Winning in Two Worlds – Supply Chain Flexibility
Contribution by Vivek N – Senior Supply Chain Consultant at Bristlecone
The one thing that has become quite obvious with globalization is the emergence of a two speed world. On one hand we have the slow growth rate with high per capita income in the developed world and on the other hand we have the high growth rate with low per capita income. Organizations find it increasingly challenging to maintain flexibility in their products and services in order to adapt to both the worlds. This means delivering low cost and low margin products for the emerging markets and highly differentiated, innovative and exceptional service for the low growth markets to sustain profitability.
On analysing, one can find a lot of differences with respect to the way business is conducted in the developed and emerging worlds. More mature markets generally have a better supported infrastructure in place as compared to the emerging markets. Walmart and other retail stores are examples of a matured distribution system, where they play on high volumes and product differentiation, where as in emerging markets most of the business is still done at a corner store. The distribution system in emerging markets is not as matured as developed countries and is a lot more complex. The delivery of goods and products can start with a truck and delivered to a corner store in a remote village over a bicycle, after a series of changes in the mode of transportation. The products delivered may be fewer compared to that of retail stores in the developed countries, but the number of delivery locations can even run into millions.
[blockquote style=”2″]The impact of this distribution system is directly seen on the planning capabilities and in turn on the customer service. There is more flexibility in servicing at a corner store, while retailers in matured markets feel the pressure to service customers at a specific time or in a specific way, so as to differentiate their products. One can also see the way a product flows from source to the customer and also how information flows from customer to the service provider, in both the markets within the supply chain. Matured markets are closely knit and have lesser flexibility of product or information flow in the system. With the maturity of ERP systems and growth of internet, organizations have the capability to communicate with their suppliers and customers more effectively and rely on every process to be completed before the start of the next process. On the other hand, in a high growth emerging market, the transaction might still happen over cash-on-delivery and not much importance is given to the forecasting and planning of products and services.[/blockquote]
These stark differences between developed and emerging markets make it hard to find any synergy in operations and hence the strategies can vary from market to market. Each country brings its own challenges and the diversity calls for different supply chains.
Pricing, Customization and Service in Mature Markets
Pricing is an important component in mature markets; organizations are forced to differentiate their products and services, in order to charge a premium in saturated markets. They need to spend more on R&D and market intelligence to stay ahead of the race and develop the right products faster than competition to maintain profitability. Sourcing from developing countries might not always be a choice, as it reduces the flexibility and responsiveness to adapt to changing demand. Besides, with cost of transportation constantly going upwards, it adds less value to the system.
A system where high-end customization can be done locally or near-shore, can help organizations respond faster to the changing demand and also help them secure proprietary information. A design which incorporates low-end customization in developing markets and high customization in developed countries, can add value with respect to cost and responsiveness. The recent tsunami in Japan was a classic example, where a lot of global auto manufacturers dependent on Japan manufacturing plants were hit by the shutdown. Better planning with respect to minimising risk, by distributing forecast across regions, can prove beneficial.
The need for better servicing in matured markets, calls for direct involvement with customers and markets to study the trends and requirements. Organizations place their employees close to the customers in retail stores so as to understand the customers’ demands and requirements, which in turn, help organizations to bring in tactical plans in place. Information on consumption patterns is a critical input for differentiation.