Summary: Flow: How the Best Supply Chains Thrive by Rob Handfield and Tom Linton

• Flow spotlights resilient supply chain strategies that allow leading companies to quickly meet shifting customer demands.
• Read this timely playbook if you seek to strengthen your supply chain’s responsiveness, visibility and value delivery.

Flow is a fascinating and useful book that shows how language can be a powerful tool for influencing and inspiring others, as well as ourselves. It is a book that can help anyone who wants to improve their communication skills, persuasion abilities, and personal and professional success.

If you are interested in learning more about Flow and how to use it, read on to find out about the author’s background, the main takeaways and insights from each chapter, and the key lessons and action steps that you can apply to your own life.

Recommendation

To control costs in the 1990s, manufacturers set up supply networks in remote nations offering inexpensive labor. However, such facilities proved vulnerable to disruptions such as the pandemic, which created havoc leading to delays and broken supply chains. Today’s “post-globalization era” demands new supply chains that embrace data and AI. Rob Handfield and Tom Linton advise manufacturers and shippers to create supply chains that “flow” — like the flow or self-regulating motion of migrating bird flocks. Future supply chains will rely on digital monitoring and AI, which can enable them to detect and respond to snags nearly autonomously before glitches become crises.

Take-Aways

• An efficient supply chain has “flow.”
• Flow is measured according to motion, time and distance.
• Access to data is crucial to maintaining your supply chain’s flow.
• Automation may enable the biggest increase in supply chain productivity since the 20th century.
• Businesses must maximize their use of data to overcome supply line obstacles.
• Localization, data-centric planning and new relationships with suppliers will be pivotal to supply chains in the post-Covid business world.

Summary

An efficient supply chain has “flow.”

“Flow” describes the efficient movement of self-regulating natural systems such as rivers, migrating flocks of birds and the course of blood through the body. In a river, flowing water shifts its track to circumvent obstacles — such as rocks or changes in elevation — by always following the path of least resistance. A river’s track may eventually change, but that gradual transformation is the result of many small adjustments.

“To obtain optimum efficiency, supply chains need to be released from control and allowed to move as freely as possible.”

Water’s self-regulating systems exemplify the operation of an efficient supply chain. Rather than impose control over a supply chain, managers should build a supply “ecosystem” in which, as with the flow of a river, the movement of goods naturally finds and follows the most efficient path.

In a supply chain, flow describes the movement of goods and the obstacles they encounter, including disruptive natural, political or economic events, such as the COVID-19 pandemic, the United States-China trade war and Brexit. A business that uses digital technologies can monitor the flow of its supply lines and respond to disruptions or obstacles as they arise. The result is a supply chain with a natural “immunity” to disruptive events.

Flow is measured according to motion, time and distance.

Velocity — the ratio of time to distance — is a fundamental metric of flow, in nature and supply chains. The faster you move material through the chain, the more you generate “free cash flow,” the defining element of an efficient supply chain. Free cash flow indicates a company’s financial health, its customers’ satisfaction and the likelihood of repeat business from those satisfied customers. Free cash flow is analogous to a body’s healthy blood flow, which allows antibodies to neutralize threats.

“Because global change is inevitable…evolutionary design is required to adapt to the shifts that occur in supply chain ecosystems.”

A healthy supply-chain immune system can recognize changes in its ecosystem and respond quickly and appropriately. A complex set of digital “sensing mechanisms,” which may include artificial intelligence (AI) and other emerging technologies, continually monitors the flow to flag emerging trouble spots. Human managers then step in to decide on a response to an issue. Increasingly, machines are able to make the proper adjustments automatically.

Since about 1990, supply-chain managers have focused on the metric of cost. They moved manufacturing operations to nations with low labor costs, such as China and India. This led to the formation of global supply chains, which generated increased lead times, inventory backlogs and poor communication. When the consequences of these impediments damaged customer satisfaction – and when disruptions arose – the advantages of low-cost labor evaporated.

“In the current environment, seeking lower prices from suppliers through strong-arm tactics has proven of little consequence compared to the massive forces of economic disruption over the last three years.”

