The LIVING Supply Chain E-Book

Robert Handfield

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 427

Veröffentlichungsjahr: 2017

Beschreibung

Creates a managerial compass for entering into the LIVING (Live, Intelligent, Velocity, Interactive, Networked, and Good) era of supply chain management and defines the imperative for creating Velocity and Visibility as the focal point for exploiting new digital, mobile, and cloud-based technologies

Written by well-known researchers in the field, this book addresses the changes that have occurred and are still unfolding at various organizations that are involved in building real-time supply chains. The authors draw on their experiences with multiple companies, along with references to the natural evolution of ecosystems throughout to help identify the “new rules of supply chain management." The LIVING principles associated with the rapid digitization and technology changes occurring in the global economy are discussed, along with the push to become more sustainable and responsive to customer needs.

“ Handfield and Linton reveal the “secret ingredient” to leveraging the power of a well managed supply chain….will revolutionize the way companies approach supply chain management.”

Frank Crespo, Vice President, Global Supply Network Division (CPO/Logistics/IoT Analytics), Caterpillar Inc.

“ The LIVING supply chain is a wake up call to any enterprise that depends on suppliers and contractors. Be fast, be nimble and make supply chain transparency the nucleus of your operations or become endangered.”

Paul Massih, Vice President, BP PSCM

“ …a fascinating journey through the future of supply chain management … a must read for every supplychain professional.”

Yossi Sheffi, Professor, MIT Center for Transportation and Logistics

“ … a great “living” reading on how to bring supply chains to a powerful living state. The idea of Live-Interactive-Velocity–Intelligent–Networked-Good is the foundation of how supply chains can be agile, adaptive and aligned. …of value to every supply chain executive and practitioner.”

Hau Lee, Professor, Stanford University

“ Successful businesses are those that support the success of their customers. This book captures the essence of our volatile, uncertain world and the opportunities that exist for the commercially astute, organizationally integrated business. More important, it offers insight to the recipe for 21st century operations and the management of complex supply ecosystems.”

Tim Cummins, CEO, International Association of Commercial and Contract Management

“ A LIVING supply chain requires a living company. The authors make a great case for how Flex is creating a living company to thrive in the living supply chain.”

Tom Choi, Harold E. Fear on Eminent Scholar Chair of Purchasing Management, Arizona State University, Executive Director, CAPS Research

“ To survive we need to have an adaptive supply chain and capability to both optimize and adapt simultaneously. This book begins to describe the ability to shift from functional silos to E2E Frictionless flow with the maturity to make E2E tradeoff decisions as a key enabler for success.”

Wayne Rothman, Vice President, Enterprise Supply Chain Planning, Johnson & Johnson

“A fantastic read and excellent stories from Dr. Handfield and Tom.”

Joanne E. Wright, Vice President, IBM Supply Chain

ROBERT HANDFIELD, PhD, is Bank of America University Distinguished Professor of Supply Chain Management and Director of the Supply Chain Resource Cooperative at North Carolina State University. The author of four books and over 150 journal articles, Dr. Handfield received his PhD in Operations Management from The University of North Carolina in 1990.

TOM LINTON is Chief Procurement and Supply Chain Officer at Flex. A recognized industry and functional expert, he has 30 years of international industrial experience in procurement and supply chain management. Tom Linton is also the recipient of the Procurement Leaders Lifetime Achievement Award in May, 2017.

Leseprobe

The LIVING Supply Chain

The Evolving Imperative of Operating in Real Time

Robert Handfield

North Carolina State University Raleigh, NC, USA

Tom Linton

FLEX™ San Jose, CA, USA

This edition first published 2017 © 2017 by John Wiley & Sons, Inc

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The right of Robert Handfield and Tom Linton to be identified as the authors of this work has been asserted in accordance with law.

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Library of Congress Cataloging-in-Publication Data

Names: Handfield, Robert B., author. | Linton, Tom (Thomas K.), author. Title: The living supply chain : the evolving imperative of operating in real time / Robert Handfield, North Carolina State University, Raleigh, NC, USA, Tom Linton, FLEX, Milpitas, CA, USA. Description: First edition. | Hoboken, NJ : John Wiley & Sons, Inc., [2017] | Includes index. | Identifiers: LCCN 2017012501 (print) | LCCN 2017022127 (ebook) | ISBN 9781119307198 (pdf) | ISBN 9781119307228 (epub) | ISBN 9781119306252 (cloth) Subjects: LCSH: Industrial procurement–Management. | Business logistics–Management. Classification: LCC HD39.5 (ebook) | LCC HD39.5 .H364 2017 (print) | DDC 658.7–dc23 LC record available at https://lccn.loc.gov/2017012501

Cover image: © Riccardo Vallini Pics/Gettyimages Cover design by Wiley

To Lise and Rodney, my dear parents

                                        Robert Handfield

To my wife Cheryl whose encouragement gives me strength and whose wisdom the courage and curiosity to explore new ideas.

Tom Linton

What the Experts are Saying About This Book

Handfield and Linton reveal the “secret ingredient” to leveraging the power of a well managed supply chain. The emphasis on visibility is key to turning companies that simply react to their environments into proactive champions for their customers. This book is a “How To” guide to leveraging the untapped power of a well managed supply chain. It will teach you how to turn from a reactive “firefighter” into a proactive champion for the customer. The book will revolutionize the way companies approach supply chain management. It turns conventional wisdom on its ear, and is timely and relevant to tomorrow's business environment.

