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Predictions from Supply Chain Gurus for 2012

Ok, it's time once again for our annual supply chain prognostications from a variety of gurus, pundits and seers of all kinds.

It is always one of our most popular columns of the year, and as usual we'll do it in two parts.

In this week's column I am going to highlight predictions for the coming year in supply chain from the analysts at Gartner. plus a couple of other pundits who offered more general predictions published on their own sites in recent weeks. Next week, we'll have predictions from IDC Manufacturing Insights and some friends of SCDigest, who are sending their exclusive predictions to me, after I have begged and pleaded with them so that someone else in a sense will write the column for me.

The analysts at Gartner (who most know acquired the former AMR Research a couple of years ago) again this year actually put out two sets of "predicts": one for overall supply chain, and one for global logistics. And again as usual, the Gartner predictions actually extend out of the next several years, not just 2012.

The supply chain predictions, developed by analysts Noha Tohamy, Mickey North Rizza, and Michael Dominy. offer a number of interesting perspectives, a few of which we will highlight here.

It starts by noting that supply chain executives had a tough time of it in 2011, dealing with volatile market dynamics, a shortage of talent and natural disasters, among other challenges. Hard to not concur with that view.

Among the predictions from the group I find most interesting:

Like others, Gartner is projecting a movement of manufactured goods overseas back nearer to US soil, if not within the country itself. It projects that "By 2014, 20% of Asia-sourced finished goods and assemblies consumed in the US will shift to the Americas," which of course can mean Mexico, Honduras, Costa Rico and other nearby sourcing locations.

The drivers? First,they says that many companies initially underestimated the true total costs of long supply chains offshored to Asia, miscalculating inventory costs, greater issues with product quality, lost sales or discounted prices due to long lead times, IP theft, and more.

They also note that some of those issues may soon be exacerbated in some countries (meaning China) as more and more production will be consumed in Asian markets, not Western ones.

"Customer demand for service excellence and increased product choice at competitive prices is driving brand owners to reassess the value delivered by their supply networks," the analysts say. "Sacrificing lead time for reduced unit cost will be insufficient to satisfy this customer requirement."

For certain segments of the supply chain, a "nearshore" strategy will make a lot more sense, they believe.

We're very big at SCDigest on the growing use and potential of "advanced analytics" in the supply chain (and frankly across the enterprise), and so is Gartner, which predicts that "By 2016, 50% of Gartner's Top 25 will rely on predictive analytics to further exploit low-latency network-based data" (mean real-time or near-real time information).

I am not sure why this prediction needs to be targeted specifically to Gartner's annual top 25 list, other than maybe to emphasize it will be the largest and most advanced supply chains that adopt this technology first. But regardless, what does this prediction really mean?

Gartner says that "After billions of dollars spent on ERP, many companies still lack the timely, accurate and network-based data that can guide fact-based, timely supply chain decisions." It also notes that companies are collecting in one way or another vast amounts of information, much if not most of which is not being used effectively for improved decision making. "Big data" is the term associated with the opportunity to better mine this information and extract more value out of it, to the great delight of data warehouse. analytics, and storage vendors.

Gartner says that a more "predictive" analytics software class will emerge - something I will note we have been saying for some time. That means analytics that aren't built to help you understand what happened last week. last month or last year (e.g., scorecards), but rather what is likely to happen next week or month. While there has always been some of that, new approaches to analytic technology and greater computing horsepower are taking the capabilities here to a whole new level.

Gartner, however, smartly notes that "To take advantage of these patterns, companies will [need to] enable an organizational culture that can quickly analyze and adapt to shifts in the supply. This will highlight the need for new planning talent that relies more on data and predictive analytics, and less on intuition."

On the global logistics side, my friends Dwight Klappich, Greg Aimi and a host of others think there are a number of trends that they say "could radically impact global logistics organizations over the next five years."

One of those trends is that "slower global trade growth will force shippers to adjust from proliferation to optimization of international flows."

Interestingly. Gartner predicts that after the substantial rise of global trade over the past two decades, global trade as a percentage of global GDP will continue trending downward. As the growth in global trade slows, companies will have more time and resources to truly optimize those flows and practices, versus the somewhat helter-skelter approach many companies are sort of forced into today, in the mad dash to get more global. That will lead to greater attention to leveraging economies of scale (think this is right on) and better balancing cost, service and risk.

