Significant changes are taking place in the structure of supply chains around the world. At their centre lies the behaviour of the huge digital technology companies that now dominate so much of the western world’s economy. It is difficult at this stage to assess the full implications of these changes but they are likely to be leading indicators for the direction of global trade as well as the direction of supply chain management.

Last week Apple announced that it was increasing the insourcing of its supply chain, primarily with a move to design its own microprocessors. Adopting the ARM RISC architecture, Apple will cease using both Intel designs and the chips Intel physically produces. Whilst the reasons behind the change were partly driven by engineering issues, it implicitly gives Apple greater control over its most important component. Presumably ‘Silicon Apple’, as the microprocessors will be branded, will be manufactured at third-party fab plants, the logistics of which Apple will have a great deal of influence over.

Similarly, Amazon is said to be considering extending its grip over retailing in the US, with the company rumoured to be considering purchasing one of the number of conventional retailers whose finances and market positioning look vulnerable. The list is long with Neiman Marcus already in bankruptcy protection whilst J.C. Penny is shutting a third of its shops. It is suggested that Amazon is interested in the property that such conventional retailers own, planning to use it as the basis for an expansion of local fulfilment centres. It is an illustration of how much retailing has changed that corporations that just a few years ago were significant rivals to Amazon are now reduced to the role of logistics land banks.

What these developments illustrate is that supply chains are increasingly shaped by a small number of customer-facing, digitally-driven corporations. Although the common perception of logistics and supply chain often focuses on automotive or conventional retailing, this is now anachronistic. These new technology companies are invariably very large, and in many cases, have near-monopoly positions. The supply chains that they are creating are key parts of the global economy. In the case of Amazon, it threatens to control whole areas of the economy, at least in the US.

It is the strategies of companies such as Apple and Amazon that define contemporary supply chain management and the latest move suggests that the urge to vertically integrate has not gone away.

Source: Transport Intelligence

Author: Thomas Cullen

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