00:00:08 Introduction to the topic of discussion: future of work in supply chains.
00:00:45 Introduction to Markus Leopoldseder, senior supply chain consultant and director of knowledge of McKinsey Supply Chain Management Practice.
00:01:41 Introduction to Knut Alicke, an engineer turned supply chain management professional and partner at McKinsey.
00:03:17 Discussion on the current and future state of supply chain management in organizations.
00:06:37 Discussion on the impact of automation on the roles and capabilities of supply chain management.
00:08:00 Importance of developing programming skills and the right mindset for a supply chain scientist.
00:09:05 Programming is a requirement for engineering in France and is becoming more accessible.
00:09:36 The challenge of delivering a production-grade solution from a python prototype.
00:10:56 The need for academia to catch up with the practical application of supply chain.
00:13:06 The trend towards centralized organizations and the importance of considering other success drivers beyond the organizational structure.
00:16:00 Discussion on the development of technology and software, specifically the core and fine-print rollout of local wallets.
00:16:17 Mention of the benefits of centralization, especially in supply chain.
00:16:43 Discussion on the limitations of traditional supply chain management and the benefits of digital methods.
00:18:26 Discussion on the elevation of supply chain functions in modern organizational structures and their increased visibility.
00:22:00 The speaker’s view on the importance of having the right mindset and KPIs in supply chain management, and the role of the supply chain scientist in operational decisions.
00:24:01 Discussion about the challenges of pushing a new product and its impact on other products and the company.
00:25:02 The supply chain management role compared to a decathlon role.
00:25:59 Supply chain being a topic for “nerds” and the business focus of supply chain management.
00:27:31 The exponential increase in options due to technology advancements in supply chain management.
00:29:34 Conclusion of the interview.
Experts in supply chain management discussed the future of work in the industry in a panel discussion hosted by Kieran Chandler. The experts agreed that supply chains are evolving towards more analytical, quantitative positions with a focus on end-to-end optimization and digitalization. As the industry shifts towards automation and predictive analytics, the traditional roles of planners and order management are being replaced with positions focused on data science, machine configuration, and exception management. The panelists emphasized the importance of constant communication with sales, procurement, suppliers, and customers. The experts also highlighted the exciting advancements in technology, such as robots in warehouses, which are transforming the field.
Kieran Chandler hosted a discussion with Joannes Vermorel, founder of Lokad, Markus Leopoldseder, Senior Supply Chain Consultant and Director of Knowledge of McKinsey’s Supply Chain Management Practice, and Knut Alicke, Partner at McKinsey & Company, on the future of work in supply chains and what organizations need to develop for success.
Joannes Vermorel believes that supply chains are evolving towards more analytical, quantitative positions, with a reduction in siloed approaches to optimize end-to-end processes. There is a shift towards consolidating responsibilities such as planning, pricing, assortment, and merchandising while relinquishing some control over field operations like logistics and warehousing. He asserts that the future of supply chain management is already here, just not evenly distributed.
Knut Alicke, who teaches supply chain management at the University of Cologne, sees digitalization as a key factor in improving supply chain performance. He emphasizes the need for developing capabilities in planning, physical flow, organization transformation, and digital integration.
Markus Leopoldseder agrees that there are existing capabilities in place for organizations to manage multi-billion-dollar supply chains. However, he sees new challenges and opportunities arising in digitalization and analytics that will require supply chain managers to enhance their skills. Areas like automation, robotic process automation, and advanced analytics for planning are where major clients are currently focused on building up their capabilities.
The future of work in supply chains is expected to involve more analytical, quantitative roles with a focus on end-to-end optimization and digitalization. Organizations will need to build new capabilities to face upcoming challenges and fully leverage emerging opportunities in automation and analytics.
As the industry shifts towards automation and predictive analytics, the traditional roles of planners and order management are being replaced with positions focused on data science, machine configuration, and exception management. The panelists agree that understanding programming languages like Python and SQL is important for supply chain professionals, but they must also have the right mindset and be capable of delivering production-grade solutions.
