It could be assumed that several decades after supply chain management practices such as ‘lean’, ‘build-to-order’ and ‘just-in-time’ became accepted across industry, inventory levels would have seen a steady and inexorable decline. However, the latest report by Transport Intelligence, Inventory Benchmarking Vertical Sector Trends, has found that the stock held by manufacturers and retailers, as measured by Days of Supply in Inventory (DSI), has actually risen over the past ten years. This data, based on the financial reports of 187 manufacturers and retailers located around the world reveals that, on average, companies in 2017 were holding ten more days’ stock than in 2008: increasing from 80 to 90 days. The research also found that the retail industry operates with the lowest average DSI: 33 days in 2017. At the other end of the spectrum, the pharmaceutical sector operates with an average of 186 days. One of the authors of the report Professor John Manners-Bell said this indicates that reducing inventory levels is just one of a number of competing goals for many companies. “Despite the textbooks telling us that inventory reduction should be the main goal for supply chain managers, the present market environment requires a far more sophisticated approach, balancing a range of important objectives,” Professor John Manners-Bell said. Examples of this new approach include Walmart, which now regards the availability of stock to purchase by consumers as a major factor in its existential battle with Amazon, despite the inevitable consequence of higher inventory. Lenovo and Hewlett Packard took a similar approach to building up inventory in order to maintain product availability in physical stores in contrast with Dell’s lean inventory strategy. Risk is also a factor, as companies seek to avoid the supply chain problems they faced after a number of high profile disruptive events in the early part of the decade, such as the Thai floods and Japanese tsunami. Co-author Andy Ralls added: “A focus on achieving an appropriate amount of inventory is and always will be hugely important to efficient supply chain management. However, as our research shows, competing priorities, be they driven by e-commerce, changing customer demands, product development, risk or even regulatory requirements, have caused many companies to fundamentally assess their supply chain strategies.”
A critical benchmark for inventory management, Inventory Benchmarking Vertical Sector Trends compares many of the world’s leading manufacturers and retailers against key financial supply chain metrics. In particular it:
Defines the key ratios available from financial disclosures.
Conducts a by-industry vertical sector analysis of inventory management and benchmarking data for the high tech, automotive, retail, pharmaceutical, fashion and consumer goods industries.
Examines the supply chain and inventory management strategies of selected blue chip companies with reference to these benchmarks.
Where available, examines the different types of inventory held by these companies and how these have changed.
Compares and contrasts the performance of these companies.
The Global Freight Forwarding market grew 3.9% in 2018, a marked decline from an expansion of 8.0% in 2017
The Global Contract Logistics market was 4.9% bigger in 2018.
At 8.5%, the Global Express & Small Parcels market had the quickest rate of expansion amongst the logistics markets.
Slowing volume growth in the European Road Freight Transport market saw the growth rate slow to 2.9% in 2018.
Global Freight Forwarding
In a market heavily reliant on global trading conditions, growth in the global freight forwarding market fell from 8.0% in 2017 to 3.9% in 2018. The slowdown is not altogether surprising given the exceptional performance in 2017 when demand for air transport services surged as shippers rushed to re-stock inventories and move goods to market. As the restocking cycle drew to a close in early 2018, market expansion reduced substantially. Trade tensions between the US and China have had far-reaching implications for regional and global supply chains, which has affected forwarding growth across different countries.
Global Contract Logistics
While global contract logistics growth slowed in 2018, the change was very slight – the market grew by 4.9% in real terms, down from 5.0% in 2017. The US market performed relatively well, whilst China’s market is continuing show remarkable vigour. Manufacturing has previously been (and continues to be) a strong base for China’s contract logistics growth, but a growing consumer market led by internal investment, growing wages and a boom in e-commerce has created a vibrant opportunity in Chinese retail contract logistics.
Global Express & Small Parcels
An 8.5% expansion saw the global express & small parcels market grow rapidly in 2018, although the growth rate is a slowdown on the 9.7% seen in 2017. e-commerce is continuing to drive rapid growth in China’s express and parcels market, which is expanding much faster than the global growth rate. Although there are significant bright spots in areas such as healthcare and cross-border e-commerce, weaker macroeconomic conditions have played their part in slowing market growth, affecting major players, including FedEx.
European Road Freight Transport
Europe’s road freight market expanded 2.9% in 2018. Macroeconomic performance has been relatively limp compared against the rest of the world. The region’s major markets are facing significant headwinds – Germany sits close to recessionary territory as a result of softer external demand and disruption in its automotive sector, Italy is feeling the effects of mounting public debt, while Brexit uncertainty continues to harm investment into the UK economy. “Ti’s new figures show robust growth across major global logistics markets. Growth rates are not flattering when compared against the previous year, where global GDP growth was the fastest it had been since 2011. Nonetheless, there have been significant opportunities for LSPs to grow top-line figures through the course of the year,” said Andy Ralls, analyst at Ti. Note: All growth rates mentioned are in real terms (holding prices and exchange rates constant at 2018 levels) unless stated otherwise.
New research from Transport Intelligence (Ti) has found that automotive supply chains will undergo a radical transformation over the next decade as the internal combustion engine is phased out in favour of alternative propulsion systems. It is clear that electric vehicles will play an important, even defining, role in the industry’s future. This will mean that the supply chain for the entire powertrain will be transformed and the types of components, the logistics processes employed to move them, the markets of origin and destination as well as the tiered character of automotive supply chains will fundamentally change. Key findings in the new report – Ti Future Mobility: Electric Vehicle Supply Chain Architecture – include:
As the dominant technology in electric vehicles, battery manufacturing processes will transform the automotive supply chain.
Battery or battery pack producers with high volumes will drive out lower volume manufacturers, including many vehicle manufacturers’ own in-house operations.
Supply chain and logistics provision will adapt to the geography of battery and electric component production locations.
The integration of the battery-pack and associated drive-train elements will create a distinctive ‘propulsion platform’.
The complex and deeply integrated tier-system of suppliers feeding in the components will change fundamentally.
While batteries are complex pieces of engineering, they are much more straightforward to insert into a vehicle than an internal combustion engine. Plugging in the electric motors to the battery is a comparatively simple process. With no welding shop, no engine plant and a higher level of outsourcing to new component suppliers, the automotive assembly facility will shrink in scale along with its logistics requirements. “Conventional vehicle manufacturers define assembly as a core-competence but with the changing nature of operations, this may no longer be the case. It may be that, in time, automotive manufacturers’ come to focus on the design and marketing of their product, in the way that Apple does,” said Nick Bailey, Ti’s Head of Research and the report’s co-author. The impact of the reduction in parts and the elimination of tiers of suppliers in the powertrain supply chain might be considered to be traumatic enough for the automotive supply chain. However, in addition to this, the process of the manufacturing of batteries in terms of materials, skills and existing production structures has developed outside of the main automotive powerhouse economies. Japan, South Korea and China are dominant in the sector, sourcing their raw materials from Asia, Africa and Latin America. Europe and North America have, with a few exceptions, been side-lined in the development of new technologies of batteries as well as in the manufacturing know-how. One important discrete aspect of any EV supply chain that will make it distinct from IC supply chains is the differing nature of the interconnection of components. Whereas the relationship between components in IC vehicles is predominantly kinetic, the relationship between electric and electronic components is reliant on the movement of electrons. This means that the nature of different component’s interfaces are very different. This obviously has major supply chain implications. “Fundamentally there is a shift in the nature of the components used, from mechanical engineering to electrical and electronic engineering,” said report co-author Thomas Cullen, senior analyst at Ti. “The economics of both designing and producing these components is very different. This has enormous implications for how the automotive supply chain is ordered.”