The Infosys Labs research blog tracks trends in technology with a focus on applied research in Information and Communication Technology (ICT)

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Trends impacting future of supply chains

Supply chains of today can be characterized as being global and widespread with multiple partners or vendors involved across the globe. Supply chains have evolved from companies that manufacture most of the components in-house to one concentrating on core competencies and sourcing rest. This transition from in-house manufacturing to outsourcing happened over a period of time, predominantly enabled by changes in economic environment, evolution of technology and production methodologies. For example improvement in Information Technology enabled teams at multiple locations to collaborate on new product development, reduction in trade barriers enabled easier access to foreign markets. A massive shift in supply chains occurred due to labor intensive manufacturing moving from developed countries (with relatively higher labor costs) to countries having comparative advantage of cheap labor.

Current global supply chains are heavily influenced by the changes in technology and economic environment. If one has to predict changes in future supply chains it makes sense to look at some of the emerging trends in these areas and their influence on supply chain. This blog will showcase current environment and identify some of the economic and technology trends that will shape up the future supply chains.

Current Environment

Global financial crisis that erupted in 2008 caused a major challenge for supply chains in terms of excess capacity being available. One can claim this by using Baltic dry index as proxy for global supply chain demand. Baltic dry index tracks the price of moving the raw material through sea. A rising Baltic dry index indicates strong demand for raw material and that in turn indicates higher global growth and vice versa.  Baltic dry index at the end of December 2012 (below 700) was near the lows attained during December 2008 (around 670).
Looking ahead in 2013, global aggregate demand may not recover due to still unresolved US fiscal cliff, most likely contraction in Euro zone, tensions in Middle East and slowing economic growth in China & India. This scenario of sub-par growth to a moderate contraction in global demand will translate into global supply chains being under-utilized.

Trends that will impact global supply chains in longer run

Current challenge of excess capacity requires businesses to focus on operational efficiency so as to manage stress on their balance sheets for survival. However this may make businesses miss out on broad structural changes that are taking place in the eco-system. While operational efficiency is required for keeping a firm afloat in short term, structural changes happening in environment may question existence of supply chain models of various organizations in the long run.
To predict possible structural changes in global supply chain we need to look at the trends that are emerging. Below are some of the mega trends that will shape supply chains of future:


Possible structural change

Rising labor costs in countries that currently provide cheap labor

USA regaining its manufacturing strength in certain sectors

Large scale shale gas discoveries in US and improvement in fracking technology leading to lower energy costs causing a few industry sectors in US to become globally competitive again.

Weakning US Dollar compared to other currencies.

Additive manufacturing or 3D printing: This involves creating a 3D object by adding successive layer of material.

From holding finished goods to raw material

Current supply chains have been built for forward logistics i.e. from raw material to retailer. An increased focus on sustainability or steep increase in commodity price will require organizations to manage reverse supply chain i.e. from retailer to manufacturer for final disposal.

A new eco-system for handling reverse logistics in efficient way

A few of the trends mentioned above have been in existence for a while, so a question that comes naturally is why things will change in future when they have not changed yet? An answer is these trends are still evolving and they haven't reached a critical level yet. My upcoming blogs will elaborate on these mega trends and their possible influence on future of global supply chains.

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