As we transition into the final month of 2011, we are revisiting the Supply Chain Matters 2011 Annual Predictions for Global Supply Chains which were outlined a year ago.  Our annual process is to first re-visit past projections made for the current year, in this case 2011, and declare some projections for the upcoming 2012 year, which will come in a later series of postings before the end of the year. In this Part Four and final posting, we will revisit predictions eight through ten. Our earlier scorecards can be accessed by clicking on the following links:

Part One- Predictions One and Two

Part Two-Predictions Three and Four

Part Three- Predictions Five through Seven

Prediction Eight: Two industry sectors, B2C and healthcare, will be especially effected by significant supply chain process impacts in 2011.

Both the B2C retail and pharmaceutical and healthcare industries were significantly impacted by supply chain related process impacts in 2011, making our prediction right on the money.

In the brick-and-mortar and E-Commerce sectors, a more sophisticated consumer has absolutely altered the retail buying landscape. Throughout 2011, consumers are exercising their ability to significantly influence product selection choices, perform real-time price comparisons, and easily place orders via the Internet and smartphones. According to comScore Inc., U.S. online e-Commerce spending is expected to grow to $162 billion in 2011, up from $142 billion in 2010, an increase of 14 percent. This motivated brick-and-mortar, as well as online retailers, to significantly enhance their online shopping, multi-channel commerce and operational capabilities throughout 2011. An article featured in the Wall Street Journal in mid-November (paid subscription or metered free view) noted that the hottest thing on retailers Christmas lists this year are finding experienced directors of e-commerce. Those that are highly experienced with solid track records are commanding total compensation packages upwards of $1 million.

For the online channel, Amazon continues to set the bar for services and price aggressiveness, causing retailers in many sectors to heavily invest in augmenting online capabilities in order to protect market share. Two of the most visible aspects of online impacts were the announcement by Wal-Mart that its CEO of global E-Commerce would retire in July after disappointing results in the online channel. The retailer who continues to have aggressive expansion plans related to online presence promises to announce a replacement in early 2012.  Retailer Best Buy has experienced five consecutive quarters of declining sales growth as consumers visit that retailer’s brick-and-mortar stores to touch and view products but often order goods online from the most price advantaged sites.

Another highly visible impact was that of Target. The retailer had previously outsourced its online site to Amazon, but made a decision to roll out its own internally sourced online site Target.com in August, only to experience a five hour breakdown in September when premiering a highly marketed promotion of Missoni clothing. The after-effects of this incident have motivated that retailer to also seek a new director of online activity.

The massive shift to more online retail capabilities and services is forecasted to have noticeable impacts to retailer margins this year, particularly in the upcoming 2011 holiday buying season.  Most retailers are offering free shipping, and many have considerably expanded the availability of products available for online purchase.  The implications to retailer inventory management and added costs will be interesting to observe when the final year-end results are tallied.

Pharmaceutical and Healthcare

The second significantly impacted industry Supply Chain Matters predicted for 2011 was that of pharmaceutical and healthcare related value-chains. The reason was what we viewed as the cascading effects of the significant changes in strategic business models causing too much leaning toward reduction in supply chain costs, healthcare reform initiatives emanating from multiple countries and desires to grow sales in emerging markets.  We feared all of these forces would cause noticeable supply chain impacts.  What we did not anticipate was the severity, which turned out to be a complete breakdown in certain industry segments.

In July, we posted a Supply Chain Matters commentary, Why are Pharmaceutical and Drug Supply Chains Failing?, noting financial media headlines that a vast majority of U.S. hospitals were facing severe shortages of life-saving chemotherapy and intravenous drugs used in critical care.  We followed up with a commentary in August noting that the ongoing complexities of pharmaceutical global supply chains have become greater than these companies abilities to control them. Critical shortages of life-saving drugs spilled over to areas of pet care, and in September, we noted that 2011 was tracking to be a year with the largest number of severe, life-saving drug shortages causing hospitals and healthcare providers to resort to gray channels to secure supplies. While industry concerns were primarily focused on increased regulation and cost managing costs, value-chains in certain segments have broken down in 2011. Causation points to generic producers and contract manufacturing sources, but that may be symptomatic of other problems. Suffice it to state that this industry remains in supply chain related crisis and that the situation will continue into 2012.

Prediction Nine: The landscape for the global outsourcing of components and finished goods production will shift again in 2011.

