The Face of Supply Chain in 2025

The Face of Supply Chain &
Supply Chain Risk Management
in 2025
Anthony Tarantino
PhD, Six Sigma Master Black Belt, CPIM, CPM
LinkedIn Profile: https://www.linkedin.com/pub/anthony-tarantino-phd/1/40a/808
Email: agtarantino@hotmaiil.com
Charts by Prashant Gupta,
Senior Data Scientist
Email: prashant2100@yahoo.com
17/16/2014

Today’s best practices will be tightly Integrated in the
future leveraging advanced modeling tools
• The next generation supply chain will build on today’s best
practices by:
– More tightly Integrating them
– Utilizing advanced modeling tools & techniques
– Moving to cloud-based platforms and
– Creating centers of excellence (CoE) to champion change management
and best practices and lead tiger teams.
• The next generation of supply chain risk management will evolve
to:
– Deploy advanced quantitative analysis now widely used in global banking
– Address Intellectual property and patent issues arising from outsourcing
to emerging markets and the collective nature of innovation.
7/16/2014
Anthony Tarantino, PhD, Six Sigma Master Black Belt, CPIM, CPM
2

Today’s Best Practices
The leading supply chain operations of today typically employ a majority of
the following best practices, albeit in an ad hoc and piecemeal fashion:
1. Centers of Excellence (CoE)
2. Hybrid SC Organization
3. Segmentation
4. Big Data Analytics
5. Hybrid Outsourcing
6. Supply Chain Risk Management
7. Cost to Serve (CtoS)
8. Supply Chain Network Design
9. Big Data Analysis and Analytics
10. Demand Driven Supply Chain
11. Mobile Supply Chain
12. Labor Arbitrage Outsourcing
7/16/2014
3
The following slides discuss the first six of these best practices
In the future best
practices will be
more tightly
integrated to
increase their
connectivity to
other best practices
and attain their full
economic utility.

Best Practice – Center of Excellence
• Center of Excellence (CoE) for strategic change management will
champion best practices, standardization, and continuing
education.
• It will be a standing group of cross-functionally trained subject
matter experts with strong expertise in quantitative and
qualitative analytics, program management, and change
management.
• Like financial institutions of today, CoEs of the future will require
staff “quants,” experts in quantitative modeling.
• In order to be successful, a CoE will ideally report in at a very
high level of the organization with strong executive sponsorship.
– If a CoE is buried in the organization, it will lack independence
to make the tough calls and defy the status quo.
7/16/2014
4

Best Practice – Hybrid Supply Chain Organization
• CoEs of the future will operate within supply chain
organizations that take a hybrid approach balancing
– the benefits of centralization (greater efficiency and
lower cost)
– the benefits of decentralization (quicker time to market,
greater flexibility to make sudden course corrections).
• The debate between centralized and decentralized
approaches goes back many years.
• History has shown that a rigid application of either approach
will never be optimal.
7/16/2014
5

Best Practice - Segmentation
• Segmentation strives to determine the optimal number and types of product
segments.
• Segmentation may be needed due to product complexity, demand volatility,
margin pressure, supply chain risk and resiliency, lead time variations, and
supply chain risk.
• Examples of segments may include: high volume with stable demand versus
low volume with erratic demand.
• In the future segmentation analysis will look at several million data points
and consider such attributes as product reliability, complexity, life cycles,
margin pressure, lead time, lead time volatility, and competition entry
barriers.
• Selecting and updating product line segments is critical as it balances the
costs and benefits of product offerings
– Greater numbers of segments may offer the highest customer
satisfaction levels, but the cost may be prohibitive.
– Too few segments may offer the lowest costs but open the door to more
responsive competitors.
7/16/2014
6

Best Practice – Segmentation Tools
Dendrogram Courtesy of Prashant Gupta, Senior Data Scientist
7/16/2014
7
This is an example of a dendrogram (a tree diagram to illustrate hierarchical
clustering) used to suggest the optimal clustering of segments based on risk,
margins, and operational metrics.

