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Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains- Part One

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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 annual ten predictions concerning industry and global supply chains for the coming year. We have maintained this tradition since the founding of this blog in 2008 and it continues to be quite popular with our readers and clients.

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 year. Predictions are sourced from synthesizing developments and trends that are occurring in supply chain business, process and technology dimensions, researching various economic, industry and other forecasting data, along with input from clients, thought leaders and global supply chain observers. We take predictions seriously and align our research and blog commentaries to focus on each specific prediction area throughout the coming year.

Supply Chain Matters will revisit each of our annual predictions at the end of the year to ascertain how close or how far each fared.  The report card regarding our 2014 Predictions can be re-visited at the below web links:

2014 Predictions Report Card- Part One

2014 Predictions Report Card- Part Two

2014 Predictions Report Card- Part Three

2014 Predictions Report Card- Part Four

2014 Predictions Report Card- Part Five

 

We continue to believe that industry analysts should openly state their insight and opinion of what to expect in the coming year without the need for a paid subscription.  Readers therefore have the opportunity to compare and contrast various sources of predictions.

As in the past, all ten of these 2015 predictions will be included in a more detailed research report which will be made available for no-cost downloads in our Research Center in January. Readers will be able to register to download a copy or can email us directly.  More details regarding that process will come later.

In this Part One posting, we outline our first five predictions for 2015.

Drum roll please …..

 

2015 Prediction One: More optimistic global economic growth with the usual caveats and uncertainties

Forecasts point to an optimistic global economic outlook for 2015 with continued cautions and unknowns for industry supply chains.  The bright spots will continue to be the United States and Mexico.

The October 2014 forecast from the International Monetary Fund (IMF) predicts 3.8 percent global growth vs. 3.3 percent in 2014. Advanced Economies are predicted to grow 2.3 percent vs. 1.8 percent in 2014. World trade growth is expected to expand 5 percent in dollar terms.

The most concern resides for the Eurozone, where tepid growth and deflation remains an identified and concerning risk.

China’s growth is predicted to be 7.1 percent vs projected 7.4 percent in 2014. China’s economic planners will be caught in a difficult balancing act to manage growth but deal with high levels of debt. We have read of more pessimistic forecasts foretelling of broader setbacks ahead for China’s economic growth, with concerns for a stumble.  Then again, China’s economic leaders were adroit in avoiding a stumble in 2014.

According to the IMF, developing economies are predicted to grow 5.0 percent vs. 4.4 percent in 2014.  A significant surprise will be India which is expected to grow 6.4 percent vs. 5.6 percent in 2014. Growth is expected to accelerate in Latin America with Brazil and Mexico leading the charge. Argentina remains an ongoing concern.

The IMF expects resurgence of U.S. economy to continue at 2.3 percent vs. projected 1.8 percent in 2014. However a poll of 50 economists conducted by The Wall Street Journal in September indicates closer to 3 percent U.S. GDP growth in 2015. For the United States, the ISM PMI Index in November was reported as 58.7, a significant 7.4 percentage points higher than the value recorded in January.

The J.P. Morgan Global Manufacturing PMI Index, a composite index and recognized benchmark of composite global supply chain and production activity provided mixed signals by November of 2014. An overall value of 51.8 was recorded in November reflecting expansion of manufacturing production for the 25th consecutive month, but the rate of expansion eased to its lowest level since August 2013. Growth in new orders was recorded as a 16-month low with the trend in international trade volumes stagnated. North America continues to be reported as a key growth region while concerns were expressed for stagnation in China and further subdued growth for the Eurozone sector.

Another area of concern is fluctuations or shifts in global currency, particularly Asian currencies and the Chinese yuan. As we pen these predictions, the currency of Russia has been impacted by significant de-valuation.

The takeaway for industry supply chains and their sales and operations (S&OP) processes is to anticipate another year of needs to be able to predict supply chain demand and supply needs on an individual geographic region or country basis. Generalized planning no longer suffices and industry supply chain teams will need the means to be able to respond to short-term market opportunities or sudden changing trends.

