terrorism can hit at any time, any place. The response of governments has been to increase security in public spaces – and rightfully so. But what if these same terrorists would attack supply chains instead? Hitting just a few strategic targets in the energy trade, for example, could bring the entire global economy to a halt. To avoid such disaster, companies and governments should be more aware of this perceived “low probability threat”, and develop the tools to protect their economic interests and those of the world.

The attacks in Paris, the bombing of a Russian plane in Sharm El Sheikh, and most recently, a disability center in San Bernardino, shook the world. With hundreds of innocent civilians dead, governments all over the world responded by increasing security measures in public spaces. It is a much needed response, as our safety is of utmost importance.

But while focusing on public spaces, we should not leave another important flank SCSucurityBlogunprotected: our infrastructure and supply chains. Ports, waterways, roads: they all play a vital role in supplying our needs. When left neglected, the consequences on the economy and our society could be disastrous. Two risks are of particular importance: an overshoot of public safety measures affecting supply chains, and a negligence of securing supply chains, leaving them vulnerable to attack.

The first risk is for supply chains of goods to be disrupted because of public safety measures. We have seen this before. “After the September 11, 2001 terrorist attacks, the U.S. government closed the country’s borders and shut down all incoming and outgoing flights. The impact on many supply lines was immediate,” wrote Yossi Sheffi and James B. Rice Jr. in a MIT Sloan article. “Ford Motor Co. had to idle several assembly lines intermittently as trucks loaded with components were delayed coming in from Canada and Mexico. Ford’s fourth-quarter output in 2001 was down 13% compared with its production plan.” Although not directly hit, the disrupted flow of goods caused significant damage to business and delayed supply.

But there is a potentially much graver danger from neglecting supply chain safety: terrorist attacks aimed at precisely those lifelines of our economies. For now, such attacks have been limited: according to Daniel Ekwall’s review of the official terrorist statistics from MIPT Terrorism Knowledge Base transport activities represent only 4% of the targets in 2006 and 5% in 2007 – as low a number as one can find. But the number of supply chain related attacks has increased steadily over the past decade, reaching 3299 attacks in 2010, a recent PwC report found.

And when terrorists do attack supply chains, the consequences could be disastrous. Seventy to 80% of the world’s oil flows through only three major check points: the Suez Canal, the Strait of Hormuz, and the Straits of Malacca (see the chart below). The closing of one or more of these passages would significantly disrupt the global energy supply chain. The Strait of Hormuz is a particular cause for concern: situated between the Arabian Peninsula and Iran, almost 20% of global oil trade passes through there.

Oil transit chokepoints

Oil transit chokepoints

Major freight hubs might be targets for terrorist attacks, as well. 14.8% of containerised and air freight traffic moves through the Hong Kong – Shenzhen freight cluster. The Port of Shenzhen is one of the most important ports for China’s international trade and therefore key to the supply of many factories and customers in the world.

Highway computer networks and traffic management systems are also vulnerable to terrorist attack, and could be hacked and disrupted to create chaos. This could make the transport on national road systems and in cities impossible. Planes could collide. Each time they enter an airport aircrafts are at risk because of the sharing of information across a number of electronic systems. Tracks in rail traffic could also be re-set to cause trains to crash.

What matters then, is to recognize supply chains as a target, and take adequate measures to protect them. Some governments have understood that message. In 2009, president Obama declared digital infrastructure a strategic national asset. Another example is the Government of Canada, which has formulated a counter-terrorism strategy stressing the need for an integrated approach by all levels of government, law enforcement agencies, the private sector and citizens, in collaboration with international partners and key allies, such as the United States of America. It is to be expected that after the Paris attacks, governments will tighten these measures, with possibly significant negative consequences for the global supply chain.

The private sector should follow suit, and the first necessary step is to accept the likelihood of such attacks. That is not often enough the case. A report prepared by the Supply Chain Management Faculty at the University of Tennessee found that while two thirds of supply chain companies employed risk managers, but virtually all of those internal functions ignored supply chain risk. In light of the current global developments that is a risky position to take.

Terrorist threats, sadly, have become a part of our life. We should do all we can to avoid another Paris or San Bernardino attack. But while public safety is paramount, we should not lose sight of our supply chain safety either. Being aware of the risk and potential impact is a first step. Taking action within our own countries and companies to prevent such attacks is the next.

