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First Thoughts
  By Dan Gilmore - Editor-in-Chief  
     
   
  October 22, 2009  
     
 

Supply Chain 2015

 
 

As some of you may remember, earlier this year I told SCDigest readers that I had signed up to do a presentation in the fall on “The Future of Supply Chain,” and at the time offered a few preliminary thoughts and asked for some help.

 

Didn’t get a whole lot of help, it turns out, and of course I spent the next couple of months doing precisely nothing until it started to get towards the end of summer, when I at last started to get busy on this.

 

I have now delivered my “Supply Chain 2015” presentation twice, once at the Materials Handling and Logistics Conference in Park City, UT, and more recently at the Georgia Tech Supply Chain Executive Forum in Atlanta. Feedback from what I can tell has been pretty good. I am delivering the presentation again in Chicago the first week of November.

 

I will repeat what I said in the first column, and that is that you cannot predict the supply chain of the future independent from your predictions about the world of the future. Will oil be at $50 per barrel or $250 by 2015? Your future supply chain will look at lot different depending on the ultimate answer to that question.

Gilmore Says:

You cannot predict the supply chain of the future independent from your predictions about the world of the future.


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Reader Feedback


Ditto with global trade policies. Will “globalization” continue unabated, or will nascent protectionism and nationalism in some areas of the world gain momentum? Will a “carbon tariff” on imported goods radically change the offshoring equation?

 

I do not think enough companies really look at many of these key issues, and do scenario planning based on the different possibilities. You can’t change the world, but you can see how current supply chain strategies and networks might play out under different scenarios, evaluate the return from building more flexible supply chains, and develop plans in advance for how the supply chain should react depending on how things actually play out.

 

Another example: in my presentation, I took a simple look at what would happen if sales growth at Walmart’s US stores compounded at an annual of 6% through 2015 (it grew 6.8% in 2008, and Walmart clearly has some of its mojo back). I won’t go through the data here, but let’s just say that the cumulative growth over that period would be huge – and has to come out of someone’s else’s market share – maybe a lot of someone else’s. Will that happen? How will your supply chain change if it does? These are the questions.

 

As I also said earlier in the year, the first temptation is simply to predict a supply chain world that is more automated, integrated and collaborative. That’s how I started out, actually, but in the end, what does that really tell us? Clearly, this is the general direction, and I suspect will always be so. But I am not so sure that helps us out very much.

 

So, I forced myself to get more granular – to name 10 fairly specific things that are likely to occur by 2015. My filter was some combination of “most likely” and “most important,” though largely subjective in that regard.

 

With that, in very summary fashion, are the top 10:

  • A majority of companies will have reconfigured their supply chain networks: Many companies have supply chain networks developed for a different era. Fuel prices, green SCM concerns, virtualization and more will lead many to fundamentally rethink those networks over the next few years.
  • Supply chain planning and execution will start to blur: A topic we covered in detail in a major report, the need for response based on market demand and other factors is outstripping current planning cycles. Tactical and even some operational planning become completely intertwined with execution, causing changes in organizational structures, processes and technology. 
  • We see substantial drops in overall inventory levels: Inventory levels have remained flat for many years now. But the lessons of this recession - that maybe we can get by with less combined with supply chain simplification programs and new technology - really will drive step change drops in inventory levels by 2015.
  • Web-based supply chain software comes to dominate the landscape: I haven’t completely been on this bandwagon until recently, but by 2015, this is how it is going to be – which has many major implications.  More confident of this than about any other prediction on the list. Once this becomes the lead approach for almost all vendors, the shift will happen rapidly.
  • Green drives transportation collaboration: The logic of transportation collaboration and the financial benefits haven’t done it. The capacity crunch of 2005-06 almost did, but then that went away. Green will finally do the trick, and we will see much more cross company load-linking and even sharing of capacity between competitors. But does this commoditize logistics?
  • Visibility to everything, all the time: The technology is really here now to have it, and despite RFID’s current lack of direction, it will become very commonplace by 2015. Understanding what to do with this information is the real challenge. 
  • Common deployment of real-time performance management: Scorecards are rear-view looking; dashboards help you make decisions right now. A few companies have already developed these kinds of capabilities; they will be widely deployed by 2015.
  • Distribution centers will take one of two paths: Lean and un-automated (and very flexible), or automated to a level hard to imagine today. Again, something else we have written about in the past; see new Automated Case Picking (ACP) Report for more details. The robots are coming.
  • Supply chains focus turns to emerging markets: This is simply where the growth will be – perhaps explosively so. This will impact product design, pricing, logistics and much more. Those that get it right will have huge corporate advantage – as companies like Procter & Gamble smartly focus on “micro-logistics.”
  • Digitization increases impact on the physical supply chain: A tsunami wave of digitization is happening, dramatically impacting physical supply chains, often in not obvious ways. We all know that itunes is putting CD makers out of business, but that filters down to record stores and even producers of the plastic resins used to make CDs. Think the future is bright for watch and mid-level camera makers when you will have both in your cell phone? I have many more examples. Look forward on how your company – and your career – might be impacted by digitization.

