supply chain

  • Max Henry posted an article
    Making sense of the G7, SCO and China’s BRI see more

    Geopolitical events in the Chino-Asian region have evolved quickly. Significant international events provided an intriguing glimpse into possible future directions. A recent trip to China occurred at the same time as the G7 summit, characterized by personal insults traded between the USA and Canada, highlighting the growing dissent and division within NATO and its allies. In contrast, the Shanghai Cooperation Organization (SCO) ended a meeting on a cautiously optimistic note. Is this a reflection of greater unity within the Asian/ Central Asia axis? It appears there is reason to believe that this is more than mere fantasy and a warning for G7 to get the act together.

    Another illustration of the rapidly changing nature of global politics was the highly anticipated meeting between US President Trump and North Korea’s Kim Yin Un, promising dreams of a more stable Asia, but the peace is fragile and could still play out as an illusion. If peace and economic prosperity in the region could be attained through the ‘win-win’ framework of the Belt Road (BRI), it would place China in an increasingly attractive geo-political and trading position.

    Members of the SCO include China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, India and Pakistan. A clear indication of growing Chinese influence and importance in the region is the inclusion of first-time members Pakistan and India. Historically, cooperation between Pakistan and India seemed a distant fantasy, and it points to the geo political effects that the Belt Road is having on promotion of cooperation and regional development. Importantly, the SCO now represents approximately half the world’s population. Joint communiques from the SCO address collaboration along the BRI in terms of resources centred around railways, trade, financial services, and people-to-people exchanges.

    Trade within the SCO grew by 19% in 2017, and totalled US$217bn. Contrary to claims of China’s investment strategies being unidirectional, there is an emerging reciprocal investment approach. China’s indirect investment into SCO member countries is currently circa US$74bn, whilst member countries have invested US$1bn  into China. Facilitating this trade is the establishment of 21 economic and trade cooperation zones along the BRI.

    Press reports often do not capture some of the nuances that are gathered when having a beer with locals over a Tsingtao or wine. On the ground, the one China policy is keenly debated, but the one point of agreement appears to be that Taiwan and the South China Sea are inextricably Chinese. Hong Kong is commonly cited as an example of  the success of the Chinese to operate in a ‘one-country, two system mode’. I was surprised by a number of initiatives undertaken by the Fujian province to engage with Taiwan, particularly with students. There has been a significant increase in the number of Taiwanese students registering for exchange programs in Chinese tertiary institutions, suggesting that the people-to-people objectives within the BRI are gaining momentum and giving currency to the notion of a “single China’.

    The centrality of Singapore as a maritime hub featured strongly in discussions. Currently consideration is being given to how the BRI will link the central manufacturing region of Chongqing with Eurasia. Singapore has an MOU with Qinzhou, which it claims gives the island nation direct access to Chongqing, but fails to recognize the role of other port-rail pairings such as Shanghai and Qingdao. When placing these on a map, it is clear that whilst Singapore may claim that its MOU with Qinzhou makes it a strategic partner in the BRI, it does not make commercial or rational sense. Why, for example, would a manufacturer want to rail product to Qinzhou then ship to Singapore, offload and tranship when they can simply ship to a destination country or rail to other ports that are directly connected by rail i.e. Gwadar in Pakistan, Kyauk Phyu in Myanmar, Thailand and Malaysia? Can it effectively compete with the Yangtze River Route that offers 83 quay berths, 6 bonded facilities and operates 24 domestic and foreign shipping routes?

    Furthermore, Qinzhou is part of the Beibu Gulf Economic Zone that incorporates six cities and was initially part of China’s “Go West” drive through the ASEAN countries such as Vietnam and Cambodia. The other five cities are Nanning, Beihai, Yulin, Fangchenggang and Chongzuo. They all have significant BRI rail connectivity projects in play, hence my recent comments that Malaysia’s recently announced cancelation of the rail project with Singapore further isolates Singapore from involvement in the BRI. There is also the Greater Bay Area project linking Hong Kong, Macau, Guangzhou, Shenzhen, Zhuhai, Foshan, and Zhongshan offering trade access… but that’s a story for another day.  

