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Assessing
Assessing the drivers of change drivers of change
for cross-border supply chains
Ari-Pekka Hameri
Ecole des Hautes Etudes Commerciales, University of Lausanne, Lausanne, 741
Switzerland, and
Juha Hintsa Received October 2008
Revised September 2009
Cross-Border Research Association, Lausanne, Switzerland Accepted September 2009
Abstract
Purpose – This paper aims to systematically document drivers of change and the implications they
will have on international supply chain management in the coming two decades.
Design/methodology/approach – This study was commissioned by the World Customs
Organization (WCO) at the end of June 2006. Because of increased trade volumes, emerging
complex supply networks and heightened security concerns, the WCO saw the need to assess future
trends and drivers in supply chain management. The Delphi method was applied to identify a set of
foreseeable drivers of change and to assess their predicted impact on global supply chain management
in the coming ten to 20 years. Based on a literature review of 150 recent publications and interviews
among 33 industry, academic and customs experts, a survey was designed and conducted to collect
current and potential change drivers in global supply chains. These drivers were compiled and
prioritized by an eclectic team of 12 specialists.
Findings – The main results of the study are strongly connected to strategic and operational supply
chain planning for the next ten to 20 years. They are related to increased off-shoring of operations
through truly global manufacturing, characterized by its intercontinental supply of materials;
increased product complexity with shorter product life cycles; increased importance of
business-to-government networking for operational and security efficiency; introduction of new
supply chain services integrating financial, physical and information flows leading to further
consolidation in the logistics markets; and the overall increase in risks and vulnerabilities in
international supply chains.
Originality/value – This paper provides a 360 degree view of the future of international supply
chain management and the challenges companies will face to compete in the twenty-first century
business environment.
Keywords Supply chain management, Delphi method, Globalization, Outsourcing, Change management
Paper type Research paper
Introduction
Global trade has reached new heights as much merchandise is sourced, refined and
distributed on an unprecedented scale (see Table I). This development means that
global supply chains are playing an ever increasingly crucial role in the
competitiveness of companies and national economies. Double-digit annual growth
International Journal of Physical
Distribution & Logistics Management
The authors would like to thank the World Customs Organization for their financial support, and Vol. 39 No. 9, 2009
for providing the researchers with a unique access to expert and data resources. Without their pp. 741-761
q Emerald Group Publishing Limited
support, this research would not have taken place. The authors also thank the Swiss National 0960-0035
Science Foundation for their financial support in this research program. DOI 10.1108/09600030911008184
IJPDLM
Exports Imports
39,9 Value Annual percent change Value Annual percent change
2004 2000-2004 2003 2004 2004 2000-2004 2003 2004
in trade across continents has put pressure not only on companies, but also on
regulatory bodies controlling and monitoring international trade flows. This
phenomenal growth sets the pretext for this article. It is time to evaluate the mega
trends and change drivers that are reshaping the current and future business
environment around global supply chains and the numerous different operators
involved.
In today’s global setting, supply chain management includes all movement and
storage of raw materials, work-in-process inventory, and finished goods from
point-of-origin to point-of-consumption. It is commonly quoted (CEMT, 2004) that for
every international end-to-end transaction there are up to 25 to 30 distinct business and
governmental actors directly involved in the transaction. This chain of interoperational
entities includes exporters, importers, freight forwarders, carriers, customs brokers,
inspection companies, insurance companies, banks, customs administrations, etc. In
general the parties involved are primary customers, i.e. sellers and buyers, transaction
facilitators, physical transportation companies, authorities and regulatory entities and,
finally, financial and insurance institutions.
Traditional supply chains have also turned into supplier networks, which are
clustered around certain technologies and services, i.e. channels. Boundaries between
companies are becoming transparent and the focus is on the management of strictly
defined interfaces, while new networking technologies make it easier for supplier
networks to continuously evolve. Numerous researchers (Ashkenas et al., 1995; Choi
et al., 2001; Frohlich and Westbrook, 2002; Chung et al., 2004) have come to the
conclusion that supply networks can enhance their performance through the
consolidation of the supplier base, can streamline the chain by removing unnecessary
steps, can speed up information flow by increasing information transparency in the
supply network and by establishing long-term partnerships with major suppliers. The
main development trends currently taking place in networked supply chain structures Assessing
are (Schilling, 2000; Williams et al., 2002; Garavelli, 2003; Hameri and Paatela, 2005): drivers of change
.
