This Week in SCDigest

A Look at Supply Chain Planning in 2014

From my view - perhaps paradoxically to a degree given how dynamic the environment is today -companies seem to be focusing on supply chain planning like never before.

Why is this? Several reasons, I believe. Most prominent is the growing C-level recognition that of how critical alignment is to overall success and lower costs - and that planning in silos simply can't cut it anymore.

Second, growing complexity in business overall and certainly in the supply chain means things often feel they are on the verge of getting out of control - and companies look to find some way to address this complexity with tighter, more rigorous planning systems. Sometimes it even works.

Third, and certainly related to the first two, companies understand the future is tightly integrated planning and execution, to the point where as I have said many times in the past, tactical planning and execution will (and indeed are in many situations) start to look more like one process than separate steps (see Spanish clothing manufacturer/retailer Zara).

So with that brief backdrop, this column will summarize a benchmark survey and research report in supply chain planning we published towards the end of 2013 - this is literally the first open First Thoughts spot I have had since the report was published.

I can without a doubt say this is the finest research work we have done yet. It is I believe the most detailed study on planning I remember ever seeing, based in part on survey responses from about 400 supply chain professionals (from many great companies). It is produced it in an inforgraphic-type style that makes all the data very easy to get through. I promise you will enjoy it.

You can download the report here: 2014 Supply Chain Planning Benchmark Report

As usual, we'll offer a few highlights in this column. For starters, we could say it has been about 25 years since the start of we might officially call the supply chain planning era. Of course, companies have been doing some forms of planning forever, but I guess I am linking the beginning of this period with the arrival of modern supply chain planning software.

However you date it, we've been at it a long time, and you'd think most companies would feel pretty good about their planning capabilities by now.

Think again. As the chart below shows, more than 22% - in in five - of companies still say said there planning processes are largely "disconnected."

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Just under 9% have reached what today we might call the top levels of performance, characterized by highly integrated processes, and both a top-down and bottoms-up approach to planning. My question: is it that so many companies really are behind in their supply chain planning efforts and results, or that the bar just keeps being raised higher? A little of both I think.

I liked this chart and data points a lot, relative to how companies feel they are performing via supply chain tradeoff curves - such as the balance between inventory and customer service. It is quite fair to say that the only way to really make supply chain improvement is to "shift the curve" - be able to both reduce inventories and improve service over given period, or whatever the tradeoff area is..

Here's what companies told us relative to that question.

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Just 13% or so feel they have been able to significantly shift their curves in recent years. My perception is that for leaders, it is a stair-step type journey - they are able to shift their supply chain performance curve in some area, then they plateau at that level for some period before making another advance. Most interesting of all in this data is that 25% just don't know - that's a big number. Do we need some better or easier way to measure this?

Finally, what do companies see as the biggest challenges in their current supply chain planning software environments? As shown below, after all these years, 45% of respondents still said their tools can't model all the processes well enough, followed by the 44% who said they were not well using all the capabilities their technology had to offer. I bet in reality it is an even higher percentage than that. 42% of companies said they were still missing important pieces of technology, such as Inventory Optimization software.

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I am not going to have room for the chart, but in great summary, the data showed that the high tech and consumer goods sectors had to best performing planning processes, while chemicals and retail said they were the most disconnected.

There is so much more - this is very good. Please take a look: 2014 Supply Chain Planning Benchmark Report

What is your reaction to this benchmark data on supply chain planning? Let us know your thoughts at the Feedback button or section below.

The predictions are rather – well – predictable.  To the esteemed swami's – I mean no disrespect.  These are safe projections for trends that are already in place:

