Supply Chain Megatrends

of 20/20
Supply Chain Megatrends PlanEx
  • date post

  • Category


  • view

  • download


Embed Size (px)


Implement Consulting Group has summarised the strategic levers into five supply chain megatrends. 1.Multiple Supply Chains 2. Move On or Move Home 3. Green and Sustainable Supply Chains 4. Global Supply Chain Risk Management 5. Managing Supply Chain Complexity

Transcript of Supply Chain Megatrends

  • 1.PlanExSupply Chain Megatrends

2. Contents Supply Chain Megatrends Handbook1Introduction to the five Supply Chain Megatrends2Megatrend 1: Multiple Supply Chains3Megatrend 2: Move On or Move Home4Megatrend 3: Green and Sustainable Supply Chains5Megatrend 4: Global Supply Chain Risk Management6Megatrend 5: Managing Supply Chain Complexity2 3. Leading companies work with various strategic levers to cope with the global supply chain challenges in order to stay competitive Analysing the impact on supply chains Cyber securityGlobal challengesStrategic levers used to improve the supply chain, mitigate global challenges and stay competitiveManaging the volatility of customer demand Sustainability and CSR in supply chains Impact of oil prices on cost-to-serve Supply chain principle in service organisations Vulnerability and risk management in supply chainsResource securityReal collaboration in enterprise supply chains Selection of talents to manage supply chains Managing multiple organisational formats: agile, lean etc.Cope with SC network, national, regional and global Gartner GroupManaging complexity in supply chainsDemographic challenges Aberdeen McKinseyFinancial link to enterprise supply chains Booz AllenKnowledge management in development of intelligent SC A.T. Kearney Continuous improvement in supply chains ... Source: World Economic Forum, Global Risks 20113 4. Implement Consulting Group has summarised the strategic levers into five supply chain megatrends Multiple Supply ChainsCustomer demand is developing to be more volatile and unpredictable than before. Market leaders are splitting their supply chains into dedicated value streams to meet different buying behaviours and to respond in time.Move On or Move HomeAs China has become the worlds primary country for manufacturing, the demand for labour has increased manifold. This has led to a steep rise in hourly wages. This trend is expected to continue, and other low-cost regions are becoming attractive.Green and Sustainable Supply ChainsSocially and environmentally responsible managements have advanced the core of their companies value propositions. Especially in emerging economy contexts, corporate sustainability has emerged as a strategic priority for business leaders across industries.Global Supply Chain Risk ManagementBased on recent years natural disasters and disruptions in supply of goods combined with global supply chains and lower inventory levels, companies must now design their supply chains to mitigate risks to be able to supply the market even after upstream disruptions.Managing Supply Chain ComplexityWhile operating a global supply chain network has a myriad of advantages, it has its challenges as well. One of these challenges is lack of visibility into various information sources leading to complexity which influences daily operations and performance.4 5. Multiple Supply Chains The root cause of the problems plaguing many supply chains is a mismatch between the type of product and the type of supply chain. Marshall L. Fisher5 6. Unpredictable demand, lower stock levels and increased complexity drive multiple supply chains Drivers and lead indicatorsImpact on supply chains Unpredictable demand patterns caused by e.g. financial crises and environmental disasters As a consequence, companies are facing: Increased complexity in supply chains Pressure to lower stock and just-in-time deliveries at the same time as the world trade has increased Decreased transparency throughout the supply chain Risk of not being able to handle the complexity in the supply chain, damaging relationships throughout the supply chainTotal business inventories/sales ratios, 1992-2011 Difficulty in forecasting and planning production and inventory To avoid the consequences, companies tend to: Increase inventory levels creating higher inventory costs causing dead stock as demand is unpredictableSource: Create an organisation with many steps and non-value activitiesWorld trade development, 1991-2011Source: The Netherlands Bureau for Economic Research6 7. Configuring multiple supply chains must be based on your customers demand Impact on supply chain strategyImpact on relationshipThe below model divides supply chains into four dedicated conveyor belts based on different demand flow types. All supply chains demonstrate value-add and clear value propositions against the customers buying behaviour. For each flow type, the marketplace is analysed and used for configuration of related supply chains.The below model describes the four generic configurations of the supply chain in relation to relationship to customer vs. predictable demand. Collaboration and forecastingFlow types Types of supply chainsCavitationAgile. Usually unplanned, at least until the last possible moment. May result from promotions, new product launches, fashion marketing, unplanned stock-outs or unforeseen opportunitiesSemiwaveTightFully flexible. Unplanned and