Today we completed all seven parts of our deep dives into our Supply Chain Matters ten predictions for global supply chains in 2013.  We trust that our readers will gain benefit and insights from reviewing each of the predictions.  As noted, we will monitor each of these predictions in the coming year.

Every year that we develop and assimilate annual predictions brings certain amounts that do not make it to the final cut.  These are predictions that merit a brief, honorable mention, which we address in this posting.

The following 2013 predictions were also on our mind:

Prediction: Another significant and costly earthquake event originating from Asia’s “Ring of Fire” disrupts global supply chains.

We read a mid-December commentary published in the Guardian Express  which notes that geologists believe that a 7.9 magnitude earthquake could hit the “Ring of Fire” sometime next year.  The “Ring of Fire” is an arc stretching from New Zealand, along the eastern edge of Asia, north across the Aleutian Islands of Alaska, and south along the coast of North and South America. The Ring of Fire is composed over 75% of the world’s active and dormant volcanoes and earthquakes. In its commentary, the Guardian Express noted that the U.S. Geological Survey had detected 176 earthquake events that occurred in just a four day period from December 15-18, while a 6.1 magnitude earthquake impacted Indonesia and a 7.3 magnitude earthquake impacted Japan in a single day.

We should also note that while we do not want to be depicted as alarmists, it is important for supply chain teams to be aware for potentially more major disruption in 2013.

Prediction: Additive and 3D Printing Manufacturing techniques gather even more momentum in 2013

The term “3D printing” was coined in 1995 but it was not until 2011 that interest started to pick up and 2012 was the year that ‘additive manufacturing’ really captured the imagination of manufacturing teams. 2012 was also the year that 3D printing became ‘affordable’ as serious attempts were made to simplify the design and printing process. A recent article featured on ExtremeTech notes that 3D printing to fabricate metal parts is now coming into the fold. The real breakthrough that has enabled 3D printing for the masses has been the laser, which can cut metal more readily. It also reports that NASA recently used a technique called selective metal melting (SLM) with great success to build rocket motor components out of steel. “NASA’s engineers have been able to produce parts with complex geometry only previously imagined, and with dimensional accuracy beyond that possible with traditional fabrication methods.”

Increased adoption of additive manufacturing techniques brings true “mass customization” to manufacturing and supply chains, and 2013 may well be the year where more momentum gathers across multi-industry supply chains.

Prediction: Continued deep economic worries across the Eurozone countries cause more tough times and further needs for re-structuring among Europe’s automotive supply chains.

The entire automotive industry across Europe suffered from overcapacity before the onslaught of the current recession that is gripping Europe. The Wall Street Journal recently noted that the European Automotive Manufacturers Association recorded a 7.6 percent decline in Europe’s auto sales in 2012 while Moody’s Investor Service predicts a further 3 percent decline in 2013. Now the situation has worsened, European OEM’s will be forced to deal with realities. The situation is more complicated because various European governments have been resistant to mass layoffs and/or re-structuring, opting for economic stimulus to affected OEM’s.

Supply Chain Matters has already commented on Ford’s announcement to shutter European plants which was followed by General Motors Europe. France’s Peugeot has been hemorrhaging losses but the French government has resisted any further layoffs and restructuring. Fiat has taken a different track, cutting a quarter of its workforce in Poland while refitting some of its Italian based production plants to export more cars outside of Europe.  All eyes are focused on Europe’s largest automaker, Volkswagen.

There will no doubt that the upcoming year be another challenging year for Europe’s auto makers.

Prediction: Much needed and overdue consolidation occurs among global ocean container carriers in 2013.

The first signs of pending consolidation came just a few weeks ago with reports that two of Germany’s largest ocean container shipping companies, Hapag-Lloyd and Hamburg Sud, are engaged in talks over a possible merger of the two lines.  Supply Chain Matters, as well as other industry watchers are of the belief that the ocean container industry is currently anchored in way too much capacity and arrogance toward shipper needs. Hundreds of ocean container vessels lie idle without cargoes, as newer ships have subsumed current operating routes. With continued severe economic contraction occurring in Europe resulting in consequent slowdowns in China’s manufacturing export volumes, the writing is on the wall for industry consolidation to occur.   The open question is what impact such consolidation will have on shippers.  We believe, when the dust settles, there will be an overall positive impact for shippers.

