Tag: supply chain

It’s common knowledge that holiday shopping is going to be challenging this year due to the broken supply chain. Many favorite items — like game consoles, toys, clothing and shoes — will be in short supply. And if you’re lucky enough to find the hottest toy on your child’s wish list, you will likely pay more for it. But what does the new year hold? Will 2022 be better?

Kouvelis
Kouvelis

The answer is maybe, but not right away, according to Panos Kouvelis, director of The Boeing Center for Supply Chain Innovation at Washington University in St. Louis.

In early February 2020 — a full month before the WHO declared COVID-19 a global pandemic — Kouvelis predicted that the coronavirus would wreak havoc on the global supply chain for two years.

His most recent prediction is a little more optimistic. According to Kouvelis, supply chain issues — including product scarcity and logistical bottlenecks — will continue through mid-2022. The automotive industry will not fully recover before 2023. His prediction is based on several factors, including:

  • Corporate hoarding: Kouvelis believes that some of the orders currently bogging down systems are the result of corporate hoarding. Faced with long shipping times and fears of rationing, companies place extra orders in hope they’ll get the product and materials they need. Many larger companies with more resources have built up warehouses stocked with excess inventory, and some of their incoming inventory is waiting on large vessels trying to clear ports. These phantom and excess orders add pressure to an already vulnerable system, but he believes buyers will ease up in the coming months as logistical delays improve. “After a while, we realized our basement had a limit on how much toilet paper it can hold. The same is true for warehouse space,” Kouvelis said.
  • The Chinese New Year: Chinese factories and ports will slow down for two weeks in early February, adding extra pressure on the supply chain.
  • Los Angeles and Long Beach, California, ports have moved to 24/7 operations: In October, President Joe Biden, along with business, port and union leaders, announced a plan to strengthen the resiliency of supply chains by moving toward 24/7 operations at these ports. Increased port operations, along with increased trucking and rail capacity, will help reduce the load that has built up at the ports. However, the shortage of truckers will delay the port recovery.
  • Return to normal factory operations in Vietnam, Malaysia and Thailand: These countries, which produce the majority of garments, shoes and toys in the U.S., were hit especially hard by the delta variant this summer, causing factories to reduce or even stop operations. The situation is improving, but the increase in production will not reach the U.S. until after the holidays.  

“We’re hoping that within the first six months of 2022, the port situation and efforts to increase capacity, both on the railroad and trucking, will improve substantially. If that happens and the demand on the system lessens, things will look better by summer,” Kouvelis said

Could trouble be lurking?

There’s one factor that could derail Kouvelis’ prediction, though: China’s energy crisis. Currently, rising costs have forced Chinese energy companies — that until recently could not raise energy prices due to government-enforced caps — to place restrictions on heavy manufacturing customers. As a result, manufacturers were forced to cut operations by as much as 40%. It doesn’t take long for these shutdowns to impact the quantity of products coming to the U.S. Now, the government has removed energy price caps for manufacturers — especially those that produce cement, steel and paper — but that means the cost will be passed on to consumers, Kouvelis explained.

“The story that I’m not sure how it’s going to play out is the energy crisis in China,” Kouvelis said. “The energy crisis could resolve itself in the next month or two. But if China has an especially cold winter and energy demands remain high, they’ll have to cut capacity further.

“If that happens, 2022 will be driven by that crisis and the constraints that it creates.”

According to Kouvelis, the effects of China’s energy crisis have not yet made its way to the U.S. due to the backup of products on ships outside the U.S. However, within the next month, American consumers will notice greater product shortages and higher prices.

What is the U.S. government doing to address these challenges?

“The government policies will be very important in addressing the long-term misuses of supply chain,” said Kouvelis. who also is the Emerson Distinguished Professor of Operations and Manufacturing Management at Olin Business School. “The government is on the right track, but these problems cannot be resolved within a month or even six months.”

