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What Supply Chain and B2B Teams Should Expect in 2014

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 During the latter part of December, the Ferrari Research and Consulting Group and Supply Chain Matters unveiled our annual research series, 2014 Predictions for Global Supply Chains.  Each year we unveil predictions to assist supply chain and B2B fulfillment teams in their planning of initiatives and resources for the coming year.

Our ten predictions for the current year include an economic and supply outlook, continued momentum for North America based manufacturing, some industry unique supply chain challenges and restructuring of global surface transportation networks, among the ten predictions. We do hope that you had the opportunity to view the series and benefit from these predictions.

As we noted in the series, we planned to provide a far more detailed research report available for complimentary download.  That report is now available for download.

Our one requirement is that readers provide some basic registration information. Once again, we do not sell any specific reader information with third parties, rather we use this information to assess our reading audience and industry coverage.

Copies of the 2014 Predictions for Global Supply Chains research report can be downloaded from accessing the Supply Chain Matters Research Center.


Report Card on Supply Chain Matters 2013 Predictions- Part Two

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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.      Supply Chain Matters Blog

Readers are welcomed to review our predictions 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 previously predicted and what actually occurred in 2013.

In our previous Part One posting, we scored our first five predictions for this year.  We now move toward the final five of our predictions and how they fared.

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.

 

2013 Prediction Six: Supply Chain Organizations Must Either Embrace and Augment Resiliency or Deal with the Consequences of Poor Business Outcomes.

Rating: 3.0

This particular prediction was motivated by the constant volatility in product demand, supply, and other unplanned events impacting industry supply chains. Volatility exposes the vulnerabilities of existing planning, execution or S&OP processes. Throughout 2013, there were increased incidents of supply chain disruption including a major port strike, the threats of port strikes on involving the U.S. west and east coast ports, major factory and warehouse fires along with continued incidents of unprecedented natural disasters. Just this weekend, a fire destroyed the workshop of internal movement parts-making supplier to Swatch Group and other competitive watch suppliers. Swatch supplies roughly 60 percent of movements used in all Swiss watches. As we pen this update, it remains unclear as to the extent of the damage or parts disruption.

Throughout 2013, we observed more and more evidence of manufacturers investing in people, process and technology augmentation that would address resiliency and more predictive decision-making capabilities. This was further reflected in robust software sales from vendors and services providers that concentrated in enabling resiliency, risk-mitigation and more responsive supply chain decision-making capabilities.

We predicted that Supply Chain Control Tower (SCCT) initiatives, beyond those in high tech and consumer electronics supply chains, would come more to the forefront this year.  That turned out to be not the case.  There were various reasons including the need for further education, organizational readiness to take on such as an initiative and technology vendors themselves who moved away from articulation of SCCT concepts in their product marketing.  This area was a missed prediction for us but we continue in our efforts to provide broader market education in this area.

 

2013 Prediction Seven: Chinese based Manufacturing and Service Firms will Markedly Increase Their Presence and Influence within Industry Supply Chains

Rating: 4.0

The essence of this prediction stemmed from China’s leadership which was encouraging more companies to buy assets overseas and to make strategic investments across targeted industry supply chains. Having in excess of $3 trillion of foreign-exchange reserves helped in the bankrolling of such investments. While natural resource and energy continue to be the predominant strategy our belief was that other industry or geographic penetration strategies would play out in 2013, and that indeed turned out to be the case.

Chinese firms indeed turned their attention toward machinery interests across Europe, making select investments in distressed companies.  Zoomlion Heavy Industry Science and Technology, a state owned construction equipment producer acquired German equipment maker M-Tec inDecember. Sany Heavy Industries has quietly acquired two German based firms, Putzmeister and Intermix and entered a joint venture with Austria based Palfinger.  In the United States, Sany invested in a $60 million office building and adjoining warehouse outside Atlanta in an effort to develop a more significant presence in the U.S. construction equipment market. According to a Wall Street Journal report earlier in the year, Sany has been “scouting for acquisitions and joint ventures to gain a broader product line, more sales and rental outlets.”

