Four Best Practices for a Future-Proof Supply Chain
The pandemic, war and climate change have reconfirmed the importance of supply chains. How, though, do you establish a sustainable supply chain? What will the supply chain of the future look like? Which requirements will supply chains need to meet and what could or should companies be doing to start moving towards that future? Three supply chain experts discuss these issues in this edition of Management Scope’s De Raad. They are colleagues and competitors, and all three are affiliated with a leading educational institution. Robert Boute is a professor at Vlerick Business School and is specialized in the field of supply chains. This also applies to Michiel Steeman, who lectures in supply chain finance at Hogeschool Windesheim. Our third expert is Jack van der Veen, who holds the evofenedex supply chain management chair at Nyenrode Business Universiteit. The discussion is led by Machiel van der Kuijl, Managing Director of entrepreneurs’ organization evofenedex.
1. The best supply chain in the world is the best supply chain for the world
Machiel van der Kuijl: “This is a group of people who are highly knowledgeable about supply chains. We are used to continuously optimizing supply chains and striving to create the best chain in the world. The question is, is the best supply chain in the world also best for the world?”
Robert Boute: “Put that way, it sounds like an either/or thing. As though you can be either the best in or for the world, but not both. I do not share the view that it needs to be a decision. To be the best overall, you need to be the best for the world too. It may have been either/or in the past, when people prioritized profit above all else.
Today profit and purpose go hand in hand. If you act in a way beneficial to the world, it will in the long term impact positively on your profitability. I am convinced of that. Profitability remains important, because if you are not profitable, you will not attract investors and you cannot do anything good for the world anyway.”
Michiel Steeman: “I agree. Not just sustainability, but issues such as inclusion and the whole social aspect need to be taken into account too, for all links of the chain. If you do not pay enough attention to those aspects, at any point in your supply chain, you will eventually fail. Your customers will turn away, you will struggle to retain employees and other members of the chain will not want to work with you any longer. The supply chain of the future is one where inclusion and sustainability are integral components. Anyone who ignores these issues will become a pariah. It is of course possible to make money as pariah, in the short term at least. It is, however, not a good sustainable business strategy.”
Jack van der Veen: “I am a bit more pessimistic myself, to tell you the truth. The way you have presented it now is the story we tell in our business schools, how things should be in an ideal world. Real life often is different. There, quarterly earnings remain all-important. We greenwash things a bit here and there, fiddle around with ESG agreements and ta-dah!, we met the requirements. We continue along the same old lines.
Hearing you talk – saying the same things I teach in my classes, and which I also believe in – we still have a long way to go. We will require an entirely new approach, with new ideas about what it means to manage a company, on what a company is and on collaboration in supply chains. Even the newer generations have not escaped the old ways of thinking, in my experience. When I ask my students to name the company with the best supply chain worldwide, they all say Apple or Amazon. Well, employees at Apple’s Foxconn factory in China were jumping off the roof they were so miserable … Amazon offers great customer value, but would you want to work in one of their warehouses? Their supply chain may be the best in the world, but for the world?”
Robert Boute: “I get what you are saying, but I do see real, big changes. Newer generations do not accept greenwashing any longer. These people want to work for a company they can be proud of, one with a positive impact on society. The conventional mindset is gradually disappearing. Sure, not every company will be as idealistic or activistic as Patagonia, but precisely the more traditional companies are increasingly likely to have sustainable strategies.”
Michiel Steeman: “Retail brands are changing the fastest. They most likely experience the greatest social pressure. In the B2B industry it is a slower process. There, it is more dependent on companies’ own intrinsic motivation. I believe that we need more government regulations, to generate acceleration and level the playing field.”
Jack van der Veen: “I am afraid it is also a question of generations. My own generation – I am 63 – will be leading companies for a while yet. Does this generation truly have the intrinsic motivation to do things differently? I have my doubts. I think that we need changes, and soon – and that includes the supervisory boards. I do worry about the necessary intrinsic shift. I would have wanted it to go faster.”
2. Trust in newer generations’ ability to think and act and do not smother every new initiative
Machiel van der Kuijl: “Will newer generations be adaptable enough?”
Jack van der Veen: “Younger people are in a different position. They do have the intrinsic motivation and the required skills. My concern is whether the new generation will get their opportunity soon enough . If they do, the transition will be accelerated. But if my generation says, ‘Make your way up the ladder and we will see you around in another 25 years,’ we will not get anywhere.”
Michiel Steeman: “If we want to generate an acceleration, we need to give newer generations a chance. It goes beyond that, though. We also need to make room for new, smaller companies. The bigger companies must set up systems and supply chains which accommodate small companies too. At the moment, the big guys often smother any new supply chain initiatives. That is mainly due to how compliance is handled at big companies. This can make it impossible for smaller companies to innovate successfully, to show initiative. They immediately run into long lists of requirements. Running a company has too often become checking items off a list. Even ESG policies come down to ticking the boxes far too often. Box-ticking is not going to cut it.”
Jack van der Veen: “It is true, this is the Golden Age of compliance. It drives me crazy. This type of risk management is no longer appropriate to our times. What we should be doing instead is to innovate, to try new things, be more enterprising, and checklists will not get us there. We need to start replacing checklists with a focus on continuous improvement.”
