The Global Supply Chain is Restructuring to Cut Costs. Here’s Why it is Like the Pig! | Article

Wipro Point of View

On a flight from Chicago to Dallas/Fort Worth, I picked up a book titled PIG 05049. It is a photo book published in 2009 by a Dutch author, Christien Meindertsma.

Before buying the book, I had a quick glance at one of the comments, which read, “PIG 05049 is one of the sample numbers of Christian’s research. She spent three years researching all the products made from a single pig. Some of the more unexpected results were ammunition, medicine, photo paper, heart valves, brakes, chewing gum, porcelain, cosmetics, cigarettes, conditioner, cheese cake, paint brushes, and even bio diesel.

“Meindertsma makes the subject more approachable by reducing everything to the scale of one animal. After its death, Pig number 05049 was shipped in parts throughout the world. Some products remain close to their original form and function while others diverge. In an almost clinical way, a pig is dissected in the pages of the book – resulting in a startling photo book where all the products are shown at their true scale.”

According to her research, Pig is widely used in at least 187 non-pork products. Neither the farmer nor the consumer is aware of the wide use of pig content in almost all products we use in our daily lives. The raw material travels around the world in these various forms, making the pig one of the important components of the global supply chain for manufacturing and finished goods.

The global supply chain is undergoing tremendous changes. It is restructuring itself, reducing costs, and eliminating low-value-added producers. The result is a huge opportunity for many services companies that are positioned to execute the new complexities of sourcing, coordination, logistics, and transportation of the new supply chain.

The drive to wring more costs out of the customer services supply chain is disaster for inefficient outsourcers or for reasonably efficient outsourcers that can’t find a way to compete with the wages of some developing economies such as Mexico, Chile, Guatemala, and even South Africa.

Unfortunately, only those affected usually understand the supply chain problems. However, supply chain issues affect suppliers, consumers, employers, employees, and merchants — in essence, the entire economy.

Supply chain complexities in daily life

The supply chain problems are evident in every aspect of human life from ordering an online item to getting a laptop from your employer.

At Sears, the HR on-boarding process for a new hire includes shipping the employee a laptop. Sears’s supply chain process resembles the world’s longest train from Zouerate, Mauritania, to the coast at Nouadhibou. The process, like the three-kilometer-long iron ore train, is long, complex, and cumbersome. The average time to receive a laptop for the new hires is roughly 60 days, assuming there are no escalations. That is unlikely since there are at least 15 roadblocks that force manual intervention. The end result: employee dissatisfaction and severe loss of productivity.

Outsourcing as a competitive advantage

Educational Testing Service (ETS), a provider of education assessments and psychometric research, has managed to outsource its entire end-to-end supply chain management. ETS has one of the more complex supply chains since it prints, warehouses, and ships test materials to more than 10 million test-takers in 160 countries every year. Outsourcing allows ETS to continually improve the control, accuracy, and integrity of its operations.

Nokia Siemens Networks (NSN) recently outsourced its global supply chain supporting over 92 countries. NSN, one of the leading telecom network suppliers, is overhauling its supply chain, distribution, logistics, and transportation into five regional hubs across the globe. These hubs, which process over US$8 billion worth of orders, will provide efficiencies and lower costs of goods sold. NSN is undertaking this supply chain transformation to adapt to industry changes and also transform itself from a supplier of equipment to a supplier of services.

Dish Networks, one of the leading broadband and cable providers in the United States, has shifted a significant amount of its customer support from India and the Philippines to Mexico and is further moving its customer support supply chain into inner Mexico cities. The labor arbitrage and the geographic proximity forced Dish to make this move.

Supply chain hubs are shifting regionally to counter wage inflation

Chinese manufacturing — the global manufacturing hub for many organizations from hi-tech to textiles — is moving into Tier-II cities to cut labor costs. The manufacturers are moving from coastal areas to the less underdeveloped areas in central and northern China in part because of the competition from Vietnam and Bangladesh. Material sourcing within China has dropped eight percent year-over-year, and there is a 20 percent YOY increase in sourcing from Bangladesh.

Supply chain consolidation and centralization to cut costs

Wal-Mart, the global retail behemoth, is overhauling its global supply chain by increasing the percentage of direct sourcing from manufacturers and reducing the middlemen. It is creating four global merchandising centers that source goods, fruits, and vegetables from regional hubs. For example, Wal-Mart created a merchandising center in Mexico City to handle merchandising for all emerging markets.

Reemergence of the U.S. railroad

U.S. grain carriers, burdened with big wheat inventories, are facing yet another huge challenge, thanks to burgeoning corn and soybean harvests. Merchants will have to find room to store 17 billion bushels of corn and soybeans — the largest U.S harvest in history.

In a great recession, the U.S. has the best agricultural harvest. At the same time, drought-stricken Russia announced a ban on grain exports, which means the drought will not ease the supply chain challenges facing the United States In India, agricultural has become a non-lucrative business for farmers. The global supply chain, therefore, is posing different demand and supply challenges. It is not a crisis for the agriculture industry if one recognizes and manages it.

The challenges in this supply chain are also putting tremendous pressure on the U.S. transportation industry. The supply chain expects the western railroads to handle the challenge of exporting 130 million tons of U.S. grain to the nearest airports and ports.

The new importance of the U.S. railroads has come full circle from the 1980s. Back then, none other than Warren Buffet wrote off their importance. Recently, he bought BNSF for approximately US$98 billion.
Just as the pig is in every product we use, so supply chain issues affect every aspect of our personal and business lives. We don’t know when, where, how, and why we get affected. But the bottom line is, we do.

3 Comments on "The Global Supply Chain is Restructuring to Cut Costs. Here’s Why it is Like the Pig! | Article"

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  1. Sol Shane says:

    All good, but what about cybersecurity. Some of these locations need to power up on that one. Businesses and governments need to work together because there is no low bid syndrome when it comes to protecting customer data.

  2. CSoong says:

    In China the government plays state operated companies offering such services off against quasi-private sector operators, some of whom work out of special territory Hong Kong. And government is willing to take losses to see if their business model can approach or equal the more liberal back office operations. Interesting when you do the research.

  3. Al W. says:

    The pig is a good metaphor for some markets. Not others. And it works the same with the cow. Cultural stuff.

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