Social and other media has been amplifying Jeff Bezos and his interview with the CBS television network program 60 Minutes, with the revelation that Amazon is working on drones or “octocopters” that can deliver packages within a half-hour of customer order placement. While the effort was admittedly characterized by Bezos as being in a 4 or 5 years development horizon, the 60 Minutes interview and the associated amplification was impeccably timed just before Cyber Monday, the largest online shopping event of the entire year.
It seems that everywhere we traveled this week, people were talking about Amazon and drones, with various positive and not so positive viewpoints regarding feasibility and/or concerns regarding such devices occupying the sky of large cities.
Cudo’s to Amazon’s public relations team for making Amazon Prime and Amazon Air as the lead in conversation circles and in search engine optimization. Cyber Monday indeed became the buzz of Amazon drones.
Perhaps lost in the dialogue was the notion that these delivery drones would be deployed from an Amazon distribution center located 10 miles from a large urban center. Think about that for a minute, an Amazon distribution center just on the outskirts of New York, Boston, Philly, London or whatever other large city. That assumption alone should catch the attention of contract logistics fulfillment teams and other online retailers. An Amazon DC in your local shopping mall.
Supply Chain Matters shares a couple of additional thoughts from our lens.
First, compliments to Amazon for continuing to think outside the box and drive for disruptive innovation. Jeff Bezos is already recognized as a visionary in business and “octocopters” , regardless of the end result, are another example of bold thinking.
One would expect the likes of FedEx or UPS to be on the leading edge of drone delivery, and more than likely will be the first implementer’s in the future horizon. It’s a question of scale. Can you picture multiple online fulfillment firms with fleets of drones delivering small packages? What about retail pharmacies delivering time critical drugs from regional distribution centers? The options are endless but the realities are ever more significant.
Pushing the envelope of thinking is good. Twenty years ago, no one would have envisioned vehicles that can navigate to locations or drive themselves. Neither was the existence of names like Amazon or Google in the areas that compete within today.
The Amazon buzz has prompted other announcements. Tech Crunch has amplified a New York Times article indicating that Google is gearing up to revolutionize manufacturing and logistics through the use of advanced robotics. Google has been quietly acquiring a number of advanced robotics technology firms, and the developer of driverless cars is working on what Google executive Andy Rubin describes to the Times as “underserved manufacturing and logistics markets” in moving goods from point to point in an automated manner. Think about Google as a disrupter in material handling, manufacturing or logistics robotics.
China, the epicenter of low-cost manufacturing, has experienced double digit annual increases in labor rates. Foxconn, Apple’s prime contract manufacturer, has openly expressed visions of robotic laden high volume production factories in China. Think about that and the possible disruptors for the ultimate solution.
Many more breakthrough development efforts are underway, some we will never hear about until they are brought to market.
The takeaway is that innovation never stops and neither can any organization assume that they have a lock on a market or service. Amazon drones may or may not come to pass but rest assured, process and product innovation with consequent industry disruption is here to stay.
Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide our series of predictions for the coming year. These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, as well as helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the upcoming New Year.
In Part One of this series, we unveiled the methodology and complete listing of our 2014 predictions. In this posting, we explore our first two predictions, which traditionally focus on what to generally expect in global economic and procurement dimensions.
An Optimistic yet Uncertain 2014 Global Outlook with Consequent Impacts on Industry Supply Chains
As has been noted in our annual predictions since 2011, the global economy continues to present an environment of uncertainty in many dimensions. However, economic forecasts concerning 2014 are a bit more optimistic but come with many cautions or caveats.
Both the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) forecast some growth in the global economy in 2014 but both agencies point to notable downside risks. The IMF forecasts global growth to be 3.6 percent in 2014, rising from a forecasted 2.9 percent in 2013. It attributes much of the anticipated growth to be driven by the advanced economies. Emerging market growth is expected to be weaker while the Eurozone region is expected to gradually pull out of recession, but at a rather modest 1 percent pace. Growth in China is anticipated to level off to the 7 ¼ to 7 ½ percent range.
