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.
In our Part One posting, we explored our first two predictions for 2013, the overall economic and business challenges, and our prediction of inbound commodity prices.
Our Part Two posting explored predictions #3 and #4, which noted a continued renaissance in U.S, based manufacturing and the very important challenge of supply chain skills development and retention.
Our Part Three posting explored Prediction #5, our industry specific supply chain challenges prediction.
In the following posting we address the critical need for supply chain resiliency and responsiveness in 2013 as well an increased penetration of Chinese companies in other industry supply chains.
Prediction #6: Supply chain organizations must either embrace and augment resiliency and responsiveness capabilities in 2013 or deal with the consequences of poor business outcomes.
Since its inception in 2008, Supply Chain Matters has outlined numerous events where industry supply chains became significantly disrupted. We have provided quantification of the negative impacts to the business, either in people, service or financial dimensions, and have incorporated predictions for continuous disruption in prior years. Many supply chain senior executives and their teams are now coming to the understanding that volatility and rapid business change are the new normal. This may perhaps be an overused term, but is one with important meaning. Constant volatility in product demand, supply, and other unplanned events are exposing the vulnerabilities of existing planning, execution or S&OP decision-making processes. In 2013, we elevate our prediction to umbrella the more compelling need for holistic needs for supply chain wide resiliency and responsiveness.
In our polling, discussions and research in 2012 we have come to conclude that while many supply chain teams desire these capabilities, they lack articulation of a well-defined and pragmatic roadmap. Investing in these capabilities takes on important people, process, change management and technology augmentation connotations. Process becomes an understanding that the current clock speed of business requires that supply chain planning and execution must come together as a continuous, synchronized process. Rather than forecasting models, responsiveness requires decision-making capabilities that are anchored in predictive analytics, the ability to assess and respond to various likely business scenarios. It implies deeper cross-functional, customer and supplier collaboration and engagement processes, and not passing the problem along to another tier of the supply chain for singular resolution. It further implies more leveraged use of social based, systems of engagement. Rather than drowning in all forms of data, it is about mining and visualizing needed insights as to what needs to occur, and when. The term “big data”, in our view, is overhyped IT and vendor term, and lacks clear understanding for action among supply chain functional teams. Finally, a smarter and more responsive supply chain requires different sets of people and team skills.
In our 2012 Predictions, we pointed to the capabilities incorporated in “supply chain control tower” (SCCT) which addresses the need for quicker, more timely and informed supply-chain wide decision-making as coming to the forefront in terms of market education and early adoption. SCCT will continue to come to the forefront in 2013. The motivation for this market interest was to insure supply chain wide resiliency and responsiveness and we predict that SCCT interest will begin to shift from user education to the initial roadmaps for enabling people, process and technology-enabled capabilities. SCCT initiatives that were primarily originated in the high tech and consumer electronics industry will spread to other industries in 2013.
Likewise, supply chain teams must provide more visible leadership to other parts of the business as to what augmented capabilities are required to enable a smarter and more resilient supply chain, along with a time-phased roadmap of measurable milestones.
The takeaway of this prediction is that the visible gaps among global supply chains with more resilient and responsive capabilities vs. those that are not will considerably widen in 2013, and will be reflected in more negative outcomes for the broader business and for stockholders.
Prediction #7: Chinese based manufacturing and service firms will markedly increase their presence and influence in global supply chains during 2013.
According to a July 2012 Bloomberg article, China, which holds in excess of $3 trillion of foreign-exchange reserves, has been encouraging companies to buy assets overseas, particularly in securing commodity resources, advanced technology or building more internationally focused businesses. We would add that by our view, the strategy includes strategic supply chain process and product component capabilities. The Wall Street Journal ranked China sixth in both number of deals and in acquisition value, behind countries such as the U.S., the United Kingdom, France, Germany and Japan. It expects China to double its acquisitions over the next five years.
While resources and energy have been the predominant strategy to date, industry supply chain penetration strategies are also evident. With multiple years of financial stress eating at the global economic climate and with access to cheap and abundant financing, Chinese manufacturers and other firms are primed to continue moving into other geographic regions and associated industry supply chains. Current double-digit growth rates in direct labor costs within China have motivated manufacturing firms to shift manufacturing to other countries, while Chinese suppliers are now compelled to invest more advanced process and product innovation.