2015 Prediction Two: General Moderation and Reduction of Commodity Costs with Industry Exceptions

Expect a continued overall moderation trend for the cost of commodities with certain industry specific exceptions.  Dramatically lower oil prices in 2015 will be the biggest headline driving commodity and pricing trends in 2015.

As of mid-December, the Standard & Poors GSCI Index of broad based commodities is projecting a 27 percent decrease in overall commodity prices over the next twelve months.

As we pen our 2015 predictions, the prices of crude oil have plunged to their lowest levels in five years after the International Energy Agency (IEA) cut its forecast for global oil demand on the fifth occasion in six months. The news has added volatility among global equity markets as investors become increasingly concerned about the implications. Global oil prices have consequently plunged from the peak of $110 per barrel to a range of $60-$70. Some forecasts now peg 2015 oil prices as low as $50 per barrel.

Global and industry supply chain strategies are driven by the forces related to oil prices and the cost of energy and thus this commodity trend looms large for broader implications in 2015. The open question is whether the trend is permanent or short-lived.

Purchasing and commodity teams can therefore anticipate inbound cost savings in the coming year with the usual exceptions related to unforeseen weather or risk events.

 

2015 Prediction Three: Momentum for U.S. and North America Based Manufacturing Sourcing Continues but Motivates Broader Needs

We predict that the momentum for U.S. and North America based manufacturing will continue in 2015 with discernable benefits for certain industries. The need to broaden investments in certain industry supply ecosystems and U.S. logistics and transportation infrastructure will continue to dominate business headlines and industry agenda.

Throughout 2014, U.S. and North America based supply chain related activity continued at a steady state.  As of October, 16 of the total 18 tracked industries within ISM’s PMI indices were reporting growth momentum.

The continued growth of U.S. and North America manufacturing comes from a number of factors not the least of which have been the ongoing double-digit increases of labor costs in China, increased positive momentum of the U.S. economy and more attractive energy costs throughout North America. Specific efforts by Wal-Mart, other retailers and manufacturers concerning significant long-term commitments for sourcing products in the region have helped immensely.

In August of 2014, the Boston Consulting Group noted in its report, Shifting Economics of Global Manufacturing, that in some cases, the shifts in relative costs of manufacturing among China and North America have placed Mexico as the cheaper low-cost manufacturing alternative.

However, the sourcing of U.S. and North America based manufacturing continues to uncover gaps in globally competitive component supply chain networks, many of which still reside in Asia or China. This is especially the case in high tech and consumer electronics, footwear, apparel and other industries. Continued momentum is thus increasingly dependent on further re-building of global cost competitive North America based supply ecosystems among multi-industry supply chains.

A caveat for 2015 stems from the plunging price of oil and energy outlined in Prediction Two which could influence some manufacturers to remain concentrated in an Asia or Eastern Europe based sourcing strategy.

 

2015 Prediction Four: Internet of Things (IoT) Continues to Attract Wide Multi-Industry Interest But Certain Challenges Need to be Purposely Addressed

Cross-industry interest levels and momentum surrounding B2B products and services leveraging Internet of Things (IoT) coupling sensor-based based technologies will continue to attract wide multi-industry interest. IoT 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. We expect more technology vendors to jump into this area along with heightened M&A activity as these vendors position for industry needs and requirements.

IoT will further drive a convergence among product and service focused supply chain planning and execution processes as well as certain product lifecycle management information integration needs. PLM and SLM provider PTC is a current example of this dimension but other vendors will be attracted to this business model.

The realities in the lack of consistent or conflicting global-wide standards, overcoming data security concerns and scalability of networks will provide more visible challenges for broader industry deployments.  We have recently indicated a feeling of de-ja -vu for the replay of early RFID efforts, as vendors tended to ignore certain realities of the technology. Vendors will need to step-up efforts to address current challenges and individual industry needs.

