This continues our series of commentaries outlining our 2012 Predictions for Global Supply Chains. These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, and in helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the New Year.

Readers are welcomed to review our previous series postings that include both the full listing of 2012 predictions and Predictions One and Two.

Prediction Three:  As a result of the major supply chain disruption events that occurred throughout 2011, senior management among global manufacturing firms will call for a re-visit of supply chain component and finished goods outsourcing strategies, weighing overall risk as well as low cost parameters.

During the last three years of our Predictions series, we included a prediction for increased incidents of major supply chain risk and disruption.  In 2011, we predicted that increased incidents of major supply chain disruption would bring senior executive attention and leadership to the area of supply chain risk identification and proactive risk mitigation planning. That will accelerate in 2012.  Two of the most devastating incidents that impacted global supply chains, namely the severe earthquake and tsunami in northern Japan in March and the monsoon-related floods that occurred in Thailand have provided the wake-up call that the zeal of lower cost outsourcing has exposed certain industry supply chains to significant business risk.  Manufacturers and retailers residing in automotive, semiconductor, consumer electronics and other industries discovered the real sourcing vulnerabilities they had.  Global manufacturers such as Honda, Toyota, Nidec, Sony, Texas Instruments, Western Digital and others saw their supply chain operations disrupted for months, with considerable financial and business consequences.

Many supply chain teams can well imagine the consequences if the magnitude of the Japan disaster, which was severe, had occurred in China.  Ratings firm AM Best in a recent webcast noted that 60 percent of China’s industrial economy is currently located on its east coast, which also has a high vulnerability to flooding, and questioned whether risk management concerning the world’s largest manufacturing region is advanced enough to protect its manufacturers and their respective supply chains. While manufacturing may be shifting more towards China’s interior regions, vulnerabilities still exist.

We predict that in 2012, a senior management motivation to concerted action finally will occur, and this will be the start of a changed global sourcing landscape in the coming years.  Attention will turn towards increased scenario planning, particularly for low-probability but high impact events along with the need to have more built-in redundancies across the global supply chain.

In prior years, sourcing strategies were motivated either by a quest for lowest cost provider or having some presence within emerging growth markets, allowing perceived access to a huge growing market such as China. The third dimension will be global wide risk, namely to balance sourcing in that no specific region adds significantly to overall capacity, process, or inventory exposure risk.

A further compelling motivation for the C-Suite will be the future cost of casualty and business continuity insurance.  As an example, Munich Re has recently indicated that 80 percent of all global insurance losses in the first nine months of 2011, nearly $259 billion, were caused by a series of natural disasters occurring in the Asia-Pacific region.  That figure obviously does not include losses resulting from the October-November floods in Thailand. Preliminary estimates point to loses, as a result of the Thai floods, estimated to be in the range of an additional $10-$11 billion.

There are now increasing indications that the major global insurers and reinsurers will re-evaluate weather and natural disaster risk profiles in certain geographic regions that have had recent multiple occurrences or have the potential for increased natural disaster risk. Insurers will begin to request more detailed information related to to global supply chain sourcing presence. Depending on that re-assessment, the criteria for global sourcing of components, contract manufacturing and finished goods may well have to include weighting for increased casualty and business continuity costs associated to a specific geographic region, particularly coastal regions of Asia Pacific.

This concludes Part Three of our Supply Chain Matters 2012 Predictions.  In Part Four, we will explore our prediction that three specific industries will undergo significant supply chain challenges in the coming year.

In the meantime, readers are encouraged to share observations and added predictions from your industry and functional lenses.

Bob Ferrari

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

This continues our series of commentaries outlining our 2012 Predictions for Global Supply Chains. These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, and in helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the New Year.

Readers can review the full listing of 2012 predictions at the following link.

In this Part Two posting, we explore our first two predictions for 2012.

Prediction One: A continued spillover of high uncertainty of events related to the global economy will make business growth highly challenged, and thus provide another challenging year in global supply chain management.

