Europe on the edge

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Predictably, some familiar themes kept recurring at the Extended Supply Chain 2008 conference, held in London last month.

Globalisation, green issues, rising fuel costs, demanding consumers, and outsourcing seemed to be mentioned in almost all the presentations I attended, but it was those looking to the future who made the most disturbing comments on these well worn topics.

From our comfortable Western European perspective, it is easy to forget – as our masters in Brussels often do – that we are not, economically, the most exciting place to be. Growth in GDP in the West is currently averaging around 2.2 per cent whereas in the ”emerging” category – the likes of Russia, China, India, Brazil, and Eastern Europe – the average is 7.4 per cent.

Admittedly these nations are coming up from a much lower level, but impressive growth is still impressive growth. Wages in many of these markets are also growing, as speaker Leigh Pomlett, chief executive of DHL Exel Supply Chain for mainland Europe, noted in an aside when he commented that his organisation would soon be paying more to management staff in Russia than in Germany.

And Dr Larry Lapide of MIT, who followed Pomlett on the podium, reminded us that China has now overtaken Germany as the world”s third largest economy while in both India and China the middle class is growing rapidly with increasing numbers of well educated, affluent consumers eager for life”s little luxuries. Rising fuel and food prices reflect the growing global demand for these essentials, with those in the previously impoverished East just as able to pay the going rate as rich Westerners.

Dr Lapide”s slide on changing oil prices, depressingly headed ”$100 to $200?”, reinforced the message. After the last oil crisis in the late 1970s, the price of crude was reasonably constant from 1984 to 2004. In these 20 years, both modern supply chain management techniques and just-in-time manufacturing developed, creating today”s models which derive from a world of cheap oil and are thus essentially energy-inefficient.

Dr Mario van Vliet from Capgemini was also looking to the future and changing economies in his presentation on the supply chain of 2020. He too noted an eastward drift although this time for distribution networks, which might just find Constanza on the Black Sea as attractive as Rotterdam. Add the carbon issue and we could see perhaps 15 per cent of the 85 per cent of European goods currently sourced in China heading back to factories in Eastern Europe.

If several of the conference”s presenters suggested changing times ahead, then perhaps an underlying message was that those changes may involve thinking the unthinkable as far as supply chain strategies are involved. Instead of lean supply chains and frequent replenishment, will the oil price plus carbon footprint equation add up to more local stocks or an acceptance that some empty shelves are inevitable? Will those trucks constantly circling US automotive plants ready to deliver components at the drop of a hat become a thing of the past? Will we accept longer lead times as importers opt for transcontinental rail or even sailing ship, as If the price of oil continues to rise, bringing production back close to consumption might be the preferred optionchosen by a group of French wine exporters last month to cut their carbon footprint?

If the price of oil continues to head upwards, bringing production back close to consumption might once again be a preferred option.

At the same time, consumers are global and increasingly affluent. Shoppers in Moscow or Mumbai may now yearn for Western designer labels or German cars but their home industries are steadily improving and offering locally sourced solutions to meet local demand, as Tata”s €1690 Nano car demonstrates.

Supplying consumer goods to these new markets requires new warehouses, distribution networks and supply chain services so it is not surprising that global players such as UPS are showing so much interest in expanding their operations in these areas. The East is no longer just a source of goods for the West but an important market as well.

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