A future for Supply Chains.
I am joining the ‘crystal ball’ community with a few broad observations about events that could influence your future supply chain decisions. Changes affecting Logistics that are happening now may take less time than expected to be adopted, or have no effect, so my observations must be read with a critical view. This will require you to keep abreast of developments and identify the potential benefits and risks for your organisation.
- Changing trade lanes
The International Monetary Fund (IMF) considers that Asia will be the worlds largest economy by 2030, with commensurate increases in intra-region trade. The complexity of planning supply chains in the region will also increase, due to the different levels of urbanisation, middle-class consumers and development within countries of the region. Differences can be broadly assessed using the Logistics Performance Index (LPI) published by the World Bank.
Trade flows are already slowing, in part due to protectionist moves by national governments, through increases in non-tariff barriers notified to the World Trade Organisation (WTO). Logisticians will increasingly need to be aware of non-tariff barriers, as these are not so publicised as tariffs on imports.
The development of new trade lanes and associated infrastructure is rarely just a commercial decision. International politics plays a very important role and the outcome can be clouded in doubt. For each enthusiastic supporter, there will be at least one sceptic; but commercial businesses must ask the question “if we are not part of the potential, what could we miss?” Examples of politically driven trends that could effect your supply chains are:
In Asia, the ASEAN Economic Community (AEC) came into being at the start of 2016, with ten member countries, The AEC objective is to be the fourth-largest economy in the world by 2030 and a region with free movement of goods, services, investment and skilled labour.
The AEC is viewed by China as an integral part of the New Silk Road concept. The ‘One Belt, One Road’ (OBOR) initiative is a strategic and foreign policy initiative of China to economically link Europe to China through countries across Central Asia and the Indian Ocean. The initiative also links through to Africa and Oceania. When complete, it will affect about a quarter of all the goods that are moved. An example of implementation since 2016, despite challenges with different rail gauges, is the freight service between China and western Europe. The first freight train from China to the UK arrived in January, taking 18 days.
In the Americas, the enlarged Panama Canal is helping make Panama the equivalent of Singapore as a logistics hub for the region. The development enhances the international transshipment complex of ports at the Atlantic and Pacific entrances of the Canal and the railway that links the two ports, together with associated Logistics Activities Zones or Logistics Parks, for added value activities.
2. Distribution pressures
Building more roads will not solve the problems of congestion and delay, as more roads increase travel demand. Price is a common way to modify behaviour – we experience it with ‘time of day’ utility charges. Road pricing that uses current and developing technologies to replace and consolidate other road taxes and charges are a potential. If done, it would most likely increase the cost of road freight, as trucks would be charged closer to their total use costs. However, politicians are careful of vested interests, so road pricing could be a longer term trend.
To use the road network more effectively, authorities can set access restrictions for delivery vehicles in city streets. To provide replenishment services for small shops within a geographic area, only permit holding vehicles can enter within defined off-peak and overnight delivery times. This ensures full trucks and less of them. This form of distribution requires mini-DCs within the city or warehouses sited within suburban logistics hubs, containing the value adding service facilities of logistics service providers (LSPs).
3. Standardisation of logistics services
A service firm that acts as an intermediary between parties is open to automation of their activities. Examples of possible trends are:
The prime mover and trailer are considered as separate transport assets. The shipper or its 3PL services supplier owns or rents the trailers, which become an inventory location, planned as links between warehouses. When a prime mover of a particular size is required, book it through an IT platform, which contracts the driver and prime mover, tracks the journey and debits the account. It also retains feedback on the capability and presentation of the driver and the driver’s input about their experience of the client.
Freight forwarders could be replaced by direct booking through an eCommerce platform or shipping company. Alibaba has introduced an on-line service which enables Chinese SME to directly book shipping space on Alibaba approved shipping companies, initially to South America and Africa. Mearsk Line has developed its own booking platform, which includes the lodging of customs documents.
4. Processes that could change supply chain flows
Two processes that meet this requirement are:
Additive manufacturing has been given the name of 3D printing and is using an increasing range of materials. The concept of localised technology can enable Make to Order (MTO) manufacturing and customisation close to the point of consumption, providing reduced distribution and inventory costs. An example is the manufacture of replacement parts, with designs downloaded to a distant location from a central repository.
Blockchain allows two or more parties, operating through an open, trusted network to view, track and trace commercial transactions and decisions. Data storage is decentralised and visible for all parties involved; the shared (distributed) ledger structure increases the authenticity (therefore trust) of the viewed information. An overview of Blockchain technology is provided in my blog Blockchain technologies could change your supply chains.
While the trials of Blockchain are focused on the potential for Supply Chain Financing (SCF); extending the concept of tracking and tracing shipments for finance is the same action for physical items. This provides item visibility and underpins traceability through supply chains, which in turns could enhance co-ordination and co-operation.
5. Technologies to increase productivity
For a ‘new’ supply chain model to be identified requires technologies to support a change in the underlying processes, as discussed in Point 4. If a technology does not change the process, then it only increases productivity. The rate of acceptance and use of new technologies in supply chains not only depends on the ease of use and cost but also on competition for funds from technologies in other areas of an organisation.
From articles I have read, the applicable technologies that are likely to affect supply chains are: Augmented reality; Automated vehicles; Connected devices providing ‘big data’ for predictive analytics and pattern matching and Mobile and wearable technologies.
IT application capabilities which may facilitate remote ’24×7′ management of logistics and planning of supply chains are: interrogating social media for advance notice of challenges in markets (called outside-in planning); bring your own device (BYOD); software as a service (SaaS) and cloud based services.
Will will these five broad areas that are currently ‘top of mind’ actually happen and if so, when? My crystal ball is not that good, so I will continue to follow events and discuss them in my weekly blog. Thanks for reading.