HBR’s New Supply Chain Book – Overview and Insights

The recently released and now top-rated book on supply chain trends, “Supply Chain: The Insights You Need from Harvard Business Review,” is an article compilation that offers a deep dive into the intricacies of supply chain management. After reading it, we wanted to provide thoughts and additional insights from our team on the specific topics shared by supply chain experts that contributed to this Harvard Business Review (HBR).

The HBR supply chain book provides new and real-world case studies with practical advice. We believe it serves as a valuable resource for business owners and supply chain professionals seeking to enhance their understanding of supply chain dynamics.

Building Resilience in the Supply Chain

The first section of the book focuses on resilience and accurately notes the shift in supply chain arrangements from being purely transactional and focusing on sourcing, to a more strategic approach that involves serious considerations of the fragility of supply chains due to disruptions like pandemics, geopolitics (tariffs), wars, etc. 

In the article by Christian Schuh, Wolfgang Schnellbächer, and Daniel Weise, “Three Steps to Prepare your Supply Chain for the Next Crisis,” they recommend actions to review risk categories, limit product portfolios, and de-risk the supply chain by taking back control of manufacturing and raw materials supply. The chapter shares the cool example of how Unilever mobilized factories into 40-foot shipping containers – now that’s a resilient response!

• Our take: We think the most immediately actionable of these is simplifying product portfolios to the more strategically important items. We have supported companies to review their product portfolios, in partnership with the analytics support of Prosperity Solutions LLC to cut items that are not profitable and focus on the high-margin strategic items and building resilience around those supply chains. Not only does this reduce risk, but working on a narrow portfolio of products also narrows focus and ends up freeing time for procurement teams.  

The second article by Vishal Gaur, Nikolar Osadchiy, and Maximiliano Udenio on supply chain mapping hits the nail on the head stating that “…upstream visibility remains the Achilles heel of supply chains.” 

• Our take: The article notes that supply chains are now more complex webs or networks, but the main challenge of this for companies to have a complete understanding of their upstream suppliers for compliance requirements, such as verifying their supply chain is free of forced labor or that they are not purchasing from sanctioned raw material suppliers. The task of reviewing all tiers involved in a supply chain can be manageable for some products, but for complex items thankfully new AI-driven tools are emerging, such as those offered by KYG Trade, which uses AI to support compliance reviews based on a bill of materials (BOM). 

Other articles in the section redesigning the just-in-time (JIT) manufacturing model and how small businesses in the USA contribute to resilient supply chains. 

Regionalism vs. Globalism

The second section discusses whether supply chains are moving more toward a regional model (closer to home) or continuing global growth (stretching further away from home). 

The first article by Suketu Ganghi titled “Levering New Tech to Bring Supply Chain Closer to Home,” accurately notes that labor costs, labor availability, and deep manufacturing expertise are the barriers to near-shoring (moving suppliers closer to the market) and friend-shoring (aka moving product out of China). The interesting observation shared in the article is that this may be changing as AI will lower some labor costs and technology offers tools such as 3D printing and easier access to expertise which lowers the barrier to manufacturing expertise.

• Our take: We do see that technology is making it easier for companies to easily learn new manufacturing processes. For example, 3D printing has made it easier for some USA-based companies we work with to prototype their products and now they can use AI to help teach new suppliers the process, whereas they were reliant on their overseas suppliers to prototype. Also, access to expertise for support with design, manufacturing processes, and setup is readily available at lower prices on online platforms like Upwork. So if an individual wants to set up the manufacturing of scuba tanks in the USA, they likely have access to the expertise to make it happen from their home computer.  

However, the article by Steven A Altman and Caroline R. Bastian, “Trade Regionalization: More Hype than Reality,” shares that the opposite and supply is moving even further away from home. The article states, “In an April 2020 survey, 83% of executives said their companies planned on near-shoring to regionalize their supply chains. When the same survey was repeated in March-April 2021, only 23% still said they were planning on near-shoring.”

• Our take: There was indeed a near-shoring hype during and immediately following the COVID-19 pandemic, but from our experience working with startups and growing businesses, there is still interest in finding solutions options closer to home for strategic goods. However, at the end of the day, companies are looking for the best cost, reliability, and margins, and for many consumer product categories overseas suppliers have the most competitive offering. 

