More Supply Chain Predictions for 2012, Part 1

Stephen DeAngelis

January 5, 2012

In an earlier post [Supply Chain 2012: What Lies Ahead?], I discussed some predictions made by analysts Bob Ferrari and Lora Cecere. In this two-part series, I’ll discuss what several others analysts predict lies ahead. In this part, I will particularly focus on what analysts are saying about manufacturing. For example, Peter Marsh from the Financial Times predicts that the United States will begin to close the gap with China in manufacturing. [“Forecasts for a future imperfect,” 2 January 2012] He writes:

“The US last year gave up its century-long title as the world’s biggest manufacturing country by output to China, whose climb up the global factory league table has been meteoric. But progress is slowing as China’s rising wage and energy costs make production options – at least for export – less favourable. In the US, local production is growing in response to customers’ desire for quick design changes and rapid delivery of orders. Many US manufacturers have also become more competitive by substituting brain power and capital for labour. There is little evidence that China has come close to catching up with the US in the most technically demanding end of manufacturing. By the end of 2012, even if the US does not regain the top slot, it will have narrowed the gap with China in its share of world manufacturing production.”

If Marsh is correct, that will be good news on the job front. As I have noted in previous posts, for every manufacturing job that is created, it is estimated that up to eight supply chain jobs are also opened. IDC Manufacturing Insights has “revealed its Top 10 Predictions for 2012” having to deal with the manufacturing sector. [“IDC’s Top 10 Manufacturing Predictions for 2012,” Consumer Goods Technology, 21 December 2011] The article reports that the predictions “focus is on the transformation of major manufacturing processes and how IT enables that transformation. The predictions are expected to have a long-range impact on manufacturing business and IT decisions.” They also cover a range of topics that I’ve discussed in previous posts. They begin with the importance of engaged organizations:

1. Success in the intelligent economy will be achieved through ‘engaged’ organizations.

We are in the early stages of what has been called the “Era of Big Data.” Having access to that data in near-real time is what being engaged in the “intelligent economy” is all about.

2. IT organizations will make foundational investments in the ‘four forces’ that deliver both IT productivity and business value.

Businesses have been burned too often in the past by investing in IT systems and software that have been long on promises and short on results. Cloud computing should help companies get a better bang for their buck in the years ahead. That is why cloud computing is one of IDC’s four forces. The others are: Mobility, Big Data, and Social Business.

3. Manufacturers focus on clock-speed alignment across the supply and demand sides of their supply chains.

In his predictions, Bob Ferrari also talked about the importance of supply chain clock-speed. The clock is definitely speeding up and decision aids are needed if supply chain stakeholders are going to keep pace.

4. The requirement for speed and the ubiquity of information creates a new landscape for IT support of the supply chain.

That new landscape is going to be found in the clouds (i.e., cloud computing). Only cloud computing systems can address the speed and scalability that businesses need to leverage Big Data at an affordable price.

5. Manufacturers adopt lean innovation throughout the product lifecycle.

Kenneth McGuire, a management consultant with Management Excellence Action Coalition, told the editorial staff at SupplyChainBrain, “Lean alone won’t make a company successful, but even a successful company could improve immensely if it adopted a number of Lean practices.” [“Does Lean Make a Good Company Great?” 29 December 2011] The article continues:

“For the last 30 years, MEAC has helped companies in manufacturing improve so they can boost productivity. Lean is one of the ways to do that because it is among the competitive norms against which companies will be measured. After all, there’s an immediacy in delivery that’s required by most customers now, a perfection in product quality that most consumers expect now, and there’s a very high service level demanded now. These are goals that Lean practices enable if not necessarily guarantee.”

My only caution is that numerous analysts have concluded that supply chains become too lean, which means they can be easily disrupted. Companies need to find the right balance between being too lean and too redundant. For more on this topic, read my post entitled Supply Chain Resiliency Still an Issue. I will publish another post on this topic in the near future. Returning to IDC’s list of predictions, the next prediction involves visibility.

