Global supply patterns have changed dramatically since the beginning of the 20th century— not just once but several times—and they will continue to change over time.
Global supply patterns have changed dramatically since the beginning of the 20th century— not just once but several times—and they will continue to change over time. Whenever shifts in production and consumption occur, new winners and losers emerge. This dynamic has a direct effect not only at a country or regional level but also at the supply chain and individual company level. Supply chain managers, therefore, can benefit from a basic understanding of some of these shifts and their consequences.
Changing production patterns
In the past, less developed countries with low production costs produced the raw input materials, while capital-intensive countries would design, produce, and consume the finished goods. During the course of the 20th century, however, a new paradigm for goods production emerged. Trade patterns reflected the comparative advantages that arose from supply chains that extended to less developed countries. They also came to feature multilateral exchanges of finished consumer goods among advanced economies. For example, Germany both exported and imported beer. This is partly related to the fact that consumers in modern capitalist societies developed a preference for variety; satisfying that demand required more intragroup trade in parallel with the outsourcing of production to markets with lower production costs.
The international trade picture, then, could be characterized as raw materials from less developed countries flowing to industrial countries in a traditional, linear supply chain, with a considerable volume of similar finished and capital goods trading between industrial countries. Despite this paradigm shift, the ability to add value at lower production costs (i.e., comparative advantage) remained an essential determinant of international trade flows.
Eventually, manufacturers came to realize that by locating production or assembly plants within the consuming countries, they could reduce distribution costs and offer lower prices to end consumers. For example, a U.S.-owned soft drink plant in a Latin American country would produce soft drinks for local consumption, thereby substantially reducing logistics and transportation costs. This shift is not limited to low-cost countries. In the United States, for instance, a Toyota plant in Mississippi or a Mercedes plant in Alabama imports some parts from Japan or Germany but assembles the automobiles themselves in close proximity to the consuming market.
After the end of the Cold War, trade flows and the integration of global markets have increased at a rapid pace, while transportation costs have fallen. More countries have opened their borders to free trade or have liberalized trade in some way. Landmark developments include China's entry into the World Trade Organization (WTO) and a swing by India and many other developing countries away from anti-trade and anti-market policies. These developments caused the economic paradigm for goods production to change once again.
Now many North American and European companies locate production and assembly facilities in countries like China, where input costs are lower. The finished goods are subsequently imported by the North American or European company, so that the final sales proceeds stay with the parent company, in the home country, or both. Economic activities in this new supply chain paradigm mean that the value added to a product, the productivity level, and the costs for many products are lowest at the production level and highest at the design and distribution levels. A visual depiction of this phenomenon shows a "smiley curve" (see Figure 1).
Weaving a supply web
During the last two decades, there has been a consistent flow of low-skill and low-value-added jobs from developed economies to emerging economies that have a comparative advantage in less capital-intensive industries. This phenomenon has had an important, transformational impact on global supply chain dynamics: the metaphor of a linear supply chain, with product moving chronologically through the stages of supply, production, and distribution, may be heading toward obsolescence. Instead, today's global supply chain is increasingly looking and acting like a global supply web. The concept of a series of interconnecting links, from the input link (supplier) to the output link (distribution) has given way to a network pattern involving myriad suppliers, producers, and distributors cascading across international boundaries.
With companies scattering production around the globe and conducting economic activities in multiple countries, tracing the flows and interconnections of the global supply web has become an almost impossible task. It's not uncommon to see a pattern like this: Low-cost Country A imports raw materials or components from Country B, which has higher production costs. Country A assembles the parts or processes the product. The assembled or processed product is then exported to Country C. Further processing or assembly may then be done in Country C before the finished product is exported back to Country A or to another country altogether.
As that scenario suggests, companies are taking increasing advantage of their ability to fragment the production process by locating design and engineering in one place, parts in another place, and assembly in still another place. China offers a prime example of this new phenomenon. A large volume of raw materials and parts are shipped to China for manufacture or assembly. Once incorporated into a finished product, they are exported to the country of origin or to another country. This strategy has become very common in recent years. Since 2000, the value of Chinese merchandise exports of finished or semi-finished goods processed with imported materials has multiplied by a factor of six. According to manufacturing trade data, it is estimated that more than half of China's total merchandise exports now include imported materials. The total value of those exports in 2010 represents an estimated US $600 billion (on an annual basis).
