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Supply Chain Matters 2016 Predictions for Industry and Global Supply Chains in Detail- Part Three

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We continue with our Supply Chain Matters series outlining in more detail, 2016 Predictions for Industry and Global Supply Chains. These predictions are provided in the spirit of assisting industry supply chain teams in setting management objectives for the year ahead as well as helping our readers and clients to prepare supply chain Supply Chain Matters Blogmanagement and line-of-business teams in establishing meaningful programs, initiatives and educational agendas.

The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and service management.

Our predictions series includes a re-look at all that occurred in the current year, a reflection of future implications, and soliciting input from clients and other supply chain and blogosphere observers. Unlike others, we incorporate a lot of thought and perspective into our annual predictions and take the time to actually scorecard our annual predictions at the end of the year.

Readers are welcomed to review our complete listing of all ten 2016 predictions for industry and global supply chains.

In our Part One posting, we dived into Prediction One that addressed what industry supply chains should anticipate in global chain activity and Prediction Two, what to expect for inbound commodity and component costs as well as unique challenges for sourcing and procurement teams in the coming year.

Part Two of our in-detail predictions explored Prediction Three, turbulence and continued change in global transportation / logistics, and Prediction Four, the growing supply chain talent and skills gap requiring organizations to be more innovative and resourceful.

In this posting, we explore certain industry-specific challenges occurring in 2016.

2016 Prediction Five: Our Noted Supply Chain Industry-Specific Challenges

Each year when we publish our annual predictions, we include a specific prediction addressing what we feel will be industry-specific challenges dominating business and media headlines in the coming year.  In 2016, challenges will remain in B2C Online Retail, Commercial Aerospace, Consumer Product Goods (CPG) and Automotive industry sectors.  We have added a further 2016 industry challenge, that being current efforts to deploy more sustainable and health conscious agriculture and food based supply chains.

B2C and Online Retail

In 2015, global retailers continued to be challenged in emerging and traditional markets and in permanent shifts in consumer shopping behaviors. Industry CEO’s continue to openly admit that this is one of the most challenging eras for the retail industry. The byproduct of the late 2014 U.S. West Coast port disruption was retailers having a discernable overhang in inventories entering the 2015 fulfillment surge quarter.

While penning these predictions, the final online tally for 2015 is yet to be determined, but at the close of the 2015 Black Friday and Cyber Monday weekend, trending clearly points to a permanent shift in consumer sentiment towards online buying preferences in the order of double-digit shifts.  By mid-December 2015, reports began to reinforce that online orders were far more than originally anticipated with major parcel transportation provider FedEx and UPS networks falling behind in delivery commitments. Once again-finger-pointing among carriers and online retailers broke out as to which party exhibited accuracy of forecasting.

We predict more challenges for the retail industry in the coming year, unfortunately to include some high visibility bankruptcies. We also suspect that strategies to predominately route online orders to centralized customer fulfillment warehouses may have contributed to carrier network congestion because of the locations of these centers.

We believe that more integrated Omni-channel fulfillment capabilities will trump customer engagement Initiatives in 2016 in the ability to synchronize fulfillment execution with network-wide inventory policy and management with logistics and transportation cost implications.

Commercial Aerospace

Industry dominants Airbus and Boeing are both entering an unprecedented phase of ramping-up each of their individual global-based supply chains and ecosystems to make a dent in multi-year order backlogs over the next 3-4 years among new aircraft programs.

The implication for the commercial aerospace ecosystem is the ability to support a production cadence of nearly 100 per month or 1200 completed aircraft per year by 2019 with very little tolerance for disruptions or system component delays. That is a tall order for an engineered to order, high tolerance and quality centric industry eco system. The cracks were already showing in 2015 and there will be more in 2016. In June of 2015, key suppliers for both Boeing and Airbus were communicating their concerns about supply chain ramp-up plans and were urging the OEM’s to proceed cautiously.

