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Future Trends in Supply Chain

  • Syed Abdul Rehman Khan
  • Zhang Yu
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Part of the EAI/Springer Innovations in Communication and Computing book series (EAISICC)

Abstract

In this chapter, we have briefly discussed “future trends in supply chain management”. In the brief history of SCM we have already watched and observed several dramatic modifications in practice. On the other hand, in the next 15 or so years we are likely to see yet more dramatic vicissitudes. One thing is certain, as SCs become constantly more network-based and virtual, and as worldwide mega-trends reshape the trade and business landscape, the role of supply chain and logistics engineering in safeguarding a healthy ecological/environmental friendly future will become even more critical.

Keywords

Rapid manufacturing Cloud computing Business process convergence Mass customization Corporate social responsibility Non-zero supply chains Mass production Mass marketing Information sharing Emerging mega-trends Distribution centres (DCs) EPOS Structural flexibility Network orchestration Eco-efficiency Logistics management Cost-effective Supply chains (SCs) 

In the comparatively short time that firms have been focusing on managing their end-to-end SC (supply chain), the world has changed dramatically. We have witnessed a key trend to globalized SCs, with activities that were once done in-house now outsourced, accompanied by a dramatic growth in volatility in the business environment, creating greater level of risk and disruption in supply and demand.

There can be some doubt that all these dramatic changes are only the precursor for the ever more seismic changes that possibly lie ahead. Because the SC development strategy has to be contingent on the circumstances prevailing in the global environment, it is more and more significantly important that managers of supply chain understand what the future landscape may look like. Usually, in the last couple of decades, companies have made decisions on their networks of SC based on the world as it then was. Those decisions, most times, led to a loss of flexibility and adaptability, which inhibited the ability of firms to change rapidly in response to changes in the business environment.

At the same time, we are unable to say with certainty what even the next couple of years will bring by way of change; there are few clear underlying trends which can give some sign of the backdrop to the future of SC.

12.1 Emerging Mega-Trends

There are several emerging trends that will affect the shape of SC in the upcoming future; perhaps the most important are those to do with changes in global consumer behaviours, spending patterns and demographics.

Several of these wealth and demographic redistribution changes are covered below:
  • An expected increase in the population of the world from somewhere in the region of 7 billion today to 9 billion by the end of 2040. At the same time, age profiles are also changing differently across regions and countries, and this, combined with cross-border migration, means that some countries’ populations will increase while others will decrease such as China, since last two decades, Chinese population are continuously increasing by decreasing trend, e.g. during 2018, Chinese government issued two baby policy, but according to the survey, Chinese people are not willing to make second baby. As a consequence, consumers’ behaviour and spending patterns are likely to change, because some markets are expected to decline and others to expand.

According to the report of the UN (United Nations), almost 50% of the world’s population live in urban areas, and, by the end of 2050, almost 70% will be city dwellers. The increase in the number of megacities–defined as having a population of more than 10 million people—will continue as the move from rural areas to urban centres accelerates. The biggest challenge of serving these massive conurbations will be an increased focus on “logistics of city” with city-specific SC solutions.
  • The trend of a redistribution of wealth from the Western and European region to the emerging economies will continue. For instance, it is calculated that over the next 20 years the United States’ share of global wealth will decline by 23 to 27, but at the same time, the global market share of Asia will increase by more than 50% of the global economy by the end of 2040. The middle classes in the emerging economies are likely to increase from 400 million to over 1 billion by the end of 2040.

The combined impact of wealth and demographic distribution changes may well make current SC arrangements less than optimal. Businesses that have well-established supply and production arrangements designed to serve the “western-centric” demand patterns that prevailed in the past may be required to substantially reconfigure their networks of SC to benefit from the fast emerging markets of India, China, Pakistan and Brazil, for instance. To show the dramatic changes in worldwide spending power already apparent, it is also calculated that Asia accounts for around one-third of global retail sales, covering 40% and 45% of all cars and cell phones sales, respectively. Undeniably, China and India performance is outstanding in Asian region and have significant impact on global supply chain as both countries are fulfilling worldwide consumer needs. These both countries have billions of customers around the globe, particularly western, Asian and African regions. If supply disruption occurs in any one of these countries, rest of world will suffer badly.

