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 of postings. These include:
Prediction Four: Three specific industry sectors will be especially affected by significant supply challenges or turmoil in 2012.
In 2011, we correctly predicted that two industry sectors, B2C and Pharmaceutical/Healthcare would be especially affected by process impacts. For 2012, we predict the continuance of significant supply chain challenges within our 2011 selected industries and we add High Tech / Consumer Electronics as a third industry facing significant supply chain challenges.
The B2C sector will continue to be impacted by the momentum of online multi-channel commerce and a more technology empowered consumer who demands multiple buying options and service experiences. Retailers have quickly come to discover that their supply chains need to have the ability to respond and execute holistically across all consumer buying channels, including online, in-store, vendor direct-ship, or combinations thereof. Even as we pen these predictions, the headlines for Black Friday and Cyber Monday 2011 indicate an online traffic increase of a whopping 43 percent. What has become even more apparent is that added investments in online and mobile capabilities and web tools in 2011 must also be complimented with investments in advanced supply chain inventory management and multi-channel commerce fulfillment technology.
While Amazon has become the unstoppable goliath of online commerce and fulfillment capabilities, an announcement by Google in early December 2011 could provide for some industry disruptive dynamics in the coming year. Google entered talks with select major retailers and shippers to affix its product search capabilities with a one-day quick shipping option. The capability was pitched to retailers such as Gap, Macy’s, OfficeMax and others. When shoppers place an order on retail web sites, Google’s quick ship would include the capability to scan available store and regional inventories for one day ship fulfillment execution. If adopted, Google has the clout to well become a supply chain fulfillment enabler by the 2012 holiday buying season.
When the dust settles after the 2011 holiday buying season, retailers and online commerce providers will be challenged in 2012 to continue to augment their back-end supply chain fulfillment competencies to seamlessly support multiple buying channels. By Q4 2012, the holiday focused buying surge will make the notions of Black Friday and Cyber Monday meaningless since consumers will leverage online and mobility tools at will when bargains or available inventory of in-demand hot products are evident.
Pharmaceutical and Healthcare
An article published in Strategy and Business in mid-November re-iterates that the Pharmaceutical industry must fundamentally re-think its supply chain. The article notes: “There is minimal communication, little effort toward mutual improvement, and no real desire to pursue efficiency gains.” That reality manifested itself in 2011 as certain Pharmaceutical and Generic Intravenous Drug supply chains failed to deliver on-time and reliable supply, and we do not anticipate any recovery until the latter part of 2012, if at all. Frankly, the industry has shown no public signs of resolving a myriad of supply chain issues involving the increased complexity of a global supply chain involving generic and contract manufacturing relationships. Rather than a mentality that views supply chain as a burden of cost centers, the industry must embrace supply chain efficiency and responsiveness, disciplined and meaningful sales and operations planning as a competitive differentiators. Hospitals, pharmacies and healthcare providers who have faced severe or ongoing shortages and /or allocation of life-saving chemotherapy and intravenous drugs will continue to be challenged in securing reliable supply. Reliable price control, grey market and counterfeit drugs also remain as threats to overcome in an increased environment of scrutiny and regulatory oversight, and a more empowered set of customers.
The year 2012 will be the first major test of former blockbuster drugs losing patent protection and having to compete with high volume generic drug producers. Pfizer’s highly successful cholesterol reducing drug Lipitor will lose its patent protection and the end of 2012. To hold market share, the company plans to sell Lipitor directly to patients at generic prices. Pfizer has partnered with Diplomat Specialty Pharmacy to mail the drug directly to patients via online prescription fulfillment. A dual tier pricing model would be maintained, with generic pricing for Diplomat and higher pricing for existing Lipitor channels. According to a Wall Street Journal article, if successful, the implication would be a distribution model that no major drug maker has implemented to date. Meanwhile, generic drug producers Ranbaxy Laboratories, based in India and Watson Pharmaceuticals plan to produce and distribute generic versions of Lipitor during 2012.
High Tech and Consumer Electronics
We have added High Tech / Consumer Electronics because of the residual impacts of the devastating monsoon related floods that impacted Thailand and other Southeast Asian nations in the fall of 2011. There are all indications that a significant shortage of hard disk drive components and production capacity will extend to the mid-2102, possibly to through the end of the year. The production of electronic devices such as laptops and personal computers, storage appliances and disk arrays destined for data centers or cloud computing facilities, and other consumer electronics devices that include a hard disk will all be impacted. While some large hardware and storage OEM’s will manage to buffer the impact with their buying power and supplier leverage, others may fall short. Readers should not be surprised to hear of well-known brand names impacted by disruption and turmoil during the year. Prices, both component and finished goods related, will also spike in 2012.
A fourth wildcard industry mention for 2012 is the Aerospace industry. A huge backlog of customer orders has caused major OEM’s Airbus and Boeing, along with key component suppliers, to have to aggressively ramp-up planned production output levels. Boeing itself has a $332 billion order book and has plans to ramp existing production over 30 percent in the coming three years. Its 787 Dreamliner program is three years plus behind schedule, and must ramp-up a second final assembly facility in South Carolina. Airbus, as of October, reported a current backlog representing more than seven years of production output. Aircraft engine maker Rolls Royce will be opening its first external production facility in Singapore. Any further major industry glitches, or negative consequences from the Eurozone financial crisis could cause this industry to also be challenged by disruption and turmoil in 2012.
This concludes Part Four of our Supply Chain Matters 2012 Predictions. In Part Five, we will explore our Prediction Five, where the supply chain control concepts will come to the forefront, and Prediction Six, the increased adoption of cloud computing and managed services adoption in 2012.
In the meantime, readers are encouraged to share observations and added predictions from your industry and functional lenses.
© 2011 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters, All rights reserved.