Supply Chain Megatrends, Part 1

Stephen DeAngelis

June 27, 2012

In two separate posts, Dan Gilmore, editor-in-chief of Supply Chain Digest, has listed a dozen “megatrends” that he believes will define supply chains in the years ahead. Gilmore presents six megatrends per post. In the first post, he discusses the following megatrends: Turbo Supply Chain Visibility; Perfect Logistics; Blurring of Planning and Execution; International to Global; Talent Management; and Supply Chain Finance. [“Supply Chain Megatrends 2012,” 16 March 2012] In the second post, he discusses his final six megatrends: Meaningful Collaboration; Dashboards and Real-Time Analytics; Energy and Water Optimization; Next-Generation Distribution Center Automation; Integrated Supply Chain Risk Management; and Cloud-based Supply Chain Software. [“Supply Chain Megatrends 2012 Part 2,” 31 May 2012] I think you’ll agree that’s a pretty good list of topics. In this post I’ll discuss Gilmore’s first six trends beginning with Turbo Supply Chain Visibility:

1. Turbo Supply Chain Visibility: A combination of technologies – from RFID to GPS to video – is making the level of the level of visibility we can have in our supply chains right now almost limitless. There is almost no technical barrier today to complete visibility – seeing everything, all the time, in real time, or darn close to it. Over the next five years, what this will mean is that companies need to decide at what pace they are going to roll out these turbo visibility capabilities – and more importantly, better think through what to do with this level of information. Few of us well understand this today. It will transform our supply chains.”

I appreciate Gilmore’s optimism (and I agree with his contention that “there is almost no technical barrier” to better visibility); but, achieving complete supply chain visibility nevertheless remains a daunting challenge. The complexity of today’s supply chain means that companies don’t control much of the data needed to achieve complete visibility. Supply chain experts, like Lora Cecere, believe that companies need to achieve visibility from a supplier’s supplier to a customer’s customer; but, even that level of visibility is not “complete.” There have been cases where the supplier to a supplier’s supplier has been the cause of disruptions. One thing I totally agree with Gilmore about is the fact that the freshness of analyzed data is becoming extremely important. Krishnan Venkatram, Global Head of Marketing & New Business Initiatives at Four Soft, agrees with Gilmore that the business landscape is constantly changing and business clock speed is increasing. [“Using SaaS to Integrate Visibility for Warehousing, Shipping in Manufacturing and Retailing,” SupplyChainBrain, 26 October 2011] He writes:

“The complexity in the supply chain can only be managed with a robust information system technology. … Information technology is … essential to achieve integration through information sharing across the business stakeholders. The major benefits perceived by the industry in such an implementation are access to information and quick response to address dynamic changes.”

Quick responses to dynamic changes are required to achieve Gilmore’s next megatrend — perfect logistics. He writes:

2. Perfect Logistics: This level of visibility will mean that for all practical purposes, companies will be able to achieve near perfect logistics. We are already seeing components of it today, with route deliveries being tracked in real-time, analytics off of that which identify any time a driver appears like he or she will miss the schedule appointment time even by a few minutes, re-routing drivers as conditions change, and more. Missing cartons on pallet? Soon, an absolute thing of the past. This level of near perfection will simply be what customers expect. The question will be how much it costs to get there. In a sort of odd way, it will also serve to in a sense further commoditize logistics.”

Again, Gilmore’s optimism probably doesn’t reflect reality. Perfection is difficult to achieve; especially when many of the factors that derail it are not under a single organization’s control. Better visibility will alert a company to the system’s imperfections, but it will not always provide the opportunity to correct them in real-time. One only has to look at the relatively simple task of matching passenger luggage to flights and destinations to know that supply chain perfection remains more of a vision than a reality. Gilmore next discusses the blurring of planning and execution:

3. Blurring of Planning and Execution: Visibility plus need for more rapid response to supply chain and market place dynamics will alter how companies look at the traditional supply chain hierarchy from strategic planning through tactical and operational planning and then on down through execution. While elements of this top down, sequential model that has been with us from the start will remain, near the end, operational planning and execution will start to become almost a single process, and even tactical planning will become more dynamic. Clearly, planning cannot be dependent on 30-day S&OP schedules. This will impact not only how we operate our supply chains, but have ramifications for supply chain technology and most interestingly, how our supply chains are organized.”

