Logistics and Supply Chain Management, 4th Edition

THE SUPPLY C H AIN O f THE fUTUrE

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Shifting centres of gravity

All supply chains have a ‘centre of gravity’ determined by the pull of demand and

supply factors. The relative costs and availability of materials and the costs of

moving them to the point of final demand will determine where the optimal loca-

tions for factories, distribution centres and other value-adding activities should be.

Because of the uncertainties that surround the future patterns of demand and

supply and the potential changes in input costs such as energy and other basic

commodities, it becomes imperative that any decisions to redesign supply chains

reflect the need to maximise flexibility. Ideally, the supply chain of the future will

be capable of adapting quickly to any shifts that might occur on both the demand

side and the supply side of the business.

Equally, with the continued volatility of many input costs, particularly oil and

energy, many companies are already reviewing their existing supply chain strate-

gies. For example, in June 2008, Keith Harrison, Chief Product Supply Officer of

Procter & Gamble, was quoted as saying:

Soaring energy costs are forcing P&G to re-think how to distribute its products … A

lot of our supply chain work was implemented when oil was $10 a barrel … I could

say that our supply chain design is now upside down … What is our business

going to look like in 2015?

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If the current conditions of turbulence and volatility continue then it may be that

the supply chain solutions that served us well in the past may no longer be fit for

purpose. As we have highlighted above, there is mounting evidence that because

of major demographic changes and redistribution of wealth across the globe, the

‘centre of gravity’ in many markets will shift – causing a rethink of existing supply

chain structures.

The shifting centres of gravity and the growing urbanisation of society are

trends that are already evident and forward-thinking supply chain planners will

already be factoring them into their strategy. The rise of mega-cities presents a

particular logistical challenge. These cities are bigger in terms of population than

many entire countries and are often characterised by inadequate infrastructure. In

developing economies such as India, the challenge of serving massive markets

with a wider range of products to cater for a customer with greater discretionary

spending power will require innovative logistics solutions.

The use of logistics ‘platforms’ located on the edge of large cities is likely to

increase to enable the consolidation of shipments for delivery into those cities. This

will be accompanied by a growing number of collaborative arrangements amongst

companies that will share logistics assets such as transport and distribution centres.

Whilst centralised production and offshore sourcing will still make sense for

some product categories, there will be a need to bring supply much closer to

demand. This change in thinking will be driven by the growing environmental con-

cern over carbon footprints but also by cost considerations as transport costs

continue to rise. At some point in the future no doubt new forms of energy may

become available which could reverse this trend – but that is likely to be some

years away.