In an interesting article in the September edition of Supply Chain Management Review, David Bowet from Norbridge, Inc. management consulting firm points out that in the troubling economic times, Supply Chain Managers must think more like a global economists.
According to Mr. Bowet:
1) Supply Chain Executives are uniquely positioned to take the lead in uncertain economic times
With plummeting dolllar, soaring fuel prices and slowing economy, 2008 feels like one of the most unsettled economic times in decades. Therefore, Supply Chain Managers need to understand well the economic forces in order to apply global economic logic to supply chain design and operation. Instead of merely reacting, Supply Chain Managers can champion change and use the broad economic trends as strategic advantage through differentiated services and performance.
2) Key supply chain actions to take under external economic pressures are in the areas of pricing, sourcing, making and moving
As the costs and rising and margins and squeezed, pricing strategies need to be reviewed, taking into account the total cost-to-serve in order to set the right offer. Sourcing strategies need to balance supply and demand by world regions, including sourcing closer to point of use and carefully select profitable off-shoring opportunities. Manufacturers should maximize plant utilization by downsizing production or increasing exports to growing markets, and locate the production facilities closer to markets in order to reduce the impact of rising fuel costs. Downshifting transport modes (eg. from road to rail), getting closer to customers with more DCs and creating more flexible distribution network are mentioned as methods of reducing overall freight costs.
3) In order to make change happen, supply chain managers needs an agenda and the right resources.
Based on the sound analysis of the situation and a wide range of alternatives, supply chain managers should built the pipeline of short- and long-term improvement initiatives, supported by acquiring the right tools. The supply chain organization should be integrated end-to-end, considering appointing a Chief Global Officer focusing on all key aspects of global management. Finally, innovative thinking in the organization should be stimulated, preferably by launching formal innovation programs.
Friday, October 3, 2008
Thursday, October 2, 2008
Supply chains and recession – potential consequences
Current financial markets crisis and expected economy recession rise the question – "will it also have the impact on the supply chains"? It seems that at least three potential consequences can be thought of:
1) Tight credit forces companies to focus on better inventory management
In order to fund operations, companies need credit to finance their working capital. As the result of financial crisis, the availability of credit decreasing and it is becoming more and more expensive. Therefore, companies should look for ways to reduce their working capital – one of them is by better inventory management.
2) Manufacturing will gain increasing attention as the service markets are in the downturn
As Dan Gilmore is pointing out in his latest commentary on Supply Chain Digest, in 1978, manufacturing represented 26% of UK's GDP – and today it is just 14%. In United States, these changes in the last decades were even deeper. One of the reasons mentioned is the services prices (incl. financial services) were growing much faster than the prices of manufactured goods, thus their share in the total GDP was also increasing. As the financial services industry is in crisis, it cannot be the engine of economy growth anymore. Manufacturing needs more attention, also in terms of attracting the best graduates who currently prefer to choose financial services sector (or consultancies).
3) Global supply chain networks need to be redesigned as the offshoring becomes less profitable
In the last decade, production of high-tech goods has moved steadily from United States to Asia. However, as mentioned in the September edition of McKinsey quarterly, the benefits of off-shore production has been undermined by rising costs related with soaring oil prices, rising wages and a failing dollar. Therefore, the companies should revise their global supply chain network design models, as the previous assumptions could change significantly.
1) Tight credit forces companies to focus on better inventory management
In order to fund operations, companies need credit to finance their working capital. As the result of financial crisis, the availability of credit decreasing and it is becoming more and more expensive. Therefore, companies should look for ways to reduce their working capital – one of them is by better inventory management.
2) Manufacturing will gain increasing attention as the service markets are in the downturn
As Dan Gilmore is pointing out in his latest commentary on Supply Chain Digest, in 1978, manufacturing represented 26% of UK's GDP – and today it is just 14%. In United States, these changes in the last decades were even deeper. One of the reasons mentioned is the services prices (incl. financial services) were growing much faster than the prices of manufactured goods, thus their share in the total GDP was also increasing. As the financial services industry is in crisis, it cannot be the engine of economy growth anymore. Manufacturing needs more attention, also in terms of attracting the best graduates who currently prefer to choose financial services sector (or consultancies).
3) Global supply chain networks need to be redesigned as the offshoring becomes less profitable
In the last decade, production of high-tech goods has moved steadily from United States to Asia. However, as mentioned in the September edition of McKinsey quarterly, the benefits of off-shore production has been undermined by rising costs related with soaring oil prices, rising wages and a failing dollar. Therefore, the companies should revise their global supply chain network design models, as the previous assumptions could change significantly.
Subscribe to:
Posts (Atom)