 

2015 Prediction Five: Noted Industry Specific Supply Chain Challenges

Noted industry specific supply chain challenges will remain in B2C-Retail, Aerospace and Consumer Product Goods (CPG) sectors.  Automotive manufacturers will have to address continued shifting trends in global market demand and a renewed imperative for corporate-wide product and vehicle platform quality conformance measures.

B2C and Retail

Global retailers continue to be challenged in emerging and traditional markets and in permanent shifts in consumer shopping behaviors. In 2014, retailers encountered the realities of lower margins for online fulfillment, the needs to invest in enhanced inventory management, distrusted fulfillment and order management capabilities, and the perfect-storm presence of developments that resulted in dysfunctional west coast ports.

Retail sales in China, Asia and Australia are expected to surpass that in North America, but China’s efforts in greater scrutiny of foreign-based retailers and service firms will likely continue to impact growth expectations in the coming year. According to industry and business media, retailers are expected to instead target the other so-termed MINI countries (Mexico, Indonesia, Nigeria, Turkey) for growth prospects in 2015.

The accelerating trends and implications of Omni-channel and online fulfillment will impact traditional retailers with more casualties recorded in 2015. Amazon, Google and Alibaba will continue to be industry disruptors, movers and shakers in 2015 and Wal-Mart.com may join that list. We would not be surprised if Alibaba concentrates acquisition efforts toward more U.S. and North America online properties to prepare for a presence.

Consumer Product Goods

CPG companies continued to view emerging markets such as China and India as important regions for future growth but experienced the effects a far more complex and risk-laden supply and regulatory networks. The heightened influence and actions of short-term focused activist equity investors, applying dimensions of financial engineering to one or more CPG companies will 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 new winners in CPG will continue to be smaller, more nimble producers who lead in product, supply chain business process and technology innovation.

Aerospace

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 in 2015 will 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. Middle East and Asian based airlines and leasing operators will continue to influence market dynamics and aircraft design needs.

Renewed hostilities involving Ukraine or severe economic or currency crisis within Russia could impact strategic supply of titanium and other metals.  The economic malaise that is expected to continue across the Eurozone region along with expected contraction in China will present 2015 challenges for Airbus and Boeing’s supply ecosystems. Boeing will especially be focused on continuing to influence more cost reduction and productivity efforts among its global suppliers while continuing to address identified issues from regulatory investigations in practicing added supplier oversight for design and production process quality.

 Automotive

In the U.S., an unprecedented and overwhelming level of product recall activity spurred by heightened regulatory compliance pressures will drive product quality and compliance as the overarching corporate-wide imperative. Cascading incidents in 2014 pointed to issues of quality lapses among global suppliers and early-warning of potential component defects. Existing product recall campaigns will most likely extend through the first-half of 2015, placing added strains on aftermarket service dealerships.  Japan based air bag inflator supplier Takada will continue to deal with its creditability crisis and could lose significant new business if it does not step-up and get-ahead of the airbag quality crisis. OEM General Motors will especially be under the looking glass in 2015.

 

This concludes Part One of Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains.  Part Two in this series will unveil our next five predictions.

We encourage readers to share in the Comments section their own predictions on what to expect in 2015.

In the meantime, we extend best wishes for the holiday season and the New year.

Bob Ferrari

©2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved


Report Card on Supply Chain Matters 2014 Global and Industry Supply Chain Predictions- Part Three

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We continue with our series of postings reflecting on our 2014 Predictions for Global and Industry Supply Chains that we published in December of last year.

Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008.  We not only publish our annualized ten predictions, but scorecard the projections as this point every year.  After we conclude the scorecard process, we will then unveil our 2015 annual projections for industry supply chains.

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.

In our previous Part One posting, we score carded 2014 Predictions One and Two related to economic forces to expect in 2014. In our Part Two posting, we revisited Prediction Three, related to continued U.S. and North America based manufacturing momentum, and Prediction Four, ongoing challenges in supply chain talent management.

We now revisit Prediction Five.

2014 Prediction Five: Noted Industry Specific Supply Chain Turmoil and Challenges.

For the past few years, our annual predictions have specifically addressed particular industries that we felt would undergo extraordinary challenges during the calender year.  For 2014, we identified B2C Retail, Consumer Product Goods (CPG) and Aerospace industry supply chains as undergoing special challenges.

