The Fragility of Global Supply Chains & the Coronavirus Pandemic

The Fragility of Global Supply Chains & the Coronavirus Pandemic

A Wish that the Production and Operations (POM) Folks could have been more persevering…

Introduction

This blog is evoked by my ‘encounters’ with three POM thinkers and experts, and seeks to offer three core questions that underlie the fragility of global supply chains today — a fragility that has come as a slap in the face, courtesy the Covid-19 pandemic. The Covid-19 is at best a catalyst in my thinking, that has brought to the surface these three cracks or fault-lines that have not been perhaps holistically applied by businesses.

An ode to the thinkers and gurus, first, as per the Indian tradition:

The most recent thinker and researcher that I met two months ago was Professor Vish Krishnan who teaches at University of California, San Diego. Amongst many readings and conversations that caught my attention, it was a paper titled “Operations Management Opportunities in Technology Commercialization and Entrepreneurship”, Production and Operations Management, VOL 22, Issue 6, pages 1439–1445 that has been very evocative. Vish speaks of the philosophy of ‘Doing more with less’ that has been at the core of this management field, and laments how POM has been reduced to a narrow field with limited utility in management thinking today, despite having tremendous potential for innovation and entrepreneurial thinking.

The other two stalwarts have been teachers and colleagues — Raghu Ananthanarayanan and Badri Narayana, who introduced me to Lean thinking not just as a set of tools, consulting frameworks, but as a philosophy to live by and across two decades at TAO — a firm that we founded and built. Both Raghu and Badri had the opportunity of engaging with Lean thinkers and Sensei from Japan and USA over several decades, and integrating this philosophy of living with the Indian context. They have partnered with several organizations on lean thinking exploring both visible throughputs and the invisible culture.

Interestingly, all three of them graduated from IIT Madras in 1970s.

Faultline 1

‘Doing more with Less is’ is incompatible with ‘Consume As Much as You Can’

The quarantine has been a stern teacher when it comes to looking back at our individual consumption patterns.

We are all discovering that we have loaded our lives, our homes, and our spaces with ‘Stuff’ that we really don’t care much about. For example, I have discovered that I have innumerable running shoes and tennis gear, without having used any of these over the last three years. My wardrobes are filled with clothes that I don’t wear, the drawers are full of gadgets that I don’t use … I guess you understand my drift. It is ironical because I portray myself as a Gandhian endorsing simplicity.

I am not alone when it comes to consuming as much as I can. Credit cards and financial firms have aided an orgiastic wave of consumption that are formed of fleeting memories of ephemeral highs of consumption in our minds, and worthless inventories in our homes, and more importantly, without evoking guilt or shame. This has happened for several decades and across generations.

Interestingly, the very same brands — Nike, Reebok, and Adidas in my case, have fascinating POM principles integrating their manufacturing ideology. A shoe is costed at the extent of three decimal points, and any shift such as a 0.001 decrease in costs is celebrated.

If I was to define a ‘complete throughput’ — from design to produce to deliver, and add to consume and to expel / recycle — all we have done is create local optima in production and delivery functions, without looking at the consumption and expel / recycle functions.

Thus, while POM and SCM thinkers, managers and professionals have integrated the core philosophy of ‘doing less with more’, they are easily outnumbered by reckless consumers impacted by the monkey mind, and greedy shareholders. It comes as no surprise that the current pandemic, that seems to have throttled the consuming mind (Consume as much as you can) and have rendered the supply chains extremely fragile!

It is perhaps the time to integrate ‘Do more with Less’ with a more humanistic ethos, as succinctly stated by Gandhiji — The world has enough for everyone’s needs, but not everyone’s greed,

Faultline 2

Outsourcing Risk and make the Other pay for it too!

Outsourcing has been the paradigm for the past three decades — almost all industries have taken to it including manufacturing, IT, pharmaceuticals, textiles, garments, design, research etc. Large firms have outsourced a large part of the value chain, keeping only the technology and intellectual capabilities within, to producers and entrepreneurs all over the world. The US economy has been a frontrunner here, having outsourced most manufacturing capabilities to China and to developing nations.

Outsourcing was positioned as the ultimate ‘win-win’ for these stakeholders — ‘Investors’ who discovered greater profitability through lower costs, ‘Local ecologies’ — where dirty manufacturing got shifted to countries that did not care for environment, ‘Managers’ — who could cash in their checks now that one achieved quality and speed by largely oppressing and controlling their vendors… life was never easier than pushing your partners, great travel opportunities etc.

What was never mentioned that in outsourcing, all big firms were actually outsourcing risk and uncertainties while keeping their own value-chains lean, innovative, picture-perfect, and optimized. It was the vendor that had to deal with uncertainty and risk. Tier I and II vendors caught on to the game, and there was a shift of risk and uncertainty to the last layer of entrepreneurs.

This was also true for the value chain on the customer side as well — it was mom & pop retailer who sat with useless inventories, pushed to the extremes, facing shutdowns and bankruptcy.

What was even worse that in outsourcing risk and uncertainty, the firm never compensated the partner for it … in fact most firms discovered that in outsourcing, you could make your partner pay for it too, through clauses of non-performance, delays, cancellations etc.

Thus today, it is the small entrepreneur who is paying for the ultimate risk of a pandemic. All mom and pop shows are closing down — people are losing jobs across the world. Entrepreneurs are looking at dole-outs from the government, and the large firms with fancy state of the art SCMs remain untouched for the moment. In India, it is the small to medium IT firm that is on the verge of closure as opposed to the TCSs and the Wipros of the world.

There is a need for a bridge between POM experts and thinkers with Marketeers, Financial Controllers, and Strategists — a dialogue that is much required to explore how risk can be equitably shared between large and small firms, and compensated for.

Yes, there are many exceptions that you as a discerning reader may point out to — but my claim is that in outsourcing strategies, the risk for (and not of collaborating) the partner is never configured in the financial models.

Faultline 3

What about Externalities?

In economics, an externality is a cost or a benefit that affects a third party who did not choose to incur the particular cost or benefit — Pollution is a common negative externality whose cost affects society as a whole.

The social media is replete with oohs and ahhs:

· Dolphins visiting our shorelines

· Snowy mountains seen from cities that were battling Smog visibilities < 1km

· Animals roaming with joyful abandon including deers, leopards, exotic birds, tortoises

· Blue skies

It is almost as if many of us are getting aware, temporarily if you are a cynic, of what we are doing to the planet. Shutting down manufacturing, trade, travel, and consumption engines are offering us a strong reminder that ‘Externalities’ need to be institutionalized in every business.

There are pioneering firms that are integrating externalities — but it is left to the visionary and sensitive leadership who has to battle greedy investors and shareholders. Unilever for example speaks of its strategy to work with externalities.

But it is time to impose externalities as a policy for every producer and consumer on the planet. POM can help all of us in making our consumption a lot leaner. Dirty factories cannot be mindlessly ignored. And finally local consumers cannot be blind to externalities merely because the processes have been outsourced to some third world country in Asia or in Africa.

Conclusion

There are other learnings that this pandemic offers us. I see POM principles being espoused by Governor Cuomo of NY when he speaks of shifting capabilities as opposed to hoarding them. POM principles also challenge the notion of ‘Control’ that many firms and governments unconsciously sign on to — and that true human creativity gets bolstered by ‘empowerment’.

This blog is a response to Harish Raichandani’s invitation — Harish is triggering a series of conversations on what the pandemic is teaching us. Harish and I are a part of the EFPM group at ISB Hyderabad.