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I interviewed Shay Scott from the Global Supply Chain Institute of Tennessee who discussed SCM talent development and the management challenges involved.


SCM Talent Development and Management Challenges from Dustin Mattison on Vimeo.



Dustin: Well, thank you, Shay, for spending your time today to share your views into supply chain management and some of the talent issues. Can you start by providing a brief background of yourself?


Shay: Sure, Dustin. I appreciate you taking the opportunity to speak with me today about this important subject. Before we get into the discussion on supply chain talent and development, just briefly about myself, my name is Shay Scott. I’m the managing director of the Global Supply Chain Institute at the University of Tennessee, Knoxville, Tennessee in the U.S. We are one of the leading supply chain educational university providers around the world. Our faculty recently were ranked number one in the world in supply chain research, and we work regularly with about fifty companies in formal partnerships for supply chain research and education. My background, I spent quite a bit of time as a practitioner. I worked, for a brief stint, at AlliedSignal and then at Dell in supply chain for several years before coming to academia. Currently in this managing director position, I serve as an interface between our research faculty, our corporate partners, our students, and also our international university partners.


Dustin: Thank you. My first question is: What is supply chain management talent development?


Shay: That’s a great question. I think that, certainly, there’s still some deliberation on exactly what the answer is, depending on where you sit. I think everyone would agree that supply chain management as a field, as an area continues to develop, even in the United States, which was probably one of the earliest areas that modern supply chain management developed. We’re still only about twenty years or so into this age, and so, because of that, we have continually dealt with a talent shortage of individuals that understand supply chain management, best practices, and how to really put those into place in their company to get the value that is possible.


When one leaves the U.S., there are even bigger challenges, depending on the region of the world that you go to. Certainly in Europe, the gap is not very wide, although recent studies have shown that there’s still much more of a focus on logistics as a subset of supply chain management instead of the broader concept and definition. Moving into Asia, which we all would agree is probably the center of supply chain management for the world, from a university education standpoint, the availability and the sophistication of supply chain talent development programs there, whether they be degree programs or shorter course programs, is still lacking quite severely. When we speak with companies who are desperately looking for talent in the area, what we hear almost always is,...


“We wish we were able to work with a university or a provider to be able to get the talent that we could find in the U.S., although we need it in Asia.”


From a perspective of supply chain talent development, when I speak of it, the concept that I’m addressing is this idea that we have the developing field of supply chain management, and we have a bit of a lag with educational programs, whether they’re traditional university-based programs or whether they’re even in-house corporate programs.


Dustin: What are some of the management challenges with supply chain management talent development?


Shay: Well, first of all, I think—just going back to the last question momentarily—really understanding what it is, what do we mean by it, what type of talent does a particular organization need within their supply chain, because that’s certainly going to vary. It’s going to depend on the type of product, it’s going to depend on the market served, certainly the position and the level within an organization.


Really, I think what many leading-edge companies are doing now is sitting down and developing a supply chain management talent development plan. What this does is really identifying across varying levels, across varying regions of the organization what skill-sets do our employees need to have and where are those lacking?


Of course, along with that comes the need to have career-path planning within supply chain management. Supply chain is still not considered to be the typical career track in many companies, and where they’re very well-architected career paths around marketing and finance and other more traditional organizations within the company, typically, they’re not so in supply chain management. Often there will be career tracks within operations or within procurement or sourcing or even within logistics, but when we look at a supply chain management career track, the movement from one of those areas of supply chain back to another is not well-established.


So, as companies go through that process of evaluating: What do we need to our talent to be? At what level? In what region? Let’s develop this supply chain management talent development map, and let’s really manage it as we would other challenges in the business. In many ways, this constraint of supply chain talent is a supply chain itself. We’re trying to balance the demand and the supply, and, in many cases, our supply is a little less than the demand that we need. So, really getting a handle on that overall problem of where do we need our organization to be is probably the biggest management challenge.



Dustin: How can these challenges be addressed?


