If anyone told us in 2019 that in the next year we would face an unprecedented crisis, caused by a new virus, certainly we would not take it seriously. However, we reached 2021 still far from surpassing Covid-19 and with an unstable economic scenario.
First, we must keep in mind that financial crises are part of an economic cycle with phases of growth and decline. Based on this principle, anticipating is the best way to prepare to face an adverse scenario.
Although the crisis generated by the Coronavirus was atypical due to its global scope and previous ignorance about SARS-Cov-2, it is important to be aware of some signs that may indicate the end of an economic cycle such as sudden changes in interest rates, much market liquidity and unregulated increase in prices of indirect materials.
In general, companies have always been challenged to adapt their supply chains to market success. When the economy is booming, it becomes easier to align manufacturing capabilities with growing demand to secure materials from new suppliers. But, when the opposite happens, in more difficult times, companies face smaller orders, increasing competition and falling margins.
With the change, the priorities for supply chains differ significantly – cost containment, capacity reduction, consolidation of suppliers and release of money by withdrawing inventory are some actions sought.
One thing in common for companies that survived the financial crisis was to react quickly and decisively, leveraging innovative approaches to protect their supply chains in the midst of a challenging business climate.
The economy in times of crisis
When there is a crisis, there is also a drop in demand – and then comes the basic law of the economy: the supply of product on the market will be greater than the demand.
As a result, stock levels end up increasing. Consequently, in order for products not to stand still for a long time, companies will have to lower prices, which leads to a reduction in profit.
We must not forget that in these periods there is usually an increase in interest rates, since banks will have fewer reserves and less available cash, making it more difficult to obtain loans.
How to prepare your inventory management for a possible crisis
While most of the effects of the Coronavirus pandemic may be seen as inevitable, the overall impact could have been mitigated. But what should companies start to do?
A company that is well run before the crisis is certain to be more resilient during the crisis. In this way, the most important thing will be to build a business management that is as balanced as possible, especially in terms of inventory levels.
Below, some important actions to make this happen:
- It is important to map processes, information and cash flows to get an end-to-end view of your supply chain, so constantly measure your performance with indicators and KPIs.
- Manage your inventory according to existing risks – a good way out is the ABC and XYZ classifications.
- Assess the permanence of old and outdated products in stock. Isn’t it more interesting to reduce inventory and generate cash flow?
- Increase flexibility. It is better, in some periods, to have much shorter payment and lead time to be much more responsive to a demand that is increasing or decreasing.
- Be on the lookout for market signals to be able to react as quickly as possible and review your sales and purchase forecasts.
- Establish a process for monitoring the likelihood of order cancellation, similar to processes for monitoring the likelihood of winning orders, is imperative.
- Don’t be afraid to move away from starting budgets and goals, implementing a new budget can be instrumental in saving the company
- Increase direct communication with the maintenance department, further integrating systems to obtain real-time updates of planned volumes
- Obtain a clear understanding of demand scenarios, as it should be the basis for all supply chain planning
- Protect your supplies to avoid bottlenecks as suppliers close their doors
- Accelerate efforts to create flexible supply chains that can handle all types of variability
- If necessary, carefully reduce inventories to free up cash – this is an essential step for recovery actions.
- Monitor suppliers, identifying the criticality of each to avoid high fluctuations with delivery times.
- Avoid the entry of surplus stock: although many contracts do not allow order cancellations, it is possible to negotiate with suppliers to extend volume commitments for longer periods.
- Be agile, constantly challenging and testing your skills to adapt to major changes in demand and supply.
We must not wait for the next crisis to act
The Covid-19 crisis is accelerating fundamental and structural changes that were already unavoidable, only happening faster because of the pandemic – so the need to create more resilient supply chains is inevitable.
Once companies have a good understanding of all flows, relationships and data in the system, it is important to conduct a complete review of the risks from an end-to-end view of the supply chain.
It is also important to regularly test operations, not only from the point of view of commercial cost, but also from the point of view of operational stability and meeting demand.
That said, there will be lasting implications for how people work and how supply chains work. This is also an opportunity for difficult business decisions, such as a long-desired reorganization or cut of products and customers that do not perform satisfactorily.
The resilience capacity of companies during the next recessions should be led by technology, with the use of platforms and tools such as Machine Learning and Analytics Procurement, guided by Artificial Intelligence – which are able to use a large amount of data to optimize the supply chain supplies and even predict and anticipate trends.
Focus on the future
The financial crisis has been one of the most difficult challenges for supply chain professionals – companies in all sectors have been forced to deal with huge disparities between demand and supply, caused by the collapse of demand.