This blog was originally posted on the World Economic Forum Agenda.

Image: Workers watches sacks of imported Vietnam rice as it is lifted by a crane from a ship docked at a port area in Manila June 8, 2015. REUTERS/Romeo Ranoco

Working smarter – innovative port solutions

The world’s most innovative ports are using ‘smart’ solutions to improve revenue sustainability, explains CVA’s Wolfgang Lehmacher

Every professionally run company aspires for value creation through revenue increase, new growth engines, cost reduction, heightened efficiency and sustainability.

In the constant search to boost profits they continuously seek a competitive advantage through product and behaviour differentiation, an aim increasingly compatible with carbon footprint reduction and other green initiatives.

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In terms of their general aims and ambitions ports are not at all different to any other business.

Managers seek to maximise strengths and minimise weaknesses. But the unique position of ports as facilitators of global and regional trade and often also as integral parts of cityscapes, makes the simultaneous improvement of efficiency, revenues and environmental performance even more desirable.

Meeting these varied goals, opening new markets and securing the long-term viability of ports and the employees, traders, cities and areas that rely on them in a rapidly evolving global economy can be driven via the application of smart thinking and processes. In this sense, smart stands for different and responsible behaviour enabled by new, at best holistic, concepts and modern technology.

Ports must be efficient enough to fit into the modern world, and into modern global and just-in-time supply chains. This can mean customers need multi-modal interconnectivity with a port’s hinterland, or with a certain geographic region or even an entire economy.

 

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The smart concept can be rolled out so ports can become the pivotal point of a region. This can be as the core part of a bonded logistics park as we have seen in Yantian, China, for example.

More efficient container yards, better rail access and taking steps to ensure full integration with regional and national transportation plans are just some of the smart moves port businesses and local governments can examine to ensure they are offering the services and facilities their customers – businesses and people – need. And that they are offering them where they are needed.

Many port customers also have increasingly sophisticated niche requirements. A smart solution could mean the port supplying special temperature-controlled storage, handling and personnel for cold chain products such as pharmaceuticals and food stuffs. Or it could mean facilitating sea-air onward shipments options for cargoes that need to be shipped at least part of their journey as air freight, a solution that involves close cooperation by port managers with customs, quarantine, airports, forwarders and airlines.

Customer shareholders and the port’s own management – particularly for ports near cities – may need increasingly to prove show their sustainability, which can mean implementing green port solutions to meet stringent noise, water and air quality standards. Shippers and other port users and stakeholders need not only to be reassured, but need jointly to reassure civil society that adequate risk mitigation and security procedures are in place to ensure business continuity and safety for humans and the environment.

Indeed, there is no reason why ports cannot manage the total water cycle not only in relation to ships docked in port, but also in relation to the surrounding community through better ballast water treatment, desalination of sea water, water purification for potable water etc.

 

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Ports could also act as facilitators of medical services. At present most commercial and passenger vessels have their own medical services, often entirely disconnected from global medical ecosystems. If someone gets sick or ill on board, instantaneous connection with medical doctors located off-site via a ‘virtual clinic or hospital’ could speed diagnosis and better enable preparation of the correct medical treatment before the vessel arrives at port and the patient is whisked to a local hospital.

For a port manager, all of these customer and stakeholder demands can easily be viewed as a regulatory burden, or an unnecessary drain on finite resources. Smart managers should instead view them as opportunities, opportunities that can sustain a port business over the long-term. Professional port managers should determine the smartest ways of meeting these changing requirements to maximise returns within budget restrictions. The world’s leading port managers are already grasping this truth.

In the port of Sydney in Australia, for example, various actions have been taken to illustrate just how important the port takes its green credentials. This has seen the installation of leakage proof technology, improved supervision of dangerous goods, waste reduction initiatives and a collection system for flushed water.

On the US West Coast, the ports of Los Angeles and Long Beach have been leading the way in reducing emissions by both trucks and vessels, while in Germany the port of Hamburg has introduced railcars with noise-reducing ‘whispering brakes’. These efforts benefit both the local community and customers keen to demonstrate their embrace of carbon footprint reduction initiatives while also differentiating each port’s product.

The port of Antwerp has embraced many of these smart ambitions to establish its position as one of the world’s leading ports. Rail, waterway, pipeline and road connections guarantee hinterland transport options, while the port’s future-oriented energy policy includes a biomass power station and wind turbine.

