LOGISTICS / SUPPLY CHAIN MANAGEMENT DIRECTION, EVOLUTION, CHANGES AND SHIFTS

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1 LOGISTICS / SUPPLY CHAIN MANAGEMENT DIRECTION, EVOLUTION, CHANGES AND SHIFTS Supply chain management is a global activity and process. Manufacturers and customer are worldwide. The three biggest trade lanes are intra-asia, Asia-North American and Asia-Europe. Much of that global volume involves China, as an exporter to other countries and as an importer to feed its manufacturing and consumer needs. What will happen in supply chain management? What lies ahead? Supply chains run from suppliers through to customer warehouses or to store shelves. This is a complex and extended pursuit and has strategic requirements. Any discussion of where supply chain management / logistics may be going has to recognize economic growth and what will happen with both customers and manufacturing. Customers / sales developing and less developed economies and markets. Sales growth is tied to expanding into new customers and markets. Companies in mature markets look at selling into other countries as an important way to grow. This need for selling applies to more than multinational corporations. The approach has strategic implications for the company and for supply chain management. The potential of emerging markets is estimated in the trillions of dollars. There are many developed and developing countries. The BRIC Brazil, Russia, India and China are identified as key developing economies. Each has significant opportunity and each has geographical diversity with both large and midsize cities (which also have large populations). Customers in developed countries continue to want more products; this is both an expansion and fragmentation. In developing countries, the consumer population is will continue to grow and become large. How to service these, from a supply chain view, is important. How many additional products/skus will be developed? Where do firms locate supply chain operations, in what countries, city or cities? How do companies develop agile, responsive supply chains to handle the expanding list of products? What is required to successfully operate in these places? Are global service providers, local ones or a mix of both used? How productive are the operations? What can a company implement from its existing supply chain model / approach, and what must be modified to adapt to local conditions? This includes SCM process, technology and people requirements. In many cases, companies will need to change their supply chain practices to do business and to service these markets, including incorporating local service providers. Less developed economies bring other opportunities and supply chain challenges. Logistics infrastructure may not be as developed. Carrier services and schedules, both the import/export and the within country, may not be what is needed for dynamic supply chains. Other logistics

2 services may not be at the levels that corporations are used to. Business practices and levels of people to deal with can differ. These opportunities may take time to develop, but they do reflect the continuing globalization of sales and business. They will add to the intricacy of managing supply chains. Manufacturing globalization or deglobalization. Sometimes in discussions about the costs for manufacturing or sourcing in China, the topic can include migrating production back to the United States, Europe or wherever significant manufacturing did take place. This then can raise the subject of onshoring or nearshoring. Transitioning to onshore or nearshore would mean investing in factories and equipment. It can improve supply chain operations and costs. Shorter supply chains aid planning, reduce the working capital tied up with inventories and improve service, whether it means delivery to store shelves or to customers warehouses. The reality is industrial production / manufacturing and, in turn, sourcing is global. As with sales, it will expand into other areas. Low cost manufacturing is important to having competitively priced consumer products to sell worldwide. Other industries have different manufacturing needs. This limits any significant movement of production to the United States or to Western Europe. Depending on the type of manufacturing and industry, manufacturing should often be close to raw materials or to markets. Location of factories is thenn the need. Depending on the how developed the economy of a country is, the logistics infrastructure may create challenges, as with global sales. Infrastructure begins with ports and airports. This can apply to whether the products move dry bulk, tankers, reefer, general cargo, roll on/ roll off, or container. Either way, logistics is impacted as to increased complexity and to global scope. Ecommerce. Internet / online selling is for all providers of products, whether they are manufacturers, wholesalers / distributors, or retailers. Many of these enterprises may be startupss run by entrepreneurs who will take more risks than will their large counterparts. In addition to diverse markets and countries, it expands firms into additional multichannel selling with different service requirements.. Ecommerce will be truly global. It will mean selling to consumers or businesses located anywhere in the world. This may be done through multiple websites. It could require a blended global supply chain with shipping orders forr many different products from warehouses located in key country locations and shipping orders directly from suppliers located worldwide to end customers.

3 The products involved may mean more than making express / parcell shipments. It may mean using LCL ocean and air cargo. Different types of warehouse operations may be needed to handle such a diversee mix of products for picking, packing and shipping eaches instead of cases or pallets. Customs services in different countries may have to be easier and quicker in order to make timely deliveries. It may mean having to make deliveries to customers homes or businesses in many countries. Managing and coordinating these global ecommerce orders, with their underlying need for quick delivery, and the shippingg and delivery demands will requiree logistics services thatt are not presently available on a global basis. Logisticss Service Providers. Logistics providers will need to adaptt to the global changes as to additional geographic cover age and servicess to meet thee new demands. This may mean partnerships or combining services between global and local providers. Economies of scale that havee come to be expected with ships, warehouses or other primarily fixedd cost areas may be difficult to achieve in certain areas. It will also mean working with startup businesses, those without being corporate names and large volumes. Logistics providers will have to understandd and accept the potential opportunities and risks. They may choose to become defacto investors and partners in these businesses. The role of 4PLs in complex supply chains may become important. 4PLs, with their supply chain focus, as compared to the 3PLs functional focus, can have a strong place in the evolving supply chain needs. 4PLs have a holistic supply chain view that is important for design, development, and management of supply chain operations. They are solution providers which will be needed as extensions of customers supply chain organizations. 3PLs may change. They are presently contract logistics providers that are part of a logistics service parent company. Providers present what they doo and may adapt to what each customer wants. They are part of forwarding, ocean, trucking, warehousing orr other service companies. These firms are not supply chain practitioners. They are not part of shipper /customer companies. As such they may struggle to develop serious value propositions for clients, value that separates them from the competition. This creates a void and an opportunity. New 3PLs could arise that are part of the shipper community. These could develop from Walmart, Amazon, Alibaba or other large corporations s. They would understand that it is about moving orders and inventory, not cargo. Supply Chain Management. With continuing global growth, supply chain organizations will direct more complex and larger supply chains. There aree supply chain challenges with many countries. This can be seen in the World Bank s Logistics Performance Index and in the World Economic Forum s Enabling Trade Index. Companies, logistics service providers and