Industries are increasingly structured into supplier networks and products are
delivered through internationally networked operations. Traditional integrated
production units have been broken down into company networks, where
individual operators specialize in given value adding operations. Supplier
companies often serve more than one value network. 743
.
Supplier networks are continuously evolving through contraction and
expansion. The trend towards increasingly focused value adding operations
have led to highly specialized and larger networks.
.
Supplier networks with highly specialized and cost effective units create
business opportunities for companies with superior operational concepts
through the integration of distributed operations. These supplier networks
evolve through contraction.
Modern, global supply networks combine all three of these trends as they extend across
continents, host numerous different economic operators and supply the world with goods
and services in ever increasing volumes. This paper sets out to study the way in which
global supply chains will evolve as well as the roles that regulations and authorities will
play in the future shaping of the competitive business environment. The paper is
structured as follows. First, the methodology, sample and scope are discussed, followed
by the documentation of the key drivers shaping global supply chain management. The
key supply chain parameters are then detailed. These drivers and supply chain
parameters are further analyzed and the results of a workshop are documented. The data
compilation process is discussed and its results are represented. Conclusions critically
assess the outcome of the Delphi-method and avenues for futher research are provided.
expert panel; the anonymous and discrete argumentation to and among the expert
panel; the creation of meaningful questions and future statements; the structured and
systematic evaluation of these statements.
The broad scope of the study concerned global supply chain management and the
driving forces behind its evolution for the coming decades. This being a very broad
scope for the study, some limitations were integrated. The following issues were left
out of the research scope:
.
Macroeconomics: this study is essentially about international trade and supply
chain structures and operations, not about macroeconomic models, forecasts, etc.
. Small and medium sized enterprises (SMEs): this study does not focus on specific
challenges and issues SMEs face in international supply chains. However, many of
the study findings and conclusions also apply to SMEs, and they can benefit from
the study by improving their long-term product/service and supply chain planning
to better match the environment and needs in their own market segments.
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746
Table III.
IJPDLM
Change drivers
Among the main driving forces was continuing globalization in trade and supply
chains, in terms of global markets, global products, and global manufacturing
(Mattsson, 2003; Ghemawat, 2007). Despite being a mega-trend, factors, which could
lead to more regional and even local trade and supply chains, should be explored in
future (Crone and Roper, 2001). Issues leading the development in this direction were
related to higher energy prices, tighter security, diversified consumer demands etc.
(Choi and Krause, 2006). Globalization is an ever-present phenomenon. However local,
environmentally friendly and efficient supply chains will maintain their vital role in
local economies even though driving forces may be shaped by forces other than those
that are purely market defined (Linton et al., 2007; Vachon and Klassen, 2006).
Fundamentally, the customer will maintain the leading edge. It is the development of
values among end-customers which will direct consumption and those companies that
best comply with these trends will be the future winners (Sridharan et al., 2005).
The quest for lower cost sourcing, manufacturing, logistics and other operations, i.e.
the aim to reach the required performance, quality and/or service levels at the lowest
possible cost, will continue in the future (Quin, 1999). To accomplish higher profits
through lower costs and/or higher revenues remains to be one of the competitive
strategies of manufacturing companies (Ülkü et al., 2005). The former logic of
economies of scale and low cost will prevail, although agile and innovative companies
will maintain their role in global economies. The more complex and knowledge
intensive the products, the more room the company has to maneuver in sourcing.
However, once the originally innovative products become commodities, the scale and
cost based competition, be it energy, raw material or labor cost driven, will affect
global sourcing decisions (Hoecht and Trott, 2006). By so doing, companies need to
maintain high profiles and standards, thus good corporate citizenship is seen to play an
ever increasingly significant part in future image building and competitiveness.
