More Predictions about the Supply Chain

Stephen DeAngelis

March 23, 2011

Before we get too much further into 2011, I thought I’d share a few more “expert” predictions about the supply chain. It’s clear from events in Japan that only the broadest of predictions can be taken seriously. No one predicted, for example, that Japan was going to become a weak link in the supply chain [“Now, a Weak Link in The Global Supply Chain,” by Bruce Einhorn, Tim Culpan, and Alan Ohnsman, Bloomberg BusinessWeek, 17 March 2011]. For more on the Japanese disaster and its effect on the supply chain, read yesterday’s post entitled The Impact of the Japanese Tsunami on the Supply Chain.

 

I discussed some of the trends and predictions being made concerning the future of the supply chain in two previous posts [Supply Chain Management Trends 2010 and Predictions Concerning the Future of Supply Chains]. In the first post, five trends, identified by the staff of Supply Chain Digest, were discussed. They were:

 

  • Supply Chain Volatility and Uncertainty Have Permanently Increased.
  • Securing Growth Requires Truly Global Customer and Supplier Networks: Future market growth depends on international customers and customized products.
  • Market Dynamics Demand Regional, Cost-Optimized Supply Chain Configurations: Customer requirements and competitors necessitate regionally tailored supply chains and product offerings.
  • Risk Management Involves the End-to-End Supply Chain: Risk and opportunity management should span the entire supply chain—from demand planning to expansion of manufacturing capacity—and should include the supply chains of key partners.
  • Existing Supply Chain Organizations Are Not Truly Integrated and Empowered: The supply chain organization needs to be treated as a single integrated organization.

 

In the second post, I discussed predictions offered by Robert J. Bowman, that included: cloud computing will dominate the supply chain; companies that outsourced manufacturing will start bringing some of that capability back to the U.S.; most software will be delivered electronically; China will acquire a top ten global third-party logistics provider; balance between supply and demand will return in the semiconductor industry; and large-scale fleet operators will begin switching to electric vehicles. Noted supply chain analyst Bob Ferrari predicts that The Most Troublesome Supply Chain Challenge in 2011[will be] Rising Inbound Material Costs [Supply Chain Matters, 25 January 2011]. He specifically mentions agricultural products, precious metals, rare earths, and, of course, oil. In a previous post, he provided his own top ten predictions for 2011 [Supply Chain Matters Top Ten Predictions for Global Supply Chains in 2011, Supply Chain Matters, 17 December 2010]. His list follows:

 

  • Business recovery will remain sluggish, but the second-half of 2011 should provide some uptick in product demand and supply chain fulfillment needs.
  • The year 2011 will provide more supply chain cost reduction pressures and the challenges may be tough to overcome. This may be a year where supply chains will not be able to deliver aggressive cost reduction objectives.
  • As in 2010, incidents of supply chain risk, disruption, and breakdowns in quality will unfortunately continue.
  • Supply chain technology deployment will remain tactically focused and buyers will remain in a favored position for negotiating technology acquisitions.
  • The year will bring a new wave of turmoil, acquisition and market consolidation in certain supply chain and enterprise technology areas.
  • Cloud computing options directed at supply chain business process enhancement will explode in popularity and adoption.
  • Wider scale leverage and adoption of in-memory computing, coupled with broader application of information discovery platforms, could be game changing influences on supply chain wide business analytics.
  • Two industry sectors, B2C and healthcare, will be especially effected by significant supply chain process impacts in 2011.
  • The landscape for the global outsourcing of components and finished goods production will shift again in 2011.
  • Supply chain related green and sustainability programs will continue in 2011 and beyond, but at a slower pace.

 

Simon Ellis and Kimberly Knickle, from IDC Manufacturing Insights, provide another “Top 10” list of predictions about the supply chain [“Top 10 Predictions for the Worldwide Supply Chain,” Consumer Goods Technology, 17 January 2011]. Here’s what is on their list:

Prediction #1: Manufacturing supply chain organizations, recognizing the inherent complexity in their global supply chains, will look for ways to drive out unnecessary complication through segmentation, simplification, and the use of more practical analytics.

Prediction #2: IT vendors will continue to develop business intelligence and analytics tools that enable manufacturers to improve decision making at the strategic, tactical, and operational levels.

Prediction #3: Although demand forecasting continues to be important, supply chain organizations will begin to recognize the critical role of supply-side responsiveness.

Prediction #4: Supply chain visibility will climb on the IT application priority list as manufacturing companies increasingly identify critical use cases to drive both cost savings and improved service levels.

