Future of Supply Chains: Part 1 – From Chains to Networks
What used to be the supply chain is increasingly the ‘supply network’. This is the inevitable result of the challenges facing today’s global supply chains.
As organisations seek to grow and expand into new markets, they have to look at whether existing supply chains are capable of servicing these objectives.
Supply chains have never been so volatile, which leads to permanent uncertainty. Customer loyalty is lower than ever as market transparency and price sensitivity increase. Complex global supply chains render products sensitive to geopolitical upheaval. And products are increasingly commoditised, as generic alternatives are more widely accessible in both B2C and B2B markets. I’ve experienced this personally. Just last year, I took up Paragliding. You could easily spend £300.00 on a well-known branded radio unit. However, one of the instructors pointed out a ‘Baofeng’ Chinese generic for about £25.00 including delivery. Having compared the branded with the generic, it’s hard to tell what the difference is, apart from the name.
According to a 2013 study by PwC, 75% of survey respondents considered volatility and poor forecast accuracy to be the biggest challenge they faced.
The same study found that participants felt their new growth would come from international customers and customised products. It’s no coincidence that Starbucks plan to open a further 500 stores in China this year (on top of the 2100 spread across 102 cities). No doubt this impressive growth is linked with the fact customers can order ‘‘Venti Iced Skinny Hazelnut Macchiato, Sugar-Free Syrup, Extra Shot, Light Ice, No Whip’ coffee, if that’s what they want!
Customers are more aware and connected than ever. To meet this challenge, companies need ‘Digital Supply Networks’ which are more than physical flows, but rather encompass broader business parameters: information, talent and finance. This is especially true for manufacturing as it moves away from shifting product and towards offering services – so called ‘servitization’. For example, you don’t buy jet engines from Rolls Royce anymore. You buy $/per engine flying hour. If the service level agreement stipulates a designated percentage of uptime, you had better have engineers available to maintain the engines – wherever that happens to be!
The demand in China for Starbucks is mirrored more generally by global trade, which is anticipated to rise by the World Bank to US$27 Trillion by 2030. That’s approaching double the US$16.5 Trillion of merchandise trade recorded by the WTO in 2015. To maintain product flows, we will be forced to innovate. Manpower Group stated in 2015, just finding drivers was one of the top 10 jobs which was hardest to fill in the US!
Try searching #supplychain on Twitter and you’ll find huge amounts of information on the changes in supply chain management: the Internet of Things, 3d printing, Big Data, Sustainable sourcing and much more.
In part 2, we’ll look at how existing distribution models are being disrupted and the technologies in production that are making it happen!