Vermorel emphasizes that modern programming languages are more accessible than ever, and he believes that it is now a requirement for most engineering graduates. However, academia has not yet fully grasped the extent of the problem, as there is often limited knowledge about transitioning from a Python prototype to a production-grade solution.
Leopoldseder discusses the eternal question of centralization versus decentralization in organizational structure. While the interview does not provide a definitive answer, it is important to consider the purpose of centralization and adapt organizational structures to best suit the specific needs and goals of the business.
The participants discuss the role of centralization and organizational structures in supply chain management. They argue that centralization can drive change more effectively and efficiently, especially when implementing advanced planning tools for forecasting and replenishment. However, they acknowledge that there are many nuances in centralizing supply chain organizations, such as whether to centralize across or within business units.
Joannes Vermorel believes that centralization has significant benefits in certain areas, such as core IT infrastructure, identity management, and core predictive technologies for supply chain. End-to-end optimization is essential when supply chains span multiple countries, but he also notes that more localized intelligence is beneficial when addressing strictly local problems. In these cases, the infrastructure should be centralized, while problem-solving intelligence should be applied locally.
Markus Leopoldseder explains that organizational structures are changing, with supply chain functions becoming more integrated and even elevated to board level in some cases. This shift recognizes the importance of supply chain management and provides greater visibility and acknowledgement of its role within a company.
Knut Alicke highlights the significance of both hard and soft organizational factors in driving success, emphasizing the need to consider more than just organizational charts. The discussion also touches on the role of supply chain departments, which tend to be noticed more when things go wrong. As supply chain management gains prominence, its influence within organizations may increase.
One positive aspect of the pandemic was that it highlighted the importance of supply chains, with senior management and CEOs now engaging in supply chain discussions. Companies began to understand the trade-offs between inventory management and resilience, enabling them to serve more customers and increase market share.
The discussion also touched upon the fact that there is no one-size-fits-all best practice for supply chain organization. Instead, it must be fit for purpose, elevated to the right level, and have the right capabilities in place to contribute to a company’s overall success.
Regarding the responsibilities of supply chain management, Joannes Vermorel emphasized that the traditional mindset of a support division or cost center needs to change. He argued that simplistic KPIs, like service level, do not reflect the complexity of market challenges. For example, businesses driven by novelty might prioritize launching new products over maintaining high service levels. Vermorel also noted that in e-commerce, managing customer expectations is more important than offering next-day delivery.
He further introduced the concept of a “supply chain scientist,” a professional who takes business ownership of operational decisions, such as production levels, pricing, assortment, and capacity management. This role requires an end-to-end perspective of the supply chain, making it both challenging and interesting.
Lastly, Markus Leopoldseder and Knut Alicke discussed the future of work in supply chains. They compared the role of supply chain management to a decathlon, requiring proficiency in multiple areas. The rise of automation and increased visibility of supply chains due to the pandemic have contributed to the evolution of supply chain management and the potential for more exciting developments in the future.
The participants emphasized that a good supply chain manager must Excel in various disciplines, including planning, logistics, and cross-functional collaboration. Supply chain management requires constant communication with sales, procurement, suppliers, and customers.
Alicke mentioned that although supply chain management is still a topic for “nerds,” it is also highly business-focused. The importance of storytelling and communication in demonstrating the significance of supply chains was discussed. The panelists also highlighted the exciting advancements in technology, such as robots in warehouses, which are transforming the field.
Vermorel expressed enthusiasm for the exponential increase in options that technology brings to supply chain management. He noted that as more building blocks of supply chains become programmable, modern supply chains are becoming more versatile and agile. The addition of autonomous vehicles, for example, introduces another layer of optionality. Vermorel compared this to a musical instrument, where an increasing number of parts can be played, creating a fascinating, albeit “nerdy,” perspective on the industry’s future.
Kieran Chandler: Today on Lokad TV, we’re delighted to be joined by Markus Leopoldseder and Knut Alicke from McKinsey, who are going to discuss with us the future of work in supply chains and, in particular, what organizations need to develop in order to be successful in the future. So, gentlemen, thanks very much for joining us today. As always, we like to learn a little bit more about our guests. So, Markus, perhaps you can start by just telling us a little bit about yourself.
