Global Supply Chain Management — March, 2009

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In a Word, 2009 Will Be Uncertain
In June 2008, ARC Advisory Group conducted a web survey of 16 leading transportation management systems vendors to obtain their views on growth opportunities and market conditions. Almost 70 percent said their year-to-date sales and pipelines were larger than in 2007. This is not surprising when you consider the record fuel prices customers were dealing with at the start of the year (fuel prices had risen about 50 percent in less than a year). This led many companies to focus on transportation spend management, which led to continued investments in TMS. Then the economy stumbled.

What will happen to the TMS market in 2009? First, the good news: the TMS market continues to exceed ARC's expectations. As reported in our recently published Transportation Management Systems Worldwide Outlook study, the TMS market grew almost 10 percent in 2007 to almost $1.2bn. Last year should end on a positive note as well when all the figures are in, and the long-term outlook for the TMS market remains positive. ARC forecasts the market to reach $1.6bn by 2012.

Nevertheless, the market will be tested in 2009 (and possibly 2010) in light of the global economic downturn. In a word, the outlook for 2009 is "uncertain." On the one hand, companies often look for ways...
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Resiliency in Supply Chain Is Key to Long-Term Business Continuity
To improve supply chain resiliency, companies need to include risk considerations in their supply chain network design efforts, sales and operations planning, and inventory planning; on the execution side, they need to improve logistics and transportation management, secure alternative supply chain partners, and ensure proactive alerting process and response management for disruptions.

Aberdeen's July 2008 study, Supply Chain Risk Management: Building a Resilient Global Supply Chain, revealed that over the past 12 months, 99 percent of study participants had experienced supply chain disruptions, ranging from supplier's capacity constraints to fuel price--and logistics-related disruptions.

Despite their high concern about the security and smooth operation of their supply chains, most companies are still at the early stages of thinking about supply chain risk management. In fact, less than one third of all study participants reported that they were actively managing any given supply chain risk.

There are several supply chain risk areas in which Industry Average and Laggard companies are overexposed, which adversely impacts their agility and flexibility in reacting to supply chain disruptions. Compared to Industry Average and Laggard companies, Best-in-Class companies are more likely to manage or at least assess the following risks:...
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Protecting Your Supply Chain Against Financial Vulnerability
The global credit crunch is jeopardizing the financial health of our supply chains. In 2009, companies should reassess suppliers' financial stability and implement processes to spot operational red flags that are early warning signals of financial stress.

Economic uncertainty and supplier vulnerabilities and disruptions top the list of corporate concerns, according to interviews with dozens of North American companies in late 2008.

Is the global economic crisis creating hidden cracks in your supply chain? The worldwide credit crunch, slowed economies, and changed consumer preferences triggered in 2008 will continue to reverberate in 2009. Companies need to be at the top of their risk management game to prevent fissures in their supply chain from creating financial and market share damage. Benchmark research by Marsh Inc. finds that leading companies are changing their supply chain risk practices for 2009 to better protect themselves and their customers.

• How has your line of credit with your bank changed from the beginning of 2008?
• Have your key suppliers or customers changed their payment terms? If so, how are you compensating?
• Do you have sufficient cash flow to fund fully the raw material purchases for our orders?

In 2009, companies need to reassess their supplier management programs...
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Global Economic Crisis Demands New Strategies for Managing Global Supply Chains
Brute force inventory reductions will no longer work in the current environment of global supply chain management (SCM), and enterprises will need to find tools that can help them make informed decisions in a timely and more-intelligent manner. This research will highlight several types of SCM applications that should be in the arsenal of global SCM organizations.

Key Findings: In previous economic downturns, enterprises could rely on brute force approaches, such as a hard 20% inventory cut across all items and locations, to reduce inventories as demand waned, but with the long lead time of modern global supply chains, businesses will need to employ more-sophisticated approaches. The extended multiparty global supply chain can have as much as a year lag time between actual demand and when supply inventories first enter the pipeline, making adjusting inventories for demand fluctuations problematic. By the time the depth of the economic downturn is understood, many enterprises are already committed to inventories, even though these might not be needed any longer (such as retailer Christmas stock). Knee-jerk reactions to "cutting inventory" in the current globally connected supply chain runs the risk of harming your business more than the apparent benefits of cutting inventory in the short term.

Recommendations: Given the preponderance of global supply chains, enterprises have to reconsider the SCM applications they use so that they can better monitor and react to economic conditions, extending their forward view a year or more into the future.
Brute force approaches to inventory reduction will no longer work in global supply chains, so enterprises need to look at SCM technologies (such as sales and operations planning (S&OP), long-range forecasting and inventory strategy optimization) to help mitigate issues cause by economic volatility.

Historically, when supply chains were more localized, enterprises had greater flexibility...
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Taking the Strain
Supply chain is adjusting to the extreme turbulence that has become the new norm in most markets, but how is it evolving to meet these challenges in a post-recession world? Perhaps towards a role as shock absorber, one that smoothes out the countless market jolts that buffet companies and helps to keep the enterprise on its chosen strategic track.

This new role fits supply chain's evolutionary path over the past one to two decades, said Dr. Chris Caplice, Executive Director, MIT Center for Transportation & Logistics. Supply chain began as a series of silos in which component functions such as transportation and warehousing operated separately as fiefdoms. As the lines between the silos blurred, companies began to make trade-offs between these functional areas to increase efficiency. The third stage in the progression shifted the focus externally as companies looked to the extended supply chain for better ways to operate.

"We are now entering the fourth stage, the shock absorber stage, where companies are starting to make trade-offs across the end-to-end supply chain," said Caplice. In this phase, the benefits of resilience and risk management are...
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In This Economy, Your Supply Chain May Be Your Best Weapon
Competing on the basis of your supply chain performance has become more important than ever in this tough economy. With revenues down and demand uncertain, where do you cut costs? If your company isn't the biggest in your market or...
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Web 2.0 Is Simply About Exchanging Ideas, Expertise
The internet bubble that promised a transformation of business marketplaces and then burst at the start of this decade left manufacturing executives skeptical of technology revolutions tied to the Web.
That hesitancy has placed collaborative Web 2.0 technologies behind the eight ball, pressed to prove their worth to...
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Past Global Suppy Chain Management Issues:
January, 2009
September, 2008

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