The skills needed to run the global supply chains of the future will require more
diverse skills than existing ones. Supply chain management functions are likely to by
IJPDLM higher priority in corporate hierarchy and more measures will be required to train
39,9 supply chain experts, both at strategic and operational levels (Giunipero et al., 2006).
Globally operating companies will especially need to complement their current supply
chain organizations with skills related to regulatory and security expertise to better
face future challenges stemming from global sourcing and increased trade volumes
(Sheu et al., 2006).
748 Collaboration and networking between all business and governmental actors in
international supply chains was seen to be a key success factor for future supply
chains. Automated data collection, managing information in complex networks,
providing parallel data transparency and data security, amongst others, will be the
basic requirements for efficient collaboration and networking (Bailey and Francis,
2008). In particular, better relationship management between trade and customs was
seen as a key priority for the future (Verwaal and Donkers, 2003; van Hoek, 2002). This
can be achieved by further streamlining customs operations and trade-customs
interfacing. Understanding the supply chain as a value chain must be extended to the
regulatory bodies. As in today’s advanced supply chains, controls and data
transparency extends across organizational boundaries. In the future, this
development has to include regulatory bodies and customs. Collaboration with
regulators and governments also entails global and corporate level tax planning, which
may also affect the shaping of future supply chains.
In relation to networking, several supply chain actors appear to have the potential to
increase their service offerings in future supply chains. This would especially concern
logistics service providers (LSPs), technology service providers and financial
institutions (Mason et al., 2007). Following the overall outsourcing trend, where the
focus is on core competences and the need for “trusted third parties” in international
supply chains, these players have to be integrated into the supply and delivery flows of
the global trade. Innovative service providers will play a role in efficient and global
supply chains.
In addition to these main themes, multiple external phenomena and factors will keep
on driving changes in international supply chains, e.g. several force majeure issues
were noted, such as natural disasters, epidemics, terrorist attacks, etc. Following the
previously described research procedure and the interview transcript analysis, which
was submitted to interviewees for verification, a detailed list of 14 change drivers was
finally established in a non-prioritized order:
(1) Business ethics, good corporate citizenship: transparency and regulatory
compliance will have ever increasing role in successful operating models for the
global companies of the future.
(2) Customs regulations compliance: interfaces between different supply chain
players and customs administrations are to improve as supply chains become
ever more complex and global.
(3) Consumer demands and wishes: consumer finances and will finance future
suppliers that can best meet their expectations, be it cost, quality and value wise
satisfaction.
(4) Corporate taxation schemes: the parameters related to taxation in various
countries continue to impact component sourcing, factory location and
geography related decisions.
(5) Energy concerns: the beginning of the new millennium has already indicated Assessing
that energy sources and prices strongly affect the performance of global supply drivers of change
and delivery processes.
(6) Environmental concerns and regulations: Environmental issues with emission
quotas will reshape both how supply chains are structured and how companies
will seek energy efficient manufacturing and transportation solutions.
(7) Global pandemics and natural hazards: potentially devastating pandemics such 749
as avian flu and earthquakes are threats, which have to be considered when
planning supply chain structures and contingencies in the future.
(8) Information and data management complexities: the apparent increase in
supply chain network complexity will challenge information management on a
global scale with many players involved.
(9) Internet and e-commerce technologies: timely and correct information on
operations continues to be the key to efficient supply chain operations, this
means that Internet related services and trading platforms will have an ever
increasing role in coming decades.
(10) Manufacturing and low cost labor: manufacturing companies continue to be
driven by scale and lower cost, which continues to change the supply chain
structures and makes supply chain management all the more challenging.
(11) New technologies for physical operations: various technological means to track,
detect and control global material flows will develop further and their
application will become commonplace.
(12) Raw material concerns: continued global growth has led to a surge in raw
material prices and companies exploring and refining natural resources will
play a more important role in the global economy.
(13) Security concerns and regulations: security issues have gained significant
momentum since the events of 9/11. This trend will continue into the future and
complementary and dedicated regulatory, (in)voluntary, programs to improve
global security will shape the global business environment.