In Sweden, the city port of Stockholm has taken the green and sustainable end goal a step further and is differentiating itself in a highly competitive market by pledging to become fossil-fuel free by 2030. The Royal Seaport project will see systems installed that carefully manage and preserve energy across the port using an automated grid to improve asset utilisation and a cold ironing solution that will enable vessels to plug into the local grid while at dock.

As well as appealing to port users, city planners and regulators, many of these measures can help grow revenues and reduce costs in the long-term by minimising at the same time the environmental burden, for example in the area of energy consumption and safety at work.

The lesson from the world’s leading ports is simple: Smart strategic actions can help port managers thrive in an ever changing world.

Wolfgang Lehmacher is partner and managing director (Greater China & India) at CVA, a global strategy business.

Image: Pavel Kavalenkau, Bildagentur: 123RF

This article was originally published on 12 February 2013 in Port Strategy.

Why supply chain professionals make great CEOs

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The move to an operational role is a common segue for many CFOs seeking the top spot, Business Insider recently wrote. That’s not a coincidence: many companies seek out their CEOs from operational roles, such as supply chain management. A famous example, of course, is Tim Cook, CEO of Apple, who served as COO and head of Macintosh division before becoming CEO. However, Tim Cook is by far not the only case! Alan George Lafley, CEO of Procter & Gamble (P&G), took a commission with the U.S. Navy as a supply officer first, and Mary T. Barra, CEO of General Motors, is known for her strong operations and supply chain management background.

What makes supply chain expertise so valuable for the CEO? In fact, there are two fundamental reasons for the increasing presence of supply chain professionals in the C-suite and the voices saying companies need a Chief Supply Chain Officer (CSCO).

Supply chain excellence is the prerequisite for business success

The supply chain is the funnel through which consumers and businesses get all what they need – in the right quantities, at the right place, and in the right time. With the rise of the e‐commerce and the experience economy, the supply chain has become even more important.

Supply chain excellence is part of the DNA for successful companies like Apple and P&G. In today’s highly competitive environment success depends on understanding the interaction of money, markets and materials. Supply chain excellence pays: Microsoft, Axis Communications and Johnson Controls have demonstrated that well-coordinated work between supply chain and engineering during new product launches makes money. Apple and P&G are the benchmarks for supply chain excellence. In 2015 Gartner moved Apple and P&G into the new ‘masters’ category of the supply chain ranking – the category for those companies that have consistently had top five composite scores for at least seven out of the last 10 years.

Conversely, supply chain disruptions can break a company

As the consequence of lean organisations and highly volatile markets the importance of good supply chain management becomes evident when natural disasters like the eruption of a volcano in Iceland, the tsunami in Japan and the flooding in Thailand risk to stop the production of vehicles or the supply of computer hard discs. The deep understanding of the supply chain does not only help to save cost and launch products successfully but also to avoid severe shocks. Threat lure as well in heavy fines and repercussions for example as the result of the failing to comply with the Dodd Frank Act, which demands to disclose whether products contain conflict minerals financing violence such as tin, tungsten, and tantalum from the Democratic Republic of the Congo.

In light of these two fundamental reasons and the many resulting advantages, opportunities and threats, shareholders and leadership understand the importance of supply chain excellence. The supply chain is central to business models and represents the ultimate source of competitive advantage. This explains why leading companies appoint supply chain professionals CEO. The latest example is Oliver Blume, so far responsible for production and logistics who took the top job at Porsche.

In light of the importance of the supply chain remains to ask whether there is enough available talent. The answer can be found in the Ernst & Young report “It’s Time to Think Differently About Procurement“, which outlines that 48 percent of Chief Procurement Officers (CPOs) see the biggest challenge in talent constraints. Another observation comes from Toy maker Mattel Inc. which says that there is a limited pool of people with the right supply chain skills. This shortage might even be exacerbated by the growing role of technology. But technology is often also the basis for new solutions. However, whether for example artificial intelligence can help to close the supply chain knowledge gap in the boardroom remains to be seen.

This blog was originally posted on the World Economic Forum Agenda.

