Daily Archives: June 3, 2010

How Will McKinsey’s Five Reshaping Forces Affect Your Global Supply Chain? Part II

Our last post overviewed a recent article in the McKinsey Quarterly that discussed the “five forces reshaping the global economy” that every executive has to grapple with, which left the reader with as many questions as answers. This post will attempt to shed some light in the directions the answers may lie.

The following are the forces that were identified:

  1. Growth and Risk Management in Emerging MarketsMultinationals will have to get in on the ground, attract local management talent, and let the local management talent craft an appropriate strategy for the local market. The multinationals that don’t do this will likely miss out on most of the growth opportunities that are available as the current economic climate, coupled with declining population growth, will significantly limit growth opportunities in developed markets. As a result, your supply chain leaders will be working considerably with local talent in analyzing product costs and sourcing for remote developments.
  2. Labor Productivity and Talent ManagementMultinationals will have to look to developed countries for R&D talent, engineering capability, and innovation and focus on grooming talent in emerging markets to manage the new breed of talent available to them. In addition, management will have to double down on new technology, process innovation, and alternative delivery models to maintain productivity levels with a decreasing workforce in developed economies. Sourcing teams will continue to become global. At first, the team leaders will be in the developed world, and the supporting analysts, with the technical and mathematical skills, will be in emerging markets. (A couple of big consultancies are already very successfully applying this model today.) As time goes on, your leaders will move to emerging markets (following IBM’s example), and the leaders of tomorrow will be just as likely to be in Shanghai as Chicago or London.
  3. Global Flows of Goods, Information, and CapitalMultinationals will have to learn how to maximize efficiencies in existing trade flows as current global economic conditions will likely slow down the introduction of new channels and opportunities. They will need to adopt trade management software to automate manual processes, decision optimization to optimize carrier and route selection, and “spend” analysis to analyze trade data to identify emerging trade patterns that they can take advantage of. Your supply chain will increasingly see solutions developed by Asian multi-nationals, like Algorhythm and Zycus, implemented by local consulting powerhouses, like InfoSys and Wipro.
  4. Natural Resource ManagementCompanies will have to design new products with resource and environmental management in mind, or risk incurring additional costs, and bad press, in the future. Even if the up-front costs are higher, decisions not to use more environmentally friendly materials and processes will have to be very carefully considered. In addition, identifying the effects of forthcoming regulations in India and China will become a top priority.
  5. The Increasing Role of GovernmentsCompanies will have to continually analyze the potential impact of major government programs on the economy and GDP and determine the best markets in which to pursue not only new product introductions (NPI) but new product development (NPD).

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It’s Time To Re-evaluate Your Supply Strategies

Late last year, CAPS Research released a report on “Supply Strategy Implementation: Current State and Future Opportunities 2009” that was based on data from 130 supply organizations across 26 industries. In this survey, the respondents rated the overall importance and implementation importance of 23 different strategies. The results are a little scary: the six lowest rated strategies (where the lowest rated strategy is deemed to be only 77% as important as the highest rated strategy) are the strategies that should be given the highest importance. While the following six strategies, that were ranked highest, are arguably important:

  • Vision, Mission and the Strategic Plan
  • Commodity & Supplier Strategy Process
  • Strategic Cost Management
  • Engagement by Corporate Executives & Business Unit Leaders
  • Human Resource Development
  • Procurement & Supply Organization Structure & Governance

not a single one addresses how you will actually contain costs during a sourcing project. While each of these organizational enablers will improve the capabilities and efficiency of your team, they don’t address the proper way to tackle strategic or high opportunity categories. What’s needed are the following six strategies, which were, unfortunately, ranked lowest:

  • Collaborative Buyer/Supplier Development & Continuous Improvement Collaboration will enable the identification of additional opportunities.
  • Standardization of Systems, Components & Processes Standardizing on parts reduces category management complexity and associated costs.
  • E-Sourcing & Supply Chain Strategies This is where the cost savings really kick in. A well executed e-sourcing project will generally save between 5% and 15% above and beyond what will be obtained with traditional methods. And if advanced techniques, like strategic sourcing decision optimization, are applied, you’ll save an additional 12%, on average. Plus, a well defined supply chain strategy will generally deliver better results than a project undertaken without a strategy.
  • Strategic Insourcing/Outsourcing Identifying those categories you are best equipped to handle and those categories that you are least equipped to handle can result in significant cost reductions as you will be able to outsource those categories you are least equipped to handle to specialists.
  • Environmentally Sustainable Supply Chain Management The times they are a changing’ and you have to be green to save green. Seriously. Run afoul of regulations or ignore your social responsibility, and your supply chain financial statements will soon be covered with red.
  • Supplier Integration into Customer Order Fulfillment A business exists to serve its customers. Integrating the supply chain end-to-end will improve service levels while decreasing associated costs.

So rethink your strategies — and maybe you’ll see your bottom line improve.

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