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Supply Chain 2020: When Future Uncertainty is a Certainty

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Supply Chain 2020: When Future Uncertainty is a Certainty 7 th Annual Supply Chain Management Summit Bryant University August 21, 2014 Larry Lapide, Ph.D. Research Affiliate, MIT-CTL Lecturer, University
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Supply Chain 2020: When Future Uncertainty is a Certainty 7 th Annual Supply Chain Management Summit Bryant University August 21, 2014 Larry Lapide, Ph.D. Research Affiliate, MIT-CTL Lecturer, University of Massachusetts Boston 1 Agenda Scenario Planning Methodology Macro Factors Scenarios Analyzing the Implications of an Uncertain Future 2 Introduction: Supply Chain 2020 Methodology Scenario n Scenario 2 Scenario n Scenario 2 Scenario 1 Scenario 1 Business Environment Business Capabilities Business Strategy Supply Chain Strategy Supply Chain Network Design Strategy Alignment Scenario Planning Supply Chain Strategy Development 3 Agenda Scenario Planning Methodology Macro Factors Scenarios Analyzing the Implications of an Uncertain Future 4 Six Macro Factors That Will Most Reshape Aging of Developed Countries 2. Volatility of oil prices 3. Economic/military power shift towards the East 4. Tightly aligned trading blocs (e.g., 3 or 4) 5. Green Laws, globally 6. Pervasive powerful technologies Larry Lapide, When Uncertainty Is a Certain Factor, Manufacturing Executive Leadership Journal, March 2011 Larry Lapide, When Uncertainty is a Certain Factor, Supply Chain Management Review, March/April 2014 (reprint from MELJ) 5 #1 Aging of Developed Countries Source: Joseph F. Coughlin, PhD, Director, MIT Age Lab 6 #1 Aging of Developed Countries 1. What is the impact on products & services demanded? a. Personalize products (e.g., physically, hearing, and sight challenged) b. Total solutions of services and products c. Health care hubs, in-home service monitoring of diet & health, and home delivery re-emerging 2. What is the impact on supply chain workers? a. Plant and warehouse blue collar workers (e.g., more automation) Older Language-challenged Mentally & physically handicapped b. Elderly drivers (e.g., dashboard design) c. Elderly, semi-retired white collar knowledge workers 3. What if immigration is opened up? Closed? 7 #2 Volatility of oil prices: Greater global demand and becoming more expensive to extract ($200 or more per barrel in 2020?) Quarterly Imported Crude Oil Price dollars per barrel 140 Forecast 120 Nominal Price Real Price (Jul 2014 $) Era of Cheap Oil Q1 1978Q1 1982Q1 1986Q1 1990Q1 1994Q1 1998Q1 2002Q1 2006Q1 2010Q1 2014Q1 EIA Short-Term Energy Outlook, July 2014 (http://www.eia.gov/forecasts/steo/realprices/) 8 #2 Move from Cost & Inventory-Efficient Supply Chains to Cost & Oil/Energy-Efficient Supply Chains Oil/Energy Costs Impact Supply Chains in 4 Major Cost Areas: 1. Freight costs (e.g., slow down supply chains; think slowsteaming) Inventory versus freight tradeoffs; e.g., Just-In-Time(JIT) programs Labor versus freight tradeoffs (e.g., offshore manufacturing) Barge versus Rail versus Truck shipping Ocean vs. Air shipping (e.g., offshore sourcing) FOB pricing and on-line free delivery services 2. Material costs (i.e., oil-based materials back to glass, paper, and metal) 3.Production operating costs 4.Packaging costs (e.g., paper versus plastics) 9 #3 Economic/military power shift towards the East U.S. Peak Source of Data: International Monetary Fund (IMF) website -- (April 2014) 1. U.S. and European Union s share of worldwide GDP is generally declining U.S. recent peak in 2001 at 32.3% of GDP share, then declined, and forecasted flat in short-term China surpassed Germany in 2007 to be #3 China surpassed passed Japan in 2010 to be #2 10 #3 Economic/military power shift towards the East (Cont d) 2.Many of the largest companies now outside EU and U.S. 3.Rise of middle class in Eastern countries creates consuming nations (Will U.S. and E.U. be able to compete there?) 4.Future global competition for scarce materials and business opportunities (China ties to Australia, Africa, and Middle East) 5. China and India producing more engineers and collegeeducated students: So will major innovation move there too? 6.China s unknown future ( the wild card ) This is not a book about the decline of America but rather about the rise of everyone else : Fareed Zakaria, The Post-American World, Norton 11 #4 Tightly aligned trading blocs (e.g., 3 or 4) rather than The World is Flat (Author: Tom Friedman) 1. Powerful trading blocks centered around, for example, Europe, US, Japan/Asia, and China 2. Largely intra-trading among blocs (e.g., will Food, Clothing, and Shelter goods supply chains flow North-to-South with little East-to- West flow?) 3. Heavy trade barriers into and out of the blocks 12 #5 Green Laws, Globally 1. Energy-efficient transportation operations An EPA report (April 2009) reported that the Transportation sector is the second major source of greenhouse emissions (after Electricity Generation). 2. Reverse logistics 3. Green product design 4. Supply network compliance 13 #6 Pervasive Powerful Technologies 1. The World is Flat : Distributed virtual workers and organization Proliferation of virtual communities like Second Life? One Worldwide Internet or fragmented by country politics (e.g., Germany, China, and Arab world creating their own)? Seamless worldwide trading partner collaboration via Internet and wireless communication, and among social-network based collaborative communities like Facebook and LinkedIn 2. Full end-to-end supply chain visibility of worldwide goods, information, and (e.g., the Internet of things and financials, as well as of information) 3. Virtual reality allows full view and virtual management of total supply chains (i.e., melding of the artificial and physical worlds through supply chain modeling, simulation games, and optimization ) 14 Agenda Scenario Planning Methodology Macro Factors Scenarios Analyzing the Implications of an Uncertain Future 15 SC2020 Scenarios Based on Shell Scenarios* *Source: Shell Global Scenarios to 2025, p12 16 Scenario Snapshots of the World in 2020 Scenario 1 Scenario 2 Scenario 3 17 Agenda Scenario Planning Methodology Macro Factors Scenarios Analyzing the Implications of an Uncertain Future 18 Scenario Implications for Winning Supply Chain Strategies 1. Implications for Products and Services 2. Implications for Global Supply Networks 3. Investment in capabilities 4. Organization and Culture 19 Analyzing Scenario Implications Scenario Implications Robust Implications Contingent Implications No Brainer No Regret No Gainer Detailed Review Risk Management Sensors in the Ground 20 Strategy Key Takeaways The future ain t what it used to be Yogi Berra, The Yogi Book, Workman Publishing, New York, 1998 Revisit your latent assumptions about the future Develop strategies for excellence under each possible future using Strategic Alignment Use Scenario Planning and Risk management to prepare your supply chain for the future For further information regarding the Supply Chain 2020 Project: Website Contact the Project Director, Dr. Roberto Perez-Franc 21 Questions? Larry Lapide, Ph.D. Research Affiliate, MIT-CTL Lecturer, University of Massachusetts Boston 22
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