What changes the supply chain management today?

Hitachi Consulting found six key trends causing significant impact and change to supply chain design and performance based on their experience with leading key companies in food and beverage, consumer products, high tech and industrial manufacturing. Namely: [1]

Trend 1 – Demand planning

Trend 2 – Globalization

Trend 3 – Increased competition and price pressures

Trend 4 – Outsourcing

Trend 5 – Shortened and more complex product life cycles

Trend 6 – Closer integration and collaboration with suppliers

Trend 1 – Demand planning

Demand planning is normally the first step to the entire process of sales and operations planning. With all resources pooled together (sales, marketing, finance, product development and supply chain), the company will have stronger planning result. However, planning does not come from air; it is generated from the information about customers, and other relevant parties. Thus shared information among different players will be crucial for the planning which creates the supply chain network.

Trend 2 – Globalization

Globalization is impacting the world dramatically as said in the book World is Flat including the way business is managed and transacted. Manufacturing, distribution, sourcing of materials, invoicing and returns have all been significantly impacted by the increased integration of a global customer and supplier base, and many companies find that existing processes and technology are not flexible enough for this new business environment. With the impact of globalization and particularly of emerging markets, there is a trend in growing logistic clusters.[2] The success of economic cluster such as Silicon Valley and Hollywood has suggested the effectiveness of the cluster. In the cluster, everyone needed to support the creation of their masterpieces.

Particularly, logistics clusters are broadly defined as geographically concentrated sets of logistics- related business activities - the warehouses, carriers, terminals, 3PLs, forwarders, brokers, and so on needed to get goods to market.[3] The primary advantage of the logistics cluster is the distinct operational advantage in terms of scale and scope because of the breadth and depth of the supporting infrastructure. Companies benefit from being close to each other. The virtuous cycle is created of the logistic cluster platform. As more parties enter the logistic cluster, they contribute resources to it. With more resources, the cluster becomes more efficient and creates more value for the parties. As the cluster being more efficient, it attracts more companies to enter the cluster. With the enlarged cluster, the cost of transportation dropped and the service become better. Nevertheless, logistics clusters drive economic growth and create job opportunities.[2] The importance of the logistics cluster will keep growing because of globalization and will serve globalization better because more efficient transportation.

Trend 3 – Increased competition and price pressures

In the globalized environment, competition becomes more intensive. Company with product innovation and brand equity cannot just put price too high. To offset this trend, companies may try to reduce cost using quality control practice such as Lean Principle to remain cost competitive. They may also create value-added services to attract customer demands.

Apple is a great example of this price pressure. After Amazon release the product Kindle Fire, Apple face great pressures of the low price competition. After that, Apple’s reaction was not only creating Ipad mini but also trying to improve its supply chain.

The cost saving plan may align with the supplier relationship, where companies not only need to examine its own supply chain but help with its suppliers’ as well. This is what Wal-Mart is doing for its supply chain system to remain cost competitive in the market. On the other hand, suppliers may provide Vendor Managed Inventory (VMI), RFID, labeling and packaging, drop shipping, and collaboration services to the companies to stay competitive in the market.

Trend 4 – Outsourcing

When examine the company core competencies, some may realize that outsource certain supply chain. Before they outsource the supply chain, they may conduct a cost benefit analysis instead of just doing it because others are doing it. And company probably should not outsource their strategic core competence related services as in the Zappo.com case. Since Zappo’s core competence is their loyalty business model and relationship marketing, they are trying to do their best in maintaining customer relationship. This is why they will not outsource their call service.

To maintain a healthy outsourcing practice, companies need to be able to control and monitor the outsourced services. In addition, information needs to be shared and updated regularly with vendors to ensure the quality of the supply chain.

Even if a company is outsourcing its supply chain currently, it doesn’t mean they have to continue doing the same thing. Due to the increasing wages in the offshore locations such as India and China, offshoring may not be as cost benefit or attractive as before. Companies may rethink their offshoring practices and try to take a look at near shoring opportunities.

Trend 5 – Shortened and more complex product life cycles

Given the shortened and more complex product life cycles, companies need to have a relatively high responsiveness while maintaining its cost. The product lifecycle management is crucial to meet the market demand. A people centric approach may be used to develop the process. The company may increase parts re-use, improve document retrieval time, reduce design cycle time, and ultimately reduce new product development cost.[1]

Trend 6 – Closer integration and collaboration with suppliers

With taking globalization in mind, company may want to examine their supply chain network design.[4] What are the facilities roles, where should they be located, how much capacity should be allocated to the facilities, and what market should be served what supply sources should be used for what facilities. Companies need to integrate their process and figure out locations and resources suitable for serving its customers and minimizing cost.

The design will rely intensively on the collaboration among different stakeholders such as customer and suppliers. Technology may come into place to support in this integration (collaboration) process. Use of RFID increased the information sharing efficiency and visibility which also reduce the overall logistic cost due to better inventory management.

However, with great reliance on the integrated supply chain, how company can protect its vital information and win its competitors in the same network remains a question.

1.             Consulting, H. Six Key Trends Changing Supply Chain Management Today -- Choosing the optimal strategy for your business. 2009  [cited 2013 Feb 26th]; Available from: http://www.hitachiconsulting.com/files/pdfRepository/WP_SCMTrends.pdf.

2.             Sheffi, Y., Logistics clusters : delivering value and driving growth. 2012, MIT Press: Cambridge, Mass.

3.             Quinn, F.J., Logistics Clusters. Supply Chain Management Review, 2012. 16(6): p. 60-60.

4.             Watson, M., Supply chain network design : applying optimization and analytics to the global supply chain. 2013, Upper Saddle River, N.J.: FT Press. xviii, 301 p.