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July 14, 2014

Hidden changes impact Supply Chain costs – Suppliers

Just as the change in consumer behavior impacts any given business, it also impacts their suppliers.  Suppliers must change and adapt to the new world as well.  Also bring in the shift in outsourcing behaviors.  Manufacturers have recently sought low costs and control by manufacturing in low cost Asian geographies.  But as cost uncertainty increases in those areas due to increasing labor and transportation costs many looked to come back to North or South America.

As suppliers realigned their infrastructure there is a trickledown financial effect throughout the supply chain.  Many new costs are often passed along and not explicitly seen in a balance sheet.  This overall uncertainty married with consumer uncertainty and then cost pressures applied on top provided a recipe for additional supply chain change at the supplier end.

Taken together, the change in consumer and supplier behaviors leads to an exaggerated Bullwhip Effect (for more information look into what is affectionately called the Beer Game).  Uncertainty of supply and demand drives up costs at all levels of the supply chain and leads to unpredictability.  As the uncertainty and unpredictability move through the supply chain there is a corresponding increase in total disruption.

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