More Supply Chain Predictions for 2012, Part 2
January 06, 2012
In part 1 of this two-part series, I discussed some predictions that have been made about the manufacturing sector. In this post, I’ll look at predictions made by Adrian Gonzalez and Steve Banker, analysts with ARC Advisory Group and Adelante SCM Corporation, and authors of the blog Logistics Viewpoints. In a previous post [Supply Chain 2012: What Lies Ahead?], I discussed some predictions made by analysts Bob Ferrari, Managing Director of The Ferrari Research and Consulting Group LLC, and Lora Cecere, a partner with Altimeter Group. Rather than make combined predictions, Gonzalez and Banker made separate predictions but included them in the same posting [“Supply Chain and Logistics Predictions for 2012,” Logistics Viewpoints, 14 December 2011] The post began with Gonzalez’ predictions. He notes, “Several of my predictions for 2012 are updates or refinements of predictions I made last year. Just like playing the lottery, if you don’t hit the jackpot the first time, why not try again?”
“1. Companies will continue to adopt social media tools in supply chain and logistics processes. … Many supply chain executives (and their companies) are still in the ‘crawl’ phase when it comes to using social media tools to communicate and collaborate with colleagues and partners, and there are still plenty of skeptics around. But several factors will continue to drive greater adoption, including enterprise and supply chain software vendors embedding social media capabilities in their solutions (see Manhattan Associates and Oracle), young professionals proving the value of these tools to upper management, and executives ‘thinking beyond Facebook.'”
Social media is more important for some industrial sectors than others; but, in the era of Big Data, all sectors are going to find themselves involved with social media in one way or another. Social media provides access to too much significant data for companies to ignore it.
“2. Supply Chain Risk Management becomes a higher priority for companies. The Japan earthquake [in March 2011] brought this topic to the forefront again … and I’m betting it will stay there next year and beyond. … Natural disasters are an ever-present threat and their impact on supply chains can be very costly. … But I believe the biggest risk companies will face next year, which will impact supply chain networks and sourcing decisions, is currency exchange rates. Just last week, for example, in a Wall Street Journal article, Toyota’s president Aiko Toyoda said the following in response to the yen’s record highs against the US dollar: ‘It doesn’t make sense at the current yen rate [to export compact cars], so that is why we might take various steps such as shifting [production] overseas, using different suppliers and increasing local procurement.’ Boeing and Sharp are also adjusting their supply chain networks in response to supply and currency risks. … Will 2012 be the year when a major cyber attack brings down supply chains? … In short, as I’ve said before, risk is supply chain’s middle name. Companies that manage supply chain risks effectively will outperform those that ignore or are blindsided by them.”
I couldn’t agree more. Steve Hall, senior staff writer at Procurement Leaders, called 2011 “The year risk management grew up.” This coming year will likely see a greater maturation of risk management practices.
“3. Traditional enterprise and supply chain software vendors will accelerate their investments in cloud computing and software-as-a-service. … These vendors will also increase their investments in B2B connectivity. … In the meantime, established SaaS vendors–particularly those in the transportation management systems (TMS) and global trade management (GTM) markets – will continue to leverage their established networks, and the information flowing through them, to enable new forms of collaborative business processes and business intelligence.”
Gonzalez joins a chorus of analysts who predict that cloud-based computing and SaaS offerings will continue to grow. To learn more about GTM, see my post entitled Global Trade Management.
“4. Transportation will remain under a cloud of uncertainty. What will happen to transportation costs and capacity next year? Your guess is as good as mine. … What about fuel prices? They’ll continue to fluctuate in response to economic conditions and what happens on the supply side, particularly in Libya and the Middle East.”
To demonstrate how difficult it is to make predictions, as part of the above prediction, Gonzalez stated that Hours of Service (HOS) rules for truckers probably wouldn’t change. That prediction was made on 14 December and they did change a week later. See my post entitled Trucking Outlook for 2012.
“5. When it comes to collaboration, more companies will start to ‘walk the talk.’ … Simply put, companies have always known that they’ve been leaving money on the table by not collaborating more effectively with suppliers, customers, or even industry peers–from sharing more timely and meaningful information with each other to sharing assets and resources like trucks and warehouses. The main stumbling block, to put it simply, is that every company wants the benefits of collaboration, but none of the risks, costs, and (in some cases) assets involved. Over the past two years, however, sparked to action by the economic downturn, companies are revisiting collaboration and looking for ways to get around that stumbling block.”
Collaboration requires sharing information securely and that requires trust — in both collaborating partners and the technology used to share proprietary and sensitive information. Gonzalez is correct that by note collaborating companies are probably leaving money on the table. That is not something you want to anytime; but, especially not in a down economy. Gonzalez’ final prediction is about Third-Party Logistics (3PL) providers.
