Part 3: The Infrastructure Bill and the balance between resilience and sustainability

Editor’s note: This is Part 3 of a three-part look at infrastructure in the U.S. by Geoffrey Garrett, Dean of the USC Marshall School of Business, and Nick Vyas, Academic Director of MS in Global Supply Chain Management and an Associate Professor of Data Science and Operations at the Marshall School of Business.

Click here to read Part 1.

Click here to read Part 2.

Green is good. So, sip on this: Starbucks’ blockbuster drink is not known for its caffeine. Pumpkin Spice Latte (P.S.L.), as it is often called, has sold more than 400 million cups worldwide since that serendipitous moment 18 years ago, when Peter Dukes, director of espresso Americas (now Director – Urban Markets), washed down a morsel of pumpkin pie with a sip of hot espresso, and P.S.L. was born. P.S.L. was not supposed to be a chart-topper; it caught on as a connection to America’s cherished traditions of Halloween and Thanksgiving, a nostalgic link to the idea of family and friendships.

We’ve known for a long that some of the most successful enterprises do not sell products; they sell experiences. Apple is perhaps the quintessential example, but part of Starbucks appeal has long been that its sells coffee laced not only with caffeine but also with environmental and ethical goodness.

Sustainability is serious business for the world’s largest coffeehouse chain. Starbucks claims to be a verified 99-percent ethically sourced company, a natural resource-positive retailer which restores more carbon than it emits, provides more clean water than it uses and is an enthusiastic participant of the C.A.F.E. (Coffee and Farmer Equity Practices) program.

To make this possible, Starbucks has built transparency into its supply chain, tracking every bit of produce, human effort and natural resources. A decoupled supply chain is an environment-friendly supply chain – because supply chains are increasingly consumer centric and customers are demanding sustainability.

Climate change: A cause for concern and action

In the second week of August, the U.N.’s Intergovernmental Panel on Climate Change (IPCC), released an assessment report with an unusual conclusion. It outlined five different destinies for humanity, ranging from the rosy to the apocalyptic.

The better case outcomes were the ones in which nations and organizations act immediately to reduce fossil fuel use and keep global warming below 3.6°F (2°C). In these optimistic scenarios, the world will prevent more extreme weather events, stop rising global sea levels and everyone will flourish. The worst-case scenarios assume the world continues to act as it does now – reactively rather than proactively.

As things stand today, the future looks anything but rosy. The U.S. National Climate Assessment’s (NCA) latest report shows that “Over the last 50 years, much of the U.S. has seen an increase in prolonged periods of excessively high temperatures, heavy downpours and in some regions, severe floods and droughts.”

The July 9 flooding of parts of New York City, including its iconic, century-old subway system, was reportedly yet another manifestation of climate change. Similar catastrophic events like hurricanes (Harvey, Sandy), storms (Elsa), extreme temperature waves (recent heatwaves in USA north-west and Canada) and sweeping wildfires in California and Evia, Greece wallop, singe and freeze our cities with increasing regularity and ferocity.

Experts repeatedly caution that the best-meaning plans and resource allocation at the local level will not be enough to avert the damage that the climate crisis is capable of causing. A look at the extreme precipitation index for 1901-2012 shows that such extreme weather events have increased in frequency in recent decades (Figure 1).

Figure 1: Changes are compared to the period 1901-1960, and do not include Alaska or Hawaii. (Figure source: National Climate Assessment. Data source: Kunkel et al. 2013)

This makes it essential that we fix our supply chains to make them resource-positive, transparent, and ethical. This is all possible with smart decoupling. Resilient, sustainable, agile. Goodness is costly. When, instead of cheaper, faster, better, the guiding philosophy for supply chain networks is “Resilient, Sustainable, and Agile” it will no doubt upset the shopping cart, figuratively speaking. But as the example of Starbucks shows, stakeholders, partners and consumers are willing to bear the cost, and smilingly so, because our future is at stake.

Plus, there is a method for decoupling networks to enhance sustainability. In an article published on Bloomberg Law late last year, we postulated an OpTIMAL strategy that comprises six facets: Operational, Technical, Infrastructure, Management, Advocacy and Legal. The omnidirectional strategy is suitable for deployment by both corporate strategists and policymakers.

