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Retailers And Communities Benefit From Hybrid Supply Chain Strategies

Written by Tim Morral
Published: 3/21/2014

As companies work to optimize their supply chains, a new hybrid supply chain approach is gaining steam and benefitting consumers, retailers and local economies in the process.

For retailers, it's all about having the right products at the right time.

Hybrid Supply Chain Strategy

If you're out of ice picks or snow blowers in January, customers will go to the stores that have them. Similarly, if the hot new mobile phone is out of stock at your store, customers will give their money to your competition.

Retailers hate to be out of stock, and the manufacturers of the ice picks, snow blowers and mobile phones are similarly motivated. If they can't get retailers the right products at the right time, they too are at risk of losing sales.

The task at hand is even more challenging for manufacturers because each product they make typically comprises many sub-components. One missing component can mean that a product doesn't get built on time, which means it doesn't get shipped on time. Ultimately, that means it's not sitting on a store shelf when the customer wants it.

The discipline of making it all work is called supply chain management. Big companies invest a lot of money in people and systems to ensure that stuff is where it needs to be when it needs to be there. Matching supply to demand sounds easy enough, but it's in fact incredibly hard.

The Days of Offshoring and Outsourcing Everything Are Over

In recent years, many companies that have previously set up offshore manufacturing operations in China and other countries have now moved manufacturing back to the States. Driving that change, termed "re-shoring," is a growing recognition that the cost savings attained via offshore manufacturing are worthless if a company's being so far away from the customer causes inefficient supply chain management.

Enter hybrid supply chain strategies, which seek to find the best of both worlds.

The concept behind hybrid supply chain strategies is fairly simple. You manufacture and store products and components close to the customer if doing so helps make your supply chain better. But you might still manufacture other products or components on the other side of the world if you don't need them to be close to the customer.

So, for your newest, hottest and most profitable products, you might want your supply chain facilities to be onshore and close to big markets like New York, Los Angeles and Chicago, as well as being close to fast-growing, strategic markets. With proximity to your most important markets, you have the flexibility to maximize speed and execution in getting those key products to the right place at the right time.

But for your slow moving products, where demand is more predictable, it's OK for them to be manufactured abroad and delivered via a "slow boat from China" because you'll still be able to get the products where they need to go. After all, that's the main idea behind hybrid supply chains. You don't treat every product or market the same. You design the supply chain based on the specifics of what you are trying to accomplish.

Growing Experimentation with Hybrid Supply Chains

This is a big deal. Around the world, supply chain executives are trying to get the mix on their hybrid supply chain strategies just right. What should be onshore? What should be offshore? What should be in-sourced? What should be outsourced? What global markets am I trying to reach and where do I need facilities -- manufacturing plants and distribution centers -- to serve those markets in a way that drives revenue and beats the competition while keeping costs low enough to keep margins high? Where should my suppliers be located to give me flexible, responsive production capabilities and ensure a smooth supply chain?

Firms like Lenovo have led the charge on hybrid supply chain management, showing that getting it right can drive revenues and profits through the roof. Other companies big and small have since followed suit, abandoning "one size fits all" supply chain tactics and moving to a hybrid approach.

Shareholders of these companies are the primary beneficiaries, but hybrid supply chains are also great news for retailers and local communities. For retailers, it's easier than ever to have the right products on the shelves at the right time, thus avoiding stockouts and maximizing profits.

Similarly, local communities are benefiting from the re-shoring that is being driven by hybrid supply chain strategies. Jobs that were lost to outsourcing and offshoring are coming back. Companies are realizing that "location, location, location" is as important as ever, which is leading to a flurry of activity in which manufacturing plants and distribution centers are being relocated to be in transportation-advantaged, supply chain-strategic areas.

It makes sense that re-shoring will continue to accelerate. The global economy is as efficient as ever, which means that labor arbitrage opportunities are increasingly short-lived. Chasing cheap labor is a game of musical chairs. Eventually, the music stops and everyone is earning a similar wage. It's at that point that being close to your customer will be way more important than being close to a rapidly dwindling supply of cheap labor.

We're seeing that now, as offshore costs rise. But the smartest companies aren't waiting for the music to stop. They are embracing hybrid supply chain strategies now. Expect the "slow crowd" to follow suit in the years to come.

Who Will Benefit Most from the Hybrid Supply Chain Phenomenon?

This hybrid supply chain trend is great news for consumers and retailers who will get access to products at better prices and not have to worry about products not being available when they are wanted most.

It's also a boon for those local economies that happen to be in the most desirable locations for optimizing a global supply chain -- close to transportation corridors (rail, sea and truck), with reasonable labor costs, and near big metropolitan markets.

Picking those locations and managing the flow of goods across supply chains is a booming industry unto itself. "One word: plastics" might have been good career advice ages ago. These days, and more so in the decades to come, "supply chain management" might be a great direction to point a young person in search of a good job opportunity with a promising future.

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