• Year of the Customer?  What will make 2014 so different?  Omni-channel?  Personalized services?
• Talent Management: That problem is ongoing, and started to rear its ugly head a decade ago.  Yes, the 2008-2012 downturn and recovery put a large number of people to the street, but the top 15% performers continued to work, and moved to better jobs.  The top 7% - the real cream - moved to where their talents and knowledge was appreciated. This is something that Beth Ford at Land-o-Lakes talked about last summer, as did the leaders of other top Supply Chain performers.
• Mike Regain is right to say that capacity is an issue – it always is – so a safe prediction.  The LTL sector must claw more profit out of the revenue stream, so it only makes sense they get aggressive on the accessorial charges.  But will they actually grow the spines needed to get those charges to stick, or will new contracts with shippers trim away at the opportunity?  I see where SIAI is putting in the automated weight & measure systems to start driving to a dim-weight model.
• Marc Wulfraat is right that some parcel shippers will start to consider make to order packaging.  The issue is the required infrastructure to make that happen, and figuring out how much system they can afford to make that magic happen.  Dim-weight parcel pricing is pushing this trend – but the cost of the automation is daunting. There are a number of ways to make the box, perhaps the best is the System Logistics box builder - but they still require a significant investment in data infrastructure, like accurate cube measures of irregular shaped items, and a packing algorithm that not only optimizes the box, but an tell the Mark I Human Packing Machine how to put the items in the optimized box.
• I thought that 2010 was the year of analytics.  Or was that 2011?  Perhaps 2012?  This is just leftover Big Data noise.  Data analytics is a baseline to good supply chain management - and has been since the 1980's.
• Amazon and other already use alternatives to UPS and Fed-Ex for the last mile.  Some of those options are called Laser-Ship, On-Trac, Velocity Express, and USPS.  Amazon started to play with their own fleet last year, and the pick-up model will gain steam.

Those are safe predictions. I am, and my clients are more interested in the not so safe predictions. Come step on the wild side with me for a few moments.

Alternative fuels: It is not a matter of if, but when, more fleets convert over to Natural Gas. Now that Cummings / Westport have the ISX12 G engine on the market, and Volvo with their D13-LNG engines, the question of motive power for heavy duty over the road trucks has options that work. But the engine is just one part of the puzzle. Volume will help lower the cost of the NG powered tractors, and the issue is not the engines, but the significant cost of the LNG fuel tanks and systems, and the significant weight / bulk of the CNG systems. 2014 will be the year of better understanding of the costs and the opportunities. The fuel network will develop more locations – with more focus on LNG for long haul and CNG for return to base fleets.

The real question to ask: "What do you think the price of diesel will be in 2014 - 2019? It is not a one year question, but a 5 year question. If diesel remains above $3.50 at the pump, then the conversion to NG as a fuel will gain velocity. If diesel runs between $3.00 and $3.50, then the conservative players will keep burning distilled fuel, and the only fleets that convert are the ones that do it for non-financial reasons. But if diesel drops below $3.00 for any length of time, watch the bottom drop out of the desire to use NatGas as a motor fuel. Don't think that can happen? Well, just last week I saw some diesel prices along I-81 in the $3.39 region, with one truck stop pulling them in at $3.29. If more of that North Dakota Sweet ends up in the markets, courtesy of the southern sections of the Keystone pipeline, we could see where the price of diesel is low enough to retard NatGas as a major fuel.

It's the Weather, Stupid!: Christmas 2013, the multiple storms of Winter 2013-14, and the Atlanta Freeze - these are reminders of how fragile we made all of our transportation / logistics systems in the past decade. Somebody sneezes on a clear summer day on the I-285 Perimeter Loop around Atlanta and stuff stops moving. Make it very cold and through some water into the mix and all hell breaks out. We want to remove the variability out of the performance of the supply chain, it only makes sense from a working capital point of view. But what happens when it really messes with the unrealistic expectations of consumers and angry news anchors?

Will some ecommerce players decide to offer discounts for early shopping, perhaps free shipping if you order before December 10? Better yet, will they offer high priced guaranteed delivery for those last minute shoppers that could not make it to the store. Watch this trend: bricks and mortar retailers making solid claims that you should do your last minute shopping with them, adding in wrapping and other value add services to sweeten the deal. How about some of the larger e-tailers getting a little bit more weather savvy - hiring weather services and adjusting the shipping delivery promise based on the customer location, and the projected weather?

Finally, here is my special prediction:

Supply Chain Leaders start to figure out how they systematically contribute to the operating cash flow. Based on the feedback I get from the leaders I talk to, they turned to their accounting people for a report, and got a funny look from the green eye-shade crowd. No surprise. Accountants can't figure out the relationship. It is a finance issue, not an accounting issue. The smartest Supply Chain Leaders in 2014 will partner with the CFO and the supporting Financial Analysis Team to explore, and then quantify what the points of contribution are.

David K. Schneider

David K Schneider & Company, LLC

I love how you pull these predictons together each year and how deftly you summarize the thoughts of the different contributors.

What makes it a good read is the diveristy of the perspectives and viewpoints - all good.

Keep it up.

Carol Bruggerman
Louisville, KY