MARTIN CHRISTOPHER
MARTIN CHRISTOPHER

"Supply chains compete, not companies"

"Supply chains compete, not companies"

The Supply Chain of the Future

The recent global economic turmoil has caused many companies and commentators to re-think their previously held views on the likely shape of the future business environment. It is clear that many of the network strategies that were developed even just a few years ago may have to be reviewed as the characteristics of the future supply chain gradually become more apparent.

There are unquestionably a number of significant economic, social and demographic forces that are re-shaping the business landscape at this very moment. These seismic changes will force organisations to radically review their supply chain strategies to ensure their continued survival. A combination of underlying trends in the business environment are creating the appropriate conditions for a ‘perfect storm’ that will force us to change the way we think about supply chain design and management.

Companies that aspire to be leaders in tomorrow’s markets will need to start now to scope out supply chain strategies that will work in a marketplace that may be vastly different from the one they serve today.

One of the biggest impacts on the supply chain of the future will come from global demographic change combined with a re-distribution of discretionary spending power. There is an obvious link between changing demographic patterns and consumption. It is not just age profiles that affect purchasing patterns but also where people live. Whilst the impact of an ageing population across much of the Western world will be significant both in terms of consumption trends and available discretionary income, the effects of migration from rural to urban areas in many parts of the world potentially could be greater.

For example, it is estimated that more than half the world’s population now lives in urban areas. Cities will continue to grow and shopping patterns may change dramatically. Beyond this the impact of cross-border migration will lead to a growth in demand for non-traditional product, e.g. the growing market in the UK for ethnic products.

Whilst many Western markets are ageing, the reverse is true in emerging markets such as Brazil, Indian and China. Similarly populations are growing differentially – whilst many countries are experiencing a decline in population, others are growing at an accelerated rate. Along with this significant shift in the population density of different countries comes a global re-distribution of spending power. Already it is suggested that half of the world’s population can be regarded as ‘middle class’ meaning that they are now demanding and consuming products at a level not seen before.

The combined impact of altered population densities and the growth of discretionary spending power in the world’s emerging markets means that the ‘centre of gravity’ of existing supply chains will dramatically change.

By ‘centre of gravity’ is meant the nexus of supply and demand i.e. given the gravitational ‘pull’ of the different markets that a company might serve, where does the it make most sense to source and manufacture products? A further impact on the centre of gravity comes from rising transport costs. As the world’s economies gradually move from recession to growth, so too will the price of energy (particularly oil) start to rise. The implication of such price rises for the costs of transport are apparent. As a result, the global supply networks that have been assembled over the last few decades many may no longer be fit for purpose. A return to local-for-local sourcing may well be required as the search for less transport-intensive supply chain strategies increases.