That’s a very interesting question in that I wouldn’t say there’s a best-practice answer that’s really emerged at this point. It can begin with things as simple as getting employees involved in supply chain management trade associations, in assigning them or allowing them to find a mentor within the organization if their particular talent developing need is better understanding what’s happening in supply chain at large. If there is a deficit of supply chain skills, and what we see often is this: Employees do very well at one particular area, so within warehousing, within distribution, within transportation or procurement. They do very well within their area, but understanding best-practice supply chain concepts that really optimize the overall supply chain instead of one particular area, many times we see employees with a deficit of knowledge and understanding for what really needs to happen in order for an organization to get to that level.


Here, again, there are a number of options. One that’s very popular are companies forming their own supply chain academies as a part of their corporate universities. I think at least seventy percent of the Fortune 500 companies have their own internal corporate university. So, taking advantage of knowledge that’s already inside the company and formally expanding that out to employees that need it is very much a viable way to meet the challenge if that knowledge exists within the company.


And then outside of that, of course there are a number of short courses, nondegree courses that are offered by trade associations and CSCMP, also by university providers such as my own, the University of Tennessee. Here employees are able to get knowledge that really kind of allows them to go back into the company and potentially be best practice, be super users, be kind of the leaders in a particular area within the company. Again, that requires it to be scoped down to what skill-sets are really missing.


One of our most popular offerings right now is in the area of sourcing. It’s called vest-out sourcing. In here, really, we’re taking some leading-edge research and talking in depth about how a company can think differently about their external partnerships. If that is one of those weaknesses within the supply chain talent of an organization, then it may make sense to use that type of course.


And then, finally, there are a number of degree programs, master’s degree programs, M.B.A.’s, executive M.B.A.’s that are focusing in on supply chain. We’re launching a new one next year, an executive M.B.A. that focuses forty percent of the curriculum on how supply chain leaders can be successful in taking their supply chains to the next level within their own companies.


On the other hand, I think that there are some general things that are gonna have to happen for us to really get a handle on this issue, and one is a much earlier awareness of what supply chain is for students coming through our educational system right now. I know here in the United States, the Council for Supply Chain Management Professionals has begun some partnerships with high schools to help students understand that supply chain is a career. I know often here in Tennessee, we explained that to our sophomores and juniors, and they didn’t really understand even that the opportunity existed before really into their third year of university.


I think that is very typical across the world, and, in many cases, actually—in Asia, particularly in Africa, in some parts of Eastern Europe—students get all the way through a university program and get into the workplace and then they begin to wrestle with these supply chain-type issues and they’ve not really had the education to prepare them well. So, I think at a general level, universities and companies working with them, as well as governments across the board are going to need to increasingly recognize how supply chain is becoming an important input to business strategy. I heard a statistic last week from Gartner Group. They said by 2015, which is only two years from now, 40% of incoming new CEOs will have supply chain management experience.


I think as supply chain becomes more firmly embedded in corporate strategies of companies, it will become more accepted earlier in our educational systems. Right now in the gap companies must be very proactive or they will competitors in other companies which have taken the talent which has the skills the company needs.


About Shay Scott




Managing Director

Global Supply Chain Institute

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University of Tennessee

I interviewed Jonathan Webb who discussed forecasting and preventing risk in the supply chain.


Jonathan Webb from Dustin Mattison on Vimeo.

What is your current assessment of risk management within the supply chain?


Although 2012 seems to be relatively quiet compared to the year previously – there are no tsunamis or massive floods that have disrupted the global supply chain – there is always something in the press which warrants concern from supply chain professionals.


Already this year, we see media reporting on strikes in US ports disrupting the logistics industry and continued problems in China-Japan relations which has led to protests across the Chinese mainland causing a number of productive facilities to close, including a Toyota factory. Further to which, long-term concerns continued to generate uncertainty within the global economy, such as a bubbling trade war between China and the US, financial crises within the Eurozone and the perennial worries over conflict in the Middle East.


However, compared to the last year, press reporting has not been as shrill. There are fewer set-piece events which cause doubt.  In our current research, we find that concerns over the Eurozone crisis lead procurement’s list of worries for the next year. (This was a survey, it is important to note, of global buyers and CPOs (Chief Procurement Officers), with the highest levels of concern for this issue coming from US-based respondents.)