Tianjin Pipe has invested in a $1.3 billion manufacturing plant in Texas to produce seamless-steel pipe for the oil and gas industry. That plant is expected to be completed in 2014. Hisense USA, the subsidiary of home-appliance and electronics producer Hisense Electric is branching out to become a stand-alone brand of flat panel TV’s and mobile handsets from a plant in Georgia. A growing number of China based textile producers including Keer Group and JN Fibers have been investing in new production facilities in the U.S. southeast to supply fabric yarn to Central America apparel producers. Energy costs in the U.S. have become far cheaper not to mention transportation cost advantages for shipping yarns and industrial fibers to Central America, an evolving low-cost manufacturing alternative for the Americas market. These strategic investments allow Chinese yarn and fabric producers a means to overcome existing U.S. tariff barriers for fabric composition.

The most visible and noteworthy investment was the acquisition by China’s largest meat producer, Shuanghui Group, of major pork producer Smithfield Foodsfor approximately $4.7 billion. The primary purpose of this acquisition was stated as fostering more export of Smithfield branded pork products towards China’s booming consumer market. The reality however is now the presence of a prominent Chinese based food producer within an important segment of the U.S. pork products supply chain.  The deal also won approval from U.S. regulatory bodies. Since the Smithfield acquisition, there has been added speculation about added acquisitions in the dairy sector.

We believe we nailed this prediction and thus provided ourselves a generous rating.

 

2013 Prediction Eight: The Executive Level Voice and Shared Accountability of Supply Chain will Extend into Three Broader Areas

Rating: 2.0 (see below qualifier)

The basis of this prediction was our belief that evolving needs for product design, customer fulfillment and customer service now umbrella, voluntarily or involuntarily, more accountability for the supply chain leadership executive. Visible incidents of botched new product introductions because of initial quality issues or premature component failures across automotive, aerospace and consumer electronic brands during 2012 led us to this broader prediction. The new era of Service Lifecycle Management where OEM’s or capital equipment manufacturers offer customer pay by use or pay by hour leasing options was yet another motivator for broadening the accountability umbrella of the supply chain organization.

Throughout 2013 there were continued developments of premature quality and component failures among the above mentioned industry groups. While Ford Motor has introduced quite a number of new vehicle models, its quality indicators are slipping precipitously. Business media headlines were consumed with continuous reports of additional component failure incidents involving Boeing’s 787 Dreamliner aircraft. Other incidents that have escaped media visibility continue.

Candidly, our rating of this prediction has been a challenge since we have had difficulty in securing anecdotal or hard evidence of clear increased or broader functional accountabilities among industry supply chain teams. Our intent was to develop a detailed research study to explore this area in 2013 but a lack of time and a specific research sponsor thwarted our efforts.  Therefore, we cannot in good conscience provide ourselves an overly positive rating even though our gut belief is that we were on the right track with this prediction.  We therefore defer to our readers to add further commentary and perspectives as to whether broader and increased accountability indeed occurred during 2013. Look for flash poll early in the New Year to ascertain if a broader umbrella of accountability is underway.

 

2013 Prediction Nine: Higher and More Expensive Incidents of Counterfeit Products, Physical and IP Theft or Grey Market Activities Would Motivate Stepped-Up Mitigation Efforts.

Rating: 3.0

The incidents and challenges surrounding the continued existence of counterfeit products, physical and intellectual property theft, and grey market activities unquestionably continued across multiple industry fronts throughout 2013. In 2012, U.S. Customs and Border Protection alone seized over $178 million in counterfeit goods coming into the United States. Among pharmaceutical and healthcare supply chains, the U.S. Food and Drug Administration (FDA) had to once again alert physicians and healthcare providers to yet another batch of the cancer fighting drug Avastin early in 2013. In March, U.S. Customs officials seized $3.6 million in counterfeit Viagra and Cialis in a warehouse in South Carolina. That same raid also uncovered a large quantity of counterfeit golf clubs within the same warehouse. Counterfeit drugs were not just in proprietary but generic versions of drugs as well. Generic manufacturer Teva Pharmaceutical had to step-up quality inspections of its off-patent heartburn drugs across Europe after healthcare providers and patients noticed miss-spellings in the drug labels. The World Health Organization (WHO) disclosed that there is still no accurate estimate of the global scale of counterfeit medicines.  Reports by others groups suggest that the size of the global counterfeit drugs industry could run into hundreds of billions of dollars.