The essence of this 2011 prediction was that two fundamental business forces, ongoing fierce competitiveness forces directed at lowest product cost and continued needs for access to booming emerging markets, would compel manufacturers and retailers to pay much more attention to outsourcing strategies and to analyzing all the pertinent factors motivating these strategies.  We anticipated further shifts in component and finished goods product sourcing, particularly in low margin or highly sensitive IP product areas.

This prediction also turned out to be generally correct but the most compelling motivation for re-examining sourcing in 2011 relates to vulnerabilities to natural disaster when product production is too concentrated in a single geographic region.

Significant inflationary pressures brought about by explosive increases in labor costs, along with raw material and commodity costs, forced many manufacturers to revisit their sourcing strategies for China and other emerging economies. The building clouds of currency risk ebbed and subsided in various points in 2011, only to surface again late in the year with the ongoing Eurozone sovereign debt crisis and threats to the Euro. Manufacturers of lower costs and lower margin products continued to shift sourcing strategies away from China in favor of other countries.

Of more lasting impact, one that will continue in 2012 was the reminders that the northern Japan earthquake and severe monsoon floods in Thailand brought in 2011.  The motivations for low cost sourcing may have exposed significant vulnerabilities to strategic capacity and risk.  Having upwards of 30 percent of global hard disk drive manufacturing sourced within one country, along with the hundreds of bill-of-material related component related suppliers is cause for concern.

In the area of market access, intellectual property protection and increased concerns among senior executives regarding increased barriers for doing continued business within China have cast a less aggressive perspective for sourcing within China, and those companies that are compelled to stay the course, are constantly revising or modifying sourcing and value-chain strategies.

We believe that the landscape for global outsourcing of components and finished goods shifted in 2011, and will spillover again into 2012, perhaps at a much more aggressive rate.

Prediction Ten: Supply chain related green and sustainability programs will continue in 2011 and beyond, but at a slower pace.

Entering 2011, supply chain wide green and sustainability initiatives had been primarily directed at achieving reductions in resource use as well as in saving costs. Saving energy, water consumption or packaging resources all related to the bottom line and at the same time, provided customers and consumers a positive persona of a green and sustainable brand and company.

While a positive sustainability profile often makes good business sense, we had predicted a slowdown in green and sustainability program momentum during 2011. Our prediction was predicated on the continued effects of global recession and that consumer buying decisions would not in the end, favor a green or sustainable product over a lower-cost product.

That did not turn out to be the fact since consumers continued believe that companies can provide green and sustainable products at competitive prices. Rather than a slower pace, many companies, especially those with a B2C presence, increased their investments in green initiatives. The efforts and initiatives of multi-industry supply chain dominants such as Wal-Mart, Procter & Gamble, Kraft Foods, Nike and others no doubt kept momentum moving and expectations high. In one example, Wal-Mart is deploying its Supplier Energy Efficiency Program (SEEP) to improve the energy efficiency of its suppliers by passing along learning the global retailer has gained from its own internal initiatives.

The standards for green and sustainable supply chain are high, and we are pleased that our 2011 prediction in this area turned out to be more positive.

This concludes our complete series of scorecard updates related to the Supply Chain Matters 2011 Predictions for Global Supply Chains published at the beginning of this year.

Of the original ten predictions, by our count, five were on the money, three came about partially, and two were a miss.  We rate our 2011 predictions good, but readers are certainly welcomed to chime in and share their observations of global supply chain events in 2011.

Predictions aside, 2011 was a significantly challenging year for global supply chain teams and it does not get any easier in 2012. In December, we will declare and publish our 2012 Predictions for global supply chains so keep your browser favorites pointed toward Supply Chain Matters.

Bob Ferrari

©2011, The Ferrari Consulting and Research Group LLC and Supply Chain Matters, all rights reserved.

The Institute of Public and Environmental Affairs’ Green Choice Alliance, (also referred to as the Green Choice Alliance) a consortium consisting of 36 environmentally focused groups across China, has issued a report which is titled The Other Side of Apple. This report is gaining lots of Web pickup because of the very nature of its title.

On its web site, the Alliance indicates that it is a coalition of NGO organizations that promote a global green supply chain by pushing large corporations to concentrate on procurement and the environmental performance of their suppliers.

