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.

The Institute of Public and Environmental Affairs’ Green Choice Alliance, (also referred to as the Green Choice Alliance) a consortium consisting of 36 environmentally focused groups across China, has issued a report which is titled The Other Side of Apple. This report is gaining lots of Web pickup because of the very nature of its title.

On its web site, the Alliance indicates that it is a coalition of NGO organizations that promote a global green supply chain by pushing large corporations to concentrate on procurement and the environmental performance of their suppliers.

International news media is noting that the report consists of a ranking of 29 multinational technology companies based on how each responded to inquiries and concerns related to occupational health hazards at various supply chain factories within China.  Apple was ranked dead last among 29 companies, hence the selection of the report title. We at Supply Chain Matters wanted to actually read this report, but discovered that report currently only exists in its Chinese version.  We trust that the English version will be made available soon, since it is the details, not the headlines of this report that matter most

An article published in the Financial Times (free preview account may be required) referencing the report outlines a specific incident involving the alleged poisoning of workers at Liajian Technology, a subsidiary of Taiwan-based Wintek, which produces touch screen modules for Apple.  In that specific 2099 case, 49 workers were hospitalized for poising due to chemical exposure.  Wintek for its part, indicated that the factory in question stopped using the chemical.  Where Apple is being taken to task by these China based environmental groups was Apple’s refusal to confirm or deny whether polluting or harmful companies were Apple suppliers. Many in our global supply chain community are aware that Apple has a rather unfortunate iron-clad policy regarding not disclosing any details about its value-chain.

While the headlines of this story are indeed disturbing, we believe that more focus should be placed on the positive aspects.  First, the fact that a consortium of dozens of Chinese environmental teams is diligently monitoring workplace and environmental safety, and taking multi-nationals to task, is certainly a positive.  Second, the companies that have been cited as proactive and responsive, namely Alcatel-Lucent, Hewlett Packard, Hitachi, Samsung, Sharp, and Toshiba , should each receive positive accolade.

Apple was not the only company cited as not responsive, but that does not make headlines, especially when Apple was ranked as lowest.  There is also an obvious two-edge sword to Apple’s extraordinary business success.  On the one hand, Apple has been very open and public about declaring its commitment to worker safety and environmental responsibilities across its global supply chain.  On the other, a policy of secrecy and/or supplier protection may not be serving Apple well.

As is the usual case in these affairs, what really matters in the end is how Apple and other multi-nationals respond with concerted actions to their publically declared corporate commitments for social responsibility.  Let us all, as a global community, praise those companies who have placed positive action to their words.

Bob Ferrari

This is the third posting outlining each of the Supply Chain Matters ten predictions for global chains in 2011.  Part One commented on predictions one through three, and Part Two provided commentary on predictions four through seven.

In this posting, we complete our predictions commentary with a look at predictions eight though through ten..

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

In the retail, wholesale and E-Commerce sectors, the advent of the more economically stressed, sophisticated and demanding consumer, now equipped with computer savvy, smartphones and mobile applications, will alter the retail buying landscape for years to come.  Consumers have found and demonstrated powerful new weapons in smartphones and leveraged use of the Internet.  They also know that the influence pendulum has shifted in favor of the buyer.

The ability to significantly influence product selection choices, shop and easily place orders via the Internet, and the increased ability to actually perform real-time price comparisons while in a retail store are capabilities that consumers will embrace even more.  The implications for retailers are significant, and throughout 2011, retailers and B2C commerce providers will need to be ‘fast-a-foot’ in staying ahead of this trend.  The most important indicator of the implications came when electronics retailer Best Buy announced a quarterly sales shortfall in December. When post 2010 holiday shopping volumes are all tabulated, we may well see which retailers and e-commerce providers were the overall winners and losers, and how consumer buying patterns played out.

Retailers will be faced with critical decisions on areas to invest in accommodating multi-channel commerce or multi-channel operational process integration needs.   Consumers who want to be engaged in the buying experience will expect the same supply chain wide visibility as manufacturers and suppliers expect from their internal processes. As an example, think of the Dominos Pizza buying experience.  Inform me, the consumer, when my purchased product is going to be made, when it ships from the factory, and the exact time it will arrive.  Similarly, if I am shopping in a store, inform me if an out-of-stock item can be found in another nearby store, and reserve that item for me.  Think item level visibility.

