The Need for Two-Speed Supply Chains Last week, I had the pleasure of presenting to the CSCMP Toronto roundtable, on a bone chilling Thursday evening that still drew almost 100 attendees. It's the second time I have been to the Toronto round table, again invited by Martin Kelly of Wheels Group. I also want to thank roundtable officers Pamela Ruebusch and Steven Bryce for their hospitality as well, and the warm welcome I got from the attendees themselves. It was a nice event. When I was last there maybe six years ago, on the docket with me wasGeorge Stalk, among the more well-known business consultants out there as part of the Boston Consulting Group. Stalk lives in Toronto, and was back again for this meeting as well. That first time was very interesting for me, as Stalk had co-authored one of my favorite business books of all time, "Competing Against Time" some 20 years before. Stalk again gave a very interesting presentation in Toronto, so much so that I thought it was worth sharing the highlights here. One very provocative concept: the idea of a "two-speed" business and supply chain world. Global economic growth is dominated by emerging economies, as most of us have probably heard. Stalk put some specifics to that, saying that right now about 85% of global GDP growth is occurring in China, India and other developing economies. As we know too well, growth in developed economies like the US and Western Europe ranges from slow to stagnant. To see just how dramatic that change is, take a look at the graphic below, which looks at the population of cities in China in 2010 and then projections for 2020. In 2010, there were 88 cities in China with middle-class populations of 250,000 or more. Compare that to about 68 in North America. Boston Consulting Group estimates that by 2020 there will be an astounding 288 such metro areas in China, while the number in North America will actually fall to about 60. There will be more than 50 cities in China with a population of over one million people. And thus the "two-speed" world, one in which business and supply chains will have to keep up with high levels of growth in China, India, Africa and more, while simultaneously running supply chains built for stable, much slower growth markets in developed economies. Source: George Stalk, Boston Consulting Group "The supply chain that serves that [developing] world is a lot different than the supply chains most have today," Stalk noted. The developing economics "are growing at different rates, have much different investment requirements, and different people requirements. A lot of Western companies are having a hard time scaling up just to hold on to market share," he said. This to me becomes then a real exercise in supply chain segmentation - and one that will be tricky to manage, especially as most Western supply chain managers have really only dealt with the fairly slow growth side over the last 20 years or so. I kind of compare it to running the supply chain for a long established and now slow growth retailer, where the focus is on reducing costs as a percent of sales and perhaps catering to service needs for upmarket customers, versus the supply chain of a young, fast growing chain, where the challenge is just getting product on to the shelves fast enough and entering new markets. All this leads to some tough decisions about whether to make, buy or partner in terms of supply chain capabilities, Stalk noted. He said some companies have troubling both scaling up fast enough in some markets and managing much slower growth in others, and "how that all comes together at the top." Some Western companies are losing market share as a result of the inability or will to keep pace, Stalk said. Good stuff. A two-speed world requires a two-speed supply chain that few companies have really built. Next, Stalk talked about increasing volatility - of almost everything. Oil, rice, aluminum - the price charts all look about the same, he said, providing some examples. You may think that volatility is mostly something commodity traders and procurement managers need to worry about, but Stalk said "this has tremendous supply chain implications. How so? Let's start with "the need for speed." In a volatile world, companies that can respond faster in terms of sourcing decisions, pricing and more have a huge competitive advantage. Stalk noted, for example, Dell's huge edge back in its build-to-order day based on sourcing and pricing decisions made on almost a real-time basis, versus competitors who had to buy chips and memory and such for their make-to-stock businesses that forced such decisions well in advance of when the product was actually sold. Other supply chain implications of volatility, Stalk said, include the need to collaborate with multiple levels of your extended supply chain so that companies get earlier and better (undistorted) views of what is happening in the market. Inventory is also a dangerous thing in a volatile world, he said, noting that "inventory actually produces its own volatility" inside a company, as companies are caught between current market prices and what they hold in inventory that was created at different price points. Stalk then turned to the subject of "congestion" and its growing impact on supply chain efficiency and costs. He showed these two charts, comparing truck traffic in the US in 1998 and projections for 2020, which shows a dramatic increase in volume. Obviously, US infrastructure has come nowhere close to expanding at the same rate, inevitably leading to growing congestion issues. Stalk showed similar charts for rail and air traffic. He also noted that China for example was continuing to build sizable new ports,  about eight currently in progress, while there is almost no action in North America outside of the major expansion at the port at Prince Rupert in Canada. These congestion issues add significant costs to logistics, of course, and it has always seemed to me at one level there is not much anyone can do about it. But Stalk notes that companies need to look out over the horizon and anticipate where this is headed and rethink supply chain networks accordingly. Many companies simply have outdated network footprints. Ultimately, he believes that will lead many to add more manufacturing and distribution sites closer to customers to reduce transit times and delivery costs. One thing is perfectly clear: even if there was a huge surge in infrastructure spending, congestion would get much worse before it gets better - and there isn't going to be a huge surge in infrastructure spending. Stalk also cited the need for "deep collaboration" with multiple levels of a company’s supply, and how digitization and other factors require "business model innovation," and with that comes the corresponding need for supply chain innovation to support the business model change. It was all great stuff. Many if not most local CSCMP round tables put on excellent programming - I have spoken at a number of them myself. I encourage you to get involved and get to the meetings. Maybe I will see you there.