(14) Technical trade barriers: governments and economic areas may have increasing
incentives to regulate local and/or regional trade in order to control the impact
of globalization.
The average airport capacity decreasing (via most negative consensus score)
The straightforward assumption here is that increasing energy prices, mainly oil prices,
will decrease the competitiveness of air cargo in the future. This goes hand in hand with
the following three supply chain parameters (with their negative versions): air freight
loosing market share in international transportation (over other transport modes); air
carriers not increasing total capacity; and total airport capacity not increasing. As one of
the transportation consultants said, “air freight is only a fraction of the overall global
freight volumes, yet it corresponds to one third of the value. This means that in the
coming decade, air freight will focus even more on higher value freight.” This could also
lead to other transport modes (mainly sea) winning market share from air transport, and
also to more regional supply chain structures where transportation costs play less a role
in the total supply chain costs. On the other hand, airfreight has many obvious benefits
over other transport modes: speed, shipment protection etc. Therefore, it is difficult to
foresee that it should become non-negligible. Finally, major breakthrough innovations in
energy technologies and/or aircraft technologies could in fact completely change the
situation in favor of more airfreight, over the long-term.
Total trade value increasing and share of international trade of total trade increasing
There appears to be a basic consensus amongst the experts that both the total trade value
and the share of international trade will continue to increase in the future, following the
IJPDLM
Supply chain system – parameters A B C D E F G H I J K
39,9
The average capacity on airports
increasing 25 25
Air freight gaining market share in
international transportation (over
754 other transport modes) 24 24
Share of international trade of total
trade increasing 27 8 25 24
Air carriers increasing their total
capacity 24 24
The total capacity on airports
increasing 24 24
Total trade value increasing (including
national, regional and global trade) 27 10 25 22
Rules of origin and preferential
treatment rules gaining more priority
with industries 8 8
Companies investing more in security
measures to protect against
international crime 8 8
International trade, logistics and
customs data standards increasing
their role 8 8
More consumption (per capita) coming
from developing countries 8 8
Raw materials, components and semi-
finished goods sourced from more
countries 9 9
Supply chain security partnership
schemes between trade and customs
improving 10 10
Product variety increasing (more
functionalities, versions, revisions, etc.
per product) 11 11
New product introductions happening
more frequently (product life-cycles
shortening) 12 12
Paperless trade, logistics and customs
will be achieved 8 11 19
Supply chain security technologies
(protect, prevent, detect, track)
becoming mainstream 9 12 21
Good corporate citizenship,
transparency, business ethics, and
high compliance increasing 12 8 10 30
Grand total 20 21 8 217 8 214 46 9 40 210 121
Key: A ¼ Business ethics, good corporate citizenship; B ¼ Consumer demands and wishes;
Table V. C ¼ Customs regulations compliance; D ¼ Energy concerns: availability and prices;
Change driver – supply E ¼ Environmental concerns and regulations; F ¼ Global pandemics, including avian flu;
chain parameter G ¼ Internet and e-Commerce technologies; H ¼ Raw material concerns: availability and prices;
consensus matrix I ¼ Security concerns and regulations; J ¼ Technical trade barriers; K ¼ Grand total
long-term historical path. One of the government representatives confirmed this by Assessing
stating that “trade volumes have been going up constantly, even during periods of
recession. There are no foreseen obstacles to hinder this fundamental development”. The
drivers of change
single most important change driver for the positive growth trend was identified as the
Internet and e-Commerce. These have certainly already made an impressive contribution
in global trade growth, such as trading mechanisms, information sharing platforms etc.
At the same time, the experts saw that two specific change drivers could slow down both 755
international and total trade, namely global pandemics and technical trade barriers. “The
SARS epidemic showed the paralyzing effect to local trade, yet the recovery from it was
relatively fast. Had this been a global outbreak, the implications would have been very
serious for global trade”, commented the logistics expert. One could argue here that these
two change drivers are likely to hit international trade first just as technical trade barriers
are doing so to some extent today. Slowing down local/regional trade would then imply a
decrease in total consumption figures, which is also foreseeable.