During the past 10 years, outsourcing has continued to be a very strong trend for companies looking to remain competitive and meet their financial goals. This trend is now both a European and a global phenomenon.
It is my belief that there are two reasons why.
Firstly, in today’s difficult business climate, companies have recognised that is it vital to focus keenly on their core competencies. In general, this has led them to be more open to outsourcing many areas of their business – the supply chain is often an obvious candidate.
Secondly, today’s supply chain solutions are technically more complex than they were in the past, both to implement and operate. Many companies now no longer see the need to develop in-house, complex implementation processes to manage their supply chain requirements when the option of outsourcing can be more cost effective and can reduce risk.
There is a desire for more flexible, responsive supply chains. Most companies seek supply chains that are more finely tuned to respond to customer demands and are much leaner than in the past. This has necessitated more complex IT rich solutions. The trend has also been to integrate supply chains as opposed to operating a series of disconnected functional silos. These modern supply chains need careful design, rigorous implementation as well as professional management. Increasingly, client companies are attracted to logistics service providers who can offer a one-stop service encompassing design, implementation and management. At the very least this significantly clarifies accountability for performance – there is only one backside to kick!
Towards longer supply chains
Another important trend is the Globalisation of manufacturing, which is leading to longer supply chains. Globalisation is being driven both by a relentless search for lower costs and also by the growth of newer economies, particularly in Asia.
Also having considerable impact is the growing use of more complex information systems. These systems enable greater optimisation of the supply chain in various ways. Information technology is now providing greater transparency and functionality and has helped enable longer supply chains.
Twin this with the simultaneous waves of consolidation that have occurred in certain industries where businesses have focused on developing core competencies and divested non-core business operations leading to a total change. As this happens, consolidation of the supply chain becomes a natural progression.
The fast developing global market is another factor impacting supply chains. In my view there are three key points: The emergence of Asia and the Chinese marketplace; the creation of truly pan-European supply chains; and the consolidation of key market players.
Firstly, the emergence of Asia as an economic powerhouse has had a huge impact. This region is fast becoming the undisputed centre for low cost manufacturing for many different industries and product lines. The last five years in China have shown how swift this growth has been and I believe this will be a key feature of the next decade, as China continues to develop as a manufacturing powerhouse and the Chinese domestic market becomes a major factor in demand.
China’s population currently stands at 1.3 billion people and is the world’s largest untapped source of demand for consumer goods. Chinese per capita income increased 25 per cent in just four years to $890 in 2001. Estimates today suggest 60 million Chinese people now live in households with annual incomes of $12,000 – giving them tremendous purchasing power and this group will increase to 150 million over the next decade. Mobile phones are now one of the most desired items in China and automotive companies predict that the Chinese market will grow at 40 per cent this year and account for 20 per cent of the world’s growth in vehicle sales over the next 10 years.
There has also been the emergence of the much anticipated and truly pan-European supply chain approaches and contracts.
For the future, the enlargement of the EU will also support the development of these cross border projects. Indeed, as more of the countries of Central and Eastern Europe – such as Poland, the Czech Republic and Hungary – gear up for EU membership this area will provide great potential for manufacturing with many companies migrating away from current locations in Western Europe.
Consolidation of companies within the supply chain services industry has occurred as a response to changing customer needs. There has been the emergence of companies merging contract logistics and freight management to create truly global coverage and capabilities, of which of course Exel is a prime example. This ongoing process of consolidation will probably continue over the next decade in order to meet the demands of increasingly complex supply chains.
A doubling of the market
And the story for the freight industry in the past decade has been very positive. We have seen substantial growth in airfreight of over six per cent per annum and a similar level of increase in containerised ocean freight volumes. Both of these markets have doubled in the past decade and are expected to double again in the next 10 years.
Another factor to note, as a positive for our industry is the emergence of supply chain management as a professional discipline. This is requiring people to develop growing expertise in the techniques needed within logistics. Skills required include the need for international management of supply chains, a keen understanding of IT and increased language proficiency and cultural adaptability. All of these qualities are going to become even more critical for the industry as we move forward and evolve.
In conclusion, we expect to see a continued, rapid level of development over the next 10 years. Many of the trends mentioned above will continue to be very powerful. However, in my opinion, the key issues will be the developing importance of China to the world economy and the enlargement of the EU.
John Allan, is chief executive of Exel plc and can be reached at john.allan@exel.com.
Key points
- There is a desire for more flexible, responsive supply chains. Most companies seek supply chains that are more finely tuned to respond to customer demands and are much leaner than in the past.
- The Globalisation of manufacturing is leading to longer supply chains. Globalisation is being driven both by a relentless search for lower costs and also by the growth of newer economies, particularly in Asia.
- Having considerable impact is the growing use of more complex information systems. These systems enable greater optimisation of the supply chain in various ways. Information technology is now providing greater transparency and functionality and has helped enable longer supply chains.
