Report Card on Supply Chain Matters 2013 Predictions- Part One
On the eve of the beginning of the chronological New Year, it is our time to reflect, look back and scorecard our Supply Chain Matters 2013 Predictions for Global Supply Chains which we published nearly a year ago.
Readers are welcomed to review our predictions series for 2014 which we outlined previously in a series of detailed commentaries. But now is the time to look back and reflect on what we predicted and what actually occurred in 2013.
As has been our custom, our scoring process will be based on a four point scale. Four will be the highest score, an indicator that we totally nailed the prediction. One is the lowest score, an indicator of, what on earth were we thinking? Ratings in the 2-3 range reflect that we probably had the right intent but events turned out different.
So here we go with each of the predictions we had concerning 2013:
2013 Prediction One: Yet Another Year of Global Challenges to Support Required Revenue and Profit Growth.
Many of our readers and clients residing in multiple industry supply chains can well attest to the constant challenges that were incurred throughout 2013.
Regarding the overall global economy, the IMF had originally projected 2013 global growth to be 3.6 percent overall, but that number was constantly adjusted downward throughout this year. The current 2013 estimate is for growth to be 2.9 percent, a considerable difference from the start of the year and a reflection of the many economic uncertainties across global markets.
Optimistic revenue and profit growth that was focused squarely on emerging market economies such as China turned out to be more challenging, since the growth in many of these sectors was more subdued. According to China’s own forecasters, that economy is expected to complete this year with overall growth of 7.6 percent, a far cry from the double-digit growth rates of past years. When we developed our predictions a year ago, both the International Monetary Fund (IMF) and the OECD predicted China’s growth rate in 2013 to be in the range of 8.2 to 8.5 percent. Growth among the Eurozone region remained rather challenging throughout the year, but finally bottomed towards the second-half. Growth in the U.S. struggled in the first half, and rebounded considerably in this current quarter.
Fortunately, there were no widespread supplier failures during the year, and we are pleased that we missed on that part of our prediction.
This has indeed been a year of uncertainties and industry supply chains had to respond to product demand or contraction requirements at the most discrete levels.
2013 Prediction Two: Stabilized and Potentially Reduced Inbound Commodity Prices with Certain Exceptions.
Commodity costs did indeed moderate throughout 2013 as reflected in the Standard and Poor’s GSCI Commodity Index being down 5 percent as of mid-November. Prices in certain sectors were down considerably but there were some upside pressures in energy related costs. However, commodity costs among emerging market regions such as India and China remained challenging during the year because of currency and local economic conditions.
Costs in the food related sector were not as high as we predicted a year ago, although severe weather did indeed impact various global regions. Global supply and demand forces seemed to compensate for shortfalls.
Procurement teams drove deeper into indirect material costs to foster additional overall cost reductions. That included areas such as utilities, transportation, travel, temporary labor and other services. The market for spend analysis tools continued robust, which was reflection of continued cost savings initiatives in this sector.
The year 2013 was a good year for procurement teams, better than past years.
2013 Prediction Three: The Renaissance of U.S. Based Manufacturing to Continue Throughout 2013
This prediction was a relative no-brainer. Throughout 2013, we tracked PMI growth among the major manufacturing regions. By Q3 it was rather clear that the production activity in the United States was clearly gaining more momentum over other regions. The strategic advantages of cheaper energy and a stable currency, coupled with continued concerns for double-digit cost increases of direct labor and global transportation continued to motivate more manufacturers to elect either expansion or initiation of a U.S. based manufacturing initiative.
Among the business headlines in 2013 were names such as Caterpillar, Motorola, General Electric and Wal-Mart, all making considerable announcements. Regarding Wal-Mart, that global retailer committed $50 billion over the next ten years to assist certain suppliers in expanding their U.S. manufacturing presence. Even the world’s top contract manufacturer Flextronics, which has three-quarters of its manufacturing capacity located in low-cost manufacturing regions, is now investing millions to upgrade its four million square feet of manufacturing capacity across the United States. A landmark study from the Massachusetts Institute of Technology’s (MIT) Task Force on Production and Innovation was released in the latter half of this year which provided additional recommendations for public-private partnerships and industry innovation zones. We predicted continued momentum for U.S. based manufacturing to continue in 2014.
2013 Prediction Four: Supply Chain Talent Retention, Management and Development to Remain a Significant Challenge.
Talent retention and management has been a significant challenge since 2012. We predicted this would continue in 2013, and that has indeed been reinforced in many executive surveys and reports throughout this year. So much so that we elected to carryover this prediction into 2014 as well and readers can review our 2014 Prediction Four commentary for the detailed perspectives on the current problem and what strategy needs are required to overcome the challenges of maintaining a skilled supply chain management workforce that provides ample opportunities for career growth.