International news media is noting that the report consists of a ranking of 29 multinational technology companies based on how each responded to inquiries and concerns related to occupational health hazards at various supply chain factories within China.  Apple was ranked dead last among 29 companies, hence the selection of the report title. We at Supply Chain Matters wanted to actually read this report, but discovered that report currently only exists in its Chinese version.  We trust that the English version will be made available soon, since it is the details, not the headlines of this report that matter most

An article published in the Financial Times (free preview account may be required) referencing the report outlines a specific incident involving the alleged poisoning of workers at Liajian Technology, a subsidiary of Taiwan-based Wintek, which produces touch screen modules for Apple.  In that specific 2099 case, 49 workers were hospitalized for poising due to chemical exposure.  Wintek for its part, indicated that the factory in question stopped using the chemical.  Where Apple is being taken to task by these China based environmental groups was Apple’s refusal to confirm or deny whether polluting or harmful companies were Apple suppliers. Many in our global supply chain community are aware that Apple has a rather unfortunate iron-clad policy regarding not disclosing any details about its value-chain.

While the headlines of this story are indeed disturbing, we believe that more focus should be placed on the positive aspects.  First, the fact that a consortium of dozens of Chinese environmental teams is diligently monitoring workplace and environmental safety, and taking multi-nationals to task, is certainly a positive.  Second, the companies that have been cited as proactive and responsive, namely Alcatel-Lucent, Hewlett Packard, Hitachi, Samsung, Sharp, and Toshiba , should each receive positive accolade.

Apple was not the only company cited as not responsive, but that does not make headlines, especially when Apple was ranked as lowest.  There is also an obvious two-edge sword to Apple’s extraordinary business success.  On the one hand, Apple has been very open and public about declaring its commitment to worker safety and environmental responsibilities across its global supply chain.  On the other, a policy of secrecy and/or supplier protection may not be serving Apple well.

As is the usual case in these affairs, what really matters in the end is how Apple and other multi-nationals respond with concerted actions to their publically declared corporate commitments for social responsibility.  Let us all, as a global community, praise those companies who have placed positive action to their words.

Bob Ferrari

In our previous part one posting, we provided a report card on the first two of our Supply Chain 2010 Predictions penned a year ago.  In this Part Two posting, we reflect on predictions Three through Five.

Prediction Three: Analytics and rapid scenario planning become the key competency for planning, aligning and responding to resource needs across the supply chain.

A year ago we noted that the effects of the global recession have challenged traditional supply chain planning and resource allocation processes. Product demand is in a constant state of flux, and traditional planning and forecasting techniques that rely on past trending to predict the future were not proving to be adequate. That turned out to be quite the case.  There have been descriptions of the ‘just-in-time’ consumer across B2C retail channel, who wait to the very last minute to execute a purchase, or insists on smaller, more cost affordable quantities. In the B2B area, customers often wait until they secure an order, and then insist that suppliers respond to unplanned needs.  All of this has led organizations to rely more on event-driven, or rapid-response planning.

These trends have led to huge resurgence by teams in augmenting the process of sales and operations planning (S&OP).  Indeed, S&OP has turned out to be the most discussed supply chain related business process topic in 2010, with many firms seeking to augment S&OP with broader functional and executive participation, These firms also sought out more forward-looking planning and response tools, and technology vendors who specifically catered to these needs were the beneficiary.

The broader aspects of supply chain business intelligence also had a resurgence, with most all of the major ERP vendors announcing and deploying supply-chain wide business intelligence and analysis tools.  Previous acquisitions of business intelligence technology offering, such as SAP’s Business Objects, became the foundational platforms of these offerings.  In the sourcing, procurement and contract management area, there was renewed interest on the part of customers in broader spend analysis and information discovery related to major categories of indirect procurement, including casual labor, transportation, information technology and others.

The theme of supply chain business processes in 2010 was the ability to make quicker, more timely and informed decisions.

Prediction Four: Supply chain technology deployment to remain tactically focused, hosted application adoption will continue to soar, with continued leveraging power favoring buyers

This prediction also turned out to be correct but there were certain nuances to the trend.  Technology budgets were indeed constrained, and buyers focused on specific tactical process needs or shortfalls.  The emphasis remained on solving a problem with short technology implementation time and rapid payback. Buying decision cycles remained elongated, since teams need to be assured that there is complete analysis and buy-in regarding any technology buying decision.

