21st Century Supply Chains: What’s Different?
Where finance and capital management reigned supreme in the latter half of the 20th century, I see increasing evidence for strategic sourcing and supply chain management ascending in importance in the corporate hierarchy, with finance and capital management becoming more and more of a support or enabling function.
It’s my contention that both supply chain and general management need to view the supply chain function in entirely new ways.
Supply chain logistics have traditionally been used as a cost-cutting mechanism; now logistics are increasingly being used as growth drivers to open up new markets, especially emerging markets, as more companies seek to capture new revenue opportunities. Overall, the objectives of supply chain management in the 21st century have become more strategic and complex.
I see four major trends driving most of this increasing complexity today:
- Information technology – especially GPS and location-based sensor applications.
- Need for enhanced security and resiliency against both natural and man-made calamities.
- On-shoring – or what some are calling RE-shoring.
- Convergence of supply chain management with strategic innovation sourcing.
Continuing advances in information technology, including the declassification and commercial use of precision GPS technologies, has enabled all kinds of tracking and position-based capabilities especially in the last five years. Concurrent advances in sensor systems enable environmental and contamination detection capabilities. Taken together, companies can now know exactly where and what the status of inbound supplies, components and equipment are.
This is important, because we’ve also seen tremendous increases in the need to ensure the integrity of shipping containers and logistics chains in the face of unprecedented terrorist threats and natural disasters. An emerging concept of the resilient corporation– able to cope well with unplanned supply disruptions – is beginning to overtake just-in-time and lean manufacturing methods as the desired objective of 21st century supply chain management.
One of the more welcome trends I’m seeing is a significant increase in the number of companies and manufacturing facilities being repatriated, or on-shoredback into the US from China and Mexico. GE, Caterpillar, NCR, and Wham-O are among scores of name-brand companies reversing their 40-year bias towards outsourcing and starting to bring significant levels of production back home.
In China, double-digit annual increases in labor costs and rising standards of living have eroded much of the cost advantage that China enjoyed a decade ago. The costs of transportation are soaring in the face of global shipping container shortages and imbalances, upwardly spiraling fuel costs and enhanced security measures. Studies that I’ve read forecast that net labor costs in China and the US will actually converge by 2015.
Companies that have off-shored most of their manufacturing and supply operations away from their demand locations are increasingly finding that it hurts their ability to meet many aspects of customer expectations – especially in key areas such as rapid response and delivery times and efficiently fulfilling customer demands for customized products.
Finally, I’m seeing a true convergence of supply chain management with strategic innovation sourcing. When companies get it right, their supply chains can become invaluable assets generating enormous strategic and competitive advantage. More and more companies are looking to their supplier networks and finding key sources of strategic innovation and product development partners – as well as added resiliency to endure unexpected disruptions.
More than anything, I’m advising my clients to “detect the unexpected” – to enhance their capabilities to monitor internal and external indicators of change as a means of identifying potential disruptions in advance.
Resilient organizations seek out potentially disturbing information and test it against current assumptions, management approaches and mental models. They work diligently to detect the unexpected so they can respond quickly to exploit opportunities and prevent costly interruptions to their operations when actual disruptive events occur.
In these times of great uncertainty and unpredictability, it is critically important that companies use small-scale experiments to field test new ideas before they are deployed more broadly. Successful companies continuously invest in market research, strategy refinement, product development, and ongoing operations and service improvements. They invest in small experiments and new product trials that carry low costs of failure.
These companies foster a culture of continuous innovation and ingenuity to solve problems and adapt to market challenges. A side benefit is that employees who believe they can influence events that affect their work and lives are more likely to be engaged, committed, and act in positive ways associated with resilience.
My closing advice is to turn today’s more complex supply chain management dynamics into a winning scenario for you and your company. Seek out challenges and convert them into opportunities.
Bear in mind the classical adage, “Fortune favors the bold.”
- Collaborative Supply Chain (globalcargomanager.wordpress.com)
- What is Supply Chain Risk Management, Exactly? Stepping Back to Address the Challenge (spendmatters.com)
- Supply Chain Design Conference Draws International Audience (prweb.com)
- >Supply Risk Management (vijaykumarsblog.wordpress.com)