With unpredictable demand making inventory hard to plan, companies are also focusing on incorporating a robust demand forecasting capability into their processes.
Summary: While the impetus for strong growth in emerging markets has increased expectations of the supply chain, it has also generated new uncertainties and risks. We believe companies can manage the challenges and capitalize on these emerging market growth opportunities by focusing on three core areas of the supply chain.
1. Establish an effective supply chain model and infrastructure
When considering their overall supply chain operating model for EMs, most respondents believe it is “very important” or “important” for the supply chain to help achieve the following in EMs: revenue growth (97%), effectively managing total delivered cost (92%), procurement efficiency and effectiveness (92%), product innovation (87%) and manufacturing excellence (87%).
The question of whether supply chain operating models should be centralized at a global, regional or local level continues to divide opinion. Most respondents anticipate moving toward a more centralized, global approach in three years’ time.
2. Derive revenue from the supply chain
What percentage of your company’s revenue currently and in three years’ time comes from emerging markets (other than any that may be your company’s home market)?
Using the supply chain to drive new revenue opportunities in EMs is a top priority for executive leadership. Our survey shows that the number of companies expecting 50% or more of their total revenues to come from EMs will nearly triple over the next three years (from 5% of all companies to 13%). In addition, the second quartile (those companies seeing EM revenues grow from 26% to 50% of total revenues) will double from 19% to 38% over the next three years.
However, it is important that companies understand the differences between product life cycles in the developed and developing markets. EMs tend to have a longer product life cycle. With unpredictable demand making inventory hard to plan, companies are also focusing on incorporating a robust demand forecasting capability into their processes.
3. Manage operational, tax and regulatory risk
What level of risk does each of the following post to your company when planning or implementing expansion in emerging markets?
For companies expanding their operations into the EMs, the success of their global supply chain initiatives is determined by the rigor of their approach to managing operational, tax and regulatory risks in these jurisdictions.
As a reflection of continued concern over challenges facing companies in EMs, more than 70% of respondents rated the risks of operating in his region as “very high” or “high.” The risks that ranked highest included: logistics and distribution capabilities (83%), reliability of suppliers (81%), finding and retaining qualified talent (77%) and import/export restrictions (77%).
Case study: supply chain improvements in emerging markets
Ernst & Young supported a major pharmaceutical company with a sustainable and commercially viable “global access strategy” to serve developing markets with limited access to medicine. The team worked with internal and external stakeholders to pinpoint the main barriers to global access and estimated the market opportunity based on the company’s portfolio and spend. In addition to identifying US$1.2b in potential incremental revenues over a three-year period, Ernst & Young’s global access strategy also helped the company improve its reputation among key stakeholders within the pharmaceutical industry.
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