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  Supply Chain Trends and Issues: Our Weekly Feature Article on Important Trends and Developments in Supply Chain Strategy, Research, Best Practices, Technology and Other Supply Chain and Logistics Issues  
 
 
  - Feb. 2, 2015 -  

Predictions from Supply Chain Gurus for 2015 - Full Text Version

Complete Predictions from Mike Regan, Gene Tyndall, George Stalk and More

 
     
     
  by SCDigest Editorial Staff  
     
 

Last week, SCDigest editor Dan Gilmore highlighted supply chain predictions for 2014 from a number of supply chain gurus. You can find that column here: Supply Chain Guru Predictions for 2015.

As promised then, we are also offering the full text comments from each of our gurus.

SCDigest Says:

As the input costs of oil and food stuffs varies dramatically the supply chain that is the fastest is the least affected by volatility and the most competitive.

 

George Stalk


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This week, here are the full text predictions from pundits Gene Tyndall, Mike Regan, George Stalk, Marc Wulfraat, David Schneider, and Chris Gopal. Good stuff.

 

Next week in Gilmore's First Thoughts column we are going to highlight a few predictions from leading supply chain analysts.

 

So let's get right to it, starting with Mike Regan.

 


Predictions on Logistics

Mike Regan, TranzAct Technologies

 

Thanks for giving me another opportunity to be part of the Gilmore supply chain prediction team for 2015.

Building upon your "Supply Chain Storm" scenario, for 2015, here are our fearsome predictions. These are issues that will directly impact freight pricing structures.


First, shippers will continue to see tight capacity:


For the past couple of years we have predicted that if annual GDP growth was at 2.5% or higher, shippers would have an increasingly difficult time sourcing capacity. Now that a strong third and fourth quarter has become a reality (with 5% GDP growth in the fourth quarter alone) we are predicting a sellers market for trucking companies in 2015. Practically speaking, the carriers are using technology and common sense and are getting much better at managing their assets and this means they can and will be more selective in working with shippers and third parties.

 

Second, tight capacity will result in higher rates in the TL and LTL sectors and force shippers to reevaluate their negotiating strategies within their core carrier network:


Savvy shippers will be focused on working with their core carrier to lock in capacity at predictable prices versus selecting the carriers with the lowest possible rates. Overall, expect carriers to be more aggressive in using their pricing power to cull, or get rid of the least profitable freight and replace it with higher yielding shipments with better margins. One other important note. With declining fuel prices, carriers will take advantage of declingin fuel surcharges and be more aggressive in seeking rate increases. For example, in fuel surcharges are 5% lower, shippers should not be surprised if the carriers look to take 3% of that 5% (or approximately 680% of the surcharge) in their rate increase. Overall look for TL rate increases of 5% to 7%.

 

Third, LTL carriers will move away from the traditional classification system as they focus on dimensional freight issues in their pricing programs:


As more LTL carriers utilize technology and "dimensionalizers" to determine how much space every shipment is taking, the National Motor freight Classification System (or "NMFC") will become less important. LTL carriers want to be compensated for the size and weight of your shipments and will therefore scrutinize FAK based rate structures to make sure that they accurately reflect the material being shipped. Add it all up and shippers could see LTL freight rates increase of 4% to 6% or more - especially for minimum charge shipments. As noted above, with the decline in fuel prices, the good news is that with lower fuel surcharges, shippers actual freight costs may increase by only 3% to 4%. If diesel prices rebound, all bets are off.

Our fourth (and final) prediction is that C-Suite executives will be paying more attention to what is happening with their transportation and freight costs.


Like it or not, for several years, C-Suite executives have viewed transportation as a "necessary evil." As long as freight costs stayed within budget, these C-Suite executives accepted the status quo. 2014, or more specifically the first and fourth quarters of 2014, changed all that. Blown budgets, missed shipments and premium freight costs caused more CEO's and Presidents to look at freight costs and ask: Why is it so difficult to find trucks? And why are we paying much higher rates for these trucks? Add it all up and transportation and logistics professionals can expect more moments in the "corporate spotlight" as these C-Suite executives look for alternatives and strategies to manage and reduce costs.


Predictions for Supply Chain Strategy

Gene Tyndall, Tompkins International

 

I am pleased again this year to offer my predictions for Supply Chains in 2015.

