Logistics, Information, and the Rise of Global Value Networks
The Early Drivers of Change
Even before Covid, the world was already heading in new directions. By the late 1980s, two major factors drove this change and by 2020 and thereafter, despite Covid, change continues at a rapid pace. The business area most affected by this rapid change is global supply chain and logistics.
In November 1994, Fortune Magazine said: “Think of global supply chain and logistics as nothing less than the re-engineering of the entire economy - one convoluted chain at a time. Once you start re-conceptualizing your company as a collection of business processes, it becomes dauntingly clear that those processes extend beyond the portals of any one building, the boundaries of any one corporation, and the borders of any one country...As the economy changes, as competition becomes more global, it’s no longer Company vs. Company but Supply Chain vs. Supply Chain.”
Change was driven by two things: globalization and information.
The Information Revolution
From Desktop PCs to Global Connectivity
With the “new desktop computers” of the 1980s, information was now accessible throughout any organization. The “primitive” PC, bound within the four walls of organizations and eventually homes, was the seed that globalized information into social connectivity outside the four walls.
Access to information is not only ubiquitous but is also global in scope, context, origin, and meaning. We are on the worldwide information highway, with multiple on-off ramps. The critical security issue is whether we are riding on a freeway [open access] or a toll road [paid access]. The future continues to unfold.
Information itself is radically different: is it AI-based? Bot-generated? Or “human speak”? The irony, of course, is to be questioned by a Bot to verify that we are human, or to use a verification number randomly generated by a machine to prove it is us and not someone else. Security has come to the forefront of all interactions.
Computers Lack Agency
We must never forget what was stated in the IBM Training Manual in 1979: “A computer can never be held accountable. Therefore, a computer must never make a management decision.” Computers – information technologies – lack agency. Responsibility and accountability for all decisions belong to us humans. And that requires leadership.
The world of work is radically changed. It is no longer information we receive or access. It is intelligence we analyze in context. We are both responsible and accountable for the contextual intelligence we generate - and that demands new skills and competencies.
Globalization and the 4th Industrial Revolution
Information Meets Technology
The information revolution spawned what is called the 4th Industrial Revolution. Developments in information technology are mirrored by developments of multiple technologies where accessing information is critical to managing the process. Management is information-driven as we manage processes both inside and outside the four walls of operations. This is the “globalization effect.”
From Manufacturing to Assembly
We must recognize that very few of the products we enjoy - such as automobiles, clothing, consumer goods - are actually manufactured. During the 19th century industrial revolution, there were mills that manufactured products. However, consumer market demand gradually outpaced supply, and mills could not keep up.
In the early 20th century, Henry Ford transformed manufacturing plants into assembly plants. He “invented” the assembly line. Automobiles are not manufactured; they are assembled. And that gave rise to external sourcing of parts in volumes calculated to meet increasing consumer demand. Here we have the emergence of process management inside the four walls [input-throughput-output] and supply chain logistics management [network design] outside the four walls. But it does not stop there.
Economic Expedience Drives Globalization
By the late 20th century, economic expedience drove globalization. In the 21st century, it is important to recognize that geopolitics is not the foundation of globalization. While trade agreements and tariffs are flung about the international stage as solutions and threats, business is what drives globalization, not national or government policies.
Economic expedience is about making decisions based on what is most advantageous for achieving economic goals [increased margins], prioritizing speed, efficiency, profit. It contrasts with pure economic efficiency [best resource use] focusing on practical results.
It is a pragmatic approach, where the "right" decision is determined by immediate practical benefit, making it key in business strategy. Whether globalization remains off-shore or combines that with near-shore and on-shore, it is a business decision, not a national policy issue. Globalization positions supply chain and logistics as nothing less than the re-engineering of the entire economy - and that demands new skills and competencies.
The Supply Chain Logistics Model
In a globalized economy, there is no such thing as one kind of SCL. The drivers that shape supply chain strategies depend on the scope of the business, where expedience, not national policy, dominates:
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Market-driven value chain: The closer a business is to consumers, the more critical is the SCL strategy and the more integrated are the end-to-end operations [source to shelf] to deliver value and meet consumer demand.
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Operations-driven supply chain: The farther a business is from consumers, the less critical is SCL as a business strategy and the less integrated are the operations.
- Silo-driven supply chain: The less integrated the SCL operations are, the greater the focus on different activities, such as supply management [procurement], asset management [inventory/capital assets], or distribution management [warehousing, distribution, transportation].
With the impact of information - particularly Big Data - and the need to apply multiple data analytical tools [descriptive, diagnostic, predictive, prescriptive] in the context of contextual intelligence, linear supply chains [where value is based on production of goods/services] have morphed into global value chains [where value is based on knowledge exchanged among multiple participants in networks driving proactive production of goods/services]. Information, not production, is key to success.
From Global Value Chains to Global Value Webs
And the next generation will go from global value chains to global value webs, which engage the entire business ecosystem strategically, focusing on:
- Network design [ND], not just inventory optimization [IO]
- Circular economies [product life cycle management, not just supply-production-distribution]
- Customer value creation, not just value delivery operations
Driving this future will be a network model that integrates planning and execution on one platform managing information in real time.
It will no longer be about meeting market demand; it will be about creating market demand. SCL competencies are at the heart of this challenge. It’s no longer Company vs. Company but Supply Chain vs. Supply Chain.
Tomorrow’s Leaders and SCL Competencies
The demand is for new skills, knowledge, aptitudes [SKAs] where tomorrow’s leaders will have to be prepared for life in a global world. It will be a world resting on science, tools and technology, production, economics, finance, and banking, but also an increasingly tribalized world.
They must become “citizens of the world” — in vision, horizon, and information. But they will also have to draw nourishment from their local roots [communities of practitioners].
Peter F. Drucker, Post-Capitalist Society
This blog is the seventh installment in the series The New New-Normal. We recommend reading the blogs in sequence:
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