Innovation in Supply Chain Management

The third section of the HBR supply chain compilation focuses on innovation and how collaboration in the supply chain can improve efficiencies. 

Of particular interest is an example of white goods manufacturer Haier creating the platform COSMOPlat to facilitate collaboration amongst stakeholders in its supply chain to solve technical problems and work on new products. In their platform, they allow any potential supplier, buyer, or stakeholder to join to provide input on products. 

• Our take: Platforms like COSMOPlat can be greatly beneficial to manufacturers seeking input on their products to make sure they are releasing products with the features that consumers want. This gives the manufacturer access to free consulting. We believe from the buyer perspective, there is a need for more established platforms where buyers have access to a neutral platform with access to a variety of supply options open to all suppliers. However, at the end of the day, we think that direct one-on-one communication with suppliers to develop strategic mutually beneficial relationships is the most sustainable path for companies. 

Managing and Improving Supplier Relationships

The fourth section of the HBR supply chain compilation focuses on managing relationships with suppliers, or what we would call supplier relationship management (SRM). 

The article by Willy C. Shih titled “In Uncertain Times, Big Companies Need to Take Care of Their Suppliers” suggested moving beyond transactional behavior toward strategic partnerships, which is strongly agree with. The article notes that companies may be shooting themselves in the foot (ouch!) by constantly threatening cost and driving competition between suppliers when in turn this could be used to deepen strategic relationships with key suppliers. 

• Our take: We fully agree that moving away from solely transactional behavior is not only beneficial but necessary. Companies that take a purely transactional approach with the main KPI being cost reduction run the risk of encouraging manufacturers and suppliers to cut corners. This can result in neglecting product quality, legal compliance requirements, etc. Negotiating fair terms with reasonable increases in cost tied to indexes in a supplier agreement or LOU, as Shih’s article suggests, is a practice we have helped suppliers with and we have found it much more successful than threats or moving to other cheaper suppliers. 

One of the most intriguing articles reflecting how we live in the time of AI was Remko Van Hoek, Michael DeWitt, Mary Lacity, and Travis Johnson’s article “How Walmart Automated Supplier Negotiations.” This article shares the example of how Walmart used AI in a pilot to negotiate purchase agreements with suppliers. I found this to be the most intriguing section of the book since I the team at Empress Brokers International LLC spend a lot of time negotiating on a one-on-one basis with suppliers. 

In the study, out of 89 suppliers the chatbot communicated with, it was successful in reaching an agreement with 64% of them with an average negotiation turnabout of only 11 days. For those not directly involved in supplier negotiations 11 days may seem like a long time, but depending on the complexity of a product or service supplier negotiations can sometimes drag on and 11 days is impressive.

• Our take: We are very excited to see and use solutions that automate initial purchasing negotiations with suppliers, similar to the pilot that Walmart tested. This will be a huge cost savings opportunity and allow sourcing and procurement teams (article on the difference between the two) to focus more on strategic relationships and initiatives rather than transactional negotiations that can lead to endless emails and calls. While the Walmart chatbot negotiated with established suppliers, we can see this being particularly in communicating and qualifying new suppliers. 

Building Sustainable Supply Chains

The last section of the book focuses on building and maintaining a sustainable supply chain, covering labor concerns and monitoring the sustainability practices of lower-tier suppliers. These concerns fall into the environmental, social, and governance (ESG) category of risks.

The article “Consumer Pressure is Key to Fixing Dire Labor Conditions” by Robert Handfield, Tim Kraft, and Marguerite Moore discusses the complexities of social compliance assessments and scanning for labor abuses in the textile supply chain. They note that even the big brands still struggle with this, and there’s no specific audit that can tackle it all. The article states, “Audits are flawed by design—they are infrequent snapshots that can be gamed by suppliers and that rely on the judgment of auditors.” They go on to note that a simplified scoring process and third-party audits can help. 

• Our take: Auditing a supply chain for environmental and social compliance needs to be a priority for not only major brands but also new businesses so they can do it right from the start. Third-party social audits are more accessible than ever, and quality control companies like Factored Quality offer the ability to book globally recognized social and environmental audits like BSCI and Sedex audits.