As we noted in our 2011 Predictions scorecard, 2011 moved from a manufacturing resurgence to a period of high uncertainty. Both the International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development (OECD) now point to a period of high uncertainty in 2012.  The IMF’s World Economic Outlook stated in September that: “The global economy is in a dangerous new phase.  Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing.” In preparation for the November G-20 Summit meeting held in Cannes, both organizations noted that the world economy has elevated risks of falling back into recession without bold actions on the part of governments.

The IMF points to considerable uncertainty about how fiscal sustainability will be achieved in the U.S., Japan, and some Eurozone economies.  The agency further points to the need for consistent, coherent, and co-operative approach to crisis resolution in regard to the ongoing Eurozone fiscal crisis. While growth in the Asian region has propelled the global recovery thus far, strains in the Eurozone crisis could have a negative impact on Asian growth. Signs of a slowing in previous growth cycles in the emerging markets are already showing.  China, Brazil, and India are collectively slowing according to Q3 GDP numbers.

The OECD projects GDP growth will remain weak in the advanced G-20 economies over the next two years and the growth pace of major emerging markets is expected to be lower. The OECD points to a marked slowdown with patches of mild negative growth for the Eurozone and a gloomier outlook if EU leaders fail to restore market confidence or if financial contagion spreads to other advanced countries such as the U.S…  The gloom scenario suggests a financial deterioration of the magnitude experienced in 2008-09, which could lead to a drop in GDP levels of the major OECD economies of up to 5 percent by the first half of 2013. Unemployment is expected to remain high in many advanced countries.

These grim projections do not include any effects of further economic shocks that may come as a result of added natural disasters or political, social or unplanned events. Politicians and economists are very careful in avoiding the “R” word until it is obvious.  While we profess not to be trained economists, it feels like the global economy is at risk of slipping back into recession during 2012, and the question remains as to how severe. Many advanced countries remain reluctant to propose or sustain economic stimulus measures such as investments in transportation, new growth opportunities like alternative energy, or supply chain related infrastructure.

For these reasons, global supply chains in 2012 will be highly challenged to help in sustaining any top-line growth, while cost reduction pressures will unfortunately increase.  Uncertainty has already begun among industry supply chains as reflected in lower order volumes and cautious prospective. The challenge will be in where to cut costs, since previous cost cutting has taken on the most obvious areas, and now rather difficult decisions lie ahead. Similar to what occurred during the 2008-09 Wall Street financial crisis, emphasis will likely be placed on increased customer service and the retention of key customers.  Inventory investment will also be challenging, particularly in Europe where access to affordable credit may become problematic.

While many manufacturers have relied on emerging markets as the growth engine, that could change in 2012 as these economies will continue to adjust to the effects of rising prices, high inflation and the uncertainty of global export markets.  Protection of domestic producers may well increase in order to sustain any internal employment and economic growth. U.S. manufacturers could fare better than European producers if contagion does not spread.

Prediction Two: Commodity and component price increase levels experienced in 2011, with some exceptions, will moderate in 2012, but procurement teams need to maintain a keen eye on pricing, supplier health and performance, and supply network agility.

In the first-half of 2011, industry supply chains struggled with rather high levels of inbound material price increases that significantly impacted gross margins and profitability.  Many companies had to pass along these increased costs in higher prices to customers and consumers in the range of 5 to 10 percent. Transportation costs remained high in spite of some moderation in the cost of energy during the middle to late part of the year.

Moving into 2012, all indications point to continued moderation of inbound price hikes, especially if economic output activity begins to falter.  The U.S. Department of Agriculture has forecasted food inflation levels to moderate in the range of 2.5 to 3.5 percent in 2012 over the 3.5 to 4.5 rate increases experienced in 2011.  Similarly, metals prices are expected to moderate or decline, especially if world economic output takes a dramatic negative turn in 2012. The October 2011 Manufacturing ISM Report on Business reported the ISM Prices Index as 15 percentage points lower than September, with areas such as plastics, primary metals, electrical equipment, chemicals, papers, among others, all indicating lower prices.

