As Economy Recovers, Remember That Old Ways of Management Won't Work Today
Analyst Insight: With encouraging signs emerging of a moderate global economic recovery, many companies are preparing their global supply chains to resume a flow of goods that will enable business growth. Taking this change of pace into account, 2011 will be much different than 2008 and previous years.
–Gene Tyndall, executive vice president, Tompkins Associates
The complexities of managing global supply chains are becoming more prominent. During the unprecedented growth years prior to 2008, top issues surrounded volumes, lead times, and securing container space to meet delivery dates. During the economic downturn, companies were focusing more on costs, volume reductions and inventories. Now, as some growth is coming back, supply chain managers are discovering that recovery is not as simple as returning to the way things were in the past.
First, capacities are reduced. Ocean liner companies have decreased or relocated capacity, and even air cargo space is limited. As North American exports are increasing, positioning of containers and ports of call are not easily aligned with shippers’ new needs. Until supply can catch up with demand, achieving efficient international freight flows will be challenging.
Second, multinationals are searching and finding new and emerging markets. China, India, Southeast Asia, Central and South America, Eastern Europe, and the Middle East/Africa are becoming more attractive locations to sell goods. This is challenging supply chains to extend into geographies that were not previously served.
Third, sourcing has been diversified. Many companies have spread out their strategic sourcing locations over the past few years, as their total delivered costs from China became better understood and increases in labor compensation and taxes became reality. Few have abandoned China for sourcing, but some have diversified to other Southeast Asian countries and/or to Latin America, among others. Just as with distribution, global supply chains are being stressed from new sourcing points.
Fourth, there has been a renewed focus on cost, speed and quality. Providing better information on the total costs, more emphasis on meeting just-in-time or delivery windows, and a higher focus on service quality all contribute to pressure on global supply chain managers to not only move the goods but to get them moved cheaper, faster and better.
Last, and certainly not least, is the increasing risk involved in global supply chains and the corresponding need for flexibility. Goods in motion for 8 to 12 weeks can create numerous opportunities for risk – security, weather, labor actions, and others. These can cause serious supply chain disruptions that impact suppliers and customers.
These five factors translate into new challenges for global supply chain managers in 2011 and beyond. Uncertainties are here to stay, and the challenges are different today. Back to the future will not mean business as usual. Global supply chain managers need to plan for the changes and contingencies, based on the new realities of their business objectives. The old ways will not meet the new requirements of today’s global supply chains.