Supply Chain Megatrends
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The document outlines five supply chain megatrends: multiple supply chains, shifting manufacturing locations, green and sustainable practices, global risk management, and the complexity of managing supply chains. It discusses how companies adapt to volatility in customer demand, rising labor costs, and sustainability requirements, along with the need for improved risk management strategies in response to recent disruptions. Overall, it emphasizes the importance of strategic planning in supply chain operations to maintain competitiveness and resilience.
Supply Chain Megatrends
- 2. Contents – Supply Chain Megatrends Handbook 1 Introduction to the five Supply Chain Megatrends 2 Megatrend 1: Multiple Supply Chains 3 Megatrend 2: Move On or Move Home 4 Megatrend 3: Green and Sustainable Supply Chains 5 Megatrend 4: Global Supply Chain Risk Management 6 Megatrend 5: Managing Supply Chain Complexity 2
- 3. Leading companies work with various strategic levers to cope with the global supply chain challenges in order to stay competitive Analysing the impact on supply chains Cyber security Global challenges Strategic levers used to improve the supply chain, mitigate global challenges and stay competitive Managing the volatility of customer demand Sustainability and CSR in supply chains Impact of oil prices on cost-to-serve Supply chain principle in service organisations Vulnerability and risk management in supply chains Resource security Real collaboration in enterprise supply chains Selection of talents to manage supply chains Managing multiple organisational formats: agile, lean etc. Cope with SC network, national, regional and global • Gartner Group Managing complexity in supply chains Demographic challenges • Aberdeen • McKinsey Financial link to enterprise supply chains • Booz Allen Knowledge management in development of intelligent SC • A.T. Kearney Continuous improvement in supply chains • ... Source: World Economic Forum, Global Risks 2011 3
- 4. Implement Consulting Group has summarised the strategic levers into five supply chain megatrends Multiple Supply Chains Customer demand is developing to be more volatile and unpredictable than before. Market leaders are splitting their supply chains into dedicated value streams to meet different buying behaviours and to respond in time. Move On or Move Home As China has become the world’s primary country for manufacturing, the demand for labour has increased manifold. This has led to a steep rise in hourly wages. This trend is expected to continue, and other low-cost regions are becoming attractive. Green and Sustainable Supply Chains Socially and environmentally responsible managements have advanced the core of their companies’ value propositions. Especially in emerging economy contexts, corporate sustainability has emerged as a strategic priority for business leaders across industries. Global Supply Chain Risk Management Based on recent years’ natural disasters and disruptions in supply of goods combined with global supply chains and lower inventory levels, companies must now design their supply chains to mitigate risks to be able to supply the market even after upstream disruptions. Managing Supply Chain Complexity While operating a global supply chain network has a myriad of advantages, it has its challenges as well. One of these challenges is lack of visibility into various information sources leading to complexity which influences daily operations and performance. 4
- 5. Multiple Supply Chains The root cause of the problems plaguing many supply chains is a mismatch between the type of product and the type of supply chain. Marshall L. Fisher 5
- 6. Unpredictable demand, lower stock levels and increased complexity drive multiple supply chains Drivers and lead indicators Impact on supply chains • Unpredictable demand patterns caused by e.g. financial crises and environmental disasters • As a consequence, companies are facing: – Increased complexity in supply chains • Pressure to lower stock and just-in-time deliveries at the same time as the world trade has increased – Decreased transparency throughout the supply chain – Risk of not being able to handle the complexity in the supply chain, damaging relationships throughout the supply chain Total business inventories/sales ratios, 1992-2011 – Difficulty in forecasting and planning production and inventory • To avoid the consequences, companies tend to: – Increase inventory levels creating higher inventory costs causing dead stock as demand is unpredictable Source: www.census.gov/mtis – Create an organisation with many steps and non-value activities World trade development, 1991-2011 Source: The Netherlands Bureau for Economic Research 6
- 7. Configuring multiple supply chains must be based on your customers’ demand Impact on supply chain strategy Impact on relationship The below model divides supply chains into four dedicated conveyor belts based on different demand flow types. All supply chains demonstrate value-add and clear value propositions against the customers’ buying behaviour. For each flow type, the marketplace is analysed and used for configuration of related supply chains. The below model describes the four generic configurations of the supply chain in relation to ”relationship to customer” vs. ”predictable demand”. Collaboration and forecasting Flow types Types of supply chains Cavitation ”Agile”. Usually unplanned, at least until the last possible moment. May result from promotions, new product launches, fashion marketing, unplanned stock-outs or unforeseen opportunities Semiwave Tight ”Fully flexible”. Unplanned and unplannable demand due to unknown customers with exceptional, sometimes emergency, requests Surge ”Lean”. Regular pattern of demand, quite predictable and forecastable, although it may be seasonal. Tends to be mature low-risk products/services Base Innovative and creative solutions ”CONTINUOUS REPLENISHMENT’ ”FULLY FLEXIBLE” Relationship to customer ”LEAN” ”AGILE” Loose ”Continuous replenishment”. Very predictable demand from known customers. Easily managed through tight collaboration with collaborative customers High Request for low cost and high reliability Source: Gattorna Source: Gattorna 7 Low Predictable demand Balance service and costs