Last year, in a similar study, we found that risks relating to corruption and bribery were one of the leading risks in our 2011 research. However, not a single participant to our current research mentioned this as an issue.


The disparity is attributable to the UK Bribery Act. This piece of legislation had global consequences, as the law applied to any instances of malfeasance throughout the world. Any company with any sort of presence within the UK (including a single office) entered that organisation into the purview of British prosecutors. The response by the business press wasn’t far from hysterical ¬– whipping many businessmen into a state of panic over their exposure to risk. Companies even pulled out of the UK in response to this alarm. This wasn’t eased by the law’s provision which threatened to imprison any managers from companies that were found to bribe others.


Strangely however, despite all this concern and industry, the issue seems to have been entirely dropped from procurement’s radar. Showing that CPOs are not risk-focused, but take their agenda the press.


If we aren’t good at managing our current risks, can we predict future events that would disrupt the supply chain?


Intelligence about your suppliers and the general risk environment is vital to protecting us from risk. There have been many developments in risk mapping and prediction software launched in recent years.


New products on the market claim the ability of ‘predicting’ such events and mapping the consequences for particular supply chains. Only recently, the PIU spoke to a third-party risk provider which offered software that compares various scenarios from earthquakes to hurricanes in a range of different geographies.


This is possibly useful, but it is perhaps not the best approach, given that all the potential events in all possible locations are practically infinite. All such scenarios yield the same output: bad.


Nevertheless, there has been a marked rise in tools and applications which claim the ability to make accurate predictions onto the future. Much like crystal-ball gazers of old, they often have dazzling methodologies which either deliver weaker conclusions than marketeers often state, or resort to the murky world of magic.


Similarly, those products which cite a large body of databases, capable of deploying complex models and making use of powerful sentiment analysis tools, still cannot look into the future. New products make heavy use of the immediacy and specificity of micro-blogging sites such as Twitter, which may reveal crucial insights from a casual blogger. For instance, the PIU spoke to a company which was able to forecast a supplier entering bankruptcy, based on the tweets of a worker from a neighbouring firm, who simply observed how empty the company car park was looking. This intelligence anticipated by months changes in credit rating scores.


In political risk, new indices and rankings constantly emerge and vie for attention. None of the providers have produced an application which can make persuasive predictions of events.


The most obvious failure of prediction came with the Arab Spring. No self-respecting political scientist or Arabist forecast the dramatic events in 2011 which transformed the Middle Eastern political landscape.


The novelty of the newly found ‘scientific’ packages, plus the urgency of senior management to prevent the impact of another earthquake, may force buyers into a naïve purchase.


It is better to rely on more practical measures of risk mitigation, which aim to build resilience in the supply chain. We cannot predict natural disasters in the future, but we can possibly contain their impact. Knowing our own supply chain is key in this process. We must appreciate our own exposure to generalised risk and implement continuity arrangements accordingly.


So, how can we prevent risk affecting our supply chains?


Typically, managers tend to rely heavily on the power of documentation and contracts to protect them. This is true for a range of sectors and functions.

However, it is also true that this provides only limited protection.


Perversely, in many cases, procurement must build-in ‘inefficiency’ into the system in order to shield the supply chain from future shocks. This redundancy of capacity allows companies to switch sourcing away from a stricken supplier.


The quickest way to ensure this is through geographical spread. We have witnessed the perils of not ensuring this most obviously in the hard disk drive industry. Prices for this product have soared as Thailand, the world’s leading producer, saw most of its key suppliers flooded in late 2011. By spreading risk by multi-sourcing, organisations do not prepare for specific events, built build in resilience to multiple threats within their supply chain, be that flood, earthquakes or man-made disasters.