Another element of Chinese trade patterns worth mentioning is that the gap between the value of merchandise imports and merchandise exports has grown from 15 percent in 1994 to 50 percent in 2010. This is most likely a consequence of increased productivity and a higher value added to Chinese exports since 1994. Increased productivity has allowed Chinese companies to produce more output (and therefore exports) with a given amount of inputs (or imports). At the same time, the improvement in Chinese processing and assembly processes since then is likely to have boosted the value added to the finished products.
Interestingly, production fragmentation is no longer limited to manufactured goods and has also made its way into the information services sector. Many companies now locate call centers, data processing facilities, and research centers in countries where the production costs for those functions are lower.
Shared prosperity
For the time being, advanced economies will continue to focus on the parts of the supply web for which they have a comparative advantage, while low-productioncost countries will concentrate on other segments. But the shape and complexity of the supply web could change over time. As populations in many of the key emerging economies age or attain higher levels of education, the geographical concentration of those nations having comparative advantages will shift, creating new and interesting patterns of international trade.
Regardless of how the lineup of developed and emerging economies changes in the future, the global supply web will connect them in a strong ensemble that is capable of reaping the greatest benefits from free trade. As Nariman Behravesh, IHS's chief economist, writes in his book Spin-Free Economics.
"In war, one country wins and another loses. In globalization, both countries prosper. Power can be gained at someone else's expense, but prosperity can be shared."
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”
Artificial intelligence (AI) tools can help users build “smart and responsive supply chains” by increasing workforce productivity, expanding visibility, accelerating processes, and prioritizing the next best action to drive results, according to business software vendor Oracle.
To help reach that goal, the Texas company last week released software upgrades including user experience (UX) enhancements to its Oracle Fusion Cloud Supply Chain & Manufacturing (SCM) suite.
“Organizations are under pressure to create efficient and resilient supply chains that can quickly adapt to economic conditions, control costs, and protect margins,” Chris Leone, executive vice president, Applications Development, Oracle, said in a release. “The latest enhancements to Oracle Cloud SCM help customers create a smarter, more responsive supply chain by enabling them to optimize planning and execution and improve the speed and accuracy of processes.”
According to Oracle, specific upgrades feature changes to its:
Production Supervisor Workbench, which helps organizations improve manufacturing performance by providing real-time insight into work orders and generative AI-powered shift reporting.
Maintenance Supervisor Workbench, which helps organizations increase productivity and reduce asset downtime by resolving maintenance issues faster.
Order Management Enhancements, which help organizations increase operational performance by enabling users to quickly create and find orders, take actions, and engage customers.
Product Lifecycle Management (PLM) Enhancements, which help organizations accelerate product development and go-to-market by enabling users to quickly find items and configure critical objects and navigation paths to meet business-critical priorities.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
Businesses were preparing to deal with the effects of the latest major storm of the 2024 hurricane season as Francine barreled toward the Gulf Coast Wednesday.
Louisiana was experiencing heavy rain and wind gusts at midday as the storm moved northeast through the Gulf and was expected to pick up speed. The state will bear the brunt of Francine’s wind, rain, and storm damage, according to forecasters at weather service provider AccuWeather.
“AccuWeather meteorologists are projecting a storm surge of 6-10 feet along much of the Louisiana coast with a pocket of 10-15 feet on some of the inland bays in south-central Louisiana,” the company reported in an afternoon update Wednesday.
Businesses and supply chains were prepping for delays and disruptions from the storm earlier this week. Supply chain mapping and monitoring firm Resilinc said the storm will have a “significant impact” on a wide range of industries along the Gulf Coast, including aerospace, life sciences, manufacturing, oil and gas, and high-tech, among others. In a statement, Resilinc said energy companies had evacuated personnel and suspended operations on oil platforms as of Tuesday. In addition, the firm said its proprietary data showed the storm could affect nearly 11,000 manufacturing, warehousing, distribution, fabrication, and testing sites across the region, putting at risk more than 57,000 parts used in everyday items and the manufacture of more than 4,000 products.
Francine, which was expected to make landfall as a category 2 hurricane, according to AccuWeather, follows the devastating effects of two storms earlier this summer: Hurricane Beryl, which hit the Texas coast in July, and Hurricane Debby, which caused $28 billion in damage and economic loss after hitting the Southeast on August 5.
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Supply chain managers at consumer goods manufacturing companies are tasked with meeting mandates from large retailers to implement item-level RFID.
