First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  July 16, 2009  
  A "New Supply Chain Normal?"  

If you watch any of the financial shows, you have probably heard some discussions about a “new normal” coming out of this Great Recession.


The basic sense: that the rules really will have changed, that many long-held belief windows about how people and markets operate must be altered for a new reality.


So, will there be a “new normal” for supply chain too? It’s an interesting and challenging question – not easy to answer for anyone, as I discovered. My quick take: yes, there will be a “new normal” for quite awhile, because if there are important changes in the consumer and other areas of business and government, they inevitably will drive new requirements and response by the supply chain.


But as usual, I first asked a few friends for their opinions. Today, I am just highlighting a few snippets from each response. You will find their complete view points in the Supply Chain Issues and Trends section of next week’s On-Target newsletter.

Gilmore Says:

There will be a “new normal” for quite awhile, because if there are important changes in the consumer and other areas of business and government, they inevitably will drive new requirements and response by the supply chain.

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Dr. Tom Mentzer of the University of Tennessee sees four important supply chain-related trends emerging: permanently rising fuel prices, more cautious consumer credit, shifting global consumer patterns, and the return of North America port capacity iss

“As fuel prices continue to rise, we will see new normal supply chains that emphasize not just carrier-shipper negotiation and fuel surcharges, but rather an emphasis on network efficiency,” Mentzer says.  “This will mean more coordination between shippers to ensure a higher percentage of full truckload shipments – under-utilized trucks will no longer be economically viable for shippers or their carriers.”

Dr. Jim Tompkins of Tompkins Associates says that at one level, it’s hard to talk about a new normal because of the speed of supply chain change we have been seeing for some time.

“The new norm for the supply chain is that there is no new norm. Or, stated differently, the new norm is that the pace of change is so rapid that the new norm is that everything is changing and will continue to change,” Tompkins says. “This leads to the supply chain requirement that supply chain success will only be achieved when supply chains have substantial flexibility and modularity.”

That said, Tompkins adds that the recession has probably highlighted the cost of supply chain complexity for many companies.

“What must change is the need to simplify in areas where simplification can be done, so that the complexity of the supply chain can be managed,” Tompkins says. “So, the new norm is rationalization of suppliers, clustering of suppliers, rationalization of carrier base, reduction of the number of LSPs, utilization of hubs, etc. Simplify, simplify, simplify.”

Along a similar there, Bill Read, who heads Accenture’s supply chain practice, in part emphasizes that a company must simply adapt to a permanent level of increased volatility.

“Business must now expect to routinely deal with issues such as constant currency fluctuations, cautious customers, and rapid swings in the price and availability of key commodities,” he says. Dealing with that will take “new approaches” to the practice of supply chain management. “Masters in this new world develop a clear understanding of the company or business-unit value creation algorithm,” he says – in other words, there will be a new normal for how a business succeeds, and supply chain will play a critical role in the value equation.

Rich Sherman, long-time supply chain analyst and marketer and now president of Gold & Domas Research, like Tompkins asks: “Has the supply chain ever been “normal?”

Though there already has been a strong trend toward risk mitigation, Sherman says that will accelerate as we come out of the recession. “Supply chain managers must invest in simulation tools and auditability of their plans to manage their supply chain for risk, resiliency, and sustainability,” he observes.

I will also note that there was a very interesting issue of the Harvard Business Review in July that basically devoted the entire magazine to the issue of a “new normal” for the general business world. I highly recommend it.

HBR editor Adi Ignatious certainly believes that there will be a new normal: “There's a widespread sense that there will be no going home again -- that the landscape of business has been forever altered,” he writes as an introduction to the issue.

Paul Flatters and Michael Willmott take a look in HBR at how consumers will have changed, arguing for example that many will demand a “return to simplicity.”  They say that “Unlike consumers in previous recessions, who greeted the return of financial stability with a buying spree, current consumers entered the recession feeling bloated. When they regain their ability to spend, they'll continue to buy simpler offerings with the greatest value.”

They also believe that for the first time in many years, consumers will choose to live below their means, or what Flatters and Willmott call “discretionary thrift.”

In a somewhat related note, Georgia Tech’s Ellen Dunham-Jones says we can expect a big contraction in retail space, and many “dead retail zones” dotting the landscape. She cites a figure I didn’t know: the current US ratio of 20 square feet of retail space per capita is at least six times the level found in Europe.

Harvard’s Regina Abrami says we can expect to see more country-to-country Free Trade Agreements, or FTAs, which she argues are actually a subtle form of protectionism. She also notes that China especially is being very strategic about the use of FTA with developing countries: “China already has a few free trade agreements in place, and more are in the pipeline,” she writes. “FTAs allow China to encourage imports in sectors that support national development goals without weakening domestic firms in industries that the Chinese government wants to dominate, such as petrochemicals and telecom. FTAs also cement China's position as a key player in the global economy.”

Finally, Harvard’s Niall Ferguson says that the crisis will give rise to many years of dangerous political and related disruptions, especially in developing countries. So, just as Western countries look there for both sourcing and market development, the risks to doing business there will rise substantially.

So, did we answer the question? In part, it seems to me. I don’t have the space to offer my views, but I will get a chance to do that next week.


Do you think there will be a “new normal” for supply chain management coming out of the recession? If yes, how so? If not, why not? Any of the above observations especially strike you? Let us know your thoughts at the Feedback button below.

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