We foresee a rather fragile commercial aerospace supply chain in 2016-17 with many increased risks and concerns. We expect the smaller industry OEM’s to be the primary victims of any supply disruptions.

Automotive Industry

Despite an improved economy and more optimistic consumers, the automotive industry continues to have its own unique set of challenges that will obviously extend into 2016.  An unprecedented level of industry-wide product recalls has taxed service management and repair parts supply chains which will overflow into 2016.  In 2015, the most visible driver was the ongoing series of recalls related to defective airbag inflators produced by supplier Takata that involved a multitude of global brands in 2016. The headline will shift to Volkswagen and its needs to address thousands of diesel-powered vehicles with illegal air pollution monitoring devices and software, which continues to impact the reputation of its brand.

Another concern for 2016 will center on China’s automotive sector where significant overcapacity amidst declining domestic demand will likely force more global exports.  GM is expected to import its first totally Chinese manufactured vehicle, a small SUV, into the U.S. market in 2016.

In 2015, initial buzz on the possibility of Apple getting the automobile business persisted. We concur with Fortune Magazine’s published prediction in November that Apple will likely buy Tesla to springboard entry into the industry as well as acquisition of a fully operating, vertically integrated supply chain.  If this occurs, it will be game-changing in the notion of a software company producing automobiles.  Google (Alphabet) is likely another potential player.

The bottom-line for the automobile industry in 2016 will be innovation in quality assurance, combined software and hardware innovation, alternative energy and Internet-of Things technologies. Automakers again run the risk of complacency in the current environment of unprecedented low prices of gasoline and diesel fuel, opting to promote higher margin trucks and luxury vehicles over those of more increased fuel efficiency and range. The theme for 2016 is which automakers spur more innovation and which focus on short-term profitability needs.

Consumer Packaged Food and Beverage Goods

Since 2014, we have included CPG in our industry-specific challenges for the coming year amid permanent changes in consumer tastes.  The year 2016 we be no exception, but this time, the stakes and the pain levels are far higher.

Consumers continue to shift their food shopping preferences away from traditional processed foods staples in favor of niche food providers that offer more perceived healthy foods containing natural and sustainable ingredients. This trend has become quite discernable and is reflected in financial results and negative growth now being experienced among many large and termed “Big-Food” global producers with iconic food brands. CPG firms continue to work frantically to create alternate choices either through acquisitions of up and coming natural foods providers, by developing new internal product creations, or both.

Declining profits and meager sales growth continues to spawn activist equity investors to influence certain CPG, food and beverage firms to consolidate.  We predict further M&A announcements in 2016, possibly involving blockbuster global brands. As a consequence, the industry is now consumed by zero-based budgeting and significant supply chain focused cost-cutting techniques.  Industry leaders and past veterans point to experiencing one of the most dynamic, challenging and disruptive periods ever seen in the industry.

In 2016, the winners or survivors will be those who can lead in product and process innovation and gut-wrenching transformation satisfy consumer preferences more healthy foods, while dealing with the significant distractions and de-moralization brought about by ZBB or other wide-ranging cost cutting initiatives. We further predict the food quality will suffer and there will be yet another uptick in highly visible food related product recalls in the coming year.

The True Organic, Green and Sustainable Food Supply Chain

We are adding this industry sector to our unique industry challenges in 2016.  Today’s consumers demand healthier food choices and more natural ingredients, are more interested in knowing where their food originated, the ingredients within food and how food is produced with sustainable methods. They are clearly holding well-known iconic food and restaurant brands accountable for increased commitment to this effort.

Throughout 2015, well known producers, food service providers and suppliers were compelled to respond. Brands such as Costco, Hershey, Kellogg, McDonalds, Nestle, Tyson Foods, Yum Brands and others have all embarked on initiatives directed at curbing the use of antibiotics in animals, artificial food coloring within food, and higher quality standards for suppliers. Yet, do consumers and providers realistically understand the significant challenges and timetables for these efforts?

