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A Commentary: Changing the Landscape in Education and Professional Development
Supply chain or logistics management has grown in importance since the early 1990s and along with it recognition of being a profession that can have a dramatic impact on a companys bottom line. A recent article in Logistics Management (August 1, 2003) summarized a study by Accenture and leading universities, Stanford and INSEAD, that concluded, Wall Street really does appreciate companies that are supply chain leaders. It stated that companies that were viewed as supply chain leaders had substantially higher capitalization compound growth rates than their industry average.
Logistics management is big business. The 14th Annual State Of Logistics Report co-sponsored by Cass and ProLogis was presented to the National Press Club in Washington D.C. on June 2, 2003 estimated that U.S. business logistics costs during 2002 were $910 billion. That is $47 billion less than estimated logistics cost during 2001 and $93 billion below logistics costs during 2000. The reduction was due to a slowing economy, lower inventory carrying costs from lower interest rates, and competitive pressures either driving efficiencies and/or lower margins. This represented 8.7 percent of the nominal Gross Domestic Product (GDP) and has generally continued to show annual reductions from a high of 16.2 percent in 1981 with some variation between years.
By applying the general rule of thumb 10-to-1 ratio the result for Canada would indicate that the value of logistics is substantial, and easily argued higher in relation to the US. It is more important to Canada given the smaller population, larger geographical dispersion and higher percentage of the economy involved in international trade. Add to this the consequences of 9/11 and the threat of terrorism, BSE, SARS, rapidly changing technology, globalization, etc., and the complexities of the environment are obvious.
Why then does Canada lag our major trading partners in providing formal training on the Supply Chain given that this is a critical segment of the economy? A possible answer is that it involves many functional departments such as production scheduling, inventory control, customer service, demand planning, distribution, customs and others depending on the structure of your organization. Effective integration of the supply chain can often save a company millions by eliminating waste while improving both services and asset utilization. It is only in the last ten years that companies have started to appreciate the value of a fully integrated supply chain and, even now, in some organizations it is a constant struggle to maintain the structure that supports this concept.
Historically, training in the functional areas was handled by on-the-job experience and later through associations that recognized the need for a more rigorous process and that there was a void in the academic world. Like-minded individuals formed groups such as the Purchasing Management Association of Canada (PMAC), the Association for Production and Inventory Control (APICS), the Canadian Institute of Traffic and Transportation (CITT) and The Canadian Professional Logistics Institute (Plog), to name only a few.
These associations pooled their resources and worked with local educational institutions to develop programs to enhance the profession by providing standards that would be recognized by industry. They require several years of relevant experience and completion of several management and functional-specific courses in their field. These are demanding programs requiring completion over several years while maintaining full time employment. Annual conferences and monthly seminars have also provided an opportunity for an exchange of ideas and experience and have been responsible for improving the strengths and capabilities of these individuals.
This approach provided functional experts who improved efficiencies and the cost effectiveness of their respective organization. However, silo behavior is often the norm, due to organizational structure and the reward mechanisms of many companies. The functional areas by themselves are unable to obtain cross-functional optimizations and leverage the value of a fully integrated supply chain. The correction of this situation requires the support of senior management to empower a department responsible for all areas of the supply chain.
Some groups such as the Canadian Association of Supply Chain & Logistics Management (SCL) have attempted to bridge the gap. They have formed a partnership with The Laurier Institute (of the School of Business and Economics at Wilfrid Laurier University) to provide an executive program to deliver the SCL-developed courses in strategies and practical solutions for the logistics industry. The objective is to provide fundamental tools and concepts needed to integrate and streamline supply chain operations and manage logistics networks while increasing operating efficiency.
Similar programs have been established at McGill and York Universities and likely others. They offer intense executive programs over several days that provide a high level introduction to the area and are geared to senior management who can influence the structure and resource allocation of an organization. As valuable as they are, they still do not develop professionals in the logistics industry, but generally wet the appetite for more education.
Recognizing that there is still a gap in the industry for trained logistics professionals, community colleges have started to develop programs that support supply chain management. Torontos Humber College is an excellent example of a college that provides a comprehensive one-year post-secondary degree in the area. George Brown College in Toronto and Durham College in Oshawa are two others that are providing support in logistics training.
Contrast this to the Forum for International Trade Training (FITT) established in response to a Canada-wide shortage of individuals with international trade skills. Formed in 1992, FITT is government-funded and private sector-driven organization that offers programs and workshops to its members through the internet and universities, community colleges, CEGEPs and private institutions across Canada. An extensive list of institutions and locations is listed on www.fitt.ca. The logistics field could learn from this example and perhaps use it as a model to develop the profession.
Some universities are starting to provide supply chain management courses in their business programs and a select few, a business degree with logistics or supply chain as the major area of concentration. The Sauder School of Business at the University of British Columbia has a Master of Management program in Transportation & Logistics. The University of Calgary and University of Manitoba have similar transportation-focused programs. All are greatly needed to develop professions in the field. Additional schools with programs are the University of Montreal and one under development at Wilifrid Laurier University (WLU). WLU is interesting, not only because of their partnership with SCL, but also because of their desire to have an MBA and Ph.D. distinction, a first in Canada.
Contrast this to our largest trading partner south of the border. A quick search of the Internet revealed 36 major universities all offering extensive programs with majors at both the graduate and post gradate level in logistics, distribution, transportation and materials management. This included such notable institutions as Arizona State, Georgia Institute of Technology, Michigan State University, MIT, Ohio State and the University of North Florida. The only Canadian university on the list is the University of British Columbia.
Some believe that the Europeans are further advanced in their logistics knowledge and capabilities than North Americans. They receive extensive formal training at such places as the Cranfield School of Management and have experience in driving efficiencies from having a common market and currency with a large population base and many languages. Even Australia, a country with a smaller population than Canada, but with similar characteristics, offers university level programs in supply chain management and exports their expertise to other countries.
In a country heavily dependent on international trade, Canada could find itself at a competitive disadvantage if we are unable to leverage the efficiencies of managing the total supply chain. We need to develop our analytical skills to take full advantage of the available technology to integrate all functions of the supply chain into a lean, flexible, efficient, and highly cost-effective operation to counter the US economies of scale.
There was a time when it was believed that bigger is better. The goal was to build large factories and run them seven days a week, 24 hours a day, to obtain the lowest possible manufacturing costs. Volume was key and Canada with its small population base needed the volume from exports to obtain the critical mass necessary to support world-class manufacturing facilities. This was true when we considered only manufacturing costs. However, with logistics and supply chain costs representing almost ten percent of the GDP, and in some industries a value greater than the actual manufacturing costs, this old paradigm may no longer be valid.
The Japanese showed us how batches of one could be the most efficient way to operate. Replacing make-to-forecast push inventory strategies with make-to-order pull strategies, that consider the supply chain costs as part of the total business model, could result in the lowest total operating costs. While manufacturing costs could be higher; and they do not necessarily have to be; they could be off set with logistical savings that result in a lower overall operational cost. Lean thinking, with its documentation, simplification and elimination of waste, shifts the historical trade-off between service levels and inventories. This can result in different conclusions in our action plans to compete in world markets.
Canada must develop the expertise that will allow us to make informed decisions on our long-term strategic direction and influence our policy makers by providing appropriate research in this critical area. As logistics professionals, it is up to us to take the lead and insist that our educational institutions be provided the opportunity to develop their capabilities in this area. This will take a combined effort between the government and the private sector. We can start by supporting the efforts of WLU in its partnership with other educational institutions and organizations that show an interest in this field.