Consultants don’t receive a uniformly positive press to say the least. ‘They borrow your watch, tell you the time, then charge you,’ as the old libel goes. But they do get out a lot and have the opportunity to see developments from above the fog of war that too often envelopes line managers.
So, Charles Davis, a vice-president at AT Kearney, can survey the supply chain battlefield and spot battle-winning strategies – and potentially war-losing threats.
Perversely, as press and politicians across the developed world obsess about the outsourcing of jobs and functions to ‘faraway countries of which we know little’, Davis identifies on-shoring as a likely development. ‘Companies have done loads of off-shoring,’ he says, ‘But they never understand the supply chain complexity they are creating. They haven’t budgeted for the emergency airfreight to sort out problems in China or wherever, and they don’t understand how it increases the cost of changeover to a new product and how that becomes impossible to manage. More importantly they have shifted production even when the cost benefit isn’t really there.
‘Take printed circuit boards; 90-95 per cent of the cost is in materials, the prices of which are essentially the same around the world. What’s the benefit of making these in Asia? There is a totally uncertain supply chain, long communications – How do I collaborate when they are not even close to my time zone? I expect to see many companies moving back – at least to East or Central Europe.’
And Davis is equally trenchant on the lean/agile debate. ‘The lean idea is overplayed,’ he says. ‘It can properly be applied in some areas but not where you need flexibility. If you start with the wrong supply chain model you are going to draw the wrong conclusions.
‘And I worry about the emphasis on KPIs – key performance indicators. This stuff is all historical, it’s measuring how the supply chain has performed in the past. We must switch to key capability indicators (KCIs) – measures of how our supply chains are fitted to adapt and change. We must look forward, not back.
‘Chief executives don’t generally see issues of supply chain vulnerability or resilience until it’s too late. This is a bit of a broader question than risk management. For example, the high tech industries are all about flexibility in theory. But the practical response tends to be: when the market goes up you throw in inventory and capital, when the market goes down you write off billions. And the problem is getting worse – in semiconductors, for example, people used to plan on a seven-year business cycle but now the cycle is shortening and the problem of lousy capital allocation is spreading. And that’s because there are no forward-looking KCIs. Decision-makers just look at their KPIs and allocate money on historical data.’
Another related area that Davis sees as key is that of supply chain control. ‘There is lots of outsourcing and contract manufacturing – and firms have given everything away. They are now beginning to say: ‘I want to retain control of the supply chain but I don’t necessarily want to do the execution. I don’t need to do manufacturing or packing or whatever, but I increasingly do need to control them.
‘But in reality, companies confuse ownership with control. They’ve outsourced not just the operations, but also the control. They are misaligned with their suppliers; have introduced more rather than fewer supply chain companies into the process and as a consequence aren’t creating ‘integrated’ supply chains, but rather the reverse.
‘So we have 4PLs. But no-one knows what a 4PL is. There’s scope for companies to fill that space if they really have superior IT, although its got to be pretty good to beat what you can get through web-based providers. Control of physical assets and so on – that’s really just advanced 3PL. There is a space for firms that can really help the client control the supply chain, and that has to be a growth area: how you can retain control without performing the execution.’
- Charles Davis read Engineering at university and started in supply chain development with Woolworths.
- Since then he has worked extensively in consumer goods and retail including retailers such as B&Q and MFI, and more recently with many high tech companies, looking at managing supply chains in highly uncertain environments.
- He has been with consultants AT Kearney for eight years and currently holds a vice-presidentship at the firm.