4 governments must recognize the situation, and how it cann be an impediment thatt negatively impact supply chain cost and operations. Risk with the extended supply chains will increase. The number of suppliers, factories, markets, customers and logistics service providers, both global and local, to work with will increase. It may include working with suppliers of suppliers in orderr to better manage production plans and sales programs. Collaboration, especially horizontal / process, and communication will take on new meaning and importance for all partners and participants. Managing supply chains willl be a more robust 24/7 responsibility. Supply chains and organizations will evolve and transform. The test will be how disruptive the changes are. Serving different countries and different markets will demand multiple supply chain processes and approaches. Supply chains will have increased responsiveness and will handle greater diversity. Logistics technology investmentss will increase. All points in the supply chain product and information flows will be fully integrated, networked and visible. There can be no blind spots. Managing events and exceptions worldwide will be mandatory. Fragmenting supply chainss by functions and coping with various internal and external silos will be replaced by process controls. Supply Chain Segmentation. Supply chains are not monolithic. This is consistent with the fact there is no single supply chain. There are supply chains within supply chains. There is no one approach. They differ by industries, markets and companies. Effectively directing worldwide supply chains is complicated and requires understanding on the company internal and customer and supplier external vagaries. In addition theree is noise that companies, customers and suppliers create as they demand attention or create problems. The noise distracts from effectively managing the supply chain and adds unnecessary volatility. Supply chains stumble from too much static. Segmenting is not done by supply chain function. That does not bring focus thatt the company has. It is not done by company division or business unit or even country; each of those is tooo broad and has much inherent noise. Supply chain segmentation reduces noise and enables better management of size, scope and complexity. The importance of segmenting increases significantly as global reach increases. It is a way to prioritize based on what is important to the company and to its executives. That means reflecting profit contribution or sales value. An example is to analyze customers as to profits generated

5 Another may be to assess as to the working capital tied up in products--

6 With this hierarchical recognition, the supply chain can be positioned in tiers with regards to each level of customer or other breakout. Supply chains work on a "pull" basis and are driven by customers, however those are defined. Segmentation aligns the supply chain design and operation with each tier. This would be done across the entire supply chain, and not just to select parts, such as suppliers. Otherwise the full benefits to thee company would be mitigated with incomplete implementation of the segmented program. Segmentation enables companies to identify, focus and prioritize key sectors and to tier, align, and, if needed, build supply chain resources and capabilities to successfully serve the sectored customers, cross-channels or markets. Instead of applying a standardized supply chain service across alll segments, it provides clarity of purpose and enables the company to match the supply chain service with each segment' 's requirements. Targeting and tiering create a greater profit, realistic competitive advantage. It improves supply chain cost, capital and performance thatt is necessary as the complexity and scope of a company s supply chain grows. Logisticss Parks. With increased global expansion, the potential for successful logistics parks increasess as a supply chain venue. Each can be the logistics hub for a geographical region to position inventory and for service to customers. This is good for supply chain needs of companies who sell in the region and for logistics servicee providers who often operate a warehouse in a park the two end-user customers for these facilities.

7 Singapore and The Netherlands have proven what logistics can mean to an economy. A well- of the logistics focus and the benefits it generates are: operated park can be an economic cluster with its employment generation. The key value drivers 1) Being GDP driver 2) Creating sustainable economic development 3) Creating job opportunitie es 4) Building sustainable diversification 5) Supporting domestic needs 6) Enabling strategic plans 7) Building international needs with value-added services and trade development 8) Supporting linkages and connectivity for domestic flexibility of development and labor at all levels 9) Supporting linkages and connectivity for international trade 10) Attracting international inward investment for development of national primary clusters that require underlying logistics to support sustainable development 11) Attracting international inward investment for international purposes hub based trade or as offshore centers. Economic cluster is key for improving the economic performancee of regions. They orient economic development toward groups of companies for common issues. Clusters build on the unique strengths of an area rather than trying too copy other areas. They enable a region to have different sets of economic development opportunities. Many attempts at creating strongly viable logistics parkss have not achieved their potential. These have focused too much on the design in terms of infrastructure and have not done enough as to what is required to attract and retain the two customer sets. As a result, they end up as asset rich and cargo poor. With the opportunities with midsize markets and with more countries as to sales and manufacturing, the need and potential for logistics centers increase. Logistics service providers and supply chain organizations will need them. Conclusion. Supply chain management will evolve as sales, sourcing and manufacturing continue to take new global directions. Requirements to direct and manage operations will advance. Logistics services to support the worldwide dynamics will change. All these are driven by the expanded, complex dynamics of global supply chain management.

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