Just to note in passing, each of my 5 predictions for last year - four focused on the Customer and their experience ("Year of the Customer"), and 1 on Operations Strategy - have had some degree of impact during last year, especially with regard to Omni-channel Operations. Many companies have pursued new strategies for these, and are continuing to invest in new Initiatives that get them better positioned to deal with either B2C, or B2B, or in some instances, both. The Supply Chain Transformations required, however, have been challenging and time-consuming; but, it is more common this year that business leaders realize the importance. The 2014 "Year of the Customer" is far from over, and will continue throughout 2015.

For 2015, however, I will offer the positioning of other issues and initiatives that will require Supply Chain leadership and commitment. My "Big 5" for this year are as follows:

1. Let's start this year with Technology, which continues to develop and in novate faster than supply chain managers can absorb. The big prediction here is that Cloud-computing will "go mainstream." The speed to execution, lower costs, higher service levels, and preservation of capital related to Cloud-based apps is so compelling that companies will continue to take this path. While the ERP-backbones are likely to remain in place as assets, the wide variety of Cloud Apps as "bolt-ons", or "point solutions", will expand, especially for those that are for decision support. This means that supply chain managers must keep up with innovations in technologies, and make sure that the Business Processes, and People, are ready for them.

2. The most challenging Process for supply chains and companies - S&OP - will continue to be frustrating in many respects. The technical methods for demand (sales) forecasting are difficult enough; the cultural processes for getting corporate units to come together for consensus forecasts (Demand Plans) and sourcing (Supply Plans) that align, match, and make efficient the Integrated Business Plan, are true barriers. If we cannot forecast sales accurately enough, how can we balance supply and demand in any optimal manner? The addition of sales channels, the proliferation of SKU's, and the expansion of markets and customer demographics, are just too overwhelming. And, corporate cultures often work against consensus, so that agreement is hard to reach. I do not know any company that believes their S&OP Process is working optimally. The "best" at this believe their processes and disciplines are productive, and their managers collaborate effectively, but they acknowledge their results remain less than expected - either safety stocks are too high, or out-of-stocks too frequent, or customer service levels, are too low. All have serious ramifications.

3. My prediction last year for more attention on the CSCO agendas on "Operations Strategy" deserves another prediction this year. While some leading companies have made progress defining a more progressive Operations Strategy, with the Capabilities aligned tightly with business goals and objectives, the majority of supply chain leaders are not focused on building the precise capabilities that an Operations Strategy calls for. Consequently, investments are not tied directly with business value statements, are not necessarily what is needed to compete, or do not satisfy customers as well as their own cost controls. Network Designs, without being driven by the right Strategies, end up as cost optimizers, and not profitable growth machines. The new supply chain thinking remains as talking points and not business value creators.

4. Risk Management will take on even more importance in 2015. While this has been a prediction earlier, it continues as a major issue and has intensified in 2014, due to Labor Actions at Ports, weather emergencies, socio-political events and terrorist threats, and the increasing complexity and volatility of global supply chains - including sourcing expansions into risky geographies. Sourcing finished goods is one thing, but sourcing materials and components often requires unusual supplier agreements that have imbedded risks. The trends toward "nearshoring" have had some beneficial risk mitigation; however, the vast majority of sourcing remains global and requires high levels of monitoring and mitigation strategies.

 

Thus, I see more attention centered on end-to-end supply chain visibility, coupled with new Risk mitigation analyses and strategies on executive agendas in 2015. The true end-to-end supply chains start with suppliers' suppliers and end with customers' customers. Risk Management requires more than "where are my shipments, when will we receive them, and what if we do not?".

5. Last, but far from least, is the issue of cross-channel order fulfillment. Last year I predicted that 2014 would be the year of "customer personalization", as e-Commerce would continue to expand in all industries. While that did receive significant attention by supply chain leaders, the growth in B2C and B2B continues and is focusing unprecedented pressure on supply chains to keep up. The term "onmichannel" is giving away to "cross-channel", because all businesses - not just Retailers - are dealing with Internet orders and fulfillment. Whereas it gets less publicity, B2B is larger than B2C, and involves every business, regardless of industry segment. My prediction is that each business will keep this issue on its executive agenda, and we will see new Distribution Networks, new customer strategies, and new product flows in order to satisfy the need for cross-channel fulfillment operations.

I hope these "top 5" predictions for Supply Chain Management help leaders prepare for and respond better in 2015. As we pointed out last year, unless leaders anticipate the needs and plan for them, "fighting fires" becomes the norm. This situation invariably impacts customers negatively and will quite possibly destroy value in the company.