Markus Leopoldseder: Many thanks, happy to do so. I’m Markus Leopoldseder, the Senior Supply Chain Consultant and Director of Knowledge of McKinsey’s Supply Chain Management Practice. I’ve been working with McKinsey for more than 20 years, only on supply chain projects, but with a bias and a lot of passion for digitalization, analytics, and IT topics. Before joining McKinsey, I worked with IBM for 10 years, working already in production planning, scheduling, integrated network planning. Since then, I’m very passionate about this topic and very happy to be here and share my thoughts on process, technology, and organizational experiences with Lokad TV.
Kieran Chandler: Brilliant! And Knut, I know you’re an engineer like myself, so perhaps you could just introduce a bit about yourself as well.
Knut Alicke: Sure, happy to do so and thanks a lot for the invitation. Looking forward to our discussion. My name is Knut Alicke. As you said, I’m an engineer by education, a mechanical engineer, but then I got into logistics where I did my Ph.D. and my post-Ph.D. on supply chain management. This got me excited about the topic of supply chain. After university, I started what you would say is a startup today, back then it was a spin-off of the institute where I did work. We did planning software for companies like Hewlett Packard and consumer electronics companies. Then I joined McKinsey, where I’m now for roughly 16 years, being a partner for a couple of years and working on all topics of supply chain, specifically planning topics, physical flow, organizational transformation, and also topics of digital, such as how digital can help us to be better and improve our supply chain performance. I’m still teaching supply chain at the University of Cologne, where I’m a professor, and this got me into this area of the future of work, how we can build capabilities and implement them.
Kieran Chandler: Okay, brilliant! And Cologne is a great city; I was there at Carnival this year, and it’s one that’s worth visiting. Johannes, our topic today is all about the future of work in supply chains, something we’ve theorized a lot about on this channel. But as an initial introduction, how much can you see organizations in the future changing in terms of the way their supply chains are managed?
Joannes Vermorel: The funny thing about the future is that it’s basically already here; it’s just not evenly distributed. I didn’t make up that quote; it was a science fiction writer, a North American science fiction writer. But the key idea is that what I see is clearly the old model where, basically…
Kieran Chandler: So, let’s talk about the different roles and titles in supply chain management. Joannes, can you tell us what you’ve observed in terms of titles and responsibilities in the field?
Joannes Vermorel: It’s kind of messy, Kieran. On one end of the spectrum, you have a logistic director who has now taken the title of a supply chain director, but it’s done the same way. On the other end, you have someone who is doing supply chain but doesn’t even have the supply chain title. They have a title that is head of planning, pricing, assortment, and merchandising, which is all the analytical components of the job, separated from field operations. My belief is that supply chain positions are becoming more analytical, quantitative, and with less divide and conquer. This side approach via silos is a bit harmful when you want to do end-to-end optimization. So, you consolidate all of that, but because it’s so much work, you have to let go of many responsibilities, especially the critical ones grounded in field management and managing the teams on the grounds, such as logistics, managing warehousing sites, production sites, etc.
Kieran Chandler: Thanks, Joannes. Markus, as a senior supply chain consultant, you must have worked with many clients in different industries. Do you think the teams you come across have the necessary capabilities to tackle future challenges?
Markus Leopoldseder: I think on one hand, the capabilities are there. Our clients run multi-billion supply chains and have a long track record of history. The interesting question is how well they are equipped for new capabilities and challenges, especially in the area of digitalization and analytics. Supply chain managers need to brush up on automation with robotic process automation, planning automation, and more advanced analytics processes. These are capabilities that our major clients are building up, but they are not there yet, and there is still a lot of development potential.
Kieran Chandler: Thanks, Markus. Knut, with automation changing the roles and capabilities in supply chain management, what new roles do you see emerging?
