Daily Archives: February 15, 2008

What Will Be The Top 10 Supply Chain Stories of 2008? Part V

In part I, we reviewed Supply Chain Digest’s 2007 Supply Chain Year in Review article, where they picked their top ten news stories for 2007. In Part II we reviewed Supply Chain Digest’s Key Trends Impacting Supply Chain Management and Logistics for 2008, as identified by the nine executives and academics they asked to postulate what 2008 has in hold. In Part III we speculated what the top 10 supply chain related stories in 2008 could be, if the right chain of events occurred. Yesterday, in Part IV we dove into what the first five supply chain related stories of 2008 could be, why they could happen, and what you could do to make sure they do, or do not, happen to you (as the case may be).

In today’s post, we’re going to dive into the last five stories that we postulated and carry the exercise to its logical conclusion. As we mentioned yesterday, the whole point of an exercise that attempts to predict what might happen is to figure out what bad things could happen, how they might come about, and what we can do to prevent them.

US Exports in Manufacturing Rise Rapidly

The low dollar, coupled with the introduction of new, more efficient technology and leaner practices makes the US the low-cost country of choice for Western Europe.”

The dollar is low, US quality is high, and the only reason the US isn’t the destination of choice is the fact that even with a weak dollar, unionized labour costs in the US are still high. However, high labour costs can be counteracted with more efficient production, which reduces the overall cost per unit. If a number of upstart manufacturers were to introduce new technological innovations that were significantly more efficient than the process and technologies typically used in low-cost countries today, then this decrease in production costs coupled with high quality (mandated by stringent US regulations and the constant threat of a class-action lawsuit should quality be sub-standard) could cause demand for US exports to sky-rocket.

This would be a bit of a double-edged sword for manufacturers. Those manufacturers with the new technology would stand to benefit greatly, while those without could go out of business if the dollar stays low and a recession hits as demand would quickly shift to the more efficient, and more cost-effective, manufacturers.

The ounce of prevention here is to continue to improve your processes, technology, and innovate whenever you can.

Port Congestion Re-Appears as a Result of a Natural Disaster on the West Coast

The Ports of Long Beach and Los Angeles are almost destroyed by a tsunami caused by a major earthquake off of the coast of California.”

If the Juan de Fuca plate slips against the Pacific plate, a massive earthquake could occur off of the California coastline. This could produce a massive Tsunami that smashes the California Coast and wipes out the ports of Long Beach and Los Angeles, which were the fifth and fourteenth busiest ports in the US in 2004 with a collective 5% of total trade volume. If the ports continue to operate near capacity, losing 5%+ of ocean-freight capacity would be a serious blow to your supply chain.

The ounce of prevention here is to minimize your need for Ocean Freight – by buying locally or near-sourcing from Canada, Mexico, or South America – and to have back up plans to air-freight any key products and components that you have to buy overseas.

Agflation Continues to Rise

Politicians give in to the AlGorites’ demands and mandate the production of more bio-fuels, despite their inefficiencies. Coupled with reduced crop production due to the massive heat-wave, this causes the prices for many basic food crops to increase by 30% or more.”

Today, bio-fuel is usually associated with ethanol, and corn-based ethanol in particular. However, production of corn-based ethanol is not an efficient or cost-effective process. It currently takes as many as seven gallons of oil to produce eight gallons of ethanol, which is not as fuel efficient as unleaded gasoline. Translated, we’re sacrificing needed food crops for an increase in fuel of a mere 10%! Considering that we’re now experiencing shortages in staples like hops because farmers are planting more corn to try to cash in on the bio-fuel rage, it’s hardly worth it.

The ounce of prevention is to plan now for reduced crops from farmland that can also be used to yield corn – which includes soybeans, wheat, oats, and barley – and higher prices for corn, and related food staples. Start working now on alternate recipes that use less of these foods and more of substitutions.

Services Outsourcing Rises

In an effort to contain costs, companies start outsourcing services, particularly in contingent labor management.”

If not managed effectively, contingent labor can be very costly for any company that employs a large number of contingent workers on a regular basis. Hourly rates can be higher than the median, workers can be retained longer than necessary on a project, fraudulent billings by less-than-honest staffing agencies can go uncaught, and if workers are retained too long, they are considered part-time employees, and dismissal can result in heavy penalties.

Since cost management will be crucial in the coming months, effective contingent labor force management will become critical for certain groups of companies. Those companies who migrate successfully will gain a great advantage over their peers. Those that don’t could be at a severe disadvantage and have trouble competing against their peers.

The ounce of prevention here is for those companies with large contingent labor forces to put processes in place that will allow them to either outsource their contingent labor management to a third party that can do it better, or to manage it more efficiently with an on-demand SaaS application, as soon as possible.

Major Multi-National X Moves it’s Headquarters to China

Betting that China is the next global economic powerhouse, X moves its headquarters from the good old U. S. of A. to China.”

Stop laughing. It could happen. Many foreign companies fled the US stock exchange with the introduction of Sarbanes Oxley, and that was just a paperwork act. Now we are in an economic slowdown, with a weak dollar, and a Chinese powerhouse on the horizon. IBM already moved their supply chain operations to China. It’s probably only a matter of time before a global multinational in the Fortune 500 moves its headquarters to China.

What will this mean? Hard to say. That company will have a significant advantage in the growing Chinese marketplace, as well as in the neighboring Indian marketplace, an economy expected to have a middle class population of over 583 million by 2025. That company will have a significant advantage in taking advantage of the most efficient production that China has to offer. But will it be enough to out-distance the competition? I don’t know. However, I do know that it’s something you should start thinking about today!