The United Nations Office on Drugs and Crime concluded in an April report that counterfeit goods, mainly originating from China, have become as profitable as illegal drug trafficking for Asia based criminal gangs. The UN agency concluded that counterfeit goods traced to China are the direct source of about two-thirds of the world’s counterfeit goods.  Many watchdog agencies have concluded that counterfeiters have become far more sophisticated in their methods of production and distribution. China is also the primary area of the most concern regarding intellectual property (IP) protection, and has become a primary motivator for current decisions to near source design and manufacturing to other consuming regions such as the United States.

Despite all the above evidence and incidents, industry supply chains such as the pharmaceutical industry continue to battle a rising tide. While many firms have specific compliance leadership and staff resources, efforts generally were directed at certain controls within current budgetary parameters.  They include early detection, audit and product packaging techniques to make it more difficult for counterfeiters to distribute fake goods. Calls from governmental agencies for stricter or mandated tracking, inspections and controls remain muted and subject to political lobbying. Private industry must step-up and come up with enhanced solutions.

Meanwhile, consumers, patients and services providers continue to remain the victims. While we correctly predicted the wide-scale scope of the ongoing problem, stepped-up mitigation efforts apparently lagged.

 

2013 Prediction Ten: Cloud Computing and Managed Services Options Continue to Gain More Traction Provided that Vendors Resolve Lingering Customer Concerns.

Rating: 3.0

The year 2013 featured the ongoing shift of influence and the ultimate decision in technology buying moving away from IT and towards the business side, with the continued counsel of the CIO and IT teams. The fate of technology investments to enable expected and more timely business outcomes is quickly shifting into the hands of business and supply chain teams. At the same time, huge multi-year technology transformation initiatives were shunned in favor of targeted, tactical business process change initiatives of average 3-6 months duration that phase-in capabilities toward a desired multi-phased end-goal.  This fostered a greater attraction toward cloud computing, managed services or best-of-breed selection options that

provided teams managed scope and much quicker time-to-benefit.

During the year, industry analyst and other published surveys pointed to less resistance for certain supply chain mission critical processes moving toward hybrid or public clouds, provided that vendors could ensure strict security standards, less onerous contract language and quicker implementation methodologies. However, the November-December incident involving the security breach of retailer Target’s point-of-sale systems will most likely significantly re-ignite security concerns again in 2014.

In 2013, many supply chain technology vendors continued their wholesale shifts at providing customers broad cloud-based options in planning, B2B collaboration and execution management. Thus far, customers seem to be comfortable with adopting such options, but again, in managed scope.  Tight budgets for technology adoption also contributed to the attractiveness for cloud-based options since technology investments can be funded within business operating budgets.

 

This concludes our 2013 Predictions scorecard. We trust that you, our readers, secured benefit from these predictions as they transpired this year. While we did not hit a home run on every prediction, we were certainly in the game.

Readers are invited to add their observations in the Comments area regarding our predictions for this year and our self-rating.

Sincere thanks for your continued loyal readership throughout 2013 and we extend our wishes for a productive and rewarding 2014.

Bob Ferrari, Executive Editor and Managing Director

© 2013 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.

 


Report Card on Supply Chain Matters 2013 Predictions- Part One

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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.     Supply Chain Matters Blog

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.

Rating: 3.5

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.

Score: 3.5

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

Rating: 3.8

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.

Rating: 4.0

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

Rating: 3.8

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

Rating: 3.8

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.


Supply Chain Matters 2014 Predictions for Global Supply Chains- Part Eight

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Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide our series of predictions for the coming year.  These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, as well as helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the upcoming New Year.

In Part One of this series, we unveiled the methodology and complete listing of our 2014 predictions.   Supply Chain Matters Blog

Part Two in this series summarized Prediction One related on what to expect in the global economy and Prediction Two, what to expect in procurement costs.

