Tuesday, February 12, 2013

Is a Public Supply Chain Network a utopia?


A recent Huffington Post article discussed that one of the causes for Japan’s great recession in the 1990’s was the use of private supply chains. What is more interesting about the article is that it implies that there is a good chance that this could happen to countries with advanced economies, such as the United States. Although the Japanese and many scholars have been trying to figure out what is exactly the reason for Japan’s recession, there is no clear evidence that it was one specific problem. The authors of The Huffington Post article, Ho-Hyung Lee and Jess Palmer, emphasize that companies in Japan developed supply chain networks that resulted in higher profits and greater efficiency, but as the market and its customers changed to a more information-oriented economy, companies didn’t make the appropriate adjustments to their supply chains (1). In an effort to optimize costs, many Japanese companies off-shored or outsourced their processes to China where labor costs were much cheaper. This is basically the same model employed by US companies. The question that arises is: If companies in the United Stated don’t change their supply chain model, will the country go into a recession?

I don’t believe outsourcing and offshoring manufacturing processes by itself are the only factor determining a country’s recession; but the way private supply chain work may certainly be one of the main issues responsible in such an event. Capgemini’s document about the Future Supply Chain of 2016 lists some of the principal characteristics of the optimal supply chain given global transformations in the way companies and markets operate. These are: multi-partnered information, collaborative warehouses and collaborative transport (2). As we can see, in the new environment the focus is towards a more open and collaborative model, changing from a private type of supply chain into a more open and public one. Current supply chain networks have grown to be more robust, to have better technologies and to have more and more useful information. The problem is that they are considered private and linear supply chains networks, created between individual suppliers and customers. On the contrary, the new model of enhanced collaboration is based upon the fact that suppliers and customers are willing to share their information, their processes and their technology with players beyond the parties doing a specific business transaction. It is also based on a sense of trust, where the primary beneficiary is society. In this way, when different parties that have a stake in the supply chain collaborate and share information, logistic resources, and technology, operations will be optimized for the benefit of all participants.

It seems altruistic and sounds like the correct way to go, but are companies willing to collaborate and share their know-how and their information to the other companies and to society if they are the ones that have invested millions of dollars and large amount of resources in creating huge private supply chains? Are companies losing some competitive advantage over other companies that don’t have an advanced and robust supply chain network? What do these companies need to obtain from public supply chains in order to motivate them to participate in such a model? Or are public supply chains feasible without the large players’ participation?

I believe that moving into a more public supply chain is the correct way to go; it can be beneficial for each player and for society as a whole, and especially for smaller players. But it won’t be an easy path. Big players such as Amazon or Fedex are not going to be easily motivated to participate and share their knowledge; it will be up to smaller players to collaborate with each other and to learn of this new approach, because at least during an initial approach larger players like the ones mentioned won’t be inclined to participate because their supply chains are the backbone of their competitive advantages.

Will private and public supply chains coexist? Which of the two is going to prevail in the end?


References

1. Lee, Ho-Hyung and Parmer, Jess. Japan's Lost Decades: Could They Happen in the US? . Huffington Post. [Online] January 17, 2013. [Cited: February 11, 2013.] http://www.huffingtonpost.com/hohyung-/japan-lost-decade-america_b_2442530.html.
2. —. Supply Chain Revolution: How a 3-D Supply Chain Could Create Many New Jobs and Revitalize the Economy. Huffington Post. [Online] December 12, 2012. [Cited: February 11, 2013.] http://www.huffingtonpost.com/hohyung-/supply-chain-revolution-3d_b_2286420.html.
3. CapGemini. 2016 Future Supply Chain. CapeGemini Global Commerce Initiatve Report. [Online] May 2008. [Cited: February 11, 2013.] www.capgemini.com/m/en/tl/tl_Future_Supply_Chain_2016.pdf.



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