Supply chains are no longer a simple matter of “logistics.”
Summary: The concept of the supply chain has undergone a radical revolution in recent years. It is no longer a simple matter of “logistics” or “product delivery.” Global companies now recognize that optimized supply chains drive improved corporate customer service, higher margins and increased revenue.
What steps are companies taking to drive improved supply chain results?
Leading companies are aligning their supply chain with their business strategy and market requirements to address the seven challenges outlined in the supply chain agenda:
- Establishing an effective supply chain model and infrastructure: With companies seeking hyper-growth within emerging markets, providing an effective supply chain operating model within the constraints of poor infrastructure will be critical.
- Enabling new revenue sources: The supply chain must link effectively with the commercial side of the business to create an engine that enables growth in new markets.
- Managing operational, tax and regulatory risk: Growth efforts must be protected from risks in emerging market countries, including poor supplier performance, financial instability, tax implications, quality issues, asset theft and fraud.
- Reconfiguring the supply chain to create cost competitiveness: Limited sales growth, increasing input costs, pricing pressures and the lack of margin growth are challenging companies to operate differentiated supply chains.
- Optimizing global spend: Visibility and governance over total spend must be managed at the global level across the extended supply chain.
- Improving operational agility and responsiveness: To be competitive, supply chains need to be more “customer-centric” and configured to balance the conflicting needs of faster response while reducing cost and cash flow.
- Managing environmental and sustainability expectations: This will have a profound effect on supply chain network configuration; companies need to turn this to their advantage.
Survey results point to adaptations to support rapid expansion and new efforts to boost margins in mature markets
Ernst & Young and the Economist Intelligence Unit (EIU) surveyed more than 225 supply chain and corporate executives from global companies with annual revenues exceeding US$3b.
Our report shows that companies are:
- Adapting their supply chains to support rapid expansion and capitalize on the growing number of middle-class buyers in emerging markets (EMs).
- Developing their existing supply chains to drive cost efficiencies and boost margins in their mature market operations.
Growth in emerging markets
The figures suggest that EMs hold the key to future growth for many global companies. According to the International Monetary Fund (IMF), the average EM growth rate (GDP 2010 – 15) will be 6.65% compared with 2.5% in mature markets. The Economist estimates that 70% of global growth over the next few years will come from EMs, with about 40% coming from China and India alone.
By 2014, IMF estimates show that EMs will account for the majority of global GDP. By 2040, China will be the world’s largest economy, while India, Mexico, Russia and Brazil will all feature among the 10 largest global economies. Significantly, 64% of executives expect that the majority of their revenue growth will come from EMs within three years.