The Global Trends driving Supply Chains

INTRODUCTION

This article discusses the top trends taking place globally which will continue to have a bearing on the Supply Chain Industry over the coming decades. These trends are interlinked. They are driving and in turn, driven by each other. These can be categorized as -

ECONOMIC

· Circular Economy

A typical economy consists of taking raw materials, making products and then discarding or destroying the product after it has outlived its use thereby polluting the environment. A good example of this pollution is the great garbage patch swirling in the Pacific Ocean which is now three times the size of France. The ‘Circular Economy’ in contrast will reuse, remake and recycle. Manufacturing & Product Design will also tend to shift towards making products which are amenable to recycling. This will give rise to the ‘Circular’ supply chains which will evolve to capitalize on the opportunity afforded by this paradigm shift. Moreover, the supply chain may end up becoming more like a supply ‘web’ as the network tries to squeeze greater value from the transactions.

 · Industry 4.0

We are at the threshold of the 4th Industrial revolution. The First industrial revolution was caused by the invention of the steam engine. It replaced production by hands with machines. The second was driven by the availability of electricity and caused rapid industrialization and mass production. The third industrial revolution was driven by electronics and depended upon the computer and automation tools. The fourth industrial revolution is characterized by the onset of cyber-physical systems i.e. physical structures controlled by computer algorithms. A good example of cyber-physical systems is autonomous vehicles. New supply chains form to deliver the existing and yet-to-exist cyber-physical systems to the end customer. Systems and devices such as drones, robots, VR headsets etc. which form the bedrock of Industry 4.0 will create new supply chains. Likewise, exponentially increasing demand for raw materials essential for Industry 4.0 such as Coltan, Lithium and the rare earth elements supply chains will become more extensive.

 · Disruption

Everyone knows the story of Apple v/s Nokia or Netflix v/s BlockBuster. Most companies have an entrenched set of ideas about how their industry operates and this may be akin to blinders. Someone else can come up with a product or service which may cause corporate paralysis because suddenly your assets may become liabilities. The founders of Uber or Air BnB were not from the industry but they came up with a model to remove intermediaries and allocate spare capacities. The pace of disruptions will accelerate in all sectors and industries. In some cases, it will lead to reconfiguration and realignment of supply chains. An example is the Apple ecosystem and supply chain. In other cases, it may lead to the supply chain entirely disappearing. An example is the erstwhile cell phone market leader Nokia which is now bankrupt.

 TECHNOLOGICAL

· Novel manufacturing processes & materials

There are two manufacturing processes which hold immense potential. One is 3-D printing i.e. the process of additive manufacturing using a 3-D printer to produce objects. The other is Nanotechnology which is the science of building materials and machines at the atomic or molecular scale. These new technologies will transform the core manufacturing sector. Imagine a fuel nozzle for an engine used in aviation. Instead of the product being shipped across continents, the nozzle manufacturer installs a 3D printer at the customer site and production takes place in situ. If this scenario is played out across major manufacturing industries throughout the world, the tide may turn against global outsourcing. Besides the disintermediation and labor substitution, existing supply chains will be widely disrupted. On the other hand, newer supply chains will be created to cater the makers and customers of 3-D printers and nanotechnology.

 · Digitization

The tsunami of digitization will touch every industry and it will radically affect the way supply chains operate and exist. Portable / wearable smart devices, IoT, big data, virtual / augmented reality, quantum computing, cloud, autonomous vehicles, automatons, Blockchain etc. will create new opportunities and threats. An earlier article delves into how the Digitization will specifically affect the shipping / logistics industry.

 · Convergence and Intersection / Overlap

The increased convergence, intersection and overlapping of many technologies and disciplines will create industries and companies where none existed. An example of convergence is the smartphone which is a device which combines the phone, camera and GPS device. An example of Intersection / Overlap would be autonomous robots performing surgery without the need for a surgeon. In this case, autonomous robots, AI, medicine will overlap to form a new industry. The rise of new industries and sector will mean new supply chains.

SOCIETAL

· Demographics

Global demographic trends indicate that the global population of 7.6 billion will touch 8.5, 9.7 and 11.1 billion in 2030, 2050 and 2100 respectively. By the year 2100, the population of Africa is expected to jump 4 times! Currently, Asia and Africa account for 60 % and 17% of the world’s population but in 2100 these figures will be 43% and 40%. Besides this, the percentage of people aged 60 years or older has been increasing. By 2050 there will be more people aged 60 years than adolescents and youth aged 10-24. (2.1 billion versus 2.0 billion). Japan and some West European countries already have people with 60+ years at close to 30 %. The impact on supply chains due to these factors will be huge. As populations age, the requirements for products and services will change. The nations with high silver populations may need more walking sticks instead of skis. Likewise, the companies in Africa with well-established logistics infrastructure will reap the rewards of increased demand for goods and services. Increased urbanization too is leading companies to set up warehousing facilities nearer to cities to cope with Last Mile Delivery.