    It also emerged that contractual, legal and financing services were best conducted from Hong Kong. When pressed as to why and what alternatives would be considered, Hong Kong was described as  best placed to act as a conduit between Europe and China. The perception is that Hong Kong provides a marketplace in which there is a greater understanding of the complexities in trade and business between the two regions. Singapore seemly understands trading nuances in global trade relations, whilst  Hong Kong ‘thinks global but acts local.’ Interestingly, alternative service / financial centres that were offered included London and Oslo.

    It would appear that the BRI is breaking ground and causing disruption to current alliances. It has achieved a greater sense of unity within the SCO and highlights the division that currently bedevils the G7. This disunity within G7 and the Eurozone make China and its BRI an attractive option, however, the risks and uncertainties of this focus are the subject of ongoing evaluation.

    For more information , Andre Wheeler, CEO Asia Pacific Connex, can be reached at andre@wheelermanagement.com.au

  • Max Henry posted an article
    The global smartphone supply chain is a modern marvel. see more

    The global smartphone supply chain is a modern marvel. But it will have to reinvent itself FEW monuments to globalisation rival the smartphone industrial complex. This year 1.5bn devices will be made by millions of workers at hundreds of firms in dozens of countries.

    When you tap your screen you are touching an object just as miraculous as Javanese spices seemed to 16th-century European nobs. In commercial terms the system is too important to fail. But this cosmopolitan wonder faces twin threats: the fading of the smartphone boom and the end of globalisation's golden era. To assess these risks, Schumpeter has "stress-tested" the supply chain's financial strength. Overall it is in reasonable shape, but a long tail of weak firms provokes concern.

    For decades most consumer-electronics companies produced their wares close to home. Nokia hit the big time while churning out handsets from the small town of Salo in Finland. Then in the 1990s a few pioneers, including Cisco, and later Dell, outsourced manufacturing to a network of factories, mostly in Asia. That so impressed Steve Jobs at Apple that in 1998 he hired Tim Cook, a supply-chain expert. Mr Cook created a global archipelago of contract manufacturers and suppliers, which today has hundreds of key sites around the world.

    The four other big smartphone firms each add their own twist. Samsung makes more of its devices in-house, but has huge factories in Vietnam and sells semiconductors and displays to its rivals. Huawei, based in Shenzhen, prefers to make components internally. Xiaomi and OPPO, both Chinese, are even leaner than Apple, using outsourced production at home and abroad.

    These intricate networks have a vast economic footprint, as a recent IMF study shows. At the peak in October 2017, smartphone components accounted for over 33% of exports from Taiwan, 17% of those from Malaysia and 16% from Singapore. Smartphones comprise 6% of Chinese exports. Memory chips flow from South Korea and Vietnam; system chips from Malaysia, Taiwan and elsewhere; and displays from Japan and South Korea. Rich-world firms, such as Qualcomm, sell licences to use their intellectual property (IP). The parts are then assembled, mainly by armies of Chinese workers. The machine cranks up ahead of the launch of each new model--Apple may reveal its latest on September 12th--and spews out millions of devices.

    The first threat to this system is that the number of new smartphones sold fell by 0.3% last year as China reached saturation and Western users upgraded less often. Yet despite this, total revenues increased by 10% for all suppliers of hardware and services to smartphone firms. Firms that sell games and services are booming; the sales of developers through Apple's App Store rose by over 30% last year, to $27bn. New phones are stuffed with pricier chips and displays. The total value of the parts inside the iPhone X and Samsung Galaxy S9 is 28% and 13% more, respectively, than in their predecessor models, according to IHS Markit.

    The system's chief weakness is its long tail of puny firms. Many observers worry about labour conditions in the supply chain; the typical poorly paid assembly worker in China handles 1,700 phones a day. But life has been hard for some capitalists, too. One way to show this is to examine the finances of 42 big Apple suppliers. (These figures are estimates, using data from Bloomberg, IHS and Morgan Stanley; the 42 firms cover about three-quarters of Apple's suppliers' total gross profits and we weight each firm for the share of its business with Apple.)

