UNLOCKING EFFICIENCY: TACKLING SUPPLY CHAIN PAIN POINTS

CONTINUOUS IMPROVEMENT WITH TONY

Newsletter, Volume 7, May 16, 2024

Global supply chains and their associated pain points are not a recent phenomenon. They trace back at least 2000 years when trade flourished between China and Rome (involving silk and paper) and between India and Indonesia (for spices). What has evolved over time is the speed and complexity of global trade. The process of globalization has heightened the intricacies and risks of supply chains, resulting in an expanded list of pain points. According to the Brookings Institution, global trade surged from 39% of global GDP to 58% between 1990 and 2019, in less than three decades.[i]

Outsourcing and offshoring have become commonplace as enterprises seek the lowest labor costs through a practice known as global labor arbitrage. While traditional procurement emphasized balancing price, quality, and reliability, the pursuit of the lowest price often took precedence over reliability and quality. Procurement professionals are often pressured to reduce costs, sometimes at the expense of supply chain resilience, which can undermine the financial stability of their suppliers and sometimes forcing them to cut corners at the expense of quality and working conditions.

Major supply chain organizations also adopted Lean principles, originally introduced by Taiichi Ohno as the basis for the Toyota Production System in the 1950s and 1960s.[ii] Lean emphasizes just-in-time (JIT) inventory practices, as contrasted with traditional views that considered inventory a safeguard against stock outs. Lean has been blamed for major supply chain disruptions, especially during the Covid-19 pandemic. It is more accurate to say that the misapplication of Lean contributed to shortages. The best evidence of this is that Toyota fared better than any of its competitors in navigating the pandemic disruptions.

Tsunamis, pandemics, trade and actual wars, extreme weather events, and growing international tensions have all contributed to rethinking globalization, outsourcing, and offshoring. Over the past 15 years, global trade has declined from 61% to 58% of global GDP, with the COVID-19 pandemic further exposing structural issues in supply chains.[iii] The heavy reliance on China, which accounts for nearly one-third of global manufacturing, has left the US and Europe vulnerable in times of crisis. The pandemic highlighted this dependence.

Unlike when I began my career as a supply chain manager 45 years ago, today's professionals face challenges such as major land wars in Europe, trade tensions with China, threats to Taiwan, conflicts in the Middle East, and growing isolationism. The dynamic nature of these challenges ensures that supply chain pain points persist, making today's environment the most demanding in history—with little relief in sight

Prediction

The United States and its allies are expanding their technological advantages over China by restricting the shipment of generative AI chips, such as Nvidia’s Blackwell. The US and EU can be expanded to impose very large tariffs on China’s EVs which cost substantially less and are comparable in functionality to Western vehicles. ?Both of these actions will lead to greater supply chain volatility and disruptions.

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Cheers, Tony

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Anthony Tarantino, PhD

Six Sigma Master Black Belt, CPM (ISM), CPIM (APICS)

Adjunct Professor, Santa Clara University – Smart Mfg. & Industry 4.0

Author of Wiley's Smart Manufacturing, the Lean Six Sigma Way Amazon Links

Senior Advisor to IM Republic, ?https://imrepublic.com

?(562) 818-3275?? ?[email protected] ? ?Anthony Tarantino

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#smartfactory #smartmanufacturing #industry40 #leanmanufacturing #leansixsigma #continuousimprovement #ai #artificialintelligence #supplychaininnovation #supplychainmanagement #PM #Predictive_Maintainance

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[i] The Brookings Institute,? https://www.brookings.edu/articles/how-to-build-more-secure-resilient-next-gen-u-s-supply-chains/

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[ii]? Anthony Tarantino, Smart Manufacturing, The Lean Six Sigma Way, Wiley & Sons, 2022

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[iii] The World Bank, Global trade has nearly flatlined. Populism is taking a toll on growth ( worldbank.org )

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