The global supply chain – smart and flexible

Geoff Dossetter
PR Consultant at Chartered Institute of Logistics and Transport
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Post date: Wednesday, 31st August 2011

The increasing diversity and sophistication of production techniques, labour costs, logistics efficiency and industrial reliability mean that supply chains have lengthened in order to link the complex production process with the marketplace. But some recent events have resulted in the need for some reconsideration and the ramping up of fail-safe arrangements.

‘Made in China’ is the legend which appears on makers’ labels in an ever increasing range and quantity of products which appear on sale in the UK. Furniture, crockery, electronics, clothing, tools, household goods – the list gets longer by the day as the mighty economies of China, Korea, Japan and all over the Far East become stronger and smarter.

The production benefits of smart technology, cheap labour, perhaps careless energy production, and innovative thinking, result in the manufactured products of the Far East ending up in the shops and homes of Europe, the Americas, and the whole world. And the global supply chain has also developed in its logistical sophistication in order to deliver these products in massive bulk, cheaply and efficiently. A complex mix of container shipping, air freight, order processing and tracking systems has resulted in a demand driven, lean and economically efficient process of production and delivery.

The production of some products can be the result of a complex process involving many different countries, even continents. A recent study of the Apple iPhone by the Asian Development Bank Institute revealed that the product was designed in the US but made and assembled by nine companies in six countries – and then delivered to its worldwide market.

There are clearly major advantages in this approach. The ability to take advantage of cheap labour in one location, low energy costs in another, domestic expertise in a third, a benevolent tax regime in a fourth and so on, all supported by a process of just-in-time delivery arrangements meaning that the right quantity of raw materials or components are delivered to the right location at the right time in order to ensure low stockholdings, low inventory levels and, crucially, lower costs.

But what happens when there is an unforeseen or uncontrollable interruption to this free-flowing process?

During the last two years we have seen specific events which have pitched the proverbial spanner into the works. In 2010 the eruption of a volcano in Iceland resulted in the grounding of a large percentage of the European air fleet resulting in global supply chain and production managers rushing for innovative and dependable solutions. Then, and far more complex and serious, the Japanese earthquake in 2011, coupled with the resultant tsunami, nuclear alert, and power shortages, meant both an immediate reorganisation in order to keep the pot boiling and production on the go, together with a longer term rethink to reassess the wisdom of possibly vulnerable supply chains. At the same time global distribution also faces the reality of oil running out at some moment over the next 40 years or so resulting in, at best, some new thinking on how goods should be moved around, or, at worst, a substantial adjustment in the price levels of some products, specifically resulting from higher transport costs.

Substantially higher oil costs could, by themselves, actually threaten the sanctity of the just-in-time philosophy. Put simply, could higher transport costs resulting from higher oil prices mean that the savings generated by fast replacement and low stockholdings be outweighed by sky-high oil costs? Perhaps not if the increase is gradual and reasonably stable, but nevertheless food for thought. Other decisions relate to the location of warehouses and regional distribution centres and, here in the UK, the ever growing benefits of operating from port-centric locations – reasonably close to the ports receiving shipping from the mighty production blocs in the Far East. Meanwhile, the experiences of international companies in the recent past make it inevitable that new, and perhaps expensive, measures are put in place in order to allow for the possibility, however vague, of a big-time interruption in the supply of vital raw materials or components. In an ultra-competitive global environment the loss of production or supply, even for a short period, could spell disaster for some operations and must be avoided. And that too must increase prices.

In 2011 the demands and desires of the global village, the interaction between nations and multinational companies, and twenty-first century technology, all combine in order to, for a substantial slice of the world’s population, create a sophistication of consumption undreamed of even a short time ago.

The role of the global supply chain, and the smart managers responsible for its operation, is to make this process as efficient, economic and innovative as possible.

Despite the intervention of unforeseen natural events, political turmoil, or economic developments, the can-do nature of the logistics industry and its personnel is in good shape to deliver the goods – whatever and wherever.

Note: The Chartered Institute of Logistics and Transport is a worldwide organisation with an established international pedigree. With over 33,000 members working in over 100 countries, the CILT spans the globe. It is an organisation that offers significant benefits to all its members, as well as a complete suite of educational courses internationally.  

This article first appeared in Logistics Insight, Autumn 2011. To read the entire publication, click the ebook.

Logistics Insight