The U.S. Energy Information Administration (EIA) forecasts global crude oil consumption to grow from 88.2 million barrels per day in 2011 to 89.6 million bbl. /day in 2012. According to the EIA, China and other emerging economies will account for all projected 2012 consumption growth. Consumption in member OECD countries is projected to be relatively flat in 2012. OPEC crude oil production is expected to remain flat in 2012, with U.S. retail gasoline and diesel prices also expected to remain flat or slightly decline in 2012. As in the past, a large caveat is associated with these forecasts, namely that political unrest across the Middle East, terrorist incidents, or other shocks impacting supply do not occur during the year.  It will be interesting to observe how a moderation in energy prices will impact current transportation carrier surcharges and rate increases during 2012.

Our caveat in price increases applies to specific industries that will be influenced by the after-effects of the monsoon floods that impacted Thailand, specifically hard disk drives and other precision electronics. Current indications are that supply and capacity shortages may extend further into 2012.  Any other occurrence of a major supply disruption in 2012 should also be monitored. The U.S. west coast is long overdue for a major earthquake event, and further major seismic shocks surrounding Asia’s Fire Ring are always a concern.

Beyond price issues, procurement teams will need to once again keep a keen eye on supplier health and performance, especially if the Eurozone financial crisis spills over to other economies.  Overall, supply chains remain rather fragile with all of the shocks that occurred in 2011.  The need for agility in supply contracts is very important.  Rather than pressuring suppliers for added price reductions, it will be more important to maintain a reliable network of supply flexibility.

This concludes Part Two of our Supply Chain Matters 2012 Predictions.  In Part Three, we will explore our prediction that 2012 will bring a complete re-visit to supply chain outsourcing strategies, namely because of the new impact of supply risk and business continuity insurance coverage.

In the meantime, readers are encouraged to share observations and added predictions from your industry and functional lenses.

Bob Ferrari

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

Once a year, just before the start of the new year, the Ferrari Consulting and Research Group and the Supply Chain Matters blog provide a series of predictions for the coming year. We have maintained this tradition since the founding of the blog in 2008. Over the next two weeks, the blog will feature a series of postings to provide detail around each of our predictions.

Predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the new year.

Our process includes a re-look at all that occurred in 2011, a reflection of future implications and the soliciting of input from clients, thought leaders  and other supply chain and blogosphere observers. We incorporate a lot of thought into our predictions and will scorecard our annual predictions at the end of the year.  Throughout 2012, the blog will also be monitoring events related to each prediction, and will provide periodic updates.

We will kick-off this series with the full listing of our ten predictions for the upcoming year.  In upcoming postings, we will provide the detailed thoughts supporting each prediction. As in the past, the complete 2012 predictions report will also be made available in a free downloadable research report which can be accessed in our Research Center at the conclusion of this series.

This year’s effort was a bit challenging since the global business climate is in a period of high uncertainty and corresponding supply chains are in a fragile state. We probably could have come up with more than ten, and readers are encouraged to share their own predictions.

Here are the Supply Chain Matters Predictions for Global Supply Chains in 2012:

1. A continued spillover of high uncertainty of events related to the global economy will make business growth highly challenged, and thus provide another challenging year in global supply chain management.
2. Commodity and component price increase levels experienced in 2011, with some exceptions, will moderate in 2012, but procurement teams need to maintain a keen eye on both pricing and supplier health and performance and supply network agility.
3. As a result of the major supply chain disruption events that occurred throughout 2011, senior management among global manufacturing firms will call for a re-visit of supply chain component and finished goods outsourcing strategies, weighing overall risk as well as low cost parameters.
4. Three specific industry sectors, B2C, Pharmaceutical and High Tech, will be especially affected by significant supply chain challenges or turmoil in 2012.
5. The concept for “supply chain control tower’ coupled with more leveraged use of predictive analytics will come to the forefront, but in 2012 there will be a need for vendors and consultants to focus on market education and early adoption support.
6. Cloud computing and managed services options directed at enabling supply chain business processes will continue to gain more traction.
7. Expect additional M&A and partnership activity among supply chain technology and ERP providers as vendors shore up application areas with the best prospects for sustained future growth.
8. The challenges related to higher incidents of counterfeit products, cargo theft and other scurrilous activities within and across global supply chains will finally motivate government and industry to step-up process standards and corrective mitigation efforts.
9. Wider scale leveraging and adoption of in-memory computing technologies among enterprise and specialty supply chain vendors, coupled with broader leveraging of data mining, have the potential to be game changing influences on supply chain business planning and response management.
10.  The leveraged use of systems of engagement, namely mobility and social media applications within select supply chain, PLM and manufacturing process areas will gain additional momentum.

