Both global and domestic supply chain networks will need to become more resilient and reliable in the coming year in order to better manage more volatile demand as well as pressures on margins, according to recent analysis by two consulting firms.
In a conference call this week, Simon Ellis, practice director for global supply chain strategies for IDC Manufacturing Insights, explained that while the world’s economies are expected to keep improving this year – with consumer confidence now at levels not seen since before the start of the great Recession – demand for goods will continue to be volatile, requiring supply chains to be more quick, nimble and robust.
“Operational resilience will come to the forefront and underpin manufacturers supply chain strategy moving forward," Ellis explained to reporters. “It will no longer be enough to be ‘fast’ in terms of supply chain response; they will need to be ‘accurately fast.’ That is clearly dependent upon being demand aware and data driven, but it is also about digital execution: leveraging data to broaden and extend supply chain ‘intelligence.’”
He added that there will also be pressure place upon supply chains to be more “demand oriented,” which in most cases to be closer to the source of demand. While this dovetails with the “near-shoring” trend seen developing in the logistics field, it does not necessarily translate into more manufacturing moving back to North America from far-flung global locations.
“It’s about relocating production/assembly to the proximity of demand, wherever that demand might be,” Ellis pointed out. “The end result is that we’ll see production brought back to places that haven’t seen manufacturing for a while.”
Michael Zakkour, principal at global supply chain consulting firm Tompkins International, echoed that forecast in a conference call hosted by Conference call hosted by Wall Street investment firm Stifel Nicolaus & Co. back in December.
“You hear many different terms: right shoring, back shoring, re-shoring, in-shoring. A lot of these have been thrown about over the last couple of years [as] people are trying to determine whether or not manufacturing will come back to the U.S. and, if so, how much,” he explained.
“But the question is going to be: what is the ultimate layout for you to efficiently and cost-effectively make and sell products through these processes? What combination of North American, Asian, and South American logistics points are you going to use? What we really believe here is that we have arrived at Globalization 2.0 [and] it may have happened while many were not looking,” Zakkour said.
By that he explained that “the old calculus does not apply” in terms of logistics strategy. “You now have new customers in Asia [and] the shift in wealth growth is tilting East,” Zakkhour noted. “You have e-commerce. And, you have an even more modern and integrated supply chain. The old calculus of make it cheap in China for export to the West does not make sense.”
It also means the “old question” of brick and mortar versus e-commerce does not apply anymore, either. “Now you have to have both—it is a blending of the two,” he stressed. “So, what should manufacturing and distribution companies do in this environment? They need to rethink and reset where to make it, how to distribute it, who buys it, where your customers live, what form of branding formerly private label companies get into, what kind of private label manufacturing formerly branded companies get into, and omni-channel distribution.”
“Omni-channel” he emphasizes, does not mean a brick and mortar company that also has an e-commerce capability. “Omni-channel, in essence, is the idea of ‘frictionless’ selling—to be able to buy, view, experience, and return a product in multiple environments,” Zakkour noted. “A real omni-channel company may have some combination of their own owned and operated brick and mortar stores, retail touch points through other outlets, and e-commerce channel or all of those.”
That need for multiple channels of delivery is one reason why Heather Ashton, IDC’s research manager, believes supply chains need to be more resilient and reliable going forward.
“It’s no now longer focusing on just ‘big events’ that con disrupt supply chains – it’s about hundreds of little disruptions that occur every day that can have a significant impact on the health of the supply chain,” she pointed out. “That’s why a particular focus will be not just on the need for more detailed information but the ability to get that information to supply chain decision makers when and how they need it. Such ‘event-driven’ analytics is what will help the supply chain become more robust.”
