During the 1980s and ‘90s and into the first decade of the new century, the world got smaller. And more and more people were able to get their hands on the same sought-after goods and products, at ever cheaper prices. With the result that,
“In the two decades to 2008, trade as a share of global GDP jumped from 37% to 61%.”1
It was the global supply chain that made all that possible, and what that relied on what was the free and easy movement of ships, planes and digital bytes around the planet.
Shocks to the global supply chain
But since 2008, the world has been subjected to a succession of profoundly destabilizing shocks. First came the global financial meltdown, then the US-China trade war, and then the pandemic. And now the war in Ukraine, with the knock-on effects that that’s having on energy prices and food supplies.
To begin with, it was hoped and or assumed that these would prove to be but blips, and that normality would soon resume. But the cumulative effect of all of this has meant that we’ve finally woken up to the fact that we need to change the way we do business. As the lead article in a recent issue of The Economist begins,
“After years of anxious speculation, the structure of the world’s supply chain is now clearly changing.”1
Simply put, where before it was all about costs and speed, the focus now is on security, as well as costs and speed. And what all of those three dynamics depend on is China, and the changes that have been going on there.
The conundrum that is China
It was the significantly cheaper labor costs throughout Asia, but especially in China, that had been the impetus for that initial expansion in global trade. Manufacturers could get parts and products made much more cheaply and sell them far more profitably.
But that demand turbo-charged the Chinese economy, with the inevitable result that the cost of labor then went up there.
Furthermore, China’s economic success caused political frictions in the US, as citizens there worried that their status as a super power was under threat. Which was the impetus for the trade war that the US and China are now embroiled in.
Notwithstanding which, the fact that the global supply chain is able to function at all is still hugely dependent on China. As,
“In 2019, China still controlled more than one-quarter of the suppliers for big industries, including chemicals, electronics and textiles.”1
But China’s zero Covid policy, which produced significant disruptions, and now the war in Ukraine has meant more than just a re-think. Manufacturers around the world are now taking action to re-align their supply chains. After all, if we think Russia’s invasion of Ukraine was destabilizing, imagine the chaos if something were to happen between China and Taiwan.
Inventories, investment and hiring
All of which means that, generally speaking, manufacturers are changing how they plan and act around the three core areas of inventories, investment and hiring. And, more specifically, they’re distancing themselves from China.
Most notably, Apple recently announced it was moving some its production out of China and into Vietnam. While other companies are moving their plants closer to their targeted markets. This spring, for instance,
“Samsung, Stellantis and Hyundai announced $8bn of investment in American electric-car factories.”1
And while we’ve yet to see very much evidence of actual re-shoring, manufacturers are clearly placing as much store on security of supply as they are on costs. And, as well as maintaining larger inventories, they’re now working with multiple instead of single suppliers. While many of them are investing increasingly in vertical integration, shoring up their supply chain by buying up the suppliers they most depend on.
Taking charge of your data
All of which means that it’s even more important for manufacturers to take charge of their increasingly large quantity of data. The way you do that is by using the right software internally. Your software makes you the ‘control tower’, collecting and centralizing all the data and documents generated by your different projects, to make them all immediately visible.
When you have a more accurate picture of your extended supply chain, about your parts, materials and fixed assets, you can source more effectively and manage both your resources and your inventory more efficiently. All of which will significantly improve your margins.
And ideally, that software will keep all your data updated in real time. Because successful supply chain planning depends on knowing exactly where everything is and how it’s all progressing.
So if something happens on the other side of the world and you need to switch to an alternative supplier, you have enough time to prevent costs and delays further down the road. Because it’s those gaps between projected costs and delivery, and actual costs and completion that eat into those margins.
The right software means you minimize risk and maximize revenue, by making sure everyone has immediate access to all your data and documents, wherever they are and whenever they need them. It’s all there on your dashboard.
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- The Economist June 18th-24th 2022