- 8. Move On or Move Home Life is like riding a bicycle – in order to keep your balance, you must keep moving. Albert Einstein 8
- 9. Move On or Move Home – companies move further out for lower costs Drivers and lead indicators Impact on supply chains A shortage of skilled labour supply has led to rapid cost inflation – more than 20% year-on-year in some pockets. This trend is expected to continue. • Companies are considering how to move their facilities and which products or categories where it makes sense: – Transparency of the supply chain – Sustainability Comparative wage inflation in LCC Asia – $/hr (2008-2015) Vietnam Thailand Indoneisa Indonesia India – Delivery reliability – Time-to-market China – Culture 3,5 . • Trends are emerging where companies are considering total landed cost, consisting of: . 3,0 – Supply chain downtime costs 2,5 . – Logistics costs 2,0 . – Duties and taxes – Future inflation 1,5 . – Infrastructure and capacity 1,0 . – Efficiency • Products and product lines are being designed for modularisation so that they can be moved over time and adjusted to the supply chain strategy 0,5 . 0,0 . 2008 2009 2010 2011 2012 2013 2014 2015 Source: BCG Analysis 2011 9
- 10. Move On or Move Home – companies move further out for lower costs Supporting data Impact on supply chain structure Currently, there are still companies that prefer to stay within lowcost countries as the cost of shifting manufacturing and supply chain is too high. Cost impact: Plans of relocating within or expanding outside China (% of respondents) A few years ago (%) • Material costs • Labour costs Today (%) • Transport logistics Within China 17 3 7 73 Within and outside China Out of China No plans • Customs duties Within China • Other fixed costs 28 50 14 8 No plans • Salary costs Out of China Within and outside China One-off costs: • Restructuring costs • Transition costs • Investments Source: AmCham Shanghai Survey, • Inventory • Increasingly, companies are paying close attention to the landed cost – comprising freight, currency and inflationary costs • Incomes • In 2015, Mexico is expected to be 15% cheaper than China compared to being 20-30% more expensive today Source: BCG and Alix Partners 10 Sensitive risks perspectives
- 11. Green and Sustainable Supply Chains Mother nature does not do bailouts. Al Gore 11
- 12. Green and Sustainable Supply Chains – doing well by doing good Drivers and lead indicators Impact on supply chains • Many western companies seek to benefit from the cost advantages offered in emerging economies in Eastern Europe, Asia and Latin America Sustainability will impact supply chains and companies’ internal operations differently, but the following are seen as the main changers: • As the cost advantages offered in emerging economies often come along with social and environmental standards below those of western countries, companies face the question of what impact a social and environmental engagement beyond these standards has on their capabilities • Closer relationships between the tiers throughout the supply chain to gain transparency of operations • Use code of conduct towards suppliers to prevent cases that can have a negative impact on the business and, thus, as a risk management tool • Supply chains are becoming increasingly complex as there are many parameters companies need to be in control of Sustainability as a purchasing goal (% of respondents) ”Is sustainability one of your company’s strategic purchasing goals?” 2003 • Slower supply chains as transportation will slow in order to reduce emissions in the supply chain. This will require re-thinking of the companies’ supply chain strategy and set-up. In contrast, supply chains move closer to markets and become more expensive 21% 2009 • Product development will increasingly focus on the ability to re-use scrapped products 56% • Reverse logistics are becoming a new supply chain 2011 • Sustainability is used as a supply chain strategy to gain customers 69% Source: Roland Berger, 2011 12
- 13. Compliance with society calls for sustainable supply chains Supply chain compliance with society Impact on supply chain transparency Society demands companies to be pioneers setting new norms for responsible behaviour, and companies comply to reduce the risk of not being the customers’ choice Companies are demanded to be proactive, have high standards and be best in class in their value and supply chain within: Environmental responsibility: • Use of resource-efficient production technologies • Highly effective filtering systems to reduce emissions • High standards regarding use of environment-friendly and energy-efficient input factors Future norms • Environment-friendly product development through new technologies focusing on the product life cycle, including reusage of scrapped products Social responsibility: Accepted norms • Compliance with human rights • Ensure no use of forced labour, child labour and the right to collective bargaining Industrial standards • Supportive working conditions, attractive staff benefits as well as development programmes • Stringent monitoring of workplace safety and comprehensive safety training Laws and legislation • Active contribution to local communities, especially with regard to improvement of living conditions (e.g. water supply and educational infrastructure) Source: Implement Consulting Group 13