In addition to opening ports for 24/7 operations, Congress recently approved the $1 trillion infrastructure plan that will fund improvements for the nation’s roads, bridges, ports, rail transit, power grid and more, which will ultimately help the supply chain for years to come.

According to Kouvelis, the government also is rethinking trade policies and tariffs with Europe that have created flow constraints. The trade situation with China has more political risks and could continue to impact trade in the future, though.

“Among the risks to consider is the role that climate change and carbon emissions negotiations might play out between the U.S. and China, with the potential that quotas and tariffs be later tied with emission reduction requests,” Kouvelis said. “The Xinjiang forced Uyghur labor situation is a sensitive point, and so far had negative sales implications for Western companies that took a position on it, like H&M and Adidas. And Taiwan’s sovereignty, with its tremendous importance for semiconductor capacity, will remain a ghost in all future trade talks.” 

How will this crisis shape future supply chains, U.S. policy?  

“The tremendous dependency of critical U.S. supply chains like drugs, batteries and semiconductors to long Asian-based producers and suppliers has become a vulnerability visible to all after the recent pandemic-related supply chain mess. This has been brewing for decades,” Kouvelis said.

Since the ’90s, the U.S. and other developed countries have become increasingly reliant on global supply chains to source cheap labor and materials and keep prices down. When the World Trade Organization accepted China in early 2000 into the organization, the expectation was that the free flow of goods coming from Asia would benefit all economies, he said.

“That story held up to an extent until the pandemic, when the logistics broke down and the Chinese government was controlling what products left the country and we didn’t have access to critical PPE,” Kouvelis said.

That’s led to the realization that more regional supply chains are needed, especially for critical items. While not everything will be produced in the U.S., American companies will increasingly look to source materials from neighboring countries such as Canada and Mexico, he said.

The government has committed $50 billion to boost semiconductor production in the U.S., which will improve access to these critical computer chips over the long term. But Kouvelis estimates that it will take at least two years for the first factory to open.

“Some of the microprocessors — probably the low-end microprocessors — will come from Asia, but the more critical components will either be made in Europe or the U.S.,” Kouvelis said.

“The same is true for pharmaceuticals. Right now, most of the critical components are coming from China and India. Expect the government to invest in our pharmaceutical manufacturing capacity.”

Of course, the U.S. is not alone in its supply chain struggles. Europe, parts of Asia and Australia are all experiencing similar supply chain disruptions. The situation is even worse in the U.K. because of Brexit, Kouvelis said.

While no one knows for sure how or when supply chains will be fully operational, Kouvelis said this is for certain: The experience of the last two years will shape supply chain planning and operations for years to come.




The global supply chain has experienced once-in-a-lifetime disruptions — at least four times in the past 12 years or so. The 2007-09 financial crisis was followed by Japan’s tsunami, earthquake and nuclear disaster of 2011, which was followed by the U.S.-China trade conflict that seemed to peak in 2018 and now the COVID-19 pandemic.

Resilience, once a hallmark that academics ascribed to the most successful supply chains, has become a “matter of survival,” writes an international team of researchers including an expert from Olin.

Why do some distribution businesses have it and others don’t? It’s all about the implementation and execution of resilience strategies, the team learned from supply-chain executives and shared in a paper forthcoming in Management and Business Review.

In a series of pandemic-era interviews with 14 senior executives from 12 companies representing a wide range of industries affected by the pandemic, the co-authors discovered that the businesses survived, if not thrived, due to “agile responses”—whether for the short term or long term, or both. These interviews allowed the researchers to derive an integrative framework similar to a how-to list, split into two basic categories: enablers and resilience strategies.

Enablers and resilience strategies

The resilience strategies are built upon policies that increase redundancy and operating flexibility: operation buffers (such as different inventories); footprint diversification (postponing or relocating production lines); supply options (flexible networks and financing); robust distribution (alternative warehousing, transport and routes); product standardization (sharing components or using off-the-shelf parts); and partner network (supplier relationships and sharing risks, costs and gains).