—Frank Crespo, Vice President, Global Supply Network Division (CPO/Logistics/IoT Analytics), Caterpillar Inc.

The LIVING supply chain is a wake up call to any enterprise that depends on suppliers and contractors. Be fast, be nimble and make supply chain transparency the nucleus of your operations or become endangered.

—Paul Massih, Vice President, BP PSCM

Tom Linton and Robert Handfield's book is a fascinating journey through the future of supply chain management – the LIVING supply chain. Such future involves speedy supply chain networks leading to high customer satisfaction, high asset velocity and high profits. Such future is based on real time information and connected systems between trusted partners. Rather than a theoretical manuscript, the book is based on the experience and work of Linton, who is Chief Procurement and Supply Chain Officer at Flex. He is actually building and evolving such a supply chain and thus the book is a must read for every supply chain professional.

—Yossi Sheffi, Professor, MIT Center for Transportation and Logistics

The book on The Living Supply Chain is itself a great “living” reading on how to bring supply chain to a powerful living state. The idea of Live–Interactive–Velocity–Intelligent–Networked-Good is the foundation of how supply chains can be agile, adaptive and aligned. The book brings the AAA supply chain concepts to life. I congratulate the authors for producing this book that would be of value to every supply chain executive and practitioner.

—Hau Lee, Professor, Stanford University

The concept of the supply chain had a short but useful life. Much value has been unlocked in the last 30 or more years in the recognition that functions once thought of as discrete – procurement, logistics, materials management, etc. – were not only linked but also had mutual dependencies. However, as a practical matter, we have reached the limit of new insights from this one-dimensional model. Handfield and Linton's book explores a multi-dimensional model based on the biological concept of an ecosystem. This new way of thinking promises to yield vast amounts of additional insights that will enable the next wave of innovation in supply management.

—Tom Derry, President, Institute of Supply Management

Supply chains are the nervous system of the material world, a living universe of flows that propels the world economy forward. As this lucid book reveals, Flex is the supply chain's brain, evolving the global production system through technologies that promote transparency and trust. No matter what political obstacles emerge in the years ahead, supply chains will flourish and optimize the world economy for everyone's benefit.

—Parag Khanna, Author of “Connectography”

In an age when most organizations and functions are focused on the transition from human labor to AI and smart machines, Handfield and Linton looked at the modern supply chain and realized that it has come alive! Their global ecosystem view of the “living” supply chain emphasizes the need for speed, transparency, and alignment — particularly when there is a high level of dependency on suppliers for the creation of customer value.

—Kelly Barner, Owner & Editor, Buyers Meeting Point, LLC

Successful businesses are those that support the success of their customers. This book captures the essence of our volatile, uncertain world and the opportunities that exist for the commercially astute, organizationally integrated business. More important, it offers insight to the recipe for 21st century operations and the management of complex supply ecosystems.

—Tim Cummins, CEO, International Association of Commercial and Contract Management

A LIVING supply chain requires a living company. The authors make a great case for how Flex is creating a living company to thrive in the living supply chain.

—Tom Choi, Harold E. Fearon Eminent Scholar Chair of Purchasing Management, Arizona State UniversityExecutive Director, CAPS Research

As it becomes more important to move faster and respond effectively to change, this book starts to explore some of the principles organizations can adopt to succeed in our “real time” world …

The world we're living in means it's more important than ever for companies to build hyper reactive supply chains. This book plots the path to success in our “real time” world …

—Alex Martinez, CEO, Procurement Leaders

Linton and Handfield chart the future of supply management from the perspective of an exemplar best practice in a winning firm that links a myriad of stakeholders in real time. Winners must move beyond restrictive chains to enlightened networks that understand and implement supply network speed, transparency and trust. The authors show you the why and what of such interdependent ecosystems. Simply put, supply networks resemble nature since success results from mutually beneficial, fast, autonomous, balanced and fair interactions. The future is here, but as William Gibson observed, it's not evenly distributed. A must read with a caution: This book is not for the faint of heart – you'll be exposed to radically new ways of thinking that, once accepted, can never be turned back.

—Joe Sandor, Hoagland–Metzler Professor of Purchasing and Supply Management, The Eli Broad School of Business, The Eli Broad Graduate School of Management, Michigan State University

A great book to understand the impact of today's digital transformation on global supply chains. Data is the new natural resource that is changing how Enterprises operate. When you consider that data is not only growing at incredible rates, but almost 80% of data is unstructured (think text, pictures and sensor data), getting your arms around all this data can be daunting. However, what is so exciting is that we now we have systems that can understand unstructured data and draw insights from all these vast data sources. This is where we are focused within IBM's Watson Supply Chain business. Leveraging cognitive systems to provide insights, intelligence and improved visibility.

—Jeanette Medlin Barlow, Vice President of Watson Supply Chain, IBM

This is one of the most inspiring and conceptually innovative books that I've read about supply chain management in a long time. It fuses the experience and ideas of a top supply chain executive with those of an academic guru on the subject to create a vision of the real-time, intelligent, collaborative and hyper-responsive supply chain. The term “living” nicely encapsulates the very essence of this supply chain about which the authors write with great erudition, eloquence and enthusiasm.

