Supply Chain Management in the 21st Century
This chapter is from the book
This chapter is from the book
This chapter is from the book
The world is changing and growing at rates and in ways unrivaled throughout history. These changes will test how far humans can push the Earth’s limits. Businesses and their supply chains will similarly struggle under the strain of skyrocketing demand and erratic supply. This book illustrates that the companies most poised to handle these pressures in the future will be the ones best positioned to service customers—and turn a profit in the process.
In early 1983, 30 short years ago, China became the first nation on Earth to surpass one billion inhabitants. However, the Chinese automobile market at the time was disproportionately tiny in terms of both production and sales. Less than 1% of Chinese citizens owned a car, and most of those owned were old and dilapidated. Very few were purchased new, and the nation’s domestic auto-manufacturing sector was essentially inconsequential in the scope of the global industry. At the time, owning an automobile was considered a status symbol for Chinese consumers, and the average citizen had little hope of ever having one of his or her own.
Halfway through the 1980s, though, China’s new-vehicle demand exploded. Sales increased by over 600% in just 24 months as both the Chinese population and its rate of participation in world commerce grew exponentially. With dollar signs in their eyes, automakers scrambled to meet the nascent market’s needs, but their attempts to supply the massive—and suddenly very enthusiastic—market were unexpectedly frustrating. In reacting to their own demand forecasts, which had always indicated little need to invest in Chinese distribution infrastructure, foreign automakers found themselves trapped in a relative state of helplessness. The makers’ demand planners and decision makers had long since decided that there was little market viability to be had within the foreseeable future. Their apathy, combined with an inadequate understanding of the Chinese market’s financial and physical complexities, left the automakers totally unprepared.
Fast-forward to today: One in ten Chinese citizens owns a personal-use vehicle. Though low by world standards, this ownership rate represents a huge unitary increase in demand over the past three decades for manufacturers—and the growth continues to accelerate. China’s auto demand has more than doubled since 2009. Manufacturers like Ford Motor Company are realizing that they must do business in China just to remain internationally competitive. Ford has found that its 400 Chinese dealerships aren’t enough to even approach the current market potential. While the company’s current strategic decision is to attempt to open two dealerships a week, the company struggles to fulfill consumer needs in the car-hungry Chinese market. The Chinese middle class is growing at never before anticipated rates, and demand for products like automobiles remains problematic due to difficulties in matching demand with supply. Such complexities can prevent foreign automakers like Ford from capturing Chinese demand while sustaining a profit.1
Half a world away, for a 53-hour period in 2011, the most populous county in the United States—Los Angeles—closed the world’s most heavily traveled highway—the I-405—to add another lane. The move was part of a civil engineering initiative intended to dramatically alleviate highly congested and rapidly deteriorating road conditions in southern California. The construction project’s forecasted impact on local life led to the dubious moniker “Carmageddon,” reflecting a time when enormous traffic volumes would, if expectations were accurate, come to a grinding halt. Experts predicted the event would greatly impact both individual and commercial life. The 48-foot trucks carrying important supplies to California businesses, as well as the cars that were to carry customers to those businesses to shop, were expected to be delayed for up to a week or more, depending on how the construction project progressed.
In this instance, though, some companies were ready for the anticipated chaos, and a few actually thrived during the period of expected gridlock. Forward-thinking restaurants like Spumoni,2 an Italian-style pizzeria in Newbury Park, anticipated that more residents would dine locally and overstocked its key inventories ahead of time. Showing similar farsightedness and heeding the California Trucking Association’s advice, carrier Liberty Linehaul West ordered its truckers to leave 5 hours earlier than normal to make deliveries.3 Though the expected nightmarish traffic conditions never really materialized, these companies’ innovative and insightful leaders were able to adjust on the fly for the I-405 closure due to supply chain awareness. In this instance, by thoughtfully considering possible supply infrastructure failure and executing deliberately devised contingency plans, forward-thinking companies were ready for the commotion if it had occurred.
With proper precaution, most companies can survive an occasional, short-term disruption within their business ecosystem. But what happens if the cost and service implications of disruptions are more frequent or long-lasting? As booming populations continue to strain commercial infrastructures globally, Los Angeles may not be the only city forced to routinely address “Carmageddon”-like disturbances. In fact, many civil planners envision a day when road congestion and deteriorated conditions become the norm in even the wealthiest nations. Skyrocketing populations in countries like India and on continents like Africa mean that intricate demand fulfillment won’t be limited to products like automobiles in countries like China. What Ford, Spumoni, Liberty Linehaul West, and even Coca-Cola illustrate is the importance of managing well-planned and effective supply chains in a rapidly transforming world. Due to abnormally accelerated, macro-level social and economic changes (macrotrends), many companies are struggling to align supply with demand. They cannot provide consumers with the necessary goods and services for affordable living.
