Future Global Supply Chain Logistics:

Future Global

Supply Chain Logistics:

Coming Back Closer to Home as a Consequence of Rising

Energy Cost?

© FIR 2010

2010 EARTO Annual Conference

Gothenburg, 20th May 2010

Profile of FIR

Application-oriented research to explore the „company of the future“

Director

Prof. Dr. Günther Schuh

Managing Director

Dr.-Ing. Volker Stich

Production Management

Supply Chain Design
Order Management

© FIR 2010

Information management

Information Logistics

Information Technology Management

Service Management
Service Engineering
Lean Services
Community Management
Order Management
Logistic Management

Founded in 1953 as an „at-Institute“ of the RWTH Aachen
Research oriented applications with development and

application of methods and tools
160 employees

app. 40 projects funded by public authority per year

app. 60 consulting projects with industrial clients per year

Agenda

Future consequences for supply chains

„Coming back closer to home as a consequence of

rising energy cost?“

Fundamental changes in the environment of supply chains

© FIR 2010

Future consequences for supply chains

Wrap Up

„Coming back closer to home...?“

Manufacturing companies evaluate the effect of their offshoring activities of the last 5 years differently

Source: Fraunhofer ISI 2008 N = 400 8 14 11 18 31 0 1 4 5 9

Medical, Sensorical, Optical technologies Paper and Printing Industry Chemical Industry Rubber and plastic processing Automotive

% of companies with offshored functions

% of companies reversing the offshoring within 5 years

 Manufacturing companies still show a strong activity concerning

offshoring activities Examples in public discussion

© FIR 2010

offshoring activities

 Some branches give examples of reversed decisions (e.g.

automotive), which is not the fact across all branches (e.g. paper and printing vs. automotive)

 Overall, there is only a slight tendency to reverse offshoring

decisions

Manufacturing companies mainly show activities of

„leaving home“, buffered by some examples of „coming closer back home“

„Varta as a pioneer in insourcing“ 1

Sources: 1 _{Die Zeit, 2005} 2_{USA Today, 2008}

„Steiff – German teddy bear firm brings production back from China“ 2

„...as a consequence of rising energy costs?“

Fossil fuel resources are scarce and show a future price increase between 60 and 150 $/Barrel

Source: Bundesministerium für Wirtschaft und Technologie, Energiedaten, 2009

Supply chain design is merely affected by oil price changes in the range between 60 and 150 $/Barrel

0 20 40 60 80 100 120 140 160 180 200 9,5 9,0 8,5 8,0 7,5 7,0 6,5 6,0 10,0 0,0 Retail Industry N u m b e r o f lo c a l r e p re s a n ta ti o n s US $ / Barrel Crude Oil

Source: 4 Flow, Logistics Study 2010

© FIR 2010

Source: 4 Flow, Logistics Study 2010

Decisions in supply chain design happen not only due to energy costs but as a consequence of a variety of factors.

Ratio of product cost, logistic cost and energy cost

Total product cost (100%)

logistics cost (12%)

energy related (4%)

Agenda

Future consequences for supply chains

„

Coming back closer to home as a consequence of

rising energy cost?“

Fundamental changes in the environment of supply chains

© FIR 2010

Future consequences for supply chains

Wrap Up

 Globalization

– New markets and shift in economic balances (BRIC-countries)

 Information revolution through new technologies – New technologies like RFID enable a higher

information transparency

 Ecology

– Climate change and limited availability of

Megatrends like globalization, sustainability, demographic change processes

and regulatory requirements will have an influence on the future supply chain

Globalization Ecology New

Technologies

Future influencing factors on supply chains Explanation of the influencing factors

© FIR 2010

– Climate change and limited availability of ressources

 Demographic change processes

– Aging population in western countries as well as the urbanization tendency

 Regulatory requirements

– Compulsory requirements for companies, e.g. carbon footprint

Source: GCI / Capgemini 2008

Regulatory Requirements

Demographic Change Processes

The globalization activities seem to focus China and India

In 2010 inteded global investments seperated by regions

© FIR 2010

 The shifting of production and assembly to BRIC countries currently increases

 China outperforms all other countries and pockets one-third of the worlwide investments:

– Low labor and production costs – Increasing consumer market

 India reaches a high momentum as an investment region for IT and R&D

 Eastern Europe positioned itself as a top outsourcing region

The future real-time information availability in supply chains is a

key factor for dealing with increasing dynamics

S E Pu Pr A

6

4

Status quo of information processing

 Heterogeneous system landscape and data

management, integration through numerous interfaces with high maintanance

 No company-wide system integration (e.g.

ordering per fax)

 Hindered information exchange because of

too many different data standards (EDIFACT, Odette etc.)

