Faceless AI Will Not Relegate the Social Side of Business to the Past
Supply chain management is a people business and will remain that way even amid the rise of AI and automation.
My previous blog post explains why the flexibility of human workers will play a critically important role in the automated workplace of the future. In this post, I argue that humans will be an essential part of the external work environment in an AI-driven world.
Again, the arguments are put forth in more detail in my new book, The Magic Conveyor Belt: Supply Chains, A.I., and the Future of Work. As the book explains, algorithms will not replace the human interactions and communities underpinning global commerce. I use the structure of supply chains to illustrate the point.
Supply chains as social entities
Supply chains are more than just faceless corporations and transactional flows. The people in supply chain organizations have the agency to direct and modulate those flows. Therefore, when making decisions in a supply chain, such as managing exceptions or escalating problems, the personal relationships between the people in companies and their customers and suppliers matter.
As Lynn Torrel, chief procurement and supply chain officer at Flex, explained the company’s operations during the Covid-19 pandemic, “We’ve had a few escalation calls with suppliers, and you get on a call, and there are critical needs. Often, it’s someone I’ve known for many years. We had a hard negotiation and then a really good dinner and spent time together, and we’re always seeing each other at different events. I think that personal side is important, especially the relationships and trust that build over time.”
Person-to-person communications help provide unstructured information about what is happening and what each side is considering doing. It helps in negotiating a solution and obtaining mutual commitments to action. “You can be as technically savvy as you want,” Torrel said, “but at the end of the day, you’ve got to pick up the phone and see if you can get a solution.”
Expansive ecosystems
Customer-supplier relationships in supply chains can be quite complex. Large organizations can have a web of personal relationships at supplier and customer organizations that span many levels or functions in each other’s enterprises. For example, operational and administrative personnel might interact frequently to solve problems with purchase orders, shipments, and payments. Engineers in both organizations interact when working on new products and implementing technologies. Finally, managers and executives hold strategic discussions and negotiations.
Companies often maintain teams dedicated to specific high-profile customers, creating long-term, person-to-person relationships. Good person-to-person relationships create a social bond that modulates how the companies treat each other. To this end, Procter & Gamble, for example, has an office in Bentonville, Arkansas, next to Walmart’s offices. It is staffed with several hundred people dedicated to the P&G/Walmart relationship. So many other vendors have such offices around Walmart that the area is dubbed “Vendorville.”
In the case of strategic customers and suppliers, supply chain relationships can extend to the executive suite. For example, when GM faced chip shortages after the 2011 Tohoku earthquake, CEO Dan Akerson used his position on the board of chipmaker Freescale to seek an alternative source of chips. “I picked up the phone, called the CEO of Freescale, and said, ‘I know you make chips of this type.’ We came up with a solution,” Akerson said.
Wider collaborations
The social networks implicit in supply chains also extend beyond direct supplier-customer connections, as the case of a disruption at Evonik Industries shows. On March 31, 2012, a tank filled with highly flammable butadiene exploded in one of Evonik Industries’ chemical factories in Marl, Germany. Roughly 130 firefighters fought the blaze for 15 hours at the cyclododecatriene (CDT) plant.
CDT is a critical ingredient in manufacturing a high-tech type of nylon called PA-12. The auto industry uses this tough plastic for fuel lines, brake lines, and housings. The average light vehicle in 2021 included 400 pounds of the material. PA-12 also goes into solar panels, athletic shoes, ski boots, optical fibers, cable conduits, and flame-retardant insulation for copper wire.
The Evonik fire destroyed almost half the world’s production capacity for CDT. Worse, at the time, supplies of CDT were already tight due to its use in the booming solar power industry. In the auto industry, the fire threatened a significant and prolonged disruption of car production.
In response, the entire auto industry sprang into action. An emergency summit was attended by 200 people representing eight automakers and 50 suppliers. In addition, six committees and multiple technical follow-up groups were formed to help create action plans to lessen the impact of CDT shortages. This multifaceted collaboration was vital to overcoming the supply challenge. For example, Kansas-based Invista Inc., the maker of Stainmaster brand carpets, released its contractual claims on capacity for the production of CDT so more could be allocated to the auto industry. In the end, cars continued to roll off the line even though the Evonik factory was offline until December 2012.
A salutary lesson
As these examples show, supply chain management is a people business and will remain that way even as AI and various technologies continue to make inroads into corporate operations. The same can be said for other functional areas.
It’s a lesson we need to remember as we plot a path for future applications of AI.