—Alan C. McKinnon, Professor of Logistics, Kühne Logistics University

Over my career in multiple large corporations I have often heard the term “End State Design” used in the context of Supply Chain design and technology enablement. The reality is that there is no “End State”. To survive we need to have an adaptive supply chain and capability to both optimize and adapt simultaneously. Today the rate of change is just too fast, and those that master the ability to adapt their supply chains in response to the rapidly changing environment will be the winners. We need to embrace the rapid change in business models, embrace the fact that innovation by companies such as Uber & Airbnb can shift an entire industry on its back with minimal startup capital. This book begins to describe the ability to shift from functional silos to E2E Frictionless flow with the maturity to make E2E tradeoff decisions as a key enabler for success. Striking this balance whilst still keeping the technical depth and expertise in functional teams is a critical success factor and will only enabled through a transparent supply chain.

—Wayne Rothman, Vice President, Enterprise Supply Chain Planning, Johnson & Johnson

This book combines supply chain theory and practice research from Professor Handfield, one of the leading Supply Chain professors, with the real world experience of Tom Linton, leader of Flextronics supply chain a business that had to be agile to survive in a fast changing industry. This book blends insight with practical case study that will benefit supply chain professionals in their journey to excellence.

—Phil Priest, SVP GBS, Smith & Nephew

A fantastic read and excellent stories from Dr. Handfield and Tom. Years ago IBM embarked on a journey to develop our Transparent Supply Chain solution, to provide visibility, alerting and disruption management across our global supply chain. This journey has been incredibly transformational for IBM. Transparency leads to velocity and velocity is paramount in supply chains! In order to delight our clients everyday, acting with agility and speed in a complex and ever-changing global chain has been a critical success factor for IBM.

—Joanne E. Wright, Vice President, IBM Supply Chain

CONTENTS

Preface

Introduction

1 The LIVING Supply Chain

New Rules for the New Normal

Learning More About Flex: A New Business Model

A Brief History of Supply Chain Management (The New Rules of LIVING Supply Chains)

The New Rules of the LIVING Supply Chain

Amazon's Flywheel Effect

Visibility Drives Velocity

Changes Driving LIVING Supply Chains

The Big Change: Driving the Need for Real Time

Characteristics of the LIVING Supply Chain

What's Next?

Notes

2 LIVE! Transparency as a Core Operating Value

The Second Rule of the LIVING Supply Chain

Coase and Williamson Wouldn't Like This One Bit!

What Does Transparency Mean in Real Life?

Transparency as a Corporate Value with Roots in Financial Accountability

The Transparent Supply Chain

Management Principles for Executing Visibility Strategies

Data Crosses Functional Silos

Monitoring Small Events, Not Black Swans

Assumptions for Creating Transparency

A Shipping Example

The Old Way of Doing It

Defining Workflow for Unexpected Issues

The Bridge of No Return

Notes

3 INTERACTIVE! The Emergence of Federated Supply Chain Networks

The Tianjin Explosion

The Psychology of Raising Issues in the Pulse

Creating Federated Supply Chains

Beyond Collaboration and Integration: Federated Supply Chains Are the Next Frontier

Selfishness in Supply Chains Drives Non-zero Outcomes

Reacting to Disasters in Real Time

Notes

4 VELOCITY! Working Capital: The Overlooked Asset

It's About Time: Speed Is the Theory of Everything in Supply Chain

Globalization Slows Asset Velocity

The “Three Vs” of Information: Velocity, Volume, and Variety

Speeding Up the Flow of Cash in the Pipeline: Procure-to-Pay Systems

The Financial Sphere: Oblong Is Better Than Round

Shrinking the Sphere: Creating Transparency and Disintermediating Supply Chain Networks

The “Uber” Effect of Supply Chain Disruption

Real-Time Data Leads to Better Predictions

Notes

5 INTELLIGENT! Linking the Genomes of Products in Your Supply Chain

Mapping the Genome of Products: The Life Blood of a Supply Chain

What Data Do You Need? (Creating a Data Democracy)

Data Integrity

The Power of Product Genomes in Driving Transparency

Counterfeiting: The Opposite of Transparency

Thinking Differently about Counterfeiting

“Is This What You See?” Authentication Technology

Notes

6 NETWORKED! Co-evolution and Co-innovation in Federated Supply Chains

Evolution, Not Revolution: Grolar Bears, Coyowolves, and MerLions

The Power of Technology to Create Federated Supply Chain Networks Driven by Shared Data

Co-evolution

Business Process Innovation Drives New Forms of Human–Machine–Data Interaction

The Challenge of Trusting Your Data

Co-sourcing: Trusting Partners Based on Capability

Who Wants to Innovate with You?

Criteria to Consider when Co-innovating with Supply Chain Partners

Trust Goes Both Ways: How Do Suppliers Trust Big Companies?

Notes

7 GOOD! The Ability to Build Balanced Supply Chains

Press Release: Flex Releases 2016 Global Citizenship Report

Why Good?

What Are Characteristics of a Good Supply Chain?

Adam Smith, the Invisible Hand, and the Serengeti Rules

Open Competition Is “Good”

General Motors and Supply Relationship Pyramids

A Team of Teams to Create Local Insights

The PEOPLE Part of the LIVING Equation

Tracking Data to Create Transparent Supply Chains

The Trans-Pacific Partnership: Another Reason to be “Good”

Notes

8 The Future of Supply Chains

Trend 1: Living Supply Chains Will Become Autonomous

Trend 2: Supply Chain Hacking Will Increase

Trend 3: Improving Human Rights and Combating Illicit Trade Will Become a Core Goal of Supply Chain Management

Trend 4: Chain of Custody Will Become a Dominant Force for Designing Federated Supply Chains

Trend 5: Supply Chain Wars

Trend 6: The Rise of Real-Time Information, Digitization, and Mobility

Beyond the LIVING Supply Chain

Conclusion

Notes

Index

EULA

List of Tables

Chapter 1

Table 1.1

Table 1.2

Chapter 4

Table 4.1

List of Illustrations

Chapter 1

Figure 1.1

Flex's Business Divisions.