· Diversity & Gender

Before the advent of Starbucks in the USA, coffee shops would hand out two kinds of coffee – regular and decaffeinated. With the arrival of Starbucks, one can order mind-numbing varieties of coffee. Something similar is going on in societies around us and this is especially so in urban, developed nations. Globally homogenous populations are turning into heterogeneous populations. Likewise, the percentage of women in boardrooms, factory floors, etc. in every conceivable industry is increasing. Such inclusions, inevitably lead to new tastes and trends in food and fashion and additional spending power. These will become the new drivers of demand causing changes in the supply chain for products catering to these groups and to women.

 · Corporate social responsibility

Corporate social responsibility (CSR) is defined as adherence to ethical and environmental standards. These standards could be legal or they could be self-imposed. In other words, it is the ‘inner voice’ of the company. It may be driven by the company’s stakeholders or senior management or the employees. In the age of social networking, even the public at large may dictate the CSR. CSR applied to Supply Chains, becomes Supply Chain Social Responsibility (SCSR). For example, SCSR dictates that the organization will not procure products from companies which have child labor or countries which have dodgy human rights records. This means newer trade routes or sources would be found for existing products or services from ethical suppliers.

GEO-POLITICAL

· Global Turmoil

Global flashpoints, trade wars, and embargoes can drag the global economy south. The jostling between the US, China and Russia will have an immense impact on the economies of the world. If the competition is positive, it can benefit global trade. For e.g. China building the OBOR to reach new markets and tightly link the economies of the other countries with itself will also spur global economic growth and lead to extensive supply chain connections within Eurasia and Africa .

· Climate change

Climate change is spurring countries to adopt policies which will make their economies carbon neutral. This is causing companies and industries to roll up their sleeves and do their bit for the planet. The global shipping industry has recently to reduce emissions by 50% by 2050 compared to 2008 levels. This is significant because the shipping industry generates the same amount of greenhouse gases as Germany. Ships are also turning to LNG instead of regular fuel in order to lower emissions. Linked with the battle for climate change are additional trends such as vegetarianism which seeks to reduce dependency on meat due to environmental (and ethical) reasons. This may have the effect of reducing the meat supply chains and boost soya bean supply chains.

· Renewable Energy

Countries are gradually shifting from non-renewable sources of energy to renewable. Over half of Sweden’s energy is provided by renewable sources. The EU is targeting to reach 20% of its energy from renewable sources in 2020 with the number rising to 27% in 2030. What is true for countries will be true for companies as well. Countries will implement policies to wean away industries from fossil-fuel based energy sources & company strategy will have to be in lock step with this. This will mean that the supply chains which exist for supporting the non-renewable energy industry will gradually change to those supporting renewable energy sources. The trend of the increased use of electric cars will greatly affect manufacturers of automobiles and auto-ancillaries. Electric cars will lead to the reduced manufacture of IC engines and increased manufacture of fuel cells and induction motors leading to the replacement of one supply chain with another. It will also disrupt existing petrol (gasoline) supply chains.

 INDIVIDUAL

· Human 2.0

The neocortex is the newest part of the brain and useful for executive decisions such as planning, decision making etc. The neocortex is what distinguishes humans from the rest of the animal kingdom. Smartphones now serve as an extension of the neocortex. Watch any teenager and one cannot help thinking that the smartphone is a part of the body. The location and size of the computer have been varying for the past few decades. They have gone from being as big as cars to the size of the palm of the hand and are getting smaller. Location-wise, they used to need their own special rooms and now we carry them with us. Soon they may as well be embedded in our bodies. We already have pacemakers to help the heart so why not devices to help the brain. Scientists are already working on brain-computer interfaces and have succeeded in uploading memories to brains. It is foreseeable in the future that we can place orders for products or services by thoughts. Increasing reliance on non-biological add-ons to augment human cognition and capabilities will create supply chains which did not exist in the past. Thanks to biomechatronics, one of the first areas which will take off will be bionic orthoses (designed to support a body part) and prostheses (designed to replace a missing body part). This will give rise to new supply chains.  

 · Identity

Identity has always played an important role in human life. In today’s world, individualism is increasingly asserted. One need not conform to stereotypes. Earlier, the overarching identity was one based on blood, religion or nationhood. This may be changing into transnational tribes with shared interests. This necessitates social interaction on the web through the creation of a digital identity. A plethora of social networking sites leads to multiple digital identities covering every aspect of our lives can then connect us. Data harvesting has already begun but in the future, harvesters may be able to build profiles of not just age, interests and so on but also the kind of clothes being worn, the body type and size etc. from photographs available on the internet. This will lead to increased mass personalization and customization of products and services. In turn, manufacturing will have to evolve to become even more agile. Supply chains will have to follow suit and tools such as Virtual supply chains will become essential. 

Conclusion

Although the future is like an uncharted ocean, it is important to understand the turbulence ahead so that it can be navigated with ease. Companies will have to dovetail their strategy to be in sync to swim with these trends.