The most active area to date has been in the U.S. based automotive industry, where the major financial crisis that hit in 2008-2009 made many distressed suppliers attractive for acquisition. As we pen these predictions in December 2012, the latest acquisition prize has been Wanxiang’s acquisition of U.S. car battery manufacturer A123 for $256 million in a bankruptcy auction. Some industry groups and U.S. lawmakers immediately voiced concerns, given that A123 developed advanced battery technologies via investment from U.S. fiscal stimulus funds. Wanxiang officials are actively responding, by not including any of A123’s military business in its acquisition efforts and listening to concerns.
In the high tech and consumer electronics sector, Lenovo has set a blazing trail not only in market growth, but also in blending both owned and outsourced manufacturing presence. The company serves as the current benchmark for China’s industries in acquiring an international marketing, product and supply chain presence. Its product portfolio has widened beyond computing to include smartphones. The company has also made significant manufacturing presence investments in both Brazil and the U.S., working proactively with legislative leaders to assuage political and economic security issues.
These strategies certainly come with major political hurdles existing in the resident acquisition focused country, as witnessed by previous acquisitions being derailed by Canadian, European, or U.S. lawmakers. However, Chinese firms have begun to exercise more patient and pragmatic approaches to appease political concerns. Some political leaders in economically distressed regions are actively recruiting Chinese companies to invest in their communities. This month, China’s energy giant Cnooc was finally able to close on an $18 billion purchase of Canada’s energy group company Nexen after a lengthy period of negotiations and concessions. This deal is being noted as a milestone toward the growing maturity of negotiation practices.
Other industries of acquisition activity have included alternative energy, where Chinese firms were able to scoop-up the assets of bankrupt companies Evergreen Solar and First Solyndra and now position for U.S. based manufacturing presence.. According to the Financial Times, Chinese firms are also turning their attention to machinery makers in Europe, including Germany. As of this writing, one of the largest homebuilders in the U.S., Lennar Corp. has secured financing from China Development Bank to develop two major residential real estate projects amounting to 20,000 homes near the city of San Francisco. There is reported speculation that this deal stipulates that China Railway Construction Corp (CRCC) will play a role as either a supplier or contractor. CRCC is also a interested bidder for the planned project to build a high-speed rail line connecting the cities of San Francisco and Los Angeles, which is currently undergoing a delay because of lawsuits.
For these reasons, we believe that 2013 will feature even more of an outreach from Chinese manufacturers and suppliers into broader geographic and industry supply chain presence.
This concludes Part Four of our 2013 Predictions for Global Supply Chains.
As always, readers are encouraged to comment on these predictions as well as add additional thoughts as to what to expect in 2013.
© 2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.
These past few days, Supply Chain Matters has been featuring a series of commentaries related to what supply chain and B2B teams can expect in 2013. We trust our readers are gaining insights from this series as they think about objectives for the upcoming year.
Last week, this author also had the opportunity to participate in an interview with Dave Hannon, Senior Features Editor for the SAPinsider Learning Network. For those readers unfamiliar with this organization, it is the premiere learning network for the SAP installed base community.
The topic of the interview was What SAP Supply Chain Management Users Can Expect from SAP in 2013. Supply Chain Matters readers can also review my response by double-clicking on the above title.
I thank Dave for the opportunity to comment and share my thoughts with the SAP community.
Founder and Executive Editor
As I pen this posting it is incredible to believe that November is already upon us. Where did the year go? It seems like such a blur.
The month of November is the kick-off of our sales cycle for 2013 named sponsors for this blog. Loyal readers please bear with us as we take care of business.
Supply Chain Matters is able to share and publish the quality content that we provide through the support of our sponsors. For our sponsors we provide highly experienced product strategy, social media centered marketing and market research services that are individually tailored for sponsors and their brands.
We therefore remind providers of supply chain related technology and services that limited opportunities for being a named sponsor of the Supply Chain Matters blog in 2013 are now open for both the Lead and Sustaining Sponsorship levels. Blogs have come to be very influential sources of opinion, market knowledge and thought leadership, with this site being cited as among the top ten blogs commenting on global supply chain business process and information technology developments.
As a sponsor of Supply Chain Matters, your company will be recognized for its products and services and as a supporter of quality thought leadership. Our sponsorships include services in spring boarding your brand recognition, enlisting social media and search engine optimized product marketing strategies, and raising educational awareness to innovative technologies and services. An investment as a Supply Chain Matters sponsor extends way beyond a single event or campaign, offering a continuous daily impression across a global, highly targeted supply chain audience. Existing sponsors have incurred web based impressions exceeding one million views annually. The web domain of Supply Chain Matters itself averages over 30,000 reader visits per month.
