2015 Predictions: Supply Chains, Part 1

Stephen DeAngelis

December 10, 2014

In this article, which continues a series of articles about predictions about the upcoming year, I want to discuss the topic of supply chains. Every year Robert J. Bowman, Managing Editor of SupplyChainBrain, provides an excellent review of predictions made at the San Francisco Roundtable of the Council of Supply Chain Management Professionals. This year is no exception. During the Roundtable, supply chain experts from the Bay Area proffered their 2015 predictions about the supply chain, which were promptly scrutinized by all of the other experts in attendance. Bowman encapsulates this year’s Roundtable discussions in two articles [“From the S.F. Roundtable, Another Peek Into the Future,” and “S.F. Roundtable Envisions the Future, Part 2,” SupplyChainBrain, 24 November and 1 December 2014] Here are some of the predictions that were made during the Roundtable.

 

Prediction: Supply Chain Nodal Convergence. “Lisa Bugajski, senior director of product delivery operations with Adobe Systems, expects to see ‘an extreme supply-chain nodal convergence.’ With the arrival of cloud technology, technology vendors will begin bypassing value-added resellers. Application infrastructure will become easily available through a handful of popular sites such as Facebook and Google. Meanwhile, manufacturers will be forced to cut time to market in order to meet on-the-spot demand by picky consumers, necessitating faster access to goods and information. ‘People are going to go elsewhere, to whoever has the product,’ Bugajski said.”

 

According to Bowman, there was wide agreement with Bugajski’s prediction. Even though some supply chains may be lengthening, the timeframes in which customers expect to receive their products are getting shorter. Those expectations will require many companies to completely transform their supply chains. “Greg Ginsburg, vice president of global sourcing and supply chain design with The Clorox Company, envisioned a radical change in the e-commerce landscape. ‘The customer wants to touch the product quickly,’ he said. … ‘The whole thing is going to compress and compact in ways that we can’t even think of right now,’ said Kerry McCracken, vice president of business solutions for the Integrated Network Solutions segment of Flextronics.”

 

Prediction: Real-time Supply Chain Visibility. “‘Real time is going to be the mantra going forward,’ said G.S. Iyer, director of worldwide materials with Citrix Systems. Business-intelligence systems will combine with strict metrics and alerts, all with the goal of supporting more efficient supply chains.”

 

There are lots of good reasons to have real-time, or near-real-time, visibility into one’s supply chain – or, at least, into some aspects of one’s supply chain. Not only will that visibility make operations more efficient it allows companies to react faster to potential supply chain disruptions. According to Bowman, not everyone agreed with Iyer’s prediction. For one, Kerry McCracken disagreed. She said, “‘I agree that everybody wants real-time information, but the supply chain works pretty much like watching lava flow. It is really, really slow.’ The concept that every transaction of data needs to be real time is a ‘fallacy,’ she said.” For some supply chain activities McCracken is correct. After all, there’s not much you can do while goods are on a slow boat from China. But you would still like to know if the ship is going to arrive on time or whether its cargo is going to be affected by a port logjam on the West Coast. Securely obtaining desired real-time information remains problematical and I agree with McCracken that companies need to figure out which data real needs to be obtained in real-time and which can be obtained on a less timely basis.

 

Prediction: Increased Cyber Security. “Supply chains, in order to remain relevant to their companies, will have to sharpen their focus on the security of digital assets moving upstream to partners, said Bugajski. They’ll need to do much more than just protect the flow of digital goods.”

 

Target and Home Depot have both learned the sad lesson that cyber security is only as good as the weakest link and that weak link is often a vendor (e.g., a supplier or service provider). Bowman reports, “McCracken agreed with the premise – ‘Security is a massive issue’ – but said software vendors also need to acquire a better understanding of the hardware that’s running their product. ‘They need to bring those two worlds together.’ Bugajski concurred, while expressing relief that Adobe isn’t a company ‘that has to get into hardware too often. We’ve already transitioned into this area of the supply chain.’ The trick, she said, is getting other vendors to follow.”

 

Bowman’s second article focused on predictions involving the question: “What Does the Future Hold for Supply Chain Management?”

 

Prediction: New Shipping Rates. “Parcel and small-package carriers are going to alter the way they charge for shipping, and customers will have to respond, said Michael Hester, senior vice president of merchandising operations and supply chain with BevMo! Corp. In fact, both UPS and FedEx have already announced a move to dimensional pricing, whereby the rate for a parcel of less than three cubic feet is based on both its cube and weight. (Both carriers already use that formula for pricing larger packages and air shipments.) The change takes effect at the end of this year. ‘Expect an acceleration of custom, made-to-order packaging, where everyone tries to minimize the impact of dimensional pricing,’ said Hester.”

 

Analysts at TranzAct Technologies agree with the prediction that most shippers will move to a rate scheme that involves both dimensional and weight pricing. Watch this short video to understand why.

 

 

Prediction: Uber-like Logistics. “The concept behind the ride-sharing service Uber and its competitors will begin to affect the structure of supply chains, said Kerry McCracken. … She envisions the formation of an industry that will bring together existing infrastructures and partners in a series of creative, ad hoc relationships, all with the intention of fostering more responsive supply chains. The strategy will be of particular value to new-product introductions and ramp-ups, she said.”

 

Bowman reports, “The audience was split, with some members believing that it’s too early for the emergence of a radically new supply-chain model.” The fact that the Uber model is also receiving a lot government attention (at all levels) should cause shippers to move slowly in this direction.

 

Prediction: New Manufacturing Methods in Emerging Markets. “Supply chains will adopt new techniques for enabling manufacturing within emerging countries, said G.S. Iyer. … Their ability to solve the demand-supply equation will be tied to resources and intelligence within those countries, and become less dependent on outside parties. Mobile apps and cloud technology will aid in the localization of manufacturing, he said.”

 

I tend to agree with Iyer that new manufacturing methods, access to the digital path to purchase, and a new emphasis on regionalization will have an impact on a number of supply chains. Bowman reports, “McCracken wasn’t sure. She cited the problem of ever-shifting government tax policies within emerging countries, a practice that often amounts to ‘rearranging the deck chairs.’ Manufacturers will rely as much as possible on local resources, she said, but global supply chains can’t reconfigure their infrastructures overnight.”

 

Prediction: Emergence of Middle Brands. “Expect to see the emergence in retail stores of a ‘middle brand’ that splits the difference between traditional store brands and lower-priced private labels, said Ginsburg. Smart merchandisers will figure out a way to serve the demographic that consists of consumers who are losing purchasing power, but want both value and quality. Whether the solution comes from the consumer packaged goods or privately branded sector remains to be seen. ‘There will be a middle brand,’ said Ginsburg. ‘There will be too much value in the economy to avoid it.'”

 

Bowman reports that this was a controversial prediction. “Some stood up to dispute the idea,” he writes. “They referred to the huge number of price points and SKUs already crowding retail shelves, and asked whether existing upper- and lower-priced goods can make room for yet another category to fill that supposed void.” I would have thought that dissing the quality of private brands would have stirred more controversy than the notion of adding a new product category. At least one pane member reacted to that point. Bowman reports, “Hester said private labels, typically produced by a third party on the retailer’s behalf, have already cornered the market on price, yet could also provide the requisite quality to satisfy a consumer’s desire for an option that offers the best of both worlds.” I tend to agree with him.

 

In Part 2 of this article concerning 2015 Predictions about the supply chain, I’ll look at what other experts are prognosticating.