Executive Briefings

Mastering Significant Global Uncertainty

As the financial crisis ripples through the global economy, supply chains will need to re-invent themselves and deal with uncertainty at all levels: economic, financial and regulatory. The need to balance short-term needs with long-term investments in global supply chains will add significant uncertainty to global supply chain operations.

Deep recession risks in U.S. and Europe, a slowdown in emerging market growth and uncertainty on credit availability will create significant challenges for global supply chains in 2009. It is still unclear how long the adjustment period will be, and how far governments will go to get their economies back on track, but supply chain management will be front and center during the adjustment process.

• Increase Cost Pressures. The first-order effects of the crisis will be increased pressure to reduce costs throughout the global supply chain. Lack of credit and slower demand may require companies to revisit global sourcing strategies, in some cases increasing inventories to protect against volatile exchange rates.

• Strengthening Regional Presence. As governments react to protect local economies, global corporations may need to take a new look at strengthening regional presence to reduce risk. This includes closer collaboration with key global suppliers and new joint ventures that will ensure up-to-date information from local operations that will allow faster reaction as conditions change.

• Operational Excellence in Emerging Markets. China, India and Latin America are still expected to grow during 2009, but at much lower rates. This is an opportunity to consolidate and revisit the breakneck pace at which supply chains that serve emerging markets have grown. Developing operational excellence will reduce costs in emerging markets in the short term, and will lay the foundation for long-term supply chain profitability.

• Deeper Collaboration. We expect collaboration between supply chain partners to increase as they develop joint strategies to adapt to the global. In particular, 3PLs and 4PLs may play a bigger role as corporations re-focus their global operations.

• Strategic Information Technology Investments. In order to support cost reduction initiatives and faster response times, global supply chains will need to invest in some key areas of information technology. Demand management and supply chain visibility are some of the technologies that provide the additional flexibility compatible with the uncertain environments.

• Sharpening Financial Skills. Over the last few years, successful supply chain managers have recognized the importance of mastering financial language when describing the strategic importance of global supply chains. In 2009, global supply chain managers will be forced to keep strengthening these abilities as they navigate through the challenging global environment.

The Outlook

For the next two years, uncertainty will dominate the agenda in global supply chain management. Initially, the focus will be on cost containment as global supply chains adapt to the new environment. Once the initial shock waves have been absorbed, deeper reflections on global supply chain strategy will emerge. In particular, global supply chain risk management, responsiveness and flexibility will continue to consolidate as key capabilities within the corporation.

Deep recession risks in U.S. and Europe, a slowdown in emerging market growth and uncertainty on credit availability will create significant challenges for global supply chains in 2009. It is still unclear how long the adjustment period will be, and how far governments will go to get their economies back on track, but supply chain management will be front and center during the adjustment process.

• Increase Cost Pressures. The first-order effects of the crisis will be increased pressure to reduce costs throughout the global supply chain. Lack of credit and slower demand may require companies to revisit global sourcing strategies, in some cases increasing inventories to protect against volatile exchange rates.

• Strengthening Regional Presence. As governments react to protect local economies, global corporations may need to take a new look at strengthening regional presence to reduce risk. This includes closer collaboration with key global suppliers and new joint ventures that will ensure up-to-date information from local operations that will allow faster reaction as conditions change.

• Operational Excellence in Emerging Markets. China, India and Latin America are still expected to grow during 2009, but at much lower rates. This is an opportunity to consolidate and revisit the breakneck pace at which supply chains that serve emerging markets have grown. Developing operational excellence will reduce costs in emerging markets in the short term, and will lay the foundation for long-term supply chain profitability.

• Deeper Collaboration. We expect collaboration between supply chain partners to increase as they develop joint strategies to adapt to the global. In particular, 3PLs and 4PLs may play a bigger role as corporations re-focus their global operations.

• Strategic Information Technology Investments. In order to support cost reduction initiatives and faster response times, global supply chains will need to invest in some key areas of information technology. Demand management and supply chain visibility are some of the technologies that provide the additional flexibility compatible with the uncertain environments.

• Sharpening Financial Skills. Over the last few years, successful supply chain managers have recognized the importance of mastering financial language when describing the strategic importance of global supply chains. In 2009, global supply chain managers will be forced to keep strengthening these abilities as they navigate through the challenging global environment.

The Outlook

For the next two years, uncertainty will dominate the agenda in global supply chain management. Initially, the focus will be on cost containment as global supply chains adapt to the new environment. Once the initial shock waves have been absorbed, deeper reflections on global supply chain strategy will emerge. In particular, global supply chain risk management, responsiveness and flexibility will continue to consolidate as key capabilities within the corporation.