Companies must start preparing as soon as possible for the difficult times to come. As they respond to the immediate impacts of the pandemic and prepare for what comes next, a continuous cycle of analysis, configuration and operation can help mitigate the risks.
Thus, there is a need for companies to build long-term resilience in their supply chains to manage future challenges, with sufficient flexibility to protect themselves against disruptions and develop a robust structure that includes responsive risk management operations capability.
To learn more about current events that should shape the sector’s behavior in the coming years, follow Soluparts articles!
3D printing technology has been around for nearly 30 years. However, while the industry is still discovering new applications, materials and printers, another technology is already starting to gain traction: 4D printing.
But how is it possible to add a fourth dimension to printed products? In 4D printing, a 3D-printed object is transformed into another structure through the influence of environmental stimuli such as light, wind, and temperature.
The 3D Printer
3D printers can print any kind of thing using three-dimensional printing technology. The materials used in printing are usually plastic resin, laser modeling and metal frame. By reading specific files for its operation, it is possible to create the most diverse types of objects, such as decorative pieces, food, and even tattoos.
In addition to being fast, the printers do not have toxic materials in their manufacture, and the materials used for printing do not deform over time. The equipment, which was already used by large companies, was available to the public at a high cost, but the price has been gradually decreasing, and today there are already very affordable models on the market.
When it was created, about 10 years ago, it was necessary to pay around 30 thousand dollars to acquire the technology. In 2009, it could already be found for five thousand dollars and today, it is possible to purchase a simple traditional model for less than R$700. This popularization allowed the purchase not only for industrial production, but also for personal use.
3D printers are also being studied for medical purposes. Shoes and insoles designed especially for people who suffer from orthopedic problems are some possible creations.
Scientists have also presented models capable of reproducing three-dimensional human tissues and bones, which can help — in principle, without side effects — in a variety of treatments.
How 4D Printers Work
4D printing, developed by MIT (Massachusetts Institute of Technology), emerged at the MIT Self-Assembly Lab and, although there is no consensus on it, some say that designer and computer scientist Skylar Tibbits coined the term 4D Printing in this context.
What is the fourth dimension?
Simply put, what 3D printers do is repeat a 2D structure several times, layer by layer, until a 3D volume is created.
Using a 3D printer, the institute’s scientists created a technique capable of generating three-dimensionally printed objects that can change shape over time, this being its fourth dimension.
So the big advance of 4D printing technology over 3D is its ability to change shape even after it’s ready.
This transformation is possible due to the programmable and advanced materials used by 4D printers, which can change the behavior of objects over time.
The most obvious advantage of 4D printing is that objects larger than printers can be printed as just one part. Because they can shrink and unfold, items that are too large to fit in a printer can be compressed and then become full size.
At the current stage of development of 4D printing technology, printed materials use a special type of ink that reacts when in contact with water. It undergoes physical transformations that alter its shapes and dimensions. For everything to work, the material to be printed is carefully calculated and formatted according to the transformations scientists want to obtain.
From there, the printer creates the three-dimensional object, applying a special substance at key points in the structure. This material absorbs water, which ends up causing it to undergo the changes that were previously calculated. Over time, these changes noticeably change the appearance of what was originally printed.
The so-called self-assembly is intrinsically related to 4D printing and can create objects that react to external stimuli to obtain specific results.
A team of researchers from ETH Zurich developed a shape-memory, temperature-resistant object. Flat 2D structures turn into three-dimensional shapes when in contact with hot water, which triggers shape change.
Despite being a relatively practical idea, the complexity of 4D printing lies in the search for other materials that match the desired stimuli.
In principle, what is needed for something like this to come out of the paper is a 3D printer even more complex than the current ones, capable of applying circuits and microchips to its printed results. With these circuits, the objects could interact with each other so that they would organize and assemble themselves.
The Future Impacts of the 4D Printer
4D printing can greatly impact the market. Clothes that increase or decrease in size, compact objects that reach their real shape when removed from the box, prostheses that accompany the growth of the body: those are just a few examples of what 4D printing will be able to do to benefit the population.
This new way of printing promises to revolutionize the world of materials as we know it today by stimulating the research and development of programmable raw materials capable of reacting to triggers and thus transforming themselves.
The impact on the purchasing department
A common reality in several sectors is the existence of equipment or machines that the manufacturer no longer offers the option of repairing — either due to changes in the production line or even the disappearance of that manufacturer.
Thus, we can conclude that 4D printing offers an even greater possibility for the company itself to produce replacement parts for its machinery, due to its technology being even more advanced.
How can a company prepare for this reality?
But this reality is still only a possibility, partially utopian and still far away since the intelligent materials discovered come at a very high cost.