Gartner also says that a growing percentage of companies will rethink their supply chain execution software portfolios, and adopt cross functional SCE platforms that support true integrated, end-to-end business processes. That has long been the goal, but one which has not yet been really delivered by ERP or best-of-breed vendors.

It says that is changing, and that it calls this trend "supply chain execution convergence," in which SCM organizations adopt an SCE application platform that allows them "to model, orchestrate and synchronize end-to-end logistics processes." Some vendors, it says, are already clearly on this path - more on this topic soon from SCDigest.

Now running short on space, I always like to look at the predictions of Bob Ferrari on his Supply Chain Matters blog. This year, Bob as always offers a number of predictions for the new year.

A few I liked especially well were these, starting with another prediction related to supply chain analytics. "The concept for "supply chain control tower" coupled with more leveraged use of predictive analytics will come to the forefront, but in 2012 there will be a need for vendors and consultants to focus on market education and early adoption support," Ferrari says. The control tower concept means a lot of different things to different vendors and users, if they know it at all, so I certainly agree with the education part of this prediction.

He also says that "The challenges related to higher incidents of counterfeit products, cargo theft and other scurrilous activities within and across global supply chains will finally motivate government and industry to step-up process standards and corrective mitigation efforts."

The issues raised here truly are at almost epidemic proportions, and someone, somewhere, clearly needs to take some action. And business can't do it alone.

Finally for this week, I liked some of the predictions from Steve Gold, a consultant at Alvarez & Marsal and the former chief supply chain officer at PepsiCo, as relayed from a conversation with one of the editors over at the Spend Matters blog.

Gold predicts continued inflation in raw materials and other input costs in 2012 (not all agree with him there, given slowing global growth), but regardless, more interesting is what he says companies must do about it.

Gold says hedging and demand aggregation strategies should be part of the approach that companies take, but that they must also to look at reducing those costs not by focusing on the price or rates they pay, but instead or additionally by"Trying to find a way of redesigning products or working with suppliers collaboratively to consume less" - which he says requires a new way of thinking and acting.

Ok, that's it for this week. More predictions next week, and more detail on these predictions in a future edition of our weekly On-Target newsletter.

Any reactions to round 1 of our supply chain predictions for 2012? Let us know your thoughts at the Feedback button below.

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I, too missed this news - how was it so little noted?

I remember the outstanding interview you did with Dr. Goldratt in 2004 or 2005. I printed out both parts at the time, and still have them in my files someplace. It was an outstanding piece of work.

It is a shame that the Theory of Constraints, while core thinking for its thousands of adherents, still hasn't gained the type of mainstream following that Lean and Six Sigma have achieved. Many, including myself, believe that applying TOC should precede later programs based on Lean and SS for maximum results.

I certainly hope TOC does not fade in the aftermath of his passing, but I fear that it will. Even though Goldratt had indeed ceased to be active at the Institute, he was a frequent conference speaker, and was still viewed as sort of guiding the organization from behind the scenes - whether that is accurate or not.

Now, we'll all know that he is not.

It will be very interesting indeed to see how well TOC maintains its position over the next 10 years.

Andrew Smith
Long Island, NY

More on Goldratt:

Thanks for catching up on Goldratt. At Niagara University,  we use The Goal as a textbook supplement in the Supply Chain Management courses. It was used in the MBA section when I started teaching 10 years ago,  and we even had training films featuring Eli Goldratt himself.

The students found the films a bit boring and very focused on Goldratt.  As one said “a little bit of him goes a long way”. Still, the value of The Goal is huge and more managers should read the book and use the concept.

A Buffalo area company I do business with provides the accounting support for The Goldratt Institute so I was invited numerous times to attend programs when Goldratt was featured. The timing never seemed to work so I never did get to meet  but now regret that I didn’t make time to do so.

Jack Ampuja
Supply Chain Optimization

I had the pleasure and great honor of working directly with Dr. Goldratt for the last 4 years of his life.

He is undoubtedly one of the greatest thinkers ever, and Nobel Prize worthy for sure.

He was a beacon to all of us in The TOC consulting firm he founded and in the entire business world.

Amir Davidi
Goldratt Consulting