Source:

Reproduced with permission of Flex

Figure 1.2

Charles Elton Figure of the Arctic Island Food System.

Source:

Reproduced with permission of Princeton University Press

Chapter 2

Figure 2.1

Flex Pulse Center.

Source:

Courtesy of Flex

Figure 2.2

Wildebeest in the Serengeti Trophic Cascade.

Source:

Reproduced with permission of iStock

Figure 2.3

Wildebeest Herd.

Source:

Reproduced with permission of iStock

Chapter 3

Figure 3.1

The Tianjin Explosion.

Source:

Reproduced with permission of European Pressphoto Agency

Figure 3.2

The Bullwhip Effect

Figure 3.3

Lead Time for a Medical Product Supply Chain.

Source:

Ben Martin et al. Reproduced with permission of triz-journal.com

Figure 3.4

Flooding in Thailand of Hard Disk Drive Manufacturers.

Source:

Reproduced with permission of WSJ Market Data Group

Chapter 4

Figure 4.1

Working Capital Reduction Illustration

Figure 4.2

The Velocity Flywheel Effect

Figure 4.3

Supply Chain Trophic Cascade.

Source:

APICS, Supply Chain Management Fundamentals, Version 2.2, 2011 Ed., pp. 1–6

Figure 4.4

Inventory Sawtooth Effect

Figure 4.5

Global versus Local Inventory Effects

Figure 4.6

Runner's Heartbeat Pattern

Figure 4.7

The Flex Inventory Pulse™ – Illustrated Example (Patent Pending).

Source:

Reproduced with permission of Flex™

Figure 4.8

The Financial Sphere (Patent Pending)

Figure 4.9

Changing the Shape of the Sphere

Chapter 5

Figure 5.1

Mapping of a Genome.

Source:

Reproduced with permission of Circos

Figure 5.2

The Supply Chain Gene.

Source:

Courtesy of Mendota Springs Water, Inc.

Chapter 6

Figure 6.1

Grolar Bear.

Source:

Reproduced with permission of iStock

Figure 6.2

Coyote Wolf.

Source:

Reproduced with permission of Eastern Coyote Research

Figure 6.3

Singapore Merlion.

Source:

https://commons.wikimedia.org/wiki/File:Rear_ view_of_the_Merlion_statue_at_Merlion_Park,_Singapore,_with_Marina_Bay_Sands_in_ the_distance_-_20140307.jpg. Used under CC BY 2.0 https://creativecommons.org/licenses/ by/2.0/deed.en

Figure 6.4

Supply Chain Evolution.

Source:

Reproduced with permission of Flex

Figure 6.5

Supplier Concerns in Sharing IP with Buyers

Figure 6.6

Characteristics of Customers Considered “Partners”

Chapter 7

Figure 7.1

“Good” Soap.

Source:

Whole Foods Market Inc.

Figure 7.2

The Relationship Triad

Figure 7.3

Switcher's “Respect Code”.

Source:

Reproduced with permission of Respect-Code

Figure 7.4

Nike manufacturingmap.com.

Source:

Used under manufacturingmap.nikeinc.com/

Chapter 8

Figure 8.1

Northern Elephant Seals.

Source:

Reproduced with permission of iStock

Figure 8.2

The Journey of an Elephant Seal.

Source:

Used under http://www.afsc.noaa.gov/ nmml/education/science/studymmsealexample.php

Figure 8.3

Elephant Seal Skull.

Source:

https://commons.wikimedia.org/wiki/File:Northern_Elephant_Seal_Skull.jpg. Used under CC BY-SA 3.0 https://creativecommons.org/licenses/by- sa/3.0/deed.en

Guide

Cover

Table of Contents

Preface

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Preface

On a wet morning in January 2016, I sat next to a cozy fire in a Portland coffee shop, with a warm cup of black coffee and an open Apple laptop. I thought about what I had seen the day before, on a tour of the Flex Pulse Center in Milpitas, California, and the discussion I'd had with Flex's chief supply chain officer, Tom Linton.

I've known Tom for over a decade. Tom worked at IBM from 1981 to 2001 before moving to e2Open during the dot.com years, then to Agere Systems (now LSI), then to Freescale, and then 3 years in Korea as the head of procurement for LG in 2008. He started at Flex in 2011. We had kept up with one another over the last 20 years, and Tom had visited NC State on two occasions. A month earlier, Tom had urged me to come out to California and see what he was doing with something he kept calling the “Pulse.” Since I was traveling to the West coast to visit Nike in January 2016, I agreed to drop by and visit.

And what a visit! My brain was still reeling, trying to absorb it all. What I had seen in Flex's Pulse Center, and at Elementum, its startup company, which created the software “wrapper” that made the Pulse available to everyone, had made such an impression on me that I believed it was the start of something that seemed both organic and very, very new and uncharted. Flex was deploying an experiment of sorts, one that took everything we ever knew about supply chains, tossed it out the window, and started from scratch.

I had left Tom with a parting comment: “I think we need to write a book about what you're doing here.” Tom had smiled, and nodded knowingly.

So as I sat in the coffee shop that early morning, I thought about whether there indeed was a book to be written. I didn't have much time, as I was scheduled to meet with the Nike Global Sustainability & Manufacturing team in nearby Beaverton later that morning.