    Apple and 13 of its chip suppliers earn over 90% of the total pool of profits from the Apple system. Meanwhile the tail of other firms doing more basic activities must pay for most workers, inventories and fixed assets (see chart). So they have in aggregate a weak return on equity, of 9%, and a net profit margin of just 2%. Their earnings have not risen for five years. They include assemblers such as Taiwan's Hon Hai and niche component makers, some of which are visibly struggling. On August 22nd AAC Technologies, a specialist in making phones vibrate, said its second-quarter profits fell by 39% compared with the previous year.

    The typical supplier is secretive, battle-hardened, controlled by its founder and accustomed to volatility. If you take a broader sample of 132 suppliers to Apple, Samsung and Xiaomi, typically a third of them are shrinking in any given year. Their tight finances leave them exposed to trade tensions, which are the industry's second big problem. In April America imposed sanctions on ZTE, a Chinese electronics firm that makes some handsets (they were lifted in July). So far America and China have refrained from messing with any other firms. Yet if tensions escalate, they could be in the firing line.

    Supplier beware

    Apple, Samsung and most semiconductor makers could ride out such tensions, with their high margins and cash-laden balance-sheets. But the long chain of other suppliers could not, given their razor-thin margins, big working-capital balances and fixed costs. Tariffs could push them into the red. Of the 132 firms, 52% would be loss-making if costs rose by just 5%. And a ZTE-style cessation of trade would be disastrous. If revenues dried up and the 132 firms continued to pay their own suppliers, short-term debts and wages, 28% of them would run out of cash within 100 days.

    Choking the smartphone complex would be madness: consumers would be upset, millions of jobs would be at risk in Asia, and stockmarkets in America and East Asia would suffer. But even if governments avoid a shock, over time they are likely to push for a greater share of the profits, jobs and IP. America wants more plants at home. China is suing several foreign memory-chip firms for price-fixing and wants to build an indigenous semiconductor capability. If you are running a big firm in the smartphone complex, you should be reimagining things in preparation for a less open world. In a decade, on its current trajectory, the industry will be smaller, with suppliers forced to consolidate and to automate production. It may also be organised in national silos, with production, IP, profits and jobs distributed more evenly around the world. Firms will need to adapt--or be swiped away.

     

    Source: The Economist

  • Max Henry posted an article
    Companies should use their supply chain to anticipate customer trends see more

    Companies should use their supply chain to anticipate customer trends and also adopt a zero-based approach to the function.

    It’s no secret that companies across industries face increasing disruption driven by competitive pressures, emerging technologies, and an ever-expanding range of customer expectations.

    These trends will only continue to accelerate. Consumers want products in their hands faster than ever, and they expect a more tailored and personalized experience. As a result of these disrupting factors, for many companies, growth is becoming more difficult to come by.

    The supply chain function is not immune to this pressure. In fact, it’s causing corporate leaders to pay more attention than ever to their supply chains and ask them to be growth engines — a trend we’ll be seeing even more of this year.

    So, what does it take for a supply chain to be a growth engine? We see two immediate opportunities supply chains should take:

    Use the supply chain to anticipate customer trends and meet expectations. According to Accenture Strategy research, 56% of business leaders believe customer experience is their top digital transformation priority. With customer demands continuing to heighten, just offering a product or service is no longer enough. Successful companies need to be focused on delivering the most compelling experiences.

    Hyper-personalization is king. Companies need to offer highly individualized, focused products and completely customized services providing buy-anywhere, collect-anywhere, return-anywhere capabilities via flexible channels. With a strong focus on business-model and technological innovation, hand in hand with the use of analytics and other digital technologies, companies have an opportunity to spot trends among customers and stay in front of demand.

    The supply chain is a key area within a company to mine this insight. It contains data that helps companies understand the way technologies are changing the way people live and work and redefining customer expectations.

    Having that information can allow companies to get to the root of why customers buy, and respond accordingly with new products, services, and experiences to meet that demand.