Predictions for Supply Chain Trends

George Stalk, Boston Consulting Group

 

The supply chain has always been a key but often underappreciated element of a company's strategy. Today, very often the supply chain is critical to the success of the company. The rise of its importance is being driven by several powerful and evolving business environmental trends.

The emergence of the "two speed world" requires innovations in supply chains. The explosive growth of the middle class and the rise of new, large cities in developing economies place new demands on supply chains. For example, China has 90 cities with middle class populations of more than 250,000. By 2020 this number will grow to more than 280 cities - each needing to be supplied. New supply chains must be built to serve slower growing, developed economies and fast growing ones.

Increasing congestion is changing everything we think we know about supply chains. Congestion is dramatically affecting the economics of competition. Congestion slows down the flow of goods through the supply chain. Congestion increases the variability of supply chain performance. Congestion can drive over and under stocks. Congestion is rendering the "footprints" of the supply chains of many firms obsolete. After almost two decades of the migration of low cost manufacturing from North America to Asia manufacturers are returning. The costs of extended supply chains, particularly indirect costs that are being driven by the effects of congestion, are making local sourcing increasingly attractive

Increasing volatility is adding a new and very important dimension to supply chain management. The volatility of everything is increasing placing new demands on supply chain executives. As the input costs of oil and food stuffs varies dramatically the supply chain that is the fastest is the least affected by volatility and the most competitive.

Deep collaboration is today's supply organization opportunity for greater effectiveness and efficiency. But executives need to go far beyond the buzz words to realize material gains.

Collaboration for most executives means closer interactions of their supply chains with those of their suppliers and customers. For a few leading edge companies, deep collaboration can be seen to mean establishing close interactions throughout your relevant supply chains - at least those of your suppliers' suppliers and your customers' customers. For some companies with global supply chains such as Canadian Tire the interactions are global.

Deep collaboration results in faster supply chains that are less affected by congestion and volatility resulting in lower overall cost (high double digit percentage reductions).

The emergence of the "two speed world", increasing congestion, and increasing volatility are problems and challenges for all companies. If you and your competitors respond in similar ways including not responding at all there are no competitive risks to you. However, if one chooses to respond including pursuing deep collaboration and the others do not significant competitive advantages are possible. If you choose to respond you must change your business model of today. You must make your supply chain competitively and strategically advantaged or a competitor will do it for you.


(Supply Chain Trends and Issues Article - Continued Below)


 

 
 
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Comments on Macro Trends Impacting the Supply Chain

Mark Wulfraat, President, MWPVL International

 

 

In past years, my predictions have been focused on changes taking place within the retail market and new advances in material handling equipment and automation technology. For 2015, my prediction is focused on the topic of human resources and the issues which we will be facing in the not too distant future.

There are three fundamental forces that are currently at play which have the potential to create new market forces that will place tremendous pressure on companies that require a large supply of low cost blue collar labor to support their logistics operations.

1. Changing population demographics: This dynamic is longer term but it is already beginning to create challenges for companies that need to replace retiring workers. The trucking industry is currently the most impacted by a shortage of workers, particularly in the long haul shipping sector as less people are willing to be away from home for days at a time. There are now reports surfacing from the warehousing industry of shortages in the market for available and qualified warehouse labor resources, particularly for night shift and weekend work. In 2015, the U.S. age dependency ratio (ADR) will be 52.5% which means that the percentage of people that are younger than 15 and older than 64 represent 52.5% of the population.

 

This population is theoretically supported by the taxes paid by the 47.5% of the population aged between 15 and 64. A good ADR is low because there are more workers than dependent people. In 15 years-time, the ADR ratio in the United States is expected to increase to 62.8%. This means that 37 people out of 100 will be working and paying taxes to support the 63 who are not working. The bottom line is that there will be far fewer people available to do the work and when there is a high demand and low supply there is typically one consistent outcome and that is a significant increase in the cost of labor resources.

2. Abusive labor practices are nothing new but in the last several decades it seems as though we have gone full circle on this topic: Concurrent with an overall reduction in the percentage of private industry workers that are unionized, a number of large global enterprises have implement labor practices that are not only controversial, but also a major source of conflict within different markets. For example, the practice of hiring temporary employees from staffing agencies is commonplace for most retailers and distributors as a way to handle seasonal peaks or to provide an evaluation period before transitioning a temporary associate into a full-time employee.