The enabler activities essentially are best practices and “prerequisites for implementing the strategy elements,” the researchers wrote: end-to-end visibility, end-to-end control, continuous IT infrastructure, and organizational readiness (previous or continuous risk management and planning).

Kouvelis

“While all executives seemed well-versed into the supply chain resilience theory and concepts, they all discussed the implementation barriers they encountered as they tried to move their company’s supply chain to a needed resilient state,” said co-author Panos Kouvelis, director of the Boeing Center for Supply Chain Innovation and the Emerson Distinguished Professor of Operations and Manufacturing Management at Olin. “The executives were quick to point out supply chain resiliency as the attribute to guide the companies’ adjustment in the new (ab)normal world we will face the next two years.”

Kouvelis and his co-authors— rom Stanford University, Georgetown University, Santa Clara University, Kobe University, Germany’s Otto Beisheim School of Management and the University of Pennsylvania—followed four themes in their interviews: How has your company responded to the crisis? What are the elements of your resilience strategy? How did you arrive at that strategy? What lessons are key moving forward?

Cisco, Colgate-Palmolive, Nike, etc.

They interviewed executives with firms anywhere from a 2,000-employee food business in Asia earning $2.5 billion annually to a 150,000-employee consumer products company in Europe earning $52 billion annually. Among them were Cisco, Colgate-Palmolive, HP Enterprise, Infineon, Nike, Unilever, Emerson and Bayer Crop Science.

The co-authors learned that these companies basically designed a resilient supply chain via a two-stage process: selecting the “right” fit of strategies—and nobody implements all of the aforementioned—and then defining how to implement them. This could mean that, in the definition process, company management decides their first choice proves to be unfeasible or costly and instead opts for a Plan B. A company may also design different strategies for different products under their umbrella.

The researchers also found that strategy implementation, in these times of outsourcing and global disruptions, was enhanced by a collaborative, cooperative relationship among logistics businesses, suppliers and customers.

Interestingly, the researchers learned that executives are more willing to invest in resilience strategies if they had trouble regaining their market position after a disruption. For instance, it was mentioned amid the interviews—as examples of best practices—how Japanese automakers invested in increased buffers to reduce disruption risks after the 2011 earthquake, and Cisco reviewed its supply chain network to assess suppliers’ financial health after the 2007-09 crisis. The expenses were justified as a long-term and cost-effective “insurance policy.”

In fact, cross-company collaboration was seen as a necessary cost to the point where some companies financed suppliers and buyers, or at least provided technical support, to ensure a stronger supply chain.

‘Prescriptive recommendations’

The researchers offered a list of “prescriptive recommendations” such as centralizing the risk-management function, strengthening supplier relationships and innovative financing. However, they noted that the more resilient companies react early in such a crisis, and chains’ designs differ as much as their products, markets and countries. In other words, what works for toilet paper in Texas won’t work for cars in the Cayman Islands.

Kouvelis said he heard clear echoes of “never let a good crisis get wasted” throughout the executive interviews, and he paraphrased one of them: “You might even consider it a blessing in disguise … .” That particular company used the pandemic disruption to speed up digitalization of its supply chain and invest further in risk management.

In a separate paper written by Kouvelis and Morris A. Cohen, the Penn researcher from the resilience strategies study, and accepted for publication in the Production and Operations Management Society (POMS) journal, the co-authors rewrote the long-held Triple-A framework of successful global supply chains: agile, adaptable and aligned. They re-evaluated and reconfigured it, adding three R’s in addition: robust, resilient and realigned.

The reasons behind the redo are the global crises and the localized shocks that regularly have arrived the past decade-plus: Industrial supply chains have been found to experience a serious, one-month disruption every four years or so.

“The Triple-A framework of supply chain excellence served us well in the 1990s and early 2000s,” Kouvelis said of the rationale for, and the logic of, a new framework. “However, the last 15 years have seen frequent supply chain disruptions—and of alarming severity. Time to add the R’s in the supply chain excellence attributes model.

