Supply chain infrastructure challenges and opportunities

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The supply chain infrastructure consists of the assets and systems that drive the network of suppliers, manufacturers, and logistics functions. It includes the information and organizational structures that support the supply chain.

Recent studies show that outright savings can be realized in improvements in the design of the supply chain infrastructure, such as in materials sourcing, manufacturing capabilities, and distribution systems.

What’s interesting is that as savings from such improvements seem obvious, many companies have yet to make an effort to examine their infrastructures. Instead, many executives focus on improving the multitude of operational processes that underlie supply chain functions. Many managers have not yet grasped that supply chains are not only about processes but that they are also about assets and structures.

Materials Sourcing

Large conglomerates such as General Electric (GE) have shifted sourcing of raw materials for its production systems to China, India, Russia, and Mexico. The shift manifests GE management’s recognition that one’s materials sourcing structure cannot be rigid. It must be adaptable to change especially in the wake of widely changing commodity prices and in a stronger US dollar.

Manufacturing Capabilities

GE likewise has shifted manufacturing facilities to be nearer to material sources while at the same time balancing the moves to not be far from its markets or at least to nearby transportation hubs.

GE is not the only one. United Technologies, Toshiba, Huawei, and Hon Hai Precision Industry also have made shifts in manufacturing strategies to adapt to changing times.

Shifting to a cheaper factory location is not as easy as it looks, companies have to be aware of where their customers are and what additional costs will be incurred if distances between production sites and its customers widen.

Distribution Systems

As online sales multiplied versus in-store revenues, retailers have immediately moved to change their distribution infrastructures, consciously aware that if they don’t, they will be left behind.

Amazon has already introduced same-day deliveries for perishable products in several American cities. The company also has employed ordinary people to deliver products in an arrangement similar to Uber, in which instead of drivers transporting people, the drivers transport products to customers within hours.

Amazon also has invested in its own trucking fleet to deliver fresh produce and is planning to use its own trucks to deliver from regional warehouses to customers. This has caused anxiety with Amazon’s key freight partners, notably UPS and FedEx.

Focus on the supply chain infrastructure is not limited to conglomerates or American firms. There are plenty of opportunities in Asia-Pacific and the Philippines.

Some Philippine firms, for example, have adapted their logistics infrastructures to roll-on roll-off (RoRo) cargo instead of relying heavily on traditional inter-island ferries. Some have set up manufacturing facilities in the provinces to expand their market reaches.

The results, however, have been mixed. High operating costs such as in wages and energy have prevented firms to realize attractive rates of return on investments. Executives complain about the high costs to sell in Philippine provinces but part of the reason is some firms have continued to stick with traditional dealers, which drive up product costs. Firms have been reluctant to try other options such as direct online selling.

Philippine firms also have increased imports and exports in the past decade but challenges such as port congestions and bureaucratic red-tape have made it difficult for companies to expand materials sourcing options.

Whereas firms have continued to work to improve the infrastructure side of logistics and materials, it has been observed that firms have not been as hardworking in the manufacturing side.

Many Philippine factories are far from efficient. Whereas information technology and human resource advances have been seen in the service industries, they have yet to be fully tapped for manufacturing. From hybrid manufacturing designs to shop-floor information systems, there is much potential for factory infrastructure improvement that if taken, may possibly catapult Philippine industry to at least par with first-world Asian counterparts.

Business owners in Asia and the Philippines need to realize their traditional supply chain models will have to change with the times.

As one US executive remarked, “The weak link in our whole manufacturing process remains the supply chain,” so it is true in most organizations. Especially in an era of challenging growth, re-structuring one’s supply chain could be the best solution to attaining one’s business goals.

Jovy Jader is a Managing Director and a Supply Chain Management Consultant at Prosults Consulting LLP. Email at jjjader@prosultsconsulting.com.

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