    The companies that are successfully managing risk and disruption are those that are in tune with the end consumer. Even companies that are several degrees of separation from the consumer need to be fully aware of how end-consumer trends impact their operations. It’s no longer a nice-to-have; it’s a need-to-have to survive.

    Put non-working money in the supply chain to work toward funding growth. With half of companies’ costs typically residing in the supply chain or costs of goods and services (COGS), the supply chain can be a source of funds that can be reallocated to growth initiatives.

    However, the process of uncovering that non-working money can be overwhelming. Many organizations work in functional and geographic silos that make it seem impossible to know who is spending what, where — and, importantly, why. The good news?  It’s not as difficult as they think.

    Companies need to look beyond traditional supply chain cost optimization to a more holistic approach — something we call zero-based supply chain (ZBSC).

    ZBSC is part of what we call ZBx, or having a zero-based mindset. Whereas old methods rely on cost targets based on yesterday’s realities, ZBSC is a sustainable reset of a company’s cost baseline. It accounts for change, including improvements of top performers and technology, to determine “should costs” and develops a path to realize them.

    This year, companies need to be applying digital technologies and sustainability practices that optimize price and performance across global operations and enable richer data insight and value. The result? ZBSC allows companies to deliver superior supply chain performance at the right cost.

    They key to success is to make the effort durable. It can’t be a one-and-done. Continuous renewal makes zero-based supply chain effective. It keeps the non-working money from building up while driving funds to fuel growth and increase competitiveness.

    No one is disruption-proof. Technology has made every business vulnerable. The good news is that companies and supply chains can prepare for and manage disruption. By positioning the supply chain to be a growth engine, companies can move from being disrupted to becoming the disruptors themselves this year and beyond.

    Gary Hanifan is a managing director at Accenture Strategy.
    The story was originally published on CFO.com

  • Max Henry posted an article
    How can companies make customers care about supply chain see more

    Imagine a world where customers care about how products are sourced, made, and delivered, understand what goes into pricing, and generally take great joy in the experience. A world where customers are fluent in the language of supply chain.

    It’s not as farfetched as you may think.

    Supply chains solve complex problems. And in the company of supply chain professionals, we use big words and complicated terms to talk about it. Words like multi-modal logistics and global transportation, mass-customisation and postponement, procurement and letters of credit, demand management, the cost of inventory and buffer stock, assurance of supply, warehousing, and the last mile.

    We nitpick over the differences between distribution and fulfilment centres, debate the true definition of supply chain visibility and the role of control towers to support orchestration across a complex network of suppliers, trading partners, and carriers. And we’re still not sure if our industries are facing an apocalypse or simply working through the growing pains of transformation in the digital age.

    It’s a mouthful. And as we dive into the technical details and jargon that comprise the modern language of supply chain, one can’t help but picture the average consumer’s eyes glazing over.

    But that’s not necessarily the case. There’s mounting evidence people care more about supply chain than ever – they’re just not using our words for it.

    Therein lies the secret.

    The words used to describe supply chain were different at the recent Shoptalk Europe conference in Copenhagen, Denmark, a gathering of more than 2,500 retailers, start-ups, technologists, and investors all focused on the worlds of retail, fashion, and ecommerce. Though most attendees weren’t purely in the business of operations and supply chain, all were exploring how to reach, engage, and enlighten the customer wherever and whenever they might choose to shop.

    And as technology continues to smooth the seams of commerce, the lines between supply chain, stores, digital, and omni-channel have all seemed to blur, and the only thing that really matters (or that’s always mattered) is the customer at the centre of it all.

    Listen closely enough to your customers and internal stakeholders, and you’ll hear discussions about supply chain’s growing role in an increasingly digital world. People understand and talk about things like visibility and logistics, pricing, and how products made more than ever – and the effect they have on people’s lives.

    Customers care about logistics. They expect to know when and how a product will arrive, what it costs, and what happens if they’re not available to receive it. Gone are the days where a three- to five-hour (or day) delivery window was an acceptable practice.

