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The future of supply chain management is AI and Data

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The future of supply chain management is AI and Data

The future of supply chain management is AI and Data

Because enterprises are like organisms in an economic ecosystem, the principles that enable a healthy biological ecosystem are, from a physical, chemical and informational perspective, identical to those that enable a healthy business ecosystem and that ensure the survival of members of that business ecosystem. Value is created by solving problems through the application of information and creativity. By speeding the information flows and reducing inefficiencies, we are equipping our part of the bigger picture to operate effectively, adapt quickly and evolve to meet competitive threats and exploit opportunities in the environment.

Supply chains are a crucial and complex part of the information flowing in this ecosystem. They are an intricately structured and variable system that is highly sensitive, with many possible outcomes based on even minor changes in the initial conditions or components. Supply chains feature a large collection of interacting components that are difficult to understand or examine due to their design and operations. And they represent a system in process, changing and developing over time.

It’s critical to think holistically about the information ecosystem as you prepare the digital representation of various stages of product design and development. Even a product designed in isolation from other systems and groups—whether in a specialized department or in a separate contracting organization—is still part of an information ecosystem. Information that may be inconsequential to the group that is creating the product, such as an obscure material specification that has no immediate value, will likely have value either downstream (perhaps to a distributor or engineering group) or upstream (perhaps to a procurement manager or supply chain manager).

Too often, these unseen dependencies and information relationships are neglected, and the impact of this neglect can be significant. If a piece of data that will be needed when assembling or distributing a future product is not captured, is lost or is incorrectly represented, the cost of remediation is orders of magnitude larger than that of addressing the data need at the source.

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Beyond the Economic Downturn: Recession Strategies to Take the Lead Now!

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Predicting a Recession

It’s overdue. Predicting the onset of a recession is difficult, but a downturn likely will arrive soon, with the current economic expansion now more than 10 years old, long by historical standards.

Signs of overleverage in the corporate sector, combined with geopolitical uncertainty – including the China-US trade war, Brexit and economic instability in some European countries – suggest the next recession is not far off.

For corporate leaders, however, the exact timing and duration of a recession matter less than being ready to seize the moment early, when they have more options. Getting ahead of the curve avoids the painful alternative – being forced to react hastily in a crisis. Bain & Company research shows that well-prepared companies emerged as winners during and after past recessions. They managed a strong defense and offense in parallel, reining in costs while simultaneously reinvesting in growth.

The next downturn will figure as just one element roiling the global economy. Several structural changes will combine to sound the starting gun to a new business cycle, including:

The end of the nontech business.

An array of evolving technologies will substantially alter customer behavior and demand in many sectors, disrupting both volume and price. In the automotive industry, shared mobility services and the shift to autonomous and electric vehicles could gut the economic returns of many manufacturing plants and assets in six to eight years – just one product cycle. In retail, digital-first insurgent brands with healthy balance sheets may take even more market share in a downturn, compounding the damage to many traditional retailers.

At the same time, new technologies are ramping up efficiencies in areas such as supply chain and manufacturing. Automation technologies, in particular, will accelerate to help companies address the dwindling supply of labor as more baby boomers move into retirement and labor force growth slows.

The end of low-interest rates.

Interest rates still hover near a six-decade low (see Figure 1). Even if central bankers hold rates low during a downturn to help stimulate their economies, we expect to see rates eventually rise. This potential change in the interest rate environment will be a new regime for most management teams and should prompt them to take a multiyear view of their capital structure and the timing of investments. A higher cost of capital will put pressure on capital spending, so if companies want to invest in technology, growth opportunities or acquisitions, the time is now.

Downturns Upend the Playing Field

These long-term trends will harden the divide between winners and losers, favoring those who act before the downturn. Headed into the global financial crisis a decade ago, a group of almost 3,900 companies worldwide that we ran through Bain’s Sustained Value Creators analysis posted double-digit earnings growth, on average, from 2003 to 2007. As soon as the storm hit, performance diverged sharply: The winners grew at a 17% compound annual growth rate (CAGR) during the downturn, compared with 0% among the losers. What’s more, the winners locked in gains to grow at an average 13% CAGR in the years after the downturn, while the losers stalled at 1%.

Read more at Beyond the Economic Downturn: Recession Strategies to Take the Lead Now!