“6. Customer Engagement Management will become a higher priority for 3PLs. … In a nutshell, many logistics service providers, if not most, do a poor job of engaging their community of customers. For example, relatively few 3PLs have customer advisory boards (CABs) or some other mechanism to bring their customers together, either in person or virtually, to facilitate peer-to-peer learning and knowledge exchange. Generally speaking, 3PLs focus the majority of their time and resources on two things: operations (meeting customer service and cost commitments) and sales (growing the business). Savvy 3PLs are recognizing that there needs to be a third leg on that stool– customer engagement management–and they are starting to invest in creating a community (a knowledge network) that their customers would highly value and greatly miss if they were to move elsewhere.”
I suspect that Gonzalez is right that customer engagement management needs some tweaking. With more and more retailers adopting multi-channel order fulfillment strategies, logistics providers and customers need to work even more closely to meet customer expectations.
Steve Hall begins his list of predictions with a disclaimer. He writes, “The very best supply chain predictions are those that are verifiable, involve something new yet highly significant, and are relevant to the field. Unfortunately, much of what is happening in the industry is either something that cannot be easily verified or is a longer term trend versus something striking and new. Nonetheless, here are three predictions that we can grade as hit or miss this time next year”:
- The pace of transportation regulation in the US will slow down because agencies don’t want to create any controversy as we enter an election year. Deadlines have already slipped for several pending rules, and many will slip further.
Like Gonzalez, Banker predicted, “A final ruling on Hours of Service (HOS) is particularly unlikely to take effect any time soon.” Oops! For the most part, however, I agree with Banker that regulatory changes are likely to be few and far between as the election campaign heats up.
- Carrier Safety Measurement Safety data will not lead to driver shortages. We will know whether this is true when Morgan Stanley publishes its June 2012 freight transportation report. This report historically contains an index that compares increases in average driver wage and compensation rates to the Wages & Salaries of Private Industry Workers and the Consumer Price Index. I expect that truck driver’s wage increases will not exceed the average increase of wages and salaries of other industries.
Banker is the only analyst I’ve seen who doesn’t predict a shortage of drivers in the months ahead. For more on that topic, read my post on the trucking industry mentioned above.
- Actual growth of TMS and WMS markets will be lower than originally predicted. The economies in the US and Europe grew more modestly than expected. When ARC conducted its Warehouse Management and Transportation Management studies at the beginning of this year, we forecast that the WMS market would grow by close to 8 percent in 2011 and the TMS market by about 7 percent. When we update these studies again next year, I expect the actual growth rates to be lower than those projections. It’s also likely that we will lower our growth projections for 2012 and 2013 for these markets.
Banker is probably correct since the U.S. and European economies continue to struggle. That doesn’t mean that there won’t be growth. John Carver, executive vice president of port, airport and global infrastructure at Jones Lang LaSalle, believes that some changes associated with the maritime industry will have an affect on inventory and warehousing. For example, he thinks the opening of the expanded Panama Canal will alter supply chain strategies and that container ship slow steaming will become a permanent part of the supply chain. As a result, he predicts, “That suggests more inventory and more warehouse space.” [“Big Picture: Voices of the Supply Chain,” by Bob Trebilcock, Modern Materials Handling, 1 December 2011] Banker continues:
“There are a few other things I believe will happen next year but can’t quantify and therefore won’t be able to verify in a year’s time. These include:
- Supply Chain Management software vendors will make their applications easier to use for power users. This is based on (a) providing more information and capabilities on a single dashboard screen so that users don’t have to continuously navigate back and forth between several screens, and (b) providing better Business Intelligence that is more real time, contains more benchmark data, and is more sensitive to context.
Clearly, the economies of major Western countries and the multinationals headquartered there have diverged. The national economies are growing slowly, while the profits and revenues of multinationals are growing much more quickly. I believe this is one indication of a continued shift in the focus of globalization from low-cost country sourcing to developing supply chains that can support fulfilling demand in emerging nations.
“Finally, there a few emerging trends where evidence of progress is still sparse, but where if we were to check back in five years or so we would have proof that these trends are real and having an impact. These include:
- Shelf-connected supply chains based on the use of Demand Signal Repositories, advanced predictive analytics, and granular demand forecasting is still much more rhetoric than reality. Few consumer goods companies, for example, are doing daily promotional forecasts at the store level. It is clear, however, that consumer goods executives expect their supply chain software vendors to have a good story of how their applications will enable the shelf-connected supply chain.
Vested Outsourcing – i.e., moving away from traditional third party logistics contracts to more intelligently constructed outcome-based contracts – is still largely in the tire kicking stage. But enough large companies and their core 3PL partners are exploring this new relationship structure that in five years I expect we won’t be talking about this as an ’emerging’ trend any more.”
I salute Gonzalez and Banker (along with other prognosticators) for taking the risk of making predictions. Even if they prove inaccurate (like the prediction about truckers’ Hours of Service), the predictions raise important ideas and issues for us think about.