Supply Chain Management in the age of deindustrialization

There is a usual tendency: The manufacturing sector of developed countries use to lose weight as employment generators for other sectors (like service providing ones) when they reach a certain level of growth and technological advancement. That’s not a secret for anyone. It is actually the expected result of the structural changes of capitalism and the market economy themselves. The interesting and disturbing fact, however, is that developing countries of the Third World (mostly) are experiencing deindustrializing processes in a premature way (considering the long road that is needed to reach that point: achieving a per capita income), with the exception of China and some South-Eastern countries. In financial terms, those are not good news. It is an evident fact that in those countries there will be a sharp fall in the rates of sectorial employment, in comparison with the total employment rate, and, on the other hand, the relative participation of industry in the National Value Added.

What is the future of Supply Chain Management in this age of perpetual change? It is very important to be aware of what is going on in the world, because the industrialized panorama in our country and abroad is changing so fast, and the answer of the industrial sector that is still on foot must correspond the crisis and adapt to the new circumstances. In this post I will talk about this important issue and, more than answers to the question above, I will try to trigger important questions that we need to make first.

It is a well-known premise that the industrialization in Europe and North America was an essential aspect for the consequent creation and development of modern states and liberal democracies. Because of industrialization, the population growth increased enough for improving local economies and taking them to an ideal point (ideal, at least from our postmodern point of view) that directed liberal states to welfare. Industrialization was the main cause of the emergence of a steady, organized and strong working class (and middle class) majority that made economy more dynamic. In the current time of our post-industrial society, that balance has been broken. It may sound like a cliché, but rich people has become richer and poor people have increased their numbers. Middle class is almost gone and now, almost in any country around the world, services and financial sectors (an average of 10% of local populations) are dominant and own, approximately, the 90% of wealth.

It has its own consequences. For example: Exports and employment of any country do not longer depend on manufacturing. When developing economies grow industrially, the success of manufacturing helps all workers because (1) it generates a competitive work market and (2) it encourages governments to invest in education. There is a direct relationship between a weak industry and poor local living standards. So, how can those countries develop and get through all the social problems they suffer? And pay attention to this: it has already happened in ours. Remember the deindustrialization of Detroit and the subsequent issues that followed that process. Is it happening again in some sectors of the United States?

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Image courtesy of Dabid at Flickr.com

In previous times, all countries needed to rise their capability up and down the supply chain. The purpose of this was growing economically thanks to manufacturing finished products. That’s in the past: Now, rich countries (and rather than countries, corporations) have access to global supply chains and an active influence on them. Thus, those pieces they grab can simply be moved to different and low-cost locations because that development maybe has a short life. Where is welfare now then? Who has a serious concern about local development of the industrial sector now?

Also, the goods and services consumers are purchasing are different. In the current liquid economy, people are buying more services, instead of products, and not even at a local level: thanks to internet, the global market has become more complex. Consumers prefer to find providers of services than purchasing goods. How is this going to affect the future of Supply Chains? It will modify it all, without a doubt.

To compete in a deindustrialized world demands a different vision for managers and owners of manufacturing businesses. It’s necessary to acquire enough skills and knowledge for adapting to the new logics of market and production. Populations will decrease in the future, at least in some sectors of the Western World: What will be the new direction of the global supply and demand in the future markets? What kind of services will be consumed by wealthy people and poor people? Maybe those questions are impossible to answer, because of the random behavior of economy. But it’s time to think about it.

See you next time!

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