Access to global markets have increased the complexity of supply chains, but often the effect the globalisation on supply chain performance has been neglected. Regarding that situation and future trends we are talking with Marko Jakšič, Associate Professor at the Faculty of Economics, University of Ljubljana.
What is the supply chain, and are we aware of its importance for whole economy?
It has to be noted at the beginning, that supply chains or networks should not merely be perceived as channels through which the products or services are delivered from suppliers to end customers. Due to this common misperception, the role of supply chain management is often reduced to “management of logistics”. While this may be the consequence of the fact that in most supply chains 90% of the relationships are transactional, companies are increasingly realising that their performance is heavily influenced by how well they co-ordinate their activities, and how well they co-operate with their supply chain partners. This is something that is not easily achieved within the company, and even more so across a supply chain. Often characterised as a “behind-the-scenes” function, the supply chain function often only is noticed when there is a problem, thus it is no surprise that companies are struggling with how to position it within their organisational structure.
The supply chain is in fact a system that enables “end-to-end” integration within organisations, activities, resources, and information with a primary objective to fulfil customer demand. The success of such integration is of vital importance, particularly in small economies, due to the fact that individual companies cannot develop their capabilities and achieve the desired economies of scale outside global supply chains, linking them to suppliers and potential customers around the world.
What are the global trends in supply chain management?
Access to global sourcing and sales markets have increased the complexity of supply chains in recent decades. However, often the effect the globalisation has on supply chain performance has been neglected, which nowadays forces companies to rethink their past investment decisions, particularly in off-shore production capabilities. This is a consequence of a “total cost approach” to supply chain management, combined with increasing comparative cost attractiveness of developed economies compared with traditional off-shoring locations. However, the complexity of supply chains is here to stay as they continue to evolve by taking advantage of multiple sourcing to decrease risk, supporting the future trend of “distributed manufacturing”, and by tapping into new sales channels. Such complexity requires companies to rethink their approach to analysis and the optimisation of supply chain activities. As it is only “end-to-end” solutions that will deliver the full benefit to the supply chain, more effort will be put into sharing data across supply chains. This will result in connected supply chains with a strong focus on achieving “supply chain visibility” and transparent supply chain management practices. It is evident that trends like re-shoring, “Internet of Things”, smart automation through Industry 4.0, real-time demand fulfilment, new manufacturing technologies like 3D-printing, and others will largely shape the way the modern supply chains will be structured.
In retail and manufacturing business in our region are going intensive investment and consolidation. Are same things going also in the supply chain?
We need to understand that there are opposing trends in action, which will work both in favour as well as against the consolidation of supply chains. While in some, particularly mature industries, the need to attain the economies of scale will prevail resulting in consolidation, and to some degree also the vertical integration of supply chains, we will see further fragmentation of supply chains in others. For instance, the advent of 3D printing combined with on-demand manufacturing may result in bringing the manufacturing capabilities back in-house and closer to the end markets, which will require a major restructuring of the distribution system and the supply base. Similar can be observed related to increasing product diversity, shortening product life-cycles, and the specifics of the distribution in urban areas.
What will the future look like?
Having discussed major global trends, there are some specifics of the small economies in our region. As many companies in the region are 2nd or 3rd tier suppliers to global multinational companies, more stress will be put on them to align with the increased focus on agility and responsiveness related to on-demand manufacturing. Essentially, this means that they will as well have to adopt the technological capabilities that will lead to faster, easily accessible, and cheaper manufacturing and supply options. Another concern that I would like to mention is a significant constraint related to availability of supply chain management related “people capabilities” within the companies as well as on the labour market. The importance of data-driven decision-making and complete understanding of end-to-end supply chains requires a profile of people who can grasp all aspects of supply chain activities. Here, it is only recently that faculties in the field are offering a limited choice of study programmes that allow students to combine engineering and business management knowledge. It is certainly our goal to improve the situation, as the demand from companies for young talent has been substantial in recent years.
In what way are innovation and technology helping the prosperity of this part of the economy?
Technology will act as a crucial tool to support the integration of supply chain operations. We will see Mobile Apps, automated data exchange used to automatically record all transactions, provide real-time updates of the status of operations, and better end-to-end visibility. The large amount of data will require new approaches to data analysis where “Big data” techniques and “Cloud computing” will offer deeper insights to the marketplace and the supply base, as well as potentially lowering capital investment. But most significantly, it is the changes in market requirements leading to changing manufacturing technologies and strategies that will require further development of supply chains. Thus, it is safe to say that the relevance of supply chain management will be increasing with the increasing need to integrate all these technologies in modern supply chains.
How to achieve successful sustainability in the supply chain?
There is a very short answer to this that captures the essence of building a successful “sustainable supply chain”. The sustainability aspects, whether they are related to economic, social or environmental performance, need to be recognised as potential sources of added value and competitive advantage on the market.