Another, perhaps ‘inefficient’ aspect to include in supply chains is supply velocity. By reducing the end-to-end time of delivery, procurement can ensure it has steady access to alternative sources, should it require it. For items requiring a longer lead-time, the only possible means of protecting the organisation may simply lie in stock-piling of excess products or sourcing from multiple vendors. Arguably, this does not sit well with modern ideas of ‘just-in time’ manufacturing. However, engaging in these debates within the company helps establish its priorities and qualifies its own attitude to risk. Indeed we are now seeing the originator of that concept, Toyota, aiming to build an ‘earthquake-proof supply chain’, suggesting that building redundancy into the systems is the only way to create resilience.


Another key approach, for many buyers, is through supplier development. I talked to a category manager in the steel industry recently who spoke of his company’s maintenance of a broad group of suppliers that they would support in a close relationship. Although the volumes from each may not constitute a large percentage of total spend it was a critical category and the aligning of the two companies together can aid the competition for capacity, should an unexpected event occur.


Within this process of supplier development, procurement may consider aligning the two organisations’ own continuity planning arrangements. This may involve contributing to the suppliers’ own business continuity plans, or including the supplier in the category management continuity arrangements. The objective in this regard, however, is to ensure strong over-sight.


The purpose of the latter relates to supply visualisation. By understanding the nature of the market and the capacity of new entrants, procurement can inform its own appreciation of its own risk profile. Moreover, by having the most accurate and relevant information, the analyses of risk and control measures that mitigate against these risks which ensures greater resilience. Arguably, this is the fundamental feature of all resilient supply chains.

The lesson for all those in the supply chain is that you cannot anticipate risk, but you can build a resilient supply chain that can cope with a variety of different event types. However, the cost of this is redundancy. Procurement professionals need to ask themselves how exposed they are to risk and how willing they are to pay for a supply chain that can withstand this risk.


About Jonathan Webb




Jonathan Webb is a research manager at the Procurement Intelligence Unit – the PIU. This is a subsidiary of the Procurement Leaders Network, a news, intelligence and events organisation for the procurement community. My role with the PIU – it’s research arm – is to lead the research into third-party risk, planning and strategic issues.


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I intervewed Alis SindbjergHemmingsen who discussed Responsible Procurement.

Alis from Dustin Mattison on Vimeo.




Dustin: Thank you, Alis, for spending your time today to discuss responsible procurement. Can you provide a brief background of yourself?


Alis: Yeah, sure. My name is Alis Sindbjerg Hemmingsen, and I live in Denmark, very close to the German border, and I’ve been in procurement for almost fifteen years. I’ve been working for a lot of companies, big international companies, such as Danfoss and LEGO. Also, I’ve been working in the public sector here in Denmark. I’ve worked at the Odense University Hospital, which is one of Denmark’s largest university hospitals. Now I’m partly running a company called Responsible Procurement Excellence. Here they specialize in all aspects of responsible procurement, ’because I love it and I think it’s very important to procurement, to actually play a role in this agenda, ’ that’s how the world is moving at the moment. We need to see new possibilities, and if you’re a buyer out there, you’d better get this as part of your working tools. That’s my mission: to help suppliers, buyers, and companies adapt responsible procurement.


Dustin: Thank you. Can you define what is responsible procurement?


Alis: To me, responsible procurement has three aspects.


1. It’s about the social aspect.

2. The environmental aspects.

3. The economic aspects.


It’s all about integrating these into the buying decisions. When you have these difficult discussions with your suppliers not only about price, delivery time, and quality; you should also look at this aspect, because, like I said before, it’s important to create a new and better world for all of us.


Dustin: How is it implemented?


Alis: Basically, I would say it’s really important that you have a strategic approach to responsible procurement management. You’re not going to implement this from day to day; it’s management, like when you implement supply-relationship management. That’s also not done overnight.


When you approach responsible procurement management, then think about these things. I’m gonna start with the first one first.How will you support your suppliers?


Your suppliers, they might not know anything about CSR; they might not even have thought about how they’re going to build sustainable business practices into that business. You need to support them somehow, so you need to know how you’re going to support them. You also need to think about how will you support your buyers in adapting this new type of agenda. These two aspects are really important.