Despite all its potential, 4D printing still requires more research and development, and it’s not available to everyone. In some laboratories or prototyping facilities, the technology is already used.
Most likely, in some time, we will come across 4D-printed objects without even knowing it, as in the case of adjustable medical implants or running shoes, for example.
Thus, preparing for this new reality requires research and adaptation on the part of companies, because as possibilities arise for objects to self-assemble and self-model according to requested conditions, the tendency is that some sectors may become obsolete.
There is still a long way to go until this novelty becomes present in our daily lives, however, with faster technological advances, we must, as end consumer and companies, be aware of this and keep up with the changes!
The term digital transformation already permeates all positions, industries, and sectors. Even so, companies face the challenge of adapting to this reality and successfully employing new technologies to find a better way to meet the needs created by the complex and rapid changes that the market has been facing.These changes have created new opportunities for innovation, but they have also created incredibly high customer expectations for purchasing products and services, not only related to price and quality, but also to the value embedded in them.
True transformation is much more than just hiring software and digitizing documents and transactions, it also involves new digital skills, rethinking processes and relearning.
A change management program that must act on an ongoing basis is critical. In the past, business plans took 5 years to be restructured, but today we must be alert to do it at all times — which may include small process improvements or even more robust and dynamic risk management.
Digitization and international trade
Digital commerce is not, by itself, something new. Digitally enabled transactions, both in goods and services, have been part of international commerce for many years and often raise the same or similar issues as non-digital transactions.
This is because digital commerce is not only about services provided digitally, but also about the rise of traditional commerce (including the supply chain) through increasing connectivity.
However, the scale of transactions, the emergence of new (and disruptive) players and business models are transforming production processes and industries, including many actors that were previously little affected by globalization.
According to authors Lopez-Gonzalez and Jouanjean, although there is no single, recognized and accepted definition of digital commerce, there is a growing consensus that it encompasses digitally enabled transactions in the commerce of goods and services. They can be delivered digitally or physically anywhere around the world, connecting businesses and customers from various countries.
Digital commerce includes business-to-business transactions, encompassing global value chains, as well as business-to-consumer or business-to-business transactions through online platforms, all of which are fundamentally supported by data.
Tracking Global Digitization
Of course, digitization is important for commerce, and commerce is important for the spread of digital technologies around the world. However, measuring international transactions has always been difficult, due to the lack of knowledge of the teams and the lack of tests regarding the best technology to be used, due to the rapidly increasing complexity of supply chains.
A scenario analysis will make it easier to measure these transactions, helping you to more assertively determine which technologies should be used to optimize your department’s operations.
A growing number of companies are already part of this movement, but there are considerable differences between industries and countries, and much remains to be done to unlock the potential of digital commerce in developing countries.
Some Benefits of Global Digitization
Digitization is linked to greater commercial opening, selling more products to more markets, according to Lopez-Gonzalez and Ferencz. A 10% increase in “bilateral digital connectivity” raises trade in goods by almost 2% and trade in services by more than 3%.
Digitization also increases the benefits that can be drawn from regional trade agreements (RTA). When combined with an RTA, a 10% increase in digital connectivity increases exports by another 2.3%.
It is indisputable that digitization has reduced the cost of engaging in international trade, connecting businesses and consumers, helping to spread ideas and technologies, and thus facilitating the coordination of global value chains.
There is currently a growing increase in small orders and lower value digital services being traded internationally. More services have become tradable, and goods and services are increasingly grouped into “smart” products.
These changes bring with them new challenges, going beyond managing digital disruptions to ensuring that the opportunities and benefits of digital commerce are shared more inclusively.
Global digitization and post-pandemic economic recovery
Thus, digital solutions are a crucial element to help increase supply and demand, for three fundamental reasons:
- Rapid changes in the supply and demand schedules for goods required the development of instant solutions for merchants.
- The hampered global commerce environment and rising trading costs have led customers to demand more continuous and comprehensive commerce service from logistics teams. Companies are now rushing to deliver door-to-door solutions for a better customer experience.
- The increase in customs controls required commercial entities to revitalize public-private cooperation to allow for smoother trade. This has required an unprecedented demand for knowledge transfer and capacity building from the private sector to support governments in adapting to new business challenges.
While beneficial, digital solutions are not a miracle formula for commerce and must be supported by broader political action.
The government’s need for alignment was compounded by the pandemic and the ensuing atmosphere of mistrust regarding the integrity of goods entering a country.
Looking ahead, it is imperative to think disruptively about how goods and services can move around the world and, in turn, improve the resilience of global trade. Partnerships and agreements will help to bring the dots together to achieve satisfactory and inclusive results.
