Change in Supply Chain Strategies

October 29, 2005 by SwizStick  
Filed under Education, Supply Chain Management

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There are a lot of great new articles in the latest issue of Air Cargo World, I strongly suggest you pick up a copy. The article that stuck in my mind is about changing supply chain strategies and how the ever-so-popular Just-in-Time supply chain strategy could soon be gone :

According to the Council of Supply Chain Management Professionals, U.S. businesses had as much as $1.63 billion tied up in inventory last year, up a solid 8.9 percent from the inventory level recorded in 2003. Not surprisingly, the collective warehousing bill rose by $4 billion to $82 billion last year.

The Just-In-Time supply chain model is still around, but today it’s more likely to involve warehouses and slower transportation modes, plus some leeway for disruptions.

The Colography Group has diagnosed a secular slowdown in international air cargo growth brought about by a profound change in global ordering, shipping and distribution patterns. The research and consulting firm found that businesses were integrating warehouses and buffer stock into their distribution networks and relied increasingly on lower-cost alternatives to pricey air freight.
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To some extent, the rise in warehousing is a reflection of companies trying to come to grips with a massive extension of their supply chains.

Instead of trans-North American networks, shippers increasingly are managing intercontinental logistics operations, a process that has gained much momentum with the ongoing stampede to China.
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“Just-In-Time with a 600-mile supply chain in one country is one thing; running a 6,000-mile supply chain between different continents is something entirely different. The 6,000-mile chain has a lot more complexity, more points for potential failure,” said Brian Clancy, a principal at the MergeGlobal consultancy.

At this point in the learning curve, companies still have relatively scant data on intercontinental supply chains, so they have a greater need for safety stock, he said.

One strategy to minimize pitfalls of long supply chains has been the establishment of supplier hubs near the big producers‚ assembly plants. “Basically, that’s a buffer,” said Clancy.

As overseas manufacturing has become more popular, so have supply chains become more complex and difficult to manage, particularly in low-cost, poor-infrastructure countries, not to mention the increasing problem of port congestion and rising airfreight costs due to fuel.

I’ve always felt there is something to be said for sourcing product closer to home, even if the initial cost is a bit higher. You can’t put a price on piece of mind.

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