For most firms, temporary employees represent a relatively small percentage of their overall labor force. However in recent years, it has become more prevalent for some companies to hire the vast majority of their blue collar labor force as temporary workers through staffing agencies, not only in the United States but also in other markets such as in Europe. The purpose is clearly to establish an arm's length relationship between the firm and its employees which makes it is easy to quickly eliminate people that are either under-performing or attempting to organize the labor force. In some cases, companies are hiring 3PLs who then hire workers through staffing agencies such that the relationship between the firm and its employees is twice-removed.

 

There are instances in Europe where people are consistently being released on the anniversary of their third month of employment and then hired back again a short while later only to be re-released three months later. This strategy is to avoid the payment of fringe benefits that must be paid after 3 months of service. All in all, these types of labor strategies are unhealthy for all of us because they are already attracting media attention and you can be sure that the policy makers will looking at this issue in the near future. Ultimately I predict that tougher rules will be implemented and that these rules will negatively impact all of us because a few companies have systematized the strategy of abusive labor practices.

3. Consumer technology proliferation: The days when white collar and blue collar workers were separated by differences in technological savvy are over. Many people who work on the front lines of logistics are comfortable with technology, either because they use advanced computing systems at work or because they own a computer or mobile device at home. This trend is only going to continue and the implication is that fewer and fewer young people entering the workforce will be interested in jobs that require hard work in a noisy and uncomfortable environment. In the past, people were restricted in their career options if they lacked education, but this is changing as younger people embrace consumer technology. In the years ahead, more people will be seeking comfortable office jobs rather than "working in the back" and this will further accelerate the shortage of available labor resources to get the job done on the front-line.

These three forces combined will cause heartburn for companies that are dependent on a pool of low cost blue collar labor resources to support their logistics operations. As demand for labor resources begins to outpace supply, new market forces will emerge which could very well result in an increase in the percentage of workers that are unionized concurrent with a faster rate of wage rate inflation than we have seen over the past three decades. I believe that we are already at the cusp of this curve and I predict that companies will respond by investing in automation to reduce their reliance on human labor. On a larger scale, countries will need to support the growth of industry to remain competitive. This will be achieved through accelerated levels of immigration to provide for the market's demand for labor resources.



Predictions Focused on Energy-Related Issues

David Schneider, David K. Schneider & Associates

 

Here is some of my thinking on the question, focusing on Energy Related Issues.

With the drop of oil prices energy sector supply chain infrastructures have a chance to catch up in 2015. Investors funding the purchase of crude by rail (CBR) trains and transfer terminals may delay uncommitted investments for 2016, but committed funds will play out in 2015. That will drive the stock prices of these companies lowers, and private money may turn elsewhere. Other pipelines coming on line in 2015 will make the Keystone irrelevant for oil from Canada. However, if the Keystone extends its run from Kansas to the Bakken, it too could influence CBR investments.

Lower fuel costs will impact the adaptation of computer-based route planning. Fuel cost reductions are the main driver most operators to look justify routing software. Fleets will still invest in fuel-efficient engines and aerodynamic packages because these are low investment cost with a known and acceptable return.

Natural gas is a motor fuel is much less attractive as the price of oil drops. Oil prices had to be above $100 per barrel to justify the cost of a fleet implementation. CNG refueling of large captive fleet operations include a substantial infrastructure investment for the fueling systems on top of the engines and service infrastructure. Expect the market for LNG fuel tanks and engines to shrink substantially, as well as a stop of LNG fueling network expansion.

Out on the West Coast, California Title 24 will change the investment cost of a new or retrofit warehouse. Title 24 addresses energy conservation, specifically targeting lighting and climate control. Regulation changes in late 2013 are now being felt by developers and owners of existing buildings. Significant changes in the building, including tenant improvements and material storage systems (think of the racks and shelving) now must comply with the same rules as new buildings. Requirements like daylight harvesting coupled with occupancy sensors drive up the cost of T5 lighting solutions. LED lighting for warehouses now become cost justified when you consider the expense of the light sensors and control systems.

For the supply chain manager, 2015 provides an opportunity to reallocate the windfall savings of lower oil prices. Wise managers understand market cycles, and those same managers will harvest some of their windfall to invest in conservation programs that make sense. Truck fleets should continue to invest in equipment that trims fuel expense. Some managers should look at the opportunities to get key infrastructure in place if they are considering and energy plan. There is a lead time for getting a larger natural gas distribution line installed for industrial application. Managers considering electrical cogeneration or fleet conversion to compressed natural gas should look to scheduling the installation of gas supply lines in 2015. Thereby, when the price of oil rises again, the operator is in a prime position to make the conversion, and harvest a greater return.