As we emerge into a new business environment that has been completely transformed, bringing organizations together through a series of initiatives and enabled by digital services, will bring sustainable returns to communities and ensure a better future for all.
What can we infer then about commerce in the digital age?
Digitization has made it easier to engage in trade, coordinate Global Value Chains and spread ideas, changing the way companies engage in international trade.
Digital commerce is not new, but it is growing and posing new challenges, mainly so that its benefits are shared more inclusively, therefore increasing trade in goods and services across all sectors and allowing countries to extract more benefits from their Commercial agreements.
While existing World Trade Organization rules and agreements cover digital commerce, there are doubts about how well adapted to the new realities of the digital age are current frameworks.
Understanding the drivers of this new paradigm for commerce and finding solutions in dialogue with all interested parties will be fundamental to making digital commerce more inclusive for all.
Stay tuned to the main technological trends and innovations for global supply chains by following our blog!
Supply management has been constantly changing over the decades. A role that initially focused on continuity of production supply has moved on to take on competitive cost management and is currently looking for ways to add strategic value in all its phases.
This transition has been taking place in different ways, often faster in certain companies than in others.
As we mentioned earlier in our article Value-focused supply strategy: Why it matters and how to implement it, companies themselves will assess when and how they will apply value-focused supply strategies. We also mentioned the likelihood that VFS strategies are only applied to certain types of purchases.
However, traditional sourcing will continue to be important. Improving prices/costs will continue to be the dominant focus for traditional supply, according to research initiated by the CAPS (Center for Advanced Purchasing Studies) and A.T. Kearney, Inc, titled Value Focused Supply — Linking Supply to Competitive Business Strategies, which we’ll continue to look at in this article.
The trend is that in the future, traditional sourcing will be used to protect value in supply markets where there will be restrictions on supplier selection and supplier switching.
The biggest differences in competitive sourcing are in understanding macro and micro details of the requirements, markets, and fundamentals of suppliers in the strategic purchasing category.
Value-Focused Supply (VFS) tactics will provide the next innovation opportunity for companies to create and capture the value of their most strategic purchases.
Leading companies clearly already demonstrate the power of this broader approach. Senior executives who lead their companies are among the first to systematically apply VFS strategies across the entire supply chain. These will have the opportunity to protect and create significant competitive advantages.
But what does this mean? In summary, unlike the traditional approach, in a VFS strategy the company must:
- assess the strategic role of the purchasing category in the company;
- establish global goals focused on value for the category;
- evaluate and select strategic sourcing options and
- select and implement instruments.
A traditional approach is only capable of fulfilling two of these three goals. To ensure quality and on-time delivery, prices are typically high and can be reduced if quality and on-time delivery are compromised.
The approach of two of the three goals goes against VFS management where all three — quality, price and on-time delivery — must be expected with every purchase.
When a VFS strategy is necessary and how it should be implemented
Value, in its tangible and intangible forms, is the most important factor for any business, and it is the mission of any organization to provide value to the customer, generating a competitive edge. Thus, we can conclude that, to remain competitive, a company must have a good strategy of value creation.
Value-focused supply strategies are needed to create solutions to problems (protect values) and also create value by taking advantage of current and future opportunities to improve the competitive position of the business and the production line (or lines).
A VFS strategy is needed when:
- there are supply issues impacting end consumers,
- adversely impacting the company’s income and balance sheet,
- negatively affecting product or service development.
VFS strategies are based on understanding the customer’s needs and what they value most so that all the appropriate functions can work with supply management to apply resources to value creation.
As a result, companies must “think outside the box” of the traditional sourcing approach to implementing value-focused supply strategies. And how can they do this? Developing VFS strategies requires creativity and changing the dynamics of how the supply market operates or changes, changing how we work with suppliers and changing what we buy.
The importance of the Value-Focused Supply Strategy in the years to come
The future competitive environment will require companies to carefully assess when and how they will apply VFS strategies.
It is a fact that, in the scenario of the globalized and digital economy in which we live, a well-aligned supply chain strategy can not only help a business strategy but also drive it.
Conventional supply chain processes and operations are no longer able to meet the complex requirements of today’s digital economy that demand, for example, agility, improved flexibility and resilience.
Cost savings will not be enough in the turbulent, uncertain business environment of the “new normal”
We’ve already covered this topic in other articles on our blog:
- What they are and how to manage complex purchases
- How to implement a risk management strategy in a VUCA world
With increasing global competition in virtually every market, saving on external expenses alone will not be enough for a company to survive, or more importantly, prosper in the coming years.
Competitive sourcing remains a powerful tool for many spending categories. However, current market conditions require companies to provide more than just cost savings.
It is necessary that the supply network fully contributes to the company, through growth and innovations, use of resources, sustainability, risk management and competitiveness as a whole, as well as costs.