To no surprise, sourcing, procurement and contract management technology fared rather well in 2010, and most of the major vendors in this area have been noting a good year in component license sales or customer interest. As noted in prediction three, more rapid planning technology was also on the minds of supply chain planning teams, in some cases, de-activating previous optimization-based applications in favor of heuristic or rapid, on-the-fly planning applications. Interest also continued with technology that enhanced supplier visibility and synchronizing customer replenishment or fulfillment processes across the extended supply chain. Many of the user surveys taken during the year continued to point toward tactically focused tools on user shopping lists, tools such as demand response, multi-echelon inventory management, supplier monitoring/management, or global trade and landed cost applications. While customers are clearly influenced on the overall suite breadth of a vendor offering, buying decisions often focused on a certain application.

Adoption of Software-as-a-service (SaaS) or cloud based applications also remained attractive since it allowed for meeting the criteria of rapid deployment, meaningful results at a reasonable cost.  We noticed more entry of SaaS type applications in supply chain wide collaboration, inventory management and analytics.  The nuance however was that supply chain and IT teams are still rather sensitive as to where mission critical planning, supplier, or operational information is stored, and we observed many technology vendors allowing more flexibility in deployment options.

Prediction Five: A resurgence of supply chain carbon tracking along with more momentum in green and sustainable supply chain initiatives.

In our view, this area has shown some momentum but there are mixed results in 2010.

Consumers continue to be sensitive toward favoring environmentally sensitive products, but overall cost of products seems to continue as the overriding choice. While many organizations note that sustainability and green supply chain initiatives have merit, the focus continues to dwell on efforts that save costs for the customer and the business.  Initiatives directed at saving fuel, packaging, or general recycling of materials continue but we observed that the effects of the economy and reduced manpower have slowed the timing of initiatives. Multiple executive surveys published throughout 2010 noted that sustainability compliance was rising as a priority on the CEO and executive agenda, but the timetable has now stretched out across multiple years of initiatives and implementation.

Major retailers, manufacturers and service companies remained very active in declaring supply-chain wide standards and guidelines to insure sustainability. Major announcements of initiatives included General Mills, Kraft, Unilever, along with original activists such as Nike and Procter and Gamble. Many of these initiatives, for instance Wal-Mart, were incorporated into supplier performance goals, which raise the question of which party holds the full compliance burden of sustainability. There have also been some visible setbacks. Frito-Lay attempted to introduce biodegradable packaging in its Sun Chips line of products but consumers complained about irritating package crumbling noise, which forced Frito-Lay to withdraw the package in hopes of a re-design.

Governmental pressures or mandates have waned in 2010, especially in the U.S., where carbon-trading and tracking became a rather hot political issue on the part of conservatives. A year after the much hyped global summit on sustainability, held in Copenhagen, there has been an overall sense of reduced expectations by global governments to mandate any aggressive timetable of compliance standards. Carbon intensive industries have declared their unease with perceived ‘heavy-handed’ governmental directives, while others claim that vagueness in regulations, will slow down any momentum because companies will have the ability to interpret timetables. A lack of global-wide consistency in regulations regarding hazardous materials, product categories, and carbon-tracking standards has only reinforced perceptions of a  cost of compliance burden, and while some larger global-based companies have the power of mandate or veto, smaller businesses remain hampered by cost and reporting burdens.

Green and sustainability will remain important for supply chain considerations, because it continues to make good business sense. However, the effects of the economy and the lobbying of the political system will determine whether there will be any significant increase in momentum. Technology that tracks carbon consumption and sustainability initiatives will also ride the curve of slow and steady adoption.

This concludes our two-part series of report card analysis of our 2010 supply chain predictions.  We will publish 2011 predictions for supply chains before the end of the year.

Now that we have shared some of our perceptions around 2010, we welcome readers to also share their observations regarding predictions that either occured or did not occur in 2010.

Bob Ferrari

I was very pleased to have the opportunity to be a guest blogger and contribute commentary to the Value Unchained community of followers hosted by Supply Chain Matters sponsor ModusLink Global Solutions.

In my guest commentary, I contrast the challenge related to sustainability strategy deployment across the supply chain, and important considerations in alignment of so-termed green or sustainability supply chain strategies with contributing benefit to overall business strategies.

You can view this posting at the following Value Unchained link.

