Supply Chain Profitable Proximity – New Year Recommendations – Part One

Supply Chain Profitable ProximitySupply chain recommendations, like lots of best practice advice, arrive as we welcome another new year.  For all new years, I usually focus on new beginnings. What about this year? A new royal baby, a new pope, new glances into the solar system, and new heroes. Sure, I think about my gratitude for my own high points, and try to acknowledge at least the lessons learned from the low points. But mostly I look ahead. I think I’m not alone. There are good starting points for new beginnings, rung in with the New Year reminders and traditions. These range from fireworks to pork and sauerkraut dishes to polar plunges in the closest lakes. Even the S&OP business landscape is filled with predictions of trends to come – and report cards on last year’s predictions – that industry analysts provide as best guesses to help firms remain competitive in the year ahead.

Reviewing the ‘best of the best’ predictions from the last 5 years, I came up with some  supply chain recommendations for organizations to become more competitive in the year to come. I looked at output from 4 different groups: Gartner Analysts, International Data Corporation (IDC), Ferrari Group, and SupplyChainBrain. I saw prediction patterns emerging that led to my own supply chain recommendations for the year ahead.

First, some of the most recent predictions were ones that I didn’t see on prior lists. One of these that I saw, not surprisingly, concerned newer technologies than available 5 years ago:

  • 2013 IDC Prediction #8: Supply chains will invest in technologies that enable visibility, visualization and virtualization.

Next, there were older predictions that were no longer mentioned. One of these I saw concerned sustainability. Not that sustainability isn’t still on the radar, it just may not be seen as a priority:

  • 2009 IDC Prediction #10: Sustainability discovers metrics. No longer a feel-good public relations proposition or even a regulatory compliance mandate. Emerging standard measures and a desire to benchmark will impact sustainability initiatives and the associated investment in technology and services.

Finally, some of the predictions seemed to be recurring from one year to the next. Ultimately, I decided to focus on the recurring themes, and dig deeper into the associated predictions as a basis of my ‘best of the best’ list. I selected the 3 recurring themes that I thought were the biggest differentiators, and hope that the recommendations that I made for them will give you some starting points or reinforcement for supply chain objectives.
For now, let’s take a look at the first of those three, and one that is gaining momentum as more organizations exist in global networks of both their suppliers and consumers. More and more, the world is flat.

Prediction #1: The “right sizing” of supply chains via profitable proximity will evolve.

Supply Chain Profitable Proximity

This prediction has been around for over 4 years:

  • 2009 IDC Prediction #3: Companies will “right size” their supply chains for proximity and take a total-landed-cost approach to product sourcing. Standard corporate platforms will seek to configure, calibrate, and control increasingly complex scenarios.
  • 2013 IDC Prediction #2: On the supply side of the supply chain, recognizing the inherent cost of long lead-times, manufacturers continue to look at global networks through the lens of both regional and country-level sourcing.The pendulum is swinging away from outsourcing based only on minimizing manufacturing costs.

Past pressures for low-cost manufacturing and sourcing outside of the country are now offset by pressures for low-cost transportation and shorter lead times available with regional proximity. Add to that the higher risks associated with remote proximity introduced with global uncertainties and quality control limitations, and the advantages to regional manufacturing are even higher. But wait! Emerging nations as a consumer base mean the definition of ‘regional’ manufacturing depend on just where the manufacturing and consumer are for specific products. One more piece of the puzzle is demand predictability, with its impact on the lead time. In an interview with Supply Chain Quarterly, Simon Ellis of IDC gave the following example of the need for flexibility in the face of forecasting:

“Established, consistent products, such as men’s jeans, are sourced from low-cost regions, and although lead times are long, the predictable nature of demand keeps supply risk low and costs down. Seasonal or fashion products, such as women’s summer dresses, are sourced locally, and although costs are higher, lead times are short, allowing the supply network to react more quickly to unpredictable demand.”

In the end, the cost of manufacturing, inventory, and transportation, and the risks of lead time need to be analyzed holistically to make decisions for right-sizing the supply chain, or creating what is called ‘supply chain profitable proximity’. Relatively new, I think the science of supply chain profitable proximity, especially in our flat world, is here to stay.

Recommendations for Supply Chain Profitable Proximity

Supply Chain Profitable ProximityBased on what we saw with our clients and the industry trends and events this year, here are my recommendations for supply chain profitable proximity:

  1. Using the newest profitable proximity guidelines, design a network that makes the most sense for your organization.
  2. Consider costs of sourcing, distribution, transportation, and warehousing to come up with the best total costs.
  3. Factor in the risks associated with network as part of the cost, such as delayed lead times. Business planning counts as a cost!

What initiatives have you made or are you planning for right sizing your supply chain? If you’ve already started, how would you rate your success so far?

Supply chain profitable proximity is tightly coupled with our second recommendation and prediction, regarding supply chain risk. Stay tuned for my last prediction on supply chain customer focus, and a summary of my top supply chain recommendations for the new year!


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