We wish all of our Supply Chain Matters readers best wishes in 2013 and a Happy New Year.

Bob Ferrari

Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide a series of predictions for the coming year. We have maintained this tradition since the founding of the blog in 2008.

Readers can view the entire listing by clicking on this web link: 2013 Predictions for Global Supply Chains. 

In our Part One posting, we explored our first two predictions for 2013, the overall economic and business challenges, and our prediction of inbound commodity prices.

Part Two posting explored predictions #3 and #4, which noted a continued renaissance in U.S, based manufacturing and the very important challenge of supply chain skills development and retention.

Part Three posting dived into Prediction #5, our industry specific supply chain challenges prediction.

Our Part Four posting address the critical need for supply chain resiliency and responsiveness in 2013 as well an increased penetration of Chinese companies in other industry supply chains.

Part Five predicted broader umbrella supply chain accountability in 2013.

Part Six predicted higher levels of action required in the control and mitigation of broad theft and counterfeit materials among industry supply chains.

In this final deep-dive posting, we explore our prediction related to cloud computing adoption in 2013.

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.

The momentum for adoption of cloud computing technology in both B2B and supply chain business processes accelerated in 2012.  The reasons were a perfect storm of business forces.  High uncertainty surrounding the global economic climate across multiple industries drove cash preservation strategies and a consequent reluctance to expend high levels of up-front capital. Multiple disruptions and challenges affecting industry supply chains uncovered needs to quickly augment business processes and enhance needs for broader intelligence and quicker decision-making.  Cost control initiatives turned more towards aggressive reduction in IT owned infrastructure and consequent annual operating and applications integration costs.  Small and medium sized businesses were especially attracted to cloud options because of the factors noted above. All of these business and functional forces made cloud computing a more attractive option.

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.

Enterprise vendor SAP, in its Sales and Operations Planning, powered by SAP HANA application, is a cloud based offering that manages one of the most critical business decision processes for any firm.  Similarly, Oracle has long-term plans to offer a full supply chain management support capability via private or public cloud platforms. IBM has been building-out a broad offering of cloud-based, B2B support applications that address mission critical processes of customer fulfillment and supply chain resource management.

However, the growth of these options in cloud computing will be dependent on the ability of technology vendors to resolve fundamental and lingering customer concerns surrounding cloud computing. Many vendors have shown a bit of arrogance in constructing legal agreements surrounding cloud computing contracts.  They insert clauses in contracts that absolve the cloud provider from any and all liabilities, and in some cases, state that the client will hold ultimate responsibility for anything that goes wrong, including data loss. Prospective customers are compelled to seek legal advice, only to discover that the customer’s maximum recovery is capped, or would have to initiate an expensive and time-consuming lawsuit to recover any business interruption or data breach damages.  In an article published in December 2012, Legal concerns curb corporate cloud adoption, ComputerWorld magazine quotes prospective customer attorneys as describing certain technology vendor contract terms are “offensive”.  Since cloud computing is a recent phenomenon, legal precedents are lacking relative to liability and recovery.

Up to now, cloud computing options directed at point applications or non-mission-critical processes may have caused procurement and supply chain functional management teams to overlook or dismiss such provisions. But, as cloud computing options involve much broader, mission critical supply chain processes, the need for legal checks and sign-off are evident, and ComputerWorld points to increased discussion and some confrontation among legal counsel, IT and functional executives, which could slowdown cloud adoption.

Another significant and related concern is that of information security. The year 2012 featured more troubling headlines of hackers penetrating critical industry systems.  Some of the world’s most prestigious banks were collectively targeted in attacks by sophisticated and organized hacking groups, as were hydrocarbon production facilities in Saudi Arabia where a virus attack almost took down production of 10 percent of global oil supply. Experts are unsure if latent time-bombs remain in these systems, set to activate a data breach at a certain date.

Higher visibility to interruption of mission critical business services also came to light in 2012.  In late December, Netflix suffered an overnight suspension of all of its video streaming services because of a technical problem at its hosted IT infrastructure provider, Amazon Web Services (AWS). This was the third major reported AWS service interruption in 2012, the others involving customer services for Foursquare, Pinterest and Instagram.