Six Ways To Optimize Your Supply Chain To Generate Profit

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Companies use multiple tactics to generate economic profit, including introducing new products, launching marketing campaigns or undertaking acquisitions. Supply chains offer an effective, though less understood, path to creating value through growth, driving down working capital, improving cash flow and lowering cost.

Surprisingly few companies understand the importance of the supply chain, and few have a formal strategy in place for managing global supply chain risk in the years ahead. This is especially dangerous given the volatility and uncertainty in trade relations between the U.S. and China, as well as other scenarios around the world. Besides geopolitical uncertainty, having the right talent, a holistic perspective and appropriate technology may all figure into the supply chain risk factor.

Use the following best practices to optimize your supply chain and minimize risk.

Redefine The Supply Chain

Best practices begin with redefining supply chain excellence and broadening its scope.

Create A Cross-Functional Team

Best practices for driving shareholder value through supply chain optimization can be easily implemented in any company for concrete results.

Focus On The Right Metrics

Following increased visibility and cross-functional team-making, focusing on the right metrics is the logical next step.

Connect With The C-Suite

Another essential best practice in supply chain optimization is building relationships throughout the entire company and starting conversations with the CFO and other key executives.

Manage Risks

Long-standing supply relationships have value, but disruption of those relationships can be devastating.

Total Value Optimization

The Total Value Optimization (TVO) framework promotes greater collaboration, integration and transparency.

Read more at Six Ways To Optimize Your Supply Chain To Generate Profit

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Supply Chains in Advanced Markets Should Become More Agile, Says Atradius

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Atradius, a consultancy specializing in trade credit insurance, surety and debt collections, maintains that the global economy has continued to gain momentum over the past months, with a 3.1% expansion projected for this year.

Higher inflation, falling unemployment, and strengthening Purchasing Manager Indices (PMIs) all suggest higher GDP growth in advanced markets.

Atradius analysts observe that the U.S. economy leads this trend while the recovery in the eurozone becomes increasingly entrenched. The outlook for emerging markets is also brighter, as Brazil and Russia are emerging from recession, and access to finance remains favorable. While the global economic outlook is more robust than in previous years, political uncertainty remains a downside risk to stability.

However, the main challenges to the global outlook – the threat of deflation, negative bond yields, austerity, and low commodity prices – are slowly phasing out.

Global trade is supporting this recovery. After a 1.3% expansion in 2016, trade growth (12-month rolling average, y-o-y) has picked up to 3.3% as of July 2017. The stronger-than-expected expansion is being driven by intra-regional trade flows in Asia and strong import demand from North America.

Despite political uncertainty, most high-frequency indicators point to sustained growth: the global composite PMI posted held steady at 54 in September, pointing to a solid and stable rate of expansion. This has motivated some dramatic upward revisions of trade growth forecasts in 2017. The WTO raised its 2017 forecast for merchandise trade growth to 3.6% from 2.4%.

Read more at Supply Chains in Advanced Markets Should Become More Agile, Says Atradius

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Analysis – what impact will Brexit have on supply chain operations?

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Brexit is a great uncertainty for businesses operating cross-border. Therefore, it is crucial for companies operating complex supply chains to consider the implications of Brexit on their businesses.

A PESTLE is an analysis tool that provides an understanding of the factors and external changes to the business, which may impact their ability to operate and thrive.

In this article, Nicholas Hallam considers the elements of Brexit that are out of the control and influence of businesses, but which they should still be planning for, as well as the proactive steps they can take to guide strategic decision making.

Political

Brexit has been an intensely political issue – from the original promise of the In/Out referendum (made by David Cameron to prevent a haemorrhaging of Tory support to UKIP) right through to the political and legal disputes about the triggering of Article 50 and the ongoing controversy about the trade-off between free movement and the single market. The debate – which cuts across traditional political alignments – pits sovereignty against efficiency, and the citizens of definite somewhere against free-flowing globalists.

Economic

The UK runs a constant trade deficit with the EU. While the UK’s biggest individual export trade partner is the US, over 62% of all exports went to the 27 EU Member States during Q1 2017, totalling £33.1 billion. And during this time-period the UK’s top import partner was also an EU Member State, Germany (£17.6 billion worth of goods).

