Trends that impact supply chains and best practices to effectively respond

There are at least five megatrends that impact supply chain management. I am basing those on the research & analysis of Implement Group, Aberdeen, McKinsey, AT Kearney, BCG and other authoritative companies.

1. Multiple supply chains must be based on customers’ demand

In general, there are four different demand flows that ask for four different supply chain types, or conveyor belts using a factory analogy. Each supply chain is customized to the market and customer needs.

These four generic configurations of the supply chain can be illustrated in relation to “Customer relationship” versus “Predictable demand”.

 

2. Move on or Move home – in pursuit of lower costs

China is not the cheapest country to manufacture anymore. Besides of costs it is often easier (less bureaucratic, less risky, etc.) to manufacture in other countries such as Vietnam, Thailand, Indonesia and India. Factoring in all landed costs, Mexico can be up to 15 percent cheaper than China for US companies.

The following chart from BCG highlights the steep cost increase in China, compared to other country alternatives.

Whether continuing operations or moving to another country, companies need to consider key issues within supply chain management as follow:

• Transparency and flexibility of supply chain
• Delivery capability and reliability
• Infrastructure and capacity
• Time to market
• Product and Product line modularization and customization
• Supply chain downtime costs
• Logistics costs, duty and taxes
• Efficiency
• CSR & Sustainability
• Cultural issues & differences

With increasing global competition and customer expectations increasing, fluctuating market demands, and other factors… companies need to consider all risks and do solid risk management.

 

3. Green and Sustainable Supply Chain – It is good business

Companies have learnt the heart way that cutting corners hurt reputation, market share, financial outcome and many other drivers that are fundamental to long-term success.

Very clear areas are saving and minimizing resources such as raw materials, energy, etc. Reverse logistics makes good business sense. Striving for zero waste and circular economy generates improvements throughout an entire organization serves as a powerful tool to make companies leaner and more agile (SEE MY POSITION PAPER ON THIS TOPIC).

Working with British Telecom’s Supply Chain Excellence Practice since 2005, I have witnessed the stark difference between the traditional compliance approach (push suppliers to observe rules) and BT’s industry leading approach of turning supplier engagement into partnership relationships helping those partners continuously improve.

Companies need to do more than doing the necessary. Smart companies go far beyond what is necessary.  The turn CSR & Sustainability into a competitive advantage.

Innovative companies use sustainable, green methodology to drive optimization across their organizations and supply chain. Here just a few examples:

 

4. Global Supply Chain Risk Management

Natural disasters have notably increased in recent decades. Catastrophes in one part of the world can have massive negative consequences through the interlinking of supply chains.

Risk Management has gained increasing importance in Supply Chain Management.

 

5. Increasing Supply Chain Complexity

Customers and locations are increasing; so are products and variances. Customer orders increasingly fluctuate. Mass customization, even focus on an individual level becomes the norm. Companies need to re-think how to link customers and suppliers closer to their own business. Sourcing and distribution becomes increasingly complex. Products need to be customized with regional preferences and assembled as per customer orders.

As variables change quickly, so must companies respond by making changes to their supply chains. Industry leader that make their supply chains agile will gain advantages. The more a company can adapt to market changes in real time, the more the company will profit. With today’s advances and applications of Big Data, Cloud and Business Analytics, it has become already technically possible (REFER TO MY POSITION PAPER ON DIGITAL TECHNOLOGIES IN THE SUPPLY CHAIN).

AT Kearney suggests simply activities companies can reduce complexity:

 

Summary:

Supply chain management is a tremendously challenging, but also highly rewarding area for companies to build competitive advantage and secure business success. It requires holistic, cross functional, inter-disciplinary thinking. People who can optimize supply chains really understand business.

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