We wrote this book for anyone interested in understanding how a collection of such macrotrends will impact industry over the next two decades and how modern supply chains will help stymie their side effects. We want to provoke future business leaders to think about critical supply chain issues beyond just the immediate opportunities and problems. Supply chain leaders need to consider future modifications to the global business environment that will affect their ability to provide end users with goods and services. Our collective experiences lead us to believe that far too often, modern companies’ productivity measures force managers to obsess over issues that are imminently important but distract them from the type of visionary, futuristic thinking that leads to long-term, sustained marketplace advantages. A periodic approach is of course necessary to achieve the immediate objectives that propagate organizational survivability. But companies and managers who have greater prescience—whether their vision is of the next week, year, or decade—will be those best positioned to prosper ad infinitum.
Though we devised this book to be a thought-provoking primer for anyone concerned with how global trends will impact businesses and their supply chains, it has three primary audiences. The first consists of senior managers and executives who, through their visions and strategies, will set the course for how their businesses prepare for the challenges and opportunities the macrotrends will offer. A second audience consists of early-to-mid-career professionals who execute an organization’s financial and strategic missions. These are the managers best positioned to keep our advice in mind within their natural career life cycles. The final audience is policy makers, because supply chain issues do and will influence cities’, states’, and even nations’ competitiveness in the changing global marketplace. A wide range of readers interested in studying these macrotrends, and how they will impact society in unprecedented ways, should enjoy this book.
Our value proposition is simple: We compile and discuss cutting-edge research and reasons related to some hyper-accelerated transformations currently acting on our planet and its citizens. Most of this content draws on the most modern scholarship in fields such as economics, sociology, ecology, engineering, and hard sciences. We then integrate these viewpoints and connect their implications to what we believe will be the most pressing issues businesses will face over the coming years. Particular emphasis is placed on how business processes that operationally balance supply with demand will be affected. Finally, we offer some concrete strategies that help companies mitigate the hindrances, if they are willing and ready to adopt a supply-chain-oriented perspective to the opportunities and challenges to be faced.
Our efforts concentrate most prominently on the global economic consequences of societal changes that will directly impact organizations as they strive to serve customers with optimal efficiency and effectiveness. The strategies presented here are drawn from many real-world examples, experienced firsthand or otherwise, to illustrate key points. We hope our shared experiences will stimulate actionable thoughts for professionals to act on as their careers progress. We also hope that a general awareness of these issues will motivate business leaders and citizens alike to rally around common solutions.
A Note on Futurism
Before proceeding, we want to provide an advisory note related to our subject matter’s forward-looking perspective. While conducting our research, we became well acquainted with the emerging collection of event-forecasting quasi-sciences that can be colloquially called “futurism.” Futurism can best be described as the use of science-based processes to predict future occurrences, usually by extrapolating past and present data and/or trends into the future. This led us to examine various progressive social and physical scientists’ works within peer-reviewed journals. These works span many fields of interest and often are disseminated by prediction-focused organizations such as the World Future Society. Published critical evaluations of futurism have concluded that extrapolating past/current trends into the future, when done thoughtfully, yields generally reliable results. However, this is true only in proportion to the likelihood that the trends themselves are unlikely to deviate radically from established patterns.
By way of analogy, consider two props used in a popular science fiction TV show and movie decades ago. On the 1966 program Star Trek, producer Gene Roddenberry’s depiction of a portable 21st century interstellar communication device is hauntingly similar to the Motorola cellular flip phone of the mid-1990s. Similarly, the holographic technology used to project Princess Leia’s three-dimensional warning message in George Lucas’s Star Wars must have seemed far-fetched to contemporary viewers. Yet such communicative imagery has been demonstrated in lab settings in recent years. The original props were developed based on contemporary futurists’ technological projections. The actualized objects, which appeared in the last two decades, emerged in slightly different configurations and were intended for somewhat different uses than the futurists had imagined, but they have in fact appeared. In fact, based on their most recent exhibitions, it would seem that the key distinguishing factors separating the movie and TV producers’ projections of the future, and the eventual reality, were the specific form and time.
Our observations lead us to believe that many futurists are very good at what they do, and their predictions are often closer to “right” than “wrong” if enough time is allowed to elapse. Nevertheless, the science is somewhat inexact, and in concluding the analogy, our predictions made here indicate as much. Whenever possible, the calculations made herein to produce forecasts of the future were made based on simple “straight-line” extensions of current trend data. As a result of this technique, many of our predictions may seem to have nonsensical or perhaps even somewhat shocking implications. Our point is, you should understand that we did not assume that any of the relevant phenomena would accelerate, slow, shrink, or grow at a rate different from the current trend, unless there was a compelling and identifiable reason to believe otherwise. As is true for all forecasting models, such as those used to make meteorological and stock market predictions, some errors are expected. This problem has the potential to compromise or even someday invalidate our own estimations.
However, we also believe that our systematic analyses lead to some compelling conclusions that are both valid when approached in the right context and worthy of managerial consideration. By grounding our future business predictions in current scientific reality, we seek to minimize conjecture and try to focus on broad issues taking place over more extended time frames. This keeps us from becoming mired in specific details related to when, where, and how while maintaining significant managerial relevance.