“Short-term agility has to be complemented with robustness for real-time responses across a wide range of scenarios. Adaptability to long-term technology and macroeconomic trends needs resilience to future shocks and the new (ab)normal world. Moreover, alignment of incentives of existing supply chain partners requires realignment to deal with evolving business models, changing consumer needs and preferences and a newly defined value system. The era of turbulence of the next 20 years needs a Triple-A-&-R portfolio of excellence capabilities in supply chains.”

POMS honored Kouvelis in its November 2020 issue, printing a career commendation called a Laudatio (subscription required). POMS also published as the lead article in that issue a study by Kouvelis and a Chinese University of Hong Kong professor on distribution channel compensation, initially posted online in June.




Amid a pandemic when limitations on disinfecting wipes, toilet paper and drugs brought attention — and disruption — to supply chains, new research involving Washington University in St. Louis delivers something of an answer to improving these lines of business:

Work with who you know.

While most of the business world builds success from existing relationships, four scientists including Xiumin Martin from the Olin Business School crunched data to find that personal connections between suppliers and vendors particularly improves the efficiency of the supply chain. To be precise, such rapport results in better overall performance, less restrictive and longer-lasting contract terms, and crystallized communication.

Martin

“Recent years witnessed significant increase in the complexity of supply-chain relationship due to outsourcing,” said Martin, professor of accounting. “Such increased complexity pushes my co-authors and me to think about how some fundamental issues concerning information asymmetry are addressed in this new regime. We examined this question by focusing on personal connections because the world has also become increasingly connected.”

The research team — Martin along with Ting Chen of the University of Massachusetts Boston, Hagit Levy of the City University of New York and Ron Shalev of the University of Toronto — studied 2000-11 data from public companies, though private businesses may even more keenly rely on personal, existing relationships.

College and work connections

In their paper, forthcoming in The Review of Accounting Studies, the researchers focused on previous education and work connections between suppliers and vendors. They showed such a personal relationship proved a successful way to select suppliers in a chain that has become more complex amid outsourcing and this global economy/information age.

In compiling their 12-year-long data set, they used a database called BoardEx — listing universities, employment histories, charitable involvements and board memberships — to try to find supplier-customer connections. Through another database, Compustat Segment, they were able to determine long-running business relationships between 1,430 suppliers and 2,630 customers.

Ultimately, they focused on just two relationships: university and work connections. They found 7.4% of the sample had educational connections and 21% had either educational or past-work relationships. Looking at the organizational charts, they discovered 0.5% connections between CEOs and 15.2% between non-C-level executives.

Such personal connections increased the likelihood a vendor will select a supplier by 60% over baseline probability, the scientists learned. Connections between C-Level executives show statistically stronger effects than those between lower-level executives, though the COO — who oversees most firms’ supply chain — has a more pronounced effect on supplier selection than a CEO or CFO.

They also studied when that connection was broken — say, one of the parties in the relationship leaves their employer or retires. There, they found that the supplier-customer relationship ended earlier after a departure of a connected executive than after a departure of an unconnected executive.

Boiled down, these prior college or work connections:

  • increased a vendor’s chance of being selected as a supplier;
  • relaxed procurement-contract terms;
  • improved firms’ operating efficiency;
  • expanded geographical areas to choose supplier-chain partners when there are limited choices nearby; and
  • smoothed out exchanges of information.

Simply put, these businesses know one another. And that enabled them to make more accurate assessment of supply-chain risks, helped to reduce costs, facilitated more timely updates and improved the effectiveness of monitoring the supplier along the chain.

Longer-lasting contracts

They found the utility of the relationship by breaking down such factors as: product quality and reputation; delivery reliability/on-time delivery; competitiveness of cost; manufacturing capability; management leadership; technical capability; research and development; financial risk; and production flexibility to customer requests.