Part Three summarized Predictions Three, continued momentum associated with the resurgence in U.S. and North America production, and Prediction Four, talent recruitment and retention as a continued challenge.

Part Four addressed some unique industry specific supply chain challenges in 2014.

Part Five predicted increased implications regarding current supply chain social responsibility strategies and practices.

Part Six explored the implications of increased supply chain risk on global sourcing strategies in 2014.

Part Seven dived into Prediction 8 related to expected global transportation consolidation developments, along with Prediction 9, our forecast for increased momentum in the “Internet of Things”.

In this final posting, we dive into our final prediction regarding what to expect in the information technology and services market arena next year.

Prediction 10: Continued Technology Investments in Cloud Computing, Predictive Analytics and Select Supply Chain Services. 

As noted in Prediction One, barring some ongoing remaining uncertainty, global economic growth in 2014 is forecasted to grow at a minimum of one percentage point from 2013, a number expected to be 3.6 percent.  That is a significant and long anticipated movement.

Industry supply chains will thus continue to turn their attention to increased business process and technology investments in 2014 to support business needs for increased top-line revenue and profitability growth, even more heightened industry competition, and enabling supply chain teams for more responsive to events. At the same time, continued uncertainties that abound in certain geographic markets and significantly increased risks associated with supply or value-chain disruption will place much more emphasis on more predictive planning that is closely integrated with customer focused fulfillment and execution process needs.  The current explosion in Multi-channel and/or Omni-channel fulfillment capability challenges outlined in Prediction Five will further drive increased technology investments in that area.

We believe that the prime areas for added investment will include:

  • Enhanced sensing of product and specific geographic regional demand.
  • Deeper and broader supply and value-chain visibility, including identifying and mitigating risk areas within lower tiers of the supply chain.
  • More predictive analytics and supply chain wide intelligence. That would include the overall integration of predictive planning capabilities that span supplier sourcing, ongoing supply and demand network design and/or reconfiguration, multi-tiered inventory optimization and multi-channel fulfillment management.
  • More emphasis on leveraging a single B2B network platform, connecting all key suppliers, with needs for integrating value-chain wide planning, team collaboration and customer and supplier fulfillment execution needs.

We concur with other industry analyst firms such as Gartner and IDC that the ongoing shift of influence and the ultimate decision in technology buying continues away from IT and towards the business side, with the continued counsel of the CIO and IT teams. The fate of technology investments to enable expected and more timely business outcomes now rests in the hands of business and supply chain teams.

The days of huge multi-year technology transformation initiatives will continue to shift toward targeted, tactical business process change initiatives of an average 3-6 months duration that phase-in capabilities toward a desired end-goal. The main focus will therefore continue to favor the Geoffrey Moore definitions of “systems of Innovation” and “systems of engagement.”

Hence, cloud computing and/or cloud-based applications technology options will continue to gain added attention across supply chain and B2B fulfillment areas because of needs toward quicker time-to-value. Because so many supply chainand customer fulfillment processes are deemed to be mission critical for the business, B2B platform vendors will need to continue to enhance data security management and control practices, especially in the light of continued incidents and threats of data breaches across multiple industry networks.  We continue in our belief that augmentation of cloud computing with managed services will be an attractive alternative for some select product or service management focused supply chains. We additionally believe that in 2014, supply chain teams will tend to hold favor toward private-based cloud options for the more mission critical aspects of product fulfillment, but will be somewhat more open to either hybrid or public cloud options supporting deeper analytics, value-chain wide collaboration or business intelligence.

In the area of predictive analytics, we predict 2014 will begin the emergence of a broader set of technology or services vendors offering deeper, cloud-based analytical capabilities in analyzing structured and unstructured data. These capabilities will have a strong dependence on supply chain wide event-driven data planning and execution streams. Predictive analytics will thus move toward more sense, predict and respond forms of approaches, including managed services of data scientists. This will afford the opportunity for supply chain teams to springboard capabilities in this area beyond the timetables of in-house development and better enable the foundations for supply chain control tower capabilities. Additionally, vendor marketing strategies that hype “Big Data” enablement will meet the reality of what teams really require, namely smarter, highly focused and more predictive data and insights that enable much more timely decision-making.