Social

While Brexit essentially means untangling the links that the UK has with the EU, there are many ways in which we will stay connected irreversibly. Some of the biggest technological advances in recent years – such as smart phones and social media – have been made to connect people no matter their location, language or economic status. So, while the government may have a protectionist ethos, it may be increasingly impractical to implement to live up to most people’s expectations and habits.

Read more at Analysis – what impact will Brexit have on supply chain operations?

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Commentary: Managing risk in the global supply chain

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The World Economic Forum defines global risk as an uncertain event that, if it occurs, can cause significant negative impact for several countries or industries within the next 10 years.
Global supply chains create both opportunity and risk. Some of the macro issues we face both in day-to-day operations and future planning include cybersecurity, terrorism, climate change, economic instability, and political discord.
More specific to executives who manage global supply chains, risk is more apparent, and on a micro-basis potentially more consequential in the short term, in areas such as but not limited to reducing spend, leveraging sourcing options, creating sustainability, political and currency instability, government regulations in the U.S. and abroad, trade compliance management, free trade agreements, energy costs, and what the incoming Trump administration will mean for global trade.
Since the recession in 2008-2009, we have witnessed a serious uptick in companies worldwide reviewing their operational exposure and then creating risk strategies in managing these vulnerabilities. Risk exposure can negatively impact margin, profits, growth strategies, operational stability and personnel maintenance.
For companies operating in global supply chains the risks are vast, convoluted and often unanticipated. As a result, we tend to be unprepared for the impacts.

Read more at Commentary: Managing risk in the global supply chain

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What’s Behind the Inventory Crisis of 2016?

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The last time the inventory-to-sales ratio was this high was 2009, when we were in the throes of the Great Recession – people lost jobs, businesses closed, nobody was spending, nobody was growing.

What does it mean that inventory levels are this high in 2016? Are consumers not spending? Are we headed for another recession? Or are other forces at work?

Well, in April the Bureau of Economic Analysis reported that consumer spending experienced its biggest gain in six years. And while JPMorgan recently reported an increased probability of a recession in the next 12 months, no one’s sounding the alarm bells quite yet. Besides, inventory levels have been high since last fall.

So what else could be at work?

The Marketplace

Traditionally, a drop in consumer demand would cause a short-term build-up of inventory. But businesses would eventually compensate by cutting orders and manufacturers would produce less. But as we’ve seen, demand isn’t going down. And yet, inventory isn’t moving. Why?

One major culprit is the way consumers shop. Their expectations have changed. This is the age of Amazon Prime, Instacart, Uber and Lyft. Free shipping. In-store pick-up. 1-hour delivery. Easy exchanges and returns. Above all – convenience. If it isn’t convenient for a customer to buy something they want, they won’t buy it – or they’ll buy it somewhere else. Fulfillment has usurped the throne of customer satisfaction.

Traditional retailers have struggled because of this. As young, tech-driven start-ups bite into market with the luxury of fresh starts, traditional retailers have tried to stay competitive. One common tactic has been to keep buffer inventory on hand. Out-of-stock inventory kills customer loyalty. Not being able to fulfill quickly kills customer loyalty. But having lots of inventory doesn’t equate to efficient fulfillment. That requires having a modern, flexible supply chain. Without agility, retailers often lack the competence to satisfy customer demand, let alone fulfilling profitably.

Read more at  What’s Behind the Inventory Crisis of 2016?

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China’s supply chain plan could pose threat to Taiwan

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A plan laid out by Chinese authorities to cultivate a domestic supply chain for the country’s high-tech manufacturing sector is expected to pose a serious threat to Taiwanese companies, government sources said Saturday.

In voicing the concerns, Ministry of Economic Affairs sources said China’s efforts to help its own high-tech supply chain flourish to lower dependence on imported parts have already reduced China’s trade dependence on Taiwan.

The plan unveiled by Beijing in May to create a manufacturing revolution underpinned by smart technologies over the next 10 years could deal a further blow to Taiwan’s exports, they said.

The latest plan for the mainland to grow its own high-tech sector, called “Made In China 2015,” takes aim at various sectors, including the information technology, and puts a heavy emphasis on the semiconductor segment.

According to figures compiled by the Bureau of Foreign Trade (BOFT), the ratio of China’s imports from Taiwan to total imports fell to 7.76 percent in 2014, from 11.3 percent in 2005.

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