During 2013, the Chinese chairman Mr. Xi Jinping paid a visit to Kazakhstan and Indonesia and proposed the “One-Belt-One-Road” project in his speech. The counterpart calls the initiative “a bid to improve economic growth and regional connectivity”. The project will connect 64 European, Asian and African countries around the globe by road and maritime. Undeniably, the project will increase dominance position of China in the continents and enhance cooperation between countries, and trade and economic growth of associated countries. On the other hand, it will also increase the risk in global supply chain and it will be a challenge for associated countries, how to mitigate supply chain disruption. Additionally, the geographical location, distribution points of supply of several materials, components and goods/commodities could change as traditional distribution points and sources may no longer be much feasible. For instance, it may be possible that due to global warming, climate change and environmental degradation the patterns of worldwide food manufacturing will modify quite radically. In other situations, the relative manufacturing costs and extracting basic commodities and raw materials could change dramatically between regions and states, making some traditional sources uneconomic.

12.2 Shifting Centres of Gravity

All SCs have a “centre of gravity” determined by the pull of supply and demand elements. The availability of components, raw materials and relative costs and the costs of moving them to the demand destination will determine where the optimal locations for distribution warehouses, factories/plants, and other activities of value-adding should be.

Due to uncertainties that surround the pattern of future supply and demand and the possible changes in input costs like energy, water and also other primary or basic commodities, it becomes imperative that any decisions to redesign SCs reflect the requirement to maximize flexibility. In an ideal world, the SC of the future will be capable of adapting rapidly to any shifts that can occur on both sides of supply and demand of the business.

If the present situations of unpredictability and turbulence continue, it may be that the optimal solutions of SC which served well in the past will no longer be suitable for the purpose. As we have mentioned before, there is mounting evidence that due to key changes in demographics and reallocation of wealth around the world, the “centre of gravity” in many Western and European markets will shift—causing a rethink of existing structures of SC.

The growing urbanization of society and shifting “centre of gravity” are trends that forward-thinking SC planners will already be factoring into their strategy. The rise of megacities shows a specific logistical challenge. Usually, these megacities population is more than many small countries and are often characterized by insufficient logistical infrastructure. In a number of Asian emerging economies like China, Pakistan, Bangladesh and India, the challenge of fulfilling requirements of massive markets with a broad range of items to satisfy and cater to a consumer with greater discretionary spending power will demand innovative solutions of logistics and transport. Zhang et al. (2018) conducted an empirical research on developed countries and highlighted the importance of logistics industry for better economic growth and trade. They found that mostly developed countries’ economy is healthy and strong due to improved and modern logistical and trade-related infrastructure, because high quality logistics and transport-related infrastructure provide opportunities to investors and businessmen. On the other hand, Khan et al. (2018) conducted an empirical research on emerging economies and found that mostly Asian developing countries’ logistical infrastructure is very poor due to several reasons, including poor political instability, corruption, lack of good governance, and terrorist attacks and bombing, which not only creating troubles in terms of long delays due to traffic congestion but also a cause of car accidents.

The use of logistics “platforms” located on the edge of megacities is likely to increase to allow the consolidation of consignments for delivery into those cities. This will be accompanied by an increasing number of collaborative arrangements among firms that will share distribution and/or logistics assets like DCs and transport.