There are clear realities to the challenges of this ongoing transition.  In April of 2015, The Wall Street Journal noted that the increasing need among consumers for more organic foods is literally: “hampering the growth of one of the hottest categories of the U.S. food industry.” Farmers, dairies and ranchers face significant costs and risks in attempting to convert from conventional to organic farming or animal production techniques. “While organic produce or livestock can command prices as high as three to four times that of conventional food, farmers generally have to sell their food at conventional prices during the transition.”

In other words, the entire food industry and respective shareholders need to come together in concerted efforts in 2016 and beyond to address realistic timetables and consumer expectations as to when true organic, green, sustainable and socially responsible foods will be available in adequate supply and at more affordable prices.  Providers and originators of meat, grocery and produce products will require financial incentives and economic resources to make such transitions over reasonable time periods.  The other obvious concern is food safety.  When massive scale methods are removed that focus on the use of harmful drugs, genetically modified methods of farming or raising animals in quicker time periods, what will be the near-term impact on food safety?

Thus in 2016 and beyond, all of the stakeholders associated with food supply chains need to move beyond press releases, marketing and rhetoric, and address a comprehensive set of plans, expectations, incentives and realistic timetables for when fully green, sustainable food supply chains will provide supply in the volume required to meet global needs, and in adhering to all required food safety standards.  We believe and anticipate that this will be an effort suited for global bodies and regulators such as the United Nations, World Health Organization or industry consortiums.  More overt actions and incentives need to come forward or these long-term commitments will slip even further.

Keep your browser pointed to Supply Chain Matters as we continue dive into each of the above 2016 predictions in more detail. In our Part Two posting we will explore Prediction Three- continued turbulence in global transportation and logistics, and Prediction Four- the widening of supply chain talent and skills gaps.

 

In the meantime, share your own predictions over and above those that we have outlined. Utilize the Comments section associated with this posting or email us directly with your predictions at: feedback <at> supply-chain-matters <dot> com.  We will share all contributed predictions in a final predictions of this 2016 series.

Bob Ferrari, Founder and Executive Editor

 ©2015 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog.

Content appearing on Supply Chain Matters® may not be used by any third party without written permission of the author and our parent, The Ferrari Consulting and Research Group.

 


Supply Chain Matters 2016 Predictions for Industry and Global Supply Chains

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Once a year, just before the start of the New Year, our parent, the Ferrari Consulting and Research Group along with Supply Chain Matters provide a series of predictions for the coming year. These predictions are provided in the spirit of assisting industry supply chain teams in setting management objectives for the year ahead as well as Supply Chain Matters Bloghelping our readers and clients to prepare supply chain management and line-of-business teams in establishing meaningful programs, initiatives and educational agendas.

The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and service management.

Our process includes a re-look at all that occurred in the current year, a reflection of future implications, and soliciting input from clients and other supply chain and blogosphere observers. Unlike others, we incorporate a lot of thought and perspective into our annual predictions and take the time to actually scorecard our annual predictions at the end of the year. Readers are welcomed to review our scorecard series of our 2015 predictions that occurred in late November.

In this initial posting, we will unveil our complete listing of our ten predictions for the coming year with summary descriptors. In subsequent postings spanning the remaining weeks of December we will dive further into each of our predictions. In early January, we will publish the complete Ferrari Consulting and Research Group research report, 2016 Predictions for Industry and Global Supply Chains that will incorporate all of our predictions along with even more details and supporting data related to each prediction. This report will be made available to all of our consulting clients and will further be made available for no-cost complimentary downloading in the Research Center of Supply Chain Matters.  Anticipate general availability in mid-January with an announcement on this blog.

Let’s therefore begin the process with the unveiling our ten 2016 predictions.

