If you manage a global supply chain, you can't escape complexity.
In fact, the term "global supply chain" is becoming increasingly redundant. Where is the company today that doesn't have suppliers, service partners, manufacturing plants, bankers or customers outside the borders of its home country?
To a certain degree, it has always been so. But numerous business trends have emerged in recent years to make supply-chain management more complex than ever before. Here are 10 of them:
1. Globalization. In a relentless push for cost cutting, companies large and small are sourcing product far from their markets. China is the location of the new gold rush for cheap manufacturing. Recent surveys by Deloitte Research found that more than 80 percent of manufacturers are either buying, or plan to buy over the next three years, components from other countries. Nearly half engineer products outside their home regions. In this regard, don't think of a supply "chain," forged from links of steel. Visualize a rubber band: stretch it too far, and it snaps.
2. The need for supply-chain agility, coupled with lower inventories. Customers want it yesterday. Just-in-time is the new executive mantra. And products are getting to market with unprecedented speed. According to Deloitte, manufacturers over the last three years have cut product-development cycles by an average of 12 percent, to 16 months. By 2006, that span will have shrunk to 13 months. At the same time, companies are struggling to slash inventory levels, even as they acknowledge the need for core safety stocks in the event of supply interruptions, labor unrest, natural disasters, terrorist attacks or unforeseen shifts in consumer demand.
3. Mass customization and make-to-order. In another form of supply-chain agility, manufacturers are looking to meet the needs of individual customers, configuring product in countless ways. Dell Computer led the way on the consumer side. Cisco Systems has long offered a universe of options to its high-tech manufacturing base. The technique calls for highly efficient postponement programs, where basic components are customized at the moment of sale. The impact on supply chains? More complexity, of course.
4. New-product mania. Increasingly rare is the consumer item that looks the same-or even continues to exist-a year or two later. Faced with a limited base of consumers, suppliers and retailers are forever shoving new items into the limelight. SKU proliferation is rampant; just walk down the toothpaste aisle of any superstore. In 2003, Deloitte said products introduced within the previous three years would generate 29 percent of manufacturers' total revenues for the year. That compares with 21 percent in 1998, and a projected 35 percent in 2006.
5. Value-added services. Manufacturers used to make product or components, then sell them. Not anymore. In a bid to cut overhead, buyers are demanding a raft of underlying services from suppliers. Vendor- managed inventory (VMI) programs delay the ownership of goods until the last possible moment-and saddle the supplier with the job of managing stocks. Even contract manufacturers are getting into the game, offering third-party logistics services and direct shipment to end users, bypassing original equipment manufacturers (OEMs).
6. Outsourcing. The rush to abandon links of the supply chain to outsiders continues. First, it was back-office processes like accounting and payroll. Then came logistics. Next, nominal manufacturers gave away their assembly work to contractors. Other functions ripe for outsourcing include information-systems management, call centers, service-parts repair, product engineering and chief executive officers (well, maybe not that last one). The result is more partners in the chain-and more chances for failure.
7. Security. For contemporary society, Sept. 11, 2001 was in many respects the dividing line between Before and After. For business, it meant a whole new universe of security concerns. Billions of dollars have been spent on additional security measures, documentation and oversight. And it's still not enough. Ports and airports remain highly vulnerable to attack, analysts say. Listen to Noha Tohamy of Forrester Research: "The next terrorist attack is likely to be staged through a supply chain."
8. New rules on corporate governance. The hijinks of executives at companies like Enron and WorldCom have given rise to a slew of regulations, including the Sarbanes-Oxley Act, requiring companies to keep a tight rein over operations. The new reporting and accounting laws will have a huge impact on day-to-day supply-chain management, which touches on virtually every aspect of a company's operations.
9. Mergers and acquisitions. Whether it's hard goods, soft goods or software, big companies are gobbling up smaller ones and growing even bigger in the process. This unstoppable trend raises new issues of scalability for the survivors. How does a typical supply chain handle massive, overnight growth in revenues, product mix and customers? In most cases, not very well.
10. Technology. Wasn't this supposed to make things simpler? On the contrary, with every new convenience offered by innovative software or hardware, new complications arise. On balance, the impact on supply chains is usually a positive one, but getting to that point may require lots of time, money and migraines.
All of these concerns are high on the agenda of top supply-chain executives and their companies. Deloitte has even coined a term for those who have managed to excel: complexity masters. (For more on the Deloitte study, see our issue of April 2004.) In this special report, we look at eight companies that have tackled the complexity issue in some aspect of their supply chains. While no one has succeeded totally-only 7 percent of the respondents to Deloitte's survey of 600 companies can be considered "masters"-they are well on their way to meeting the challenges of today's complex supply chains. And, one expects, the challenges to come.
A Global Apparel Manufacturer Takes on Corporate Silos
Air Products Cuts Down on Maverick Spend, and Saves Millions
A Complex Supply Chain Doesn't Require Multiple Applications
A Frozen-Food Expert Seeks Help in Dry Distribution
Controlling Transportation Is Crucial to Solectron's Recovery
Company Size Doesn't Always Dictate Supply-Chain Complexity
Sun Micro Stops Handling Its Parts Management in Pieces
For Retail Giants, IT Prowess Is the Price of Admission
Timely, incisive articles delivered directly to your inbox.