Keep your browser pointed to the blog as we take readers into each of the predictions.

Bob Ferrari

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

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

Part One- Predictions One and Two

Part Two-Predictions Three and Four

Part Three- Predictions Five through Seven

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

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

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

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

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

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

Pharmaceutical and Healthcare

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Bob Ferrari

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

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

Part One- Predictions One and Two

Part Two-Predictions Three and Four

Prediction Five: The year will bring a new wave of turmoil, acquisition and market consolidation in certain supply chain and enterprise technology areas.

The year 2010 brought a wave of consolidation and acquisition in the supply chain technology area and we predicted that this trend would continue in 2011. Although there was some activity in 2011, it was not a new wave, as we predicted.

We anticipated consolidation acquisition and consolidation fueled by needs to tap growth potential in emerging markets, adjust strategic focus, fill-in solution areas or take advantage of opportunities.  In essence it was a somewhat quiet year with the exception of perhaps the procurement, sourcing and 3PL areas  Worth noting was:

Sourcing, Supply and Contract Management

Emptoris acquired both telecommunications expense management vendor Rivermine, and later, provider of supplier lifecycle management support vendor Xcitec.

B2B E-Commerce and Supplier Networks

GXS acquired supplier information and community management provider Rollstream

ERP

Oracle acquired information search and intelligence provider Endeca.

3PL

Transplace acquisitions of both Celtic International and SCO Logistics.

There were no major supply chain related acquisition plays concerning major players (IBM, Google, Microsoft, Oracle, SAP) in 2011, and no major acquisition announcements concerning SAP itself. It was perhaps a year of digesting previous acquisitions of 2010 and a keen concentration on mining business from existing applications.

Manufacturers and retailers continued to have heartburn regarding annual maintenance fee burdens  placed on them by the major ERP vendors but that did not impact the revenue streams of the major players in 2011. Make no mistake, the heartburn issue of high recurring maintenance fees for enterprise software will remain an issue among both IT and supply chain functional teams for some time to come, and will lead to different alternatives in the market.

One rather big surprise in the services area was the announced acquisition by PwC of supply chain benchmarking firm PRTM.  We note surprise since the announcement seemed to be rather low-key and even missed our keen eye. The long-terms implications of this acquisition on benchmarking services are somewhat unclear.

Prediction Six: Cloud computing options directed at supply chain business process enhancement will explode in popularity and adoption.

We believed that the adoption wave of cloud computing alternatives would likely accelerate in 2011 and the largest benefactors would be small and medium sized businesses. The momentum and reality of adoption continued in 2011, however is was not as originally hyped by vendors. Buying trends were motivated by larger companies that needed to either springboard overall IT adoption or required specific tactical fixes to supply chain problem areas such as procurement spend or broader supplier integration, visibility and collaboration.

Adoption favored larger vs. smaller or mid-range companies because on the whole, price points remain at higher enterprise software levels. Smaller organizations still remain interested because their larger key customers require more electronic integration. More importantly, in our view, the mid-market continues to experience confusion as to what processes lend themselves to cloud computing alternatives. As Jim Cantrell of Hubspan noted to us in a recent briefing: “not all clouds are created equal.” Having a comfort level with software vendors hosting supply chain mission critical applications on a multi-tenant cloud, and persistent concerns regarding data security remain barriers to further adoption.