 

2016 Prediction One: A Year of Uncertainty and Continuous Challenges Related to Global Supply Chain Activity

Our first prediction related to global activity is that industry and global supply chains should anticipate another year of uncertainty in planning product demand and supply needs on an individual geographic region or country basis.  From our lens, there will be a need for lots of contingency and various scenario planning options, and sales and operations planning will be very engaged and challenged throughout the year to meet expected business outcomes.  Even more production overcapacity across China’s industry sectors will add to downward global pricing pressures affecting specific industry supply chains.

 

2016 Prediction Two: Favorable Outlook for Inbound Component and Commodity Costs but Procurement Teams Need to Step-up Supplier Management

Global commodity prices, the raw-material of industry supply chains, declined sharply during 2015.  The World Bank’s Commodity Markets Outlook published in October 2015 generally called for slightly higher non-energy commodity prices in 2016 including categories of Agriculture, Raw Materials, Fertilizers Metals and Minerals. We believe that may be too optimistic and that continued overcapacity will drive inbound prices generally lower. The most significant commodity price trend remains that of oil, as the price of crude oil has reached seven year lows amidst of global glut of supply and little demand growth.

Due to the uncertainty and the heightened supply risks expected in 2016, procurement teams will need to re-double their efforts focused on supplier assessment and monitoring.

 

2016 Prediction Three:  Turbulence and Continued Change Surrounds Global Transportation and Logistics

As we enter 2016 we are once again compelled to predict another year of turbulence and continued change surrounding global transportation and logistics with particular emphasis in the third-party/fourth-party logistics, global ocean container and air freight segments. We are predicting more consolidation and mergers to occur among ocean container shipping lines and one North America based rail merger to occur in 2016.

 

2016 Prediction Four: Widening of Supply Chain Talent and Skill Gaps Will Require Organizations to be More Innovative and Purposeful in Recruitment, Career Planning and Training Efforts

We predict that the existing widening skill gaps will compel industry supply chain executives to be more creative and purposeful in recruitment and training. That includes facing the realities of competitive compensation and purposeful career planning for individuals. We expect organizations and recruiters to more broadly define supply chain related jobs in skill dimensions and in expected performance parameters for both current and future organizational needs. Individuals who possess required cross-functional hard and soft skills, including in-depth technology prowess will continue to experience a seller’s advantage.

 

2016 Prediction Five: Noted Supply Chain Industry-Specific Challenges

In 2016, challenges will remain in B2C Online Retail, Commercial Aerospace, Consumer Product Goods (CPG) and Automotive industry sectors.  We have added a further 2016 industry challenge, that being current efforts to deploy more sustainable and health conscious agriculture and food based supply chains.

 

2016 Prediction Six: Certain Industry S&OP Processes Will Morph to Broader Forms of Integrated Business Planning and Product Management.

The term integrated business planning is often depicted as a specific technology vendor term but in reality, it is a desire that all functions of a firm are aligned at a single set of financial, business, supply chain and operational outcomes.  As multi-industry business challenges continue in speed and complexity, S&OP processes will need to foster more agility to effectively deal with change. In 2016 we anticipate that certain S&OP teams, those experiencing high levels of value-chain complexity and business change, will begin to morph S&OP process and decision-making with broader information and contextual decision-making components and begin to identify and address obstacles for incorporating key information integration from product management and financial systems.

 

2016 Prediction Seven: Internet of Things (IoT) Initiatives Continue to Dive into Realities of Line of Business Strategy and Deployment

In 2016, we anticipate that B2B focused manufacturers and services providers will broaden their perspectives on connected devices and services, especially in the notions of the realities for being a software-driven vs. a hardware-driven enterprise. That includes leveraging intellectual property and software knowledge into more innovative products and services that result in new revenue streams. Thus, the value of products will increasingly be defined by the embedded sensors, software and consequent added services that products provide for customers.

 

2016 Prediction Eight: Geopolitical Developments Centered on Global Trade Agreements Will Present New Concerns and Challenges for Specific Industry Supply Chains.

