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Supply chain management ‘critical to success’ going forward

An article summarizing the keynote speech of Glen Hodgson, senior vice-president, and chief economist at The Conference Board of Canada is available here: Supply chain management ‘critical to success’ going forward, says Conference Board of Canada’s chief economist.

From the article

Technically, he said, while economic growth has returned in the US, reaching 5.7 % in the last quarter, Hodgson said there has yet been no strong recovery in private investment and consumer consumption.

The US will pay a high price for the heavy government investment that has taken place to boost the economy, he said.

and,

“At the peak of the housing bust in the US, one third of mortgages were subprime, ‘NINJA’ mortgages, i.e. no-income, no-job mortgages. The one piece of the US financial workout that’s not yet been settled is the housing market. There’s no true stability,” said Hodgson.

While there is still a significant overstock of housing inventory in the US, the supply is down to six months, and housing starts are predicted to rise but not at a great rate, he said.

About a year ago, the supply of homes was closer to nine months and so it is good news that some of that excess has been worked off. However, that in itself doesn’t mean much because homes are not yet affordable relative to income. Furthermore, unemployment still persists.

Going forward, Glen Hodgson predicts

“US consumers make up 70% of US GDP, and 15 % of the worlds, so a drop in consumer confidence is significant. China will eventually take this over as Chinese consumers move from saving 42 % of their income and gain access to credit. Americans are actually saving again-about 5 % of their actual paycheck,” said Hodgson, who predicted a ‘temperate recovery and consumption’ for the US, which is now borrowing about 1.5 billion dollars annually, a hole that represents about 10 % of GDP.

“They will have to have a serious debate about taxation,” he said.

The US will grow at about 2.8 % this year but the balance of ‘too much government’ is wrong, and represents what Hodgson called a ‘ U-shaped recovery’. He said the US won’t experience sustainable growth before 2012.

So that’s the take on the current situation as well as general forecast going forward. But why is Supply Chain Management critical to success going forward? The reasons don’t change even if the circumstances may:

In five to fifteen years, the rise of India and China, an aging demographic within the industrial world, and integrative trade and global value chains will be additional factors to deal with.

Supply chain management becomes ‘critical to success’, said Hodgson, who noted that firms having an international strategy “built around integrative trade will be in better shape.”

This is precious little to chew on for supply chain practitioners. However, I think we have known about this shift that will take place which is a fundamental driver of economic growth – a consumption hungry population (and a huge one to boot) that is getting to binge on credit.

About me

I am Chris Jacob Abraham and I live, work and blog from Newburgh, New York. I work for IBM as a Senior consultant in the Fab PowerOps group that works around the issue of detailed Fab (semiconductor fab) level scheduling on a continual basis. My erstwhile company ILOG was recently acquired by IBM and I've joined the Industry Solutions Group there.

@ SCM Clustrmap

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