But I gave it a shot. Typing quickly, I came up with a list of 10 key points that had jumped out at me in the brief hours I had spent at Flex. I wrote down ideas for eight chapters, copied them into an email to Tom, and asked him what he thought.

Within an hour, Tom wrote back:

I think you captured some of our thinking exactly. A tighter economy requires a new way of optimizing how supply is managed. Maybe we can set up some regular calls and flesh this out?

And that's how this book was born.

I am a college professor who has been hanging around supply chain executives for 25 years. I have witnessed the popularizing of the term “supply chain management,” though many people still think of it as “something that has to do with logistics, right?” Over this period, I've also witnessed the Internet bubble in 2000, and heard people say it would “change everything.” I've seen enormous organizational change, including shifts such as the “logistics renaissance,” “world-class procurement,” “the Internet of Things,” “Big Data analytics,” and many other buzzwords that populate the lingo of executives worldwide. What I saw that winter day at Flex, however, seemed truly revolutionary. And I was determined to write about this phenomenon.

In the months that followed, Tom and I put together our thoughts and observations, with Tom sharing his stream of consciousness as he launched the Pulse Center, while I recorded my observations from the perspective of an academic working in the supply chain field for years. I decided to start each chapter with an observation taken from my remarkable tour of the Flex facility.

Another important part of the story is several books that we both read during the writing of this work. These include The Serengeti Rules by Sean Carroll, NonZero by Robert Wright, Team of Teams by Gen. Hugh McChrystal, Connectography: Mapping the Future of Global Civilization by Parag Khanna, and The Homing Instinct by Bernd Heinrich. These works were diverse: one was on biological evolution, the second on world history, the third on military campaigns in Afghanistan, the fourth on the future of global economics, and the last on the migratory patterns of wildlife. But a common thread runs through these books, which ultimately helped shape our thinking in developing the “new rules of supply chains,” which readers will discover for themselves.

As you read this book, bear in mind that three major shifts are shaping the new digital economy.

Data is foundational to everything we do. Data is a natural resource – those who capture data and learn how to exploit it will be those who succeed in the new economy.

The Cloud is transforming information technology and moving business processes into digital services. Understanding how to make data available to make decisions is foundational to how we operate.

The shift to cognitive computing is unlocking new insights and enabling optimized outcomes. Human–machine interaction will change everything about the way we work.

We are truly moving to a critical inflection point where the management of multi-tier supply chains is driven by the evolution of new hardware devices and software possibilities, but which is held together by a concept which we call “federation.” These changes are both evolutionary and revolutionary. New combinations of cloud, mobility, and human–machine interaction are pointing to a great leap forward in the supply chain profession and its impact on the company performance.

The story is still being written. The narrative that follows gives you an idea of how exciting this ride is going to be. It may be different by the time you are reading this – so you'll have to keep up in “real time” on your own from that point on.

Rob Handfield

Introduction

Supply chain management is an evolving field. While logistics, sourcing, planning, materials management, and data and systems have existed for generations, the combination of these disciplines is less than 40 years old. The incorporation of data and real-time systems in the way we operate supply chains is just emerging.

This book is about re-imagining what supply chain is, and what it's becoming. The premise of the book is that supply chains are ecosystems that adjust and evolve in ways similar to the way the natural world behaves. We have used our creative imagination to envision how supply chains will evolve and adapt to the emerging complex new business environment of the future.

This book also introduces the topic of balance to supply chains, not in the classic context of supply and demand but as it relates to the values companies increasingly are placing on healthy, honest, and transparent supply chains. What is “good” in supply chain management has been an area of inquiry that has expanded in ways both unforeseen and consistent over the last 100 years.

So if, as Abraham Lincoln suggested, we are to rely on the “better angels of our nature,” forgive us. In addressing the LIVING supply chain and the common purpose and federated forces behind them, we are merely disclosing what is happening in the world today. Even though forces and flows also exist within illicit supply chains, we believe companies driving good supply chains are becoming increasingly prominent and are improving the state of the world. The Dodd–Frank Bill, for example, regulates American companies’ use of so-called “conflict minerals,” the UN Global Compact calls on companies to support internationally proclaimed human rights, and numerous international agreements now regulate carbon emissions and trade. All these consensus actions align with a win–win approach to integrating global corporations on common standards of behavior.

The new rules of supply chain management do not eradicate the old rules. The fundamentals of value chain, supply–demand, and customer-centric solutions driven by mass customization, omni-channel solutions, and globalization are only a back story to the rising wave of Big Data analytics and cognitive supply chains that will eventually make supply chains intelligent enough to accurately predict outcomes. For decades, supply chains have been about nodes and processes that define both the design and network of how things move. We have targeted revenue benefits, income statement cost improvements, and procure-to-pay cash lifecycle benefits through to inventory contributions to balance sheets. We have pushed globalization, driven cycle time improvements, and focused on leaning out and leaning in as we pushed for recognition as a “C-level” function. Each contribution over the decades by industry leaders and organizations such as the Institute for Supply Management the Council of SCM Professionals, and APICS have helped define supply chain today.

The central argument of this book is that balanced supply chains will win and selfish supply chains will lose. The challenge we face is that supply chains are selfish by nature. The success of our new rules lies in making sure they allow business practices that balance the profit motive with healthy supply chains. We use an analogy to Sean Carroll's The Serengeti Rules to offer insights into how nature and business are more parallel than previously thought.

