Supply Chain Futures
By Jack Russell, Contributing Columnist
Manufacturing supply chains” is a catch-phrase to suggest the customer and supplier
links that generate manufactured products.
Properly considered, however, this utilitarian language describes the relationships
through which we produce our world. All goods are made in supply chains - cars and
cakes, 757s and .357s, negligees and notebooks. In early capitalism, cottage production
was local and simple so supply chains were short. Today, the supply chains of multinational
corporations span our planet as jet transport and telecommunications link continents
in webs of enterprise. Now as then, the chain is forged by agreements on price,
quality and schedule - but in our time these agreements are far more complex.
“Supply chain management” and even “supply chain optimization” have become banner
topics in the publications, conferences and B-schools that service senior executives.
Some even speak of “supply networks” or “value networks.” Those who think about
manufacturing are compelled to form new questions about the possible futures of
supply chains or networks in the 21st century global economy. I offer four such
questions here and suggest their significance for small- and medium-sized firms
in the United States.
1) How will global sourcing by multinational corporations and the rise of new manufacturing
epicenters alter the spatial allocation of manufacturing?
The map of global production is fluid now as never before. Manufacturing competence
in low-wage nations attracts direct investment for export production and outsourced
demand from America, Europe and Japan. China, India and other rapidly developing
tigers now innovate to compete in more rewarding markets, rerouting supply chains
as they succeed. But the world is not simply and suddenly flat - there are counter-pressures
that could advantage U.S.-based smaller firms. Corporations that assess the full
cost of sourcing see risk in long logistics, especially if they serve markets with
short product lifecycles. Innovation that delivers distinctive competence usually
trumps price in sourcing decisions. History tilts toward Asia, but smart small firms
in America can still prosper.
2) How will the continuing computer revolution change the speed, scale, span and
culture of communications within supply chains or networks?
We have seen the promise for 25 years: full realization of digital technology in
all domains of manufacturing will deliver perfect knowledge for swift decisions
that guide extended enterprises built with flexible, transparent supply networks.
Progress toward this vision, however, has been slow. Incompatible legacy systems
block coherent communications. Key enabling technologies are deployed slowly or
not at all in the lower tiers of many supply chains where smaller firms predominate.
Trust is hard and suppliers are cautious. But perhaps a tipping point approaches.
Some industry leaders now speak of “network-centric manufacturing” and seek suppliers
with the technology, skill and will to be agile partners. If the tipping point comes,
early-adopting small firms that are already network-centric savvy will be rewarded.
3) Will the winning supply configurations of the future be stable trust-based alliances
sustained over many years and product cycles or volatile opportunity-based networks
that constantly form and reform?
The distinction matters, but the smart bet many be both, and even both within the
same industry and even the same extended enterprise. There are rewards to trust-based
stability. Firms in such supply chains know one another well, share knowledge quickly,
and accumulate valuable experience as a team through several rounds of product life-cycle
management in which they naturally norm toward de facto standards on communications
challenges. But, creative intervention can be the mother of invention. Even stable
trust-based alliances must open to innovators as rewarding new markets emerge. In
some industries with short product lifecycles, supplier volatility below the market-facing,
brand-tending OEM will be the rule. Smart small firms in America will assess the
relative stability and volatility of the supply chains in which they want to participate
and do their own risk/reward calculations.
4) Will supply configurations emerge in which success is based on a sense of collective
interest shared by all participants through the linked tiers?
Talk to small manufacturers in America about their experience in supply chains and
their major theme will be customers who demand aggressive annual price concessions
and use the “China price” threat. Some will note with irony that these same marginsqueezing
customers also expect more supplier contributions of design and engineering capability
that depend on expensive new technology and highly skilled labor. With this baseline,
it is not easy to envision the passage to network-centric supply configurations
in which most participants extend trust beyond their immediate customer and suppliers.
But the rewards to such durable extended enterprise solidarity could be substantial,
especially when enabled by technologies that drive robust communication. Such supply
configurations could foster innovative collaboration among participants and develop
products faster. Entrepreneurial firms in America should cultivate participation
in those supply chains that seek to model the network-centric future.
There is plenty of supply chain pain out there for the small- and medium-sized manufacturers
of Pennsylvania - but there is also opportunity for those who position well for
the future. They can start by extending their value streams from the ultimate consumer
back to the source of their base material to ponder where they can play smartly.
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