LOG 470 Contemporary Issues in Logistics Supply Chains: Future Discussions

1. LOG 470 Contemporary Issues in LogisticsSupply Chains: Future Discussions

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 What are the main issues? Source: Christopher,2009

3. Increasing Complexity and Uncertainty in Global Supply Chains

4. Increasing complexity and uncertainty in global supply chains • 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

5. Complexity in the global supply chain : the Boeing 787

6. The source of supply chain complexity • 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 suppliers Source: Christopher,2009

7. Understanding the total costs of ownership Not 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 ……………….. etc Source: Christopher,2009

8. The Rise of Demand-Driven Supply Chains

9. The rise of demand-driven supply chains • 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

10. Competing in turbulent markets • 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

12. The Changing Balance of Power in the Distribution Channel

13. The changing balance of power in the distribution channel • 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

15. The Impact of Changing Demographics

16. The impact of changing demographics • 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

17. Population changes • 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

19. The pressure on resources • 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

20. How sustainable are our supply chains? • 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

21. Options for reducing the transport intensity of supply chains • 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

22. The way forward • 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 mostresponsive to change”. Charles Darwin

24. 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).

25. 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).

26. 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)

27. Supply Risk Supply risk is thedistribution of outcomes related to adverse events in inbound supply that affect theability of the focal firm to meet customer demand (in terms of both quantity and quality). Supply chainrisk managementstrategieswithin anticipated costs and time, or causes threats to customer life and safety.

28. Operations Risk Operations risk is the distribution of outcomes related to adverse events within the firmthat affect a firm’s internal ability to produce goods and services, quality and timeliness of production, and/or profitability.

29. Demand Risks Demand risk is the distribution of outcomes related toadverse events in the outbound flows that affect the likelihood of customers placingorders with the focal firm, and/or variance in the volume and assortment desired by the customer.

30. Security Risk Security risk is the distribution of outcomes related to adverse events thatthreaten human resources, operations integrity, and information systems; and may leadto outcomes such as freight breaches, stolen data or proprietary knowledge, vandalism, crime, and sabotage.

31. Postponement

32. Assessing the Impact of Various Mitigation Strategies

33. Risk Sources in Supply Chains

34. Risk Mitigating Strategies in Supply Chains

35. Resilient Supply Chain • Definition of resilience: • “the ability of a system to return to its original state or move to a new, more desirable state after being disturbed.”