Quite naturally, there are industries, particularly those that are capital intensive, like heavy industries and physical infrastructure, where we do not want to pass on the cost of decoupling to the customer. The answer to this conundrum lies in the idea of enterprise excellence, achieved through digital transformation. This applies to both organizations and nations.

Why digital transformation is key

America’s transportation networks, particularly the ports, need to adopt digital technologies more aggressively. Here’s why: the I.M.D. World Competitiveness Report assesses countries on their competencies for long-term value creation. The 2021 rankings put the U.S. at number 10 out of 64 economies. Further, to get a sense of what being globally competitive entails, check out our position in the most recent World Bank’s latest Logistics Performance Index (LPI) Report.

Figure 2 . Logistics Performance Index, 2018

LPI uses six key dimensions to benchmark countries’ performance, which are: Efficiency of customs clearance process; quality of trade and transport related infrastructure; ease of arranging shipments, logistics services, track and trace, and shipment-delivery timeliness.

The United States’ ranking slipped six notches from ninth (in 2012) to 14th in the latest rankings. The parameters on which it has performed the worst reveal international shipments, logistics competence, and timeliness of shipments. Our intermodal transportation systems and port networks falter on these dimensions primarily due to three problems: over-regulation, a lack of standardization, and the issues of interoperability between the myriad actors and systems that carry out multi-level, multi-player operations at our ports.

While regulations will only increase in an increasingly cautious post-pandemic world, the twin issues of standardization and interoperability can be best addressed by digitalizing port operations both within the borders and across the globe. Associations such as the International Task Force on Port Call Optimization (ITPCO), the International Port CDM Council (IPCDMC), the International Port Community Systems Association (IPCSA), and The Baltic and International Maritime Council (BIMCO) need an audience from our policymakers and support for their endeavors.

Organizations, on their part, can achieve enterprise excellence via a holistic integration of blended Quality Management (Lean Six Sigma), advanced data analytics – predictive and prescriptive – with the use of digital technologies like AI, IoT, and Blockchain. This, combined with substantive investments in human capital, will ensure that the transition is seamless. (Figure 3).

Figure 3: Core events and engaged actors in the port call process (Lind et al, 2016). Source: UNCTAD

The better option

Among the whole host of life lessons that the pandemic has taught us, what stands out is our vulnerability. Every aspect of life – whether it is friends and family, work, health, systems, organizations or economies – that we hold dear, that we take for granted, is susceptible to risks posed by natural and manmade crises. Perhaps this is the ‘new normal’ that the media has been bandying about in recent months.

We have two options to deal with this realization: Approach life and work with a sense of foreboding or use our recent experience to improve things. Following Lean Six Sigma principles, the right direction for change is what President Biden aptly called Build Back Better (BBB). A recovery strategy used in the wake of natural disasters, BBB uses disruptions as triggers to identify and fix vulnerabilities and create a culture of resilience.
 
At the Randall R. Kendrick Global Supply Chain Institute, at the Marshall of Business USC, we prepare the next generation business leaders by striking a harmonious balance of profitability, resiliency and sustainability. We expect and hope we embrace the goodness of global trade while living within the framework of the law of nature to respect the use of natural resources, our environment, and our communities for the betterment of humanity.

About the authors:
Geoffrey Garrett, Ph.D. is Dean, Robert R. Dockson Dean’s Chair in Business Administration, and Professor of Management and Organization at the USC Marshall School of Business. He became Dean of the Marshall School in 2020, having previously served as Dean of the Wharton School of the University of Pennsylvania for six years

Nick Vyas, Ed.D. is a Randall R. Kendrick Global Supply Chain Institute’s founding Executive Director, Academic Director of MS in Global Supply Chain Management and an Associate Professor of Data Science and Operations at the Marshall School of Business. He is a fellow at the American Society of Quality (ASQ) and serves as a Chair-Elect for Lean Division for ASQ.

Click here to read more on global supply chain management from Nick Vyas.

And, click here to listen to Nick Vyas on The Rebound Podcast, hosted by SCMR Editorial Director Bob Trebilcock and ASCM CEO Abe Eshkenazi.