While centralized offshore and manufacturing will still make sense for some categories of products, there will be a requirement to reduce the gap between supply and demand. This change in thinking will be driven through the growing environmental concern over pollution (CO2, greenhouse gas emissions, nitrogen emissions and carbon footprint) and, on the other hand, by cost considerations as costs of transport continue to rise. At some point in the upcoming future, no doubt, new forms of energy (renewable energy and biofuels) will become available massively which could reverse this trend. But that is likely to be some years away. Khan et al. (2017) conducted a research to investigate the relationship between logistics performance, economic growth, energy demand and environmental degradations. The results revealed that logistics industry improve and lift to economic growth of countries, while also a primary cause of air and water pollution, climate change and global warming, because logistics activities heavily based on fossil fuel and energy consumption. Khan and Dong (2017) highlighted that companies should adopt biofuels and renewable energy in their logistical and business operations. Because usage of renewable energy in logistical operations will improve environmental sustainability including air and water quality, and build positive image of firm, without any negative influence on financial performance of firms. In simple word, renewable energy/biofuels will work like “kill two enemies with single stone”.

As well as these wealth distribution and demographic changes, other trends are changing or reshaping the SC landscape. One new trend in particular is the development of new routes to market and the adoption by several firms of what has come to be termed “multi-channel” distribution.

12.3 The Multi-Channel Revolution

Spurred on by the arrival of the Internet, there has been a dramatic increase in recent years of the use of alternative distribution channels. While the old routes to market can still be used, they have been augmented through these new channels, which more usually than not bypass traditional intermediaries and also allow direct contact between the consumer/customer and the supplier.

For instance, now several firms offer their customers/consumers a wide range of choices for ordering and for delivery. A retailer might offer the traditional “bricks and mortar” outlets but also a phone ordering, online shopping/internet shopping, and the possibility of directly collect from the outlet or home delivery service. The challenge for logistics is to ensure firstly that the customer experience is consistent across all the channels, and then that the channels may complement each other to allow, whenever possible, the most efficient use of resources, e.g. single inventories and shared DCs.

In markets of consumers there is evidence that the Internet is revolutionizing both SCM (supply chain management) and marketing. According to several researchers, people under 26 are doing 50% of their shopping online, whereas the over 60s are doing less than 6% of their shopping through internet, due to unfamiliarity with technology and limited knowledge of computer. Undeniably, the internet shopping/online shopping volume are continuously increasing, while traditional shopping trend is decreasing.

One of the main benefits of having direct contact with consumers or final customers through internet/phone ordering is the perfection in visibility of real demand that it provides. For example, Alibaba (founded in 1999 by Jack Ma, a Chinese businessman) can see what its real item/product availability is because it is able to capture real demand or actual demand as it happens and is therefore able to measure on-the-shelf availability accurately. But in the business of bricks and mortar, even with sophisticated EPOS data, the firm may not get the same accuracy level of information.

From a perspective of SCM, the multi-channel revolution has many implications. Ideally, all channels should be served through the same infrastructure of logistics, e.g. sharing distribution assets like DCs, inventories and vehicles. If this can be achieved, then a big advantage can be attained through gaining incremental revenue greater than the additional cost.

Usually multi-channel operations imply a growth in home delivery, as many of these emerging channels are basically aimed at end users who need delivery to a particular address rather than collect the product(s) themselves. While a retailer (bricks and mortar) has the “last 50 metre challenge”, i.e. how to manage the major cost of getting the product from the vehicle of delivery onto the shelf in the most cost-effective way, the online business/online retailer is concerned with the “last mile” costs. Because most home deliveries are for a single case equivalent or less, the issue is how to ensure that the delivery cost does not erode profitability. With the advent of agreed times of delivery and the use of dynamic vehicle scheduling and routing, this problem should minimize.

12.4 The Need for Adaptability

Clearly markets and SCs are always in a constant state of dynamic adapting and change; the evidence is that the rate of change has accelerated to the point where the models of business that have served well in the past may no longer work at all tomorrow.

We have moved from a business environment where the supplier held the power—often through ownership of resources, brands and technology—to a situation where the customer/consumer is now in the driver’s seat. Where once it was a seller’s market, now it is a buyer’s market. Simultaneously, the prevailing marketing philosophy has moved from the idea of mass markets serviced by mass manufacturing to the idea of “market-of-one” serviced by mass customization.

