Where is the Global Supply Chain Headed?
SCDigest recently completed an excellent benchmark study on trends and practices in global sourcing and trade management. It’s quite good - you can find it here: Global Sourcing & Trade Management 2016 Benchmark ReportI am going to use that study as a catalyst to muse here this week on several topics related to global trade and then related supporting Global Trade Management software.
We are kind of strange times right now. Globalization is as importance as ever, yet clearly global trade volumes are slowing.
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For many years - really from the 1990s through the Great Recession - global trade accelerated, with volumes almost every year growing faster than overall GDP growth, frequently by several percentage points.
All the way back in 2006, I wrote a column titled "Global Supply Chain - You Better Be Good," which included these thoughts: "Companies in many industries have a detailed feel for how they stack up in manufacturing cost and quality, sometimes to incredible detail. But does anyone really know how they stack up in global supply chain performance?"
It is hard to imagine that just 10 years most companies outside the footwear, apparel, and high tech sectors had really globalized their supply chains, and even fewer were penetrating developing economies.
But of late, global is decelerating. Nobel Prize winning economist Robert Samuelson wrote just this week that "From 1997 to 2006, trade expanded 6.8% annually compared with 4% growth for the world economy. The gap reflected greater globalization: more cross-border supply chains and more specialization. Now this is no longer true. In 2015, both trade and the world economy grew at about 3%."
Some say the decline is even sharper. Maersk Lines recently said global container volumes grew only 1% in 2015. A recent chart published in the Wall Street Journal showed that in 2015 global trade volumes grew not only well below real GDP growth, but were actually negative for much of the year, as you can see in the graphic below.
All the way back in 2006, I wrote a column titled "Global Supply Chain - You Better Be Good," which included these thoughts: "Companies in many industries have a detailed feel for how they stack up in manufacturing cost and quality, sometimes to incredible detail. But does anyone really know how they stack up in global supply chain performance?"
It is hard to imagine that just 10 years most companies outside the footwear, apparel, and high tech sectors had really globalized their supply chains, and even fewer were penetrating developing economies.
But of late, global is decelerating. Nobel Prize winning economist Robert Samuelson wrote just this week that "From 1997 to 2006, trade expanded 6.8% annually compared with 4% growth for the world economy. The gap reflected greater globalization: more cross-border supply chains and more specialization. Now this is no longer true. In 2015, both trade and the world economy grew at about 3%."
Some say the decline is even sharper. Maersk Lines recently said global container volumes grew only 1% in 2015. A recent chart published in the Wall Street Journal showed that in 2015 global trade volumes grew not only well below real GDP growth, but were actually negative for much of the year, as you can see in the graphic below.
What is causing this change? No one seems quite sure. A very weak European economy, sluggish growth in the US, and a slowdown in China are usually at the top of the suspect list. I am not sure how much falling commodity prices play a role in pushing down the dollar numbers, but believe that must be a factor, though it wouldn’t explain the mere 1% growth in 2015 container volumes.
One short-term casualty for sure is the view prevalent in 2008-10 or so that emerging markets would be the salvation for multi-national companies searching desperately for growth. Many of those markets (e.g., Russia, Brazil, even to an extent China) have economies in the tank right now.
But I do not believe that is the long term trend. A couple of years ago, the consultants at McKinsey wrote that "By 2025, annual consumption in emerging markets will reach $30 trillion - the biggest growth opportunity in the history of capitalism."
Sourcing opportunities are also changing rapidly, with clearly some move out of China to other Southeast Asia nations, Eastern Europe, Mexico, and increasingly Africa (though still very small in total volumes).
So while in the near term global trade growth has slowed, and may stay that was for some time, I would still say that overall company success will for most will be heavily dependent at how good they are at global supply chain, even as our thinking about global manufacturing strategies, cost versus responsiveness, and especially supply chain risk management continues to evolve.
Now onto some data points from the 2016 Global Sourcing and Trade Management Benchmark Study, based on survey results from 200 companies.
As we often do in these studies, we began asking respondents how they would rank themselves in terms of both process and technology support for global sourcing and inbound logistics.
Even at the process level the majority of respondents say they are average at best, with a combined 52% saying they were either average or below average in these areas in terms of process maturity.
Conversely, about one-fifth of respondents (21%) rated themselves as very strong in global sourcing processes. Where do you think you stand?
"We are very decentralized in our approach to global sourcing," one respondent noted in a comment. "There are many opportunities to leverage our scale more effectively."