Dr. Robert Handfield and I have worked together for over a decade. I often reference his widely used and respected Purchasing and Supply Chain Management (written with Robert J. Monczka, Larry C. Guinipero, and James L. Patterson and initially published in 2001), one of the most widely used supply chain textbooks of our time. My personal copy has been annotated and dog-eared multiple times, and its fundamentals are essential learning in supply chain courses and companies worldwide. When Rob suggested we put down in a book, the innovations we were developing at Flex, where I serve as the chief procurement and supply chain officer based on my career in supply chain management, I could not say no.

I hope this book becomes a starting point for a new wave of innovative conversations about what supply chain IS versus what it DOES. When we start to understand the underlying values we are promoting and the time we are disrupting, we are on our way to a new understanding of how supply chains affect business outcomes. Whether our function becomes part of the autonomous new fabric of business in the coming decades will be rooted in how LIVING principles and new supply chain rules are adopted globally.

Time is on our side. After all, in business, we own it.

Tom Linton

1The LIVING Supply Chain

New Rules for the New Normal

It was raining hard in San Jose the morning I walked from the A-Loft Hotel to meet Tom Linton at the Flex offices.

“We don't usually get this much rain,” several locals had informed me, “but we are sure glad, because we need it. Four or five years of droughts have really depleted our water supply.”

I had driven by the site of the 2016 Super Bowl the night before – a site where the favored Carolina Panthers offense would be decimated by an attacking Denver Broncos defense, a reminder that a great defense can beat a good offense.

Our meeting began with a broad overview of Flex. The name change from Flextronics to Flex had occurred in July 2015, in response to the fact that the company was no longer a “contract manufacturer” in the traditional sense of the word.1 Contract manufacturing was Flextronics’ original business, during the boom years of the 1990s and the Internet boom, when the company largely manufactured PCs for big names like HP, Dell, and others. Contract manufacturing was a volume business, with razor-thin margins, and it relied on a company's ability to scale up a new product assembly line anywhere in the world. I had written about Flextronics in one of the first-ever supply chain books, Introduction to Supply Chain Management, published in 1999.

“We are no longer a contract manufacturer,” Tom emphasized, “but we are in full transition to become a company that, when I think about it, hasn't ever existed before. In each of the organizations I've worked in, I like to experiment with organizational models. This is the biggest experiment of them all, and I believe we are achieving an essential alignment of procurement and the supply chain organization that is unique. We are influencing and shaping Flex's corporate strategy, but we are also totally supporting it.

“We are a capability supply chain company,” Tom said. “Supply chain is our business, but it is supply chain on steroids. We have over 200,000 employees and over 1000 customers in 18 different industries, and produce $1 billion or more in at least 12 of these verticals”, referring me to a chart showing all of Flex's business verticals (Figure 1.1). “I'm involved in the downstream supply and manufacturing side, as well as the upstream, quoting to our customers when they come to us for a new product. We call it ‘Sketch-to-Scale™’ to represent what we do from design through manufacturing. We incubate startups and drive scale for large original equipment manufacturers. We don't just make PCs anymore – but produce just about every electronic product you can think of that's out there. We make cell phones, Nike footwear, industrial products, Wink networks for the connected home, Bose speakers, Apple servers, Microsoft X-boxes, Fit-Bits, drones, and dozens of devices for the emerging connected world. We produce medical products for J&J, Cisco products, and automotive products for Ford. We're a significant player in everything from floor care (Dyson, Bissell) to industrial test equipment and solar energy and are running billion dollar businesses in each of these sectors. But you won't ever see our name or our brand on these products. We are one of the biggest companies nobody has ever heard of, and we are continuing to expand in other areas.” In late 2016, Flex announced that they are partnering with a company Rib Software to form a joint venture, YTwo Formative, to digitize the acquisition of building materials in a revolutionary set of solutions for the $9 trillion housing industry.2

Figure 1.1 Flex's Business Divisions. Source: Reproduced with permission of Flex

Droughts and Super Bowl outcomes are just two of the many uncertainties facing the population in our global ecosystem. One-in-a-thousand-years rain like the one that hit South Carolina in October 2015, the Tianjin explosion, the Bangkok monsoon flooding, and the Japanese earthquake/tsunami and resulting devastation are just a few of the natural disasters to hit global supply chains in the last few years. These disasters create disruptions, but nothing like the disruptions brought about by global terrorist events, political foment and civil unrest, worker strikes, increased challenges in border crossing, and labor issues that are part and parcel of the global supply chain. As any student of business history knows, globalization has brought about a huge number of discontinuities and disruptions. These disruptions are no longer unique and rare; they are ubiquitous, and the time between disruptions seems to be shrinking. In fact, it is a rare day when no disruptions of any kind occur.

Managing volatility would be an acceptable strategy if the return on this level of risk were high. But that doesn't seem to be the case. The press continues to talk about stock market volatility, with pundits predicting that the economic downturn in China will impact the global market. Low oil prices, low commodity prices, and low food prices had everyone worried, as this indicated that demand was also low. Growth rates were predicted to be anemic. A collection of CEOs in Davos, Switzerland, predicted doom and gloom,3 as validated by a Deloitte survey of 1700 executives who all felt that there would be negative growth in the year ahead. Britain's 2016 vote to enact Article 50 and exit the European Union (“Brexit”) has caused panic and uncertainty for Europe and the UK, with UK officials running around frantically and interest rates reaching new lows. Indeed, there seems to be no upside. Worse, experts noted that volatility “is the new normal,” and that there isn't much hope for stability.

