The Future of Supply Chain Management, Part 5

Stephen DeAngelis

January 2, 2013

This post continues my series discussing forecasts about the business environment (and, more specifically, supply chain management) in the coming year. The previous post in this series discussed the first five of ten predictions offered up by Bob Ferrari. This post covers his remaining five predictions. Ferrari’s sixth prediction deals with resiliency. [“Supply Chain Matters 2013 Predictions for Global Supply Chains- Part Four,” Supply Chain Matters, 21 December 2012]

 

Prediction #6: Supply chain organizations must either embrace and augment resiliency and responsiveness capabilities in 2013 or deal with the consequences of poor business outcomes.

 

In a recent post entitled Supply Chain Disruptions Are Growing More Serious but Risk Management isn’t Keeping Pace, I discussed concerns expressed by a number of analysts who believe that supply chain disruptions are outpacing many companies’ ability to deal with them. Ferrari can be counted among that number. He writes:

“Many supply chain senior executives and their teams are now coming to the understanding that volatility and rapid business change are the new normal. This may perhaps be an overused term, but is one with important meaning. Constant volatility in product demand, supply, and other unplanned events are exposing the vulnerabilities of existing planning, execution or S&OP decision-making processes. In 2013, we elevate our prediction to umbrella the more compelling need for holistic needs for supply chain wide resiliency and responsiveness.”

Ferrari notes that the lack of resiliency and responsiveness doesn’t result from ignorance. He writes that companies are well aware of the risks but “they lack articulation of a well-defined and pragmatic roadmap” for dealing with them. He continues:

“Investing in these capabilities takes on important people, process, change management and technology augmentation connotations. Process becomes an understanding that the current clock speed of business requires that supply chain planning and execution must come together as a continuous, synchronized process. Rather than forecasting models, responsiveness requires decision-making capabilities that are anchored in predictive analytics, the ability to assess and respond to various likely business scenarios. It implies deeper cross-functional, customer and supplier collaboration and engagement processes, and not passing the problem along to another tier of the supply chain for singular resolution.”

I appreciate that Ferrari stresses the fact that a holistic solution (i.e., a solution that involves people, processes, and technology) is required to address the resiliency challenge. He goes on to note that big data analytics, better collaboration, and “what if” analysis must all be part of the solution that creates more resiliency. He recommends the use of cross-functional teams to break down corporate silos, insisting that “a smarter and more responsive supply chain requires different sets of people and team skills.” His seventh prediction deals with Chinese manufacturing.

 

Prediction #7: Chinese based manufacturing and service firms will markedly increase their presence and influence in global supply chains during 2013.

 

Ferrari notes that Chinese companies have been accumulating cash for years and they are now being encouraged to spend it by investing in overseas assets. For more than a decade, the Chinese have aggressively negotiated with foreign countries to secure access to natural resources. Ferrari believes that trend will continue as well as investing in other assets. He predicts that this aggressive outreach strategy will include “strategic supply chain process and product component capabilities.” He writes:

“The Wall Street Journal ranked China sixth in both number of deals and in acquisition value, behind countries such as the U.S., the United Kingdom, France, Germany and Japan. It expects China to double its acquisitions over the next five years. While resources and energy have been the predominant strategy to date, industry supply chain penetration strategies are also evident. With multiple years of financial stress eating at the global economic climate and with access to cheap and abundant financing, Chinese manufacturers and other firms are primed to continue moving into other geographic regions and associated industry supply chains. Current double-digit growth rates in direct labor costs within China have motivated manufacturing firms to shift manufacturing to other countries, while Chinese suppliers are now compelled to invest more advanced process and product innovation.”

Ferrari’s next prediction should be like music to the ears of supply chain professionals. He predicts that supply chain matters will get more attention at the executive level than it has traditionally received. [“Supply Chain Matters 2013 Predictions for Global Supply Chains – Part Five,” 27 December 2012]

 

Prediction #8: The executive level voice and shared accountability of the supply chain organization will invariably extend itself into three broader areas in 2013.

 

For years, supply chain analysts have insisted that the supply chain is not just a part of business it is the business. Despite such assertions, proponents of that position have been hollering into empty rooms and the only response they have received was the echo of their own voices. Ferrari believes those empty rooms are now filling with executives. He writes:

“Product design, customer fulfillment, satisfaction and service now umbrella many more functionally driven activities and the supply chain now finds itself involved, either voluntarily, or involuntarily, in each of these various dimensions. At the same time, increased regulatory and conformance requirements require broader accountability and access to information. … In the new era of Service Lifecycle Management where OEM’s and capital equipment manufacturers offer customers pay by use or pay by hour leasing options, product failures or recalls translate to further revenue profitability and customer loyalty impacts. Business leaders are now becoming more acutely aware of the critical dependencies among product and service management and supply chain teams for collaboration of programs.”