Details of the recently adopted Trans-Pacific Partnership will continue to unfold in 2016 while individual sponsoring countries undertake the process of ratification. As TPP details emerge, industry supply chains will begin to uncover certain strategic and tactical impacts related to current global sourcing strategies. China will continue to drive and influence its One Belt, One Road (OBOR) initiative placing additional political and specific industry pressures on certain TPP participants. Industry supply chain teams will thus be caught in the middle of geopolitical pressures and forces in relation to pending strategic sourcing or value-chain design strategies.

 

2016 Prediction Nine: Alibaba and Amazon Will Expand Their Presence in Customer Logistics Fulfillment.

There are stronger indications that online giants Alibaba and Amazon will expand their presence in last-mile customer fulfillment. Increasing transportation rates and surcharges from both FedEx and UPS in 2015, and in the coming year, make this prediction more viable for the most influential online retailers as well as more evidence pointing to such capabilities.

 

2016 Prediction Ten: A High Visibility Supply Chain Snafu or Event with Business Implications

This is a prediction that we are obviously reluctant to publish for readers and clients. However, our observation of industry supply chains being whiplashed with unprecedented business change and growing global chain risks leads us to this prediction.

 

Keep your browser pointed to Supply Chain Matters as we dive into each of the above 2016 predictions in more detail. In the meantime, share your own predictions over and above those that we have outlined. Utilize the Comments section associated with this posting or email us directly with your predictions at: feedback <at> supply-chain-matters <dot> com.  We will share all contributed predictions in a final predictions of this 2016 series.

Bob Ferrari, Founder and Executive Editor

©2015 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog.

Content appearing on Supply Chain Matters® may not be used by any third party without written permission of the author and our parent, The Ferrari Consulting and Research Group.


The Dow Chemical and Dupont Merger Has Obvious Massive Implications

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The biggest news last week and perhaps for all of 2015 was the announcement that long-time rivals Dow Chemical and DuPont‘s intend to merge into a specialty chemicals giant of more than $120 billion.  There are stated plans to split both enterprises into three separate companies providing different specialty chemical based product offerings.

This proposed deal has obvious massive implications.

Saturday’s edition of The Wall Street Journal carried the headline that this deal cements activists’ rise. A profound quote of that article stated:

While they (activists) have become increasingly powerful in recent years, forcing companies to do everything from buying stock to selling assets, their ability to help bring about such a monumental deal represents a new high.

Today, the WSJ further described long-simmering hostilities between Dow CEO Andrew Liveris and activist investor Daniel Loeb which reached a boiling point this weekend after the announcement on Friday. Loeb apparently declared that this deal was too rushed, and called for Liveris’s resignation.

In October, former Dupont CEO Ellen Kullman suddenly resigned after fending off one of the most prominent wave of activist investor assault on a corporate board. Kullman was succeeded on an interim basis by board member Edward Breen while the company searched for a permanent replacement. Breen, whose resume includes being Chairmen and CEO of Tyco International worked with Dow CEO Andrew Liveris to orchestrate this deal.

Our Supply Chain Matters initial perception is that the announced deal provides a significant new and scary watershed as to the degree of influence that activists portend to have on corporate CEO’s. That is qualified, however, as to whether government regulators would allow this deal to go through given the significant implications. Analysts at Piper Jaffrey were quoted as indicating: The global natures of the antitrust hurdles are likely to be significant.”

The National Farmers Union (NFU) has already expressed its frustration for yet another enormous merger. NFU President Roger Johnson declared: “Having just five major players remaining in the marketplace would almost certainly increase the pressure for remaining companies to merge, resulting in even less competition, reduced innovation and likely higher costs for farmers.  This announcement, combined with the on-again-off-again Monsanto/Syngenta merger, is creating a marketplace where farmers will have very few alternatives for purchasing inputs.” The National Corn Growers Association declared it will do all it can to protect farmer interests and preserve an open and competitive marketplace.

Do not be surprised to read of other such declarations.