What sets our sponsorship opportunities apart from other web properties is the unique personal and tailored services we can provide for your brand, with a highly affordable and competitive investment. Supply Chain Matters has supplanted high profile industry analyst firms in providing independent, insightful and straightforward commentary on important global supply chain business process and information technology developments and needs.
In 2012, we simplified our blog sponsorship opportunities into two levels of sponsorships, a Lead level and a Sustaining level, each with different levels of benefits, competitively priced. Picture your brand logo and recognition of capabilities appearing on every Supply Chain Matters content page in the designated sponsorship panel.
Further detailed information can be obtained by utilizing our Sponsorship Information Request drop-down menu located on the top menu bar, or by sending an inquiry email to info <at> supply-chain-matters <dot> com.
Bob Ferrari, Founder and Executive Editor
In conjunction with its Supply Chain Executive Conference being held this week, Gartner indicated that the worldwide supply chain management software market grew a healthy 12.3 percent in 2011, reflecting two years of double digit growth. This author has been involved in quantitative SCM software forecasting for many years and I can share with Supply Chain Matters readers that this growth in investment is the highest since the boom times of Y2K. It also provides ample evidence of the fact that many companies are investing in advanced supply chain technology in multiple areas. Another significant takeaway is the uptake in SaaS (software-as-a-service) revenues, which Gartner pegged at a 21 growth rate, contrasted with 15 percent growth associated with perpetual license sales. That implies a higher uptick in SCM cloud growth, in-line with our Supply Chain Matters 2012 prediction related to technology adoption.
According to Gartner, 79 percent of software revenues were generated in Europe and the U.S., however European growth slowed in 2011. Asia/Pacific experienced robust growth, outpacing the market average. We would anticipate that given the current business climate, European based SCM investment will continue to decline in 2012.
Gartner also declared the top five SCM technology vendors by revenue, with SAP leading the list, followed by Oracle, JDA Software, Ariba and Manhattan Associates. We caution our readers to not place significant attention to which vendor is the top revenue generator. The reason is that many of the enterprise software vendors such as SAP and Oracle do not formally breakout revenue reporting by application type, such as SCM. Thus, industry analyst firms such as Gartner must estimate actual revenues based on any vendor input, internal analysis and estimates. Categories of SCM software are also categorized differently, especially in areas of overlap with ERP related software, along with software associated with sourcing, procurement and contract management.
Suffice to state that supply chain software technology vendors for the most part, celebrated a healthy year of growth in 2011. Many manufacturers and retailers also recognized the importance of augmenting supply chain business processes with advanced technology.
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:
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
Oracle acquired information search and intelligence provider Endeca.
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.
©2011, The Ferrari Consulting and Research Group LLC and Supply Chain Matters, all rights reserved.
ERP market analyst Michael Koploy alerted me to his recent 2011 Warehouse Management Systems Market Trends report which provides some rather interesting observations. (Summary findings preview or Free download after user registration)
The report notes that an improving economy is giving buyers the confidence to tackle long-postponed logistics upgrades. It notes that many smaller businesses have outgrown their current systems, or their ability to operate without a robust WMS. Also noted is that ERP vendors have managed to close functionality gaps and that their account control is tipping selection decisions towards the resident ERP.
Even more interesting is that the report also concludes that while a lot of small and medium businesses are leaning toward cloud-based WMS options, significant concerns remain for prospective buyers. The report rightfully points out that logistics and operational managers are sometimes slow to adopt new software deployment models, favoring instead applications that have had a solid track record of successful deployments. Security of data within systems that are hosted off-site remain a potential deal breaker. I have heard this observation from other analysts, and I wonder whether these objections stem solely from operational teams, IT teams, or senior management itself.
Supply Chain Matters has been an advocate for cloud computing options in various supply chain applications, both planning and execution related. The potential savings in implementation time, required IT infrastructure and life-cycle software maintenance can be substantial. However, these lingering buyer concerns need to be adequately addressed by technology providers.
In an effort to provide some further clarity on buyer concerns related to cloud based applications, we have initiated a new Supply Chain Matters interactive poll which is displayed in our right-hand panel, about mid-way down. We would appreciate readers taking some time to respond, and we will publish the results in a few weeks.