unplannable demand due to unknown customers with exceptional, sometimes emergency, requestsSurgeLean. Regular pattern of demand, quite predictable and forecastable, although it may be seasonal. Tends to be mature low-risk products/servicesBaseInnovative and creative solutionsCONTINUOUS REPLENISHMENTFULLY FLEXIBLERelationship to customer LEAN AGILE LooseContinuous replenishment. Very predictable demand from known customers. Easily managed through tight collaboration with collaborative customersHigh Request for low cost and high reliabilitySource: GattornaSource: Gattorna7Low Predictable demandBalance service and costs 8. Move On or Move Home Life is like riding a bicycle in order to keep your balance, you must keep moving. Albert Einstein8 9. Move On or Move Home companies move further out for lower costs Drivers and lead indicatorsImpact on supply chainsA shortage of skilled labour supply has led to rapid cost inflation more than 20% year-on-year in some pockets. This trend is expected to continue. Companies are considering how to move their facilities and which products or categories where it makes sense: Transparency of the supply chain SustainabilityComparative wage inflation in LCC Asia $/hr (2008-2015) VietnamThailandIndoneisa IndonesiaIndia Delivery reliability Time-to-marketChina Culture3,5 . Trends are emerging where companies are considering total landed cost, consisting of:. 3,0 Supply chain downtime costs2,5 . Logistics costs 2,0 . Duties and taxes Future inflation1,5 . Infrastructure and capacity1,0 . Efficiency Products and product lines are being designed for modularisation so that they can be moved over time and adjusted to the supply chain strategy0,5 . 0,0 . 20082009201020112012201320142015Source: BCG Analysis 20119 10. Move On or Move Home companies move further out for lower costs Supporting dataImpact on supply chain structureCurrently, there are still companies that prefer to stay within lowcost countries as the cost of shifting manufacturing and supply chain is too high.Cost impact:Plans of relocating within or expanding outside China (% of respondents) A few years ago (%) Material costs Labour costsToday (%) Transport logistics Within China 17 3 7 73Within and outside China Out of ChinaNo plans Customs duties Within China Other fixed costs28 50 14 8No plans Salary costsOut of ChinaWithin and outside ChinaOne-off costs: Restructuring costs Transition costs InvestmentsSource: AmCham Shanghai Survey, Inventory Increasingly, companies are paying close attention to the landed cost comprising freight, currency and inflationary costs Incomes In 2015, Mexico is expected to be 15% cheaper than China compared to being 20-30% more expensive today Source: BCG and Alix Partners10Sensitive risks perspectives 11. Green and Sustainable Supply Chains Mother nature does not do bailouts. Al Gore11 12. Green and Sustainable Supply Chains doing well by doing good Drivers and lead indicatorsImpact on supply chains Many western companies seek to benefit from the cost advantages offered in emerging economies in Eastern Europe, Asia and Latin AmericaSustainability will impact supply chains and companies internal operations differently, but the following are seen as the main changers: As the cost advantages offered in emerging economies often come along with social and environmental standards below those of western countries, companies face the question of what impact a social and environmental engagement beyond these standards has on their capabilities Closer relationships between the tiers throughout the supply chain to gain transparency of operations Use code of conduct towards suppliers to prevent cases that can have a negative impact on the business and, thus, as a risk management tool Supply chains are becoming increasingly complex as there are many parameters companies need to be in control ofSustainability as a purchasing goal (% of respondents) Is sustainability one of your companys strategic purchasing goals? 2003 Slower supply chains as transportation will slow in order to reduce emissions in the supply chain. This will require re-thinking of the companies supply chain strategy and set-up. In contrast, supply chains move closer to markets and become more expensive21%2009 Product development will increasingly focus on the ability to re-use scrapped products56% Reverse logistics are becoming a new supply chain 2011 Sustainability is used as a supply chain strategy to gain customers69%Source: Roland Berger, 201112 13. Compliance with society calls for sustainable supply chains Supply chain compliance with societyImpact on supply chain transparencySociety demands companies to be pioneers setting new norms for responsible behaviour, and companies comply to reduce the risk of not being the customers choiceCompanies are demanded to be proactive, have high standards and be best in class in their value and supply chain within: Environmental responsibility: Use of resource-efficient production technologies Highly effective filtering systems to reduce emissions High standards regarding use of environment-friendly and energy-efficient input factorsFuture norms Environment-friendly product development through new technologies focusing on the product life cycle, including reusage of scrapped products Social responsibility:Accepted norms Compliance with human rights Ensure no use of forced labour, child labour