6. Greater visibility and deeper understanding of all aspects of product lifecycle enable context for innovation.

Supply chain analysts almost unanimously agree that the best supply chains in the future will be those that have the best visibility (in both directions). Many also agree that product lifecycle issues are going to become an increasingly important consideration from a consumer and regulatory standpoint.

7. The factory of the future will be driven by capabilities to fulfill customer demand rather than pure production capacity.

IDC analysts aren’t alone in this prediction. Trevor Miles asserts that supply chain portfolio complexity is increasing “due to mass customization and shortening product life cycles.” [“Visibility, the antidote to supply chain opacity,” The 21st Century Supply Chain, 2 May 2011]. Analysts at McKinsey and Company claim, “Executives expect that the most powerful effects on their companies will be increased innovation, greater consumer awareness and knowledge, and increased product and service customization.” [“Five forces reshaping the global economy: McKinsey Global Survey results,” McKinsey Quarterly, May 2010]. Researchers from Supply Chain Digest‘s research organization, Chief Supply Chain Officer (CSCO) Insights, insist that “‘build to stock’ will ultimately give way to ‘build or customize to demand'” in most industry sectors [“Building Sense and Respond Supply Chain Networks,” by Editorial Staff, Supply Chain Digest, 17 June 2010]. Customer personalization will add to the complexity of supply chains; but, the folks at IDC are probably correct that it will become one of the hallmarks of future manufacturing. Karl Albrecht once said, “If you’re not serving the customer, you’d better be serving someone who is.”

8. The factory of the future will require a new approach to operations applications.

Past operations practices simply aren’t designed to cope with the growth of multi-channel sales and product customization. The new operations mantra should be “adapt or die.”

9. Engaged manufacturers look ahead by creating a culture of learning.

This prediction goes hand-in-hand with the previous one. Manufacturers who learn how to be agile and adaptable are going to be the ones that thrive in the years ahead.

10. Manufacturers shine environmental sustainability spotlight on the factory as a means of getting to the product,

Although this sounds a lot like “greenwashing,” sustainability issues are going to impact operations for years to come. As I have stated repeatedly in the past, only sustainability programs for which a business case can be made should be pursued since they are the ones that will prove to have legs.

 

Although it might not technically be classified as a prediction, “a recent study by The Manufacturing Performance Institute (MPI)” concludes that U.S. manufacturers must make improvements in six areas to remain competitive. [“US Manufacturers Must Make Progress in Six Key Areas to Regain Competitiveness,” SupplyChain Brain, 15 December 2011] The study found “that while a growing number of US manufacturers recognize the importance of key capabilities needed to be competitive on a global stage,… too many companies still exhibit an ‘execution gap’ between what they know needs to be done and what they are actually doing.” The article continues:

“The recent report – titled The Next Generation Manufacturing Study 2011 – identifies six key ‘next generation’ manufacturing strategies. Those strategies/capabilities are:

1. Customer-focused Innovation: Basically, develop new products faster than the competition.

2. Engaged People/Human Capital Acquisition, Development, and Retention: Development of superior systems and processes for talent management.

3. Superior Process Improvement Focus: Drive continuous improvement that exceeds that of the competition, based on company-wide commitment to strategies such as Lean, Six Sigma, etc.

4. Supply Chain Management and Collaboration: Focus on flexibility, response time, and delivery.

5. Sustainability: Finding waste and energy reductions that reduce costs and produce customer value.

6. Global Engagement: Being capable of buying and selling on a global stage.

“This seems like a reasonable list of capabilities or focus areas, but we will note that a lack of focus on Sustainability to date has not much hurt Chinese companies that have seen such a huge increase in market share in the last decade, though we agree that energy efficiency will be an increasing component of cost competitiveness.”

I agree with the staff at SupplyChainBrain that, when it comes to the topic of sustainability, price has trumped ideology in the minds of consumers. That is why I stated earlier that a business case must be made for sustainability efforts. You will note that many of the areas identified for needing improvement in MPI’s report are areas that IDC predicts will be addressed in the year ahead. There will obviously be a lot to watch in the manufacturing sector this year. Tomorrow I will discuss supply chain predictions made by Adrian Gonzalez and Steve Banker.