@ Supply Chain Management

SC Digest has posted a round up of Supply Chain Predictions for 2013 :

Part 1: Predictions from Supply Chain Gurus for 2013 – 1

Part 2: Predictions from Supply Chain Gurus for 2013 – 2

The predictions from supply chain gurus span the gamut from Big Data, Analytics, Dealing with longer lead times, Talent, South America and Africa. And e-tailers?

Well, I have my prediction too for the supply chain of 2013 (and 14 and 15 too). If anything I’d call it the rise of the Supply Chain Currency Wars. The first shot of this new phase of global currency wars was launched by Japan a week or two ago. While it will start slowly, over the next few years, this sort of tit-for-tat devaluation will play havoc with global supply chains especially the one’s with finely tuned cost calculations justifying the location of factories and/or distribution centers.

Devaluation of currencies over a matter of couple of quarters and in-kind retaliation is going to drive up financing risk in the supply chain. Were such a scenario to come to pass, then supply chain operators need to nail down some other variables so as not to have all the variables in a supply chain in a volatile flux.

In summary, while global supply chains can tolerate some uncertainty, it isn’t quite clear to me whether it can tolerate the sort of volatility that global currency wars entail. The Gold standard of Supply chains might mean something entirely different in a couple of years time.

Two recent articles, one being the retelling of another, delve into some of the reasons why Apple makes iPhones in China and by implication not in the USA. The original article was from the New York Times, How the US lost out on iPhone Work and the retelling was recounted in This Article Explains why Apple makes iPhones in China and why the US is screwed.

There is no article about China which doesn’t recount some of the following snippets:

When one reads about these working conditions — 12-16 hour shifts, pay of ~$1 per hour or less, dormitories with 15 beds in 12×12 rooms

For Mr. Cook, the focus on Asia “came down to two things,” said one former high-ranking Apple executive. Factories in Asia “can scale up and down faster” and “Asian supply chains have surpassed what’s in the U.S.”

“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

That’s because nothing like Foxconn City exists in the United States.

The facility has 230,000 employees, many working six days a week, often spending up to 12 hours a day at the plant. Over a quarter of Foxconn’s work force lives in company barracks and many workers earn less than $17 a day.

And lastly,

The answers, almost every time, were found outside the United States. Though components differ between versions, all iPhones contain hundreds of parts, an estimated 90 percent of which are manufactured abroad. Advanced semiconductors have come from Germany and Taiwan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chipsets from Europe and rare metals from Africa and Asia. And all of it is put together in China.

Summarizing, Chinese firms can scale up and down rapidly i.e. they have flexibility that the Chinese government and populace are willing to allow. Something that cannot be obtained stateside in whatever shape or form. The key takeaway is that it is not only scale but the willingness and ability to go either way with it. In the US, one finds that scale is directed one way towards growth but scaling down is an arduous, acrimonious and drawn out affair if it ever happens.

So here’s the first key to Smarter Manufacturing – Flexibility and Scalability.