The Global Supply Chain has been hit with wave after wave of challenges over the past four years. Consider the following major events in just the past decade, events that have had a significant impact on anyone managing a global supply chain:
- 9/11: created a permanent change in security, contingency planning, and created a number of new industries and regulatory environments.
- Recession of 2001/2002: Changed inventory control practices and forced companies to reconsider their supply chain redundancies.
- Port strikes and backlogs of 2004/2005: companies chartered aircraft and changed inventory practices to deal with inbound transportation disruptions after realizing how reliant upon the Asian sourcing markets the US was.
- 2006 saw brisk global growth, introduction of the emerging markets and 1 billion new consumers worldwide, and ushered in the first raw material supply shocks.
- 2007 - housing problems start to show up in the fall. This doesn't slow lending and the banking bubble grows.
- 2008 - crude oil hits a record at $147 barrel. Global changes are introduced to reduce exposure to rising fuel costs. Maritime companies use slow steaming strategies, truckload carriers park trucks on the side of the road, air cargo plummets because of rising costs.
- Fall 2008, banking crisis and "Lehman moment hits the market". Companies are sacked with surplus inventory and liquidity problems. The Great Recession is fully underway.
- Spring 2009, fuel prices plummet to $35 per barrel, the Baltic Dry Index hits 663, regional airlines file for bankruptcy or close their doors, supply chain managers are scrambling.
Just when we thought the supply chain manager was able to handle some really rough extremes as the global economy entered the recovery phase in 2010, companies get hit with the most recent waves of challenges including:
- 2010 business volumes return to growth mode and companies resume "more normal" operational conditions.
- March 2011 - Japan disaster hits. Third largest economy in the world is shut down for weeks, supply chains are disrupted, and concerns over the long-term viability of the Japan manufacturing sector emerge.
- Spring 2011 - the Arab Spring starts. Oil producing markets in the Middle East are cast into rebellion. Dictators are overturned and governments are sent into a phase of transition. Many of those transitional situations continue today.
- Summer 2011 - drought in the US southern regions are impacting the agricultural, cattle, and timber industry (because of massive wild fires).
- Summer 2011 - Thailand begins flooding. 227 manufacturers experience facilities being underwater for two months or more, equipment and facilities are a complete loss. 40% of the world's mother board manufactured are impacted. Companies are reporting loss of earnings today because of Thai flooding.
If we then flash forward to just this week, here are just a few of the headlines:
- Europe to go into recession in 2012 with possible default by Greece and Portugal at least. Maritime losses will hit European banking sector with losses to exceed $100 billion or more.
- Middle East tension continues to rise. 40% of the oil sourced in the Persian Gulf is at risk.
- Thailand impacts still significant. Supply chain managers are being forced to consider alternatives to Asian sourcing.
- Maritime industry is reeling and many are expected to "run out of cash" by March. Uncertainty in the maritime sector is forcing companies to reconsider their sourcing strategies.
- Just as near-sourcing is becoming more popular, drug cartel activity starts for the first time in the corporate-secure areas of Mexico City. This risk and uncertainty is forcing supply chain managers to reconsider overall sourcing.
- Lastly, reports suggest that Thailand is at risk of flooding through 2014 because of poor infrastructure and current weather patterns. Companies will have to make the critical decision whether to rebuild there or not. And, if a series of companies decide to not return, it is likely that many more will follow - many of the companies there had "component" assembly strategies in which multiple suppliers all contributed parts to a single assembler - making the primary export a full component unit.
Although many companies will likely opt to continue business as expected, the point of this piece is merely to suggest that supply chain managers have been through an exceptional period. We didn't even discuss many of the market changing events on a positive basis (the increased use of online purchasing, improvements in supply chain technology, introduction of RFID and other location-based technology, general business volumes increasing across the board, etc.).
But, with these changes, everything from inventory carrying strategies, sourcing, assembly, transportation modes, security, risk prevention, and many other considerations are on the table. Just deciding how much contingency and redundancy to put into the supply chain is a huge decision for many firms. Making a smart, informed, and prudent decision is equally critical.
With the Presidential election, changes in tax structures, possibility of more environmental impacts and upheaval in parts of the globe (especially the Middle East in oil producing nations), the near term has as much potential to be as volatile as the past ten years. Flexibility in the supply chain and the ability to react quickly to market changes will be the two most important ingredients to success.