Demand and supply ‘pods’ the future of global supply chains

Paul Snell is managing editor at Supply Management
19 December 2014

The rush to Asia for low cost country sourcing has come to an end research by the Global Supply Chain Institute at the University of Tennessee has claimed.

A study into global supply chains found many organisations “failed to do their homework” before sourcing from low cost markets by focusing on short-term cost reduction without considering the total cost of ownership of factors such as lead time, quality and additional risk, and so did not make the savings they anticipated.

“Going global increases cost, complexity, and risk, and managing these three aspects simultaneously can be extremely challenging,” the report said.

Instead, the report predicted a future where global supply chains break into a series of demand and supply ‘pods’ “where regional procurement and manufacturing operations will supply the major demand centres of the area, at least for a significant percentage of production”.

The authors have developed a tool called the EPIC Framework to evaluate global regions. This assess the reasons for supply chain readiness from an economic, political, infrastructural and competence point of view. The study examined 55 countries in 10 regions in the four areas giving them a grade for each between A and D for each aspect, and an overall rating.

Hong Kong was the only country to receive an A, with Singapore, Germany, the Netherlands, Sweden, the UK, the US and Canada receiving an A-. Democratic Republic of Congo and Sudan received a D, with a D+ for Myanmar, Angola, and Venezuela.

“Countless factors can harm performance when supply chains are stretched across the globe. The most successful companies evaluate the local variables before jumping into a global supply chain and design a dynamic network less vulnerable to the pitfalls of modern globalization,” said Ted Stank, Bruce chair of excellence at the University of Tennessee and one of the co-authors of the study.

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