Supply Chain Futures

SCM Global Conference

Seoul, Korea24 June 2010

Larry Lapide, Ph.D.Research Affiliate, MIT-CTLFormer Project Director, MIT Supply Chain 2020 Projectllapide@mit.edup @

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Agenda

• Scenario Planning Methodologyg gy

• Macro Factors

• Scenarios

• Analyzing the Implications of an Uncertain y g pFuture

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Introduction: Supply Chain 2020 Methodology

Scenario 2Scenario n

Scenario 1Scenario 2

Scenario n

Scenario 1 Scenario 1

BusinessBusiness

Business Strategy

Supply Chain

NetworkBusiness Business EnvironmentEnvironment

Business Capabilities

Supply Chain Strategy

Network Design

Strategy Alignment

Scenario Planning

S ppl Chain Strateg De elopmentSupply Chain Strategy Development

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Agenda

• Scenario Planning Methodologyg gy

• Macro Factors

• Scenarios

• Analyzing the Implications of an Uncertain y g pFuture

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Six Macro Factors That Will Most Reshape 2020

1. Aging of Developed Countries

2. Volatility of oil prices

3 E i / ili hif d h E3. Economic/military power shift towards the East

4 Tightly aligned trading blocs (e g 3 or 4)4. Tightly aligned trading blocs (e.g., 3 or 4)

5. Green Laws, globally, g y

6. Pervasive powerful technologies

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#1 Aging of Developed Countries

Source: Joseph F. Coughlin, PhD, Director, MIT Age Lab

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#1 Aging of Developed Countries

1. What is the impact on products & services demanded?a. Personalize products (e.g., physically, hearing, and sight challenged) b. Total solutions of services and products pc. Health care hubs, in-home service monitoring of diet & health, and

home delivery re-emerges

2. What is the impact on supply chain workers?a. Plant and warehouse blue collar workers (e.g., more automation)

– Older– Language-challenged– Mentally & physically handicapped

b. Elderly drivers (e.g., dashboard design)Eld l i ti d hit ll k l d kc. Elderly, semi-retired white collar knowledge workers

3. What if immigration is opened up? Closed?

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#2 Volatility of oil prices: Greater global demand and becoming more expensive to extract ($200 to $400/ barrel in 2020?)

Era of Cheap Oil

http://www.eia.doe.gov/emeu/steo/pub/fsheets/real_prices.html

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#2 Volatility of oil prices: Greater global demand and becoming more expensive to extract ($200 to $400/ barrel in 2020?)

Oil price increases are starting to impact logistics costs

Source: 20th Annual State of Logistics Report, CSCMP, June 2009

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#2 Move from Cost & Inventory-Efficient Supply Chains to Oil & Energy-Efficient Supply Chains

1. Freight costs

Oil/Energy Costs Impact Supply Chains in 4 Major Cost Areas:

g• Inventory versus freight tradeoffs (e.g., JIT)• Labor versus freight tradeoffs (e.g., offshore manufacturing)• Ocean vs. Air (e.g., offshore sourcing)• FOB pricing and on-line free delivery services

2. Material costs (i.e., oil-based materials)

3. Production operating costs

4. Packaging costs (e.g., paper and glass versus plastics)

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#3 Economic/military power shift towards the East

U.S. Peak

S f D t I t ti l M t F d (IMF) b it htt // i f / t l/i d ht (O t b 2009)

1. U.S. and Western Europe’s share of worldwide GDP is declining– U.S. peaked in 2001 at 32.3% and GDP share has declined since– China surpassed Germany in 2007 to be #3

Will Chi J i 2010 2011?

Source of Data: International Monetary Fund (IMF) website -- http://www.imf.org/external/index.htm (October 2009)

– Will China surpass Japan in 2010-2011? Lapide 2010

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#3 Economic/military power shift towards the East(Cont’d)

2. Many ‘largest’ companies now outside EU and U.S.

3. Rise of middle class in eastern countries creates consuming nations (Will U.S. be able to compete there?)

4. Future global competition for scarce materials and business opportunities (China ties to Australia, Africa, and Middle East)

5. China and India producing more engineers and college-educated students: So will major innovation move there too?

6. China’s unknown future ( the wild card )

“This is not a book about the decline of America but rather about the rise f l ” F d Z k i Th P t A i W ld N tof everyone else”: Fareed Zakaria, The Post-American World, Norton

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#4 Tightly aligned trading blocs (e.g., 3 or 4) rather than“The World is Flat” (Author: Tom Friedman)

1. Powerful trading blocks centered around, for example, Europe, US, Japan/Asia, and China

2. Heavy trade barriers into and out of blocks

3. Largely intra-trading among blocs

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#5 Green Laws, Globally

1. Energy-efficient transportation operations

An EPA report (April 2009) reported that the Transportation sector is the second major source of greenhouse emissions ( ft El t i it G ti )(after Electricity Generation).

2. Reverse logistics

3. Green product design

4. Supply network compliance

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#6 Pervasive Powerful Technologies

1. “The World is Flat”:

Distributed virtual workers and organization• Proliferation of virtual communities like Second Life• One worldwide Internet or fragmented (e.g., Germany, China,

and Arab world creating their own)?Seamless worldwide trading partner collaboration via Internet andSeamless worldwide trading partner collaboration via Internet and wireless communication and among ‘collaborative’ communities like Facebook

2. Full supply chain visibility of worldwide goods, assets and inventories

3. Virtual reality allows full view and virtual management of total supply chains (i.e., melding of the artificial and physical worlds through supply chain modeling)through supply chain modeling)

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Agenda

• Scenario Planning Methodologyg gy

• Macro Factors

• Scenarios

• Analyzing the Implications of an Uncertain y g pFuture

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SC2020 Scenarios Based on Shell Scenarios*

*Source: Shell Global Scenarios to 2025 p12*Source: Shell Global Scenarios to 2025, p12

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Scenario Snapshots of the World in 2020

S i 1 S i 2 S i 3Scenario 1 Scenario 2 Scenario 3

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Agenda

• Scenario Planning Methodologyg gy

• Macro Factors

• Scenarios

• Analyzing the Implications of an Uncertain y g pFuture

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Scenario Implications for Winning Supply Chain Strategies

1. Implications for Products and Servicesp

2. Implications for Global Supply Networksp pp y

3. Investment in capabilitiesp

4. Organization and Cultureg

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Analyzing Scenario Implications

Scenario ImplicationsScenario ImplicationsScenario ImplicationsScenario Implications

Contingent ImplicationsContingent ImplicationsRobust ImplicationsRobust Implications

Detailed Review

RiskManagement

Sensorsin the

G dNo

BrainerNo

RegretNo

Gainer ReviewReview Management GroundBrainer Regret Gainer

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Strategy Key Takeaways

“The future ain’t what it used to be”Yogi Berra, The Yogi Book, Workman Publishing, New York, 1998

• Revisit your latent assumptions about the future• Develop strategies for excellence under each possible future using

Strategic AlignmentStrategic Alignment• Use Scenario Planning and Risk management to prepare your supply

chain for the future

For More Information:• Speaker: Larry Lapide: llapide@mit.edu• SC2020 Project Page: www.supplychain2020.net• Project Director: Mahender Singh, Ph.D. msingh@mit.edu

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Thank You

Questions??????

Larry Lapide, Ph.D.Research Affiliate, MIT-CTLFormer Project Director, MIT Supply Chain 2020 Projectllapide@mit.edup @

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