We continue with our series of Supply Chain Matters postings reflecting on our 2014 Predictions for Global Supply Chains that we published in December of last year.
Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008. We not only publish our annualized ten predictions, but scorecard theses predictions as this point every year. After we conclude the scorecard process, we will then unveil our 2015 annual projections for industry supply chains.
As a reminder, our self-scoring process is based on a four point scale. Four will be the highest score, an indicator that we totally nailed the prediction. One is the lowest score, an indicator of, what on earth were we thinking? Ratings in the 2-3 range reflect that we probably had the right intent but events turned out different.
In our Part One posting, we revisited 2014 Predictions One and Two related to economic forces to expect in 2014.
In our Part Two posting, we revisited Prediction Three, related to continued U.S. and North America based manufacturing momentum, and Prediction Four, ongoing challenges in supply chain talent management.
In our Part Three posting, we rated Prediction Five, our specific call out of extraordinary supply chain challenges among three specific industries.
In the Part Four posting of this series, we revisited Predictions Six and Seven.
In this Part Five posting, we conclude with a look at the final three predictions declared for this year.
2014 Prediction Eight: Industry Re-Structuring of Global Transportation Surface and Air Networks Increase Momentum as Carriers Adjust to Realities
Our prediction in this area was predicated on a continued uncertain global economy, along with the after-effects of severe recession in the Eurozone motivating industry supply chains to rely on more economical and cost effective surface transportation modes. However, multiple years of excess shipping capacity across global ocean container fleets continue to be exacerbated by the ongoing delivery of massive new mega-ships designed to carry far more containers at a lower overall cost. The result was a relative no-brainer prediction- namely that industry consolidation was inevitable.
In March of 2014, industry watchdog Fitch Ratings once again declared that consolidation in the container shipping segment via alliances or mergers was likely to accelerate due to persistent overcapacity and freight rates pressures. The CEO of industry leader Maersk Lines also predicted that excess ocean container capacity would extend through 2016.
As a consequence, number of industry alliance or consolation announcements permeated 2014. There was an attempt among the top three global ocean container carriers to form the P3 Network which was thwarted in the end by Chinese maritime regulators. That was followed in July with the announcement of the 2M Alliance as industry leader A.P. Moller-Maersk announced a ten year vessel sharing cooperation agreement with Mediterranean Shipping Company (MSC) for designated Asia-Europe, Transatlantic and Transpacific routings. In August, global maritime regulators gave the go-ahead to the merger German based Hapag-Lloyd and Chile based CSAV which was expected to create the fourth-largest global shipping company in terms of capacity. In September, the Ocean Three Sharing Alliance was announced as French container shipping group CMA CGM entered into a service alliance with China Shipping Container Lines (CSCL) and United Arab Shipping (UASC).
As 2014 came to a close, a perfect storm crisis crippled U.S. west coast ports as the compounding issues of ongoing labor contract negotiations, larger ocean container vessels requiring more time to unload and load, an overall shortage of container transport carriages and labor disputes among trucking companies and independent drivers all intersected to form a bottleneck for crucial holiday fulfillment supply plans.
In June, the 25rd Annual State of Logistics Report prepared for the Council of Supply Chain Management Professionals (CSCMP) reported cost of the U.S. business logistics rose by another $31 billion in 2013. The report further confirmed that both U.S. trucking and rail networks were running at near 100 percent capacity, leading to spot shortages of specialized trucks and/or railcars. The boom of rail car shipments of crude oil from the North Dakota Bakken region fueled such shortages along with more incidents of railcar accidents and explosions. The last months of 2014 featured the first overture of a major railway, Canadian Pacific, calling for network consolidation within North America rail networks.
More use of surface transportation motivated international air freight carriers to further cutback on overall capacity in an effort to uphold rate structures and profitability goals.
The sum total of this 2014 prediction is that industry supply chains experienced longer transit times, increased costs and further heartburn as to the overall reliability of transit times. Industry consolidation and constrained logistics networks thus far has been for the benefit of asset owners or carriers vs. shippers.
2014 Prediction Nine: Internet of Things Picks Up Considerable Momentum
The Internet of Things (IoT) provides a new era of interconnected and intelligent physical devices and/or machines that will revolutionize supply chain processes related to production, transportation, logistics and service management. Our 2014 prediction was that IoT interest and development efforts would expand globally and would feature more announcements from well noted global based players in manufacturing, services and technology circles. That turned out to be exactly the case, and as we approach the end of 2014, IoT has become the buzz of industry and global supply chain news.
In consumer dimensions, Google kicked off the year by announcing its acquisition of home monitoring provider Nest Labs for $3.2 billion. Automobile manufacturers continued with strategic efforts focused on connected automobiles, while General Electric became the leadership icon for connected industrial equipment. The industrial conglomerate recently disclosed that it has already garnered over $1 billion in revenues related to its connected industrial products and services.
