Home » Risk Management » Last of the 2012 Predictions Concerning the Supply Chain, Part 2

Last of the 2012 Predictions Concerning the Supply Chain, Part 2

March 9, 2012


In Part 1 of this two-part post, I discussed the predictions made by five individuals who were asked to comment by the editorial staff at Supply Chain Digest: Gene Tyndall, Dr. David Simchi-Levi, Jim Barnes, Mike Regan, and Marc Wulfraat. In this post, I’ll discuss the predictions made by analysts at Manhattan Associates. [“Manhattan Associates Predicts Supply Chain Trends for 2012: Cost Reduction, Risk Mitigation and Contingency Planning,” The Journal of Commerce, 27 February 2012] I Tweeted a link to the press release in which the predictions are found on 27 February. You can follow my Tweets at @EnterraSolution and @EnterraCEO. The press release begins:

“Global supply chain optimization provider, Manhattan Associates, Inc., is forecasting that supply chains will continue to be exposed to a growing set of unpredictable influences in 2012. Cost will remain a core issue for most organizations, along with increased supply chain risk, which calls for better contingency planning, greater agility in the supply chain and wider use of technology. ‘An organization’s supply chain operates within an increasingly complex and dynamic world, but can become a key source of competitive advantage, as well as an enabler for business growth if managed correctly,’ said Raghav Sibal, managing director for Manhattan Associates in Australia & New Zealand. ‘Supply chains in 2012 are required to be increasingly flexible, scalable and agile to address more and more specific market requirements across a wider number of channels and geographies. This is essential to ensure companies can maximize sales at every opportunity, make their extended supply chains as efficient as possible and protect the organization’s brand equity.'”

I certainly agree that supply chains must become more “flexible, scalable and agile.” Followers of this blog know that those are frequent topics. The Manhattan Associates’ predictions were aimed specifically at “the supply chain scene in Australia”; but its “8 top trends” are more broadly applicable as well. The first trend deals with supply chain costs.

1) Attention to cost continues — In 2012 companies will be looking for greater visibility of supply chain costs and activities so they can plan resources more efficiently. Companies will be finding ways to optimize productivity through improved task management, advanced labor management and use of voice technologies. IDC analysts suggest that the ‘lean manufacturing’ approach will help companies to respond better to the current volatile environment and take costs out of the system rather than transferring it between companies. Retailers will make better use of real-time information about customer needs and buying behavior and feed this information to their suppliers to increase order frequency, and better match supply and demand.”

I certainly agree that greater supply chain visibility will help differentiate a company from its competitors; but, that visibility must look at more than supply chain costs. Although lean manufacturing certainly helps keep costs lower, it also makes supply chains more brittle (i.e., the exact opposite of agility and flexibility that the analysts claim are required to give supply chains a competitive advantage. There will always be a balance required between lean and resilient principles and the companies that find the right balance are going to come out on top. The second trend also deals with costs.

2) Need for better understanding of how costs are incurred and allocated — Most companies know that an individual customer’s behaviour and their specific demands drive many aspects of cost and, therefore, the profitability of their company. Most companies also know that a small percentage of their customers drive most of the profits. Despite this, most businesses still don’t really know what it costs them to serve each individual customer on a customer-by-customer basis. In order to calculate the total cost-to-serve (TCS), companies need to start getting much better at being able to capture direct and indirect costs across departments and allocate those costs down to individual SKUs, customers, and/or brands. Part of the art of calculating TCS is knowing which cost elements to include – those costs within your control that reflect the true variability in cost-to-serve for various sourcing, fulfilment and ordering patterns. Luckily, there are some powerful off-the-shelf solutions now available in the market-place that are enabling companies to understand the ‘true cost to serve’.”

The MA analysts are right — all customers are not created equal. In fact, you may discover that some prickly customers are actually costing you money. The “powerful off-the-shelf solutions” discussed by the analysts involve Big Data analysis and the insights that can be garnered from such analysis. The third trend deals with supply chain risk management.

3) Need for contingency plans — The BCI Supply Chain Resilience 2011 report, which questioned 559 businesses from 62 countries, found that levels of supply chain disruption remain undiminished with 85 per cent of respondents experiencing at least one incident in 2011. Only eight per cent of respondents confirmed that all of their key suppliers had business continuity programs in place to deal with any problems and less than half of those companies check that their programs are likely to be effective in practice. ‘Companies without such plans are often left telephoning around suppliers to cope with any incidents and this can lead to supply shortages and empty shelves,’ said Sibal. ‘Retailers need to take action to ensure their supply chains don’t become affected by harsh weather conditions, strikes or other disasters, leaving customers disappointed and without the items they have paid for. In the era of multi-channel purchasing, suppliers and retailers must ensure they are properly prepared to deliver on customer promises.'”