A third aspect is also that you cannot focus on everything. History says that all companies that adopt the global compact, which are ten principles made by the United Nations. The new agenda is really saying that you cannot adopt all aspects; you need to prioritize your approach to responsible procurement management. What kind of approach will you choose as a company?


Another aspect is also that a brand needs to take a stand, so if you have a brand, you need to show how you, in procurement, act with this stand. Again, another reason for actually prioritizing your approach. What difference will you make? What kind of actions will you create to create a better world? That’s another aspect. These three things are very important questions when you approach responsible procurement management.


Dustin: Where have you seen some success?


Alis: I would say that those companies that are adopting responsible procurement management are adopting these to their core business practices and also in procurement. It’s not just about mitigating risks or identifying them; it’s all about how you incorporate them into your business practice. Those companies that have succeeded have done this. I would say they’re different sectors moving very fast within responsible procurement management at the moment. I would say the pharmaceutical industry, they have been working with this for some years now, and they’re really doing great progress.


Also, the banking industry, they’re also coming up. One of the reasons why they’re doing great improvements in this area is probably because they somehow get pushed by investors. The whole investment industry are looking very much into this aspect when doing investments, so I think they’re born by this movement. I’d say success is being seen by sectors. I’m not seeing any particular companies doing—I’m not gonna say that a particular company’s doing better than others. I would say that you should look at the sectors to discover the successors.



Alis SindbjergHemmingsen



Expert and Strategic Advisor in Responsible Procurement Management & Supplier Diversity. Creating effective approaches.


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Rob Martinez from Dustin Mattison on Vimeo.


Can you talk about the current US and global market, such as the trends in US parcel shipping?


Some of the trends in recent years have favored the carriers at the shipper’s expense. In North American we have seen attrition in the number of carriers. When I started in the industry many years ago we had dozens of competitors. We had companies like Flying Tigers, Emery, Burlington Northern, Bax Global and more which were in addition to companies like DHL, UPS, Airborne Express, etc.


Now we are down to 2: Fed Ex and UPS.

Less competition means less leverage and options in the marketplace. That is not in the favor of the buyer. It is in the favor of the seller. Over the last several years we have seen FedEx and UPS do a lot of things to maximize their profitability at the shipper’s expense. They have done things like rate increases every year which have been the highest that I have ever seen then in my 24 years in the industry.

FedEx and UPS will announce every January what their rate increase will be for January. In each of the last 5 years it has been somewhere between 4.9% and 8%. It is very dramatic rate increases for shippers year after year.

In 2011 they changed the way they dimensionalize a package. They charge a shipper for the actual weight of a package, or its dimensional weight, whichever is greater. For years the dimensional factor in the US was 194 and 166; 194 exporting from the US and 166 on imports to the US.


In 2011, both FedEx and UPS changed that dimensional factor to 166 for domestic and 139 for export and import.
That single change alone has resulted in rate increases that are in neighborhood of $250 million/year. They continue to add accessorial or surcharges and shippers are feeling that adverse impact. Not only are they adding new ones but they are raising the rates annually for the ones they created.
In the US they have also tried to get shippers to not work with market experts. I am one of several folks in my space that make up the third party consulting marketplace for parcel services. We help companies save 20% or more than they can on their own. FedEx and UPS don’t like that revenue dilution. Now that we are down to the duopoloy they both implemented very similar policies regarding restricting a shipper’s ability to contract to a third party. It was on the same day in April 23, 2010! Both FedEx and UPS, two hated rivals, essentially issued the same policy telling shippers that they are not allowed to work with third party experts.


Are there ways shippers can reduce costs?


Certainly there are some things that parcel shippers can do to try to mitigate these rate increases and some of the other negative items I just shared with you.

They always reserve the right to be able to renegotiate their contract. In a national survey which I did last fall that in fact was the number one response when I asked the parcel market, large volume shippers, “what are things you are doing to try to lower your costs?” That was their number one response, to renegotiate rates.


Another one is looking at alternative sources to distribute their products, other than UPS and FedEx. In the US this includes the US government run post office, The United States Postal Service.

