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The Executive View

- April 4, 2006 -

 
     

Strategic Trends and Issues in Supply Chain Management

 
 

 

by Gene Tyndall

SCDigest Contributing Editor

I had the pleasure recently of presenting the keynote at the “IBM Transportation and Logistics CXO Summit.”  My address was a “scan” of the strategic trends and issues that C-Levels are most concerned about as they compete in our dynamic and changing world of transportation, logistics, and supply chain management in this first decade of the 21st century.

Over two and a half days, the invited participants heard about, discussed, and debated these issues, as well as the state of some promising new solutions and approaches for achieving successes in this increasingly challenging global marketplace.

I thought that sharing some of this information with readers of SCDigest might be of value.  As we have discussed before, keeping C-Levels engaged and up to date on the key issues of managing supply chains, and potential solutions, is in all of our interests.  Executive sponsorship and commitment to supply chain excellence, and building corporate capabilities to get there – whether we are customers or service providers – is a critical success factor to our companies’ competitiveness, differentiation, and market value.

The seven strategic issues we addressed were:

  • The effects of globalization
  • Issues of infrastructure  
  • Mergers, acquisition, and alliances
  • Safety and security
  • Leveraging human capital 
  • Responding to customers
  • Exploiting technology

While there may be little shortage of articles (or books) on all these, the dynamics of group discussion and interaction often provide more meaning and actionable ideas than do individual reading and individual interpretations. 

Perhaps we are somewhat fatigued with the continuing discussions of the effects and impacts of globalization; however, the more we “go global”, the more we understand what we do not know.  Most CEOs today are focused on the strategic issues of governance; risk management; and compliance.  Each of these issues presents numerous concerns and factors which are clearly heightened by the increasing globalization of sourcing, manufacturing, assembly, distribution, packaging, and transportation.  Often, greater levels of concern are raised by stakeholders - employees; customers; shareholders; rating agencies; citizens and societies; auditors; business partners; analysts; and so on.  There was virtually unanimous agreement on this point – that globalization offers hopeful positives, but very real negatives to managing the business.

Whether it is sound business strategy or not, it is difficult to find any company that is not in the midst of international sourcing, marketing, or distribution;  or any supplier that is not at least allied with partners who handle, or manage,  inbound or outbound international freight. Certainly sourcing components or products from “low-cost countries” has become almost common practice across every industry segment.  The competitive pressures on pricing are demanding that procurement managers (and, service managers as well) seek the lowest possible component/product cost, while meeting quality standards.

Unfortunately, as we supply chain managers are well aware, global sourcing does not always result in least total delivered cost.  As many have pointed out, adding weeks to lead times, incurring up to 30% higher logistics costs, and increasing working capital requirements, may change the overall economics.  Moreover, the risk of supply chain disruptions – logistics bottlenecks, natural disasters, security delays, errors in shipping, whatever the reasons – can exacerbate this factor even more with international goods movements.

Some at the Summit expressed the opinion that global sourcing remains economically advantageous, because the problems are being resolved, and risk management plans are increasingly ready and well-prepared.  Others commented that the impacts of supply chain disruptions are so grave, affecting profitability, sales growth, and cost increases over long periods  (pointed out recently by studies such as that by co-researcher Prof. Vinod Singhal at Georgia Tech) that they are more actively considering the trade-offs and possible changes to sourcing strategies.  Our experience with C-Levels these days shows that the concerns are increasing, and the right questions are finally being asked.  Whether this will result in a slowdown of imports remains to be seen, but the risks are getting more attention. 

The kinds of discussions typically revolve around the “trends” and not the “innovations”.  The best example of this dichotomy is, of course, China, where most of the international sourcing growth has been occurring.  China is now the third largest US trading partner, and second largest in the value of imports; yet its logistics infrastructure – though expanding rapidly – is not even up to the standards of the tenth rated trading partner.  Massive growth due to the lower labor costs has not yet been helped by supply chain innovations.  Those of you who have visited China recently are well aware of the enormous capital investment in ports and ground facilities, but the lack of value-added capabilities, advanced technologies, and supply chain talent lags significantly. These gaps worsen as development is pushed beyond the coastal industrial centers, which will constrain not only sourcing but also distribution.

Nonetheless, it was generally agreed that the growth in globalization will continue, whether or not Free Trade Agreements are implemented, including, from and to China, India, Brazil, Russia, or smaller countries.  Trade imbalances, however, will cause further demand-supply problems, even if the supply chains are performing.  This means that the pressure on supply chain managers,  financial managers, technologists, and others will intensify to improve on cost management, technological innovation, logistics efficiencies, and financial creativity, just to cite a few of the more critical concerns.  The complexities of international trade will not ease.  Thus, the continued need for innovations will grow.  Just when we believe the longer supply chains are working, security and compliance are improved, and costs are more controlled, we can be sure that business and market changes – both internal and external - will require new strategies, new processes and new enablers.

As companies lose experienced international talent to retirement, this will place even more importance on knowledge management programs, training, and other means to establish, maintain, or re-build global capabilities.  We already know that some companies struggle with global expansion, and make serious mistakes, because of the lack of knowledge of the geography, the culture, and the differences in logistics.  But that’s another issue we’ll address in a later column.  As always, your views and comments are welcomed.

What will be the key SCM pressures from increased global trade? What should smart companies and supply chain executives do about them? How has better understanding of international supply chain risk really led to companies developing better avoidance and mitigation strategies?

Gene Tyndall is currently founding partner with Supply Chain Executive Advisors, LLC, a global partnership firm providing advice and counsel to senior-level executives interested in improving their companies’ supply chains. Previously, he was exclusive vice president and leader of The Ryder Global Supply Chain Solutions Businesses, and a leader of the global SCM consulting practice of Ernst & Young. He is a globally recognized expert in SCM and a leader in its definition and evolution.

Article key words: Global Supply Chain, Supply Chain Excellence, Supply Chain Trends, Global Sourcing

 
     
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