The traditional SC business model was based around increasing efficiency, specifically through the exploitation of the “economies of scale”. So factories were designed to manufacture products in large quantities to use the full capacity. This business model worked well in the conditions for which it was designed, e.g. the manufacturing of standard items designed for mass markets.

The problem now is that the context has changed. We have seen a move from the “Mass production and supplier driven” to “Mass customization and market driven”, and yet several firms have not identified the implications of this shift for SC design. What is now needed are SCs that are far better able and more agile to cope with rapid change and also higher levels of variety and even customization.

12.5 Structural Flexibility

It has long been identified that flexibility in SCM and operations is a desirable attribute. Commonly, flexibility in this context has usually been explained in terms of the ability to respond quickly to demand changes in volume for existing items. This capability may be defined as dynamic flexibility and it is connected to ideas like use of FMS (flexible manufacturing systems) and setup time minimization. On the other hand, in the world we have described characterized by change which is discontinuous rather than incremental, a different type of flexibility is needed.

In effect, what is required is something we can term structural flexibility. Structural flexibility reflects the ability of the SC to reconfigure or adapt its architecture in response to main changes on the supply side or the demand side. SCs with high levels of structural flexibility are well able to cope with the levels of volatility that are a feature of the twenty-first century business environment.

Equally, when basic shifts in the SCs centre of gravity occur, structural flexibility is capable of rapid adaptation to fulfil the changed conditions.

What are the main enablers of structural flexibility?

Perhaps the most important enabler, but the one most complicated to achieve, is a corporate culture that is open to change and is comfortable with frequent changes to working practices and processes. Also, due to the need for collaborative cooperation across boundaries of organizations, there is required a willingness to actively create “win-win” partnerships across the SC.

Given that this cooperative approach to working across the extended enterprises can be achieved, the key factors that underpin structural flexibility cover:
  • Information Sharing

The greater visibility in the supply chain cannot be achieved without proper information sharing between stakeholders. It is significantly important to be able to see the changes that are on the horizon of both downstream (supplier side) and upstream (customer side). There is no doubt that sharing of information provides a powerful platform on which to develop strong win-win collaborative relationships across the stakeholders of SC.
  • Access to Capacity

A significantly important facilitator of adaptive SCM is the facility to access additional capacity when needed. Capacity here refers not only to production but also to warehousing and transport. Furthermore, that capacity cannot be owned entirely by the company in question; it must also come from partners across the network, 3PL (third party) or even competitors.
  • Access to Knowledge

Given the rapid rate of change in both technologies and markets, a main challenge to companies today is ensuring that they have complete/full access to knowledge to achieve the potential for process innovation. Similarly critical is access to people who are capable of abusing that information and/or knowledge. Technology sharing agreements and open innovations are ideas that are quickly gaining ground. Once more, firms are gradually turning to external sources rather than internal sources of knowledge to provide adaptive capabilities.
  • Network Orchestration

Because the achievement of higher levels of adaptability commonly requires inputs from a variety of other entities in the broader demand network or supply network, the need for coordination across the network arises. As SCs become more “virtual/cybernetic” than traditional supply chain, which stands on “vertical integration”, there is a growing requirement for orchestration. Whether that orchestration job is done by the company or by external 3PL / 4PL firms, the ability to build suitable networks and to harmonize activities across the links and nodes of those networks is paramount.

There are several schools of thought regarding “future trends in supply chain”. Some thoughts we have discussed before in this chapter and some we will discuss in upcoming sections.

12.6 Trends in Future SCM

Tom Linton, the chief supply chain officer at Flextronics, discusses “future SC trends, their impacts” as follows:
  • “Non-zero” SCs (Supply Chains) Win: SCs focused on greater strong cooperation, collaboration and partnership among everyone in the ecosystem will win. This will result in entire SC solutions that will generate new value for consumers/customers.

  • Corporate Social Responsibility: It will not be an option anymore; global environmental friendly policies, ecological plans and projects will expand, developing country laws will catch up, and big giants in the markets such as Procter & Gamble, Unilever, and Exxon Chemicals will follow global norms.