That’s my list. It was fun, and as I have experienced, gets people thinking. Would welcome your comments, as always.

 

What do you think of Gilmore’s Supply Chain 2015 predictions? What would you add, subtract or change? Let us know your thoughts at the Feedback button below.

 
 
     
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Feedback
2009-10-28

Hello Dan,
 
It was a great article and good reading of different major possibilities to follow through.
 
One major comment I have is about the basic focus of this article. It seems to focus exclusively on execution and ‘mechanical’ part of supply chain. Apart from your bullet # 9 – Supply Chain to focus on emerging markets – there is hardly any expectation about demand side of the supply chain. I know there are several bullets about visibility of demand and tracking materials on shelf or any other part of supply chain. But the basic nature (and location) of demand does not seem to get enough attention.
 
I want to highlight one of the most basic drivers of supply chain. Anyone else likes it or not, USA remains the biggest market in the world. Every one of supply chain players in all markets aims to prove their goods and footprint in American market.
 
As it stands this market is in dire straits. Demand is down – mainly because of economy and lower number of buyers. One of  the most important drivers of American economy has always been the manufacturing sector there. Indirectly it meant that this sector would support a large number of blue collar and other value add workers. It has been fitting very well with profile of American people – hard working, honest and straightforward. It also meant a certain level of education and skills that allowed a good standardization and scale based optimization.
 
In last 20 years of so this capability and sector has been deliberately undermined. The short term vision of business leaders have cut costs to show profits for next quarter. But in the end it has meant that large number of actual and potential customers do not have enough money to buy these set of products – which all of us struggle to get in the market. If there are no buyers, once again the business leaders will try to lure them through lower prices – meaning a lower cost from initial raw materials to all stages of supply chain. This promotes a vicious circle of lower cost through entire economy. Earlier the world would catch pneumonia if America sneezed. Today it appears that entire American economy is spasmodic. It goes repeatedly through spasms of ill and slightly better health.
 
It is high time American business leaders and people recognize that they have to contribute to improving their own market and people there.
 
The other part – bullet # 9 I mentioned above.  Yes emerging markets will drive demand. But to meet that market manufacturing jobs will not be located in US. China is already a closed market. There was a good article in “The Economist” on 15th October 09. This was about ‘Impenetrable’ Chinese market. 
 
The other emerging market – India – has its own set of opportunities. But companies like GE and Ford have come out with specific strategies to design and manufacture products in India. This will help them to take advantage of lower cost skills and emerging productivity. They plan to manufacture in India and then supply to the world. Once again, jobs for these volumes or markets will not come to USA. Then chances of real recovery will really be remote.
 
It is high time American business leaders, society and government pay attention to this supply chain of different sort and look for a long term solution to woes in American market. I believe that will be the real CSR (Corporate Social Responsibility) that American Business shows.
 
