What is the Supply Chain?
Supply chain expert Ahmed Deif discusses how the pandemic has changed the way we think about our global economy.
It’s the phrase going around these days: supply chain issues. The thing you’re looking for at Target that’s nowhere to be found? Supply chain issues. COVID tests on back order? Supply chain issues. Can’t find that sweater you keep seeing on Instagram? You guessed it: the supply chain strikes again.
Cal Poly Magazine sat down with Professor Ahmed Deif, who researches manufacturing systems and focuses on supply chain management, specifically on innovation and digital supply chain implementation, to learn more about what “supply chain issues” actually means.
In basic terms, what is the supply chain?
The supply chain is basically, how can you look and understand the movement of products and services from upstream to downstream? It’s a chain of activities that use materials and components that you gather from different suppliers upstream. You then manufacture and fabricate these components midstream, at a manufacturing facility, and then you push them downstream through a series of logistics activities until they arrive at your end customer.
It’s a complicated system that spans across different suppliers geographically. The movement and flow of these parts and components from suppliers to manufacturers to distributors helps eventually brings these items all the way to the customer.
Along this upstream and downstream system there is the flow of products, the flow of information and the flow of cash. And supply chain management is how you organize these flows so that you can maintain the overall profitability for all stakeholders — for all those are involved in this chain: upstream, midstream downstream.
How has the pandemic affected how smoothly goods and services flow up and down the stream? What factors might cause big disruptions?
We’ve all been touched by disruptions from the pandemic. Even now, two years after the pandemic began, my students told me that when they moved back for winter quarter, they couldn’t find food on the shelves and they couldn’t find anything to buy. It’s still hurting us now.
An ideal supply chain performance is the smooth flow of all these materials from upstream to midstream to downstream. Things are steady and stable. During the pandemic, this supply chain and the complicated system behind it was exposed to multiple disturbances. The demand itself suddenly changed and dramatically distorted because of the disconnection that happened in the world.
There was panic at the beginning of the pandemic, then people’s buying habits changed in the middle of the pandemic. Currently, people are rushing to buy things again. The demand pattern changed and this upset the supply chain. The manufacturing and service component was also disturbed because of sickness, isolation, social distancing and workers not showing up due to medical reasons.
All of this meant reduced capacity along the supply chain. Externally, the demand changed and internally the capacity to produce or generate services was reduced. On top of this, because the supply chain is an extended system geographically, that geographic footprint was cut and disconnected. On the logistics side, disturbances like closed borders between countries and ships being stranded in the middle of the ocean also added some complexity.
Imagine that you are the manager who used to just manage the flow of materials simply and easily from upstream to midstream and also had some logistics to monitor on the way downstream to the customer. Suddenly, the demand you’re trying to fulfill is not clear. The capacity of production is reduced, and the logistics of shipments and transportation are either not working or slowed down big time due to the pandemic restrictions. Put these all together, and that’s why the supply chain is suffering.
What have we learned and improved in supply chain management due to the pandemic?
For a long time, experts taught the importance of running a lean supply chain, reducing inventory so you can minimize waste. That strategy used to work well, but during the pandemic it’s hit us hard, because limited inventories ran out quickly and consumers were still looking for more.
Another strategy that used to work well was what we call strategic partnerships with suppliers to reduce the overall number of suppliers. But minimizing the number of partnerships also hit us hard when some relationships had to be cut due to the pandemic.
We are rethinking a lot of ideas that we used to take for granted as the best practice. A lot of things that we have been teaching are being revisited from an academic perspective and from a practical perspective. Maybe we need to let go of this ideal supply chain scenario that we have been operating in for some time, and get ourselves ready for a world where disruptions are the norm, and act accordingly.
We learned to understand that the environment we are working in is totally different than what it had been for the last 50 years. It’s an environment that’s full of disturbances and disruptions. We have to learn to live with this, which means we need totally new dynamics.
We learned that risk management is not just important, it’s actually the top priority of what you need to account for as a supply chain manager. It’s not enough to be flexible and it’s not enough to be efficient, but you need to be resilient, which is a mix of both traits.
What does studying the supply chain teach us about how interconnected we are?
Even if you have the best, most efficient company in the world, you are not by yourself. In the world we’re living in now, the competition is not just one company against another: you have to compete against and work with the whole supply chain. Whether you like it or not, you are a team player and you are a key member of a big team.
In the pandemic, the interconnectedness was amplified multiple times. We know from an academic perspective that this means that any changes have a combinatorial or exponential impact. This is why any small disturbance can really hurt the supply chain big time. Everybody’s really trying to come together and say we need to make this work together.
We need to get better-integrated, we need to share information much more frequently and we need to be able to track and trace data to prove the visibility of our supply chain. New technology is coming in very, very handy.
Artificial intelligence helps us make data-driven decisions in this very complicated environment. We have some digital infrastructure — technologies are evolving with us and can help us. The more we start to transform our existing supply chains to be digitally enabled and digitally operated, the more we need to leverage existing technology.
Within this discussion of how to manage supply chain disturbances, we also need to make sure that supply chains are sustainable. We need to get at these challenges while being socially responsible, while being eco-friendly.
In times of crisis, people tend to let go of a lot of things to just navigate the crisis. This adds an extra layer of complexity: we need to navigate the crisis, we need to learn and we need to still hold on to our principles like managing the supply chain in a sustainable way and create value for the customer, and do all this while we are moving in a pandemic.
On that point, is being socially responsible and sustainable a way to optimize the supply chain? Or is that just the right thing to do?
Sustainability definitely entered the domain of supply chain management as a cost factor, as a constraint that we need to work within that’s being pushed on to supply chain managers. Over time, it started to evolve into being a competitive advantage.
Sometimes, it is a profit incentive. Customers are now more sustainability oriented and aware of ethical sourcing. There are a lot of government incentives toward sustainability and also punishments such as fines for not being sustainable. Supply chain practitioners are still trying to figure it out and abide by sustainability as much as they can.
It’s still evolving and there’s no one answer for all industries. It’s still a long way off, but it’s very important and again, new technology can be part of the solution.