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Global Supply Chain — Changing Landscape

Globalization is unstoppable. Regardless of geography, industry focus, size or revenues, companies in the developed world and in developing countries are globalizing to gain new customers and access new markets. According to the ninth-annual global CEO survey done by Pricewaterhousecoopers in 2005, globalization and complexity emerged as the two most powerful and inevitable forces (1). Globalization has created a massive increase in the complexity of supply chains. Companies are vigorously revisiting their supply chain strategies to achieve the desired business objectives. In this article we will discuss the direct cause and effect relationship that complexity has added to the supply chains.

Figure 1: Forces impacting SCM landscape

Transformation to a Flat Supply Chain — Addition of New Chains

Traditionally, supply chains have been linear with companies struggling to integrate internal processes with those of partners and suppliers. The priority is now shifting to how supply chains can be aligned to the changing business dynamics. Supply chains are being flattened as companies source from emerging economies on one hand and seek revenue growth in unchartered international markets on the other.

Let's understand the phenomenon of flat supply chains from a simple example: Traditionally, companies have focused on lean manufacturing, just-in-time (JIT) deliveries, minimal batches and shorter lead times. The strategic intent has always been to move manufacturing and the supply base closer to the customer. But, flat supply chains do not follow this pattern. As businesses spread their core operations across the globe, supply chains are elongated, with customers and manufacturing locations moving in opposite directions. To worsen the matter, supply chains become complex as more players, such as suppliers, distributors, retailers, port operators, custom brokers, logistics service providers, and carrier and forwarding agents, are added.

Flat Supply Chain — The Key Attributes

Following are some of the typical characteristics of a flat supply chain:

• Increased supply chain length:

According to AMR Research's 2006 survey of 455 companies in Europe and North America, the average company has 36 contract manufacturers, and 42 percent of companies report that more than 25 percent of manufacturing output is produced by third-party contract manufacturers (2). It is quite evident from the survey that length of a supply chain has increased manifold.

• New dimension to flexibility:

Conventionally, any supply chain would try to achieve maximum efficiencies through integration of processes with the partners. As companies grow and add scale to their operations, such integration would impede flexibility and adaptability in business processes. A typical example would be in the case of automotive original equipment manufacturers (OEMs). When their demand increases exponentially, it is unlikely that the OEM's tier-one or -two suppliers will immediately be able to meet the increased service needs, thereby causing the OEM to loose market share. Similarly, when demand suddenly goes down the OEM is forced to share the burden of excess inventory. Companies are slowly adopting modularization in their business models so that they are not tightly tied with any specific partner. In case of any event or disruption, the cost to the business remains under control.

Figure 2: Transformation from "Traditional" to "Flat" supply chain