Knut Alicke: We will see different needs and different roles emerging. For example, before, we had a classical planner, a classical demand planner. Now we have someone who sets up the predictive analytics algorithm, who is able to clean the data and tame the algorithm. Much more data science is required, as well as for automation, as I gave in my previous example. We had order…
Kieran Chandler: Management, often a relatively transactional, repetitive task, is now replaced by the machine. But there needs to be someone who also configures the machine, configures the RPA algorithm, and makes sure that it’s working, adapting, and delivering results. The roles will be much more focused on exception management, kind of knowing the business and then working with this knowledge to improve the overall system in a continuous improvement process of the supply chain. What we’re seeing in the market at the minute is lots of practitioners developing their expertise in programming languages like Python, SQL, and maybe one or two learning Envision as you’d like them to. What are the skills that you see, Joannes, as being important? Is programming really one of the most important ones?
Joannes Vermorel: Yes, but with the right mindset, and I’m very much aligned with what Knut has just mentioned. It’s literally what I’d call a supply chain scientist; someone who understands the problem deeply but can apply a quantitative, automated model on top of that to robotize things that need to be prioritized. Back to your question, programming is very important. However, I believe that now it’s very hard to get an engineering degree without having done any kind of programming. I’m not sure it’s even possible anymore in France. No matter what kind of engineering you do, you will do programming. I’m not too worried about this. Programming is good, but I think it’s now well accepted that it’s basically a requirement. To be honest, I’m teaching programming to my 10-year-old daughter. You can start programming at eight; it’s not that complicated if you’re not doing things that are super complicated in the first place. So, modern programming languages are much more accessible than what I had when I started 30 years ago. The specific challenge of a supply chain is that you need to have a mindset where what you deliver is really production grade, maintainable, and doesn’t cause chaos when you put it into production. That’s maybe something that academia still hasn’t really grasped. People know about Python, but there is very limited knowledge on how to go from a Python prototype, which is super easy to deliver, to something that is production grade, which is an entirely different thing.
Kieran Chandler: Knut, as you’ve been working a lot with students, perhaps this is a good point for you to jump in. Would you say that the skills those students you work with are developing are exactly what the industry needs, or would you say there’s still some way to go? In terms of preparing those students for the industry, how do you approach teaching supply chain in your lectures?
Knut Alicke: If I look into a classical supply chain curriculum, which often doesn’t even exist, we have operations research where people study business math. You learn analytics and problem solving, but the majority is focused on various ways to solve the lot sizing problem, which in reality isn’t even used. That’s unfortunate. What I try to do in my lectures is give practical applications of supply chain, understanding trade-off concepts, incentives, and the importance of planning from the customer to the supplier. Academia, even though I’m teaching as a professor, needs to catch up. We often have topics where you can publish, but they’re not necessarily what the industry needs. We need to find the balance between the two.
Kieran Chandler: Markus, in terms of the organizational structure of these different organizations and the recent trends of centralization and decentralization of processes, is there a best practice we can follow? From your experience, what have you seen as the best approach to take?
Markus Leopoldseder: The level of centralization and what to do exactly in centralization is an eternal question. First, we always have to ask ourselves what the purpose of centralization is and whether this purpose exists as a problem statement in the company. In many cases, we find that it’s not so much operational efficiency that drives centralization but the capability to drive change in an organization. For example, if you have 60 to 90 markets in a company and want to implement advanced planning tools for forecasting or replenishment, you have to go through all these decentralized markets and drive new software and processes. Centralization, aligning organizational responsibilities with the people on the ground, makes it possible and easier for change. From that perspective, there is indeed a case and a trend towards more centralized organizations, but with nuances across business units or within business units. The organizational structure is not everything; our research shows that it’s one of the success drivers, but there are more important organizational success drivers as well. We should not only look at the org charts but also consider softer organizational factors.
Kieran Chandler: Joannes, in terms of who should have the responsibility and how to divide that work, you have fairly strong views on the role of supply chain scientists. We met one of them a couple of weeks ago, and they’re given a huge amount of responsibility. What are your thoughts on this? Many would argue this probably is too much responsibility. So how do you see that division of work changing in the future?
Joannes Vermorel: First, there are areas where centralization helps tremendously. For example, when it comes to the core IT infrastructure, there is literally no point in having everybody rolling out their own core IT infrastructure. That’s one of the reasons why companies like Amazon started to build their own internal cloud because they wanted to standardize the way people internally were consuming computing resources. In the end, they had something that was so polished that they realized they could actually start to sell it to the external world because it was completely packaged, on-demand, and had its own accounting system to keep track of who is consuming resources. Clearly, I would say there are areas where centralization just brings massive benefits. Centralized identity management, like what you get with Office 365 or Google Apps, is another example. You don’t want every single country or location to reinvent how people manage their login and password.