I’ve written posts that have included statistics and charts verifying the fact that supply chain disruptions are increasing and that it is the height of foolishness to ignore that fact. Fortunately, there are signs that companies are taking supply chain risk management more seriously. The fourth trend deals with procurement.

4) Wider procurement networks — Last year proved that there are numerous unforeseen events including earthquakes, flooding and tsunamis that can affect the supply chain. To mitigate the risks for their business, both manufacturers and retailers will look to source from more suppliers and implement supply chain tools that will allow them to be more agile and be able to respond more quickly to unforeseen events.”

Looking “to source from more suppliers” is a resilient rather than a lean principle. But MA analysts are correct that companies are wrestling with how to be both effective and efficient in a volatile world. To read more about the tension between lean and resilient principles read my posts entitled Flexible and Lean Supply Chains and Supply Chains: Lean, Mean, or In Between. The fifth trend deals with improved supply chain visibility.

5) Improve visibility with technology — 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. Technology will play a greater role in providing real-time visibility of sales and stocks to support the agility required in the current environment. Adoption of technology-led solutions will accelerate. Retailers will continue to invest in centralized planning and forecasting processes that take into account a larger number of local factors. Suppliers who can keep pace, and indeed stay ahead, will win. It is expected that more companies will be looking for not just Total Cost to Serve (TCS) Solutions as they seek to evaluate the costs of supplying specific customer groups from different sourcing points but Extended Enterprise Management (EEM) solutions as they seek to gain control of their supply chain from source through to consumption. Distributed Order Management tools, in concert with EEM and TCS type solutions will enable orders to be fulfilled from wherever it makes most sense to fulfil an order from, balancing the need on the one hand to maximize customer satisfaction, and on the other to maximize profitability for the company in fulfilling that order. Increased visibility in the supply chain will enable greater control over activities within the chain, aiding agility while maximizing profits and reducing risk.”

Since my company helps other companies improve their supply chain visibility, I obviously agree with those comments. The sixth trend deals with business expansion.

6) Coping better with business expansion — Forecasting and order management tools should be used to ensure that enough of the fastest selling products are re-ordered and routed to wherever demand is being detected and registered, thereby enabling the balancing, prioritizing and streamlining of stock levels across the business. Bringing vital information to supply chain partners’ fingertips via sophisticated supply chain intelligence tools means the whole enterprise network can make smarter and faster decisions with regards to warehouse and distribution management. All of this is paramount, particularly as a supply chain elongates as a result of business expansion be it through organic growth or following the acquisition of another business.”

As an example of the type of analytics being discussed, Enterra Solutions offers a Pre-Inventory Prediction Module that mitigates Product Not Available issues by predicting the effect of shipping delays on customer orders, minimizes the impact of delivery delays, and suggests container unpacking priorities. The seventh trend involves how to better utilize your workforce.

7) Labor Deployment Methods to Respond to Changing Buying Patterns — As the speed and agility of supply chains evolves, the way in which labor resources are optimised also needs to evolve in order to keep pace with the changing buying behaviors of consumers. When retailers add the ability to change where and how products are fulfilled, they also need the ability to flex resources up or down to ensure they have the right number of people to support the real-time changes taking place at the store, in the distribution centers (DCs) and across their fleets. Labor, as a key resource and cost within the distribution center, must be optimized to the demand. To ensure the proper level of labor, companies must address the following:

  • Plan and forecast annual workforce budget.
  • Establish appropriate level of regular workforce for projected work.
  • Optimize the mix of Regular, Overtime and Temporary.
  • Plan for seasonal changes, new product introductions and promotions.
  • Continually optimize staffing levels by day, shift job and zone.”

By addressing the labor force, the analysts at Manhattan Associates manage to touch on all of the important aspects of a business: processes, technology, and people. The final trend they identify is a bit different — it looks at the role China will play in the coming year.

8) China’s critical role — China is exposed to significant natural threats, including earthquakes, windstorms, floods and tsunamis. A recent FM Global study underscores the fact that supply chains in the region are more likely to face business disruption by a natural disaster, particularly because China has not yet fully embraced many of the risk management practices followed in Europe and the United States. The research uncovered that twice as many companies surveyed (86 percent versus 43 percent) say they are more reliant on China as part of their supply chain for their key product lines than they are on Japan. Moreover, 95 percent of companies reliant on China for their supply chain are concerned about natural disaster-related disruptions, as this would have far-reaching and long-lasting negative economic impact. It could slow down the global economy because China is not only a major exporter of goods, but also a major importer of goods.”

In other words, the China price is getting higher in more ways than just rising wages. I can’t say that there is much new in the trends discussed by Manhattan Associates; but, continued emphasis on what we are already seeing should provide companies with more confidence in moving ahead to make their supply chains more visible, flexible, and agile.

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