Finally in 2014, we anticipate broader consideration and evaluation of private and public social based interaction technologies to supplement existing product sensing and demand planning process needs, strategic vendor collaboration and broader external interactions within Sales and Operations Planning (S&OP) processes. While a limited amount of supply chain teams explored this area in 2013, primarily on the sensing of product demand, we anticipate broader business process explorations and pilot capabilities occurring in 2014.

 

Ladies and gentlemen, it’s a rap, and that leads us to the conclusion of our series of ten predictions for the upcoming year.

We trust that these predictions and insights will help you and your organization prepare for personal and organizational team initiatives in the coming year. Once again, readers are encouraged to provide feedback or add your own view of what to expect in 2014 in the Comments section below each of our eight postings.

Throughout 2014, Supply Chain Matters will be providing periodic updates regarding these prediction areas and our research services arm will additionally feature some select research reports that dive even deeper into some of these supply chain management areas.

Our complete research report, 2014 Predictions for Global Supply Chains will be available for no-cost complimentary download via our blog Research Center in early January.  In the meantime, if you desire to receive a personal copy via direct email, please send your request to: supplychaininfo <at> theferrarigroup <dot> com. Please include your name, organization, title and email address in the request.

We extend to all of readers and followers our best wishes for a productive and rewarding New Year along with continued personal success.

Bob Ferrari

Executive Editor of Supply Chain Matters, Managing Director, The Ferrari Consulting and Research Group

©2013 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog.  All rights reserved.


Supply Chain Matters 2014 Predictions for Global Supply Chains- Part Seven

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Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide our series of predictions for the coming year.  These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, as well as helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the upcoming New Year.

In Part One of this series, we unveiled the methodology and complete listing of our 2014 predictions.  Supply Chain Matters Blog

Part Two in this series summarized Prediction One related on what to expect in the global economy and Prediction Two, what to expect in procurement costs.

Part Three summarized Predictions Three, continued momentum associated with the resurgence in U.S. and North America production, and Prediction Four, talent recruitment and retention as a continued challenge.

Part Four addressed some unique industry specific supply chain challenges in 2014.

Part Five predicted increased implications regarding current supply chain social responsibility strategies and practices.

Part Six explored the implications of increased supply chain risk on global sourcing strategies in 2014.

In this posting, we dive into Prediction 8 related to expected global transportation developments and shifts, along with Prediction 9, increased momentum in the “Internet of Things”.

 

Prediction 8: Industry Re-structuring of Global Transportation Surface and Air Networks Increases Momentum in 2014 as Carriers Adjust to Realities

In 2013, global ocean container lines, air freight and surface transportation carriers experienced the presence of shippers that continue to elect, because of budget reasons, more economical and less priority prone transportation options. The reasons were obvious for shippers.  A continued uncertain global economy, along with the effects of severe recession in the Eurozone motivated shippers to rely on more economical and cost effective transportation modes. In surface transportation, a rather volatile environment of actual vs. stated tariff rates had some shippers opting for spot market tendering to take advantage of less costly rates than those contracted.  Improved planning of supply needs coupled with broader inventory visibility across the global supply chain provided more confidence among shippers to opt for regularly scheduled surface transportation.

Shifting patterns for product sourcing and increased momentum for near-shoring of production and distribution is further contributing to the trend. Supply Chain Matters featured a number of commentaries regarding global transportation industry structural shifts, rate trends, and what we viewed as a failure of the industry to deal with blatant realities of quickly changing global sourcing and trade patterns and too much capacity chasing lower transport volumes

Global transportation and logistics giants FedEx and UPS incurred a series of consecutive quarters where capacity allocated for priority air movement was significantly underutilized because of the shipping trends noted above.  Each of these carriers in turn, have taken proactive measures throughout 2013 to re-structure or re-align excess capacity dedicated to priority movements and at the same time, initiated efforts to compensate for lost revenues and potential profits with either rate increases or further expense reductions. Both carriers have announced rate increases ranging from 3.9 to 4.9 percent for ground and air shipments in 2014.