3. Select a clear supply chain strategy and have your Supervisory Board as the driver of the strategy
Robert Boute: “I think every company needs to determine where to concentrate their efforts. A first step for a business could be to create a materiality matrix. Start by determining your most important stakeholders, the ones you want to benefit. Then work out a sustainable strategy on that basis. The result is a clear strategy, driven by important stakeholders’ interests. This can help a company focus. This focus does not mean that other important issues should be ignored, though. Performance in those areas must also remain acceptable. However, you can only truly shine in a few areas.”
Jack van der Veen: “When I talk to companies, they often lack strategic focus. When asked about their strategy, the answer too often is ‘Well, 20% annual growth.’ That is not a strategy, it is a goal. Strategic insights regarding supply chains fall completely short. I like talking about supply chain strategy to my students and it tends to be an eye opener for them. Can supply chains even have a strategy? People do not consider it seriously. It often comes down to getting things done as cheaply as possible. That is no supply chain strategy! It appears as though companies actually prefer not to have a strategy. After all, having one means you can be held to it by others and also that you must refrain from certain actions. It is much easier for a supervisory or executive board to be free of such obligations, of course.”
Machiel van der Kuijl: “What role could or should supervisory boards play in transitioning towards the supply chain of the future? Do supervisory boards have sufficient drive and inclination to contribute in this area?”
Jack van der Veen: “Supervisory boards should be the driver for a better supply chain strategy. Unfortunately, the lack of strategic focus which I referred to applies to supervisory boards too. They, too, are mainly concerned with compliance and risk management. They think, “It wouldn’t happen that the business blows up on my watch.” Or, “When things are going well people praise the CEO and when they go wrong, they look at the board, so I prefer to play it safe.” It is not illogical, but it is not what is needed right now. I have my doubts regarding the supply chain knowledge of the average supervisory board. Everyone is finally convinced of supply chains’ importance, but are only now realizing that a supply chain also has a strategic component. And that the supply chain should be driven by a purpose, a mission, a vision and a clear strategy. I do not see enough awareness of these facts on supervisory boards.”
Michiel Steeman: “There is a need for a clear, integrated approach to supply chains as a discipline. Companies need to look outside their own corporate boundaries. I am specialized in the financial side of supply chains and the truth is that the average CFO is mainly focused on optimization within the company. A CFO seldom, if ever, considers the supply chain. This is a missed opportunity, as you have a role to play in the chain. If your Finance department is not doing its job, the conversation can get tricky. A CFO needs to have insight into the supply chain, the opportunities and the risks. The same applies to ourselves. Our educational institutions, our business schools, are still offering separate programs for the financial side and the supply chain side. These two disciplines need to grow towards each other. This is crucial if we want to get anywhere.”
Robert Boute: “The only time departments outside the supply chain department wake to it, is when the supply chain experiences an issue. Should a problem with human rights occur at a different point in the chain, it can, for example, alert the marketeers. My opinion is that the different departments within companies need to realize they should cooperate more.”
Jack van der Veen: “Multidisciplinary problems require multidisciplinary solutions.”
Michiel Steeman: “I would like to see supervisory boards set up a special committee to deal with supply chains. Similar to the existing audit and remuneration committees, I think it would be a good idea for supervisory boards to have a supply chain committee. Setting up such a committee will ensure continuous attention for supply chain issues and grant them a permanent spot on the agenda. I think this is a necessary step, especially in light of all the current uncertainties and turbulence; not just in geopolitics, but also regarding the climate and public health. Things will become increasingly volatile and complex. It is a way to gain the supply chain a permanent place on supervisory board agendas.”
4. Know your supply chain; company culture is impacted by supply chain culture
Jack van der Veen: “I would like to put in a plea for greater diversity in chains, including supply chains. Try adding someone from Hospitality Management as part your supply chain, for example. Their education places great emphasis on customer value and ways to organize services. That could really enrich our field.”
Michiel Steeman: “You need to know your supply chain and its culture. As yet, this subject has not received the attention it deserves. Improving your understanding of the parties in your chain increases your understanding of your own organization. I would advise every member of a supervisory board to venture out and interact with their supply chain from time to time, to gain an awareness of that chain’s culture. It can tell you an enormous amount about your business and your own place in the chain.”
Robert Boute: “In the end, it comes down to the need to know your own company: the ‘why’ of your organization, its purpose. You start there. Based on the purpose you can define a strategy to fulfill that purpose. Based on this strategy, you can then define your KPIs. A well-defined purpose will facilitate all aspects of your business operations, and that includes the supply chain. It gives focus, it helps ensure everyone is pulling in the same direction.”
Jack van der Veen: “To me, the most important thing is for supervisory boards to improve their knowledge and understanding of what supply chains involve. Three aspects of supply chains require attention: first, the strategy, second, the processes and finally, the culture. All three need to be considered. Without this, the company will lack strategic focus – and that is fatal to any organization.”
This article was published in Management Scope 09 2022.
This article was last changed on 26-10-2022