2015 Predictions: Supply Chains, Part 2

Stephen DeAngelis

December 11, 2014

In Part 1 of this two-part article focusing on 2015 supply chain predictions, I discussed two articles written by Robert J. Bowman, Managing Editor of SupplyChainBrain. In those articles, Bowman provided an excellent overview of predictions made at the San Francisco Roundtable of the Council of Supply Chain Management Professionals. In this article, I would like to look at a few other predictions that have been made concerning the future of supply chain operations. To start the discussion, I thought it would be interesting to look back at some of the prognostications that Dan Gilmore, Editor-in-Chief of Supply Chain Digest made five years ago about what the supply chain in 2015 would look like. [“Supply Chain 2015,” Supply Chain Digest, 22 October 2009] Here are Gilmore’s top ten predictions:

  • A majority of companies will have reconfigured their supply chain networks: Many companies have supply chain networks developed for a different era. Fuel prices, green SCM concerns, virtualization and more will lead many to fundamentally rethink those networks over the next few years.
  • Supply chain planning and execution will start to blur: … The need for response based on market demand and other factors is outstripping current planning cycles. Tactical and even some operational planning become completely intertwined with execution, causing changes in organizational structures, processes and technology.
  • We see substantial drops in overall inventory levels: Inventory levels have remained flat for many years now. But the lessons of this recession – that maybe we can get by with less combined with supply chain simplification programs and new technology – really will drive step change drops in inventory levels by 2015.
  • Web-based supply chain software comes to dominate the landscape: I haven’t completely been on this bandwagon until recently, but by 2015, this is how it is going to be – which has many major implications. More confident of this than about any other prediction on the list. Once this becomes the lead approach for almost all vendors, the shift will happen rapidly.
  • Green drives transportation collaboration: The logic of transportation collaboration and the financial benefits haven’t done it. The capacity crunch of 2005-06 almost did, but then that went away. Green will finally do the trick, and we will see much more cross company load-linking and even sharing of capacity between competitors. But does this commoditize logistics?
  • Visibility to everything, all the time: The technology is really here now to have it, and despite RFID’s current lack of direction, it will become very commonplace by 2015. Understanding what to do with this information is the real challenge.
  • Common deployment of real-time performance management: Scorecards are rear-view looking; dashboards help you make decisions right now. A few companies have already developed these kinds of capabilities; they will be widely deployed by 2015.
  • Distribution centers will take one of two paths: Lean and un-automated (and very flexible), or automated to a level hard to imagine today. … The robots are coming.
  • Supply chains focus turns to emerging markets: This is simply where the growth will be – perhaps explosively so. This will impact product design, pricing, logistics and much more. Those that get it right will have huge corporate advantage – as companies like Procter & Gamble smartly focus on “micro-logistics.”
  • Digitization increases impact on the physical supply chain: A tsunami wave of digitization is happening, dramatically impacting physical supply chains, often in not obvious ways. We all know that itunes is putting CD makers out of business, but that filters down to record stores and even producers of the plastic resins used to make CDs. Think the future is bright for watch and mid-level camera makers when you will have both in your cell phone? … Look forward on how your company – and your career – might be impacted by digitization.

Although Gilmore may have missed the mark in a couple of areas (for example, we don’t have “visibility to everything, all the time” just yet), he proved prescient in a number of his predictions including the move to the cloud, the increased use of robots in warehouses, and the impact of digitalization. Most of his other predictions are also on the right vector. All-in-all I think Gilmore should be congratulated for his foresight. Let’s hope Mickey North Rizza (@MNorthRizza) does as well with five predictions she offers about procurement in 2015. [“Five Procurement Predictions for 2015,” Supply Chain Digital, 28 October 2014] Her first prediction concerns operational alignment:

“In 2015, organisational alignment will be a necessity in order to stay ahead. Procurement will need to improve its relationships across the organisation — with sales, marketing, engineering/design, IT and finance. Doing so will ensure that procurement is delivering the right kind of value that has a measurable impact on the business — ultimately creating results that matter both in the boardroom and on Wall Street.”

In past articles about organizational alignment, I’ve stressed the importance of data integration so that all departments are working from the same data bases (i.e., using one version of the truth) to make decisions. Corporate alignment is difficult, if not impossible, if data is siloed within various business functions. It’s not just procurement activities that need this kind of corporate inclusiveness every aspect of the supply chain requires it, especially supply chain risk management teams. Rizza’s next prediction involves changing inventory strategies. Rizza writes:

“With the rise of multi-channel retailing, supply chain simplification, shrinking product life cycles and new technology, procurement leaders realise the importance of tackling inventory management in a holistic manner. In 2015, supply chain leaders will focus on implementing strategies to optimise the growing inventory network and improve customer service. CPO’s will need to work to establish forecast accuracy, serve multiple channels with one inventory pool, and identify the most efficient way to fulfill orders from this pool. Flexible manufacturing will rise and software solutions and supply chain network optimisation tools will be very beneficial when it comes to tactical planning.”