It is likely that VFS strategies in the future will be applied to purchases that prove to be great value creation opportunities in supply markets that pose significant obstacles, such as limited capacity, technological barriers or large capital requirements.
Finding ways to generate and exploit more value from supply markets is proving to be the purchasing department’s new mission.
To identify, anticipate and respond to these needs, an ongoing organization must be developed to guide the company to compete through VFS.
Overall, leading companies will increasingly understand strategic suppliers as extensions of their organizations, making good use of resources and capabilities to together protect and create value.
There will also be a transition of selected purchasing categories from traditional sourcing to VFS as supplier markets become more complex or as greater potential to meet strategic needs emerges.
Also remember to have an international indirect material purchasing partner such as Soluparts. By delegating the search for parts with the best prices and deadlines, you can dedicate yourself to other demands, such as increasing the value of your supply chain.
Also take the opportunity to explore our blog, where we bring the latest trends for the supply chain.
The Lean methodology derived from the Toyota Way production mode, has as its main objectives the optimization of manufacturing, mainly through the elimination of waste, making the production chain “leaner” and, therefore, more efficient.
Recently, this theory has been taken over by more modern models of production and adapted to other business processes and departments. We have already covered in our blog the principles of Lean methodology and its adoption in the supply chain.
Another bias of this methodology is the Lean Kaizen which we will discuss in this text. Kaizen is a Japanese word for change for the better (Kai= Change and Zen= For the better). When applied to business activities, it seeks to continuously improve processes, a mentality that also causes great positive impacts on the management of the supply chain.
Small changes, big impact
The Kaizen methodology was originally introduced by Japanese entrepreneurs in the 1950s. They identified many areas with room for improvement, which included cost reduction, process standardization, waste elimination and increased productivity.
The term was later coined with the publication of the book “Kaizen, the Key to Japan’s Competitive Success” by Masaaki Imai (McGraw Hill, 1986) and the founding of the Kaizen Institute.
Its basic principle is to implement small continuous improvements that can be triggered quickly to create manageable actions that contribute to overall and long-term benefits, rather than setting unrealistic goals that could lead to failure.
Repeated studies have shown that between 50% and 90% of all work is wasted. This is true regardless of country or industry. From the customer’s point of view, very little of our effort adds value to it. This is due to the way we design our processes and the fact that we don’t listen to our customers as we should.
When organizations choose to focus more on themselves and their internal needs, they end up less adaptable – and, as a result, less likely to succeed in the long term.
The Kaizen philosophy, especially when coupled with modern and efficient risk management, makes companies more agile and resilient, a great differentiator in today’s volatile and constantly changing market.
Kaizen and the supply chain
In recent years, the Kaizen approach has been widely accepted in many sectors around the world, particularly in the manufacturing and distribution industries, and today it is one of the basic principles in lean supply chain management structures.
In our interconnected world, supply chains have grown and developed in complexity and competitiveness, making the theory of continuous process improvement – large and small – fundamental.
This continuous improvement system allows all strategies to be constantly renewed, rather than waiting for major structural changes to make it happen.
However, the success of this approach is only possible through its macro adoption, involving all members of the organization, at all levels of the business, from the board to the production line, so that it is actually possible to introduce all process improvements needed.
One of Kaizen’s main differentials is the objective of encouraging employees to implement many small changes, in various areas and processes of the organization, that result in general improvements for the company. Everyone’s opinions are important and must be heard, especially those who deal directly with the process to be improved.
In terms of people management, the fact of making room for all employees to implement changes and think critically about their activities makes them understand and accept changes more easily, being more willing to absorb the knowledge needed to implement them. From increased job satisfaction to improved operational efficiency, the benefits of Kaizen for companies of all sizes and shapes are vast.
The 5 Kaizen Principles
According to the Kaizen Institute, there are five fundamental principles for applying the methodology in any organization:
1. Know your customer:
Knowing who you sell a product or service to is the way to create value for the consumer and for your organization as a whole. It is essential that companies identify the interests of their customers to improve their experience.
2. Let it flow:
Applies to the goal of achieving zero waste. It may be an impossible goal, but this concept is part of the philosophy, since if this goal were achieved, it would be the end of the improvement journey. Therefore, everyone in the organization is working to reduce any waste from their area of expertise, while also creating value in the process.
3. Go to Gemba:
Gemba is a Japanese term that can be translated as “the real place”. It is about going to where the problem is to really understand the issue. For logistics, for example, Gemba can be the warehouse and involves understanding the problem from that perspective. For the leadership, it is about knowing in depth what is happening at all stages of the supply chain.