Retail and B2C Supply Chains

Self-Rating: 3.8

We predicted challenges for both the consumer demand and supply fronts.  On the demand side, many lessons were learned during the final stages of the 2013 holiday surge, not the least of which was consumers waiting until the very last minute to initiate their holiday purchases.  At the conclusion of 2013, many studies concluded that retail consumers were permanently altering their shopping habits in favor of online options with less visits to physical stores.

Throughout 2014, parcel firms FedEx and UPS concentrated on efforts to avoid being “thrown under the bus” which occurred during the final days of the 2013 holiday period.  FedEx, and especially UPS, re-examined their delivery network infrastructure practices for maximum peak surge periods.  UPS itself invested $500 million in augmented network infrastructure. For the first time in the parcel shipping’s firm’s 107 year history, UPS operated full U.S. based air and ground operations on the day after the Thanksgiving holiday, the traditional Black Friday shopping period, in order to stay ahead of expected surge in delivery activity. UPS is also implementing plans to augment its package-car capabilities by an additional 10 percent over last year’s levels as well as dramatically flexing its capacity and intermodal capabilities at its Worldport central hub. Brown will also deploy what it terms as pop-up “mobile distribution center villages” that will function across various U.S, network points beginning with the expected holiday delivery surge.

Retailers themselves entered the 2014 holiday period with higher expectations regarding consumer spending. Both FedEx and UPS re-doubled efforts to influence major B2C volume retailers to stagger promotional programs during the 2014 holiday surge and increase two-way visibility into that status of last-mile delivery networks. The U.S. Postal service stepped-up its efforts in offering retailers a new alternative for Sunday delivery along with more price competitive shipping rates. As we pen our prediction rating, preliminary reporting data surrounding the four day Thanksgiving and Black Friday holiday shopping period for 2014 indicates that consumers have indeed shifted even more buying preferences towards online channels with some online sites suffering periodic outages.

On the supply side, the “perfect storm” scenario unfolded among U.S. west coast ports starting in August. A combination of factors: stalled labor contract renewal talks among the Pacific Maritime Association and the longshoremen labor union, a shortage of inter-modal truck chassis, the appearance of much larger container vessels, along with efforts by independent truckers in seeking added wages and benefits all converged to bring port unloading and loading operations to a near standstill. The backlog poses a major threat for retailers and exporters in fulfilling revenue and profitability targets for the December ending quarter.

By our lens there is no doubt that B2C retail industry supply chains have indeed encountered extraordinary challenges in 2014.

 

Consumer Product Goods Supply Chains

Self-Rating: 4.0

In 2013, permanent changes in shopping habits among the majority of consumers were already evident and our prediction called for CPG industry supply chains to be especially challenged with the effects of these actions in 2014.  Our prediction further noted the heightened influence and actions of short-term focused activist investors, applying dimensions of financial engineering to one or more CPG companies as continuing to have special impacts.  CPG companies continued to view emerging markets such as China and India as important regions for future growth but experienced the effects a far more complex and risk-laden supply networks.

Most all of these forces were in-effect during the year.

In February, we highlighted supply chain implications presented at Consumer Analyst Group of New York (CAGNY) Annual Conference by CPG firms Campbell Soup, General Mills, Hershey Company, Mondelez International and PepsiCo. Campbell Soup CEO Denise Morrison described market conditions as “tumultuous” “persistently challenging” adding that “a new normal is coming to food.” … “The winners will be the companies that adapt successfully to a changing world.”  Kraft CEO Tony Vernon described the industry challenge: “Our customers (are) coming to terms with changing shopping patterns and channel shifting; the rise of digital media, breaking established marketing principles and best practices. In some ways, we have to unlearn what we believed to work in the past and re-learn what will make a difference today. In the short-term, adjusting to such momentous shifts favors the smaller, more nimble players that are working from a small base.”