    One example of this evolution is Picnic, a Dutch grocery start-up that, in the words of founder Joris Beckers, has reinvented the milk man. Like the delivery services of yore, Picnic focuses on the direct relationship between the service provider – in this case a delivery driver – and the customer. Picnic solves for the last mile not with stores or outsourced delivery services, but with a fleet of custom-designed electric trucks built for urban areas and driven by delivery people who consistently work the same route in the same neighbourhood every day.

    The result is a customer base that’s not only loyal, but that in many cases has adopted their driver as a part of the community. That direct relationship is backed by technology that, similar to Uber, shows customers exactly when their order will arrive and where it is – from the distribution centre all the way to their front door. Though the company started small, Picnic grew fast and grabbed investors’ attention along the way. And while Beckers doesn’t talk supply chain directly, the business has clearly won its customers on shipment visibility, real-time logistics data, and the seamless integration of assortment, inventory, payments, and delivery.

    For better or worse, we live in an age of instant access to information. And that access has given customers more insight into how products are made and their true cost. Some businesses are turning that into a competitive advantage.

    Dollar Shave Club founder Michael Dubin also presented at Shoptalk, as his company – now owned by Unilever – plans to scale the business and expand overseas. In its rise from modest subscription start-up to a $1bn business, Dollar Shave Club won its customers not only with clever marketing, but with a price and delivery scheme that gave customers greater transparency into what shaving and grooming products actually cost. The company built up a base of more than 4.25mn subscribers – all who care about receiving products from a low-cost supplier at consistent service levels and with an assortment tailored to their specific needs. To Dubin, DSC is as much a community as it is a business. One that grew because of its supply chain.

    For a growing number of people, it’s not just important to know how a product’s made, it’s true cost, or whether or not it’s in stock. Many consumers also want to know whether a product is ethically sourced, has a low environmental impact, or is made under humane working conditions.

    One example of customers pushing brands to show their work in supply chain is fast-fashion retailer H&M. The apparel industry is notorious for its waste, environmental impact, and treatment of workers, a fact that makes fast fashion that much more sensitive a space. To help mitigate these concerns, H&M adopted practices like clothes recycling, annual sustainability reports, and product listings that go beyond price and description but also show where a garment is made and what raw materials and processes go into them. Clear signs that customers care about the supply chain even if they don’t use the same words as we practitioners do to describe it.

    Ultimately, supply chain was a big part of Shoptalk Europe – even though only a small slice of its presentations were explicitly about supply chain. And as research has shown, 61% of millennial shoppers will switch brands because of some issue directly related to the supply chain, whether it’s quality, availability, how it treats its workers, or its impact on the environment. They just don’t use the same words as most people in operations and supply chain to describe their feelings.

    In any industry, not just fashion and retail, the supply chain has a wider impact than we may think. After all, delivery methods, shopping experiences, transparency, and product insight all derive from some aspect of supply chain. Whether we’re trying to sell customers on this fact or even internal stakeholders within a different part of the company, it’s important to remember that the words we use matter. Indeed, supply chain is a space ripe for analysis, data science, academic study, and creative thinking.

    And with the high complexity and widely distributed nature of today’s global supply chains, it’s no wonder we often describe them in polysyllabic and seemingly monolithic terms. But it’s worth remembering that supply chain can also be related in common terms, as a story of what went into the creation and delivery of a product, and the meaning it has to the all-important customer.

    Perhaps the secret to making people care about the supply chain is to not talk about supply chain itself, but about the difference it makes in peoples’ lives. There is commonality among all these examples. It’s not just about changes to the world – it’s about how supply chain makes the world a better place.

    By Matt Gunn, Infor

  • Max Henry posted an article
    The modern supply chain is a growth function for businesses — when it is working right. see more

    The modern supply chain is a growth function for businesses — when it is working right.

    As technology has spun forward, so has how supply chains work and the best practices to manage them. Below are five keys to supply chain management success in the age of the internet of things (IoT), cloud computing and hackers looking to get at the same customer data that is driving your business.