To some extent, I would say you have similar benefits when you tackle certain types of technologies such as core predictive technologies for supply chain. It takes a lot of effort to develop that core, not the fine print rollout or the local adaptations. In cases like these, the benefits of centralization are pretty high.
More specifically on the supply chain side, you have areas where if you’re looking at one supply chain that starts in one country and ends in another country, then usually there are strong benefits in having end-to-end optimization. That’s what the old-school S&OP tried to do. But the problem with the meeting-oriented process is that it’s very time-consuming, and in terms of ultimate value delivered to the company, the ratio of time invested by the managers versus what the company gets, I’m not sure it’s that good. The algorithms, especially digital methods, are a way to orchestrate and synchronize at scale everything that is being done on a very large supply chain.
That being said, if you have parts of your supply chain that are fairly independent, then usually having some degree of local intelligence will just make things better because they are a better fit for the problem at hand. So, you need layers of infrastructure, but at a point when you’re facing a problem that is strictly local, then usually the intelligence should be applied locally, unless you have a very good reason not to. For example, some companies have a hard time hiring the competency in certain markets, and in this case, they rely on competencies they hire in other markets, but that’s a bit accidental.
Kieran Chandler: And Markus, you sort of talked us through about how kind of… . Organizational structures are kind of changing. The thing about a supply chain department is it’s often the one that you hear from when things are going wrong, and the finance departments and the accounting departments are the ones that are really capturing most of the attention of companies. Would you say that’s something that could change going forward into the future? Could you see supply chains becoming much more dominant?
Knut Alicke: Yeah, that’s absolutely the case. If you look at organizational structures that are currently becoming dominant, you clearly see an elevation of all kinds of supply chain functions that are hidden in some kind of organization, sales, countries, regions, and so on, to really one integrated supply chain organization. In some cases, this not only spans planning and logistics but even production, where we have the entire value stream covered. This is increasingly also at the board level, so it’s not uncommon anymore to have a board level responsible for supply chain. That’s a completely different game in terms of visibility and acknowledgement of the importance of the supply chain compared to a situation where all the supply chain responsibles are hidden in dozens of different functional responsibilities.
Kieran Chandler: Okay, and what are your thoughts, Joannes? Can you see the responsibilities and scope of supply chains of the future really changing?
Joannes Vermorel: I must say that we now have the COVID pandemic, and unfortunately, we have the corporate pandemic. The only good part of that is that it’s significantly increased the visibility of the importance of supply chains. Now, people talk about supply chains who before had no clue what that is, and this is pushing the importance a lot. I would say COVID did probably for the organizational development what we did not manage over the last 10 years. We hope that we helped clients with their COVID preparation and building inventory and so on. After three to four months, they said, “Hey, the senior management now talks about supply chain, the CEO talks about supply chain, they understand what we do, and that’s so great.” They even ask us to put more inventory in place because they understand the trade-off. They understand that with this, we are more resilient, so we can also help serve more customers and increase our market share. That was never seen before. But it still needs to grow further. There are still industries where supply chain, in terms of visibility, is not yet where it should be.
Kieran Chandler: Maybe one comment also on the structure that we discussed. Is there a best practice supply chain organization which you can just take and say, “Hey, this is best practice, implement it and you’re done”?
Markus Leopoldseder: It’s quite interesting. We did an extensive survey where we wanted to understand if there is a best practice supply chain organization. If you think about central, decentral, and so on, all the nuances, there is no clear correlation of this to the success of the company or the supply chain. So, here it needs to be fit for purpose. It needs to be elevated to the right level, it needs to have the right capabilities in place, and with this, it can also contribute to the overall success of the company.
Kieran Chandler: Johannes, what are your views on the responsibilities of supply chain? We’ve often spoken about supply chain projects often failing due to IT issues. Can you see the supply chain taking on more responsibility from an IT perspective?
