Growing Trust Deficit in Global Supply Chains Due to COVID-19

Growing Trust Deficit in Global Supply Chains Due to COVID-19

AUTHOR

Vivek Sood

TIME TO READ

minutes 

UPDATED ON

March 25, 2021

There are two reasons why this is not going to be a BIG headline in the mainstream press for at least three months yet (but, after that, once the word is out every mainstream outlet will scream about it as if it is the latest news):

  1.  Supply chain staff is not made up of screamers (though that is gradually changing); they do not like to scream about their problems at the top of their lungs when they encounter more problems. In most cases they just keep plodding ahead. They like to do their best under all circumstances and roll with the punches as they fall. 
  2. Most supply chain teams think their current problems are unique and temporary. They do not believe that many others are experiencing similar problems. Moreover, they expect these problems will soon go away once COVID-19 related lockdowns and restrictions are eased. 

If you work in the field, and look carefully, you see the signs all around you.

As one of my German captains was apt to quip every time he went on a shore leave - when the cat is away - all the mice come out to play. 

And in today's supply chains the cat has been away for too long now. 

When I wrote my book "Unchain Your Corporation" - I wrote an entire chapter on the value of trust. Here are some relevant parts:

The value of trust Cannot be overrated

Supply chain management is not a unique field which requires a large amount of trust between people to collaborate. In fact, trust is a fundamental requirement for all collaboration, cooperation and joint activities between human beings. It becomes even more significant in supply chain management and B2B networks where it is both individual trust and institutional trust.

This belief – fake it, till you make it - is usually based on the assumption that nobody will offer you a job if you’re perceived as not qualified for it. On the contrary, you are the best person to judge whether you are truly competent enough to take on a job. At the same time, with this comes the responsibility of choosing, whether to go ahead with the job offer; the responsibility of evaluating your own skills, experience and competence for this particular job.

Unfortunately, there are far too many people forsaking this type of responsibility that seems to only apply at a personal level. But it does not. That is also the reason why there is a lot of trust deficit in the business world. If you are faking it, your reader, your audience, your client, your customer will most likely know that you’re faking it. It is just a matter of time. Whether you are a motor mechanic who’s faking the knowledge of the type of motor that you’re repairing or you’re a heart surgeon or any job in between. Faking it is definitely not going to make you happier or more successful for the simple reason that your customer will always be uneasy with you. Furthermore, in your heart you will always know that you are faking it which is not the best thing for your self-confidence and self-respect.

The need for trust grows exponentially as supply chains grow complex and volatile

There is an important reason why I mention it. As supply chains become more and more sophisticated, as they become more entangled and evolve into business-to-business networks, the need for trust within the supply chains becomes more and more intense.

Let’s take a specific example to make this generic statement more real. Suppose you are a soft drink manufacturer, and the suppliers of empty cans has a captive plant right next to your bottling plant, you have a good chance of hearing about their business ups and downs and know well in time about events that might affect your supply. Now just substitute this captive supplier of packaging by a bunch of suppliers half way around the earth who might have significant cost advantage (because of manufacturing cost, for instance), and see how important it will be for you to keep open clear lines of communication in order to run your business smoothly and efficiently.

Companies typically want to engage with supply chain partners who will be able to deliver on what they promise, barring a totally unanticipated event. If your business network partners are not fakes themselves, most likely they will not engage with you further when they find out that you’re faking it.

How do you measure trustworthiness?

Although trust in supply chain management is a very popular topic, it is evident that establishing trust within the business network can be very challenging. It takes time, patience and effort of each and every supply chain partner. It can be even more difficult to maintain trust over time.

As the concept of trust is rather abstract, it is also hard to measure. At the same time, despite all the difficulties and efforts you can be sure that developing trust with your suppliers and customers is worth the efforts. So what is trust and what are the components of it? How to make sure that there is enough trust between you and your supply chain partners? Is it always worth the investment of your time and effort? Is there such thing as too much trust within the business-to-business network?

First of all, trust in supply chain management, as in any other cooperation between people, includes numerous components and factors. You should maintain good communication at all times between you and your partners. Communication also means honesty and openness. Fairness and loyalty can also be very helpful in establishing trust. Another integral part is the competence and your openness about whether you are qualified for this particular job or not. This kind of relationship requires goodwill and willingness not to exploit your partner’s vulnerabilities. This is even more important because of the confidential information which is shared between supply chain partners and with management consultants.

Higher level of trust is required for more strategic partners

I would like to give you an example of the difference between level of trust required for a pharmacist, a general practitioner and an open-heart surgeon. When you go and buy a medicine from a pharmacy, you do need a certain amount of trust. You need to be confident that the pharmacist will indeed give you the formulation that the doctor has prescribed. You need to be sure that it is pure, unadulterated and sold at the market price.