In ocean container segment, the picture is far more complex and troubling.  According to the United Nations Conference on Trade and Development Review of Maritime Transportation 2013, growth in 20-foot equivalent units (TEU’s) slowed significantly in 2012 with a volume increase of 3.2 percent. This was down from 7.1 percent from 2011, and 13.1 percent in 2010. Final volume numbers for 2013 may slightly exceed 2012. Multiple years of excess shipping capacity is now exacerbated by the ongoing delivery of massive new mega-ships designed to carry far more containers at a lower overall cost.  As an example, over the next two and one-half years, industry lead Maersk alone has plans to introduce into global service 20 new mega-ships, capable of transporting up to 18,000 containers with up to 35 percent less consumption of fuel.

A troubling global economy and certain cutbacks in global trade have not help. The problem has been compounded by carrier optimism that global shipping movements would eventually return to growth. An overall reluctance to maintain excess capacity has led to hemorrhaging balance sheets for shipping lines with multiple unsuccessful and some successful attempts to increase shipping rates to compensate for lost revenues and excess fixed debt and operating costs. In the latter part of 2012, the industry anticipated 4 to 5 percent volume growth only to discover that demand turned a negative 2 percent.

In January of 2013, the CEO of industry leading Maersk revealed in an interview with the Financial Times that the carrier was losing $8m-$9m daily. By October of 2013, the CEO of Maersk indicated in an interview with business network CNBC that “the worst is over for the global shipping industry but so are the glory days.” That was clarified to a statement that most goods that can be shipped by ocean container are already being shipped with little silver bullets of shipping on the horizon. We viewed that declaration as an industry milestone.

As we pen this prediction, the top three ocean container lines have a proposal before multiple global regulators to pool capacity and global scheduling under the termed P3 Network.  Another industry consortium, the termed G6 Alliance announced plans to expand their cooperation in certain global routes.  Each of these initiatives require regulatory approval and there is lots of speculation as to whether governmental agencies will sign-off on such actions involving the management control of hundreds of vessels across key global trade routes.  On December 5th,news broke that sixth ranked carrier Hapag and 20th ranked CSAV were engaged in merger discussions, If both lines were to merge, the combined entity would rank fourth globally.  In would as well motivate other potential player moves.

For all of these reasons, industry supply chain should anticipate increased momentum in the re-structuring of global transportation capacity and networks.  What is unclear is the eventual impact on transportation rates or schedule performance, either from a positive or not so positive perspective.  An optimistic scenario is that container lines and air freight carriers are successful in re-structuring networks to maximize efficiency, service, newer fuel-efficient equipment and lower overall operating costs, to benefit of shipping rates. Another scenario, particularly for the ocean container segment is more accelerated consolidation and fallout of marginal carriers. Efforts to expand consortium influence on control and management of capacity and rates will not be well received by regulators and influential shippers.

The bottom line prediction is that procurement and shipping leaders should expect continued global transportation developments during 2014 and close relationships and contracting arrangements with trusted carriers will be important during this period. However, there may continue to be cost affordable transportation options by venturing into the spot market.

 

Prediction Nine: Internet of Things Picks-up Considerable Momentum

In April 2012, The Economist magazine declared the coming of what it termed as “The Third Industrial Revolution”, a new era from the second industrial revolution that began in the 20th Century with the advent of assembly line manufacturing in the United States. This new era is enabled by the increasing digitization or individualization of manufacturing processes.  Cited were continued breakthroughs in 3D printing, individualized or additive manufacturing techniques, faster and more sophisticated engineering and manufacturing simulation and the increased benefits derived from the “Internet of Things” or machine-to-machine (M2M) technologies. And, it is not just a revolution in manufacturing, but in how services related to manufactured products will be delivered.

The Internet of Things provides a new era of interconnected and intelligent physical devices and/or machines that will revolutionize supply chain processes related to production, transportation, logistics and service management.  IDC recently predicted 30 billion autonomously connected endpoints and $8.9 trillion in revenue by 2020. It will profoundly impact both product and service focused supply chains in months and years to come and we predict more increased momentum in 2014.