We also have postal and parcel consolidators; companies like FedEx Smart Post and UPS Mail Innovations, Newgistics down in Austin Texas, as well as others which don’t provide the same level of service, transit guarantee or tracking as UPS does, but they also ship packages through the US Postal Service using their Zone Skipping Model and their Workshare Discounts. They can get some significant cost savings if they use those parcel consolidators.


There is also a small group of regional carriers as well. They compete with FedEx and UPS regionally. A good example of that would be a company like OnTrack. OnTrack is a regional carrier that only delivers to the 8 western United States. They can be competitive and offer very similar and oftentimes better transit than FedEx and UPS, at a very competitive rate.


Other things shippers can do is utilize what is called “Zone Skipping”. Zone Skipping is where if I am in San Diego and I am shipping to New York I have to go clear across the country. If I do that with FedEx and UPS I will incur the highest rate they have, which is what they called their “Zone 8 Pricing”. However, if I have enough packages going from San Diego to the New York area I can line haul those packages in a consolidated truck across the country. It will take 3 or 4 days to get there. I can inject those packages deeper within the FedEx, UPS or regional carrier delivery stream and it will delivery those packages to the North East the very next day. But I can cut my costs by eliminated that part of the transportation piece and handling it myself.


Other things that shippers can do are to audit their invoices. Globally, most of the global players provide money back guarantees on their shipments. If the published transit time is 3 days and it gets there in 4 days you are entitled to a full refund of the transportation cost. Yet, literally billions of dollars go uncredited every year. Shippers just don’t have the infrastructure or technology to audit those invoices and identify some of those over charges that should be credited.

It doesn’t happen automatically. You have to ask for a credit. Shippers can either hire people internally to try to audit things, buy software to try to automate that or outsource it to expert third party auditors. There are quite of few of us in this country.


There are other things they can do as well




I think it is very important that shippers really understand what they are shipping. When I help a company negotiate their pricing it is amazing to me that even some of the sophisticated, most powerful and the strongest Fortune500 companies in the country lack any insight into their actual transportation needs and usage. They don’t know basic things like average cost per shipment or the impact of the zones on their distribution footprint, or what they could do to negotiate a contract, or how to audit the invoice to get the maximum benefit for their business.


If they take the time to either analyze the data they have or work with any third party expert that is renowned and has some tenure, most companies can reduce their costs significantly; at least 5% and as much as 30% or 40%. Companies really need to take the time to analyze what they are doing and identify some of the ways that their rates have gone up over the years, identify which of those accessorial charges are most adversely impacting them so they can identify areas for negotiation in a contract, Or, if there is a change they need to make on how they process a shipment or how they recover funds from their customer on the other end.

The important thing lies in the data and understanding that data. I encourage all shippers to do that as a starting point.



Rob Martinez



Rob MartinezRob Martinez Headshot 2011.jpg has a 24 years of experience in the parcel industry.  What is unique about his background is that he spent a decade on the  carrier side where he ran a very large division of one of the big 3 in  the US which at the time was called Airborne Express. Airborne was later  acquired by DHL and DHL later exited the American marketplace many  years after he left.

Rob ran about a $140 million division at  the company where he had a couple hundred people reporting to him.  However, his client facing responsibilities were negotiating the spend  contracts of 7 and up to 9 figures. His job was to maximize Airbone’s  profitability and still get the deal.


For the last 14 years Rob has represented volume shippers in  their carrier negotiations. These were for Fortune 500 companies, for  the most part. Given this carrier background Rob looks at a company’s  contracts that they have negotiated on their own and he makes  recommendations to either enhance their leverage, identify savings  opportunities which they haven’t considered; modal optimization – using a  different type of service to get a better transit at a lower cost), or  in many cases helping them re-negotiate their program.

In  terms of results what Rob and has team has done for his clients over the  last 14 years is save an average of more than 20% better than they  could on their own (incremental savings). In terms of background Rob is  also a speaker at all of the North American transportation conferences,  such as The Parcel Form or the National Postal Forum, Mailcom, National  Conference on Operations and Fulfillment, Operations Summit, etc. For  years he has presented to audiences on ways they can reduce their costs,  his read on the marketplace, critical changes which have taken place  over the years, strategies for shipping efficiency and savings, etc.

