I thought today that I would take a break from my series of articles on 3PL benefits and trends to discuss some recent trends in the news that will most likely have both short term and far reaching impact on the supply chain. These trends involve increases, increases in the complexity and cost of transportation throughout your extended supply chain, and increases in the labor costs in the off-shore manufacturing supply. Both of these trends, added on to the other costs of manufacturing will, I believe, drive far reaching changes into the extended supply chain. I also believe that these changes will benefit the world economy, maybe not in the near term, but in the long term I believe these changes will deliver major benefits.
So lets discuss first the trends, and then I will get into the repercussions that I see coming about. First is an increase in both the cost and the complexity of the extended transportation supply chain. This is coming together from many points…
First and foremost is the cost of transportation through the extended, world-wide, supply chain. The first, and most obvious point, is the cost of fuel. In the current world political and economic affairs I think its fair to say that the days of cheap fuel are over! Between the mid-east political turmoil, the increases in consumption from the developing nations and the lack of a will in the U.S. to conserve usage we are coming to a point where the increases in fuel costs will continue and not abate. Add to this the discontinuous fluctuations in demand and we come to a point where it will be harder and harder to hedge against the future demands of the extended transportation supply chain.
The second key trend is the increase in labor costs, both from a salary or hourly rate perspective and from a workplace environment and safety perspective. These changes have been a long time in coming about and the pressure has been building from many directions. This too has been a long time coming and we are starting to see some of the results. Foxconn announced increases to the factory workers in China of 16% - 25% and this is on top of the increases they’ve been making over the last year or so. In addition manufacturers are being forced into improving the work environment conditions over the last couple of years from internal labor pressure and also external, world outrage.
These trends are closely related; the labor demands in the developing countries and especially China and India will be driving increases in manufacturing costs. The increased standards of living coming about in the developing nations are driving additional consumption of both fuel and food. These conditions drive increases in fuel costs because of the additional consumption, in addition to reducing the overall level available and dramatically increasing the cost in the developed nations!
These trends are driving impacts to the local economies which then impact the world economy, which will then drive additional and new impacts. The concept of business continuity and disaster recovery takes on additional levels of complexity under these conditions as well.
So, that brings up the question of where do I think these trends are driving the supply chain? How can we forecast the impact of these trends? What can we do to limit or at least acknowledge the impact of these trends?
I will be covering these questions in my next series of articles. I encourage your response to these trends to develop a robust conversation.
Now for the audience participation portion of this program……
How do you feel about the changes I mention above?
What do you feel is the likelihood of these changes coming to fruition?
What additional changes and repercussions do you see as a result of these trends?