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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.

 


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.


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