Rethinking the supply chain for a prosperous future

The global economy is stuttering into action again after the downturn. However, there are signs that this will be a long slow recovery, with elements of a ‘Zombie Economy’ persisting.

Supply chains underwent fundamental change during the downturn, principally as a result of concerns about risk management, cost control and flexibility. They continue to be in a state of flux. Clearly, downturn and ensuing uncertainties are causing companies to rethink their supply chains – rightly so, as the supply chain will be critical to competitive success in the face of future uncertainties such as:

• The Japanese earthquake has proven how vulnerable global supply chains are. Disruption to critical components often from second and third tier suppliers have stopped or reduced production in large parts of the automotive and electronics industry potentially for 6 to 12 months. This follows on from last years labour unrest in China which raised concerns with global companies as to how robust their sourcing practices in the region are

• Capacity constraints in global freight driving up logistics costs, with companies scrambling to find capacity for autumn peaks. Containers have become a scarce commodity after manufacturing halted in 2009 and ocean carriers slowed ships to cut fuel costs, tying up some 1m containers. Although carriers are reintroducing capacity, many are hesitant to return to pre-recession levels for fear that the recovery may stall

• Western governments looking for efficiencies in procurement and supply chains to cut deficits built up by supporting economies and banks during the downturn. Collaborative procurement of services by local authorities across Surrey, in the UK, is expected to deliver around 10% cashable savings over four years, worth about £1m

• Environmental and sustainability concerns moving from words to actions. The World Wildlife Fund’s Global Forest & Trade Network  is working with Wal-Mart and others to reduce their ecological impact on the world’s valuable and threatened forests.

In these circumstances there are three main priorities for supply chain improvement.

1. Collaborative approaches: Organisations can use the purchasing power  of regions or company networks to drive out additional value. They can also collaborate with suppliers and customers to ensure best value across the chain.

2. Building flexibility and agility: Companies should redesign their supply chains so that they can react better to changes in customer demand as they happen. Philips Healthcare shows how to successfully transform a complex supply chain responding to customer needs.

3. New focus on risk management: Supply chains can be re-engineered to be both more economically robust and more environmentally compliant.

To receive advice from PA on how to build a collaborative, flexible and compliant supply chain strategy, please contact us.