Wednesday, November 16, 2011

The New Global Supply Chains: Shorter, Nimbler, Local

imagePast couple of decades have generally seen supply chains stretching ever longer from one end of the world to another. As manufacturing started becoming heavily concentrated in China, more and more companies found it was just cheaper to build or buy in China and ship it to their factories, assembly plants, and markets rather than maintaining traditional domestic sources. The volatility in energy prices and growing awareness of the cost of supply chain disruptions might just change that.   

 

The graphic below traces the path of a DVD player as it gets added to a retailer’s assortment driving the production of components, assembly, and distribution back to the retailer’s home market. The picture pretty much summarizes the state of global supply chains that our commerce routinely depends on. The story is not much different whether it is ipads, hybrid cars, electronics, kitchen electrics, or for that matter even our food! The trends that drove such cross-global supply chains were substantially low wages in some of the Asian countries, cheaper raw materials, growing process automation, and cheap cost of energy.

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But most of these trends may be reversing. A Forbes story reported in 2007 that the wages in China nearly doubled in past four years outpacing the growth of GDP. According to the Department of Energy, the cost of diesel fuel has almost quadrupled in the same time from 1998 to 2008, (see: http://www.supplychainmusings.com/2008/05/optimization-transportation-versus.html). In the meantime, the supply chain disruptions have grown due to natural disasters as well as socio-political instability across large parts of the globe.

Off-shoring is so passé! Near-shoring, Right-shoring, and building local supply chains are the new trends. Redesigning supply chains can help. Consider the following and you may be on your way to a more sustainable supply chain:

  1. Energy profile (Production). The energy profile models the total energy requirements of producing the raw materials as well as the manufacturing process that converts them into finished merchandise. Consider how can you leverage such data to create and manage the energy profiles of the manufacturing process and the energy profiles of your raw materials as well as the packaging materials.
  2. Distribution profile. This captures the carbon footprint of the material movements required to manufacture a given product, with elements such as the distances traveled by the raw materials from their source to the factories, and by the finished goods to reach the retailer’s warehouses and stores from the factories. The modes available on these routes and energy profiles of these modes may affect such scores. Consider how you can model and manage the distribution profiles to better manage your distribution costs. Some of the related articles at the bottom provide clues on how to better manage your transportation processes to reduce costs and carbon!
  3. Recycle profile (Disposal). This profile can model the material’s recycling characteristics, types of facilities required, and regional laws governing recycling requirements by collecting data on the recycling profiles for the merchandise as well as for the packaging materials.

Related Articles:

Other Resources:

Want to know more about supply chain processes and supply chain strategy? Check out my books on Supply Chain Management at Amazon.

© Vivek Sehgal, 2011, All Rights Reserved.

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