In January 2016, economists predicted that United States and global GDP growth would hover between 1.9% and 2.4% based on slowing growth in China. The outlook in January 2017 also hovers around 2% in the face of a Trump presidency, while global GDP is predicted to be at 2.9–3.4%.4 Lower investment, unfavorable demographics, and weak productivity growth are the hallmarks of the global economy5 – certainly nothing that anyone is looking forward to. Business confidence is lower, manufacturing is “quiet,” and rapid changes in this environment are causing many supply chain executives to scratch their heads and wonder how to deal with an economy that is at best subdued. Hopes that the Trans-Pacific Partnership might boost production due to removal of the more than 18,000 taxes on American exports were dashed when President Trump withdrew from the agreement. There are increasing signs that the once-popular trend toward open borders and globalization is moving toward regionalization and protectionism (Table 1.1).6

Table 1.1 Real GDP Growth (%)

Country Groups

2013

2014

2015

2016

2017

2018

Aggregates

Advanced economies

1.1

1.7

1.8

1.7

1.9

1.9

High-income economies

1.2

1.7

1.6

1.5

1.9

1.9

Developing economies

5.3

4.9

4.3

4.3

4.9

5.1

Low-income economies

6.5

6.1

4.5

5.3

6.3

6.6

BRICS

5.7

5.1

3.8

4.2

5.1

5.3

Emerging market and developing economies (EMDEs)

4.7

4.2

3.4

3.5

4.4

4.7

World

2.4

2.6

2.4

2.4

2.8

3

Regions/Economies

Europe and Central Asia

2.3

1.8

−0.1

1.2

2.5

2.8

Latin America and the Caribbean

2.9

1

−0.7

−1.3

1.2

2.1

Middle East and North Africa

2

2.9

2.6

2.9

3.5

3.6

Sub-Saharan Africa

4.8

4.5

3

2.5

3.9

4.4

East Asia and Pacific

7.1

6.8

6.5

6.3

6.2

6.1

South Asia

6.1

6.8

7

7.1

7.2

7.3

Source: Reproduced with permission of World Bank

Increased complexity in the global economy is adding another layer of malaise to supply chain executives. As customers are increasingly demanding “customized” solutions, companies are forced to produce in smaller quantities, leading to what is known as “mass customization.” Increased regionalization of product regulations and even localization requirements are driving increased scrutiny of shipments across borders, as well as new packaging and traceability requirements. The move toward e-commerce and shipments to end consumers via Amazon and Ali Baba is driving smaller packages, increasing congestion on city streets due to more deliveries, and escalating the potential for logistical malfunctions. How will companies survive?

One approach that many companies have sought in order to reduce risk in this environment is to outsource to third parties like Flex. Outsourcing involves divesting your company of processes that once were done internally, and have, them done by third-party suppliers. Because Flex works as a contract manufacturer across 18 of the largest global industries, it essentially acts as an absorber of global risk for many customers, including Apple, Ford, Amazon, and others. On the other hand, this structure also provides companies like Flex with the power of global insight. Each of the 12 verticals to which Flex contributes represents more than $1 billion in business. But, this value only represents the cost of goods sold for the end customer; since brands in electronics and other industries often mark up their products, the real revenue impact is often two, three, or four times higher. In each one of these business segments, Flex typically has 30–50 customers and often builds the newer technology products that, while cutting edge, require low-cost manufacturing in order to maintain market-friendly pricing.

As a result, Flex can triangulate across operations strategies, geographic strategies, and product strategies like no other company. It also can begin to predict how technologies, consumer behavior, supply chain innovations, or digitalization that are emerging in one sector – say the consumer products segment – may appear in automotive or medical products tomorrow. For example, who ever thought people could one day play music in their cars from their portable phones?

Learning More About Flex: A New Business Model

In his role as Flex's chief supply chain officer, Tom Linton runs an end-to-end supply chain. But end-to-end really means end-to-end – including customer-facing flows, supplier and material-facing flows, and all the sourcing and logistics in between. One organization manages all of it – because all these processes have to be so tightly linked. This is tricky, because non-disclosure agreements between customers may prevent Flex from spanning boundaries in the business with other customers who are their competitors!

Flex's supply chain organization controls sourcing on electrical, direct, and indirect procurement, and also oversees all materials at over 120 global site locations, including all the intellectual property, inventory, cash cycle, days sales outstanding, days payable outstanding, and the entire financial workflow of the organization. When their Chief Supply Chain Officer (Linton) presents to leadership, he is effectively talking to them about managing the balance sheet and the income statement, as well as supporting incoming revenue.

The biggest advantage of this level of oversight is that it allows Linton to align organizational capability and financial outcomes with procurement and supply chain strategy. In so many supply chains, the different pieces of the supply chain are often misaligned. Information systems have, for years, tried to “integrate” these disparate pieces, but this has still resulted in misalignment of decisions, primarily for political reasons. Every function has its own agenda, its own performance measures, and its own culture, and operates in a silo. Installing an ERP system to “Integrate” these parts does little to address these disparities.

Linton puts it this way: “All of the pieces, for the first time in my career, are fully aligned. I'm fortunate that Flex is an organization that readily welcomes change and adaption to a change ecosystem, and is able to attract and retain very talented people because of that. It is like a big chiropractic alignment, and when it happens, it is truly the secret sauce of successful organizations, versus those that remain functionally aligned with functional strategies that aren't aligned. We have true visibility to all financial flows, which ensures that we are profitable.”

