Monday, September 29, 2014

Will Technological Advances Shrink Global Supply Chains?

This weeks' McKinsey article talked about key technologies that can help producers lower costs as well as improve ability to customize products.  While this article focused mainly on the future of mass customization, I was interested in learning more about the impact of these technologies on the global supply chain, and decided to do some research on this.

Currently, many of the goods we purchase are designed in one country, and produced in another (or, in some cases, many others).  When looking at labels on clothing or electronics purchased in the United States, rarely is the manufacturing country the same.  This represents a complex global supply chain, as we have discussed in class in regards to Apple products, whose pieces come from multiple countries.

In researching this topic, I found articles that suggest a de-globalizatin of supply chains as a result of technological advances.  With a software-defined supply chain, an IBM Electronics report states that the "minimum scale required to operate and be cost competitive has declined by an average of 90 percent."[1] In addition to this decrease, the report noted that with the advent and increase usage of 3D printing, the majority of a product's components can be printed in one location, and easily assembled by a relatively inexpensive flexible robot.  If both tasks can be accomplished in one location, cost can be reduced, thus increasing the appeal of localizing the supply chain.

An article on GigaOm gives the example of a simple hearing-aid, whose cost of production has significantly decreased due to a software-defined supply chain.  3D printing should further decrease the price of hearing-aids, and also have a significant impact on the supply chain. The same IBM report forecasts that while the supply chain for hearing aids today is national, and even perhaps global, by 2022, it will be localized to city level production.


While hearing-aids are a relatively small product, it is interesting to see the change, and forecasted change, in this device's production.  Will this be a trend that we see in the future with larger and more complex products?

The concept of software-defined supply chains presents interesting questions about market competition and the future of global supply chains.  3D printing and the use of robots for assembly may eliminate the need for intermediary players in current supply chains, and companies will likely be able to design and produce products much more rapidly than they have in the past.

Will technological advances serve to simplify supply chains as we currently know them? Will software-defined supply chains have the power to reverse some of the outsourcing that is a staple of current supply changes?  With the advent of 3D printing, artificial intelligence, and other complex technologies that take the place of human labor, it will be interesting to watch what happens to global supply chains, and if we do in fact see a trend towards smaller, more localized supply chains.

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