As we move into the month of March, it is becoming rather obvious that 2008 will turn out to be a rather challenging year on many supply chain fronts. In many industry settings, the need for continued supply chain cost reductions will again take center stage, but the task is now far more challenging. Many firms have done a great job of attacking the obvious low-hanging objectives, and some have moved on to more core areas of cost improvement such as inventory, facilities, and labor savings. But the more I read and observe, the more I’m convinced that newer, more difficult challenges lie ahead, and past gains could be subject to reversed direction.
In the past week or so, the cost of a barrel of oil surpassed $103, with no concise indication that the price of oil is going to moderate anytime soon. While the trucking industry struggles with trying to hold the line on rates, the major U.S. railroads have already initiated anywhere from 4-6% in rate increases for 2008, in spite of decreasing volumes of freight traffic. Many senior rail executives have rightfully concluded that continued increases in fuel costs shift the pendulum in favor of more rail or inter-modal movements. Air freight is similar, with the likes of Fedex and UPS trying to balance higher operating costs, with tolerance for shipping customers to adsorb increasing higher rates.
In the area of manufacturing and supplier sourcing, many firms should anticipate more challenging balancing of needs for the remainder of 2008. With the U.S. economy showing obvious signs of a pull-back, many firms are focusing on newer emerging growth markets to buffer revenue and profit goals. Some of these emerging markets lack efficient logistics and transportations infrastructure, which adds to overall costs, especially that ‘last mile’ to reach the customer. The declining value of the U.S. dollar, coupled with rising currency values of the Euro and the Chinese Renminbi will cause fits for global supply chain sourcing and operations executives, who will need to weigh offshore and near-shoring sourcing alternatives.
There is no escaping that 2008 will bring some ugly moments for global supply chain management. A keen focus on product margins, inventory, and delivered cost must be the agenda.