The Milpitas site that we visited later that morning was the location for much of the R&D in the company. We were traveling to Building 2, where many of the prototyping and new technology start-ups were experimenting with prototype and design-scaling efforts. Once these new processes are developed, Flex scales them up in different parts of the world – Brazil, China, Mexico, or wherever they are appropriate for a Flex customer.

Companies like Cisco, Microsoft, and Apple all have a huge market cap, but their manufacturing activities are unlimited. Flex manages all these activities for them, which means Flex must run a top-notch end-to-end supply chain. So even though you won't see a “Made by Flex” label on these companies’ products, Flex is in the background, ensuring that everything is coming together. This is one reason that Flex and other contract manufacturers are emerging as the fabric of the emerging trend toward what Flex calls the “Intelligence of ThingsTM.”

The other interesting anomaly is that “top 25” lists of the “best supply chains” at Gartner7 often list these very companies: Fitbit, Amazon, Apple, Cisco, Nike, Inditex, Samsung, Intel, H&M, Lenovo, and others. Tom noted, “We manufacture for many of these companies, and actually hold a lot of their assets for them. So when Gartner measures the top supply chains, one of the criteria they use is the ratio of the company's revenues to its assets. All these companies are asset-light – because Flex is holding their inventory for them!”

Now my interest was really piqued. Flex and others like them hold a lot of the inventory and material and manage the shipping flows for these big companies. How does that work? How can one company manage so many supply chain processes and so many customers?

A Brief History of Supply Chain Management (The New Rules of LIVING Supply Chains)

The new Flex supply chain structure in this book is part of a massive evolution in today's supply chain world. These changes will occur sometimes quickly, sometimes slowly, but will undoubtedly come into being in the next decade. The changes we write about in this book are not just about technology – they are about true evolution, in a biological sense. In fact, many of the changes we are seeing have been captured in a set of statements we call the “Rules of LIVING Supply Chains.” These new rules are aligned with many of the rules that dictate how species, human beings, and genetics have evolved, and represent a natural, rather than a radical evolution. They are occurring because the world of global trade is reshaping the way we operate. In a sense, this world has reached the limits of growth. The new rules will require a new set of management approaches, as the traditional approaches to managing the supply chain will no longer apply.

To understand this, a brief history lesson is in order. Supply chain management as a field continued to evolve as large organizations saw the need for dedicated functions responsible for management of materials, which included purchasing raw materials, managing manufacturing processes, and moving materials (logistics). The mid-1960s witnessed a dramatic growth of, and interest in, the materials management concept. Still, the concept's origins date to the 1800s. Organizing under the materials management concept was common during the latter half of the 19th century in the US railroads, which combined related functions such as purchasing, inventory control, receiving, and stores under the authority of one individual.

External events directly affected the operation of the typical firm. The Vietnam War, for example, resulted in rising price and material availability pressures. During the 1970s, firms experienced material problems related to oil “shortages” and embargoes. The logical response of industry was to become more efficient, particularly in the purchase and control of materials. Widespread agreement existed about the primary objective of the materials concept and the functions that might fall under the materials umbrella. The overall objective of materials management was to solve materials problems from a total system cost perspective rather than from the viewpoint of individual functions or activities. Functions that fell under the materials umbrella included material planning and control, inventory planning and control, materials and procurement research, purchasing, incoming traffic, receiving, incoming quality control, stores, materials movement, and scrap and surplus disposal.

Rob Handfield witnessed the evolution of the management field now known as “supply chain management” as a young assistant professor at Michigan State University (MSU). Handfield was part of a group called the Global Procurement Benchmarking Initiative, led by Dr. Robert Monczka. During his time at Michigan State (1992–1999), the GPBI benchmarked more than 300 global companies, and set forth many of what became known as the principles of “World Class Procurement.” Many of these principles became the foundation for consulting practices at Accenture, Deloitte, Booz Allen, and others. At the time, these principles were appropriate. The idea was that procurement needed to establish a position not just as a “buyer of stuff,” but as a centralized function that tabulated spending across both direct and indirect categories of spending, leveraged this volume through purchase power, and sought to achieve significant cost improvement. Business consultants also began looking at procurement as a vehicle for measuring supplier performance, improving suppliers through development activities that needed help, and acknowledging that some relationships with suppliers needed to be more strategic than others. As purchasing became more efficient, the term “strategic sourcing” was coined, which involved combining volumes of requirements from across the business, grouping them into large bids that went out to suppliers, and driving down costs due to larger quantity discounts achieved. This also led to the use of “reverse auctions,” in which suppliers would bid on these quantities online. In logistics, the focus became on centralizing distribution centers and warehouses to drive optimization in transportation routing and reduce inventory across the system.

Many of the traditional concepts that evolved from this perspective of “driving cost of materials lower” focused on increasing the efficiency of operations in the supply chain from supplier to end customer. Many of these principles also coincided with the introduction of “lean manufacturing,” based on the “just-in-time” thinking pioneered by the likes of Toyota. For example, the “Theory of Constraints”8 emphasized that to optimize an end-to-end system, “bottlenecks” had to be addressed by adding capacity at this operation. “Just-in-time” and “lean manufacturing” focused on standardizing products, improving coordination between different enterprises to reduce inventory, and only delivering the exact amount needed, in quantities that could be immediately consumed by the follow-on operation.

Another group at MSU, led by Dr. Donald Bowersox, also spurred new thinking on the “Logistics Renaissance,” proclaiming that the role of logistics was to add value and drive market penetration through technology integration. All the work done in this period highlighted many important issues, encapsulated in a “maturity model” that identified how organizations could develop these capabilities over time toward a truly “world class supply chain” organization.