    1. Create a glass pipeline

    Doug Farren, managing director of the National Center for the Middle Market, calls this the holy grail of supply chain management, “having visibility all the way through the supply chain, from the raw materials that go into the product all the way to the end customer user,” he said. That’s the case no matter what the product, be it a car, medical device or trendy gadget.

    This isn’t a new concept, Farren says (adding he studied it in undergraduate and graduate school), but no less important — or challenging — to achieve because of all the partners and parts involved in supply chain management. But “as technology evolves, it’s much easier to get this type of information and share it,” he said.

    Another old concept that is just as important today as it was 15 years ago, and keeps that pipeline transparent: talking to each other.

    “Everything comes down to communication,” says Rick Schreiber, board member of the National Association of Manufacturers and head of BDO’s Manufacturing and Distribution Practice. “Supply chain is complex, and everyone’s a part of it. If someone’s not communicating, it breaks down,” he says.

    2. Have a strong supplier council

    One way to keep those communication channels open is to have a strong and communicative supplier council, because what good is having a glass pipeline if no one looks at it or uses it? Or no one’s learning from it? Not much.

    “It’s really a forum that allows a lot of two-way dialogue about efficiency process, changes and upcoming plans,” says Farren. “Conversely, if they were struggling with something, or felt like there was a gap in communication breakdown somewhere within the process, this forum is a gathering to allow for a lot of those exchange of ideas.”

    3. Create an outside-in, not inside-out supply chain

    Creating an outside-in supply chain means using data to look at what consumers want and need and predict that demand instead of creating a producing and hoping that it lands in the right spot and finds its market, says Roddy Martin, vice president of SC transformation thought leadership and SC cloud marketing at Oracle.

    “With the advent of digital media, people are saying things about our products and services on social media,” he says. “We have very sophisticated analytics that can do predictive analytics on consumer preferences.” By using those analytics and data from customers, companies can know what to create for them, and where they already are instead of the other way around.

    “Think about what Amazon and Apple do,” he says, citing his own experience with Amazon, which lets him know about new supply chain business books before they’re published, and when they are, has copies ready to ship in places where customers who want that book can get them the next day.

    “Insights in consumer behavior drives the rest of the business,” he said.

    But a company can’t just suck up all the data out there and expect sales wisdom to pop out. Companies need to use the right data, and use it correctly, to draw the right conclusions, or else it’s “garbage in and garbage out,” says Schreiber.

    “There’s so much data being collected now because of the internet of things, because of sensors, because of wifi and the clouds,” he adds. “Now we have big data that our suppliers can share with our manufacturers and distributors and retailers, but what do we do with all this big data?”

    4. Pay attention to security

    In a recent study, BDO found that despite an increase in attacks launched at manufacturers and their supply chains, 27 percent of companies do not have a security policy in place for their supply chain partners and other vendors. 

    “We’re trying to be collaborative and enter these alliances to share our networks with each other,” says Schreiber. “That opens up a whole bunch of access points for some bad guys.”

    You need to communicate with all partners and having a policy in place to make sure that everyone in your supply chain is as secure as your own company because a weak link in the chain could expose everyone, including your customers.

    And it doesn’t matter where that weak link is because your company will be the one taking the hit if your customers are exposed. Remember, Target was hacked through an HVAC company.

    5. Make sure the CIO has a seat at the table

    It used to be that the IT team would implement a business solution and then go away. “You won’t be successful today unless the CIO is on the leadership team, and part of the transformation project,” he said.

    Also, supply chain can no longer be about cutting costs, says Martin. When modern supply chain is working right, he says, “the supply chain is recognized by business leaders today as a growth function.”

    Who’s involved in supply chain is also changing, says Martin, who calls it a cultural shift.

    “Supply chain is not the trusty old fellow who’s been there for 15 years,” he says. “I’m finding more women leaders in supply chain. A lot of marketing and business people in supply chain. They are now sitting at the table figuring out growth with the leadership team,” he says.

    “It’s a breath of fresh air.”

    Source: CIO, By Jen A. Miller