Balancing Demand and Supply in a Rapidly Changing World:

Editor’s Note: This is the first of a four-part weekly series, “Are You Ready for the Megatrends?”

Most Supply Chain Management Review readers probably would agree that the premier supply chain organizations are those that do the best job at balancing supply and demand across multiple products and locations. The best companies can do this because they are either able to anticipate and address small-scale imbalances before they become larger problems, or because they are capable of responding very quickly, after-the-fact, when inevitable spikes or dips in demand or supply occur. We at the University of Tennessee suggest that an underlying philosophy known as demand-supply integration (DSI) provides the basis for competing based on this sort of balancing act. Under the DSI philosophy, the areas of the business that are charged with demand generation and supply management play from the same sheet of music, so to speak, rather than acting autonomously, with the results being both greater profitability and customer satisfaction.

Often, this means that more immediately pressing issues take precedence over future concerns. Thus, finding the time and energy to strategize for long-term organizational success can be difficult. Though a short-term focus allows companies to effectively capitalize on immediate opportunities and stave off looming threats in the demand and supply markets, numerous experts across scientific fields ranging broadly from meteorology to finance are concerned more about the intermediate to distant future. The experts believe that abnormally disruptive changes will occur within the world’s macroeconomic, social, and physical environments during the upcoming two decades, and it is possible that these seismic shifts may more significantly disrupt demand/supply-balancing in the coming years.

Though both the reactive and predictive supply chain management models are effective when well-executed and properly fit to a situation, they are based on two tenuous assumptions: that when any supply/demand imbalances do occur, they (a) will be relatively small and (b) mostly temporary. These assumptions become shaky when considering the predicted magnitude of the environmental shifts scientists describe. Though the best companies are becoming more capable of rapidly recovering from supply chain disruptions caused by natural disasters, for example, even the best companies are not engineered to handle the massive demand disruptions that would occur if a huge human population were to geographically shift virtually overnight, or were an entire supply base for a key commodity to be completely wiped out. Let’s examine a few such possibilities, and begin to consider how supply chain managers may need to re-think demand and supply operations in our evolving world.

Global Megatrends Impacting the Supply Chain

As outlined in a forthcoming book to be entitled Supply Chain Management in a Transforming World, my colleagues and I believe that three sets of forces impacting the global business environment will dramatically challenge the ways supply chain managers currently think and operate. These forces include:

• The growth and migration of the human population on Earth
• The relative scarcity of critical natural resources needed to sustain this dynamic population
• Changes to the physical, social, and geopolitical environments that will inhibit demand-supply balancing

Each of these issues has both positive and negative implications for companies and their supply chain managers, and together the megatrends present a complex puzzle for future managers to solve.

With respect to the first megatrend, Earth’s population is growing exponentially in size, with growth and migration occurring fastest in urbanized areas and underdeveloped nations. Over seven billion people currently inhabit the planet, and, for the first time in history, over half live in cities. Growth and migration presents both opportunity and risk for well-established supply chain networks. For example, human ecologists estimate that 25 to 30 cities the size of Houston will effectively “appear” in China before 2020, and many Chinese workers will share in their nation’s increased wealth – and use it to buy goods and services. Of course, we’d all love to have a slice of that new demand, but what happens to global supply if a new Chinese consumer class begins to aggressively consume that nation’s GDP? Also, how can eroding distribution networks in China and other places be redesigned so that customers in densely crowded cities can be satisfied? And where will the next source of low-cost labor be located? These questions represent only a few of the complex issues related to population that companies would need to address. We believe perpetual supply chain redesign processes will be needed.

Next, let’s consider that each of the five billion new earthlings demands basic goods such as food and water, and some also have higher-level needs for items such as flat-screen TVs and home security services. As a result, the resources that are being used in the manufacture and distribution of products will become rapidly depleted. Basics such as food and fresh water will become increasingly scarce. The rare earth metals used in cell phone batteries have limited remaining supply, unless technologies change rapidly. Further complicating the issue, geographic separation between buyer and seller markets will mean significantly more fuel and/or alternative fuel sources will be required. It will eventually become necessary to redesign products so that they are smaller and more portable to save fuel costs, and/or have them manufactured on the spot. [Google “three-dimensional printing,” and you’ll see what the future of distribution may entail.] In this resource-constrained environment, supply chain managers will need to collaborate with design engineers and marketers in order to shape demand for increasingly difficult-to-manufacture products and innovate in other ways we’ve yet to consider.

We can logically extend our concerns about population and resources to concerns about the political, social, and physical environments. Throughout history, as needed resources have become scarce, political entities have fought over their possession.

For example, one estimate indicates that over 9/10ths of the remaining supply of a rare element used to make industrial magnets exists within China’s borders. Thus, it is worthy to consider alliances with global producers that may control much of the future supply of a key material. Conversely, there are also commodities that industrialized nations produce in abundance, but which no one wants, such as garbage. Some political scientists believe that future conflicts will occur over which nations will be forced to accept others’ manufacturing wastes, and the transportation of waste to these locations will be costly considerations. For many products, the extent of consumer recycling may also begin to dictate whether/when additional units can be manufactured. In several European nations, national governments have mandated the recycling of consumer appliances containing rare materials. Though this seems unlikely to occur in the USA in the near future, there may come a time where “forced-closed-loop” supply chains become the standard for items such as cell phones and car batteries, which are full of expensive and increasingly rare materials.

Final Thoughts
Throughout history, when problems have threatened society, humans have innovated in response. There is little we can do to address population growth and migration. However, because of the rarefication of resources and the conflict that will undoubtedly occur as these forces collide, businesses can and should now begin to prepare for yet another new state of normalcy characterized by jagged differences in supply and demand, both locally and globally. Supply chain managers of the future will lead the way by creating solutions to the next series of new challenges. In a world likely to be characterized by complexity and much risk, our lives and lifestyles depend on businesses’ ability to innovate, and only those firms with the very best supply chain talent will prosper.

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