Rizza combines two of Gilmore’s predictions (see bullets two and three above). I agree with Rizza that inventory management is becoming more critical in a business world where omni-channel retailing is becoming the norm. Her third prediction involves real-time performance management. She writes:

“Web based supply chain software will continue to be integral in purchasing. These solutions allow procurement leaders to improve relationships with sourcing partners and gain visibility into their supplier base — ultimately helping procurement save money and time. Software allows procurement to effectively track and manage supplier performance as well as identify risk and problem areas. Many companies currently struggle with how to leverage the data captured by the software. In 2015, procurement executives will be charged with finding out how to unlock the tremendous value the analytics in the software provides.”

If you’re following these predictions closely, you are beginning to see a common thread weaving its way through most of the predictions — that thread is big data analytics. You can’t achieve corporate alignment without good analytics, you can’t manage supply chain risks without analytics, you can’t manage inventories without analytics, you can’t manage logistics without analytics, you can’t market effectively without analytics, and the list goes on. Rizza’s fourth prediction involves emerging markets.

“Emerging markets, such as Asia Pacific and Latin America, have been deemed as primary business growth areas for manufacturing and logistics. In 2015, supply chain executives will capitalise on these emerging markets, which will influence many aspects of the supply chain, including product design, pricing, and logistics. Moving away from tried and true regions like China present a new set of challenges. It will be critical for procurement to identify the new natural and economic risks of these emerging markets — and make sure that there are strategies in place to mitigate the risks.”

The experts at the San Francisco Roundtable as well as Gilmore and Rizza all discuss the importance of emerging markets. Although I agree that companies will moving into emerging markets, I don’t agree that companies will “move away” from China as they expand. The Chinese market is too big to ignore and sourcing within China for domestic markets still makes sense. When entering emerging markets, manufacturers and retailers must look more closely at how they serve those currently living at the bottom of the economic pyramid. Serving them does require taking a whole new look at how supply chains work. Rizza’s final prediction involves supply chain collaboration.

“Rather than just going through the motions of an RFP, procurement will start to evaluate suppliers as potential partners, asking them how they’d solve a specific problem. Doing so will provide procurement with more information than just product specs, they’ll be able to see their suppliers creativity and problem-solving aptitude — key characteristics of a strategic partner. Suppliers will be invited to planning meetings and work with R&D teams to share thoughts on how they can best help the organization. The more that suppliers are integrated into the business, the more invested they’ll be to want to help.”

Although I agree that there will (and must) be more supply chain collaboration in the future, the challenges that must be faced when increasing collaboration cannot be overlooked. For more on that topic, read my article entitled “Supply Chain Collaboration and Secure Information Sharing.”

Undoubtedly, there are going to be a lot more predictions about how the supply chain is going to change next year; but, I think that the prognostications that I have focused on in this two-part article provide a pretty good overview of the themes you will be reading more about. As I noted above, one thread that weaves its way through many of these predictions is big data analytics. Knowing that, I would like to add a prediction of my own. Cognitive computing is going to play a much larger role in organizational operations in the future. Using integrated data, cognitive computing systems, like the Enterra Solutions® Cognitive Reasoning Platform™ (CRP), will enhance decision making throughout an organization. I’m not alone in this belief. Accenture’s latest technology vision entitled “From Digitally Disrupted to Digital Disrupter,” asserts that the next step in big data analytics involves cognitive computing. “As the volume and variety of data grow,” the study reports, “so too do the scale and complexity of the data supply chain, making it increasingly difficult to add to and get value from data as it is manipulated.” It continues:

“What if … machines could be taught to leverage data, learn from it, and, with a little guidance, figure out what to do with it? That’s the power of machine learning — which is a major building block of the ultimate long-term solution: cognitive computing. Rather than being programmed for specific tasks, machine learning systems gain knowledge from data as ‘experience’ and then generalize what they’ve learned in upcoming situations. Cognitive computing technology builds on that by incorporating components of artificial intelligence to convey insights in seamless, natural ways to help humans or machines accomplish what they could not on their own. At its most advanced, cognitive computing will be the truly intelligent data supply chain — one that masks complexity by harnessing the power of data to help business users ask and answer strategic questions in a data-driven way.”

The supply chain is focused on getting things (including data) from where they are to where they need to be. Cognitive computing systems can help deal with all of the complexities involved in doing that.