By mid-year, multiple CEO’s from well-noted CPG branded companies were each describing the blunt realities of a rapidly changing industry scenario where revenue growth was at a premium and profitability pressures dominated. In August, Procter & Gamble announced a re-structuring of its businesses to once again shed under-performing brands.  Similarly, Coca-Cola, Mondelez, General Mills embarked on a business re-structuring efforts to boost sales and shed costs with a multi-year cost savings initiatives. Some CPG firms such as Kellogg, elected to acquired other smaller firms in growth segments.

Entering the closing month of calendar year 2014, many CPG supply chain organizations find themselves navigating the need to once again reduce long-term cost structures to free-up funds for strategic business initiatives while being called upon to be more nimble to rapidly changing consumer preferences and tastes. For some, these goals continue to add extraordinary challenge.

 

Aerospace Supply Chains

Self-Rating: 3.8

The unique challenges within aerospace supply chains have stemmed from a rather enviable position, namely unprecedented demand for newer technology-laden aircraft and aircraft components while volume capacity limitations have stretched into multi-year customer delivery windows to airlines and aircraft lessors. The literal duopoly of Airbus and Boeing did indeed dominate industry news in 2014 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. After publishing our prediction concerning continued unique challenges for aerospace in December, we were pleased to note a published Bloomberg report in late January, With Epic Backlogs at Airbus and Boeing, Can Business Be Too Good?. Bloomberg pretty much mirrored our prediction.

By mid-year, Airbus and Boeing reported first-half delivery performance that would slightly exceed 2013 levels, but not at the pace required to step-up production momentum for the coming years.  Once more, the latter part of 2014 featured considerable reductions in the cost of aviation fuel, and the open question is whether this will help or hinder the pressures for increased capacity and production of aerospace component supply chains.  Airbus completed international certification test trials for its new carbon fibre A350 XWB aircraft program as well as the maiden flight of the new A320 Neo in September and both programs are reported to be on-track for initial delivery of first operational aircraft to launch customers.  The A350 launch will represent a competitive offering to the Boeing 787 Dreamliner for wide aisle, long-distance travel, while the Neo version of the A320 will continue to compete with Boeing’s next generation 737.

Throughout 2014, Boeing announced a series of strategic, multi-year supply agreements to ensure supply of critical materials and components. The most notable involved strategic supply of material required for producing titanium, in a long-term supply agreement announced at the height of hostilities among Russia and Ukraine. The most recent announcement involved a 10 year agreement to supply carbon fibre composite material from a key supplier in Japan.

Other smaller industry OEM’s such as Bombardier, COMAC and Mitsubishi Industries continue to compete for smaller niche aircraft segment needs, and each of these players faced setbacks during 2014 as they dealt with the realities of more complex, globally dispersed suppliers sharing in product innovation. Bombardier encountered a significant program setback concerning its C-Series program as pre-maiden flight tests encountered an engine malfunction. Reports indicate that China based COMAC is also dealing with some unspecified setbacks.

Thus, the commercial aerospace industry did indeed manifest its own unique set of industry supply chain challenges this year, challenges that other industry teams would perhaps envy.  Order backlogs extending beyond 10 years, technology innovation as a driving force, and supply chain scale-ups remain critical challenges in the months to come and commercial aerospace may indeed appear as an extraordinary challenge for 2015.

 

This concludes Part Three of our report card on our Supply Chain Matters 2014 Global Supply Chain PredictionsStay tuned as we assess the remainder of our 2014 predictions in follow-on postings.

Bob Ferrari

©2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.

 


Report Card on Supply Chain Matters 2014 Predictions for Industry and Global Supply Chains- Part Two

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We continue with our series of postings reflecting on our 2014 Predictions for Global Supply Chains that we published in December of last year.

Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008.  We not only publish our annualized ten predictions, but scorecard the projections as this point every year.  After we conclude the scorecard process, we will then unveil our 2015 annual projections for industry supply chains.

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 our previous Part One posting, we score carded 2014 Projections One and Two.