Global supply chains proved vulnerable to significant economic, political and health crises that erupted from 2019 through 2022. In 2021, the transit time more than doubled for goods from China to the Long Beach port that serves Los Angeles. During the pandemic, China reserved healthcare products for its own use, leading to shortages in the United States, which had become reliant on China for masks and other healthcare supplies.

Access to data is crucial to maintaining your supply chain’s flow.

The biggest opportunities in supply-chain management lie in boosting the velocity of the movement of goods. Managers can accelerate velocity by reducing the distance material must travel and cultivating faster response times when problems arise.

“Moving material is where the money is, and key supply chain design decisions to create immunity must begin to look at movement as the core component of redesign.”

The primary tool for maintaining speed is the free flow of data through the system. Companies should deploy digital control and monitoring systems that provide real-time data to managers throughout their supply chain.

Consider the Pulse platform which the Flex Corporation uses. Pulse enables managers across the company to consult a visual rendering of the movement of all material through Flex’s 180 factories and to access data on a range of parameters including demand, inventory and delivery. All Flex managers relay this real-time data forward to maintain the velocity and direction of the flow of their materials.

“In effect, inventory that is not in motion creates friction, the opposite of flow.”

The “visibility” of data is essential to its usefulness. Managers need quick access to real-time data in a context that clarifies its relationship to the supply chain’s healthy functioning.

With Pulse, employees view an onscreen dashboard that includes a chart depicting inventory as colored boxes. Each box’s size signifies the amount of cash associated with that inventory, and its color represents how old it is, with red alerting the user to the oldest inventory. Under the company’s data governance structure, automated systems maintain and adjust most of the chain’s operations, as people intervene to handle large red boxes — high-volume inventory more than 60 days old.

Every company should craft its own data “governance” protocol for its departments to follow. Companies should train managers to interpret data and respond to alerts from their monitors. To support flow, a company – and its culture – must empower managers to make immediate, unilateral decisions without fear of retribution.

Automation may enable the biggest increase in supply chain productivity since the 20th century.

Machines can handle about 80% of routine supply-chain chores, including handling payment functions and maintaining minimum-order levels.

When it is working well, automation offers a velocity advantage. People can stand by, ready to intervene, but human intervention will become less essential as AI advances. Managers must determine what functions they can safely and securely automate and which require human input.

“Generally speaking, 98% of operations in supply chains run well. We need to focus on the 2% that go wrong.”

Some argue that, in the post-COVID era, a buildup of inventory is not necessarily a bad thing. They point to the shortages of healthcare supplies in the public and private sectors during the pandemic as an indictment of the “just-in-time” inventory strategy. But the fundamentals of just-in-time remain valid, and the practice can thrive if the strategic mechanisms governing flow succeed at enhancing the velocity and efficiency at which materials move.

Supply chain management can now incorporate “demand sensing” systems that track the smallest variations in demand levels and adjust accordingly. This is a promising area for AI and machine-based learning in supply-chain logistics.

“With the emergence of 5G, the internet of things will drive the movement of things to be orchestrated like a flock of geese, a school of fish or the tributaries that feed a river.”

Another revolutionary change will come when inanimate objects, such as shipping boxes, send and receive information themselves. In a scenario known as “the edge,” objects including trucks and pallets will have sensors that transmit information from the farthest reaches of the network to the command center. One day, smart shipping boxes may select the trucks that will deliver them, enabling managers to track a shipment’s precise location continually.

Businesses must maximize their use of data to overcome supply line obstacles.

Many businesses struggle with poor-quality data, or a flood of data may overwhelm managers, leading them to disregard most of it. Data by itself is never as valuable as data in context. Information becomes useful when a person can draw insights from it to make predictions about flow. This ability is “digital dexterity.”

“From here on in, digital dexterity will separate the winners from the losers.”

Your company is most likely to achieve flow when it shares data with all its supply chain partners. Some companies are wary of such transparency, citing privacy or security issues, but an appropriate system of data governance can address these issues. Businesses will glean the most meaningful data by combining internal sources — including enterprise resource planning (ERP) systems, customer contracts and project execution reports — with external information such as news reports.

Localization, data-centric planning and new relationships with suppliers will be pivotal to supply chains in the post-Covid business world.

