A Secretary of State for the Supply Chain

Carlos Santana

7 mins - 9 de Febrero de 2024, 07:00

The current international logistics situation, with its most recent challenge in the Red Sea, has once again highlighted the fragility and importance of our supply chains. The need to establish leadership that provides visibility and coordination to the sector and makes it more resilient is vital.

Spain needs a Secretary of State for logistics, procurement, and/or supply not only because of the problems arising from the Houthi attacks and the consequent increased risk on the maritime route via the Suez Canal – it has needed one for a long time before this crisis. It would have been a wonderful tool to deal with the complexities arising from crises such as Brexit, the pandemic, or the rise of protectionism (let us not forget the agenda of Trump and his imitators). We need it to be able to deal with the cuts and damages that transport workers have suffered and are suffering from the protests in France but also to be able to foresee and anticipate what is most likely to happen during the Paris 2024 Olympics. Everything suggests that roads, trains, and even airports could be affected in a country with high social tension, a constant threat of strikes, and a high terrorism alert. 

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The current supply chains on which Spanish companies depend are highly stressed and exposed to factors beyond their control (geopolitics, legislation, energy prices, and climate change, among many others). The tension comes from tight transit times and minimised costs, which mean that we can consume out-of-season products all year round, have access to fashion, consumer goods, or spare parts – not to mention medicines or technology – at a very competitive price.

The trade-off for losing such efficiency in the cost structure is simple, to increase the price for the services required. But most of the time, even this increase is not enough. For example, 12% of world trade flows through the Suez Canal, while only 1% of the world’s goods are transported by air. As much as we would like to, the blockage of the canal cannot be absorbed by air transport, not to mention the very high environmental impact. Nor can all goods be moved by rail or truck. Only a small proportion of companies can afford to lose efficiency in order to gain speed, and even if they can, few choose to reduce their profit margin, passing on the cost increase or variation in service to the end consumer. In short, failure to respond to such a situation in a forward-looking manner will end up hurting the weaker consumer, who is sensitive to price increases, reduced supply, and delivery delays. Any action to respond requires high levels of planning and investment. And given the scales, multitude of actors and complexity of each possible solution, it requires clear leadership from the administration.

This scenario we now are facing as a country, companies have been suffering from it for much longer. It is only by adapting correctly to market changes, increasing their agility in the face of variations in demand and increasing their resilience in the face of uncertainty that they have managed to survive. This is not achieved by closing our eyes and wishing for everything to return to our comfort zone. They have achieved this by putting supply chain management at the centre: through planning in purchasing, being more accurate in sales estimates, reducing inefficiencies, transforming their transactional relationships into collaborative ones, adapting digitally, and increasing the added value of what they manufacture instead of just selling “cheap” product, goods or services. In short, giving visibility to the supply chain within the corporation.

Leading corporations have become more competitive and resilient through the management of their supply chains. For decades we have seen CFOs, marketing, and human resources managers occupy important roles on company boards. Because, without good financial statements, market positioning, or talent, they understood that it was impossible to grow and survive. Today, only those companies that also understood the importance of successfully managing their supply chain – from manufacturing to returns – are the ones that have managed to adapt and differentiate themselves. The rest of us can learn from these pioneers who already have the person in charge of their supply chain sitting on the steering committee – especially in times of such volatility and poly-crisis.

It is essential to replicate this business strategy in our governance model, so that we can identify risks, generate synergies, and build solutions that help our companies to be more competitive and survive in the long term. Ports, airports, railways, roads, shippers, transporters, and companies operating and marketing logistics services must have a benchmark under whose umbrella the supply in Spain and the country’s connectivity with the outside world is guaranteed.

This is a unique moment. We have a great opportunity to make a virtue out of necessity through a Secretary of State that responds to the needs of numerous sectors, helps to implement industrial policies, and coordinates the activity of the different ministries, institutions, and levels of the existing administration. We need a Secretary of State to help develop our strategic autonomy. Many countries of great economic weight have figures that exemplify this proposal and whose tendency is the current dynamic in the business world.

The United States, for example, does so through theWhite House Council on Supply Chain Resilience, which advises the President on the matter. This body is made up of top representatives of trade, industry, defence, energy, agriculture, and intelligence, among others. This demonstrates the multidimensional nature of decision-making. China, on the other hand, has a more complex but equally structured system. Companies are in close contact with the state, which sets specific guidelines for action through centralised planning thanks to the National Development and Reform Commission (NDRC), the Ministry of Commerce (MOFCOM), and Customs – especially in relation to exports and imports. There is direct supervision and coordination via senior Party officials, reflected not only in the five-year plans but also in more concrete initiatives such as “Made in China 2025” and the “Belt and Road” project.  Other examples of latent visibility are Australia and the United Kingdom, where the Supply Chain Resilience Initiative and the Strategic Supply Chain Review were created as a result of COVID-19. Similar to the crisis management committees of companies, they now advise on actions needed to ensure the independence, diversity, and resilience of the respective supply chains.

Given the importance that the European Union attaches to strategic autonomy, the creation of this body with the rank of Secretary of State, not only in Spain, but also in each Member State, would help to coordinate efforts to achieve the Community objective of increasing supplier diversification, internal production, the establishment of common standards, coordination between states, and their capacity to adapt. As is already the case in the private sphere, the public sphere has the necessary resources – it just needs to organise and order them so that they can respond to the new reality.
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