Bob Ferrari

Accenture has published a 2010 research report which is billed as representing the largest study of CEO viewpoints ever conducted on the topic of corporate sustainability strategies. This report, which is titled A New Era of Sustainability, (registration sign-up may be required) was compiled in conjunction with the United Nations Global Compact and summarizes the views of over 1000 Global Compact member CEO’s.  In the Foreward, Georg Kell, Executive Director of the UN Global Compact, and Bruno Berthon, Managing Director of Accenture’s Sustainability Services context the insights from this report as helping to set the corporate sustainability agenda  for the next ten years.  The report also provides important supply chain management guideposts related to sustainability initiatives.

This report identifies widespread agreement among CEO’s that the next era of sustainability is not a separate strategic initiative but rather fully integrated into the strategy and operations of companies.  These CEO’s however voice a pragmatic approach, with over 50 percent believing that the tipping point is a decade away.

Three areas were identified as driving key approaches and ongoing strategies:

1. CEO’s identify consumers as the most important stakeholder in influencing the way in which their corporations will manage societal expectations over the next five years. These executives however are still looking for clearer signals that sustainability factors will actually drive consumer buying behaviors.
2. Over 90 percent indicated that their company would employ new technologies to help meet their sustainability goals over the next five years.
3. CEO’s confirmed that partnerships and collaboration with suppliers, governmental agencies and NGO’s are now a critical element of their company’s approaches to sustainability issues.

The report clearly notes the perceived difficulty in moving from strategic to  implementation segments of sustainability initiatives, and implementation of sustainability across the supply chain was specifically called out as a top barrier.  While 88% of CEO’s believe that their companies should be integrating sustainability through their supply chain, only 54% believe that these efforts have been achieved within their company.

If your role involves sustainability and green supply chain initiatives, this report may well be an important reference.  If sustainability initiatives have not as yet reached visibility and definition in your particular organization, you can anticipate that it within the coming months.

Bob Ferrari

There is one application area within SAP that can serve as a microcosm of how SAP can execute well in the market.  That area is corporate Sustainability.

At last year’s Sapphire conference, I was invited to attend SAP’s first ever executive roundtable discussion on the topic of sustainability.  The audience was diverse and knowledgeable on the topic of sustainability initiatives. Peter Graf, Executive Vice President of Sustainability Solutions outlined SAP’s commitment to mobilize the company to internally measure carbon consumption and corresponding carbon mitigation processes.  He helped champion SAP’s membership in the Sustainability Consortium and pledged to make SAP’s ongoing carbon consumption publically available for all to review.  SAP further announced the acquisition of Clear Standards, a carbon tracking application that SAP planned to utilize for both internal and external needs in carbon tracking, including the various tiers of the supply chain. For the past three years, the Dow Jones Sustainability Index has named SAP as the leader in the software sector.

One year later, the briefing at this year’s Sapphire conference was even more impressive.  SAP’s internal tracking processes have not only matured, but have also provided some interesting concepts in how to make data visual and interactive.  SAP utilizes its Business Objects Explorer tool as the engine for this interactive reporting, along with some other slick web-based visualization tools.  The just released 2009 Sustainability Report includes interactive tools that combine video, information and interaction that transformed a former publishing exercise into a two-way dialogue experience.  As you glance at the report you can note that while progress has been made in some areas, others have slipped.  SAP has not hidden this data and described the tracking process as providing some rather interesting learning. To assist external customers, SAP also provides a Sustainability Map, similar to other well-known SAP solution maps, that provides guidance on areas of sustainability process management support.  The supply chain management category includes Sourcing and Procurement, Traceability and Recall, Green Logistics, Supply Chain Design and Planning.  In April, SAP announced another acquisition in the Sustainability area, the intent to acquire TechniData AG, a long-time sustainability partner that helps SAP customers to track and manage compliance initiatives.

For sure, SAP is fulfilling roles for both leadership and evangelizing corporate responsibility for proactive sustainability strategy.  In adopting a strategy of dialogue and two-way interaction, SAP is gathering market and customer input on customer and employee needs for a proactive sustainability strategy, and perhaps comprehensive tracking and reporting tools.

The most important aspect of this impressive progress in Sustainability is that if the rest of SAP’s line-of-business and solution areas were to execute in this same manner of Define, Measure, Analyze,  Improve and Control, SAP would be a far more agile technology provider.

 Bob Ferrari