4. People empowerment:
Teams must be trained to adopt the Kaizen mentality, which often involves a change in organizational culture and behavior of employees and especially managers.
The leadership must set goals for their teams, which should not be contradictory, and must encourage this change in habits linked to an infrastructure and tools that allow the improvements to be put into practice.
5. Be transparent
To engage and motivate teams, transparency is essential. It is necessary to clarify the reasons and objectives of the methodology, in addition to the constant dissemination of information and data relating to processes. Performance and development must be visible and tangible for everyone. Only then, the team would be able to understand its protagonism in the change and realize the impact that each improvement has on the organization as a whole.
It is the metric that measures success, so performance must be tracked, which can, and should, be aided by technologies for data collection, processing, and retroactive and predictive data analysis, with easy-to-understand dashboards that clearly demonstrate the bottlenecks and advances.
How to start applying Kaizen principles in the supply chain?
Kaizen in the supply chain allows improvements to be made at different stages of the supply chain without compromising the overall operation. The principles guide, but it is the action plan that makes Kaizen a reality.
Increasing efficiency is developed as a team effort, with everyone following four basic steps: plan, do, verify, and act. Individuals need the autonomy to act on their own in improvements, which builds a culture of engagement. This is done with a continuous flow of suggestions and then implementation of actions.
Start by defining goals and metrics to be monitored, with documentation and background, so that the comparison between results and expectations is possible. Review the current state of each step and plan for possible improvements. After implementing these improvements, collect the results.
Reflecting on progress is a fundamental aspect of supply chain management, and it is no different when introducing change. Document all activities and continually update processes. Seeing the development of your actions and learning from successes and mistakes will bring great benefits.
The next steps
Following the Kaizen methodology can bring great development to your operation and can be a fundamental tool in supply chain management. It offers a simple and effective way to identify opportunities for quick wins at a relatively low cost.
But for the adoption of this approach to be effective and lasting, several changes in the organizational structure must be implemented, so that the concepts are intrinsically linked to the company’s culture and people management. To change and innovate, people need to feel free and safe to suggest, try, and eventually make mistakes.
The Kaizen philosophy can also be applied to our personal lives. There are many examples of time, money and resources the use of which could be optimized in our daily lives. We note that the main point is the change of mindset related to all spheres of our lives.
To stay on top of the main market trends with a focus on the purchasing department and supply chain, be sure to follow the monthly publications on the Soluparts blog!
Goods and services markets have become increasingly integrated – and today, we can think about the economy globally. With reduced trade barriers, the expansion of international trade has been fundamental for the development of countries and for the reduction of poverty.
According to the World Trade Organization report, the number of people around the world living in extreme poverty has dropped by nearly one billion since the 1990s – a reduction that would have hardly been achieved without the expansion of international trade and efforts to reduce barriers to market integration.
Another relevant factor is that the increase in the participation of developing countries in international trade has coincided with an equally sharp decline in extreme poverty around the world.
According to the report, developing countries now account for 48% of world trade, up from 33% in 2000. With trade on the rise, the number and quality of jobs grew, which spurred economic growth.
A good example of this theory is Bangladesh: since becoming an independent country 50 years ago and having greater trade agreements at its disposal, the poverty rate has dropped from 80% to 30%, economic growth has improved working conditions and even the practices of environmental preservation in the country.
Challenges still exist
Among the greatest difficulties found in poor countries are the most remote rural areas, where basic resources are scarce, peripheral regions where conflicts affect the entire population – with cases of violence, lack of security, etc. – and hinder trade.
Cultural gender issues must also be noted: women tend to be in even more vulnerable positions – and that is why they are fundamental characters in the growing inclusion of these countries in the global scenario.
These situations make the poorest population less likely to benefit from trade opportunities – and export diversification, by providing alternative livelihoods, can be an essential way to transform this reality.
Opportunity and investment
The generation of greater trade and investment opportunities in these countries can become a reality through public policies. The European Union, for example, facilitates trade with less developed and developing countries through the Generalized System of Preferences (GSP), which grants reductions and even tariff-free access to its market.
The program has three objectives:
- Contribute to the eradication of poverty,
- Expand exports from poorer countries and
- Promote sustainable development.
The program is successful: imports from beneficiary countries are increasing. The main products imported under the GSP are textiles, shoes, machinery and mechanical appliances. Between 2014 and 2016, textile imports, for example, grew 24.5%, compared to 6.5% in the years 2011 to 2013.
In the organization’s report, it is possible to find more evidence of the positive impact on economic development and labor standards, as well as on the environmental standards of the focus countries of the program.
World Bank data reveal that between 1996 and 2016, GDP per capita tripled – from $280 to more than $960 – in less developed countries, which reflects the effectiveness of these public policies.
