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At a Glance
  • The traditional monolithic supply chain model is ill-equipped to deal with complexities and uncertainties of the future.
  • New markets are emerging and there is a shift in geographical preference for manufacturing centers globally.
  • Innovation in supply chain approach is warranted to deal with the emerging situation.
  • The first approach to optimizing supply chain is to splinter or break down the model into smaller, more manageable units which can help in reducing complexity.
  • The second approach is to use the network as a hedge against uncertainty by reconfiguring the production framework to include a range of different scenarios.

In order to achieve the desired result, it is necessary to abandon the currently used colossal framework and adopted a splintered supply chain using simplicity and industrial model to reduce ambiguity.

Most of the supply chain systems used are incompatible with the requirement of new corporate era. These models were initially and effectively devised for steady, large-volume manufacturing for countries with lower labor and production costs. However, as rapid geographical changes for high-volume production opportunities are happening globally, these typical systems can expose organization to undesirable risks.

The environment of business ambiguity and intricacy will arrive much sooner than anticipated by most companies. There are constant challenges associated with supply chain models such as fluctuating cash flows and trade trends aggravated by recent depression. On the other hand, changes caused by developing countries’ increasing financial influence and induction of reliable suppliers will be consequential for supply chain for years to come. The key issue for strategists, especially linked to supply chain and manufacturing is to make decisions rendered uneconomical due to factors they cannot influence.

In this environment, revolutionary supply chain companies are formulating counteractive methodologies. First approach is to “splinter” or breakdown typical models into simpler units which can accommodate elevated complexities more effectively. In second approach, they are using supply chains to privets against risks and ambiguity by rearranging the production framework to incorporate array of possible results. These innovations are an inspiration to other businesses to utilize the supply chain frameworks in place in more effective manner for foreseeable future.

Dual Trails

Companies are operating in an atmosphere where skates are high. A requisite for success and competitive edge for any company is an effective management of supply chain. However, existing supply chain models employed by most organizations are poorly equipped to cater the increasing ambiguity and intricates of the corporate world.

Uncertainty in Trends

According to few surveys, the inherent risks associated with supply chain will grow over the next few years. Financial crisis in recent years have augmented the persistent uncertainty associated with supply chain (specifically changing trade trends and fluctuating capital flows and currency price) as well as raise concerns about the reliability of financial systems. The causes of uncertainty will continue to exist but the change in the economy world-wide will exert more pressure on supply chain models even once the financial crisis is over.

Among the number of uncertainties and ambiguities associated with ever changing global environment, evolving markets with their increasing significance is prime. Stronger global economy will increase the energy consumption index by over thirty percent. Demand of resources such as iron and crops by the developing countries is already increasing the unit price and complicating the reconfiguration of supply chain assets. Environmental regulatory policies are also causing concerns due to the vagueness of scope and course.

These trends have long-term impacts which further cements the environment of uncertainty. Developing countries add unpredictability to the financial markets with their rapid growth which in turn forces the developed countries into protective mode. Additionally, these developing markets are growing at varying rates which can cause increase in labor expense and hence, change in geographical appeal for manufacturing centers. As organizations in developing countries prove to be more reliable in supply, it is becoming increasing difficult to decide on the best low-cost market to source from.

Higher Complexity

Manufacturing units and supply chain strategists are forced to tackle the growing complexity. Today’s customer has a wide range of demand and businesses must employ more effort to fulfill them. Higher production volume impact established products as well. For example, the number of baked products, soft drinks, snack items, etc. have all increased exponentially in the last couple of years.

Today’s market is a global market which further increases the complication. In addition to lucrative manufacturing centers, higher earning potential in developing countries also make them attractive product markets. It is necessary for supply chain planners to innovate in order to achieve effective distribution in these growing markets as typical formats are limited to superstores and independent shops.

Tackling the Situation

In the current scenario, it is impractical to assume that organizations can enhance the supply chain model in one go or for all possible situations. Few companies have understood the ground reality well and have approached the problem in two ways.

Splintering the Supply Chain Network

Firstly, they are breaking down or splintering the standard colossal framework into simpler and more manageable units. The resources and properties are the same, but they are utilizing the data in a creative manner so that organizations can accept the ambiguity as well as achieve higher customer satisfaction. Splintering can assist in reducing the complication, decrease cost and improve customer satisfaction.

Manageable Numbers

First and foremost, companies need to understand the scope of these splintered supply chain units. They need to ascertain whether the utilization of their manufacturing process and product distribution is compatible with their vision of the product and target markets.

The need for such analysis seems apparent but many companies overlook it. Usually, businesses only consider the latter in a meaningful way. They recognize the products or services that are profitable in terms of cost and novelty. But very few organizations practically assess the operational trade-offs associated or take network decisions.

Companies should commence their assessment by evaluating the unpredictability of product demand versus previous production capacity. They should compare the conclusions against total production cost for various locales. Such analysis can supply a general idea regarding the trade-offs between rapid production and its associated cost. It can also provide an idea about locations most suited for supply chain splintered units.

However, it is important for businesses to compare these broader conclusions with customer requirement. For example, in case of consumer goods, a company realized that creativity in packaging of the product made a substantial difference. Hence, they organized a single packaging line at a cost-effective locale to cater to a few markets rapidly. On the other hand, assembly-based businesses realized that customers’ receptiveness and individualistic product complexity is an essential factor in identifying the supply chain networks to be splintered.

Additional Benefit

At the surface, splintering of supply chains appears to be a complex task but, this enables organizations to condense complications and achieve efficient management. In addition, the splintered method provides discernibility to management and they can use typical enhancement tools. Previously these tools would have proven to be over complicated.

Using Supply Chain Network as a Hedge

Secondly, businesses are modifying their perception of supply chain. They are evaluating and rearranging, if needed, the supply networks according to economical trajectory of next decade. Such efforts result in wider, stronger portfolios of supply chain that can enable them to grow more efficiently in volatile atmosphere.

Several supply chain units offer maximum worth when businesses maintain a dynamic approach towards them. They performance of supply chain network should be consistent in wide array of scenarios. Companies should be able to able to ask the right questions and devote effort in comprehending the global trends behind them.

In the recent future, companies’ financial performance and continual survival will be dependent on the capability of supply chain to perform in various situations. Hence, businesses should structure production and supply chain network to reduce financial risk in different situations. Companies should aim to recognize a strong and robust production and sourcing framework. A substantial shift in perception is needed from management for this approach to be effective.

For instance, a well-known company has examined its financial framework and possible variations that may occur in the next decade due to global currency fluctuations and wage changes. It has considered the impact of other aspects on their supply chain such as varying product rates and logistics expense. The management team has realized that although its current manufacturing locations are best suited for the production need now, but potential labor cost increase and currency market fluctuation can cause long-term issues. When considering different practical situations, it may need to shift the manufacturing elsewhere. As a result, the organization has subtly commenced structuring a supply base at the new locale, so that they can move production if the need arises.

Likewise, another consumer product manufacturer has started identifying undeveloped production capabilities in low-cost countries which can provide them protection against an array of factors such as labor wages, currency exchange trends, government policies, tax and tariff, etc. It has also considered unanticipated supply interruption due to labor issues and natural disasters.

The decision and implementation of such changes within an organization is a difficult task as modifications to supply chain framework have extensive consequences. In order to bring about these changes, a higher and more sophisticated level of coordination and data exchange is needed amongst various business units. In most cases, organizations are not use to it. In short, the supply chain challenges are paramount for most organizations and success is greatly dependent on a proactive action from the entire management team.