- 14. Global Supply Chain Risk Management There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction. John F. Kennedy 14
- 15. Global Supply Chain Risk Management – building a robust supply chain and preparing for disaster Drivers and lead indicators Impact on supply chains • Just-in-time production Mitigation of risks is manifold and, hence, impacts companies and their supply chains in multiple ways: • Lean inventory • Natural endowment and specialisation among few suppliers Supply chain design: • Sourcing from destinations where governments have major control of resources • Multiple sourcing of key components and service • Geographically spread supply chains to serve customers • Increased transportation costs as a consequence of multiple sourcing and geographically spread supply chains • Longer ramp-up periods to serve the customer leading to higher stocks to prevent production downtime and secure ability to deliver to customers Total factors affecting supply chain: Business Continuity Survey, 2011 • Risk of lower quality as an effect of sourcing from a non-qualified supplier to secure supply to customer Product-related: 50% • Product development without the usage/consumption of critical resources and products that disturb the supply chain 40% 20% Adverse weather IT outage 20% Transport Earthnetwork quake or disruption tsunami 15% Supplier failure • Vertical integration of supply chain to secure IPRs 12% Loss of skills Source: Business Continuity Institute 15
- 16. Disasters affect supply – therefore, risk management to secure supply becomes a strategic parameter Natural disasters reported from 1900 to 2010 Impact on supply chain strategy Recent events that have adversely affected supply chains: • Companies are now working more strategically with risk management and how to prevent downtime in part of the supply chain • Japanese earthquake and nuclear accident • Financial crises and economic uncertainty • In a survey conducted by Roland Berger, more than 500 CEOs, COOs and purchasing managers were interviewed to understand purchasing trends in 2011 • Ash clouds • Floods in Australia and Southeast Asia % of respondents confirming the attributes in their organisation for SCM 2003 77% 82% 43% The above figure includes all disasters from 1900 to 2010 which meet at least one of the following criteria: 10 or more people killed, 100 or more people affected, a declaration of a state of emergency by country authorities or an appeal for international assistance by country authorities. Importance of risk management Source: EM-DAT 16 2009 2011 74% 77% 49% 54% 51% 35% Support of senior management Regarded similar to finance, sales
- 17. Managing Supply Chain Complexity Any intelligent fool can make things bigger and more complex... It takes a touch of genius – and a lot of courage – to move in the opposite direction. Albert Einstein 17
- 18. Managing Supply Chain Complexity – more countries, more customers… more complexity Drivers and lead indicators Impact on supply chains Increase in customers or customer locations • The design of supply chains needs a re-think, starting at the marketplace in order to link customers and suppliers closer to your own business 79% Increase in products/ variances offered • Sourcing and distribution will become highly complex to deliver efficiency 67% • Production planning will become more difficult High fluctuations in customer orders Increase in strategic suppliers • Inventories need to be reduced to reduce costs, but this is challenged by more difficult production planning that will require higher inventories to avoid production stops 65% • Flexibility is required to cope with demand peaks 51% Increase in manufacturing facilities 47% Increase in distribution facilities/inventory locations • Products need to be customised with regional preferences and assembled as per customer order 44% Source: Survey by PwC and PRTM % of companies responding in the affirmative to the factors driving supply chain complexity in a survey conducted by PwC and PRTM of more than 350 companies across the globe and industries 18
- 19. Reduce complexity by rational business behaviour +3-5 percentage points Additional EBIT reserves Levers to reduce complexity Optimise production and logistics Shut down locations Enhance utilisation Avoid investments Increase economies of scale Cut material costs Reduce suppliers, raw materials Introduce technology platforms Adjust sales and R&D personnel Adjust service capacities Optimise size of orders Reduce unprofitable customers Improve the product mix Increase margins Old EBIT New EBIT Raise prices Eliminate unprofitable products without any replacement Source: A.T. Kearney 19
- 20. Contacting Implement Consulting Group Learn more about how we work with Supply Chain Management Go to Implement Consulting Group's main website Implement Consulting Group P/S Lars S. Feldstedt, Partner Thomas G. Holm, Partner Email: lsf@implement.dk Email: tho@implement.dk Mobile:+45 2338 0068 Mobile:+45 5138 7427 Jan Lythcke-Jørgensen, Partner Email: jlj@implement.dk Mobile: +45 2338 0017 20