As an Indian – both a citizen and professional with worldwide working exposure I wish we take these details in a global view so all of us can prosper in this multi polar world
 
Thanks and Regards,
 
 
Shashank Tilak
CEO
Vainateya Software Consultancy Pvt Ltd


Note from Editor:

Thanks for the feedback - they are great thoughts.
 
I will just say that I think a lot of what you said here related to my points at the top - that the supply chain of the future depends on the world of the future. I did not try to forecast that. I think you are more speaking of the business climate and other macro type factors that I agree are critical - but was outside the scope of what I was trying to accomplish.
 
But good thoughts, as I say.
 
Dan Gilmore
 

2009-10-23

Great article, Dan. 

I liked your identification of the drivers, and wished that there had been more prediction of what the consequences would be.  For example, how will companies reconfigure their supply chain?  In this particular case I think we only have to look at Apple and Cisco to see some direction.  Both of them outsource virtually all their production. And of course Apple, as you state in your article, is at the forefront of the “digitization” of the supply chain.

What really fascinates me is the rise of the brand owners in China and India.  I saw an article today in McKinsey Quarterly that China’s economy grew 8.9% in Q3 this year.  Even in the boom period before 2000, growth rates in the US fell short of this number.  Of course this is even more startling when comparing the growth rate in China over a similar period.

I think we are missing the effect this will have on the Western brand owners such as Apple.  It might seem counter-intuitive given Apple’s record quarter and I have no idea of the product strategy, but I wonder how much they are designing products for the Western world and how much they are assuming the Eastern consumer needs are the same. 

As you correctly point out there will be huge impacts on “product design, pricing, logistics and much more.” I am fascinated by the growth of Eastern brand owners such as Acer, Lenovo, and Huawei.  We have weathered the storm of the Japanese companies in the 1980’s – Sony, Toshiba, Toyota, Matsushita, ... – but those were different economic times when those companies were designing products for a western market. 

I am not yet convinced that Western brand owners are paying sufficient attention to the needs of Eastern markets.  These have been very Western focussed, but I suspect as the pride in their countries economic performance grows, so will their confidence and demand for products to meet their specific needs. 

We have a number of customers who are the forefront of the blurring of operational supply chain planning and execution.  Of the 10 things you identify, I think this is a consequence of many of the others. And you are correct, this blurring is reaching up into tactical planning too with more and more companies running S&OP on an as-needed basis.

The factors you identify, specifically reduced inventory levels and pervasive visibility, are driving this blurring.  We all know that inventory has been used as a buffer between the demand and supply chains.  Reduced inventory levels require a much more agile supply chain that is very responsive to change.  And of course the supply chains need to be reconfigured to be more responsive. 

Dashboards are of course a necessary precursor to understanding whether or not one is on-track to meet future objectives and any deviations need to be addressed before they become “actuals” and appear in a scorecard.

Once again, thanks you for a great article.

Trevor Miles
Industry & Application Marketing
Kinaxis

 


2009-10-23

Thanks for an interesting and insightful article. I agree with almost all of your points. Companies need to be pro-active and demand these features from supply chain solution providers now, not in a few years.

Flexibility is particularly critical, as recent economic events have shown. Companies would do well to look at solutions that embrace their current technology so they can use them today, while providing the advanced features you mention, and that are flexible enough to respond to process and technological changes that lie ahead.

Keep up the great work.

Nigel M. Duckworth
Design Strategist
One Network Enterprises


2009-10-22
Interesting predictions.  I agree with your point that most companies do not do the contingency planning around future possibilities.  

Developing supply chain capabilities around a bandwidth of requirements could take several years
(especially if IT investment is needed) and most companies don`t want to invest in possibilities - 
the result is they react inefficiently and lose competitive advantage.

2015 will be here quicker than you think.

Robert Nardone
Supply Chain Guidance LLC

2009-10-22

Decisions will be made using a optimizing software that considers as many variables as the user wants to include – inventory, lead time, cost, risk factor, etc – and will suggest an answer based on what the user wants optimized – cost, lead time, safety etc. It will be iterative so the user can go through several iterations

Prof Blair Williams
NYU - CSCP




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