The second significantly impacted industry in 2011 will be pharmaceutical and healthcare related value-chains. Significant changes in strategic business models, healthcare reform initiatives emanating from multiple countries and desires to grow sales in emerging markets have brought home a renewed sensitivity to supply chain agility and consistency in operational excellence.  The healthcare supply chain was already highly segmented and non-aligned to joint stakeholder value-chain performance, but as the Bob Dylan tune laments, “Times, They Are A- Changing”.  Aggregate inventory levels are excessive, over five months of days inventory outstanding on average.

We along with others have commented on a more demanding healthcare consumer, a more acute competitive landscape, and the need to introduce modern supply chain practices within life science, vaccine and healthcare related supply chains.  Healthcare supply chains face similar challenges as high tech or consumer products and many best practices can be transferred.

For pharmaceutical and healthcare value-chains, the year 2011 should hopefully bring new opportunities for stakeholder alignment, along with advanced practices in planning, inventory optimization, supplier and customer collaboration.

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

Recent trends in supply chain global outsourcing were motivated by two fundamental business forces. The first relates to competitiveness in product cost, where outsourcing activities were driven by needs for securing the lowest cost producer of components and finished goods while conforming to specific specification of design and quality. The second was driven by market access, the need to have a supply chain or value-transformation presence in a promising emerging market such as China or India.  It is the former that has driven the bulk of outsourcing activity.  Access to emerging markets has become more of a challenge as some countries continue to initiate barriers to market entry among perceived foreign manufacturers or as issues of  copying of product design continue to occur.

In 2011, industry observers point to more shifting sands as labor costs continue to explode in China and other regions and as issues of IP protection become more of a concern.  There are also building storm clouds in global currency risks which manufacturers must also factor in their strategies for 2011. Some industry observers are already pointing toward countries such as Vietnam or Indonesia as the new opportunities for low-cost sourcing, while others note that having a  combination of balanced in and out sourcing options can be the best hedge for intellectual property protection and shifting currency trends.

We predict that in 2011 there will be much more attention paid to outsourcing strategies and to analyzing all the pertinent factors motivating these strategies.  We also expect further shifts, particularly in low margin or highly sensitive IP product areas.

While on this subject, do not be surprised to see one or another of the aircraft, high tech or telecommunications manufacturers having to modify or alter their component sourcing strategies in 2011.

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

In our report card of 2010, we noted that while sustainability and carbon tracking were not as robust as we had earlier predicted, supply chain carbon tracking and sustainability efforts will remain on corporate agendas for some years to come. While a positive sustainability profile often makes good business sense, there has been a noticeable slowdown in momentum. The perceived failures in motivating global wide sustainability milestones and the effects of global recession in changed consumer buying decisions have made business cases for accelerating green and sustainability programs somewhat problematic.

To date, the unspoken aspects to supply chain wide sustainability efforts have been directed at achieving cost reduction as well as sustainability goals. Saving energy, water consumption or packaging costs can all relate to the bottom line,.  As long as supply chain related green and sustainability efforts can be directly associated with either cost reduction or positive impressions on the brand, than these initiatives will continue to be supported in 2011.  Progress, however, will come in multi-year scope and dimensions.

This concludes our listing of what you can expect to see within global supply chains in 2011.  The year 2010 brought many challenges and 2011 will bring similar challenges. Periods of uncertainty tend to separate the industry leaders from the followers, and 2011 will provide another backdrop for industry competition among supply chains.

Please feel free to comment on any of these predictions, as well as offering any that we may have neglected to mention. Readers are also welcomed to participate in our polling question (placed in the lower right-hand panel) regarding the key business priorities for your organization in 2011.

We will also be producing a complimentary research report which outlines each of these predictions in detail.  If you would like a copy, please provide your name, company or affiliation, and return email address. Requests should be sent to: info <at> supply-chain-matters <dot> com.

We extend to all of our readers our best wishes for the holidays, along with a period of rest and renewal with family and friends.

The Supply Chain Matters Team.

Welcome to 2010 .