The OECD also forecasts global growth to be 3.6 percent in 2014, rising from a forecasted 2.7 percent in 2013. The OECD has also downgraded growth projections for emerging economies, citing slower trade, subdued investment levels and potential further negative shocks that could impact these economies. In August of 2013, business media featured reports indicating that the BRIC honeymoon was over after the OECD declared that their data reflected slowing economic momentum for Brazil, Russia, India and China
Both organizations reinforce the existence of rather fragile consumers. Job growth remains tepid with unemployment levels especially high among young professionals in Europe and little improvement in the United States. Weakness in the European banking system and the cumulative effect of two years of recession does not add to the confidence levels of European consumers. The past shutdown of the United States government and continued brinkmanship actions over fiscal policy continues to spook consumers and is reflected in their spending levels. Each quarter, analytics firm ComScore polls a select group of U.S. consumers regarding their rating of economic conditions. For the past three quarters, consumer responses of poor economic conditions have consistently averaged between 40-42 percent. Similar sentiment continues across the Eurozone. The implication is that any product or retail focused supply chain focused on demand from direct consumers will continue to experience the effects of consumers who will be cautious in spending, and will be highly sensitive to price and value.
In 2014 industry supply chains will continue to be constantly challenged and must further enhance capabilities to be able to plan, sense, respond or adjust to product or services demand. Industry supply chains and their planning and S&OP teams who had previously planned on aggressive growth and product fulfillment in emerging markets need to be more diligent in the coming year. Overall, the ability to sense and respond to changing markets at the discrete region or country level will prove beneficial. Supply chain wide visibility to inventory, or exceptional supply and demand imbalances at the regional level will prove important as a differentiator to other competitive players.
Stable Inbound Commodity and Component Prices with Certain Exceptions
Commodity costs moderated significantly in 2013. As of mid-November 2013, the Standard and Poor’s GSCI Commodity Index was down approximately 5 percent year-to-date. Prices in certain sectors were down considerably, for example grains down 22 percent, industrial metals down 13 percent and agricultural products down 20 percent. The IMF forecasts that most commodity prices should remain flat or fall over the next 12 months. Some upside price risks were forecasted in corn coffee and wheat products.
In the all-important area of energy and fuel, both the IMF and the U.S. Energy Information Administration (EIA) are forecasting that oil prices are expected to stabilize at the levels incurred in late 2013. The EIA is currently forecasting a 2.8 percent drop in the price of West Texas Intermediate (WTI) crude oil for 2014, with both a 5.9 percent reduction in the per gallon cost of diesel and a 3.2 percent reduction in the per gallon cost of gasoline. Of course, any significant political or terrorist-related event in proximity to oil-producing regions changes the equation altogether. There are some upside price risks in the cost of U.S. natural gas in 2014 due to expected demand surges.
While commodity price pressures will generally moderate in 2014, we continue to believe that certain emerging market regions will be challenged by locally based commodity price pressures brought about by either localized economic, currency or other political factors.
Component pricing trends remain dependent on specific industry demand and supply developments, and will obviously continue to be dynamic. As always, industry supply chain dominants with the largest volume scale and long-term financial resources will garner attractive pricing. Small and mid-sized manufacturers and retailers should continue to benefit from buying consortiums or networks that provide scale.
In the area of procurement of services, trends will again be dependent on supplier relationships, buying scale or influence along with specific geographic regional specific trends. As always, the ability of procurement teams to obtain a deep understanding of spend patterns enterprise-wide requirements, with savvy contract management and supplier intelligence, will benefit in contributing to cost savings.
Bottom line, an easing of inbound pricing pressures should allow procurement executives to re-allocate their teams towards an increased focus on overall strategic needs for deepening supplier based collaboration in products and services, and in nurturing a deeper focus on joint supplier focused sustainability programs that deliver both innovation and cost avoidance opportunities.
Keep your browser focused on Supply Chain Matters as we continue with this 2014 Predictions series.
As always, readers are encouraged to add individual or their own organizational perspectives to these predictions in the Comments section associated to each of the postings in this series.
A complete and more detailed research report that includes all of these predictions will be available for no-cost downloads in January.
Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide our series of predictions for the coming year. We have maintained this tradition since the founding of the blog in 2008 and it has turned out to be quite popular with our readers judging from the numbers of views and requests for copies of our subsequent research report.
These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, as well as helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the upcoming New Year.
Over the next two weeks, the blog will feature a series of postings to provide detail around each of our predictions. In this Part One posting, we introduce the series along with the full listing of all of our ten predictions for 2014.
Predictions are sourced from synthesizing developments and trends that are occurring in supply chain business, process and technology dimensions, researching various economic, industry and other forecasting data, along with input from clients, other thought leaders and global supply chain observers. We incorporate a lot of thought into our predictions and actually scorecard our annual predictions at the end of the year.
This year, we elected to change our process. In previous years we had begun the predictions series by first re-visiting current year predictions made at the start of the year. Feedback indicated that this was confusing for some readers, since they believed that the blog was addressing predictions for the upcoming year. Thus, for this year’s process, we start with 2014 and will loop back later in December to actually scorecard our 2013 predictions.
