CEOs hope shared strategic vision will ease global market demands by Christine Leonardi
South African supply chains are buckling under the pressures of meeting customers’ diverse needs, the increased complexity and demand brought about by globalisation, increased volumes and a shortage of skilled supply chain staff.
Aged and poorly designed supply chain infrastructure also compromise effective delivery. As a result many companies are not geared up to meet rising local demand for diverse goods and services.
The country’s supply chain infrastructure needs a serious face-lift. Otherwise, South African (SA) companies will not be able to cope with the challenges of operating in a thriving local economy or successfully compete with a growing number of agile global players entering the market.
These are some of the key findings of Barloworld Logistics’ 2007 Supply Chain Foresight report, which surveyed 250 executives and managers, predominantly from multinational corporations with turnovers exceeding R1 billion per annum.
SA business leaders are realising that adopting a strategic approach to supply chain management is the only way to overcome these challenges. SA retailers, in particular, say holistic reform is needed to create competitive advantages.
CEOs see SA’s banking system, corporate governance, as well as physical and business infrastructures, as competitive advantages. This corresponds with the Institute for Management Development’s 2006 World Competitiveness Report findings.
Companies are also rethinking the nature of their supplier relationships to cope with the challenges presented by rapid and compound growth, as well as globalisation.
More than “70% of the potential savings and service enhancements in a supply chain come from the re-engineering and integration of logistics processes,” says Barloworld Logistics Africa. “This integration yields greater cost reductions and service enhancements than the simple optimisation of independent, functional silos.”
According to Barloworld Logistics’ 2007 report, local CEOs’ top three supply chain objectives reflect strong commitments to:
However, “supply chain specific objectives, such as redefining strategy and increasing flexibility and agility in the supply chain, rank relatively lower,” the report highlights.
The local industry’s awareness that the supply chain response needs to start with a strategic and shared vision between suppliers and customers is a good point of departure, CEO of TerraNova and co-founder and partner of South Africa – The Good News Brett Bowes announced at a presentation outlining the key findings of Barloworld Logistics’ annual supply chain research.
“CEO’s commitment to such a vision will allow organisations to shift strategically,” instead of merely reacting to the immediate pressures of increased volumes and complexity in the rapidly globalising supply chain arena, he said.
“If local companies do not find ways to use their supply chains to carve out real competitive advantages, SA risks being left behind in the global economy,” Bowes pointed out.
“This needs to be done before external events compel SA companies to change; or more agile and responsive supply chains pull the rug out from under them by supplying cheaper goods to the same markets.”
Globalisation adds pressure to supply chain delivery
Globalisation affects almost all of the companies that participated in Barloworld Logistics’ annual supply chain survey.
SA companies are increasingly expanding into, sourcing from and supplying to international markets and customers. This, together with increased local and international demand, has made local supply chains more complex.
“Interestingly, 74% of CEOs are positive about the impact of globalisation on their businesses,” Bowes commented. When measured against Pricewaterhouse Coopers’ 2005 Globalisation and Complexity survey results, SA CEOs are more upbeat about globalisation than their international counterparts.
Their positive outlook may be a reflection of the opportunities globalisation offers and the opening up of new trade markets, which have resulted in a steady growth in overall business confidence, Bowes noted.
However, it could also indicate that CEOs are out of touch with the potential dangers of globalisation.
Though CEOs are optimistic about doing business with the rest of the world, they are concerned about the pressures that globalisation places on delivery. It is becoming increasingly difficult to source and sell products and services in global markets.
Seventy-four percent of SA CEOs consider currency fluctuations as the biggest challenge to sourcing and selling globally. SA’s considerable geographical distance from large consumer markets is also considered a major disadvantage.
More effective, responsive and innovative supply chains will place local companies in a better position to take advantage of opportunities in certain niche markets.
For example, SA’s properly trained automotive industry labour forces are very productive and cost effective. This makes the country a more competitive global automobile manufacturing source.
SA companies could also add value to exported goods, open up opportunities for South Africa to act as an African trading gateway and become a global source of skills, products and services.
Emerging markets are doing business in the southern hemisphere
The majority of CEOs surveyed expect or plan to do business globally within the next three years. They are therefore under more pressure to make their businesses more competitive through increased innovation.
SA lags behind other emerging markets, which successfully compete against developed economies in new and niche markets. Some of the problem areas include skills shortages, productivity, labour costs and bureaucracy/red tape.
Interestingly, CEOs say developing markets hold the most business potential, Bowes said. Southern Africa and South and Central America are primary targets for outbound goods and services.
Given South Africa’s history and geography, “South Africans are good at change,” Bowes noted. The country also has a better understanding of the customer needs and logistical complexities of providing excellent customer service in developing markets, than its Western competitors.
CEOs plan on taking global actions that predominantly involve forming strategic alliances with foreign partners, opening new offices and importing finished goods.
SA companies are already doing or plan to do business with countries that Western economies view as risky. Terrorism rates very low on South African CEO’s agendas, while global CEOs see terrorism as a major challenge.
The report says SA companies will continue to do business with Western economies for technology and sophisticated manufactured items. However, based on cost advantages, local businesses will increasingly do business with India and China.
India and China will emerge as significant local competitors
CEOs believe new competitors in the local market and complex extended supply chains will have the greatest impact on SA business, Barloworld Logistics’ survey found.
Major customers from Western economies and other developing markets currently do business with Indian and Chinese suppliers, which are significantly cheaper.
Competition from India and China will add layers of complexity to SA’s inbound supply chains. This includes global sourcing policies, additional cost pressures and physical movement of inbound goods and services from geographically remote locations.
“If India and China are the heavyweight hitters of the developing markets, then we need to compare ourselves to and compete with our real competition in the same space,” the report states.
“This should compel SA companies to deal with some of the other logistics issues,” including taking advantage of the country’s geographical position, the report says.
Christine Leonardi is a freelance journalist and the editor of the Gordon Institute of Business Science’s online journal, The GIBS Review (www.gibsreview.co.za)