At the same time, Ferrari notes, there is an increasing demand for companies to operate more sustainably (i.e., become more “green”), which requires even greater collaboration. He explains:

“Corporate commitments for insuring a more green and sustainable supply chain have further led to new initiatives in more efficient product packaging and for more sustainable and earth friendly materials. Efforts to drive increased supply chain sustainability imply deeper collaboration among product design materials engineering and cross-functional supply chain teams. Design for sustainability and design for supply chain must come together under singular umbrella of initiatives.”

Ferrari concludes, “For all the above reasons, and others, we predict that in 2013, the executive level voice and shared accountability of the supply chain organization will further extend itself into the areas of product and service lifecycle management. … With the current clock speed of business running so rapidly, and a 7 X 24 continuous news cycle, information, intelligence and early warning insights must flow seamlessly across the extended supply chain.” His next prediction deals with fraud and theft. [“Supply Chain Matters 2013 Predictions for Global Supply Chains – Part Six,” 28 December 2012]

 

Prediction #9: Similar to what transpired in 2012, higher and more expensive incidents of counterfeit products, physical and IP theft, and other unscrupulous ‘grey’ market activities within and across industry supply chains will motivate industry players to step-up mitigation efforts.

 

The news is not all bad in this area. ChainLink Research reports that “the theft of pharmaceuticals has gone down dramatically in the past few years.” [“How the Pharmaceutical Industry Has Dramatically Reduced Thefts,” by Bill McBeath, 27 November 2012] McBeath reports that there has been “an astonishing more than 30X reduction” in the average amount lost during each theft from just four years ago. Ferrari admits that efforts are being taken to reduce theft and fraud, but insists even more must be done. He believes the hotly contested presidential election created an obstacle to more actions this past year. He writes:

“Unlike the U.S., Europe has been gearing up additional 2013 country-specific pilot programs for validating the genealogy of pharmaceutical drugs via serial number identification. Cargo theft remains a persistent problem with thieves exercising rather sophisticated intelligence methods to target valuable cargos and their specific whereabouts. It is a global problem.”

Ferrari insists that physical property is not the only asset that requires protection. Intellectual property protection is also a continuing challenge. He writes:

The Conference Board launched a December 2012 report titled: Safeguarding Intellectual Property and Addressing Corruption in the Global Supply Chain. This report features views from a broad range of Fortune 500 companies. Highlights of this report indicate that two-thirds of executives surveyed cite theft of trade secrets presents extensive risk in emerging markets, while only 36 percent rated their company’s compliance programs as effective in managing these risks.”

Ferrari predicts that “corruption in the global supply chain” is going to receive a lot more attention in the years ahead. As a result, he believes that companies will come to understand “the importance of gaining visibility into subcontractors to third parties.” Ferrari’s final prediction deals with Cloud computing. [“Supply Chain Matters 2013 Predictions for Global Supply Chains – Part Seven,” 31 December 2012]

 

Prediction #10: Cloud computing and managed services options, enabling supply chain business processes, will continue to gain more traction, provided that vendors resolve current lingering customer concerns.

 

Ferrari reports that the “adoption of cloud computing technology in both B2B and supply chain business processes accelerated in 2012” and he predicts that trend will continue in 2013. He also reports that not all cloud computing operations have gone smoothly. However, he concludes that the hiccups do not outweigh the benefits associated with cloud computing. Such benefits include cost savings and access to big data analytics. “All of these business and functional forces,” Ferrari writes, make “cloud computing a more attractive option.” He continues:

“We expect this trend to continue in 2013 along with augmentation of cloud computing with managed supply chain services. We concur with IDC’s prediction that industry focused Platform-as-a-Service (PaaS) information, collaboration, control and decision-making models, hosted in a cloud environment, will gain more interest and adoption over the coming months and years. The open question remains which cloud model will be preferred, private or public.”

He states that the long-term future of cloud computing depends on the ability of technology vendors to “resolve fundamental and lingering customer concerns surrounding cloud computing.” Chief among those concerns are service disruptions and loss of data. Ferrari concludes:

“A continued highly uncertain economic environment and a need for more responsive implementation of automation directed at global supply chain responsiveness and resiliency will continue to fuel cloud computing interest in 2013, provided that vendors respond to security, control and contractual related customer concerns.”

In a follow-up post, Ferrari also provides a few “honorable mention” predictions that are worth reading. Those predictions can be found in his post entitled “Supply Chain Matters 2013 Predictions – Honorable Mentions.” [31 December 2012] Tomorrow I’ll look at some predictions drawn from the National Intelligence Council’s (NIC) Global Trends Report that could affect the business environment over the coming year and beyond.