Furthermore, as poverty and informality generally go hand in hand, the arrival of foreign capital to accelerate the economy also helps to formalize jobs, making financial fluctuations less recurrent and, in this way, reducing the population’s social vulnerability.
The importance of the private sector
When trade drives economic diversification and provides greater macroeconomic stability, the result can be seen as positive for the poorest populations, as the lack of a competitive market along the value chain can make it more difficult for this portion of society to benefit from buying and selling opportunities, which become scarcer, with less diversification of values.
Thus, the expansion of the productive base through the development of the private sector generates, in addition to more formal employment opportunities (and consequently, higher wages), the possibility of the population having more attractive prices in products and services.
Seen in this way, trade facilitation through the private sector is essential for economic growth and poverty reduction.
Ethics in the supply chain
It is important to remember, however, that economic growth can no longer be seen as the only important factor when it comes to trade.
Making economic operations more ethical is a subject widely discussed by specialists and professionals from different fields. While profit is the goal, social and environmental concerns must be included in the package.
People’s awareness and greater visibility of production chains through the internet make consumers increasingly demand more information about working conditions and sustainable actions in the places where goods are produced.
Fair trade, which emerged in the 1960s and is a trend in Europe, is a clear example of this ethic: in this trade system, the intention is to improve trade relations between agents in the production chain. Its main objective is to increase the level of social well-being of all involved, through fair and transparent negotiation rules.
To have a more ethical purchasing department, companies need to be aware of the social impacts generated by their actions, making issues such as sustainability, human relations and well-being a priority agenda.
Women play a leading role in terms of jobs and empowerment with the changes brought about by trade. Many of them face specific restrictions, such as having to stay at home taking care of their children, having husbands who do not let them work or even lack qualifications because they are seen only as housewives.
When there is more economic investment in a country, this dynamic tends to change. With more money circulating, there is the opportunity to place children in day care centers or schools, go back to school and get a better job. Thus, they become fundamental agents of change, further driving the reduction of social inequalities.
Another relevant factor in the inclusion of poorer countries in the international trade scenario is the incentive to innovate. Commerce is able to connect companies and individuals – which together bring ideas and technology to the sector, causing new methodologies to be developed and applied, thus facilitating productivity growth.
Thinking about the gain for other sectors, the impacts of this development of trade in products and services can extend to health and education, for example, as they are capable of promoting techniques and knowledge to be used by the most diverse areas.
For this scenario to become a reality, imagine a company with a whole technological apparatus that arrives in a country where there are people with good ideas, but without the money to put these ideas into practice – the combination of these two actors will certainly bring innovation.
Unlocking the full potential of trade requires action on two fronts: supporting an open global economy and facilitating greater integration of developing countries by taking an economic approach that includes the poorest countries and populations.
In this way, it is possible to help them to overcome the restrictions they face due to the vulnerable situation in which they find themselves. One option is to buy materials in these countries.
In this scenario, a joint effort by the international community is needed, working with the private sector and governments to establish and implement public policies and financial programs that reduce the costs of trade and encourage the creation of more jobs and opportunities.
Defining the best supply chain strategy for each company is not an easy task. Although the objectives are known (more efficiency and lower costs), it is necessary to be careful when determining the best way to achieve these objectives effectively.
But before that: why does this subject matter? “Lean Supply Chain Management: a handbook for strategic procurement” author Jeffrey P. Wincel says the answer is simple: costs and margins. He cites as an example the fact that, in a manufacturing company, supply costs represent approximately 50% of the cost of goods sold.
In addition, he says that there are a lot of misunderstandings regarding the subject, mainly because many companies focus essentially on the lean manufacturing process and do not pay enough attention to the topic in the supply chain.
In order to bring more light to the theme, Soluparts gathered some information about lean supply chain management and clarified the main differences between this model and the traditional one.
What is Lean Supply Chain Management, and why implement it?
To determine the best strategy for your day to day, it is necessary to understand more about each of the approaches used in the market.
The Lean Production System is derived from the operations model called “The Toyota Way” that was born in Toyota’s plants in Japan, in the 1930s, as an alternative to Fordism. Its objective is to reduce costs on the production line, establishing minimum stocks and performing tasks in order to minimize waste and eliminate unnecessary processes. It seeks to map the tasks and allocate them in such a way that the whole process is optimized, whether through the specialization of labor in a specific phase, or the union of more phases in the same workstation.
Forgotten for some years, the theory was recently appropriated by the most modern project management philosophies, and today, it is adapted for different areas. The term “Lean” was coined by John Krafcik in 1988, and eight years later, it was defined by James Womack and Daniel Jones to consist of five key principles. They are the following:
- Generate value for companies and their customers. Although it seems like a simple task, most organizations fail to “guess” what customers need and how they want it.