Prediction #5: In the context of taking a broader view of total cost, supply chain organizations will gain a new appreciation for shortening lead times through profitable proximity sourcing strategies.

Prediction #6: Cost containment, and the desire for variable supply chain structures, will continue to drive outsourcing of operations, but will also bring a more enlightened perspective to SaaS and ‘skills resourcing.’

Prediction #7: Supply chain modernization will pick up speed again as manufacturing companies look to drive fulfillment excellence through transportation, warehouse, and labor management tools.

Prediction #8: As manufacturers increasingly outsource manufacturing and expand in emerging regions, they will search for ways to improve information sharing and support more organic collaborative processes across the extended supply chain.

Prediction #9: Value chain captains will put a stake in the cloud to level-set technology capabilities, with focus on aligning with the ‘clock speed’ of the supply chain.

Prediction #10: Manufacturers will invest in learning how to incorporate mobility applications and smart devices into the supply chain while balancing IT management concerns with employee enthusiasm.”

Gartner published two sets of predictions: “one for overall supply chain management, another for global logistics.” [“Full 2011 Supply Chain Predictions from the Analysts at Gartner,” Supply Chain Digest, 2 February 2011]. Read the article to learn about the assumptions that Gartner analysts used to make their predictions. The first set of predictions (about supply chain management) were compiled by analysts Tim Payne, Mickey North Rizza, Noha Tohamy, Dwight Klappich, William McNeill, and Chad Eschinger. They include:

 

  • “Supply chain leaders will focus on redesigning their demand management processes and technology to help drive stronger market insights.
  • “Determining how to manage supplier risk will become a key requirement for leading organizations.
  • “Supply chain management (SCM) technologies based on software as a service (SaaS) and the cloud will continue to gain traction, but mainly in process areas, with strong alignment to the unique characteristics of these delivery models.
  • “Although in the last couple years the pendulum has swung back to favoring best-of-breed (BOB) SCM applications over ERP, supply chain leaders have identified a successful hybrid model that leverages the power of both.
  • “Supply chain segmentation is gaining traction in the business, and leading companies are figuring out how to formalize the process to make it consistent and repeatable.”

 

The second set of Gartner predictions (about global logistics) were assembled by Dwight Klappich, Greg Aimi, Jeff Taylor, and William McNeill. They include:

 

  • “Supply chain security has taken a back seat to cost reduction during the last three years. A major port disruption is likely within the next five years, however, which will force SCM organizations to formalize risk management.
  • “‘Co-opetition’ — notably, partnering with potential competitors — will become a transformational SCM strategy, allowing early adopters to move beyond incremental performance improvements.
  • “In media and related businesses, the move to digital SCM will reshape SCM strategies and practices in over half the companies in these industries during the next five years.
  • “Growth in consumer classes in emerging markets will reshape supply chain networks, forcing multinational organizations to overhaul their supply chain networks.
  • “Supply chain process outsourcing will become a strategic mandate as leading practitioners move toward lead logistics provider (LLP) relationships.”

 

You will note some similarities and some differences with predictions mentioned earlier in this post. For example, there appears to be a growing consensus that cloud computing and software as a service (SaaS) will play major roles in future supply chain management. On the other hand, there doesn’t seem to be a lot of agreement on the outsourcing of manufacturing. Some analysts predict that a portion of outsourced manufacturing will return home while others predict that even more will be outsourced. Analysts at McKinsey & Company asked 639 business executives to predict the most serious challenges they would face over the next five years [“The challenges ahead for supply chains: McKinsey Global Survey results,” McKinsey Quarterly, November 2010]. The analysts report, “Looking at challenges over the next five years … respondents most frequently cite increasing pressure from global competition.” The figure below accompanied the article and provides some perspective about how business executives view the future.

 

 

 

It is interesting to note that “geopolitical instability” ranked last in their concerns; yet geopolitical unrest throughout the Maghreb and Middle East have had a significant impact on rising oil prices which, in turn, have had a dramatic effect on supply chain costs. Every economic sector will have its own set of supply chain challenges and opportunities. Nevertheless, parsing lists of predictions for commonalities is a good way to discover broad-based trends that are likely to impact all sectors. Cloud computing, software as a service, the rising global middle class, and increasing commodity prices are just a few of those trends. Predictions, however, are just best guess prognostications. They are not fact. They help alert us to potential challenges and opportunities but don’t they don’t excuse us from doing further research and analysis. Milton Friedman once said, “The only relevant test of the validity of a hypothesis is comparison of prediction with experience.”