Since both of these global companies supply materials at the lowest echelons of many different industry supply chains, this proposed merger has significant internal and external implications from many industry value-chain supply dimensions.  These will unfold over the coming days and weeks and will likely take on market, technology and human resource dimensions, since the cost and the scale of this merger is momentous and far-reaching. How long the regulatory approval process actually occurs is likely anyone’s guess.

One thing is certain however, the specialty chemicals industry has reached a watershed moment, one that will likely redefine industry players and their associated supply chains for many years to come.

Bob Ferrari

 


Report Card for Supply Chain Matters Predictions for Industry and Global Supply Chains- Part Three

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While industry supply chain teams continue efforts in achieving their various 2015 strategic, tactical, and operational line-of-business business and supply chain focused performance objectives, we continue with our series of Supply Chain Matters postings looking back on our 2015 Predictions for Industry and Global Supply Chains that we published in December of 2014.  Supply Chain Matters Blog

Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008. Our approach is to view predictions as an important resource for our clients and readers, thus we do not view them as a light, one-time exercise. Thus, not only do we publish our annualized predictions, but every year in November, look-back and score the predictions that we published for the year. After we conclude the self-rating process, we will then unveil our 2016 predictions for the upcoming year.

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. Admittedly, our self-rating is subjective and readers are welcomed to add their own assessment of our predictions concerning this year.

In the initial posting of this Predictions Score Card series, we looked back at both Prediction One– global supply chain activity during the year, and Prediction Two– trends in overall commodity and supply chain inbound costs. In our Part Two posting, we revisited Prediction Three– the momentum in U.S. and North America based production and supply chain activity, as well as Prediction Four– wide multi-industry interest in Internet of Things.

We focus this commentary on our prediction for industry specific supply chain challenges.

2015 Predictive Five: Noted Industry Supply Chain Challenges

Self-Rating: 3.5 (Max Score 4.0)

Our prediction called for specific supply chain challenges in B2C-Retail, Aerospace and Consumer Product Goods (CPG) sectors. Additionally, we felt that Automotive manufacturers would have to address continued shifting trends in global market demand and a renewed imperative for corporate-wide product and vehicle platform quality conformance measures while Pharmaceutical and Drug supply chains needed to respond to added regulatory challenges in 2015.

B2C and Retail

In 2015, global retailers indeed were challenged in emerging and traditional markets and in permanent shifts in consumer shopping behaviors. Consumers remained merciless in their online shopping patterns seeking value and convenience. The price tag of the U.S. West Coast Port disruption was pegged at upwards of $5 billion for the industry and the inventory overhang effects remain as we enter this year’s holiday surge period. In August, we contrasted the financial results of both Wal-Mart and Target that presented different perspectives on the importance of integrated brick and mortar and online merchandising strategies and strong, collaborative supplier relationships. Both of these retailer’s performance numbers pointed to an industry that continues to struggle with balancing investments in both online and in-store operations and a realization that significant change has impacted retail supply chains.

A stunning announcement during the year was the October announcement from Yum Brands that after a retail presence since 1987, the firm will split-off all of its China based Kentucky Fried Chicken, Taco Bell and Pizza Hut restaurant outlets into a separate publicly traded franchisee based company. The move came to insulate the company from the turbulence that has beset its China operations from food-safety scares, stronger competition and Yum’s own operating missteps, which provide important learning for other retailers. Other general merchandise retailers continue to struggle with the inherent challenges of China’ retail sector, especially in the light of a possible contraction in China’s economic climate. Global current shifts have further dampened global retailer attempts to gain additional growth from emerging market regions.

Amazon, Google and Alibaba continued their efforts as industry disruptors with Alibaba setting a new benchmark in one-day online sales volume, processing and fulfilling upwards of $14.3 billion in online sales during the 2015 Singles Day shopping event across China. Last year, online retailers acquired important learning on the higher costs associated with fulfillment of online orders, which will be crucial in managing profitability during this year’s holiday surge period.

