Published on July 7th, 2014 | by Dawei Lu

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Supply Chain & Logistics: Practices & Trends

I was recently interviewed by the Singapore Business Review for its thought leadership series. The process enabled me to put together some views on the concurrent global supply chain management, which I will share in several blogposts beginning with this one.

In this first blogpost, I look at the prevalent practices in supply chain and logistics management, as well as what I consider as six major development trends in the area:

  1. Increasing global market volatility and uncertainty across most of industrial sectors. This is particularly so after the impact of economic downturn since 2008. The trend has been mainly influenced by increased market transparency and greater price sensitivity driven by Internet-based shopping facilities, which have led to much lower customer loyalty.
  2. Supply chains and global logistics businesses are increasingly reliant on the growth of global customer bases, giving rise to a more global-facing business model. The law of economy of scope has determined the critical importance of market expansion, especially for logistics businesses. Future survival of supply chains depends more on newly-explored international customers instead of existing indigenous customer bases.
  3. Increased management emphasis on supply chain sustainability. Environmental, social and economic sustainability are becoming key strategic considerations in the development of future supply chains especially in the resource-hungry logistics businesses. Today, the sustainability issue is no longer driven by the need for regulatory compliance alone; it is becoming the strategic differentiator.
  4. More flexible and agile supply chains. This is a response to the increasingly volatile global marketplaces, especially in the fast-developing regions in Asia. Logistics businesses in particular have become more nimble, elastic, and versatile in their value-offering that aims to satisfy the sharp end of customer needs.
  5. Supply chains across the world have displayed an unmistakable trend towards vertical-dis-integration and heightened level of outsourcing. Being able to outsource increases the supply chain’s survivability through engaging with external capabilities. Thus today’s trend is “managing the vertical integration without actually having one”.
  6. Increasingly intensified risk management. Supply chain managers realise that in today’s business environment, not to manage the risk will result in being managed by the risks. In the global logistics business sector, high sea piracy and extreme weather conditions all play a disturbing role in exacerbating the risk factor. Risk and opportunity management should span the entire supply chain—from demand planning to the expansion of manufacturing capacity.

In terms of the most prevalent and widely discussed supply chain management practices, I would like to mention the following:

Supply Chain Integration perhaps is the most ‘popular’ supply chain management practice. It can be understood as managing independent participating members in the supply chain to perform as if they are one. It creates multiple-level interfacing and collaborations; the sharing of extensive amount of information between the member companies; the development of  joint scheduling and planning systems; practices early involvement of suppliers in NPI (new product introduction) processes and so on.

Managing through Close Partnership is also an approach widely acclaimed to be effective in supply chain management practice. It has been modelled as a ‘win-win partnership’ whereby all parties in the relationship will have positive gains with no net losers. This practice is based on the philosophical understanding that when two parties gets closer in their engagement, there will be trust, loyalty, commitment and synergy as the outcomes. There is evidently a trend from the short-term antagonistic relationship model towards a long-term, shared destiny relationship model in supply chain management. The relationship approach is particularly well-suited to Asian nations due to supportive cultural factors.

Lean Supply Management is another major category of concurrent supply chain management practices, developed from the best practices of Japanese auto supply chains. It features many widely benchmarked best-practices, such as constructing a small first-tier supply base, close relationships with suppliers, long-term contracts, single or dual sourcing, performance-based supplier selection, ‘market price minus’ pricing, synchronised flexible capacity, and just-in-time delivery.

The practice of Agile Supply Management  has recently become well known. One of its most distinctive characteristics is its ability to respond to the demand fluctuation very quickly and effectively, hence achieving higher levels of supply chain responsiveness. It is most applicable in fashion product category supply chains, where the market demand could be uncertain and volatile. The most used approach to achieve supply chain agility is ‘postponement strategy’ or ‘delayed product configuration’.

Strategic Outsourcing is also a prevalent supply chain management practice, which essentially addresses the supply chain’s structural re-design or re-configuration. It basically moves one or more internal operations or processes out to the external suppliers. There are many strategic advantages that outsourcing can achieve for the supply chain if it is carried out properly, such as reducing the total supply chain cost, focusing on core competences, increasing business flexibility, and further differentiating the competitive edge.

There are also many other supply chain management approaches including strategic alliance, vertical integration, knowledge-based sourcing, consolidated purchasing, joint venture, Keiretsu relationship, vendor managed inventory, value stream mapping, time-based process mapping, which I will look at in future blogposts.

 

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Dawei Lu is a Principal Teaching Fellow at WMG. His portfolio covers a range of dynamic subject areas including logistics, inventory management, lean manufacturing, supplier relationship management, purchasing management, supply chain strategies.

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