We kick-off this series in Part One with the full listing of our 2014 Predictions for Global Supply Chains. In upcoming postings, we will provide detailed commentary supporting each prediction.
As in the past, the complete 2014 predictions research report, providing far more detail, will be made available for no-cost downloads in our Research Center in January. Readers will be able to register to download a copy or can email us directly. More details regarding that process will come later.
As in past years, throughout the upcoming year Supply Chain Matters will provide periodic commentaries and specific updated research to add further detail or background and developments concerning these predictions.
Below is the full listing of Supply Chain Matters Predictions for Global Supply Chains for 2014:
Optimistic yet Uncertain 2014 Global Outlook with Consequent Impacts on Industry Supply Chains
Stable Inbound Commodity and Component Prices with Certain Exceptions
Continued Momentum Associated with the Resurgence of U.S. and North America Based Manufacturing
Supply Chain and Manufacturing Talent Management Remains a Continued Challenge
Industry Specific Supply Chain Challenges for B2C, CPG and Aerospace Focused Supply Chains
Supply Chain Social and Environmental Responsibility Strategies Continue to become far more visible with Business and Shareholder Implications
Increased Dimensions and Occurrence of Supply Chain Risk or Major Disruption Further Impact Global Sourcing Strategies
Anticipate More Pronounced Restructuring of Global Transportation Networks in 2014 with Uncertain Implications
The Internet of Things and Embedded Devices Makes a More Visible Presence across Select Product and Service Focused Value-Chains
Supply Chain and Manufacturing Technology Investment Continues at Moderate Pace with Added Emphasis on Cloud-Focused, Select Managed Services, More Predictive Planning and Supply Chain Wide Decision-Making Capabilities
Keep your browser focused on Supply Chain Matters as we review each of these predictions.
As always, readers are encouraged to add individual perspectives or other predictions in the Comments section associated to each of the postings in this series.
Bob Ferrari, Founder and Executive Editor
Published reports from the Financial Times, Bloomberg and American Shipper report that two high profile ocean container shipping lines, Germany based Hapag-Lloyd and Chile based CSAV, are in talks concerning a potential merger. These discussions had not led to any agreement and both lines were compelled to issue statements indicating existence of these talks. Bloomberg reported that the initial news came from the Die Welt newspaper and later acknowledged by company statements after CSAV shares spiked 27 percent. CSAV itself has lost 86 percent in the past three years according to Bloomberg.
According to rankings from Alphaliner, Hapag currently ranks globally as the sixth largest container ship fleet while CSAV ranks 20th. If both lines merge, the combined fleet would rank fourth globally. Just about two years ago Hapag had merger talks with Hamburg Sud, but those discussion talks broke down.
Hapag-Lloyd became a member of the G6 Alliance in 2012 in an effort to pool multi-carrier capacity on select global routes. On Tuesday, American Shipper issued a newsflash indicating that the G6 Alliance is now planning to expand its cooperation to Asia-United States West Coast and transatlantic trade lanes, pending regulatory approvals.
After many rants regarding proposed rate hikes involving global ocean lines, Supply Chain Matters declared in July that the implications for structural changes involving global transportation were compelling. This latest news of a potential merger of lines should therefore not be of great surprise. One of our upcoming 2014 predictions will call for even more re-structuring of global transportation networks. Manufacturers and retailers will need to continue to keep a keen eye out for the implications to their ongoing sourcing and supply chain strategies.
This author had the opportunity to listen in on two webcasts this week from IDC regarding that industry analyst’s firm’s information technology predictions for the upcoming year. Both webcasts were rather interesting and provided thought provoking predictions, especially when one considers that the bulk of the listening audience consisted of many well-known information technology and service providers.
As I pen this commentary, we are in the process of completing our Supply Chain Matters 2014 Predictions for Global Supply Chains which will be shared in just a couple of days. In the meantime, I did want to share for our reading audience important takeaways from IDC’s IT focused predictions.
Last year’s predictions from IDC were all about the termed 3rd Platform, the combined technologies of cloud, mobile, social and big data computing making a significant presence in overall IT spending. In 2014, IDC now predicts that the battles for IT industry dominance and indeed survival are focused on further investments in 3rd Platform technologies. They go on to declare both an explosion in innovation and industry consolidation, namely a small number of big “winners” in mobile platforms, cloud infrastructure and solution marketplaces as the big vendor players vie for control and long-term revenue growth.
IDC quantifies 3rd Platform momentum as driving 29 percent of forecasted 2014 IT spending and 89 percent of market growth, which is significant momentum. Cloud spending alone is predicted to exceed $100 billion, and skewing toward public cloud services. Of even interest, IDC predicts that in emerging markets such as China, smart connected devices, cloud and big data applications will outpace overall market growth and shape strategies.