As noted, supply chain planning and customer fulfillment systems often fall into the category of a mission-critical business process, subject to internal control and reporting processes. Many of these increased security developments fuel lingering concerns among executives regarding information that may be stored and accessed in a public or hosted cloud.  Developments such as these motivate senior executives to continue to favor private based cloud options relative to B2B and supply chain needs.

While larger enterprise type vendors have the financial clout and other global resources to address such concerns, smaller vendors may be at a disadvantage.  Vendors often utilize third-party IT infrastructure service providers to host their cloud offerings, which again raises questions as to which parties have ultimate accountability and liability, and how that may relate to the customer’s declared internal control processes.

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.

This concludes our series of deep dives concerning 2013 Predictions for Global Supply Chains.

We extend a loud shout-out to all global supply chain professionals for their incredible achievements and responsive actions during 2012.  Another challenging year has passed and yet another is forthcoming. Then again, supply chain is never boring.

We trust that our ten 2013 predictions help you and your supply chain teams to think about objectives and resource plans and be adequately prepared in 2013.

The full complete copy of our 2013 Predictions for Global Supply Chains, which includes even more detail, will be shortly made available in a no cost research report available for download in our Research Center. We will advise when the final report is ready.

Throughout 2013, Supply Chain Matters will be providing additional insights related to each of our ten prediction areas, including both an interim and end-of-year report card.

As always, readers are encouraged to comment on these predictions as well as add additional thoughts as to what to expect in 2013.

Bob Ferrari

© 2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog.  All rights reserved.

For the past six weeks, this author has been penning a series of three ongoing commentaries on the Infosys Supply Chain Management Blog regarding the 2012 holiday buying season, and the lessons to be learned from this year’s activity.  Both traditional and online retailers have experienced a period where some new business process methods have been successful while others reinforce added learning for the coming months in years.

In my third commentary, The Learning from the 2012 Holiday Buying Season: Balanced Investments in Online and Physical Supply Chain Fulfillment Capabilities, I note that the overall headline for 2012 will most likely be one of selective retailer profitability to those that were able to effectively weight and tailor investments in online sales and marketing program and selective promotions with sophisticated inventory management, demand sensing and overcoming customer fulfillment needs.

Those readers residing in retail supply chains are welcomed to share their own observations regarding the learning obtained in 2012.

Bob Ferrari

Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide a series of predictions for the coming year. We have maintained this tradition since the founding of the blog in 2008.

Readers can view the entire listing by clicking on this web link: 2013 Predictions for Global Supply Chains.   

In our Part One posting, we explored our first two predictions for 2013, the overall economic and business challenges, and our prediction of inbound commodity prices.

Our Part Two posting explored predictions #3 and #4, which noted a continued renaissance in U.S, based manufacturing and the very important challenge of supply chain skills development and retention.

Part Three posting explored Prediction #5, our industry specific supply chain challenges prediction.   

Part Four posting addressed the critical need for supply chain resiliency and responsiveness in 2013 as well an increased penetration of Chinese companies in other industry supply chains.

Our Part Five posting, predicted broader umbrella supply chain accountability in 2013.

In this Part Six posting we dive into predictions of higher levels of action required in the control and mitigation of broad theft and counterfeit materials among industry supply chains.

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.

This collective area has been percolating for many years and we included a similar prediction in 2012.  The difference for 2013 is the need for various industries to step-up with action plans.  We anticipated that 2012 would be the year when government and industry finally become motivated to take action to address the growing incidents of non-conforming materials that have penetrated multi-industry global supply chains.   A snapshot of 2012 events clearly indicates that government stepped-up its enforcement efforts.

In Prediction #5, specific industry-related challenges for 2013, we noted that in 2012, Pharmaceutical and Healthcare supply chains had to respond to increased shortages of life-saving drugs such as Avastin for the treatment of cancer. U.S. government regulatory agencies clamped-down and discovered counterfeit drug supply routes that crossed multiple foreign countries and corporate entities with violations of drug safety standards.  What was once believed to be a suspected problem with counterfeit drugs originating from Canadian based distributors has turned out to be far wider in global origins and continues to be an area of strong concern. Supply Chain Matters believes that if it was not for the U.S. Presidential election event, there would have been more legislative cries for industry to step-up tracing and drug safety efforts. 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.