"We have multiple shipments that are not being consolidated, and without effective process and standardization, volumes cannot be managed," another noted.
Conversely, about one-fifth of respondents (21%) rated themselves as very strong in global sourcing processes. Where do you think you stand?
"We are very decentralized in our approach to global sourcing," one respondent noted in a comment. "There are many opportunities to leverage our scale more effectively."
"We have multiple shipments that are not being consolidated, and without effective process and standardization, volumes cannot be managed," another noted.
As is usually the case, the self-ratings for the level of technology support were much lower, with a combined 64% saying they were average or below average, with just 15.6% saying they were very strong in global sourcing/trade technology enablement.
It has been generally recognized that technology support for global sourcing and trade management processes has been behind for most companies versus the growth they have seen in global trade, so this result is far from surprising, and confirmed by other responses in the study.
Among the many areas of sourcing and trade management the study looked at was the ability of companies to accurately estimate global lead times for suppliers. This capability is hugely important in terms of managing inventories.
As shown in the graphic below, just over 50% of respondents say their lead time estimates are somewhat accurate, while only 12.4% say their estimates are highly accurate. In addition, a substantial 37% say their lead time estimates are not very accurate for these global deliveries.
Among the many areas of sourcing and trade management the study looked at was the ability of companies to accurately estimate global lead times for suppliers. This capability is hugely important in terms of managing inventories.
As shown in the graphic below, just over 50% of respondents say their lead time estimates are somewhat accurate, while only 12.4% say their estimates are highly accurate. In addition, a substantial 37% say their lead time estimates are not very accurate for these global deliveries.
Source: SCDigest 2016 Global Sourcing and Trade Management Benchmark Study
"Lumpy flow of goods challenges capacity constraints at several points in the supply chain," one respondent observed. "We have extra time built into lead time to account for systematically created congestion."
The survey data also showed that less than half of companies (39.2%) are currently tracking and reporting on global lead time variability, versus 47% that are not performing such tracking and 13% that say they are just starting.
SCDigest wonders if even this doesn't overstate the case a bit. Over the past few years a number of supply chain academics have reported being thwarted in projects to analyze global lead time variability because of the difficulty in obtaining accurate data from shippers.
Anyway, this is all good stuff, and I encourage you to access the full report.
Finally, there are interesting developments in the area of what is usually called Global Trade Management (GTM) software.
From the development of the category in the late 1990s through much of the 2000s, the focus on GTM was on the nuts and bolts of automating import and export processes, along with systems to monitor and enforce compliance in such areas as product classification, denied party screening and more. These traditional solutions were heavily driven by content, the labor intensive process of monitoring and updating changes to these rules country by country, day by day.
But in the last few years, leading GTM solution providers have expanded through development or acquisition into several new areas, such as global sourcing and vendor collaboration, global transportation management, and end-to-end supply chain visibility.
A recent example of this is GTM leader Amber Road acquiring global sourcing provider ecVision in early 2015.
This is a very interesting development and positions GTM providers potentially as an important fourth center of gravity in terms of supply chain software within companies, joining traditional solution blocks of supply chain planning, supply chain execution/logistics and procurement.
Before this footprint expansion, GTM was often viewed as a niche category that sort of stood off by itself to address the unique issues of import/export and trade compliance, again heavily focused on content. But that is changing, especially as companies such as retailer Crate & Barrel combine global logistics, compliance and finance into a single organization.
From the development of the category in the late 1990s through much of the 2000s, the focus on GTM was on the nuts and bolts of automating import and export processes, along with systems to monitor and enforce compliance in such areas as product classification, denied party screening and more. These traditional solutions were heavily driven by content, the labor intensive process of monitoring and updating changes to these rules country by country, day by day.
But in the last few years, leading GTM solution providers have expanded through development or acquisition into several new areas, such as global sourcing and vendor collaboration, global transportation management, and end-to-end supply chain visibility.
A recent example of this is GTM leader Amber Road acquiring global sourcing provider ecVision in early 2015.
This is a very interesting development and positions GTM providers potentially as an important fourth center of gravity in terms of supply chain software within companies, joining traditional solution blocks of supply chain planning, supply chain execution/logistics and procurement.
Before this footprint expansion, GTM was often viewed as a niche category that sort of stood off by itself to address the unique issues of import/export and trade compliance, again heavily focused on content. But that is changing, especially as companies such as retailer Crate & Barrel combine global logistics, compliance and finance into a single organization.
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