- Value flow: from a clear study, you should map which steps add value to the product being developed. That way, you can avoid waste and make the entire workflow more efficient.
- Continuous flow: production itself, without interruptions. Serving the customer at their maximum demand leads to lower inventory levels
- Targeted production: based on improvement and the customer experience, the company starts to produce only what customers need, reducing inventory to the maximum.
- Continuous improvement: search for constant improvement of processes, always seeking the state of “perfection” in terms of added value delivered to the customer and reduction of waste.
In the same vein, lean supply chain management is an approach that aims to extract maximum productivity from all agents involved in the supply chain. It stands out mainly in terms of costs and margins, bringing greater efficiency within this environment and providing the ability to transfer supply chain funds to other areas within the company.
According to McKinsey, in a recent study, operations that focus on this type of approach have gains on two fronts: they can control excess costs and can improve customer service and customer satisfaction throughout the process – as they acquire extensive control of the supply chain. Improving points such as services, delivery times and frequency of services are some examples of this.
The North American consultancy cites the example of a pharmaceutical company, which reduced total transport costs by 25% to 30% by taking this approach in different countries.
Agile supply chain and COVID-19
The issue gains fundamental importance in the face of the new digital age that we are living in and, more specifically, in a pandemic context, in which different companies are studying the best way to transport inputs such as vaccines and medicines in the most efficient way possible.
In an article published on the Forbes magazine portal, Michael Mandel, an economic strategist at the Progressive Policy Institute, argues that supply chains should be made shorter, contributing to an increasingly sustainable production and making the most of available resources.
Points such as the digitalization of scenarios (with the forecast of increasingly aggressive cost cuts for different sectors), the adoption of a strong digital presence and clearly examining the risks that each business must suffer over time are essential points to maintain a strong and effective supply chain – and lean supply chain management can help with that.
Despite bringing numerous benefits, lean supply chain management also brings challenges. For companies that do not have full knowledge of their supply chain – or do not have the possibility to clearly standardize all processes that are followed for a long period of time – the methodology is not recommended being applied, since, as soon as there is minimal interference within the chain, productivity and efficiency gains will be lost.
In addition, if the volume of items transported increases dramatically from one day to the next, the approach will need to be carefully reviewed, since the physical location of the transport must be overloaded. If there are no previous studies on this, the “urgency cost” can result in increased expenses with transportation and overtime for employees.
Therefore, it is necessary to make a complete and effective study before implementing the methodology within any company. In a Harvard book on the subject, there is the quote: “before developing the supply chain, consider the nature of the demand that your product requires”.
How to implement it?
According to McKinsey, there are six pillars that must be observed to implement this type of strategy within the company. Most of them are pragmatic and require little financial investment from companies. See below:
According to the North American consultancy, they can result in:
Although resistance to changes and decreased efficiency is common, it is possible to obtain significant changes in logistics when re-evaluating each stage of production. For example, on many orders, product separation and packaging processes can be combined, reducing steps and optimizing transportation and space.
By having trained people and a better organization of workspaces – avoiding excess people in periods of low demand – it is possible to increase efficiency by 15%. Some companies have achieved even better results with the extra help of temporary employees, usually students.
Interaction with third parties
Deposits are not islands. To operate efficiently, a distribution center must effectively interact with three main groups: suppliers, internal and external customers, and with other sectors within the organization itself. Understanding demand, again, is an essential step in coordinating this process.
Many locations choose a unique approach to warehouses, rather than segmenting them according to the types of products required by the customer. But it is worth paying attention to that. A warehouse from a pharmaceutical company was able to reduce order processing time by 20% simply by eliminating very high shelves.
Sense of ownership
Outsourcing is a common strategy for companies that do not have distribution as an essential competence. However, many of these businesses tend to have a less personalized and more general approach, which can create collaboration gaps between suppliers and customers. Therefore, by closely analyzing these processes and creating a sense of ownership, optimization will be easier to visualize and achieve.
And, if you are interested in getting deeper into the topic, the Massachusetts Institute of Technology (MIT) provides an online course on the subject. Find out more here.
In addition to bringing more cost efficiency to companies, lean supply chain management can make the supply chain even more resilient. In an article recently developed by Soluparts, we identified seven ways to make the supply chain even more resilient over time.
In the article, points such as adopting a centralized flow of processes and attention to data appear in a fundamental way, contributing so that more and more companies can adapt to the challenges of the new digital age and have maximum efficiency within their daily lives.
Check out our content about the five main trends that are revolutionizing supply chains.