When they write the history of supply chain management, I am fairly confident they will note that we entered a new era somewhere right around 2007-08.
In short, it just isn’t about us (North America, Western Europe) any more and, in a more profound way, it's more than just about the surge in offshore manufacturing over the past 10 years. To borrow from a political phrase, I suggest we are now entering a New Supply Chain World Order – one that is truly global, with important ramifications for all of us in the supply chain business.
So, what prompts this proposition? Consider some recent news and developments, some of which we’ve reported on:
- Boeing and India’s Tata Industries have just agreed on a plan to form a joint venture that will initially include more than $500 million of annual defense-related aerospace component production work in India for export to Boeing and its international customers – a huge move for Boeing.
- Siemens has just said it plans on building more basic versions of many of its products at much lower prices to penetrate the rapidly growing markets in developing countries, where it sees a market opportunity of about $150 billion annually. Of course, it will make an increasing number of those products in those developing markets as well, where it sees growth potential far exceeding the markets in North America and Europe (See Siemens Announces Strategy to Penetrate World Markets with Lower Cost Products.)
- There is a significant economic slow down in the US; under traditional circumstances, this would have already have led to reductions in oil and other commodity prices. Not any more. Commodity prices continue to go up.
- Why? Well, China already uses more of the world’s copper supply (20%), than any other country. For example, its demand for steel was up about 12% in 2007, and about the same growth is expected for 2008. Consumers in India and China are buying automobiles at rapid rates. Etc.
- Procter & Gamble is again using supply chain innovation to gain competitive advantage, but this time not in better continuous replenishment with Wal-Mart, but in micro-delivery methods to affordably get its shampoos and soaps to tiny sales channels in developing markets.
- As never before, China’s manufacturing companies are moving from being low-cost manufacturers of labor-intensive goods to using “cost innovation” to become major competitive threats in product category after product category. China International Marine Containers Group, for example, in just a relatively few years, went from being a nothing player to now commanding more than 60% global market share of container manufacturing, decimating several formerly dominant European, Korean and South African competitors in the process. But that company is just one of many. Look at Haier in appliances, and dozens of companies most of us have never heard of in other segments. (See The Supply Chain and China’s Dragons.) Consider also India’s Tata Motor’s plans for building affordable cars for developing economy consumers that will cost just $2500 US dollars.
- All the cash and liquidity right now – and likely for some time to come – is in places like Russia, China, and the Middle East, flush with commodity or export-driven riches. They may be using that to buy into Western companies, as China’s government-owned sovereign fund recently did in acquiring a stake in US financial giant Morgan Stanley. Even if political pressure or regulation, which may occur, blocks many of these attempts at direct ownership, the cash gives them clout, and may enable them to lock up commodity and other assets in other developing markets (e.g., Dubai World Ports). (See Will Your Next Company Owner Be China or Russia?.)
- IBM has moved its global procurement headquarters and US executive to Hong Kong; Dell is in the process of making a similar move with its logistics group to Singapore.
I am not the first to note that there is a big difference between being “international” and being truly global and would suggest that we are entering a phase now that, for most of us,
mandates that we take a total global approach.
The big change as I see it is that this now means you can’t even think about the global supply chain from a US or European-centric point of view, which is what most companies do.
| Gilmore Says:
|I guess I would just say that all these developments tell me nearly every company in every sector is going to have to enter this New Supply Chain World Order. There will be some pain.
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The supply chain groups in international divisions are often treated as somewhat second cousins, for example – they are the last to get the new technology; processes and best practices are developed from a US-centric point of view, etc.
That is simply all going away.
Competitors will increasingly not be from Europe or Japan, but China and India. The growth opportunities, in turn, will be largely fought on their home turf, or on neutral courts like Brazil where it’s hard to say who has the advantage.
Companies will move processes to wherever the can best be accomplished, as Caterpillar is already doing in moving many white collar tasks to places around the globe. Demand planning and forecasting being performed for the entire enterprise out of India? Coming soon.
Yes, this is in part the message of Thomas Friedman’s The World is Flat; in that book, he noted the role of supply chain innovations in contributing to rapid globalization. And to a great extent, many of the high tech industry companies have already entered this new era.
So I guess I would just say that all these developments tell me nearly every company in every sector is going to have to enter this New Supply Chain World Order. There will be some pain. It will be difficult to see the world though a different set of spectacles.
But those companies that don’t in the long run will experience even more pain.
If you have a better phrase to capture this shift than the New Supply Chain World Order, I am happy to hear it. But whatever we call it, it’s coming to your company and your supply chain like a high speed train.
Do you think we have or are entering a new supply chain era that goes beyond even our initial approaches to globalization? What will the impact be, and what will companies have to do to succeed? How will we have to change the way we think about supply chain management?
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