A significant announcement in this area in 2011 was the market launch of Kenandy, a new vendor conceived from the stewardship of salesforce.com founder Marc Benioff, Perkins Caulfield & Byers partner and former Oracle executive, Ray Lane, and former Ask Computer founder Sandra Kurtzig.  Kanandy presents itself as a social based manufacturing management cloud-based application that embraces a new paradigm of networked manufacturers, suppliers and partners. Also announced was salesforce.com financial investment in privately held ERP provider Infor, with the specific purpose in jointly developing a global marketing and order management system that will reside on the Force.com platform. The goal here is to make cloud computing more attractive for smaller companies.

We also predicted mixed buying signals relative to options for deploying private vs. public clouds.  Private clouds, where sufficient controls and security measures are monitored, continued to be favored by larger companies.

Prediction Seven: Wider scale leverage and adoption of in-memory computing, coupled with broader application of information discovery platforms could be game changing influences on supply chain wide business analytics.

When we framed this prediction, there were two important technology developments that had the potential to have significant impact on predictive analytical capabilities in 2011.  The first was incorporation of integrated in-memory technology among software and hardware appliances. The second was the wider adoption of Google-like information discovery tools that can mine hidden data, especially unstructured data and information.  If technology providers were agile enough in 2011 to incorporate these technologies not as tool sets, but rather incorporated into turnkey supply chain planning and analysis application appliances, we could have seen some dramatic uptake in customer interest levels in the second half of the year.

More importantly, converging forces of a more rapid clock speed of business, along with senior management imperatives for quicker, more-timely decision making have been motivating companies to re-look at sequential supply chain planning and execution in favor of merged planning and execution, and augmenting planning with more predictive analytical tools to support predictive vs. more reactive decision-making.

The reality was that many vendors got ensnarled in hyped product development initiatives that were too broad and multi process focused.  The biggest player with the highest game-changing impact in this space was SAP and its HANA development efforts. SAP’s efforts in 2011 became too broad and ran into the reality of scope and impact to existing application landscapes. SAP’s supply chain related applications therefore received little benefit in 2011.  Information discovery vendor Endeca lost its dedicated focus to manufacturing and supply chain process needs earlier in the year, and was recently acquired by Oracle.

The closest vendors to supply chain predictive analytics are JDA Software, Agistix and Kinaxis, with the latter having more of a focus on response management and a new initiative of supply chain control tower applied to overall supply chain planning and key decision processes. Progress Software is another vendor attacking predictive analytics and supply chain control tower from the business process management platform perspective, with an initial offering in supply chain execution control.

The bottom-line is that while game-changing in potential, predictive analytics capabilities will need more market education and more concentrated supply chain focus. Stay tuned for our 2012 predictions for more in this area.

This concludes our Part Three scorecard update of our Supply Chain Matters 2011 Predictions for Global Supply Chains.  In our Part Four update, we will revisit or other predictions.

Bob Ferrari

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

As we transition into the final month of 2011, it is time to re-visit the Supply Chain Matters 2011 Annual Predictions for Global Supply Chains which we outlined a year ago.  Our annual process is to first re-visit past projections made for the current year, in this case 2011, and declare some projections for the upcoming 2012 year, which will come in a later series of postings before the end of the year. In our Part One posting, we provided a scorecard of our first two predictions. In this Part Two posting, we will revisit predictions three and four.

Prediction Three: As in 2010, incidents of supply chain risk, disruption, and breakdowns in quality will unfortunately continue.

Our prediction was that similar to 2010, we believed that 2011 would bring even more severe incidents of supply chain risk, and consequently finally bring senior executive attention and leadership to the area of supply chain risk identification and proactive risk mitigation planning.  This was one prediction that we were more than willing to see unfulfilled, and looking back, we are astounded at the degree of severity and tragedy that continues to occur in this area.

A highlight of 2011 global supply chain disruption has to include two of the most devastating incidents that have impacted global supply chains, namely the severe earthquake and tsunami that impacted northern Japan in March, and the ongoing monsoon-related floods that are occurring in Thailand and in other Southeast Asian countries.

