Electronic Design News (EDN) featured a rather interesting interview with Roy Vallee, the chairmen and CEO of Avenet Inc., a long-time recognized veteran of high volume distribution. In this interview, Vallee shared an industry outlook for 2010 from the context of the demand-side of high tech and consumer electronics industry. If you reside in the high-tech, consumer electronics or distribution-related industry, this interview is worthy of a read.
He notes, as other industry observers have also noted, that earlier predictions of disastrous revenue decline made in the first quarter were somewhat less painful for the overall industry by year-end. He additionally notes that high tech supply chains reacted more dramatically than he had seen in his entire 37 year career in the industry, which is a rather noteworthy comment. “By the time the industry saw a drop in demand, there was a very accelerated and aggressive movement to reduce inventories and cut-back supply chains.” As the year played out, high tech companies tended to align their inventories, even with end demand being below where it was a year ago. He admits that distributors may have cut too dramatically with orders to suppliers causing lots of disappointment with order and cash flow.
Looking ahead to 2010, Vallee believes that the high tech industry will enter the year in pretty good shape in relationship to inventories and capacities, and expects the industry to lead in the U.S. recovery through a gradual increase in end-demand. Vallee also reflects on positive optimism for growth in China concerning various high tech electronics-related segments.
A final commentary from my lens would be that readers keep in mind that it was the high-tech sector, both OEM’s, suppliers and contract manufacturers, that not so many years ago initially led the charge for investing in technology that provided broader supply chain resource and execution visibility through web-based applications. It would seem that those investments may have paid dividends in navigating the supply chain minefields of 2009.
This is the time of year when many blogs, industry analysts and media reporters comment on their outlooks and predictions for the upcoming year. Our predictions are offered not as a means to prove how smart or how much of a sage one may be, but rather in the spirit of looking ahead to the New Year and providing you, our readers, a means to reinvigorate your perspectives and management agenda for 2010.
Last year at this time, Supply Chain Matters issued its 2009 Predictions for Global Supply Chains, and we recently scored all of our predictions at year-end. Overall we were not too far off in 2009 predictions. Here are the links to the Post One and Post Two of the 2009 year-end scoring and assessment.
For 2010, we are going to share our predictions in a slightly different manner. In a series of four separate postings, I will share each of the individual 2010 Predictions along with some brief rationale that supports the prediction. Similar to our practice in 2009, we will revisit these predictions at mid-year, and scorecard the final result at the end of the year.
There will be a more detailed research report outlining the entire listing available free of charge in early January, which readers will be able to secure and read by sending an email request. More on that later.
Let us begin with the full listing of the Supply Chain Matters Predictions for 2010:
- For the majority of 2010, business recovery will remain slow and sporadic, and imply another year of unprecedented change, cost pressures, and non-stop challenges for global supply chains.
- Understanding the vulnerabilities and impact of risk across the extended supply chain, along with effective means to mitigate supply chain risk, will reach the executive agenda.
- Analytics and the ability to perform rapid scenario planning become the key competency for planning, aligning and responding to resource needs across the supply chain.
- Supply chain technology deployment will remain tactically focused, hosted application adoption will continue to soar, with continued leveraging power favoring buyers.
- There will be a resurgence of supply chain carbon tracking along with more momentum in green and sustainable supply chain initiatives.
In this posting we will comment on the rationale and commentary related to our first prediction.
Prediction One: For the majority of 2010, business recovery will remain slow and sporadic, and imply another year of unprecedented change and non-stop challenges among global supply chains
This first prediction is really an extension of the outcome of our 2009 prediction which declared that while the bottom may have been reached in industry sectors, economists predict that recovery in 2010 will be slow and sporadic, and limited to certain industries and/or geographic regions. Most predict that any growth will be delayed until the second-half of 2010.
In the U.S., unprecedented high unemployment rates remain a drag to consumer confidence and investment. Huge government stimulus programs directed toward protecting critical industries and restoring customer demand have had limited success in 2009, but are not likely to continue in the same scope during 2010. There are some fears for another economic dip in 2010 brought on by the continued heavy burdens being carried in the financial and other sectors, as well as burdens of excess capacity.
The challenges for supply chain managers in 2010 will continue to be non-stop in scope, and if not responded to carefully, could jeopardize the business. I view the major challenges in 2010 to be:
- More business growth in Asia, causing a renewed emphasis on Asian-based supply chain capabilities
- The need to support increased needs for innovation, and also respond to opportunistic merger and acquisition events
- Managing and navigating a huge overhang in global manufacturing capacity
- Further structural shifts in U.S. and global logistics infrastructure
- Increased turnover of key people with desired skills
Robust consumer spending in Asia, facilitated by targeted government stimulus plans, has caused that region to lead in economic and supply chain recovery. China, India, South Korea and other Asia-Pacific regions, with the exception of Japan, are all rebounding nicely. Unemployment rates are falling and households are more confident. The International Monetary Fund (IMF) latest forecast indicates 7.3 percent growth in the developing Asia region vs. 3.1 percent globally.
A large number of companies managed to sustain some level of earnings during 2009 through significant cost-cutting vs. any notable growth in top-line revenues. Cost cutting has consequently taken a heavy toll in supply chain resources with considerable cutbacks in production, capacity, inventory and people. Whereas many supply chains were actively incorporating aspects of lean in operations, the past 18 months of severe cost pressures have made global supply chains even more constrained, with limited capability to be able to respond to any significant increase in product or industry demand. Senior supply chain executives will again run the risk of being fodder for more harmful cost cutbacks unless the agenda can be turned toward facilitating more resiliency, innovation and revenue growth.
Industrial production and capacity utilization levels remain at significant low points in the U.S, and somewhat better across China. There are concerns as to how long manufacturers can continue to operate production facilities at today’s low utilization level without having to close additional facilities to fulfill 2010 cost reduction and profitability goals.
On the logistics and transportation front, acute overcapacity remains in ocean container and rail fleets. Trucking capacity in the U.S. has been dramatically decreased as a result of bankruptcies and consolidation brought on by the severe effects of recession. Recent increases in rail shipping volume are an early indicator of more structural shifts from former surface to rail transportation, as shippers seek-out both additional efficiency and lower carbon footprint in 2010.
Finally, constant cuts in people and support resources, coupled with non-stop challenges have taken a toll of talent. Polls taken during 2009 indicate a growing dissatisfaction among those still employed, who have been asked to do more with less. As the economy and business begins to improve and companies begin to strategically hire, expect an exodus of the most talented or skilled supply chain professionals to higher paying or more personally rewarding opportunities. In 2010, the emphasis needs to be on retaining critical supply chain skills.
For all these reasons, significant challenges remain in 2010, with the potential that global supply chains may well be the Achilles heel if business growth returns in the second-half of the year.
This concludes Part One of Supply Chain Matters 2010 Predictions. As noted, a more detailed copy of these predictions is available in a free report. Please send an email request to the following email address: bferrari at blog1 dot com. (firstname.lastname@example.org ) In your request please include the following information:
Organization and title
Stay tuned for Part Two of our 2010 predictions.