This area also takes on broader dimensions. 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. Other concerns are reflected in areas of corruption in the global supply chain.  Executives cited the importance of gaining visibility into subcontractors to third parties.  In 2012, high visibility incidents included Wal-Mart, which has been responding to allegations of corruption and fraud involving store selections in Mexico.  As we publish this commentary, Wal-Mart announced that it will audit all U.S. third-party warehousing and distribution facilities for potential labor abuses.  The November 2012 tragic fire at an apparel factory in Bangladesh that resulted in the death of over 100 workers had Wal-Mart in the media spotlight.  While the burned out factory was producing Wal-Mart labeled apparel, the global retailer claimed that this factory was unauthorized to produce such goods, and that an existing supplier subcontracted production without authorization. The retailer also stated that it, as well as the industry, needs to do more to monitor and control supply chain conformance.

This concludes Part Six of our 2013 Predictions for Global Supply Chains.

On Monday of next week, we will dive into our final prediction #10, increased adoption of cloud computing provided certain lingering customer concerns are addressed.

As always, readers are encouraged to comment on these predictions as well as add additional thoughts as to what to expect in 2013.

Bob Ferrari

© 2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog.  All rights reserved.

Note: No sooner than when we posted the below commentary comes late breaking news that longshoremen and east coast port operators have agreed to a 30 day extension for existing labor negotiations.  These same reports indicate that the key sticking point, royalty bonuses paid to union workers had been “agreed upon in principle by the parties”.  The current contract is now extended until midnight, February 6, 2013.

This is now a supply chain disruption scenario that we are pleased to change from moderate to lower probability.  None the less, supply chain teams should continue to have contingency plans in place.

It is looking more and more likely that global supply chain teams may not have to deal with the effects of a U.S. east coast port strike next week. In early December, Supply Chain Matters noted such a dire probability regarding the west coast dockworkers work stoppage, only to report a settlement the next day.  We would certainly be pleased to report a similar settlement result regarding the current east coast port situation.

As noted in our Supply Chain Matters alert on December 20^th, if a work stoppage were to occur, it would present far more supply chain wide physical and economic disruption consequences. Some industry sources note that over 90 percent of containerized shipments destined for the U.S. eastern seaboard would be impacted as well as 40 percent of all container cargo entering and exiting the U.S…  The threat of a work stoppage involves 36 major ports including the major container facilities of Charleston / Savannah, New York / New Jersey, Hampton Roads, Baltimore, Miami, Port Everglades, New Orleans and Houston. A labor stoppage would involve the handling of all ocean container traffic but goods not in containers and military cargo would not be impacted.

The major stumbling block in management and union negotiations remain worker royalty payments related to the total number of containers handled by ports. The U.S. Maritime Alliance, representing all port owners, wants to place an annual cap on these payments, while restricting newer workers from receiving such payments. The International Longshoremen’s Association union considers these payments a basis of essential compensation. Federal mediators remain involved but there has been no reported progress in the talks, which would indicate a continued impasse. A  White House spokesperson indicates that President Obama continues to monitor this situation and urges the parties to work at the negotiating table to resolve issues as quickly as possible.

If the strike occurs, multiple industry supply chains would be impacted, not the least of which would be those involving petroleum, agriculture, automotive, retail, industrial equipment, construction and other commodities. This is the period where late winter and spring merchandise arrives at port complexes. The auto industry alone has a high dependency on new vehicles entering dealer showrooms while component parts need to maintain U.S. auto production levels.

Industry supply chains have already begun contingency planning, re-routing existing inbound or outbound ocean container shipments to either U.S. west coast or other ports.  Air freight is also a consideration for certain high value, high density shipments such as electronics. An open question is whether other port or transportation unions will sympathize with east coast dock workers and slowdown existing handling and logistics operations. Supply chain teams will need to keep a keen eye toward on the ground developments and contingency movements next week and beyond.

The one thing that is certain is that a strike of this magnitude will have expensive consequences both for the U.S. economy and to specific supply chains.

We trust that this situation will resolve itself in a last-minute settlement but urge all supply chain planning and operations teams to execute all contingency scenarios.

Bob Ferrari