However the level of trust required from a general practitioner is much higher. Because you will have to literally remove your clothes in front of him. In this case you need the confidence that your general practitioner is able to examine you, to find out what was wrong. This trust further multiplies when we are talking about a heart surgeon. You need to be completely sure of your heart surgeon as you need to entrust him your own body, because he will be actually cutting you open and looking literally at your heart. Imagine a heart surgeon who lives with the philosophy mentioned earlier.

The same principle applies to any other cooperation between people; it is particularly true and important for supply chain management and management consulting. In the situation where people need to share the confidential information, where the profitability of your business depends largely on the competence and honesty of someone else, it is critical to make efforts in order to develop trust. A low level of trust in this case may give a bit more independence and space at first but later on it will definitely result in lower productivity and profitability in supply chain.

When you are working with your supply chain partners – suppliers and customers - in innovation, in order to create new products faster, in enhancing the profitability and reducing the cash-to-cash cycle, you know that relying on fakes will only come back and bite you at the worst possible time. 

Typically deep understanding of customer segments is required to be able to configure a segmented supply chain so that the end-to-end business strategy is in coherence. This activity obviously requires an immense amount of trust running all the way through the entire business network. However, we have to be aware that just like in the example of comparing a pharmacist, a general practitioner and a heart surgeon, the required trust will always depend on the situation and on the level of collaboration that we need from each participant within the B2B network.

It took time to build trust keeping mechanisms in the pre-COVID supply chains of the past

It may not be apparent to an untrained eye, but there are a number of checks and balances that are built into any supply chain. These not only cover supply chain security and risks, but also create trust building mechanisms. 

Whether it is the LOCs, or surveyor's certificates or other specialised intermediaries employed to assure quality, quantity or veracity of facts, they all have an important role to play across the supply chains. 

Those mechanisms are not sufficient anymore

Admittedly, these mechanisms inflicted extra costs on a supply chain, but they were tolerated because they were important. At the same time, they were kept to minimum by deploying new technologies where available. 

However, with the travel bans, and resulting supply chain disruptions, all those mechanisms are gradually breaking down. It is becoming much more easier to lie and get away with it because verifying the facts is a difficult exercise in the current supply chain.

There are even conflicting reports this morning about whether the Suez Canal has been reopened, or not, after it was blocked by a containership. If the facts about the most important supply chain disruption of the decade are murky, then what hope you have of getting the true facts about a humble container being transported among millions of other such containers. 

New technology may have the answer 

These facts are important. They are the basis of huge sums of money changing hands in the normal course of supply chain transactions. 

Everyone is holding out high hopes from the remote monitoring and reporting technologies. 

Again, the one example above should suffice to illustrate the point. If the best media outlets of the day are reporting conflicting facts about a large containership blocking the Suez Canal, then what good is the technology for micro-level supply chain monitoring and reporting.

There is no doubt, eventually the technology will get there. But it has to traverse a large span on the hype curve before the reality catches up with the promise. 

Fit-for-purpose trust building and trust keeping technology is still being invented

One day the monitoring and control technology will make the current trust keeping mechanisms redundant. But before that happens, the current pain points will have to be exposed, examined, debated and thought through so that new technology can be developed and deployed to overcome those trust deficits. 

Eventually technology will replace a number of those manual interventions, and the overall supply chain costs will fall as a result. But, we still have a long and arduous journey to get there. And, it is unlikely to happen without an honest appraisal of trust deficits in the current supply chains. 

It may takes years, even decades to recoup the pre-COVID level of trust in supply chain

When the world moved from the horse buggies to the motor cars it took decades to build the new roads, road side stops, petrol pumps, dealer networks, motor mechanics networks, spare parts networks, and all the supporting infrastructure. 

Supply chains will go through a similar transformation as they evolve into remotely monitored and administered digital global powerhouses. Each point of trust deficit will have to examined and plugged in many different ways before a standardised approach evolves. 

That is why the current trust deficit in supply chains is not necessarily a bad thing. It exposes the weaknesses that are better plugged today, than left unexamined. A stitch in time saves nine. 



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Notes:

  1. These ideas and concepts will be usually expressed by our thought leaders in multiple forums - conferences, speeches, books, reports, workshops, webinars, videos and training. You may have heard us say the same thing before.
  2. The date shown above the article refers to the day when this article was updated. This blog post or article may have been written anytime prior to that date. 
  3. All anecdotes are based on true stories to highlight the key points of the article - some details are changed to protect identification of the parties involved. 
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Vivek Sood

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