 

2014 Prediction Three- Continued momentum associated with U.S. and North America based manufacturing.

Self-Rating: 4.0

A year ago, U.S. manufacturing activity as depicted by the Institute of Supply Management (ISM) PMI Index was recorded as 4.2 percentage points higher than the beginning of the year, and 6.2 points higher than the June reading, representing both the highest reading since June of 2011 and increased momentum from other geographic areas. As of this writing, the ISM PMI reading of 59 percent for October represented a 7.7 percentage point increase from the reading reported for January.  Throughout 2014, U.S. supply chain related activity has continued on a steady state.  As of October, 16 of the total 18 tracked industries were reporting growth momentum.

As noted in our original prediction, the continued growth of U.S. manufacturing comes from a number of factors not the least of which have been the ongoing double-digit increases of labor costs in China, increased positive momentum of the U.S. economy and more attractive energy costs throughout North America. . In mid-August, the Boston Consulting Group noted in its report, Shifting Economics of Global Manufacturing, that in some cases, the shifts in relative costs of manufacturing among China and North America are now startling placing Mexico as cheaper low-cost manufacturing alternative.

Specific efforts by Wal-Mart and other retailers and manufacturers concerning significant long-term commitments for sourcing products in the region have helped as well. The most significant development in 2014 concerned hefty manufacturing investments in Mexico, both in supporting North America product demand and as a strategic base of North America based exports to other global regions, particularly for the automotive industry.  Automotive OEM’s BMW, Honda, Mazda, Volkswagen’s Audi Group, and a partnership among Nissan and Daimler had each announced Mexican production sourcing decisions that amounted to billions of dollars of investment.

However, continued U.S. sourcing of U.S. and North America manufacturing continues to uncover gaps in globally competitive component supply chain networks, many of which still reside in Asia or China. This is especially the case in high tech and consumer electronics, footwear, apparel and other industries. Continued momentum is thus increasingly dependent on further re-building of North America based supply ecosystems among multi-industry supply chains.

 

 

2014 Prediction Four- Supply Chain and Manufacturing Talent Management Would Remain a Continual Challenge.

Self-Rating: 3.5

Our prediction declared that supply chain and manufacturing talent acquisition and retention would remain a challenge with considerable joint industry, government, academic, and indeed individual supply chain organizational work to be accomplished. We further predicted that some progress will be made with more innovative approaches and efforts and we had hoped to highlight these throughout the year so other teams can benefit.

In the 2014 Chief Supply Chain Officer survey report conducted by SCM World, supply chain leader respondents pointed to ever more challenges in building and managing supply chain teams over the past two years, nearly double the frustration expressed in 2011. SCM World points to raw recruitment as the most cited problem despite rising interest in supply chain among universities and significant investment in supply chain focused professional organizations. The need for well-rounded generalists possessing broader supply chain functional, business and team collaboration skills seems to remain an important need, with implications for significant job rotation across business areas.  Other executive and industry surveys conducted during 2014 further reinforce building concerns and frustrations regarding talent selection and retention. In August, we highlighted for readers and clients what executive recruiter Hiedrick & Struggles described as the white hot demand for supply chain executives in pharmaceutical industry settings.

Throughout 2014, we searched for continued insights and learning regarding successful ways to approach talent management. We were able to highlight some learning regarding the management of millennials. We noted how professional organizations such as APICS and CSCMP were adding young professional mentorship and global-wide student completion programs to boost career interest in supply chain management.

Although we feel we made good on a relative no-brainer prediction, we did not meet our expectation to provide added industry-wide learning in successful talent management. For this reason, we lowered our self-rating for this prediction and commit to re-double our efforts in 2015.

This concludes Part Two of our report card on our Supply Chain Matters 2014 Global Supply Chain PredictionsStay tuned as we assess the remainder of our 2014 predictions in follow-on postings.

Bob Ferrari

©2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.

 


Report Card on Supply Chain Matters 2014 Predictions for Industry and Global Supply Chains-Part One

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While global industry supply chain teams continue to work on enabling 2014 operational and business performance objectives, this is the opportunity for Supply Chain Matters to reflect on our 2014 Predictions for Global Supply Chains that we published in December of 2013.

Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008.  We not only publish our annualized predictions, but score our predictions every year.  After we conclude the self-rating process, we will then unveil our 2015 Annual Projections for Industry Supply Chain during the month of December.

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.

But now is the time to look back and reflect on what we previously predicted and what actually occurred in 2014.

 

2014 Prediction One: An optimistic yet uncertain global outlook in 2014

Self-Rating: 3.5

Our 2014 prediction concerning industry economic outlook summarized key economic forecasts in late 2013. Based on our review, we believed that the global economy would continue to present an environment of uncertainty in many dimensions, and turned out to be the case. However, we did note that economic forecasts at the time concerning 2014 were a bit more optimistic but come with many cautions or caveats. That turned out to be the case as well.

Both the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) originally forecasted 3.6 percent global-wide for 2014 and both agencies point to notable downside risks. In its early October update, The IMF adjusted its 2014 global growth forecast to 3.3 percent.  The weaker than expected forecast was attributed to setbacks to economic activity in the advanced economies of the Eurozone Japan and Latin America. The agency acknowledged an ongoing higher than expected growth rate for the United States, following a temporary setback in Q1. For the emerging market countries, the IMF scaled back its growth projection for this area to 4.4 percent, while nailing China’s growth rate at a current 7.4 percent rate.

In its mid-September update, the OECD also noted solid growth for the United States with growth strengthening in India, and around trend in Japan and China. That agency also reinforced tepid growth for the Eurozone, but generally reports sub-par world trade growth with a slow pace of improvement in labor markets.

Our own tracking of select global PMI indices further reinforced a mixed global picture with the United States outpacing other regions in production and supply chain activity.  Overall, and as predicted, 2014 has been a challenging for industry S&OP teams to plan, adjust and respond to product demand trends within individual geographic regions.

 

2014 Prediction Two: Stable commodity and supplier prices with certain exceptions

Self-Rating: 3.5

As predicted, commodity costs continued to moderate this year. As of mid-November 2014, the Standard and Poor’s GSCI Commodity Index was down 16.25 percent year-to-date. Prices advanced early in the year as a result of an overly severe winter, drought conditions in Brazil and fear of continued hostilities within the Ukraine. With the exception of the U.S. west coast, U.S. farms recovered from 2013 severe drought conditions and produced record crops of corn and soybeans.

China continues to be the largest consumer of a large variety of commodities and continued moderating growth in that region caused commodity prices to generally slide. Lower global demand caused a general contraction in commodity markets with certain exceptions. Aggregating the overall decline has been a stronger valuation of the U.S. dollar amongst other global currencies.

Exceptions remain in global supplies of coffee and beef, brought about by severe drought conditions, and cocoa, which could be impacted by the current outbreak of Ebola in West Africa.

One of the most significant and noteworthy commodity trends in 2014 remains an overall 23 percent decline in the price of crude oil. At the beginning of this year, the U.S. Energy Information Administration (EIA) had forecasted a 2.8 percent in the price of West Texas Intermediate (WTI) crude oil with a 5.9 percent reduction in the per gallon cost of gasoline and diesel.  At this writing, the price of crude has plunged to the mid-seventy dollar per barrel range.  Retail prices for gasoline have broken through the $3 dollar per gallon barrier, 25 cents lower than a year ago and the lowest in nearly four years. The average price of diesel, currently $3.68 per gallon in the United States, is 16 cents lower than a year ago. Once more, current projections indicate oil prices will range in the $80 to $90 barrel range in 2015. This is all good news for global transportation and industry supply chain networks.

Summing-up, the easing of inbound pricing pressures afforded procurement teams the ability to hopefully turn attention to other important areas including deeper supplier collaboration, sustainability initiatives and joint product innovation.

This concludes Part One of our report card on our Supply Chain Matters 2014 Global Supply Chain PredictionsStay tuned as we assess the remainder of our 2014 predictions in follow-on postings.

Bob Ferrari

©2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.


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.

 


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