The Future of Supply Chain Management, Part 2

Stephen DeAngelis

December 19, 2012

In yesterday’s post, I discussed the first five of ten supply chain management predictions that Robert J. Bowman, managing editor of SupplyChainBrain, heard while attending the San Francisco Roundtable (SFRT) of the Council of Supply Chain Management Professionals. In this post, I’ll examine the final five of those predictions. [“More Visions of the Future from the San Francisco Roundtable,” SupplyChainBrain, 17 December 2012] The next prediction (the sixth discussed by Bowman), came from Craig Cuffie, vice president of supply chain and chief procurement officer with Clearwire Communications. He predicts that there will only be “a ‘limited’ amount of re-shoring of manufacturing from China back to the U.S. Bowman writes:

“Factors in the shift will include new tax incentives, rising commodity and fuel prices and the value of the dollar. ‘There will be select commodities that will come back onshore in the U.S.,’ said Cuffie, ‘but they won’t be large [in number].'”

Bowman reports that “Cuffie’s fellow panelists, along with most of the audience, agreed.” Even if more than a limited amount of repositioning of manufacturing occurs, there is nothing that guarantees that the factories will return to the U.S. Bowman writes, “Some noted that Mexico in is good position to siphon off some of the production capacity returning to the West, offering a combination of geographic proximity and low labor costs.”

 

Because Asia is predicted to be the center of the global economy in the years ahead, it doesn’t make a great deal of sense to reshore production of products that would have to be shipped back to Asia in the end. My feeling is that most “reshoring” won’t involve the physical movement of factories; rather, it will be come via construction of new, highly automated factories whose primary customers are in the West. To put it another way, most companies that reshore are likely to do so to produce products to closer to the consumers that will use them thus reducing the length of their supply chain. Professor Michael Watson, of Northwestern University and “one of the industry’s foremost experts on supply chain network design and advanced analytics,” agrees that more and more companies will pursue a dual-source strategy. [“Should You Source from China or the US? Why Not Both?, Supply Chain Digest, 11 December 2012] He writes:

“Some firms use another strategy—dual sourcing. This can be better than the ‘either-or’ strategy. Professors Allon and Van Mieghem from Northwestern’s Kellogg School of Management have formalized this strategy in several papers and projects. The main idea of this strategy is that you source a steady and consistent base amount (75% to 90%) from China and then use the US plant for the rest of demand and for any unexpected rises in demand or delays from China. By dual sourcing, you get the cost advantage of China and the safety stock advantage from the US plant. This strategy also mitigates risk by having two sources of production but comes with the extra cost of having to produce in two places.”

The next prediction discussed by Bowman was made by Kerry McCracken, vice president of business solutions for the Integrated Network Solutions Segment of Flextronics. She made an implied prediction that companies are going to get wiser in the area of business-to-business electronic commerce. They have to, she insists, because so many “industry giants” currently find themselves “lagging in the area.” She told conference participants, “Some folks can’t even figure out how to set up an order electronically.” She lamented that some “companies are still struggling to embrace the possibilities offered by modern technology.” McCracken believed that many young companies were in a better position than large ones because they are more agile and not overburdened with legacy infrastructure. Bowman comments:

“Panelists, not surprisingly, disagreed. ‘Cash is king’ today, declared Mark Buck, global supply chain and procurement leader with Bio-Rad Laboratories, and big companies still have more of it. The most successful small entities, he added, are the ones that will get gobbled by their larger competition. McCracken replied that her prediction was about young companies, not small ones. … ‘The companies that are smart,’ said McCracken, ‘are going to adopt e-commerce. And electronics companies are discovering it.'”

The next prediction discussed by Bowman came from Devin Fidler, research director of the Technology Horizons Program at the Institute for the Future. He predicted that “robotics will play a huge role in transforming physical distribution, especially in the warehouse. … [He] likened this moment in history to the transition from the Arpanet to the internet.” There certainly has been a lot in the news this past year about increased use of robots in warehouses — with companies like Zappos and Amazon leading the way. “In the distribution center, the science of robotics has made it possible to bring shelves to the worker who’s processing orders,” writes Bowman, “rather than the other way around.” Bowman reports that “panelists didn’t take issue with Fidler’s vision, but they questioned his timeline.” Although the prediction (and follow-on) discussion appeared to focus on use of robots in the warehouse, there is no denying that the use of robots is increasing throughout industry. Douglas Alexander Principal Consultant, Component Engineering Consultants, believes we are on the verge of a robotic revolution. [“Robotic Revolution,” EBN, 12 December 2012] He writes:

“As [the increased use of robots] relates to supply chain economics, it means that the lower cost of labor should increase the company’s profit margin and allow the contract manufacturer to reduce its end-product prices such that the company becomes more competitive in the marketplace. Eventually, the factory with the lowest labor rates for similar products will win or dominate the market segment to which the product is targeted. In my mind, that fact alone will drive further deployments of robots, resulting in an increase of the robot population throughout the world.”

The one question that I haven’t heard anyone satisfactorily answer is: When robots start doing all the work, where will consumers get the money to buy the products they make? The next prediction discussed by Bowman came from Mark Buck. He predicted that we would “see producers taking greater responsibility for launching and complying with green initiatives.” Bowman continues:

“Regulations like the European Union’s Restriction of Hazardous Substances (RoHS) directive, coupled with shortages of raw materials and growing pressure on companies to recycle, will drive the development. ‘It’s going to become a hard and fast requirement across the board,’ Buck said.”

According to Bowman, Jim Miller, vice president of worldwide operations with Google, agreed that sustainability practices are going to increase. He believes such practices will be driven primarily by government regulations and company policies. He told participants, “I do think it’s going to pick up, but it’s not going to be driven by the consumer.” Despite the economic malaise in which Europe finds itself, “the European Commission is considering a ‘unambiguous way of measuring CO2 footprints in the logistics chain.” [“EU plans to measure supply chain CO2,” Supply Chain Standard, 17 December 2012] Such actions support Buck’s prediction that companies are going to be forced to become “greener” in the years ahead. The final prediction came from Jim Miller. Bowman claims that Miller’s prediction is “the most radical and plausible of them all, given recent rapid advances in the technology.” Miller predicted that increased use of additive manufacturing (or 3D printing) would change the business landscape. Bowman writes:

“Miller cited the science of 3D printing, in which digital technology makes possible the layering of materials to create solid, three-dimensional objects. Applications include circuit boards, apparel, medical equipment, automotive, engineering and construction. The implications are huge for manufacturers, who could turn out precisely tailored products for customers in extremely small production runs – even one or two items. The technology’s full impact might not be felt in the next three to five years, said Miller, ‘but there’s more evidence that 3D printers are going to [be] a pretty disruptive force.'”

Surprisingly, Bowman reports that there was “some pushback from the panel, but mostly from the standpoint of timing.” But, he states, “I’d bet sooner rather than later, but who knows?” I agree with Bowman. To learn more about additive manufacturing, see my post entitled Additive Manufacturing at the Heart of a New Industrial Revolution and my 3-part series entitled 3D Printing Comes of Age, Part 1, Part 2, and Part 3. Bowman concludes, “The great thing about making predictions is you don’t have to be right, unless you’re a hedge-fund manager, and … uh, never mind.” In the coming weeks, I’ll look for other bold prognosticators willing to help us lift the curtain covering the future and take a peek underneath it.