July 01, 2014

Prevalent practices and trends in supply chain and logistics management

Today and also in the next few blogs I am going to share my views on the concurrent global supply chain management. Those views were put together through the interviews by Singapore Business Review - thought leadership series. The first part is about the prevalent practices and development trends in supply chain and logistics management.

I my view there are six major development trends in supply chain and logistics management.

  • The first is the trend of increasing global market volatility and uncertainty across most of industrial sectors. This is particularly so after the impact of economic down-turn since 2008. The trend has been mainly influenced by the increased market transparency and greater price sensitivity driven by the Internet based shopping facilities, which have led to much lowered customer loyalty.
  • The second trend is that the supply chains and global logistics businesses are increasingly reliant on the growth of global customer bases, giving rise to a more global facing business model. The law of economy of scope has determined that the critical importance of market expansion especially for the logistics businesses. Future survival of supply chains depends more on the newly explored international customers instead of the existing indigenous customer bases.
  • The third trend is the increased management emphasis on supply chain sustainability. Environmental, social and economic sustainability are becoming the key strategic considerations in the development of future supply chains especially in the resource hungry logistics businesses. Today, the sustainability issue is no longer driven by the need for regulatory compliance alone; it is becoming the strategic differentiator.
  • The fourth is the trend towards more flexible and agile supply chains. This is a responding development to the increasingly volatile global market places, especially in the fast developing regions in Asia. Logistics business in particular has become more nibble, elastic, and versatile in its value-offering that aims to satisfy the sharp end of the customer needs.
  • The fifth is that supply chains across the world have displayed an unmistaken trend towards vertical-dis-integration and heightened level of outsourcing. Being able to outsource increases the supply chain’s survivability through engaging external capabilities. Thus today’s trend is to “managing the vertical integration without actually having a one”.
  • The sixth trend is towards the increasingly intensified risk management. Supply chain managers realised that in today’s business environment, not to manage the risk will result in managed by the risks. In the global logistics business sector, high sea piracy and extreme weather conditions all play a more disturbing role in exacerbating the risk factor. Risk and opportunity management should span the entire supply chain—from demand planning to the expansion of manufacturing capacity.

In terms of the most prevalent and widely discussed supply chain management practices, I would like to mention the following.

Supply Chain Integration perhaps is the most ‘popular’ supply chain management practice. It can be understood as managing independent participating members in the supply chain to perform as if they are one. It creates multiple level interfacing and collaborations; share extensive amount of information in between the member companies; develop joint scheduling and planning systems; practices early involvement of suppliers in NPI (new product introduction) processes and so on.

Managing through Close Partnership is also an approach widely acclaimed to be effective in supply chain management practice. It has been modelled as ‘win-win partnership’ whereby all parties in the relationship will have positive gains and there will be no net losers. This practice is based on the philosophical understanding that when the two parties gets closer in their engagement, there come the trust, loyalty, commitment and synergy as the outcome. It is evident there is a trend from the short-term antagonistic relationship model towards a long-term, share destiny relationship model in supply chain management. The relationship approach works particularly well-suited in Asia nations due to some supportive cultural factors.

Lean Supply Management is another major category of concurrent supply chain management practices, which is developed from the Japanese auto supply chains’ best practices. It features many widely benchmarked best-practices, such as constructing a small 1st-tier supply base, close relationship with suppliers, long term contract, single or dual sourcing, performance based supplier selection, ‘market price minus’ pricing, synchronised flexible capacity, and just in time delivery.

Agile Supply Management practice has recently become well known. One of the most distinctive characteristics of the agile supply chain management is being able to respond to the demand fluctuation very quickly and effectively, hence achieving higher level of supply chain responsiveness. It is most applicable in fashion product category supply chains, where the market demand could be uncertain and volatile. The most used approach to achieve supply chain agility is ‘postponement strategy’ or ‘delayed product configuration’.

Strategic Outsourcing is also a prevalent supply chain management practice, which essentially addresses the supply chain’s structural re-design or re-configuration. It basically moves one or more internal operations or processes out to the external suppliers. There are many strategic advantages that outsourcing can achieve for the supply chain if it is carried out properly, such as reducing the total supply chain cost, focusing on core competences, increasing business flexibility, and further differentiating the competitive edge and so on.

There are also many other supply chain management approaches such as: strategic alliance, vertical integration, knowledge based sourcing, consolidated purchasing, joint venture, Keiretsu relationship, vendor managed inventory, value stream mapping, time based process mapping, and etc..


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