The referendum on Britain’s membership of the EU, a tumultuous US presidential campaign and ongoing events in the Middle East have once again revealed insecurities in the global economy as markets fluctuate sharply on an almost daily basis. Many markets in the Asia-Pacific region too, are experiencing a slowdown as manufacturing hubs have started to move to other, cheaper countries. Unfortunately, these types of macro-economic events can have a reverberating impact on industry because international supply chains are often the first to be affected.
In the aftermath of the surprise US election result, for example, the markets are still taking stock of how the new presidency will affect business. The FTSE 100 index fell nearly 2 percent in early trading on 9th November before recovering to trade flat at 6,838 points. Other major European stock markets edged lower, with money flowing into safe haven stocks, gold and currencies including the yen. This uncertainty may cause investors to pause, or reconsider their ventures - something that will soon have a knock-on effect on industry.
Today’s global manufacturers operate within complex supply chains that require a coordinated flow of information, services, goods and payments within and across international boundaries. But market volatility and national and international events affect the way companies manage everything from distribution and manufacturing through to invoicing and materials sourcing.
With so many of these critical functions in flux, organisations need to optimise their supply chains simply to remain competitive.
New economic realities
The new global economy is changing the way companies view and use their supply chains to compete and gain market share. International companies are managing multiple supply chains, and they’re counting on those operations to not only deliver goods on time, but to tailor and respond to divergent customer and supplier expectations regarding pricing and packages.
These new realities of globalisation mean that businesses should do everything they can to try to insulate their operations for political and economic uncertainties. In recent times, the slowdown in growth in China, emerging markets’ financial vulnerabilities, the impact of terrorism on cross-border movements, and the fallout from Brexit, have all weighed heavily on global business sentiment.
In the case of Brexit, for example, in the aftermath of the vote, the immediate fall in sterling led to soaring costs for businesses that relied on importing, prompting many to reconsider their sourcing strategies. However, the experience can be different for different sectors of the industry. UK manufacturing output fell sharply following the Brexit vote, but exports, particularly in automotive manufacturing sector rose sharply.
Drill down deeper, into the global supply chain itself, and further alarm bells are ringing. The Chartered Institute of Procurement and Supply’s Q2 Risk Index — produced by Dun & Bradstreet — shows one of the highest levels of supply chain risk since records began in 1995.
Businesses need to ensure they are prepared before the global operating environment becomes high risk. Unfortunately, many businesses are trying to apply outmoded processes and technologies to global supply chain operations. Often, existing systems are not capable of meeting modern demands. If a company needs to reroute an inbound container shipment, for example, a lack of visibility into the overall system can turn a simple decision to redirect a shipment from one port to another into a problem that ripples across the supply chain, and results in higher costs and decreased efficiency.
Agile and flexible
In developing contingency plans to deal with the impact of macro-economic events on the global business environment, enterprises need to ensure their supply chains are agile and flexible enough to adapt and react quickly to changes. It’s all about having the right insight and interpreting changes in the business landscape quickly enough to stay competitive.
Fortunately, manufacturing is an industry that generates high volumes of data, and there is therefore an abundance of rich operational information available from every stage in the production process and delivery chain.
A new generation of business software is enabling advanced levels of insight that is key to running and managing operations to support the needs of international manufacturers. Enterprise resource planning (ERP) systems, for example, offer a comprehensive way to identify and track operational efficiencies and growth opportunities in real-time, using data about performance throughout the whole supply chain.
This ensures that businesses are able to identify challenges or problems that can quickly be fixed before they escalate. For example, should demand start falling in a particular market the trend is immediately visible. There is no waiting to analyse monthly or quarterly statistics — production can be adjusted instantly, eliminating waste and maintaining accurate stock levels.
Preparing for the future
No company can completely insulate itself from national and international events that can disrupt the critical functions of the manufacturing process. But technology is available that allows business leaders to make sound decisions, based on deep and reliable insight into both financial and operational performance, that helps to minimise the impact of these events on the business.
Replacing complex and unwieldy old systems with new technology platforms enables organisations to swiftly react to opportunities and challenges in an uncertain world economy. The enterprises most likely to survive and thrive in the coming years are those prepared to invest now in business models capable of delivering this sophisticated, flexible, real-time responsiveness.
Sabby Gill is Executive Vice President, Epicor International