Supply chain managers at consumer goods manufacturing companies are tasked with meeting mandates from large retailers to implement item-level RFID. Initially these requirements applied primarily to apparel manufacturers and brands. Now, realizing the fruits of this first RFID wave, retailers are turning to suppliers to tag more merchandise.
This is one more priority for supply chain leaders, who suddenly have RFID added to their to-do list. How to integrate tagging into automated production lines? How to ensure each tag functions properly after goods are packed, shipped, and shelved? Where to position the RFID tag on the product? All are important questions to be answered in order to implement item-level RFID. The clock is ticking on retail mandates.
Different products, new RFID considerations
Hangtags, the primary form of apparel product identification, present a relatively easy way to attach an RFID tag. Pressure-sensitive labels likewise can carry an RFID inlay. The inlay, consisting of a microchip and antenna, holds the product’s unique identifying information. This tiny device is activated when the RFID reader passes by it. For nonapparel products, in many cases, there is no way to attach a hangtag. Therefore, a pressure-sensitive RFID label often must be put directly on the product. If the product is packaged in a box, the RFID carrier can be attached to or placed inside the box. Either way involves the use of just the right solutions, including the adhesive, shape, dimension, and placement. Moreover, there must be an efficient way to attach the labels to products. This requires process engineering and sometimes capital investment to integrate RFID labeling into highly automated manufacturing lines.
Metals, liquids, and low-surface-energy (LSE) materials pose hurdles for RFID item tagging. Tag and label inlays cannot be read properly through metals and liquids, and the pressure-sensitive labels do not always stick well to product surfaces containing silicone, vinyl, polyethylene, and polystyrene. Very small items are also difficult to tag. Metal paint cans, caulk or paste tubes, lipsticks, and reusable water bottles are just a few products that present RFID tagging challenges.
In other cases, it is not so much the product itself that hinders readability but rather the shipping method. For example, it is relatively straightforward to apply an RFID tag or label to a bag of fertilizer. But the fertilizer bags might be stacked 60 deep on a pallet. The pressure is too much. It damages the inlay, killing the tag’s readability. So, RFID tags, which were perfectly fine coming off the production line, are now dead from the stacking pressure.
Solutions and testing
RFID tagging and labeling programs take time to get right. While some manufacturers can set up a successful process in a few weeks or months, for others it can take six months, nine months, a year or longer. Variables influencing implementation time include capital equipment investments, the product types (for example, are the materials, shapes, or surfaces potentially problematic?), label supplier capacity and capabilities, and third-party testing rounds.
The good news is that best practices are being refined every day to incorporate RFID on difficult-to-tag products. A case in point is finding answers to RFID-inlay readability issues on metal or liquid products. There are ways to attach an RFID label to the product’s lid or cap.
The University of Auburn RFID Lab is the de facto U.S. authority on all things retail RFID. Through its ARC program, the lab works with end users to make sure RFID tags meet or exceed their required performance and quality levels. Walmart, for example, requires its suppliers to source from Auburn RFID Lab’s ARC program-approved inlay companies. “ARC is a test system and database that stores comprehensive performance data of in-development and market available RFID tags,” according to the lab’s website. “ARC has been working with end users to translate RFID use cases into specific levels of performance in the ARC test environment.”
High-quality RFID tags and labels are at the heart of it all. The following are some considerations to keep in mind when choosing an RFID tag and label provider:
What are their quality control and testing capabilities? Can they confirm that every tag is readable? Do they have software to verify that UPC and RFID information match up? Do they possess familiarity with Auburn’s RFID Lab approval process?
What is their capacity? How many thousands or millions of inlays do they create per day? Are there minimum order quantities?
What are their order management and shipping processes like? What is their delivery speed? How easy are they to order from? Where are their print facilities located?
Do they offer customization? Do they possess specialized equipment? Can they die cut irregular shapes, including very small dimensions? Do they possess adhesive expertise and application equipment? Do they have solutions for metal, liquid, and other difficult-to-tag items? Are they able to configure label rolls to work on automatic label dispensers?
It takes trial and error to implement RFID item tagging for nonapparel products. Effective, compliant programs do not manifest overnight. Collaboration with experienced label providers and the Auburn RFID Lab will help manufacturers overcome even the most complex RFID tagging challenges. There will be a roadmap to success, and the results in the form of better inventory visibility, swifter sell-through, and stronger sales will be well worth it.