Confidence is returning to Europe after some heavy cost-cutting by businesses to assuage the effects of the global economic storm. The Asia-Pacific region, however, remained relatively buoyant as emerging markets continued their progress. Manhattan Associates’ managing directors of France, Central Europe and the company’s SVP, Asia-Pacific outlines the supply chain investment patterns that have emerged over the last 18 months.
Over the past 18 months businesses across the globe have experienced the toughest market conditions in recent memory. There may still be rough weather ahead but the global economy seems to be emerging from the eye-of-the-storm. Investment confidence is returning to the supply chain, a trend identified by Gartner’s annual survey of leading supply chain professionals, which found that increased productivity has taken over from cost-cutting as their top priority.
The trend is reflected in the two biggest industries Manhattan Associates serves in Europe: Retail and Logistics Service Providers. “Over the last three years Logistics Service Providers have been carrying out more complex tasks for their customers and there has been a big drive to get equipped with smarter solutions to help carry out these tasks,” says Henri Seroux, managing director of Manhattan Associates France. “However, the economic downturn has had a huge impact on LSPs over the past 18 months because their primary business remains shifting goods from A to B, where revenues and margins have collapsed. So they’ve focussed on cost reduction during this period to adjust to the recession and deferred new investment in those smarter tools. Since the beginning of this year, as those companies have shown in their quarterly financial reports, their core business has recovered and I think that we should see them returning to deliver those more complex and smarter services.”
Many operations in Europe looked to their supply chains for cost reductions and this has often led to leaner supply chain practice. “There has been a significant increase in the attention paid to managing labour more efficiently in warehouse operations,” observes Pieter Van den Broecke, managing director of Manhattan Associates in Central Europe. He adds: “Companies have also become more flexible in how they serve customers in an increasingly competitive world. For many retailers this has meant changing the business model and adding direct to consumer channels, which requires investment in e-commerce processes.”
Supply chains have also had to become more agile. In the downturn many operations that were geared previously to mass production volumes found themselves confronted, not just with smaller volumes of orders, but fewer items in an order. “This has a huge impact on supply chain because it adds complexity,” says Van den Broecke. “As the economy picks up, supply chain agility is required to deal with a sudden surge in demand for a product where large volume production capacity has diminished. In such cases there will be stiff competition to deliver what can be produced and manufacturers and distributors will need decision-making tools to determine priority demands, based on factors such as ‘where is the best margin and who is a strategic customer?’”
Responding to customer and demand volatility was the number one issue driving the focus on Supply Chain Management within the organisations of over half the respondents to SCM World’s 2010 Chief Supply Chain Officer Report. Surveying 400 senior global supply chain and procurement executives, the report also found just under half of themwill increase investment in supply chain related technology this year.
This finding would suggest an increased interest in planning and decision making solutions. During the depths of the slow down it was said that only software that would clearly contribute to reducing inventories and costs was selling, but now investment is starting to spread across the supply chain.
“Where companies were previously focussed on execution they are now looking additionally at the order capture and optimisation workflow so that orders are fulfilled not necessarily using inventory from the most direct and therefore cheapest source but rather by locating inventory in a way which is most optimal for the enterprise and that takes account a number of factors such as least cost, best time, inventory positioning or optimisation of future orders,” says Van den Broecke - adding that companies are seeking the best of both worlds for these solutions: best-of-breed components that can integrate well together. “The situation over the last 18 months has helped best-of-breed providers, as for the last 25 years ERP systems have been at the forefront of IT investments, using integrated information to solve all problems. Yet they are not geared to the complexities of dealing with inventory today and many major companies are looking at stripping down ERP infrastructure to its backbone and adding more agile, integrated supply chain solutions.”
Reduced consumer demand over the last 18 months has also impacted upon global sourcing. Suddenly faced with less need to bring goods into Europe from the Far East, freight companies reduced their capacities and increased the cost for transporting goods. This led to a change in the balance between near sourcing and far sourcing. For example, a European customer of Manhattan Associates in the apparel sector manufactures 80 per cent of its range itself, in North Africa, and sources 20 per cent from the Far East. With a reduced challenge of sourcing from the Far East the business has flourished over the last year and a half.
“This doesn’t stop far sourcing being an attractive option from a supply chain perspective,” says Van den Broecke, “but it is important to gain control over its costs and operations - so companies have been investing in more control and visibility to improve their efficiency when it comes to global sourcing.”
This realignment of sourcing strategy, along with reduced European and US consumption, has resulted in the Asia Pacific region feeling generally less impact from the global economic storm. China, of course, is the region’s wind block having just overtaken Japan as the world’s number two economy and the growth of its consumer market appears unstoppable.
It’s been a good year for most emerging markets, such as India, Indonesia and China. Despite a hold on many new projects due to the global financial crisis, companies have been pushing ahead with existing projects, mostly in FMCG, healthcare and grocery retail. So apart from Japan, and to some extent New Zealand, the wider Asia Pacific area has remained relatively buoyant. Australia avoided recessionary waters, not just because of the ‘China effect’ but also because its banks were strong and it had zero government debt.
Jeff Baum, SVP, International (Asia-Pacific) says: “If there was any reaction to the global financial crisis in Australian supply chain management it was with existing customers gaining more from their existing applications through additional features or upgrades.”
Online retail has yet to impact Australia as strongly as it has in Europe, though over the last 18 months the nascent multi-channel sector is starting to emerge as a number of retailers move more positively to establishing online channels.
As Asia Pacific continues to be an attractive investment area, with regional roll-outs by global companies being an ongoing trend, Baum thinks extended enterprise management applications will continue to be a strong trend as customers get their distribution in shape and then take the next step, which is to provide real-time visibility across their distribution network with proactive alerting and execution functionality to add value through the supply chain.
“Organisations are taking a more holistic approach, looking beyond an initial point solution,” says Baum. “They may only buy one solution now but are looking over time to have integrated solutions. So there is a strong trend to buy the core application, whether it’s WMS or TMS, including powerful analytics capabilities and then looking towards extended enterprise management - which allows capabilities such as supplier enablement, drop shipping, visibility of imports and use of hub management - and score cards, which can drive better performance through tracking key performance indicators.”
The fundamentals of good supply chain practice are the same across the globe. Having weathered the global economic storm by cutting costs and becoming lean, those businesses that have acquired the tools to achieve visibility and agility are in a strong position to concentrate on growth and importantly, to sustain that growth.