The data showed that 27% — or one in four — contracts were between connected parties, and on average, the contracts lasted six months longer (48 months vs. 42 months) in duration than two parties with no connection. The less restrictive contract terms translated into product warranties, the ability to inspect supplier’s plants, supplier-paid liability or property insurance, and pre-scheduled periodic meetings often used to address risk and moral-hazard issues.

“The COVID-19 crisis has significantly disrupted supply chains,” Martin wrote in the paper. “It will be interesting and important to examine whether personal connections have an influence in counteracting such disruptions and fostering a more resilient and robust supply chain network.”




A day hardly passes without an urgent headline focused on the economic transformation underway wrought by blockchain technology. The software is the power behind bitcoin and other cryptocurrencies, but Olin experts have been plumbing the deeper implications of the technology.

Here are five things business leaders should know right now about blockchain from Panos Kouvelis, director of Olin’s Boeing Center for Supply Chain Innovation, and Ohad Kadan, H. Frederick Hagemann, Jr. Professor of Finance and Associate Dean for Global Degree Programs. Then, watch for a way to learn more.

Peer-to-Peer Transactions—Like Cash

Blockchain technology has been developed as an efficient method for completing financial transactions, based on the principle of peer-to-peer involvement and fully decentralized and shared networks. It functions as a distributed ledger that provides visibility of all transactions to all parties in the chain, and it is built on an immutable database.

Early Applications

Beyond cryptocurrencies such as bitcoin, etherium, and litecoin, the blockchain has been used in supply chain finance in areas such as clearing financial payments, using digital ledgers, and executing “smart” contracts.

Digital Inventory Tracking

Key inventory and asset resources can take on a digital footprint, which provides additional security and tracking capabilities. Applications have been built, relying on the blockchain, to track and trace goods involved in the supply chain for industries such as the diamond trade, food, and pharmaceuticals.

Applications Still Being Conceived

Blockchain has the potential to revolutionize supply chains and it requires the immediate attention of supply chain managers. Many are scrambling to understand how a technology developed to support cryptocurrencies might be applicable to supply chains and, in particular, to the supply chains of their companies. Experts say the technology will reduce friction in global shipping operations and complex supply chains that involve goods flowing across borders, through ports, and involving governmental agencies, manufacturing, and retail firms.

Kouvelis and Kadan will help business leaders get further up-to-speed on the ways blockchain technology will enhance (or disrupt) their industry in a two-day seminar May 22-23 called “Blockchain Innovation Strategies: Early Lessons from an Emerging Technology.” Click for more about this workshop.

The workshop is structured as a forum to learn more about the technology and equip attendees to know what questions to ask as they explore the implications of blockchain for their business. Coming out of the workshop, attendees should better understand the potential application of the technology in their supply chains, gain inspiration about possible immediate benefits the technology can provide, and confront obstacles and challenges in implementing it.


Jorge Calvo, Professor of Operations Strategy at GLOBIS University Management School and former President & CEO of the Global Supply Chain Management Division of Roland DG Systems, recently sat down with the Director of The Boeing Center for Supply Chain Innovation, Panos Kouvelis, to talk about Industry 4.0 and its implications on the future of global manufacturing.

Industry 4.0 was a term coined to describe a program to support the local industry in Germany and France. It is considered to be the fourth major phase of the industrial revolution, characterized by its use of emerging technologies to enhance manufacturing techniques and supply chain processes.

In his experience, Calvo has found that there are two different approaches within the scope of Industry 4.0: the German approach, focusing on machine-to-machine production practices and supply chain management (i.e., the “smart factory” and the Internet of Things), and the Japanese approach, which focuses on cloud-based technology designed for process optimization through the use of artificial intelligence and machine learning.

For more supply chain digital content and cutting-edge research, check us out on the socials [@theboeingcenter] and download our app on iOS or Android for access to exclusive content and events!


• • •

A Boeing Center digital production

The Boeing Center

Supply Chain  //  Operational Excellence  //  Risk Management

Website  • LinkedIn  • Subscribe  • Facebook  • Instagram  • Twitter  • YouTube