Q&A: Rob Handfield, Professor at North Carolina State’s Poole College of Management

Logistics Management Group News Editor Jeff Berman recently spoke with Rob Handfield, Professor at North Carolina State's Poole College of Management and Bank of America Distinguished Professor of Supply Chain Management. Handfield also serves as Executive Director of the Supply Chain Resource Cooperative, which addresses thought leadership and research in the area of supply chain management, within the Poole College of Management, and a member of INFORMS, an international society for practitioners in the fields of operations research, management science, and analytics, where he also serves on its expert panel. Berman and Handfield discussed a wide range of topics, including the recent Suez Canal crisis, the emerging profile of the supply chain, and risk management, among other topics. Their conversation follows below.  

LM: Given the recent events in the Suez Canal, it continues to highlight the red flags supply chains face between Covid, Suez, winter weather, fuel, trade, new president etc.  so many moving parts. What can and should shippers specifically be doing, in order to respond in the right ways to unforeseen circumstances like these?

Handfield: The Suez Canal crisis has been problematic, especially in today’s world of extended supply chains. We have a book coming out later this year called “Flow,” and it is a follow-up to a book I wrote with Tom Linton called “The Living Supply Chain.” A key theme of “Flow” is that we may want to be thinking about how do we move towards from buying everything overseas, should we instead be thinking about building domestic, or Pan American, supply chain. One in which we combine low-cost and Mexico and plentiful natural resources in Canada and low-cost capital in the U.S.  and start to build a more localized supply chain. That is possible for some things but not everything.

LM: Even though the Ever Given was dislodged in the Suez Canal for roughly a week, how does that impact the approach to inventory management for the shippers that were impacted?

Handfield: The issue is that it was not just that one ship unfortunately. What happened was there is a pipeline of ships that need to go through that canal, and they are scheduled very precisely and don’t have a lot of [wiggle] room. When one ship gets shut down for a few days, it creates this accumulation of ships waiting to get through and you are not able to work through that backlog. It can only be worked through so quickly. So now some of these ships will elect to go the other way around the Cape of Good Hope, which is known as the world’s ship graveyard. And will cost a lot more for that containership to go that route, pushing up both transportation costs and lead times. If you think of inventory as a function of lead time, cost per unit, and opportunity costs, for your ELQ (economic order quantity) equation, it can really mess things up.

LM: It is fair to say supply chain is really in the spotlight, with things like the pandemic and the Suez Canal, whereas it keeps a lower profile otherwise. What is your take on that?

Handfield: I recently spoke with a friend in Houston whom said it has been a horrible year for [supply chain] disruptions. There were two major waves of COVID in the Houston area, this deep freeze and a hurricane. What else can go wrong? And every time it takes several weeks to kind of reset to get everything back on track.

LM: How can shippers sort of hedge themselves when it comes to risk management planning and the things they need to be paying the most attention to in times of need and crisis?

Handfield: I recently wrote an article in the Harvard Business Review about how every business should be prepared for future disruptions…based on what we have observed during the COVID-19 crisis. The thing is that it is not just the pandemic. Will there be another pandemic? There likely will be. What we have learned that is these things don’t just go away. It could be another three or four years before we fully eliminate the Coronavirus, and there could be more variants and more boosters needed over time. There are other threats as well, when you think about it.

LM: What are some of the other threats?

Handfield: One big one is cyber security, and the other one, of course, is the electrical grid. What happens if the electrical grid shuts down, like in California when a person started shooting at electrical grid generators, to Google and everyone else? Another big threat is our animal stock, if someone put a virus in our poultry stock. The world is a risky place, and we are seeing a lot of potential threats. The common thread among them that we talk about in our article is that you need to have a playbook to establish what to do in order to prepare for any number of different situations. That involves monitoring the market and what is going on out there, what the potential threats are, and what the items are that need to be stockpiled and how do we maintain that stockpile portfolio to cover the most potential dire scenarios. That requires having a risk management plan and a playbook…to define how we respond to things. It is something that is needed, as well as better market monitoring to figure out what is going on out there. Another thing that is needed is supply chain immunity, not unlike what we are getting from the vaccine. It is something that recognizes a threat and finds a way to fight it.

LM: What are some of the key things shippers should be focused on, as it relates to the unknown and risk, for things like managing logistics processes amid the pandemic or inventory management, among others?

Handfield: I think every company, like I said, should have a business continuity playbook that determines how they are going to deal with different types of crises. There should be alternatives and different types of things they are thinking about. I would also advise shippers to look into supply chain mapping, which basically means understanding who is in your supply chain and identifying what are the risks and what happens if you are reliant on a single supplier in Japan that is in the middle of a tsunami and the kill shots in your supply chain that will shut you down. Lastly, you need to communicate with your workforce and make them aware of how to react to situations that occur and what to expect, what their role will be. And if they see anything that is amiss to be sure to report it and provide a mechanism for people to report intelligence that they observe in the field to help them be made more aware.