 Fixed and static planning of current IT

systems (MRP II) 1 2 3 4 China USA Germany India South America © FIR 2010

The planning and control of logistic networks is subjected to dynamic conditions which is buffered by inventory and

capacities today. S E Pu Pr A S E Pu Pr A S E Pu Pr A S E Pu Pr A 2 5 3 1 systems (MRP II)

 No real time capture of order entries (e.g.

only rare feedback per day)

 Application of RFID labels only for component

identification without control function

5

6

As a consequence of limited resources and climate change

sustainability will be on the agenda for companies in the future

 Today: unlimited, cheap energy and raw materials

 Tomorrow: limited, expensive energy and raw materials

 Consequence: cost efficiency is only reachable through sustainable product design and a

„Green Supply Chain“ The focus to increase sustainability differs by region

static range in years

gold strontium chromium tin silver copper barium crude oil lead zinc mercury

Source: WI/MaRess, 2009, BMWi 2006 Not only crude oil but also other resources will be limited in the foreseeable future

© FIR 2010

 The governmental influence and / or social

cultural incentives for sustainability in supply chains are less encouraging in North America.

 The disregard of sustainability might lead in the long-run to a worse performance in terms of customer and regulatory requirements.

Source: IBM 2009

Warehouse/DC selection

Supplier selection

Low carbon distribution design Outsourcing selection Transportation selection Strategic plans and initiatives Product Design and Packaging

Manufacturing targets North America Western Europe Asia Pacific

The focus to increase sustainability differs by region

The global population balance will change during the following

50 years even more than during the last 50 years

 Aging society in high wage countries

 Relocation of production sites to world

regions due to a lack of manpower

 Consumer goods industry has to adopt to

changed customer structure in high wage countries

Source: Statistisches Bundesamt, 2004 Demographic change using the example of Germany

© FIR 2010

 Subsidiary, warehouse and production locations as well as logistic concepts have to be

reconsidered in this context

 Intelligent transportation and distribution systems are necessary

Source: United Nations, World Urbanization Prospects, 2007 Urbanization of world population

64 42 51 17 15 29 79 76 72 41 37 49 87 84 78 54 51 60

Asia Europe Southern America Northern America Africa World 2030 2007 1950

An increase of direct governmental influence through regulatory

requirements is expected

Source: PRTM Management Consultants 13 16 20 24 27 Percentage

Differentiate from competitors Improve company image Increase customer confidence Fulfill customer requirement Achieve regulary compliance

Reasons for focusing sustainable supply chain activities

N = 300

© FIR 2010



Still current formalities have an indirect impact on supply chains

– Ecological formalities (e.g. emission badges, reduction of CO₂ emissions in Germany of 40% by 2020, NO-X ratio of tanker and a car: 1:177 Million)

– Governmental subventions in international trade (e.g. 25 % protective duty on foreign steel in China)



A stronger governmental influence is expected particularly concerning climate change

and the forseeable energy and resource scarcity

Agenda

Future consequences for supply chains

„Coming back closer to home as a consequence of

rising energy cost?“

Fundamental changes in the environment of supply chains

© FIR 2010

Future consequences for supply chains

Consequences of the 5 factors on future supply chains – Example

Consequences of future supply chain development can be shown by regarding Logistic Service Providers (LSP´s)

Logistic Service Providers

Logistics Indicator in Germany

© FIR 2010



LSP´s are „the glue“ of international supply chains



Global economies are linked by their services and exchange of materials and goods

The state of global economy is reflected by the state of LSP´s

Consequences of the 5 factors on Logistic Service Providers (1/2)

Impact of Globalization

 Global Transport routes change with a focus e.g. on pivotal shipping lines, which are used more frequently

 Need for larger ports which can cope with

increasing ship-size

 Logistic Routes can become a bottleneck

element Source: McKinsey, Volatile World 2010

© FIR 2010

Impact of new technologies

 New Technologies enable information transparency

 RFID tags used in air freight

 Real time information about status of

freight

Consequences of the 5 factors on Logistic Service Providers (2/2)

Impact of ecology and regulatory requirements

 Objective of less emissions leads to

necessity for higher transport efficiency

 Stack density in ships and trucks will be

increased

 Route planning will be optimized towards

less emissions

Source: McKinsey, Volatile World 2010

© FIR 2010

Impact of changing demographic processes

 Change in demographic structure rises need for different training methodologies

 Companies need to come up with training methods and suitable tasks for elderly co-workers

 Education at university will be adapted

Agenda

Future consequences for supply chains

„Coming back closer to home as a consequence of

rising energy cost?“

Fundamental changes in the environment of supply chains

© FIR 2010

Future consequences for supply chains

Wrap Up – „Coming back closer to home as a consequene of rising energy

cost?“

Manufacturing companies currently show activities of „leaving home“, buffered by some examples of „coming closer back home“.

Decisions in supply chain design happen not only due to energy cost but as a consequence of a variety of factors.

Future action fields for supply chains

 Deal with logistics as a crucial ressource (e.g. transport routes)  Improve information transparency

© FIR 2010

 Adress emission causes and lower the exhaust-ratio

 Take legal regulations into account (e.g. protective duties)  Focus on employees and their abilities

If european companies shape their supply chains accordingly, „coming back home“ becomes far more probable for many manufacturing firms

Contact

Pontdriesch 14/16

·

Dipl. Wi.-Ing.

Tobias Brosze

Telefon: +49 (0)241 477 05-402

© FIR 2010

Thank you for your attention!