The World as a Supply Chain, Part 2

Updated: Dec 22, 2019


Previously I posted a link to an infographic that uses various statistics to describe the world as if it were a business, or supply chain. Here I provide a follow-up with commentary. I have also embedded the infographic at the end of this post.

I got this idea indirectly from Sanjiv Sidhu, one of the pioneers in supply chain management software. I observed Sanjiv for years and one thing I knew about him was that his supply chain game was always on, 24/7. For example, if Sanjiv met a person who was wearing a watch, or carrying a camera, or driving a car, I intuitively knew exactly what he was thinking - he was thinking, "how efficient is the supply chain for that watch, or that camera, or that car, and why am I not helping them make it better?"

When you are in the supply chain business and you think passionately about it, everything becomes a supply chain. So, in 2005, when I was at i2 Technologies, I gave a presentation to about 1000 people describing the world as a supply chain. For all of us in the field of supply chain management, it highlights the importance of supply chain management to the welfare of companies, industries, societies, and people. This is our larger purpose. I have been refining this idea ever since. Bill Gates may be exploring how to make a better toilet, but it will be the world's supply chains that ultimately make that better toilet accessible to the 2.5 billion people of people who sorely need it.

So, let's look at the world's supply chain:

1. The GDP of the world is about $75.5 Trillion. This is the amount of output produced by the world's supply chains (it also includes services chains).

2. There is currently about $13 Trillion inventory literally floating around the world, some of it lost, some of it stolen, and some it not finding its way to those who need it. Real-time, continuous visibility of this inventory remains a problem. I discuss more on this topic in "The $13 Trillion Question."

3. The world currently operates with about 4 inventory turns. This is not very good considering that in 2006 Dell was a nearly $60B company operating with inventory turns over 100. But just because your operation is efficient, does not mean the upstream and downstream operations are. As I used to tell clients, the law of conservation of mass applies, "so where's the rest of the inventory?"

4. The world's supply chains have a lot of people to support - 7.4B of them, as of 2016. Less than half of the population is employed.

5. The average income for employed persons is approximately $20 thousand dollars; however the median income is approximately $3 thousand dollars. Whenever there is a wide difference between the mean and median, it shows you have a highly skewed population. In this case, it means 3.7B people, or greater than half the world's population makes less than $3K per year (on a family basis). We can, and need to, do better. And, while there is much concern about the top 1% earners and growing income inequality in the United States, it takes just $32.4K of income to be in the 1% group on a global basis.

6. The net profit margin, after taxes, for companies is 7.6%. This is surprisingly high, considering that Walmart, which is a proxy for the entire retail sector, operates with a net profit margin around 3%. According to the McKinsey Global Institute, this number represents a 73% improvement off of the net profit margins of 1980. Two of the largest contributing factors to this margin expansion are global supply chains and improved supply chain management.

7. The global productivity rate is approximately 2%. The number is far less in the United States where it has been 1% or less for the past five plus years. These numbers are significantly lower than the numbers posted for 100-plus years after 1870. Why is this important? This is important because productivity is the means by which we raise standards of living and by which we pay people more. Supply chain management is critical to this. We will cover more on this topic in future posts.

#worldasasupplychain #worldinventory #productivityrate

189 views