Warehouse operators will still face energy cost challenges, as electrical costs will increase. Coal fired operations that don't meet the new regulations will close. The others that do make the upgrades will pass the costs along in the price per kilowatt. Localized natural gas plants may help ease the pressure on the distribution network infrastructure, but the capital needed to improve the transmission network infrastructure may prove to drive up the prices charged for peak load. Smart cold storage warehouse managers are going to look for ways to trim away at electrical costs.


Predictions on Key Supply Chain Trends

Dr. Chris Gopal, Drucker School at Claremont

 

Key trends that are driving Global Supply Chain Initiatives (not in any particular order of importance):

The first three are from the realization that the Supply Chain drives Customer Retention, Acquisition, the Net Promoter Score and the Brand image.

1. Ease of Doing Business: Initiatives to make it easier for the customer to do business - along the entire Customer Experience Life Cycle from deiciding on a product or supplier through ordering, configuration, pricing, payments, service and returns. An important part of this is the omni-channel fulfillment and "last mile" fulfillment necessary for Ease of Doing Business, Customer Convenience and Costs.

2. Focus on Brand Equity: Corporate Social Responsibility and Good Corporate Citizenship: Initiatives on increasing and maintaining Brand Equity and Promise. Aside from aspects such as quality and delivery, the intangibles such as good Corporate Citizenship (locating and operating in the communities where sales are made), Corporate Social Responsibility (compliance and adherence to a variety of standards and regulations - environmental, labor and corruption) are now being explicitly targeted as key initiatives

3. Customer Groupings (Segmentation) and Differentiated Service Offerings: The realization that customers today are connected, demand increasing services and personalization is driving the groupings of customers by requirements and geography so that differentiated and separate service offerings can be provided, A key element here is Costs-to-Servea and Profit by customer grouping.

4. S&OP Redux - SIOCP!: Almost a "back to the basics" - a focus on S&OP with new parameters - Inventory, Customer Service - driven by "what-if" analytics to arrive at a robust S&OP plan. Equally important is the integration of Planning with Execution for quick response.

5. Segmentation of Supply Chains: This ranges from "micro-segmentation" to product-demand based segmentation. What's important to note here is that this is a supply side segmentation which focuses on the product and demand patterns, and typically goes from supplier to fulfillment center. In some cases, where direct delivery is the preferred mode, then it extends to the customer. The driving factors here are Simplicity, Ease of Planning, Increased focus, and the sharing of facilities and cost overhead.

6. Talent Management and "Upskilling: It is being recognized that this is one of the most serious and pressing needs - it is more than just "how do you more efficiently run a warehouse." It includes talent management programs, awareness of the Shareholder Value, P&L, Balance Sheet impacts of the Supply Chain, improving functional operations, impacts on other aspects of the business and vice versa, and managing in a global, complex world.

7. Near-Shoring: This appears to be gaining steam, driven by a combination of risk in the supply base, good corporate citizenship and the need to respond quickly to customer needs/changes. The needs for increased control and quality, coupled with increased automation options are also playing a role here.

8. Risk Mitigation: This is now a BOD-level agenda item, and includes a variety of risk factors from supply, geo-political, cost changes, and the lack of control and diminishing internal capabilities from long-distance outsourcing. A further aspect of risk is documentation and adherence in Global Trade. This involves identifying risk elements, likelihoods, impacts, times and cost to recovery, develop early alerts, and incorporating risk mitigation strategies and contingencies into global supply chain strategies and structures.

To assess, see if it's really feasible and what the value will be:

1. Co-Sharing of facilities and shipment capacity, including spot cost and convenience aspects such as"Uber Cargo-type" operations.

2. Re-evaluation of SCM IT Outsourcing in terms of lack of control, elimination of in-house capabilities, response, changes and true costs.

 


 

Hope you enjoyed this year's guru predictions.

 

Any reaction to any of these 2015 predictions? Let us know your thoughts at the Feedback section (email) or button below.


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Recent Feedback

I am happy to see predictions again for supply chain management.  This may be a sign that the economical crisis is over. Dr Chris Gopal's predictions are more of a strong signal of what we are facing here and there in the field.


Paul John
MD
ICognitive Pte Ltd
Feb, 07 2015
a .