2013 Prediction Five: Two Industry Supply Chains, B2C and Aerospace to Undergo More Significant Challenges.
B2C Supply Chains
As we pen our 2013 Predictions scorecard, the aspects of the massive transformation for how consumers shop for goods has reached the top quadrant of business media headlines. The good and not so good news for 2013 was that it was a banner year for online fulfillment. As we close 2013 and the holiday buying surge, online retailers and shipping companies as pointing fingers at one another as to what went wrong in the final days as capacity came to a grinding halt. Brick and mortar retailers learned a lot from 2012 and deployed more effective strategies to overcoming consumer showrooming or price shopping. They invested in online fulfillment and broader multi-channel and multi-tier inventory management capabilities. The not so good news is that retail sales forecasts turned out to be too optimistic as economically stressed consumers were very diligent with their shopping habits, seeking out best possible price coupled with best strategic timing of purchases. In the Eurozone countries, consumers are especially distressed and that was reflected in shopping patterns throughout this year.
The 2013 holiday buying season appears to be headed toward disappointment for certain retailers, despite unprecedented promotional and price competitive activities. A shorter 26 day period between the Thanksgiving and Christmas holiday period did not help, and frequent winter storms impacted shopping trends. Since the Christmas holiday, by far the most prominent headline has been the security breach across Target Stores retail locations compromising an estimated 40 million credit card accounts. The other prominent headline was UPS’s failure to guarantee delivery of holiday related packages, which by our view, was a scapegoat for retailers over aggressiveness in pushing the envelope in instant delivery. There are reports that Amazon signed up over one million free shipping Prime accounts the week before Christmas. The online retailer than guaranteed delivery as late as Sunday, two days prior to the holiday. UPS has now indicated that 132 million packages entered its network the week before Christmas, and we now know the results.
Our prediction called for at least one, possibly two failure announcements concerning high visibility retailers. We can now disclose the names that we had in-mind, namely JC Penny and Sears. Both of these retailers continue to struggle with the overall effects of the online, Omni-commerce economy and as the Wall Street Journal recently opined, the availability and abundance of cheap financing provided another few months of added life. We predicted that Amazon would have another banner year in 2013 and all indications are that this will be the case. We therefore believe that while were fairly close on consequence, timing and events produced a bit of a delay as to our prediction. Candidly, we were of the belief that retailers had addressed systems security needs but the Target incident will have significant retailer implications in the coming months.
Aerospace Supply Chains
Once again, Aerospace industry supply chains dis indeed encounter extraordinary challenges throughout this year. These challenges were twofold. The continued after- effects of severe global recession and high debt spending among national governments caused cutbacks in military and defense spending. This was especially evident in Europe and the United States. For the U.S., the so-termed automatic sequester cutbacks were directed squarely on military and defense spending and effects quickly spilled over to defense divisions of aerospace companies. Both Airbus and Boeing have since announced layoffs and cutbacks centered on each of their defense sectors.
At the same time, the boom for airline demand for new technologically advanced and more fuel-efficient commercial aircraft continued unabated. The literal duopoly of Airbus and Boeing continued to dominate industry news in 2013 as both global OEM’s continued to balance unprecedented increases in new orders for aircraft while challenged to dramatically increase the production volumes for finished aircraft. The current backlog of sold new aircraft remains incredibly healthy and both Airbus and Boeing may yet again announce new records in order volumes for 2013. At the recent Dubai Air Show held in November, new aircraft orders amounting to excess of $150 billion were booked with delivery slots beginning in 2020. Meanwhile, program delays continue to make business headlines along with Boeing’s tense relationship and conflicts with its organized labor unions.
Other smaller industry OEM’s such as Bombardier, Embraer and COMAC compete for niche aircraft segment needs, and each of these players faced critical milestones in 2013.
Aircraft engine suppliers General Electric, Safran and Rolls Royce were beneficiaries of unprecedented new aircraft orders. GE Aviation has a backlog of orders for 15,000 new generation aircraft engines between now and 2020 and must fulfill a delivery rate of more than 4,000 engines per year for the next two years amid increasing customer orders for its new GE90, GEnx and CFM56 engine models.
Thus, 2013 was an incredible contrast for aerospace supply chains in overcoming the challenges of relentless product demand and capacity barriers in the commercial sector with cutbacks and re-structuring in military and defense sectors. And this is just the beginning of other challenges to come in 2014.
This concludes Part One of our 2013 Predictions scorecard. In Part Two we will review our other five predictions for this year and how they fared. Readers are certainly encouraged to add their observations regarding either our predictions for this year and our self-rating.
© 2013 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.