Supply chain’s evolving role in global change
By Narendra Mulani -- Logistics Management, 10/1/2008
Great companies often get that way because they scan the horizon more aggressively than their peers and act more quickly to leverage opportunities and minimize risk. In effect, they keep one foot in today and one foot in tomorrow. A recent Accenture analysis of business trends and imperatives focused directly on what those high performers are “seeing” and how they might respond. Of the 14 trends identified, five have particularly strong relevance to supply chain decision makers.
1. The rapid rise of emerging-market multinationals. Corporate strategists must come to grips with a new balance of economic power—a multi-polar world in which São Paulo, Dubai, and Shenzhen could attain the impact historically reserved for New York, London, and Tokyo. This implies more than preparing to compete against companies in new areas of the world; it also means reconnoitering for adversaries that might not be showing up on most current radar screens.
Most important, however, could be the need to forge links with emerging multinationals—identifying those companies that, as business partners, could influence your business most positively. Supply chain decision makers play a huge role in this endeavor because the attractiveness of new business partners is often based on supply chain considerations, such as local contacts and connections; complementary logistics networks; access to desirable markets and suppliers; and available manufacturing and/or distribution capacity. Companies bent on high performance are likelier than most to expect emerging-market insights from their supply chain decision makers.
2. New shoring options. Just a few years ago, “offshoring” was routinely embraced as a way to reduce operating costs. Today, with rising labor expenditures, talent shortages and increasing energy prices, a wider variety of options is needed. Principal among these is “nearshoring,” or seeking manufacturing or sourcing opportunities in nearby foreign countries. The supply chain impacts of nearshoring are innumerable, but the strongest potential benefits include reduced shipping costs, shorter delivery times, and less risk associated with hyper-extended operations. In addition, labor rates in fast growing areas such as the Pacific Rim have been increasing rapidly. As a result, nearshore initiatives may not represent the cost hit that some companies assume.
3. Increased demand for sustainability. Governments, customers, customers’ customers, and potential customers are all beginning to expect a higher level of environmental responsibility from the companies with which they interact. All in all, it is no longer a question of whether a business should go green; it’s a matter of how to maximize the business benefits associated with doing so.
Sustainability policies begin at the very top of an organization—with senior executives who believe that long-term economic and brand value are consistent with strategies that positively impact the environment and the community. However, supply chain management is crucial to interpreting, enacting, and optimizing sustainability initiatives. Right now (that is, without waiting for the C-suite to get on board), supply chain executives should be studying the new forces, analyzing the potential effects of environmental responses, understanding supply chain tradeoffs, and formulating high-level response strategies.
4. Major new sources of capital. A key characteristic of the multi-polar world is that capital is rarely sourced locally or even regionally. In fact, funding could come just as easily from Korea as from New York. It also might emanate from a private equity firm, a partial flotation on an overseas exchange, a national teachers’ pension fund, or from one of several new and powerful sovereign wealth funds.
Every business must understand the advantages and risks associated with new sources and flows of capital. And because it is a major focus of capital investment, the supply chain is particularly important. Supply chain decision makers must understand the ongoing value that major supply chain assets bring to the corporation.
Would a cash infusion focused on manufacturing capacity provide a disproportionately high (or low) return? Is it possible that an aggressive distribution network analysis might help to avoid new expenditures in logistics capacity? Would new approaches to outsourcing or shared services possibly help the company avoid a significant capital investment?
5. The rise of Africa. Business leaders who were caught off guard by the pace and scope of China’s growth (Figure 1) should not be surprised if economic development in many African nations exceeds expectations. The result could be a huge opportunity for companies with strong marketing skills and agile, scalable supply chains. Many nations in Africa also offer capable employees—fertile ground for outsourcing call centers and other business process activities that require supply chain expertise.
Perhaps the primary message of this brief overview is not to remind companies of how rapidly the world is changing, but to highlight the critical importance of supply chain management in responding to those changes. Supply chain executives reading this column probably know this. But do the executives in your C-suite?
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10/11/2009