In subsequent postings I shared the first four our supply chain predictions for the coming year. You can view the previous postings in clicking the following embedded links:

Part One

Part Two

Part Three

In this posting, we will conclude this series with the fifth prediction along with a final summary and some instructions on how to receive a free copy of the total prediction series, if you desire one.

Prediction Five: There will be a new resurgence of supply chain carbon tracking along with more momentum in green and sustainable supply chain initiatives.

Even though there was general disappointment in the outcome of the recent United Nations Copenhagen climate conference, the one clear outcome was that carbon tracking and sustainability needs will remain on both global country and corporate agendas for many years to come. Although companies have not yet experienced significant pull for low-carbon or green products, it is just a matter of time before consumers actively seek-out such products and services. The cost and incremental operational efficiency benefits of sustainable supply chain initiatives have already been proven in initial activities.  Major retailers, manufacturing and services companies such as Coca-Cola, Nike, Procter & Gamble, Tesco, Wal-Mart to mention just a few, remain very active in driving supply-chain wide standards and guidelines to insure sustainability footprint in products.  Getting ahead of pending carbon regulations and a more socially responsible customer will make more business sense in the coming year.

The needs for continued cost control and sustainability have been complementary up to this point, and should remain so.  Efforts in reduction of fuel and energy consumption, packaging, and recycling of product material each add benefit.  Broader initiatives may have been hampered up to this point, because of general budget and manpower constraints.  As business begins to improve in the latter half of 2010, look to more supply chain initiatives addressing green and sustainability tracking and mitigation.  Transportation, third-party logistics and other service providers will not be immune to this momentum, and they will in-turn be forced to step-up their efforts.

Carbon tracking technology has become more widely available and can be acquired at a very reasonable cost.   Supply chain network design vendors have added carbon tracking and analysis to their existing offerings, and major ERP vendors such as SAP are actively incorporating sustainability and carbon tracking functionality within the ERP suite.  Reverse supply chain planning and control will also begin a new genesis in the coming year.

Finally, as more companies and organizations initiate broader programs, the impacts to logistics and transportation will become ever more evident.  Fewer shipments of optimized loads will negatively impact the volumes of carriers and logistics providers.  Being the lowest carbon consumption and cost transport provider may prove to be highly beneficial in 2010.  Maybe Warren Buffet was indeed a sage in his acquisition of a major U.S. railroad.

A Final Note

That concludes our predictions for 2010, a year that promises to be just as challenging as 2009, but with hopefully a bit more optimistic toward future growth and investment.  The best analogy that comes to mind for reinvigorating your management juices in 2010 is to picture yourself as a military fighter pilot. Take firm control of the joystick, maintain a 360 degree view of the cockpit, and be prepared for another wild ride of non-stop missions.  Good luck and continue to check-in with Supply Chain Matters for your mission intelligence.

As noted in this series, a detailed copy of all five of these 2010 predictions is available in a free research report in early January.  If you desire a copy, please send your request to the following email address:

bferrari at blog1 dot com.   (bferrari@blog1.com )

In your request please include the following information:

Your name

Organization and title

Email address

Best wishes for a very productive and rewarding 2010.

 Bob Ferrari

As the United Nations conference on climate change ended in Copenhagen, many received a rude reminder that the effects of global warming are indeed upon us. The timing could not have been worse, coming just before a major holiday travel period.

Over this weekend, one of the largest snowstorms in many years impacted the largest populated cities on the U.S. east coast.  Blizzard-like conditions and unusually large snowfall stranded major cities from Washington DC up the east coast to Boston.  The snowfall stranded many, cancelled more than 1600 airline flights and disrupted transportation throughout the U.S. northeast.  Today, upwards of half a million airline passengers were attempting to find alternative flights or transportation.

According to a Bloomberg article, as much as 24 inches (60 centimeters) of snow fell of Bethesda Maryland, and 23 inches of snow was recorded at Philadelphia International Airport.  Here in Boston, where I reside, in excess of 21 inches of snowfall fell on portions of Cape Cod and the southeastern coast, while moving just 20 miles inland, snowfall levels dropped off dramatically as the storm center shifted direction out to sea.  There is a foot of snow outside my window and its bitter cold as I pen this posting.

