I recently stumbled upon a Supply Chain Digest article from earlier this year that purpoted to tell us that a Siemens Global Move Points to the Supply Chain Future, in reference to Siemens’ increasing focus on selling new, lower price versions of its products in developing nations, and of manufacturing these close to those markets. While that has some merit from a supply chain future perspective, there is even more merit in what the author, Gene Tyndall, President of Supply Chain Executive Advisors, noted when he said that the world, which may or may not be flat, is fast, cheap, and out of control.
More specifically,
- Fast — in that connectivity makes the world smaller, yet more complex
- Cheap — in that products are dropping in price, and becoming more powerful, yet global sourcing is increasing risks and other problems
- Out of Control — in that most of the world’s purchasing power now resides in the hands of the customers who are empowered, demanding, and impatient. Businesses are no longer in charge.
At least part of the world is definitely smaller, and, more specifically, the part of world that is granted access to relatively unrestricted internet. In countries where internet access is limited, or content is tightly controlled, it’s really not that much smaller.
Some products are dropping in price, some have prices that are skyrocketing out of control by a factor of more than one hundred times inflation. Risks are increasing in every way imaginable, and the severity of quality-related disasters is recently responsible for a large number of deaths and illnesses around the globe.
In some markets, like cellphones, all of the power resides in the hands of the customers who are empowered, demanding, impatient, and able to afford the products. In other markets, including those that deal in core food stuffs like corn and wheat, the major producers call the shots, considering that world-wide food reservers are purported by some to be at a 100 year low.
But more importantly, globalization, which has been abused for the past decade or three (depending on who you ask), has put the world on a sure-path to disaster that’s going to be almost impossible to avoid if some companies, and governments, don’t smarten up. Let’s start with the statistics and facts from Chapter 16, “A Negative Equilibrium” from John Ralston Saul’s The Collapse of Globalism and the Reinvention of the World.
- Global M&A hit 100 Billion a week by the end of 2004
- By 2004, British Personal Debt hit 1 Trillion pounds, an all-time high
- In 1973, the OEDCD had 10 Million unemployed job seeksers. In the 1980’s, the number rose to 30 Million. In the 1990’s, we hit about 35 Million. In the early part of this decade, we surpassed 45M, and might even have passed the 50M mark – despite the constant revision of the definition of “unemployed” to exclude people no longer seeking work, who have accepted early retirement, or who have part-time jobs (which may or may not be sufficient for them to live on … in some cities, half the people in homeless housing have some kind of job, but don’t make enough to actually afford shelter).
- The income of the richest over the poorest in the UK grew from four times to seven times in the 1990’s, an all-time high for an income gap (and that’s before this decade which saw CXO salaries, golden parachutes and severance packages hit all time highs).
- By the mid-1990’s, child labor surpassed 200 Million.
- By the end of the 1990’s, the debt-to-export ratio of the most indebted countries were at levels that were, in many cases, 10 times more than they were in 1970. (And things have only gotten worse since then.)
And let’s add a few more scary facts and statistics:
- The average daily volume in the global forex and related markets is continously growing and the total GNP of the US is now traded at least once every 3 days and the GNP of the entire world is now traded at least once every 15 days! (Daily trades surpass 4 Trillion Globally, and the GNP of the planet is slightly less than 50 Trillion.)
- Thanks to the recent lending crises, which have snowballed out of control, even 700 Billion, an amount which is more than the GDP of every country except the US, Japan, Germany, China, the UK, France, Italy, Spain, Canada, India, and Mexico, might not be enough to prevent a massive financial industry failure in the US, which is almost 1/4th of the world’s economy.
- The quest for never-ending cheap labor, which caused a global resurgence in child labor in the 1990’s, is now leading to riots, and as I reported recently, murder, due to the unrest caused by massive labor displacement as companies abandon one locale for another.
The problem is simple, too many companies are focussing on the absolute lowest cost and not enough on the impact their decisions have on sustainability and corporate social responsibility. Globalization has privatized the world, which means that the private sector needs to live up to the responsibilities that entails, as many companies now have more power than governments. If they don’t find a way to balance their responsibility to their shareholders with their responsibility to society, they may bring down entire cities, states, and even countries — and that would do more damage to their bottom line than a few extra cents for labor costs or sustainable operations ever would.
So if you want to keep your company away from the path to disaster, when you source, remember to account for the costs associated with unsustainable and unsocially responsible practices on the part of your suppliers. If you do, you may just find that, not only will you be set to do better in the long run, but that you might actually survive for the long-run.