and the right to collective bargainingIndustrial standards Supportive working conditions, attractive staff benefits as well as development programmes Stringent monitoring of workplace safety and comprehensive safety trainingLaws and legislation Active contribution to local communities, especially with regard to improvement of living conditions (e.g. water supply and educational infrastructure)Source: Implement Consulting Group13 14. Global Supply Chain Risk Management There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction. John F. Kennedy14 15. Global Supply Chain Risk Management building a robust supply chain and preparing for disaster Drivers and lead indicatorsImpact on supply chains Just-in-time productionMitigation of risks is manifold and, hence, impacts companies and their supply chains in multiple ways: Lean inventory Natural endowment and specialisation among few suppliersSupply chain design: Sourcing from destinations where governments have major control of resources Multiple sourcing of key components and service Geographically spread supply chains to serve customers Increased transportation costs as a consequence of multiple sourcing and geographically spread supply chains Longer ramp-up periods to serve the customer leading to higher stocks to prevent production downtime and secure ability to deliver to customersTotal factors affecting supply chain: Business Continuity Survey, 2011 Risk of lower quality as an effect of sourcing from a non-qualified supplier to secure supply to customer Product-related: 50% Product development without the usage/consumption of critical resources and products that disturb the supply chain40% 20% Adverse weatherIT outage20%Transport Earthnetwork quake or disruption tsunami15% Supplier failure Vertical integration of supply chain to secure IPRs12% Loss of skillsSource: Business Continuity Institute15 16. Disasters affect supply therefore, risk management to secure supply becomes a strategic parameter Natural disasters reported from 1900 to 2010Impact on supply chain strategyRecent events that have adversely affected supply chains: Companies are now working more strategically with risk management and how to prevent downtime in part of the supply chain Japanese earthquake and nuclear accident Financial crises and economic uncertainty In a survey conducted by Roland Berger, more than 500 CEOs, COOs and purchasing managers were interviewed to understand purchasing trends in 2011 Ash clouds Floods in Australia and Southeast Asia% of respondents confirming the attributes in their organisation for SCM 200377% 82% 43%The above figure includes all disasters from 1900 to 2010 which meet at least one of the following criteria: 10 or more people killed, 100 or more people affected, a declaration of a state of emergency by country authorities or an appeal for international assistance by country authorities.Importance of risk managementSource: EM-DAT162009201174% 77% 49% 54%51% 35%Support of senior managementRegarded similar to finance, sales 17. Managing Supply Chain Complexity Any intelligent fool can make things bigger and more complex... It takes a touch of genius and a lot of courage to move in the opposite direction. Albert Einstein17 18. Managing Supply Chain Complexity more countries, more customers more complexity Drivers and lead indicatorsImpact on supply chainsIncrease in customers or customer locations The design of supply chains needs a re-think, starting at the marketplace in order to link customers and suppliers closer to your own business79%Increase in products/ variances offered Sourcing and distribution will become highly complex to deliver efficiency67% Production planning will become more difficult High fluctuations in customer orders Increase in strategic suppliers Inventories need to be reduced to reduce costs, but this is challenged by more difficult production planning that will require higher inventories to avoid production stops65% Flexibility is required to cope with demand peaks 51%Increase in manufacturing facilities47%Increase in distribution facilities/inventory locations Products need to be customised with regional preferences and assembled as per customer order44%Source: Survey by PwC and PRTM% of companies responding in the affirmative to the factors driving supply chain complexity in a survey conducted by PwC and PRTM of more than 350 companies across the globe and industries18 19. Reduce complexity by rational business behaviour+3-5 percentage pointsAdditional EBIT reservesLevers to reduce complexity Optimise production and logisticsShut down locationsEnhance utilisation Avoid investments Increase economies of scaleCut material costsReduce suppliers, raw materials Introduce technology platforms Adjust sales and R&D personnelAdjust service capacitiesOptimise size of orders Reduce unprofitable customers Improve the product mixIncrease margins Old EBITNew EBITRaise prices Eliminate unprofitable products without any replacementSource: A.T. Kearney19 20. Contacting Implement Consulting Group Learn more about how we work with Supply Chain Management Go to Implement Consulting Group's main websiteImplement Consulting Group P/S Lars S. Feldstedt, PartnerThomas G. Holm, PartnerEmail: [email protected]: [email protected]:+45 2338 0068Mobile:+45 5138 7427Jan Lythcke-Jrgensen, Partner Email: [email protected] Mobile: +45 2338 001720