Consumer Product Goods

Consumer’s distrust of “Big Food” continued front and center this year. We predicted that the heightened influence and actions of short-term focused activist equity investors, applying dimensions of financial engineering or consolidation pressures among one or more CPG companies would continue to have special impacts on consumer goods industry supply chains with added, more troublesome cost reduction and consolidation efforts dominating organizational energy and performance objectives. The year has featured quite a lot of consolidation and M&A activity as larger CPG producers attempted to buy into smaller, health oriented growth segments. One of the biggest announcements that rocked the industry was the March announcement that H.J Heinz would merge with Kraft Foods, orchestrated by 3G capital and financed in-part by Berkshire Hathaway. In a article, The War on Big Food, published by Fortune in June, a former Con Agra executive who now runs a natural foods company is quoted: “I’ve been doing this for 37 years and this is the most dynamic disruptive and transformational time that I’ve seen in my career.”

Indeed, the winners or survivors in CPG will be those more nimble producers who can lead in product innovation, satisfying consumer needs for healthier, more sustainably based foods, while fostering continuous supply chain business process and technology innovation. This industry will remain challenged in 2016.

Commercial Aerospace

Our prediction was that Industry dominants Airbus and Boeing and their respective supply ecosystems will continue to be challenged with the needs for dramatically stepping-up to make a dent in multi-year order backlogs and in increasing the delivery pace for completed aircraft. Dramatically lower costs of jet fuel that were expected in 2015 would likely present the unique challenges of airline customers easing off on delivery scheduling, but at the same time insuring their competitors do not garner strategic cost advantages in deployment of newer, more fuel efficient and technology laden aircraft. These predictions indeed transpired and both aerospace dominants have now announced aggressive plans to ramp-up supply chain delivery cadence programs over the next 3-4 years for major new commercial aircraft programs. The lower cost of jet fuel indeed motivated some airlines to adjust or postpone certain aircraft delivery agreements but not in significant numbers. The other significant industry development was the continued struggles of Bombardier in its efforts to deliver its C-Series single aisle aircraft to the market, which could have provided an alternative for certain airlines. This aircraft producer recently sought a $1 billion loan from Canadian governmental agencies in order to sustain its development and market delivery efforts and complete C-Series global certification sometime in 2016.

We predicted that Middle East and Asian based airlines and leasing operators will continue to influence market dynamics and aircraft design needs and that indeed occurred. Emirates, Ethiad and Qatar clashed with American, Delta and United over the future of international air travel, competing aggressively with large fleets of new, lavishly appointed jets and award-winning service. But the US legacy carriers believe that competition with the Middle Eastern carriers has become inherently unbalanced with large government subsidies to fund such investments. Emirates is now the world’s largest operator of both the Airbus A380 superjumbo and the Boeing 777-300ER and continues to pit both Airbus and Boeing on developing newer long-haul, technological advanced aircraft, while other carriers seek faster delivery of more efficient single-aisle aircraft to service growing air travel needs among emerging markets.

Supply issues did manifest themselves in 2015 with reports of under-performance in the delivery of upscale airline seating, the continuous supply of titanium metals, and the effects of the massive warehouse explosions near Tianjin China. However, most were overcome.

Automotive

At the time of prediction in December of 2014, an unprecedented and overwhelming level of product recall activity was occurring across the U.S. This was spurred by heightened regulatory compliance pressures, driving product quality and compliance as the overarching corporate-wide imperative. At the time, a New York Times article cited that about 700 individual recall announcements involving more than 60 million motor vehicles had occurred in the U.S. alone in 2014. Indeed General Motors and other global brands remained under the regulatory looking glass throughout 2015 and the one dominant issue remained defective air bag inflators. We predicted that supplier Takata would continue to deal with its ongoing quality creditability crisis and indeed in November, long-standing partner Honda announced that it would sever its relationship with the Japan based air bag inflator supplier.

