Tuesday, February 28, 2012

Key Trends Changing Supply Chain Today and Role of Technology in Supporting these Trends

Hitachi Consulting issued an interesting white paper in 2009 on key trends that are going to be affecting the supply chain in the coming future.

These trends are

1. Demand Planning:

Companies have shifted their focus from plant level production to demand level production. They now have a more customer focused mindset. This is also includes having all stakeholders on board such as marketing, sales and finance and develop a consensus towards a single Demand plan. Demand planning also has a positive impact on new product introductions, inventory planning and management, customer service, supply chain efficiency and sourcing strategies. Dell's just in time model is purely demand focused and creates supply chain efficiency in terms of zero inventory for them.

2. Globalization

Some of the questions answered nowadays by companies designing a globalized supply chain network are

- Where should facilities be located?
Many companies such as Apple have manufacturing facilities in China to exploit the cost efficiencies in that region. Companies want to locate their manufacturing facilities in places that gives them a cost advantage over their competitors.

- How many facilities should I have and what capabilities should they have?

- What kind of capacity should they have?

- What product and services should they handle?
- Which contract packers or manufacturers should I use?

3. Increased Competition and Price Pressures

With continued commoditization of products companies, are looking for better ways to distinguish themselves in the market. Through supply chain redesign and use of technology, companies are benefiting from significant cost improvements. They not only want to remain cost competitive, but also provide significant value added services to their high end sophisticated customers.
Cost improvements around inventory management, logistics operations, material management and manufacturing costs, including raw material and component acquisition can be found with:
- Sales and operations planning
- Transportation/distribution management
- Improved product lifecycle management
- Improved strategic sourcing and procurement

Suppliers differentiate themselves by providing value added services and capabilities to their customers. These include

- Vendor Managed Inventory
- Labeling and packaging
- Drop shipping
- Collaboration

4. Outsourcing

Companies have realized that outsourcing parts of supply chain to other countries can give them a competitive edge. However in recent times, as labour costs in developing countries have increased consistently, the increase in transport costs are eroding that competitive advantage. There could be a trend to relocate manufacturing facilities back onshore to reduce transportation costs and incur significant productivity gains. Most of Apple's IPhone manufacturing is handled in Foxconn facilities in China. As labour unions are getting stronger there, workers are demanding better living conditions and salary. This is driving up the labour costs and puts significant pressures on the margins of Apple. Its same for other companies also that have their suppliers and manufacturers in China.

The optimally outsourced supply chain, either in its entirety or just a component,
relies heavily on:
- Superior supply chain network design
- Inclusion of that outsource partner in the information chain.
- Establishment of control mechanisms to proactively monitor the various
components of the supply chain
- Information systems to connect and coordinate the supply chain as seamlessly
as possible

5. Shortened and More Complex Product Life Cycles

In today's world, the product lifecycles has decreased. Companies are bringing new products at a faster rate into the market. There is pressure to develop innovative products and bring them to market more rapidly with minimizing cannibalization of existing products, which are still in high demand. In order to meet the needs of both customers and consumers, companies need more efficient product lifecycle management processes. This includes heavy emphasis on managing new product introduction, product discontinuation, design for manufacturability and leveraging across their entire product and infrastructure characteristics.

Technology helps companies design products that can share common operations, components or materials with other products, thereby reducing risks of obsolescence write offs, increasing cost leverage on the purchase of new materials and ensuring that infrastructure investments are optimally utilized. Additionally, getting this right would significantly improve their time to market.

6. Collaboration between Stakeholders in the Extended Supply Chain

The ultimate goal of collaboration is to increase visibility throughout the value chain in an effort to make better management decisions and to ultimately decrease value chain costs. Companies that expand the usage of Sales and Operations Planning have greater visibility across their own enteprise and respective value chain, gain the agility necessary to improve Product Lifecycle Management (PLM) process.
Another example of collaboration is the use of RFID Tags. RFID helps chain members to gain visibility into critical information as products flow through the value chain.
The main intention is to reduce overall logistics costs as products move through the supply chain to fulfill safe stock levels and ultimately consumer demand.

Enterprise Resource Planning Tools and SCM solutions have addressed the needs of manufacturing and distribution companies in areas such as
- Network and Inventory Optimization
- Product Lifecycle Management
- Sales and Operations Planning
- Manufacturing Optimization
- Logistics Optimization
- Procurement
- Business Intelligence

These technologies have helped enable the supply chain members to innovate, drive cost reductions improve service and meet customer expectations better than ever.


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