Predictions for the Coming Year: Supply Chain Management, Part 1

Stephen DeAngelis

January 6, 2014

Over the past couple of months, SupplyChainBrain has published several articles offering views about what lies ahead in 2014 in the supply chain sector. Many (if not most predictions) are based on assumptions about what the economy is going to do. The better the economy, the more likely the predicted activities are to come true. Unfortunately, “sixty percent of CFOs believe the state of the U.S. economy will remain the same or worsen during the next six months, according to the Grant Thornton LLP 2013 Fall CFO Survey.” [“Majority of CFOs Don’t See Rosy Economic Picture Ahead for U.S., Study Finds,” SupplyChainBrain, 5 December 2013] The pessimism demonstrated by CFOs rests in part on the assumption that a dysfunctional Congress is going to continue to act as churlishly as it has in the past. In the article, Stephen Chipman, Chief Executive Officer of Grant Thornton, stated, “The declining confidence and uncertainty in the performance of our economy shouldn’t be surprising given the recent gridlock surrounding our nation’s budget and debt ceiling negotiations. It’s time for our country’s political leaders to embrace a long-term budget solution combined with comprehensive tax and entitlement reforms in order to remove the largest obstacles to business uncertainty and position the United States for a sustained economic recovery.” According to the article, “24 percent of CFOs cited funding the government and/or replacing across-the-board spending cuts known as ‘sequestration’ as their most important legislative priority, while 24 percent point to the need for reforming the tax code.” The fact that the House of Representatives (where most of the incalcitrant behavior can be found) passed a negotiated budget settlement last month offers a glimmer of hope that the CFOs may be wrong in their assessment.

 

With that sobering assessment of the economy as a backdrop, let’s move on to some of the predictions about the supply chain sector made by “a handful of practitioners” at a recent meeting of the San Francisco Roundtable of the Council of Supply Chain Management Professionals. [“‘Tis the Season: S.F. Roundtable Predicts the Future of SCM,” by Robert J. Bowman, SupplyChainBrain, 16 December 2013] The first prediction involved planning and logistics.

Prediction: “Planning and logistics is finally moving toward a real-time environment, said Jim Miller, vice president of worldwide operations with Google, Inc. … Mobile computing and the internet are combining to make real-time a reality at long last. The capability is becoming a defining feature of leading supply chains, which are increasingly being run on data mined in large part from social networks. The fashion industry is among the sectors that are leading the charge.”

Bowman indicates that this prediction was not a particularly controversial one. Of course real-time planning and logistics relies on collaboration not just technology. Collaboration, in turn, relies on trust. Last year, Nick Allen asserted that trust could be an extremely important issue, especially if supply chains venture into “co-opetition.” He wrote:

“Future progress on collaboration relies on honing the creativity of supply chain professionals to realise the potential that exists outside traditional activities; to venture into the dark side – co-opetition. Collaboration between active partners within a supply chain is seen as an essential step to creating competitive advantage. Working together, sharing information and close dialogue can bring significant efficiencies and cost savings for supply chain partners. This sounds simple enough, but what happens when the collaborating parties are competitors? How can this possibly work? The inherent competitive nature of business throws up a series of, principally, psychological barriers to exploiting a rich seam of efficiency improvement for supply chains, the collaboration between competing companies. There are many instances where such collaborations make sense and the rewards can be great, but there are critical issues to consider and a new, enlightened way of thinking is required.” [“Exploring the dark side of collaboration,” Supply Chain Standard, 25 April 2012]

The next prediction reported by Bowman involved intellectual property and it has broader application than to just the supply chain.

Prediction: “In the era of rampant sharing over the internet and via various mobile devices, the integrity and longevity of intellectual property is at risk, said [Mark Buck, MOD global supply chain and procurement leader at Bio-Rad Laboratories, Inc.]. ‘Idea-sharing has become something of a commodity,’ he said, venturing that IP protection no longer will last a decade or more. Companies will find it impossible to shield their secrets against a tidal wave of openness.”

Bowman reports that there was some disagreement with that prediction based on the fact that companies are still spending “an awful lot of money and power” to protect intellectual property rights. I suspect, however, that Buck is probably correct since IP rights are not effectively enforced around the globe. The next prediction has to do with product innovation.

Prediction: “Companies that innovate and get new products to market faster than the competition will be the winners, said [Kerry McCracken, vice president of business architecture and delivery with Flextronics]. After years of talking about it, leaders have finally figured out their optimal supply-chain models for responding to customer demand. ‘It’s all about time to market now.'”

According to Bowman, no arguments against this prediction were forthcoming. I’m a bit surprised that there was no disagreement considering the fact that the company that is first to market is generally not the company that often benefits most. He notes that the rush to get new products to market has resulted in “a massive increase in retail SKUs.” As I have pointed out in previous posts, this increase in SKUs means that there are more products competing for finite space on store shelves or fighting for a prominent place in online catalogs. If McCracken is correct in her prediction, these challenges will only grow in the years ahead. That’s why a real-time planning and logistics system is so important. It will help manufacturers and retailers tailor their inventories to local conditions. The next prediction involved supply chain forecasting.

Prediction: “Retailers are doing such a good job of tracking consumer behavior that the resulting data will supplant traditional forecasting based on sales as a basis for planning, said [Michael Hester, head of planning, allocations, distribution and logistics with BevMo]. BevMo draws heavily on information both from actual sales and its ClubBev loyalty program. In the event, the big beverage retailer has achieved a 95-percent penetration rate into its customer base. ‘If [an item] comes in on a Tuesday, I can see what’s going to happen on Saturday,’ Hester said. ‘It’s not based on sales – it’s based on tracking consumer shopping preferences.'”

Bowman indicates that responses were mixed to Hester’s prediction. Some participants thought he was overstating his case. That may be true; however, I believe that real-time and predictive forecasting systems are moving in the direction Hester predicted. I don’t believe that point of sale data alone will be sufficient in the future (especially when introducing new products). Predictive forecasting based on a number consumer data inputs will also be required. Bowman indicated that more predictions from the San Francisco Roundtable would be forthcoming and I’ll discuss those in a follow-on post. To conclude this post, I want discuss three interrelated trends that Andrew Roszko, senior vice president of sales at Descartes, predicted during an interview with SupplyChainBrain that he claims will transform retail. Those trends are: Big Data, direct-to-store shipping, and omnichannels. [“Three Trends Transforming Retail: Big Data, Direct-to-Store and Omnichannels,” SupplyChainBrain, 13 November 2013] Although some of the predictions discussed by Bowman dealt with Big Data, the other two trends really weren’t mentioned. The article reports:

“Retailers have access to more consumer data than ever before, but it is their ability to analyze and use this ‘big data’ for competitive advantage that separates leaders from laggards, says Roszko. ‘A really hot topic with retailers right now is how to bring all this data together into one place in order to do the analytics that will enable bypass distribution centers.’ … ‘One way shippers are using this data to increase their supply chain agility is by figuring out how to ship direct to stores and reduce their out-of-stocks,’ Roszko says. Another trend being supported by big data is the use of multiple channels through which consumers can purchase and return goods. … One of the advantages that traditional brick-and-mortar retailers have is their store and DC infrastructure, including many stores big enough to act as a mini DC, he says. They can leverage these assets along with an online channel to give customers a more Amazon-like experience.”

Another supply trend that I was surprised wasn’t mentioned was the movement towards same-day delivery. I predict that you’ll be reading a lot more on that subject in the years ahead.