Two significant research reports were released this week, and both provide quantitative reinforcement of what many global supply chain managers already feel, namely that the existence of ever extending global supply chains has begun to produce critical concerns for product quality and safety, and that operational challenges remain in controlling transportation and inventory costs.
Management consulting firm PRTM released its Sixth Annual Global Supply Chain Trends 2008-2010 report (registration required). This report highlights responses from 300 international participants conducted between the December 2007 and February 2008 time periods. PRTM states that the majority of the participants are senior executives in supply chain management, and thus we can again observe the consensus view from the senior supply chain executive. The second report is the Council of Supply Chain Management Professionals (CSCMP) annual logistics report, which annually quantifies the summarized affects for overall logistics, inventory and other supply chain trends. The report is titled the 19th Annual State of Logistics Report (CSCMP membership required for free access, fee for non-members). This year’s theme was noted as “Surviving the Slump”, which may not have been the most impactful choice of words. I will divide my comments on these reports into two respective posts- this being the first will focus on the PRTM report.
Ten major trends were uncovered in the PRTM report, the majority of which stem from the effects of the accelerating of supply chain globalization. Interestingly, the survey report validates that pressures to reduce cost and penetrate local markets are the two key drivers of accelerated globalization, yet product quality and safety, as well as delivery and security, remain the most critical challenges with global expansion. In my view, these issues will continue to intensify, along with the challenges for overcoming increased transportation and inventory costs, which the State of Logistics report identified. PRTM points to average cost reductions of 17% per globalization initiative, with many companies having difficulties realizing any savings in management and increased coordination costs. In many cases, globalization required more management coordination.
Interestingly, PRTM concludes from the data that the COO agenda across industries and geographies is on improving supply chain flexibility and performance, and by 2010, the need for greater supply chain flexibility will overtake product quality and customer service as the major driver for improving supply chain strategy. I respectfully disagree.
Events that occurred over these past months involving the unfolding effects of the devastating earthquake in China, the safety of life-saving drugs as manifested in the heparin recall, and even these recent weeks with the U.S. recall of tomatoes and the unfolding devastating floods in the U.S. Midwest region do not convince me that supply chain risk will take a second seat to flexibility. Unfortunately, both of these challenges will require a simultaneous coordinated focus. In part two, I’ll provide my comments on the State of Logistics, and the implication for supply chain strategies in the coming months.