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
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
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
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
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
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.