Sunday 26th Mar 2017 - Logistics & Supply Chain

Looking to the east

So, we’ve waved a fond farewell to the Noughties. (Come to think of it, not such a fond one considering the decade contained two recessions.) What will the next decade bring for supply chains?
I have a feeling that the coming ten years could see more far-reaching changes for supply chain than the last 50. And the big question is going to be: are logistics professionals ready for them? The key to all this comes down to the tension that’s going to be created between a shift in the balance of economic power from western nations to the east – but also, to a lesser extent, South America and Africa – and the growing competition for world resources.
First, let’s briefly consider the implications of the economic power shift for logistics pros. What it means is that there are going to be more consumers with more money to spend in more places.
When people in the remoter towns and cities in China find more yuan in their pockets, they will want to spend it on goods and services. The same applies for consumers in out-of-the-way towns in Brazil, Russia, Nigeria, Indonesia or a host of other countries whose economic power will grow during the next ten years. Yet these are all places that have weaker infrastructures and are often at the ends of already stretched supply chains.
So the challenge is going to come in two parts. The first is anticipating where there will be a growth in demand for your products – that’s one for market research. Logistics hasn’t always been good at working closely with market research – so a need to build some bridges there.
The second is then extending the supply chain into new areas. That’s going to involve developing local knowledge and taking some key strategic decisions about how to distribute products. During the next decade, expect to see more companies using a much wider range of strategic partnerships to get their goods into new markets. The point about all this is that it’s going to mean logistics pros need to develop a much broader management outlook. I don’t want to be unfair here. There are many logistics professionals who already make a strategic contribution to their business.
Yet there are others who still have a tunnel vision view of logistics. They will need to change or find themselves steadily sidelined as the coming decade progresses. The business schools, especially those which have logistics specialisms, such as Cranfield School of Management, should be playing a key role in raising the strategic vision of a new breed of supply chain managers.
The second issue where logistics has a growing strategic role to play is in managing what will become growing competition for world resources. We have already seen the effects of this during the past decade in the demand for commodities of all kinds from oil to concrete. As emerging nations become economic powerhouses in their own right, they will create demand for more resources to feed the insatiable appetite of their own economies.
Again, two issues for logistics pros. The first is a sourcing issue – and this is where procurement professionals are going to find themselves playing a more central role. In many cases, there needs to be more emphasis on developing strategic long-term partnerships with suppliers of key commodities. That may mean biting the bullet by foregoing some short-term opportunities to play the market for cheaper prices. The key point here: security of supply could provide a greater strategic advantage than a couple of points off the price. But decisions on this need to be made on a case by case basis.
Which brings us to the second point. There’s been a huge variation in the price of many different commodities during the past ten years. Expect that to continue in spades during the coming decade. So, here, procurement needs to work even more closely with the traders who buy key commodity futures to ensure security of supply at the best available prices. Again, this will involve much more thought and predictive work than many will have been used to in the past. For those who want to see how this can be done to advantage, I commend Shell’s work on scenario planning; now a business school classic.
The bottom line here: the work of logistics professionals during the coming decade becomes much more strategic. But I need to add a caveat. It may well be that many logistics pros themselves already appreciate the significance of all this. But do their boards? On that point, success or failure may well hang.

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