Future Global Supply Chain Logistics: Coming Back Closer to Home as a Consequence of Rising Energy Cost? 2010 EARTO Annual Conference Gothenburg, 20th May 2010 Dipl. Wi.-Ing. Tobias Brosze
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 Logistic Management FIR 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 Service Management Service Engineering Lean Services Community Management Information management Information Logistics Information Technology Management
Agenda Coming back closer to home as a consequence of rising energy cost? Fundamental changes in the environment of supply chains 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 Automotive 9 31 Rubber and plastic processing 5 18 N = 400 Chemical Industry Medical, Sensorical, Optical technologies Paper and Printing Industry 0 1 4 8 11 14 % of companies with offshored functions % of companies reversing the offshoring within 5 years Source: Fraunhofer ISI 2008 Manufacturing companies still show a strong activity concerning 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 Examples in public discussion Varta as a pioneer in insourcing 1 Steiff German teddy bear firm brings production back from China 2 Manufacturing companies mainly show activities of leaving home, buffered by some examples of coming closer back home Sources: 1 Die Zeit, 2005 2 USA Today, 2008
...as a consequence of rising energy costs? US $ / Barrel Crude Oil Fossil fuel resources are scarce and show a future price increase between 60 and 150 $/Barrel 160 140 120 100 80 60 40 20 0 92 18 16 94 20 96 Source: Bundesministerium für Wirtschaft und Technologie, Energiedaten, 2009 98 12 28 00 24 02 36 04 61 06 94 08 60 09 Years 2020 150 110 60 Number of local represantations Supply chain design is merely affected by oil price changes in the range between 60 and 150 $/Barrel 10,0 9,5 9,0 8,5 8,0 7,5 7,0 6,5 6,0 Industry Retail 0,0 US $ / Barrel 0 20 40 60 80 100 120 140 160 180 200 Crude Oil Source: 4 Flow, Logistics Study 2010 Ratio of product cost, logistic cost and energy cost logistics cost (12%) energy related (4%) Total product cost (100%) Source: PWC / BME, 2008 Decisions in supply chain design happen not only due to energy costs but as a consequence of a variety of factors.
Agenda Coming back closer to home as a consequence of rising energy cost? Fundamental changes in the environment of supply chains Future consequences for supply chains Wrap Up
Megatrends like globalization, sustainability, demographic change processes and regulatory requirements will have an influence on the future supply chain Future influencing factors on supply chains Explanation of the influencing factors New Technologies Globalization New markets and shift in economic balances (BRIC-countries) Information revolution through new technologies New technologies like RFID enable a higher information transparency Globalization Ecology Ecology Climate change and limited availability of ressources Demographic change processes Aging population in western countries as well as the urbanization tendency Regulatory requirements Regulatory Requirements Demographic Change Processes Compulsory requirements for companies, e.g. carbon footprint Source: GCI / Capgemini 2008
The globalization activities seem to focus China and India In 2010 inteded global investments seperated by regions 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 Source: PRTM Management Consultants 2008
The future real-time information availability in supply chains is a key factor for dealing with increasing dynamics Germany China Status quo of information processing USA South America India 1 Heterogeneous system landscape and data management, integration through numerous interfaces with high maintanance 6 4 2 No company-wide system integration (e.g. ordering per fax) 3 Hindered information exchange because of too many different data standards (EDIFACT, Odette etc.) 1 2 S E Pu Pr A S E Pu Pr A 4 Fixed and static planning of current IT systems (MRP II) 5 No real time capture of order entries (e.g. only rare feedback per day) S E Pu Pr A 3 6 Application of RFID labels only for component identification without control function S E Pu Pr A S E Pu Pr A 5 The planning and control of logistic networks is subjected to dynamic conditions which is buffered by inventory and capacities today. S: Sales; E: Engineering; Pu: Purchasing; : Pr: Production; A: Assembly
As a consequence of limited resources and climate change sustainability will be on the agenda for companies in the future Not only crude oil but also other resources will be limited in the foreseeable future strontium silver gold zinc tin crude oil lead barium chromium copper mercury static range in years The focus to increase sustainability differs by region 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 Source: WI/MaRess, 2009, BMWi 2006 Manufacturing targets Product Design and Packaging Strategic plans and initiatives Transportation selection Outsourcing selection Warehouse/DC selection Low carbon distribution design Supplier selection North America Western Europe Asia Pacific 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. Lower Neutral Higher Source: IBM 2009
The global population balance will change during the following 50 years even more than during the last 50 years Demographic change using the example of Germany 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 Urbanization of world population 29 49 60 15 37 51 17 41 54 51 78 72 42 76 84 64 87 79 1950 2007 2030 Subsidiary, warehouse and production locations as well as logistic concepts have to be reconsidered in this context Intelligent transportation and distribution systems are necessary World Africa Asia Europe Southern America Northern America Source: United Nations, World Urbanization Prospects, 2007
An increase of direct governmental influence through regulatory requirements is expected Reasons for focusing sustainable supply chain activities Percentage Achieve regulary compliance 27 Fulfill customer requirement 24 Increase customer confidence 20 Improve company image 16 Differentiate from competitors 13 N = 300 Source: PRTM Management Consultants Still current formalities have an indirect impact on supply chains Ecological formalities (e.g. emission badges, reduction of CO 2 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 Source: GCI / Capgemini 2008
Agenda Coming back closer to home as a consequence of rising energy cost? Fundamental changes in the environment of supply chains Future consequences for supply chains Wrap Up
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) Logistics Indicator in Germany Logistic Service Providers Source: BVL/DIW, 2009 Current Climate Index Future Expectation 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 Impact of new technologies New Technologies enable information transparency RFID tags used in air freight Real time information about status of freight Source: IBM, Smarter Supply Chain, 2010
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 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 coworkers Education at university will be adapted Source: Deutsche Post, Delivering Tomorrow, 2009
Agenda Coming back closer to home as a consequence of rising energy cost? Fundamental changes in the environment of supply chains Future consequences for supply chains Wrap Up
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 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 52062 Aachen Germany www.fir.rwth-aachen.de Dipl. Wi.-Ing. Tobias Brosze Telefon: +49 (0)241 477 05-402 Fax: +49 (0)241 477 05-199 Email: Tobias.Brosze@fir.rwth-aachen.de Thank you for your attention!