Increased market momentum naturally fueled vendor interest in positioning or jockeying interoperability standards. That led Supply Chain Matters to speculate whether the market was positioning for a replay of the RFID standards mess. In March, AT&T, Cisco, GE, IBM, and Intel officially formed the Industrial Internet Consortium (IIC) to accelerate work on areas such as interoperability standards for IoT in industrial markets. In July, a handful of tech heavyweights, namely Intel, Broadcom, Dell and Samsung Electronics unveiled a new non-profit termed Open Interconnect Consortium (OIC) with a mission to come-up with certification standards for devices operating in IoT environments. That announcement came after a December 2013 announcement from nonprofit Linux Foundation in conjunction with names such as Microsoft, Panasonic, Qualcomm and others that calls for the AllSeen Alliance to come up with a similar goal.
Technology vendor moves included product lifecycle management (PLM) and service lifecycle management (SLM) technology provider PTC initiating two strategic acquisitions to position the company to be able to leverage IoT platforms. In December as we published our prediction, PTC announced its $112 million acquisition of ThingWorx, a provider of platform that allows firms to build and run applications that leverage machine to machine information exchange. In July the provider announced the acquisition of Axeda, an IoT cloud-based technology provider offering technology that connects machines and sensors to the cloud, for a reported $170 million in cash. SAP recently announced a series of supply chain, service management and manufacturing applications enhancements that can leverage IoT platforms, along with an intent to develop applications support in this area over the next two years.
In 2014, strategy consulting firm McKinsey included the IoT as one of the ten truly disruptive technologies for the next decade that will be adding several tens of trillions of dollars to the global economy by 2025. Increased momentum and interest in IoT and its potential business benefits was a prediction that indeed played out throughout 2014.
2014 Prediction Ten: Continued Technology Investments in Cloud Computing, Predictive Analytics and Select Supply Chain Services.
Our assumption for 2014 was that a more optimistic global economy would motivate industry supply chain and line-of-business teams to increase levels of investment in specific areas of supply chain business process needs. Areas we highlighted were enhanced sensing of product and geographic demand , deeper lower-tier visibility to supply risk areas, more emphasis on leveraging B2B network platforms and added investments in more predictive or prescriptive supply chain intelligence capabilities. We further predicted that the attraction of cloud-based applications technology would continue to gain market adoption, primarily due to the needs for quicker time-to-value.
Our monitoring of both technology vendor and end-user communities throughout 2014 indicated for us that this prediction area generally played out with a couple of exceptions. Buying activity focused on cloud-based options for supply chain related business processes is indeed on the increase, validated at double-digit growth rates among various by many of the quantitative market research firms.
In the area of enhanced sensing of product demand, in 2014 we discerned a movement on the part of a select number of supply chain planning vendors to enhance their connectivity and support of demand sensing processes. In March, SCP vendor ToolsGroup announced the application of “machine learning” applied to product demand forecasting. In the case of Steelwedge, it was manifested by release of initial supply chain and S&OP focused “apps” released on the Salesforce.com platform.
Increased interest in leveraging B2B business networks for broader end-to-end visibility captured the interest of many industry supply chains and we observed vendors in this area branching out beyond their core vertical industries. SAP communicated a strategy focused on “Integrated Business Planning Network” eventually leveraging elements of the AribaB2B platform with elements of supply chain planning, execution and S&OP support. The year 2014 brought added emphasis for including new product introduction (NPI) and PLM focused information within B2B networks and motivated E2open to acquire Serus Corporation, a provider of network-enabled NPI information.
Supply chain focused cloud technology also captured renewed interest from the venture capital community. In February Elementum, which describes itself as the first mobile platform for end-to-end supply chain management, formally announced its market launch after securing $44 million in Series B funding from Lightspeed Ventures. In late May we called reader attention to a CB Insights blog posting titled: Software Eats the Supply Chain which provided succinct quantification of the renewed interest and that further indicated that over the prior four quarters, investors poured $359M into 63 deals in the logistics & supply chain software industry segment. Early stage investments in mobility, same-day delivery and cloud based end-to-end platform investments were of the most interest. Oracle made added strides toward availability of its public cloud version of supply chain applications support.
On the services side, more industry supply chains opted to outsource supply chain logistics and fulfillment processes to external third part logistics (3PL), transportation or BPO services firms. The increased pressures for cost reduction coupled with needs to serve Omni-channel market and fulfillment segments motivated these moves. However, firms may well discover in the coming months the hidden costs of such moves. As noted in our scorecard related to Prediction Eight above, the costs related to business logistics and 3PL services continues to rise with little relief in sight.
This concludes our series of looking back on 2014 to assess how our Supply Chain Matters Predictions fared. We trust our readers were able to gain benefits from following our series. Again, feel free to share your own observations regarding the key supply chain, procurement and B2B developments in 2014.
As we move toward the latter stages of December, we will shift our attention to what to expect in 2015.
©2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.