Gilmore is absolutely correct that having improved visibility into the supply chain is meaningless if planning and execution can’t (or won’t) take advantage of it. Lora Cecere often rails against the turf wars that keep businesses from stepping up to the next level of supply chain performance. Corporate alignment should trump siloed business operations every time. That’s why the blurring of planning and execution is an important trend that will hopefully continue.

4. International to Global: Despite the tremendous growth in globalization on both the supply and demand side in the past decade, many if not most companies are really national companies that do business (buy and sell) on an international basis. That model is rapidly evolving to full globalization, where companies are truly trans-national in their strategies, organization and leadership. Many companies, such as Siemens, IBM and Procter & Gamble, have already largely arrived here already (IBM’s head of procurement had been in Asia for a number of years, just as an example), and to succeed in the rapidly growing emerging markets will take innovative and tailored approaches to product, planning, and logistics that require a true global perspective.”

In some ways, I agree with Gilmore. But even as companies become more “global,” they are realizing that regional differences mean they have to execute locally. I suspect that even within global corporations we will see more supply chain segmentation and regionalization of production and distribution. A global perspective will still be important, but it won’t be any more important than the local perspective. Venkatram agrees with Gilmore that having a global perspective is becoming increasingly important. He writes:

“Globalization has made the world a single market place. This has resulted in demand for products worldwide, which augurs well for the business across industries. The opportunity to serve the wider market has brought along with it expectations from the customer in terms of quality of the product, on-time delivery and competitive prices. These expectations have influenced the manufacturing and retail industries in a huge manner. In an attempt to deliver high-quality products at competitive prices, businesses are sourcing raw materials from across the globe. It is no longer enough to get the best material at the best price; the same needs to be procured within time constraints.”

If a company is going to operate globally, it also needs to acquire its talent globally. In the past, manufacturers have looked overseas for cheap labor. Nowadays they are looking overseas for talented labor as well. Talent management is the next megatrend examined by Gilmore. He writes:

5. Talent Management: Companies want to maintain lean staffs (that’s an understatement), but want to outthink and outperform their competition through supply chain at the same time. In the end, that will mean the need for fewer, smarter people. Growing supply chain complexity while overall Lean practices are still the rule results in a sort of supply chain high wire act that again drives the need for talent (though clearly technology will also play a key role here). The need for better integration with the business also challenges traditional, ‘move the goods’ types of expertise. All this just means the demand for talent will in general exceed the supply for the next decade, driving more companies to develop programs that identify, develop and retain the talent they have.”

To learn more about the potential shortage of world-class supply chain personnel, read my post entitled The Importance of People in the Supply Chain. The sixth megatrend identified by Gilmore, and the last one I’ll discuss in this post, is supply chain finance. He writes:

6. Supply Chain Finance: The connection between supply chain and a company’s financial performance has been at once both well known but not so well understood. There was something of a watershed with the 2008-09 financial crisis, when companies in effect used the supply chain as a source of cash as traditional credit simply dried up. The next five years will see the field of supply chain finance continue to mature, and understanding how supply chain impacts the income statement, balance sheet, cash flow statement, and return on assets will become almost essential to reach upper level positions in supply chain.”

Lora Cecere agrees with Gilmore and insists that supply chain personnel need to be bi-lingual (i.e., able to speak the languages of both finance and logistics). To learn more about what Gilmore thinks about the topic of supply chain finance, read my post entitled Inventory and Supply Chain Finance or his Supply Chain Digest article entitled “A Little Supply Chain Finance 101.” [3 June 2011]. Tomorrow I’ll continue this discussion with a look at Gilmore’s final six trends.