LOG 470 Contemporary Issues

in Logistics

Supply Chains: Future

Discussions

What are the main issues? 2

Increasing complexity and uncertainty in global supply chains

The rise of demand-driven supply chains

The changing balance of power in the distribution channel

The impact of changing demographics

Level of risk

Source: Christopher,2009

3

Increasing Complexity and

Uncertainty in Global

Supply Chains

Increasing complexity and uncertainty in global supply chains

4

The trend to out-sourcing and off-shoring

Higher levels of inter-connectedness and inter-dependency

Supply chains are more complex than before and uncertainty and risk have increased.

Source: Christopher,2009

5

Complexity in the global supply chain : the Boeing 787

The source of supply chain complexity 6

Network complexity e.g. too many nodes and links

Process complexity e.g. too many steps

Offer complexity e.g. too wide a range (Range

complexity)

Product complexity e.g. too many unique components

Customer complexity e.g. too many service options

Supplier complexity e.g. too many suppliersSource: Christopher,2009

Understanding the total costs of ownership

7Not just the purchase price, but …..

Increased transport costs

Increased inventory financing costs

Increased uncertainty of supply

Longer lead-times

Less visibility and increased likelihood of “bullwhip” effect

Loss of control in quality

Longer development cycles for new products

Increased exposure to security risks……………….. etcSource: Christopher,2009

8

The Rise of Demand-Driven

Supply Chains

The rise of demand-driven supply chains

9

Because markets have become more turbulent they have become harder to predict.

As a result there is a growing requirement to move from being forecast-driven to being demand and event-driven.

This implies a higher levels of responsiveness and agility across the supply chain.

Source: Christopher,2009

Competing in turbulent markets 10

Product and technology life-cycles are shortening

Competitive pressure forces more frequent product changes

High levels of variety and product proliferation increase business risk

Supply chain ‘chaos’ created through self-imposed actions

Forecast-based management no longer viable : forecast for capacity, execute against demand

Source: Christopher,2009

11

Agility holds the key

Agile supply chains are designed to respond rapidly to unpredictable change. They are based upon a number of principles:-

• Very close connection to final marketplace

• Visibility of real demand

• High levels of synchronicity upstream and downstream

• Organisational focus on processes rather than functions

• Advanced level of collaborative planning with supply chain partners

• Continuous search for time compression opportunities

Source: Christopher,2009

12

The Changing Balance of

Power in the Distribution

Channel

The changing balance of power in the distribution channel

13

Brand loyalty has declined and markets have become ‘commoditised’.

In B2B markets there has been a significant concentration of buying power

More demands are being placed on suppliers by more powerful customers.

In effect there has been a shift from a seller’s market to a buyer’s market.

Source: Christopher,2009

14

Changing balance of power in the supply chain

• Consolidation of both the customer and supplier base

• More demanding customers who want more for less

• A growing concentration in many supply markets through merger and acquisition – “The Rule of Three”

• Growing dependency on external suppliers through increased out-sourcing

15

The Impact of Changing

Demographics

The impact of changing demographics 16

Population growth and changing age profiles will impact both the demand side and the supply side in the global economy.

Trends to urbanisation alongside a global re-distribution of wealth will have significant implications for logistics.

The pressure on resources will have significant implications for prices and for sustainability.

Source: Christopher,2009

Population changes 17

World population, currently estimated at 6 billion, is forecast to increase to 9 billion by 2050.

At the same time age profiles are changing differentially across countries.

Cross-border migration impacts demand and supply patterns.

Source: Christopher,2009

18

Global shifts in spending power

• Over the next 25 years, America’s share of the worldwide economic pie will slip from 28% to 24%

• During that same time, Asia’s share of the global market will almost double – meaning it will account for a massive 55% of the global economy by 2030.

Source : Money Morning, 7/5/08

The pressure on resources 19

As the world population grows from 6 billion to 9 billion by 2050, food production will need to increase by 50%.

This in turn will require additional water resources to meet a 30% to 60% increase in demand – mainly linked to agricultural requirements.

The infra-structure implications to meet these demands will be significant.Source: Christopher,2009

How sustainable are our supply chains?

20

The new platform for product lifecycle management : Reduce, Re-use, Re-cycle.

Understand the carbon footprint of supply chains.

Closed-loop supply chains must become the norm supported by a philosophy of ‘Design-for-Sustainability’.

Source: Christopher,2009

Options for reducing the transport intensity of supply chains

21

More local for local manufacturing based on ‘small footprint manufacturing’ practices

Greater levels of collaborative working and asset sharing to improve transport utilisation

Leverage economies of scale through bigger vehicles and vessels (e.g.Maersk)

Utilise postponement techniques to enable low cost country sourcing of ‘vanilla’ products to be moved in bulk for local finishing

Re-work network optimisation calculations based on a $200 barrel of oil cost and realistic carbon cost Source: Christopher,2009

The way forward 22

Recognise the business opportunities as well as the threats

Focus on agility

Examine the opportunities for ‘small footprint’ manufacturing and logistics

Accept the new competitive realities and avoid ‘denial’

Source: Christopher,2009

23

The last word

“It is not the strongest of the species that survive

nor the most intelligent, but the one most

responsive to change”.Charles Darwin

What is Risk?

The word “risk” derives from the early Italian word risicare, which means to dare (Bernstein, 1996).

The study of risk began in the seventeenth century and is associated with the French mathematicians Blaise Pascal and Pierre de Fermat, who sought to apply mathematics into gambling (Frosdick, 1997).

What is Risk?

With major developments in technology and the increasing size and internationalisation of organisations, that risk and its management became of concern to the wider business community (Grose, 1992; Snider, 1991).

Risks in Global Supply Chains

The literature suggests four categories of risks:

supply demand operational and security risks (Christopher and Peck, 2004; Manuj and Mentzer, 2008)

Supply Risk

Supply risk is the distribution of outcomes related to adverse events in inbound supply that affect the ability of the focal firm to meet customer demand (in terms of both quantity and quality).

Supply chain risk management strategies within anticipated costs and time, or causes threats to customer life and safety.

Operations Risk

Operations risk is the distribution of outcomes related to adverse events within the firm that affect a firm’s internal ability to produce goods and services, quality and timeliness of production, and/or profitability.

Demand Risks

Demand risk is the distribution of outcomes related to adverse events in the outbound flows that affect the likelihood of customers placing orders with the focal firm, and/or variance in the volume and assortment desired by the customer.

Security Risk

Security risk is the distribution of outcomes related to adverse events that threaten human resources, operations integrity, and information systems; and may lead to outcomes such as freight breaches, stolen data or proprietary knowledge, vandalism, crime, and sabotage.

Postponement

Assessing the Impact of Various Mitigation Strategies

Risk Sources in Supply Chains

Risk Mitigating Strategies in Supply Chains

Resilient Supply Chain

Definition of resilience:

“the ability of a system to return to its original state or move to a new, more desirable state after being disturbed.”