Joannes Vermorel: First, the mindset companies need to adopt is moving away from the idea of a support division, where it’s just a cost center with a few metrics to keep high, like service level. That’s the wrong mindset because it doesn’t reflect the actual business challenges. Service level might not be that important depending on your business. For example, if your business is driven by novelty, you can’t expect to have a 99% service level because that would mean always ending up with tons of inventory write-offs.
In e-commerce, it’s more about managing the quality of expectations. What matters is delivering on the date you promised, not necessarily that it has to be tomorrow. The supply chain scientist, in my view, is someone who takes ownership in the results being delivered, like operational decisions on production, purchasing, pricing, and assortment. This person needs to have an end-to-end perspective, making the role more challenging but also more interesting.
Kieran Chandler: As a final word, Marcus, Knut mentioned the increased exposure of supply chains as a result of COVID and we talked about the rise of. As a final word, what is it that excites you most about the future of work in our supply chains?
Joannes Vermorel: If I may start, I think for me the best comparison is the supply chain management role is more like a decathlon role. You have to have 10 sports, and that’s compared to a production manager that’s more of a marathon. So production optimizes production efficiency, budget adherence every year. The supply chain manager has to manage ten things simultaneously. We have been talking about analytics a lot, but in fact, this comes on top of the basic disciplines like planning and logistics, but also cross-functional collaboration – talking to sales, procurement, suppliers, and customers, having this communication skill. I think this cross-functional experience is what makes a good supply chain manager in total, not only the analytics, but in total. And that’s certainly also what excites me in this field.
Kieran Chandler: I really like that analogy of a heptathlete. Knut, did you have anything you’d like to add to that?
Knut Alicke: Sure, so supply chain is interesting. If I look back into my early days when we worked in the consumer electronics industry, I thought that we developed the software, it’s pretty cool – we can do all the planning stuff, navigate the BOM, prioritize and everything. I was like, I guess in five years, that’s standard, and then there’s the new stuff to be implemented. But honestly, I’m still working on implementing the same idea of integrated planning and working together, rather than working in silos.
What is exciting is clearly the combination of supply chain as a topic for nerds, right? We love our numbers, we love our algorithms, but at the same time, it’s also extremely business-focused. What Markus mentioned is super important: supply chain communication and storytelling. How can we tell the story that supply chain is important? This is super exciting, and then all the new stuff, this is true for planning and for physical flow if you think about robots in a warehouse, that’s also super cool. There’s a lot of very interesting topics, and there’s a lot to do, there’s a lot to improve with platforms, ideas, collaboration, and digital. I think we have enough to do for the next couple of years to make this happen.
Kieran Chandler: Joannes, did you want to conclude? Is supply chain just for nerds or can we attract a few heptathletes?
Joannes Vermorel: I think what I’m most enthusiastic about is the exponential increase of options. People don’t really realize that every single time you add a technology, you have a new option. For example, you have additive manufacturing on top of subtractive manufacturing – it’s not one replacing the other, but now you have both options. You want to transport things between Europe and Asia, you had the sea, you had the air, and now you have the train as well. So you add an option, and what I see is that more and more of the supply chain management will have to deal with an increasing number of options.
Kieran Chandler: The basic building blocks of supply chain are becoming programmable. Factories are becoming programmable internally, and every single component is becoming programmable. All of that is giving more and more options. If I compare the old school supply chain, where you were building a factory just for one purpose and you would produce at exactly the same production speed every day, and plan the same thing for the next decade, the modern supply chain is much more versatile and agile, just because every single building block is much more agile. What are your thoughts on this?
Joannes Vermorel: I believe that’s very interesting. If you look at things like autonomous vehicles, they will actually add another layer of optionality. The other options don’t go away; they never really go away. It’s just that you gain more options, and that’s something I’m excited about, because it means that there will be an instrument where you have more and more partitions that you can play. It’s a nerdy perspective, but I think quite strongly about it in a positive way.
Kieran Chandler: Gentlemen, we’re going to have to leave it there, but thank you all for your time. That’s everything for this week. Thanks very much for tuning in, and we’ll see you again next time. Thanks for watching.