Rob  has also written over 100 articles that have been published in most of  the transportation periodicals and publications in the parcel industry  in the US, such as DC Velocity, Multi-channel Merchant, Parcel Magazine,  etc.


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Shipware LLC

I interviewed Peter Nagel who discussed his views on supply chain strategy.


PieterNagel from Dustin Mattison on Vimeo.



What is your view of supply chains?


I think the word supply chain should never have been coined. No company has a single supply chain that covers the whole business environment. It is just too simple. There is the demand side. There is the whole issue that there is the perception we have just one supply chain and we just push things through the line. I don’t think that is right.


I see supply and demand structures and that is derived from much bigger things. I call these collaborative value networks. These are networks that are more appropriate to our dynamic global business environment as we function right now.

Taking into respect collaborative value networks requires a very different approach by the company executives, from corporate and global partnerships to sourcing and positioning strategies. The traditional supply chain effectively was an integrated product movement structure, which is not what I perceive. I am sure we will be using the term supply chain for a long time, it is very entrenched. I think we need to keep up with the development of this concept of value networks.


How do you see the future development of supply chains?

I have been on record stating several times that supply chains as such don’t really have a future. By that I don’t mean they won’t be there. I just think it is too simple of a concept to meet the challenges we are currently facing in global business. Supply chain in my view exists within complex networks. As I said earlier, the collaborative value networks, whether we call them future supply chains is a matter of terminology. The fundamental challenge to the future of supply chains as I see it is to add value at different stages of the supply chain, but do it in a way that if forms part of the corporate strategy. It is the corporate strategy that is actually evolving and has these dynamic value networks that become significant in the future.

The alignment between the value network and the overall corporate strategy is where I see the future.


What are the key challenges for companies regarding their supply chain strategy or their “value networks”, as you call it?


I think there are basically two.

1.    Innovation – Globalization has brought significant supply chain challenges, as we all know. This has caused current methods of designing and managing supply chains to become static, if not flawed. The world of business is moving increasingly faster, causing customers to become increasingly more demanding. More emphasis is being put on customer service, responsiveness, serviceability, availability of goods, quick responses, and keeping up with the trends.


Customers specific demands need to be met. To meet these demands companies need to be innovative and with fundamentally new business models. I use a model which is called supply chain alignment, sometimes you can call it dynamic alignment, which is aligning the enterprise with these customers, suppliers and third party service providers. This whole alignment of all the various stakeholders is where I see the network has to be built.


That relies very heavily on technology and the latest innovations in that regard.


2.    Strategic Focus – The fundamental challenge is to determine strategically the valuable elements to be added to these value networks. The nature of these relationships needs to be determined. It is a matter of alliances and partnerships. Where do you put the service providers? Maybe even joint ventures? What is the commercial nature of these various elements that are to be put together? Strategically, how does that align with our corporate strategy? Those players on the other side of the table also have their strategies. How do you align that so that everyone is in it for a fair deal? All of these are subject to time, location and opportunity all blended into the mix.


This is absolutely critical to the competitiveness and profitability of companies. I can see more mergers and acquisitions happening in the coming years. You can find companies coming closer together in ways that is probably more than just the traditional commercial relationships.

The value network philosophy has to become an integrated part of the overall corporate strategy, rather than a supply chain strategy. One of the challenges is that you almost move the ‘supply chain strategy’ into the corporate environment, aligning that with all the various players in the network. That will be the challenge.




I think that there are three levels in the supply chains of companies.


  1. The traditional view of all of the operational elements, the trucks, trains and planes as I call them. Some people refer to that as the supply chain.
  2. There are supply chain managers on the next level that actually manage all of these things and put it all together.
  3. However, my philosophies and my whole involvement with my clients is that the next level are these networks that is building such mechanisms that eventually the supply chains only become execution mechanisms for these strategies.