If some readers are tending to tune out at this point, thinking that this does not apply to me at all, kindly read on as we share our two most important takeaways from what IDC shared.
The first was IDC’s validation that the IT buyer profile continues to shift to business executives. The firm estimates that 61 percent of technology focused projects will be business funded. The implication is that procurement and supply chain leaders, along with business and sales and operations planning (S&OP) teams have to continue to be far more technology-savvy in their understanding of IT technologies options and available marketplace solutions. It’s now two edged coin with the business holding far more influence on required business process and associated technology investments. On the one hand, business and functional executives now have greater leverage in articulating the need and benefits of systems investments, either behind-the-firewall or cloud-based in scope. Technology and services vendors will accelerate their efforts of directly knocking on your doors knowing this market influence shift. Best that you accommodate those requests and sponge as much information as you need. It further implies that accountability for desired and timely business results comes with this new influence, so the technology decision needs to be sound and well grounded. Gone are the days of fuzzy notions as to who is accountable for the timing and delivery of an end result. President Obama is living that reality right now with the healthcare.gov rollout.
The second important takeaway is one that we have continued to resonate on this blog, namely that decisions related to B2B network platform adoption and expansion are far more critical and need to take on much broader perspectives. That implies functionality and business process support that extends not only in procurement and supplier based management, but deeper dimensions of supply chain response management, supply chain analytics, logistics, supply chain control tower and other supply chain wide decision-support needs. By our view, the B2B backbone, along with its supporting infrastructure and support tools, are the most critical strategic technology decision business and functional executives will make. The good news is that the CIO along with his/her technology team are not going away anytime soon, and can immensely help with the network evaluation from the technology infrastructure and architecture lens. Their new role is to be your partner in innovation, and your expanded role is the bigger-picture view of the supply chain backbone network, translated to manageable tactical steps of desired functionality.
Our readers are already dealing with the effects of more rapid change, skill gaps and other challenges. In your New Year’s resolutions, best you think about adding more IT, cloud and network technology knowledge to your skills base in the coming year. You thank us later.
Bob Ferrari, Executive Editor
Report that Boeing has Initiated RFP’s for 777x Production Sites
This is a brief follow-up commentary associated with Boeing’s current efforts in exploring a production site for the newly announced 777x aircraft which is being developed and planned to transport upwards of 400 passengers. Our last specific commentary related to the new 777x noted Boeing’s threat to source design engineering and perhaps production outside of Seattle unless the company could get a supplemental longer-term agreement from its labor unions on wage and benefit costs. Reports further indicated that lobby efforts with the State of Washington resulted in a package of tax and other incentives valued at $9 billion through 2040 in order to keep the bulk of the 777x program activities in the state Washington.
We were reviewing our various Internet focused content alerts earlier in the week and ran across an Associated Press syndicated report that indicates that the Governor of the state of Missouri is calling back legislators to consider additional governmental incentives in hopes of persuading Boeing to source 777x production in that state. The report indicates that the state faces a December 10 deadline to submit its proposals to Boeing. Obviously other states are bidding for the same massive prize, and the AP article quotes a Boeing spokesperson as indicating that requests for proposals were sent to a dozen locations. The states of Alabama, California, South Carolina, Texas and Utah are among states reported as having discussed efforts to recruit Boeing. The process kind of smacks of an auction, namely who will provide the most lucrative cost incentives.
Another irony is that the majority of the states mentioned already have a significant presence from Boeing, including Missouri, which is where portions of defense related production reside. A previous report from the Wall Street Journal cited Huntsville Alabama, Long Beach California, Charlstown South Carolina and St. Louis Missouri, among two other locations as designated design engineering sites for the new 777x program. That list seems to correlate with the listing of potential states bidding for production, thus co-location of design engineering and production appears to be under consideration.
One of messy and perhaps bitter aspects of the 787 Dreamliner program was Boeing’s decision to open a second production facility in Charlstown South Carolina because of needs to dramatically step-up production in a three year delayed program. Upon the announcement, Boeing’s principle Seattle based labor unions filed a petition with the National Labor Relations Board (NLRB) alleging that Boeing was sourcing to avoid a union workforce and collective bargaining. The NLRB later ruled in favor of union arguments and that apparently remains as an overhang of tensions among both parties.
Let’s hope that this type of scenario does not again play out with the 777x. In any case, the drama as to what the supply chain of 777x turns out to ultimately be has many chapters to follow.