Although cost concerns never go away, supply chain managers must focus increasingly on minimizing the obstacles of geography and politics. Supply chains will become more localized. In North America, supply chain centers might be the United States for marketing and capital, Mexico for manufacturing and Canada for natural resources.

The pandemic, which increased the number of people working from home, revealed the effectiveness of digital technology. The pandemic probably represented an inflection point in the transition from the analog world – in which businesses could not tap into real-time supply-chain data– to a digital world – in which monitoring platforms such as Pulse and Resilinc aggregate real-time data from a range of business functions. From now on, digital dexterity will be the deciding factor in business success.

“Moving forward to increase flow in the supply chain will take courage and vision, important elements of being a leader.”

The health of each link in the chain will govern a shipper’s success. Supply chain managers must recognize that businesses depend on their suppliers and should protect them. For example, they could emulate the example of LG Electronics, which gave low- or no-interest loans to its smaller second- and third-tier suppliers during the 2008 recession. During that difficult time, Vodafone committed to paying its European suppliers within a 15-day window.

A business should prepare for future global shocks by expanding its supplier portfolio. During the pandemic, many companies that depended on foreign suppliers struggled to recover when exports stalled. To protect your company, organize a system of “dual sourcing.” Standardizing parts enables you to distribute manufacturing to more than one supplier.

“Supply chains evolve freely through forces of change in a predictable fashion, and evolve to a position of lowest total cost.”

To improve their supply chain’s flow, companies should establish guidelines in these areas:

• Policy — Craft guidelines that spell out how functions, disciplines and important partners will share data. Assuage fears about shared information going astray and arrive at common standards for visual representations of data. Your policies should determine who will design your data system and who can input information. Set standards for data accuracy and identify which parties are responsible for ensuring that accuracy.
• “Operating indicators” — Determine how you will calculate and display operating indicators. One option is a color-coded system that indicates the fitness of each operation, such as inventory movement and on-time delivery.
• Rules — Establish guidelines for who is responsible for dealing with problems and how they should proceed. These guidelines shouldn’t place blame, but they should ensure that the most appropriate managers have the authority to find and execute solutions.
• Governance — A senior-level team, drawn from a range of functions, should meet regularly to analyze operating indicators and review any decisions that might result in significant changes in flow design.
• Metrics — Don’t attempt to measure flow in the entire supply chain at once. Track flow in essential areas, such as the balance sheet or customer satisfaction.

About the Authors

Rob Handfield, executive director of the Supply Chain Resource Cooperative, is the Bank of America Distinguished Professor of Supply Chain Management at North Carolina State University. Tom Linton is a senior advisor at McKinsey and Company.

Genres

Nonfiction, business, management, supply chain, optimization, language, communication, persuasion, innovation, and strategy

Review

Flow: How the Best Supply Chains Thrive is a book by Rob Handfield and Tom Linton that reveals the hidden science behind how language works and how we can use it more effectively to persuade others, deepen relationships, and be more successful at home and at work.

The book is based on cutting-edge research in fields such as machine learning, computational linguistics, and natural language processing, as well as real-world examples and stories from various domains and contexts. The book introduces six types of magic words that can increase our impact in every area of life, and provides practical tips and techniques on how to apply them.

The book explains the concept of flow, which evokes physical properties that exist in nature, such as the flow of electricity, the flow of materials, and the flow of time. In terms of process optimization, flow encompasses the integration of end-to-end supply chains and the movement toward relocation of global supply bases to nearshore/onshore geographies.

Achieving flow is essential for organizations seeking to improve their supply chain performance in a time of increasing disruption. This book highlights the high-level effectiveness of business strategies that use predictions based on the sequence of world events, global supply chains, and data by exchanged smart technologies.

By broadly applying physical laws to the global supply chain, Rob Handfield and Tom Linton explore the impact of supply chain physics on global market policies, such as tariffs, factory location, pandemic response, supply base geographies, and outsourcing.

The authors provide specific recommendations on what to do to improve supply chain flows, and include important insights for managers with examples from companies such as Biogen, General Motors, Siemens, and Flex with regard to their response to COVID-19. Flow is an important resource not only for procurement and supply chain management professionals, but for any manager concerned with enterprise-level success.