I think these are the “views” one has to have.


About Pieter Nagel




Pieter Nagel has been working in the area of supply chain management for  30 years, in commercial, industrial and academic environments. He has  been involved in a range of industries and governments across the Asia  Pacific region. Pieter currently works in the Asia Pacific where he  focuses on strategic aspects of the supply chain at a corporate level.


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I interviewed Fernando Alvarez who discussed his new algorithm for optimizing liner networks. Fernando is an American who grew up in South America and has been living in Europe for 10 years. He currently lives in Norway. Fernando studied transportation engineering at Cornell University and he has a PhD in Maritime logistics optimization from Universitat Pompeu Fabra in Spain. Fernando now runs a start-up company in Norway where they are aiming to bring the resulting algorithms from his PhD dissertation and to refine them to the market.


Optimizing Liner Networks from Dustin Mattison on Vimeo.



Why should companies optimize their liner networks?


This is a problem I and others have identified over the last decade or so. If you compare the state of development of airlines, trucking companies and to some extent railroad companies they seem to be one or two decades ahead in terms of sophistication into how they run their operations, compared to the Maritime industry.


What I wanted to do was bring some of these powerful optimization tools from operations research to the liner business where it would be very natural to do some optimization there.


I believe that today the top 100 liner companies running fleets of about a dozen vessels or more are basically developing their schedules and rotations by hand, or using Excel. This creates tremendous sub-optimality in their system. They are spending more bunker than they should and they are deploying more vessels than they should.


If you bring optimization to the table you can transport the same number of containers at very high levels of service, but with lower bunker consumption and fewer vessels. There is a tremendous amount of money to be saved by deploying these algorithms to the liner industry.



Who benefits from optimizing their liner networks?


I believe everybody will be benefiting. The first will be the liner company itself because they are going to reduce their expenditures in chartering and bunkers.


The shippers themselves will benefit as well because some of these cost savings are going to be passed along. You will have more reliable and dependable transportation networks. The shippers benefit from that and ultimately the customer or consumer will benefit as well.


The environment benefits tremendously because bunker fuel is obviously a huge source of pollution.


Can you talk about how it is done?


We have an algorithm that is basically running four optimization models in parallel. We start by obtaining a forecast of what your demand as a company will be over the next 12 months, for example.


We have a picture that tells us that from Australia to New Zealand you will be transporting 10,000 containers and from Los Angeles to Seattle you will be transporting 15,000 containers etc.


We have a picture of what your fleet looks like. We have groups of sister vessels with similar properties and we are particularly concerned about fuel consumption incurred for those vessels. Based on that [information] we give this information to the algorithm which is running fairly sophisticated models and optimization routines to go through literally thousands of network configurations.


This varies the speed of the vessels, which vessels are deployed to which ports and to which routes. It varies the configuration of the rotation so that instead of making a Butterfly Route you might make a collection of Hub and Spoke Routes etc.


It goes through several thousands of these and then iteratively it produces better and better network configurations. Typically we have identified that we can improve the network configurations that planners have manually designed between 3% and 6%. That might not sound like a lot but 3% or 5% of $2 billion in fuel consumption is a whole lot of money.




I think the critical trade off here is between level of service provided to the shipper and the cost of the network. It would be very easy to design a network that is extremely cheap, but that would provide a very low level of service to the shipper. At the same time it would be very easy to design a network that provides an extremely high level of service to the shipper, but that would come at a very high cost.


The key here is to balance those two interests to obtain a network that transports your merchandise with a reasonably high frequency of call and lead times at a modest cost to the ship owners and to the liner operators.


That is a very complex problem and I believe we have arrived at a point where we can actually solve this problem fairly efficiently with my algorithms.



About Fernando Alvarez


fernando.jpgSenior Advisor

Shipping Competence

LinkedIn Profile


A research project done jointly with Maersk and the Danish Technical University, where they developed some of the models for liner shipping optimization. Click here....


The website of the academic journal “Maritime Economics & Logistics”, which has selected two of Fernando's scientific articles to their “top ten” selection.