Best Practice - Big Data Analysis and Analytics
• Traditional supply chain analysis (the process) and analytics (the technology
and tools) are based on structured data such as purchase and customer
orders, inventory levels, customer returns, etc.
• In the future analysis and analytics will add unstructured data from sources
outside of the organization, such as social media, customer reviews, etc.
• The challenge will be to filter through massive amounts of data to capture
hidden trends and then organize the data in a manner to facilitate decision
making
– Rule of Thumb is that 80-90% of all business data is unstructured
• This will be essential if segmentation efforts are going to provide a realistic
look at customer sentiments and trends, especially for new market areas
and new products.
• Unstructured and external data will tend to provide a forward indicator,
while internal data will tend to be a backward indicator.
7/16/2014
Anthony Tarantino, PhD, Six Sigma Master Black Belt, CPIM, CPM LinkedIn Profile:
https://www.linkedin.com/pub/anthony-tarantino-phd/1/40a/808 Email: agtarantino@hotmaiil.com
8
Unstructured Data is text heavy and not organized in a pre defined manner.
Examples: books, article, documents, analog data, metadata, surveys, social
media ( Facebook , Twitter, etc.)

Best Practice – Hybrid Outsourcing
• Outsourcing manufacturing for labor arbitrage to CMs in
China and other emerging markets exposes high tech supply
chains to industrial espionage.
– Contract manufacturing is a cut throat industry in which CMs often
perform work for direct competitors.
– It is naïve to assume that your intellectual property is not for sale to
the highest bidder given the rationale that IP theft is somehow
acceptable to level the playing field in emerging markets and the poor
acceptance of the rule of law.
– Non-disclosure agreements are only effective between ethical
companies residing in countries where the rule of law is imbedded
into society.
• Today’s outsourcing for labor arbitrage will be replaced with a
hybrid approach in which core IP will be better protected by
local sourcing or in-house manufacturing.
7/16/2014
9

Best Practice - Risk Management Using Quantitative Analysis
• Advanced modeling tools are in common place in the banking
industry and required under Basel II, Basel III, and Dodd-Frank
• Many banks have developed the means to model Black Swans
– very rare events with catastrophic consequences (tsunamis,
earthquakes, terrorist attacks, revolutions, etc.)
• These techniques and tools will be applied to the next
generation in supply chain risk management.
• Global supply chains create risk with ever increasing logistics
complexity, leaner inventory levels, plus short and volatile
product life cycles.
• To be effective, quantitative modeling must be on going with
model revisions to meet changing environments.
7/16/2014
10

Best Practice - IP Risk Management
• IP theft and piracy can be expected to grow, primarily from China and other
emerging markets.
• IP theft provides a de facto subsidy for foreign suppliers in many emerging
markets as they avoid the costs of new product development and licensing
by stealing the new technology.
• Western notions of the rule of law business ethics are lacking in China and
other emerging markets where many outsourced supply chains extend.
• It is not usual for multinational companies based in the EU and US to
purchase counterfeit products or products in which the maker has
benefited from stealing or pirating software, hardware, and advanced
manufacturing processes.
• Supply Chains of the future will have to factor IP risk into their sourcing
and trade decisions
• Example: Seagate manufactures its disc drives in its own SE Asian
factories, while Apple has outsourced all manufacturing to IP-
challenged countries like China
7/16/2014
11

Best Practice – Patent Risk Management
• Today’s innovation in high tech is highly collaborative with open source
protocols and code sharing available to all over the internet.
• Patent wars can be very costly, create major distractions, and drag out
over years. Patent trolls aggravate problems for global supply chains.
• Promised legislative reform can is expected to mitigate, not eliminate
the problem.
• High technology products are based on a wide variety of technologies
and concepts that will continue to evolve very quickly.
• Building global supply chains on proprietary technologies is
unavoidable and vulnerable to unpredictable patent disputes.
7/16/2014
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Case Study: A supplier’s disputes over a ten year old IP threatened critical sole-
sourced items.
The only alternative was to develop an alternative technology, which would take
several months. In this example the buyer of the disputed components was not a
direct party to the law suit, but court injunctions threatened to shut down
production lines for several months. There are no simple countermeasures in such
an environment even with the use of patent attorneys.

Final Thoughts
Ever Growing Interdependencies in Supply Chains & Logistics
Correlation Graph Courtesy of Prashant Gupta, Senior Data Scientist
7/16/2014
13
A final challenge with be the growing inter-dependencies in various supply chain
elements. This correlation graph shows cause and effect relationships between some of
these elements with wide variations in their levels of interdependence.
Blue = Greater Positive Correlation
Red = Greater Negative Correlation

The Face of Supply Chain in 2025

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