Automotive and truck OEM’s continue to design and deploy smarter on-board technologies affixed to Internet connectivity in motor and commercial transit vehicles facilitating far more responsive and efficient methods to track operational status, route vehicles, or revise routing on a real-time basis.

In 2013, General Electric made a major product design and deployment commitment to what it termed as the Industrial Internet. The conglomerate characterizes industrial internet as a combination of sensor, software, analytics, data visualization and other technology tools integrated into complex machines such as turbines, locomotives, aircraft engines and other equipment. Industrial Internet is further described as providing contextually relevant information in a near real-time basis that can monitor, control or modify actual conditions of industrial assets.  Readers might recall current GE television commercials that provide visuals of aircraft engines communicating to maintenance teams current operating performance parameters and alerting to when maintenance will be required to avoid downtime. In its initial announcement, GE announced partnerships with a variety of other information technology and services firms including Amazon Web Services, AT&T, Cisco, Intel, Pivotal, among others and reinforced the emergence of new and previous unheard of vendor ecosystems that bring together manufacturing OEM, technology and service firms collaborating on enablement and delivery of more innovative products and services enabled by Internet real-time connectivity and more powerful analytical tools.

M2M facilitates needs to synchronize manufacturing devices and/or networks to the pace of market demand and further enable mass customization of products. It further accelerates asset intensive manufacturer’s needs to enable broader product   platform-as-a-service services that help customers to avoid large up-front investments in capital equipment in favor of forms of “pay by the hour” leasing and service agreements over multiple time horizons. It helps manufacturers to build annuity type revenue and profitability opportunities.

We believe that M2M and smarter machine investment and development efforts will expand beyond just the United States but to other geographic regions and will feature more announcements from well noted global based players in both manufacturing, services and technology circles.  Following typical investment and development cycles, efforts will continue toward most promising business cases for M2M, and we believe that will center squarely on the capital equipment intensive services management segment.  We expect other developments to come in the logistics and transportation services segment.

Expect other announcements from global players such as Siemens which will lead to additional partnerships as influential industry players, both classic manufacturing and tech-focused, jump on to building market momentum.  We agree with current industry participants that security remains an important obstacle to broader deployment and it will be important for 2014 development efforts to focus on stronger network and data related security measures. A further open question is whether more organizations are ready to leverage M2M networks for product innovation, or have the resources and where-with-all to do so.  For the time being, GE has a huge leg-up in this area.

 

This concludes Part Seven of our Supply Chain Matters 2014 Predictions series.

Keep your browser focused on Supply Chain Matters as in an upcoming posting, we conclude this series with our final predictions related to information technology in 2014.

As always, readers are encouraged to add individual or their own organizational perspectives to these predictions in the Comments section associated to each of the postings in this series.

© 2013 The Ferrari Consulting and Research Group and the Supply Chain Matters Blog.  All rights reserved.


Supply Chain Matters 2014 Predictions for Global Supply Chains- Part Six

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Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide our series of predictions for the coming year.  These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, as well as helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the upcoming New Year.

In Part One of this series, we unveiled the methodology and complete listing of our 2014 predictions.

Part Two of this series summarized Prediction One related on what to expect in the global economy and Prediction Two, what to expect in procurement costs.

Part Three of the series summarized Predictions Three, continued momentum associated with the resurgence in U.S. and North America production, and Prediction Four, talent recruitment and retention as a continued challenge.

Part Four addressed some unique industry specific supply chain challenges in 2014.

Part Five predicted increased implications regarding current supply chain social responsibility strategies and practices.

In this Part Six commentary, we move on to the implications of increased supply chain risk.

 

Prediction Seven: Increased Dimensions of Supply Chain Risk and Major Disruption will Further Impact Global Sourcing Strategies

Since our inception in 2008 as both a supply chain social media based educational forum and industry analyst anchored consulting firm, we have continually raised awareness to the increased occurrence of major supply chain disruption and risk. Industry supply chains encountered the brute reality of such risks in the year 2011, with the industry supply chain effects of both the devastating earthquake and tsunami that struck areas of Northern Japan and the widespread floods in Thailand that impacted multiple production facilities.