  • Predictable Unpredictability: Predictability will become a competitive benefit as SC breaks through barriers and hurdles to become more cost efficient, safer and faster.

  • Emergence of Control Towers: As SCs become more cybernetic (limited or no plants), SC winners will have a worldwide footmark and be trustworthy, flexible and transparent.

  • Regional Sourcing and Local Sourcing: These will expand, and supply ecosystems will develop as economies raise; “Made in United Kingdom” and “locally-sourced” will drive sourcing.

  • Skill Specialization: New skills of SC will emerge, such as managing virtual SCs, different core supply chain certifications including CSCP (certified supply chain professional), MBA, and undergraduate programs becoming more specialized.

  • Scarcity of Raw Material: This is driving innovation in materials, with firms replacing gold with cooper, cooper with aluminium, and steel with resin in certain situations; firms will also need to better manage conflict over rare minerals and earth metals.

  • Global Labour Costs Equalize: Labour arbitrage is in decline and cost of labour in Mexico is attractive; however, India, China, Indonesia and Ukraine are more cost competitive.

  • Business Process Convergence: Instead of automating inefficient processes, firms will remove them–e.g. replace inter-firm business documents such as POs (purchase orders) with sense-and-response systems; firms will more seamlessly integrate functions of inter-firm.

  • Cloud Computing: Reliable cloud solutions and low costs for global SCs are beginning to emerge; “apps” will transform SCs.

12.7 2030 Vision

In this period of uncertainty any attempt to develop a situation or scenario of the upcoming future is very challenging. Nevertheless because there are already some observable indicators and trends it is possible to draw a picture of the difficulties and hurdles that lie ahead for SCM and also to suggest possible ways of meeting those challenges and hurdles.

Eco-efficiency, corporate social responsibility and sustainable considerations will drive several decisions of SC, as firms seek to minimize both their costs and also their use of limited funds/resources. These pressures will fast-track move away from the classic extensive, in future SCs which use less resources yet are more flexible and also better able to fulfil needs of foreign and local markets.

Already, new technology and thinking are revolutionizing production in several industries. An excellent example is given by the steel production. Today, the technology of steel-making is more and more based on the concept of “mini-mills”, which are more flexible consuming electric arc furnaces and iron’s scrap as raw material. As a result, these innovative mills can manufacture steel both with greater flexibility and with eco-efficiency.

One more developing technology that has significant potential to allow more “local-for-local” production is what is frequently termed “rapid production or manufacturing”.

12.8 Rapid Manufacturing

One of the fast emerging technologies that has the full potential to convert SCs is RM (Rapid Manufacturing)—also sometimes called additive fabrication or digital manufacturing.

The basis for this technology is that items are built up layer by layer using laser-fused metal powders for polymers. Thus, rather than machining or casting an injection moulding or metal item, this item is created from a series of very thin layers of material.

Although this technology has been used for a couple of years to allow the manufacturing of prototypes, it is only now that these tools and ideas have been applied to the fabrication of end-use goods. For example, Boeing has used “Rapid Manufacturing” technology to manufacture parts for military aircraft and also for the F18.

The implications of rapid manufacturing for SCM and logistics operations are considerable: first of all, rapid manufacturing technology can permit local-for-local production to be accomplished more economically; second, a much advanced level of item customization will be possible; third, there is no as such requirement for inventory of finished goods to be detained; and fourth, the use of energy, water, components and raw material waste is significantly to be reduced.

Discussion Questions

Q.1. What are the emerging mega-trends in supply chain management?

Q.2. What is structural flexibility? Discuss in detail.

Q.3. From the perspective of Tom Linton, what are the future trends in supply chains?

Q.4. Discuss the 2030 vision of supply chains.

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Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  • Syed Abdul Rehman Khan
    • 1
  • Zhang Yu
    • 2
  1. 1.School of Economics and ManagementTsinghua UniversityBeijingChina
  2. 2.School of Economics and ManagementChang’an UniversityXi’anChina

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