Image: Gazprom Neft First Deputy CEO Vadim Yakovlev is silhouetted during an interview with Reuters in Moscow, Russia, August 17, 2015. REUTERS/Maxim Shemetov

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How the cloud makes central planning a reality

Imagine the delivery of the hairdryer you ordered 18 hours ago was planned in a center 5,000 kilometres away – roughly the distance between Warsaw in Poland and Kashgar in China. Impossible? In fact, this is not a far-fetched fiction but soon to come reality.

Since the 1980s, the personal computer has helped businesses to plan and control many activities locally – from sending mass mailings to local customers to the managing of inventories and orders. The decentralized planning has helped to make products cheaper and more adapted to the local situation. For example the Spanish subsidiary of a global transportation company has replaced the 9am global service by a 10am local delivery option, as more people are expected to be in the office at that time. However, these local advantages pose major challenges to the international standards multinational customers expect from global brands. Therefore, global brands require central planning and control, which is back on the agenda – thanks to the internet and the cloud.

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How can the cloud bring the planning back to the center? While the personal computer helped create enormous efficiencies in almost each and every unit of a business, the cloud will surpass its abilities and ease the work of those charged with ensuring global standards and organisational efficiencies. The cloud is the place where all relevant data, information and applications can be stored available for all – locally and at the center – who have the necessary access rights. With easy to access storage capacity provided by providers like Amazon and IBM, the cloud offers an almost unlimited range of tools and databases – not only to the large but also to the small and mid-sized enterprises. This brings enormous advantages to the world of the so-called global supply chain.

It is the supply chain bringing the goods, ranging from food and medicines to the above mentioned hairdryers, to the supermarkets and stores, as well as everything that is needed to factories and other businesses and organizations. Thanks to the road and rail systems, water ways and air corridors, bilateral and multilateral trade agreements, this chain of continuous flows spans across borders and continents, cuts across international manufacturing networks and multiple distribution hubs and centres.

Today materials and parts are treated and transformed – in various stages and different locations on the globe – into an unprecedented variety of products. These goods are delivered globally, whether to consumers in the metropolitan areas like New York and Mumbai or to factories in the South African city of Uitenhage and in the province of Bac Ninh in Vietnam. This highly proliferated, and at the same time dense, global labyrinth of flow of goods is also exposed to many potential risks and disruptions.

The more precisely this supply chain is understood, i.e. described, analysed and planned, the higher the chance of smooth delivery and proper responses to market dynamics and unexpected shocks. Although the cloud allows the collection of data from stations, customers and situations all over the world, whether in the most distant corner of sub-Saharan Africa, the tip of South America or the tiniest island in the Philippines, only a central team closely collaborating with the country organisations might be capable of capturing the trends, threats and opportunities to determine quickly the most appropriate response.

How does the central way of supply chain planning and management work in practice? Each time when, for example, delivery plans are needed, the order requirements for customers are uploaded to the cloud. There, a powerful computing unit, utilising multiple parallel processors – called the optimisation engine – generates delivery plans satisfying the many constraints imposed by weather and climate, geographic and traffic situation, as well as the delivery location, which could be on the 45th floor in a high rise in Hong Kong or at a tiny farm on an island in Indonesia.

The optimisation engine evaluates alternative ways of transport and determines the best options for delivery. These optimized plans are then transferred to computers or tablets at decentralised warehouses where the orders are loaded to reach the buyers by road, boat or planes. In real-time and constantly the data about the moving of these goods can be collected and analysed to preserve the highest level of central control and chance of an on-time delivery. Furthermore, all data and analysis – including information about the status of production in the factories of possibly thousands of suppliers, as well as the actuals versus the sales plans of the many employed or serviced third-party sales teams – can represent valuable input for upcoming planning cycles.

The benefits of central planning are more than obvious: compliance with global standards, better forecasting, cost and carbon optimized routes, reduced hiring and training costs, and higher customer satisfaction and lower recovery costs through better quality control and more appropriate and timely responses to irregularities and disruptions.

Therefore, the next revolution in the supply chain will be the central orchestration team which collaborates closely across entire organisations to establish full visibility and ensure well informed decision-making. Applying predictive analytics and artificial intelligence will enable manufacturers, traders and logistics companies to receive clear predictions in respect to potential disruptions and even more so recommendations to store hairdryers at specific quantities and the perfect location – possibly long before we even thought about placing the order 18 hours ago.

This blog was originally posted on the World Economic Forum Agenda.