While we predicted that GM would especially be under the regulatory looking glass in 2015, the big surprise turned out to be Volkswagen and the ongoing crisis involving the installation of software to circumvent air pollution standards in its automotive diesel engines. This crisis is still unfolding with implications that could amount to potentially billions of dollars, not to mention a severe credibility jolt to the Volkswagen name in the U.S. and globally. We may have erred on this particular prediction, but who would know that such a development would have such far-reaching global implications for product design and regulatory compliance for the entire industry.

Finally, China’s auto market was expected to grow by 6 percent or 20 million vehicles in 2015. However, economic events over the past few months and a far more concerned Chinese consumer may well mute such growth and market expectations. In November, GM announced that it would import a Chinese manufactured SUV sometime in 2016, the first to enter the U.S. market.

In our next posting in our look back on 2015, we will review Predictions Six through Eight

In the meantime, feel free to add to our dialogue by sharing your own impressions and insights regarding these specific industry challenges in 2015.

Bob Ferrari

©2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.


Emergence of New Global Logistics Hubs

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Global commercial real estate firm CBRE Group Inc. has released a research report indicating that over the next decade, 20 markets worldwide—including South Florida; Santiago, Chile; Bajio, Mexico; and Philadelphia—are set to emerge as global logistics hubs.

The concept of emerging global logistics hubs was brought forward to in the book, Logistics Clusters, Delivering Value and Driving Growth, authored by Yossi Sheffi at MIT’s Center for Logistics and Transportation.

According to the CBRE research report, while global hubs will continue to best meet the needs of companies with international supply chains that encompass the sourcing, manufacturing, distribution and sale of goods, there are 20 specific regional hubs that are poised to become major players in the network for global trade. Although they currently serve as central processing locations for regional supply chain networks, the report cites a number of factors are shifting the dynamics of international distribution and catapulting some regional hubs into the supply chain spotlight. We have attached the report’s infographic that names these various hubs.

CBRE Global Emerging Logistics Hubs Infographic

The CBRE research points to significant logistics investments, such as the ongoing expansion of the Panama Canal, regional industry production cluster, such as those manifested in the automotive sector, the ongoing impacts of Omni-channel and E-Commerce, and evolving trade agreements as major impetus factors for these new emerging logistics centers.

In the latter, the report cites The Trans-Pacific Partnership (TPP) as a potential trade agreement that will have drastic effects on global trade routes and manufacturing demand in Asia. Supply Chain Matters has recently published our initial impressions of the impacts of TPP.

For the implication of e-commerce’s impact on customer fulfillment and supporting logistics, the report indicates:

“In the past, a network of regional centers that fed into the local supply chains with 3-4 day delivery time coverage of the region was sufficient to meet service standards. However, compressed service times—in many cases, to overnight or same-day delivery—has reshaped the supply chain and has often resulted in distribution direct to the consumer from a global or large regional hub. The Eastern Pennsylvania region, anchored by Philadelphia but fueled by the growth of the Lehigh Valley, is an example of a hub that has been transformed by this new technology. This mid-Atlantic location enjoys access to over100 million people within a one-day drive, including key metropolitan areas such as New York, Washington, D.C., and Boston.”

Further noted:

“E-commerce shipments are smaller in size and require more technology and expertise to execute efficiently. As a result, modern logistics facilities are being developed in the traditionally strong logistics hubs of Tokyo, Seoul and Taipei. Brick-and-mortar retailers are entering the online sales market, resulting in strong demand for modern logistics in Tokyo, as logistics networks must be upgraded to accommodate the higher volumes of package movement. Additionally, the online trend is strong in Taiwan and South Korea, where 83% and 73% of shoppers, respectively, go online to avoid going to a physical store.”

There are many other insights and observations regarding rapidly shifting patterns of logistics which are impacting commercial real estate investment. However, what should be of concern to supply chain and Sales and Operations teams are the implications to existing distribution fulfillment networks that were formed under far different business process assumptions than today’s Omni-channel and global production strategy world.

The report itself can be accessed at this CBRE hosted web link. Please note that registration and account sign-up is required to download this complimentary report.


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