Supply Chain Matters has moved to many other post 2011 commentaries addressing areas of increased risk and their potential implications to business performance. In the area of extraordinary climatic events, each passing year brings an unfortunate new meaning definition of historic magnitudes of storms. In 2013 alone, the world witnessed one of the largest and most destructive typhoons, which struck the Philippines. Across the U.S. Midwest, records were shattered in regards to the most powerful tornadoes ever recorded that brought associated destruction and loss of life.  Risk also escalated in the occurrence of natural disasters including more powerful and frequent earthquake events, some of which have occurred in key component supply regions such as Taiwan.

In our previous publishing of annual predictions, we raised awareness to increasing threats and exposures. In 2012, we modified our prediction in this area to include effects of liability insurance costs as a new consideration factor in major sourcing decisions.  Since that time, the voices echoing increased disruption risk across global supply chains has magnified with multiple consulting firms, insurance providers and corporate liability firms joining in the chorus of concern.  Yet, we live in a world of shortened sound bites and in the moment memories.  Recent surveys of supply chain executives indicate a lowered priority on risk management, probably because there are so many other challenges and priorities on the minds of industry supply chain executives.

Government and industry groups look to escalating climatic events as uncontrollable acts of nature which are the new normal. However, we have again added the challenge of major supply chain risk to our 2014 predictions primarily because of the implications of the various events that are occurring.

For a number of valid business reasons, major amounts of product design, test, and component and volume production are sourced across coastal regions of Asia.  We all know these areas well: China, Singapore, Malaysia, Thailand, Taiwan and the Philippines to name just a few. Major customer service and support operations also stem from areas of Asia and Oceania.  The countries that they are located within are today the most fragile in terms of extraordinary climatic events, natural disasters and flooding.  Insurance providers and the re-insurance brokers that finance global risk threats are well attuned to these trends, and price liability or business recovery insurance rates based on risk probability. If you need reinforcement, read their global risk summaries and reports.  A preliminary analysis of natural disasters in the first-half of 2013, performed by global re-insurance firm Swiss-Re, estimated $56 billion in economic losses from disasters. According to the Swiss Re analysis, flooding was a main-driver of natural catastrophe related losses accounting for nearly $8 billion in global insurance claims. Global insurance covered upwards of 35 percent of these losses, amounting to $20 billion.

Many corporations self-insure to some extent, under the guise of the probabilities of extraordinary events that would impact the business.  Recent history of events, their impacts on the supply chain, and consequent impacts on revenues and profits have additional new meaning for corporate finance executives.

We believe that in 2014, the ongoing cumulative effects of increased financial and business disruption liabilities will compel more manufacturers, retailers and service supply chains to once again revisit global sourcing strategies, especially in the light of risk among strategic suppliers, both in upper and lower tiers of the value-chain.  Dual or alternative sourcing strategies among strategic suppliers will become ever more important and will drive some new sourcing patterns that include different or diverse geographies to balance risk. Product development, sourcing and procurement teams must be proactive to implications of these developments and will need to depend on more sophisticated analysis tools to identify component risks in relation to overall revenue dependence and weighted risks for disruption in supply.

Suppliers that provide strategic components, products and/or services for key customers may well be fielding requests for considering the locating of facilities in different geographic areas that offset risk and provide contingency back-up to a major disruption.  We believe the days of sourcing based on one-dimensional cost and labor dimensions are over and 2014 will bring new dimensions of analytical analysis, advanced information technology and consequent sourcing actions that balance as much as possible, global risk. This will be a far different dimension of supply chain risk management and mitigation and firms had best be prepared for the new shift.

 

This concludes Part Six of our 2014 Predictions series.

Keep your browser focused on Supply Chain Matters as in an upcoming posting, we will move on to Prediction Eight, which predicts further turbulence in global transportation carrier networks.

As always, readers are encouraged to add individual or their own organizational perspectives to these predictions in the Comments section associated to each of the postings in this series.

 

© 2013 The Ferrari Consulting and Research Group LLC,  and the Supply Chain Matters Blog.  All rights reserved

 


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