European Supply Chains: Challenges Ahead!

By Erik Diks | Managing Director, Europe | Chainalytics In October 2016, a team of supply chain experts met in Amsterdam at the Chainalytics Executive...


By Erik Diks | Managing Director, Europe | Chainalytics


In October 2016, a team of supply chain experts met in Amsterdam at the Chainalytics Executive Roundtable to discuss the complex web of global, local and internal economic, technological, geopolitical and strategic trends and challenges facing European supply chains:

Economic Trends

Interest rates have been very low over the last few years, and probably will remain low for quite some period. Yet many companies seem not to be acting according to this new reality, as reducing working capital remains a priority.

Another new reality is the steep rise of labor cost in China. As a result of this companies are considering to re-shore or near-shore part of their manufacturing. It was argued that companies are not leaving China, but building supply chain resilience into the fast changing market environment. By shifting part of their manufacturing into lower cost countries in Europe they can better align with the fast changing market dynamics.

During the roundtable, Chainalytics presented research showing the large differences between countries in labor costs, real-estate costs as well as population build-up and growth. In addition, insights from the Freight Market Intelligence Consortium (FMIC) also showed significant differences in transportation costs across Europe. There is a backhaul impact when transporting goods to certain regions (e.g. Poland) resulting in significant discounts, on the other hand there are also very high prices for shipping to remote regions.

Technology & Innovation

The group also noted how consumers are adopting new technologies quicker and quicker. Take a look at the car. It was introduced around the 1900’s but it took 75 years to get to 80% coverage. The television that was introduced in the 1960’s, only needed 25 years for that. Today new technologies, like the mobile phone have been adopted within less than 10 years.

As a consequence it is vital for each business to understand what new developments will mean. New technologies that will impact us the next 10 years are: 3D printing, Internet of Things, and the automation to get “driverless trucks.” Although there was no consensus on when driverless trucks will significantly change our lives, but there was consensus that it will happen and have a major impact, as it will allow longer long-haul distances as well as better spreading transportation over time so as to better use road capacities.

As robots (and cobots) become cheaper and cheaper it will increase the level of automation in manufacturing and warehouses. This is impact is amplified by the low interest rates. This level of automation will also have a major impact on the supply chains of the future.

One other innovation that is seen as a game changes is Big Data. With this increase of automation, there will be more-and-more data. Companies that successfully convert this data into information, and align their value propositions accordingly will have a competitive advantage.

Geopolitical Changes

Although Brexit was not expected and will impact some businesses. During the roundtable it is not seen as a game changer … yet. Only when there is a domino effect towards other countries or even results in the collapse of the EU, it could become a game changer.

Participants also noted that the migration flows caused by geopolitical instability are a key element to take into account for the future supply chain.

Strategy

The group concluded with a discussion on whether the recent development around EU decisions on Apple, Starbucks, etc. is going to impact how companies are going to perform their corporate tax optimization. As this has a major impact on the supply chain dynamics this potentially could lead to changes in the future.

The unknown and known risks are always there—from natural disasters to rising labor costs and currency fluctuations. But better awareness and regular evaluation, it seems, are key to not only understanding supply chain trade-offs but to designing the optimal supply chain network to meet the complex web of challenges with some degree of certainty.

Erik Diks is managing director of Chainalytics Europe, where he is responsible for all sales and delivery of Chainalytics’ end-to-end supply chain consulting services. He brings over 20 years of broad supply chain strategy, supply chain network design, sales and operations planning (S&OP), demand and supply planning, and product and customer portfolio optimization to his work with Chainalytics clients.

Read more about Chainalytics Freight Market Intelligence Consortium and European supply chain expertise:

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