In Europe, a bitter cold snap and snowstorms have had dramatic winter impact as well.  The underground Eurostar trains between London and Paris were forced to shut down unexpectedly last week as trains stopped dead in the tunnel because of what is suspected to be the effects of condensation caused by outside cold and inside warmth.  Upwards of 60,000 travelers were left stranded for up to twelve hours in the tunnel and service has still not be restored. 

According to a BBC News article this afternoon, additional rail, air, and road transport links are disrupted across northern Europe where snowstorms and bitter cold are impacting major areas. Parts of the continent experienced 20 inches (50 centimeters of snow over the weekend.

Of course, the timing of all of this bad weather could not have been worse, coming just before the Christmas and New Year’s holiday period where so many have travel plans, or where last-minute shopping and logistics fulfillment is in its final stages. UPS alone had expected to deliver 22 million packages today, its busiest day of the year.

There should be no doubt on whether global warming has impacted the planet, especially if you had prior or upcoming plans to travel in the U.S.or Europe for the holidays. 

To parody the movie quote from The Treasure of the Sierra Madre (1948)-

Global warming, I don’t have to show you any stinkin’ proof of global warming!

Let us all look to the glass half-full- many of us will be experiencing  a white Christmas this year.

In spite of all this dirruption, do enjoy the holidays.

Supply Chain Matters will not be publishing for the remainder of this week as I take some time to be with family and friends, and recharge.

Stay tuned for a series of new postings next week, the last week in 2009, which will feature our annual Supply Chain Matters Predictions for the coming year in supply chain.

Bob Ferrari

The following Supply Chain Matters guest posting has been provided by Guy Courtin.  I have known Guy from his contributions within the industry analyst world as well as his marketing leadership within supply chain technology companies.

World leaders are spending the next 2 weeks attempting to find common ground on what can be done to control climate change and reduce carbon emissions. Regardless of what emerges from Denmark, the need for sustainable business practices are here to stay.

Recently companies have looked to their transportation management to better control their carbon emissions. This push to be more efficient with a companies’ usage of fuel to transport their goods from cradle to consumer and finally to grave, coincided nicely with oil prices touching the $100 a barrel mark.

While this is a wise move for many reasons, is it really where many companies are going to enjoy greater efficiencies?

What about the factories and other carbon emitting culprits?

Does it make sense to look into setting targets for how much carbon can be produced?

How about instituting either cap and trade systems or allowing for carbon offsetting?

Again these all make sense and should be explored.

Rather than look to put scrubbers on smoke stacks or plant forests to offset their carbon production, shouldn’t  companies look at what is causing the creation of pollutants…the act of producing goods (aka inventory)? What if companies could produce fewer goods but still maintain a high service level for their client? The ability add efficiency to their supply chain would reduce costs since they will not need to source, produce, store, transport and potentially take back at end of life. Companies that are tackling this problem via inventory optimization, demand management and network optimization are not only saving themselves green in terms of dollars but could also be green in terms of being more environmentally friendly.

Let us take an example of a large Midwestern heavy equipment manufacturer. Based on their traditional approach they would fund their dealers and allow them to carry a large sum of expensive finished goods inventory. Since the dealers would not want to miss a sale to a consumer, the manufacturer was a prisoner to this inventory deployment model and therefore was forced to produce and carry excessive inventory. This type of inventory was also resource heavy – rubber, steel, glass, and other resources. The manufacturing was energy intensive and transportation costs high.

Recognizing that this model was a large drag on their working capital, the manufacturer went out and looked for a solution to better manage their inventory. After partnering with a best of breed software vendor the manufacturer was able to recognize $1billion worth of savings from inventory reduction. For the manufacturer that $1billion is pure cash flow back to their balance sheet, but it also brings more green back to the environment. That $1billion translates into less power used to produce this inventory, less strain on resources, decreased waste, reduction in energy usage for transportation of the materials as well as finished goods and reduction in energy usage for storage.

Companies that rely heavily on an aftermarket business will benefit as well – an AMR Research report on the benefits gained from using Service Parts Planning solutions can yield up to 30% savings in overall spare parts inventory – this translates to cash savings but also environmental savings.

Rather than simply focusing on how to reduce our transportation costs, supply chains need to focus on how to reduce their overall production of goods – aka inventory. This will not only bring you more green in terms of working capital, but being more green as well.

Guy Courtin