The Japan incident not only caused untold human tragedy, but it has had a permanent impact on companies residing in the automotive, semiconductor and high tech industries. Manufacturers discovered what supply chain sourcing vulnerabilities they really had, particularly in lower tiers of their supply chains. Global manufacturers such as Honda, Toyota and Texas Instruments saw their high volume production operations severely impacted for six months and beyond, and just when production volumes were beginning to reach normal levels, the flooding in Thailand added a new setback. Small and mid-market suppliers were severely impacted and are still struggling.  Our out-on-the limb prediction was that yet another corporation will experience a severe incident, and sadly, that was a no-brainer.   It has turned out to far more than one.

There were other incidents as well:

• Severe winter weather that impacted the entire globe earlier in the year.
• The Arab Spring and threat of cascading political turmoil that interrupted energy markets.
• The recall of thousands of pounds of ground turkey due to an outbreak of salmonella poisoning. Global agricultural giant Cargill incurred a 66 percent decrease in first quarter 2012 fiscal quarterly earnings, and attributed some of that erosion to the costs of the ground turkey recall and unprecedented floods in the U.S. Midwest.
• U.S. farmers had to endure not only severe spring flooding, but also severe drought conditions in other parts of the U.S. Southwest.

Regarding previous incidents of disruption, there was evidence that excessive cost cutting may have contributed to the systemic quality breakdown that impacted Johnson & Johnson, along  with an admission from Kellogg Company  that it had cut too deeply into operations and quality control processes.

A shout-out should be extended to many supply chain teams who worked countless hours and undertook enormous challenges to minimize what could have been more severe bottom-line impacts. We trust that their efforts were recognized by senior management.

On the topic of senior management, there is now little doubt that supply chain sourcing, risk identification and mitigation has reached the C-level agenda.  In our travels during the Fall conference season, we heard many supply chain executives speak to a new awareness and sensitivity to risk with some companies taking on a complete review of their global supply chain risk profile.

We will have more to state on this topic in our 2012 predictions.

Prediction Four: Supply chain technology deployment will remain tactically focused and buyers will remain in a favored position for negotiating technology acquisitions.

Similar to 2010, cost and profitability pressures caused investments in supply chain technology to continue to be tactically focused and highly scrutinized.  Many supply chain technology and service vendors reported continued elongated sales cycles, touch points and reference checks as buyers needed to insure that limited funds were invested in the right process and with the right vendors.

We predicted that the business process and technology enablement priorities in 2011 would manifest in needs of deeper and broader supply chain visibility / intelligence and more rapid planning and synchronization of supply chain fulfillment processes. We anticipated popular investment areas to be in improving inventory management, a more responsive and more extended sales and operations planning process, and adaptability to sensing and responding to changes in product demand.  All of these predictions have been evident.

We further predicted a slowdown in technology acquisition for strategic sourcing and P2P procurement because of shifting technology enablement priorities towards the more operational sides of the supply chain process needs.  That turned out to be an incorrect prediction. Many vendors in these areas reported healthy sales growth throughout the year which leads us to believe that procurement teams managed to gain more favor with CFO’s in investing in technology to yield more immediate material cost savings in direct, indirect, and services procurement costs.

We believed that 2011 would bring a renewed emphasis on quality oversight and process improvement needs, coupled with improved asset management. That turned out to be correct, especially when companies were under the gun to improve overall quality.

We believed that technology directed at supply chain risk mitigation would gain more attention and uptick, especially technology related to the tracking and identification of products throughout the extended supply chain. That turned out to be premature, since many companies are still struggling with identifying risk processes and who has organizational responsibility and accountability for the risk management process that umbrellas the global supply chain.  Then again, in today’s uncertain world, risk management is the most stressful of all supply chain jobs. Technology investments to help mitigate risk will not uptick until, and unless, these organizational processes are addressed.

This concludes our Part Two scorecard update of our Supply Chain Matters 2011 Predictions for Global Supply Chains.  In our Part Three update, we will revisit predictions five and six.

Bob Ferrari

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