Putting the back-office in the spotlight

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Here in the Sauder School of Business, there’s often a running joke that every student in the faculty ends up in one of three paths. Either you become a finance student who loves or hates what they do, a marketing student since you love business and hate math, or an accounting student looking at the Big 4, slogging in pain for 10 years before finally being paid well. Yes, these are the typical jokes that our business school and many others share. You may ask “what about operations, logistics and supply chain? Real estate, entrepreneurship, HR?” They exist, but more often than not they take a step back from the limelight compared to the three most popular choices.

Now, I’m an operations and logistics student, and I am perfectly content with being in the back. That’s our job anyways. Cut down costs, make things efficient, have the business run smoother than an oiled up Ferrari. But the truth of the matter is that COVID-19 has brought forth a lot of unforeseen issues buried deep within a business. Now, companies are scrambling to try and fix that problem in the ground: supply chain. Because nothing screams pandemic than an absolute grounding halt to the movement of goods and services.

This problem has gone on long enough, enough so that everyone’s beloved McKinsey, a global consulting firm counted among the Big 3, has actually acquired SCM Connections, a consulting company built upon providing clear supply chain solutions through technology and, as their names suggest, consulting.

What exactly does this mean, though, for a company like McKinsey to bring SCM Connections into their umbrella? Simply put, this is a wake-up call. Supply chain, in many people’s minds, used to be something akin to moving A to B with the least amount of cost. Because of this, often supply chains remain static and inflexible. So let’s get into the deeper question: why? I read an entire IMF paper detailing why this is the case so 1. You don’t have to, and 2. Because I wanted to know.

Let’s get to it then. The main reason as to why global supply chains are so inflexible actually boils down to three things: the U.S. dollar’s role in trade with other countries, how deep a supply chain goes and who the final consumers are. Because of the role that the U.S.A plays within the global economy, most transactions are carried out with the USD. This may be something expected, but the result of how disastrous it is can be chalked up to a simple framing of demand and supply. There is only a finite supply of USD. Demand for everything, however, is pretty much infinite, whether that’d be something like toilet paper or a giant six-inch steel pipe.

Relating to the second and third points, it’s quite difficult to go deep into them, but an analogy would be best. Imagine you have a long piece of rope. If you stretch it out, that rope has a clear, straight path from A to B. But then, you wash that rope in a washing machine and it gets tangled on itself. New knots are made and the end seems really difficult to find. If you try to straighten it, that takes time. You have to wash the rope at least once a week so it doesn’t smell. That’s pretty much the equivalent of what a deep supply chain is, hence why it’s so inflexible: fixing it is hard.

Producers are price inelastic. That just means they’re insensitive to price changes. This actually matters a lot in terms of supply chains because the flow of information goes back from consumers to the producers, who often have to pass through the other steps in the process of delivering said goods to consumers. So when inflation hits and the retailers start selling your favourite Nike’s for more than you thought, suppliers get this information later than you, who only needs to go to the store and check. This implies that economies that exhibit a lot of final consumption matter more for the supply chain, and thus suppliers get the beautiful backseat of a family car, like the forgotten middle child.

In the end, this all boils down to the importance of supply chain and how McKinsey is opening up a new avenue for those looking to get into supply chain. An opportunity never before seen for this specialization, simply because a pandemic has gotten too out of hand.