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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. 10, 2014 -  

Supply Chain Predictions 2014 - View from the Analysts, Full Text Version

Gartner on Global Logistics, IDC on Manufacturing

  by SCDigest Editorial Staff  

Two weeks ago, 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 2014. We then offered the full text predictions from our virtual panel in an OnTarget article last week (see Predictions from Supply Chain Gurus for 2014 - Full Text Version).

Then last week, Gilmore summarized a number of supply chain predictions for 2014 from leading analysts companies, such as Gartner and IDC Manufacturing Insights. (See 2014 Supply Chain Predictions Part 2 - the Analysts.) We'll note that today, there are a lot fewer analyst firms than there used to be, with Gartern acquiring AMR, Forrester basically exiting the supply chain coverage area, and other changes.

SCDigest Says:

Value-based relationships in logistics outsourcing, such as with the vested outsourcing model, are gaining in popularity but finding challenges in implementation from traditional purchasing and legal practices.



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Gartner and IDC pumped out quite a bit of text relative to 2014 predictions, more than we could or would want to publish here, but we will offer the full text relative to a couple of specific predictions from each firm.

Gartner "Global Logistics Predicts"


Gartner offered five predictions relative to global logistics trends, as usual meant to look out over the next 2-3 years. Those five are:


Through 2016, less than 25% of supply chain organizations will have a comprehensive supply chain mobility strategy.

Through 2018, 75% of companies will struggle to realize their end-to-end supply chain visibility  vision due to deployment challenges.

By 2017, 20% of logistics organizations will exploit drones as part of their monitoring, searching and event management activities.

By 2017, a third of European importers will be using rail freight for some of their Chinese imports.

By 2017, less than 20% of logistics outsourcing engagements will operate using value-based relationship principles.

We'll provide more detail relative to the second prediction, on supply chain visibiliy, as written by Gartner analysts Christian Titze and Dwight Klappich.


The aim of end-to-end supply chain visibility (E2ESCV) is "to provide controlled access and transparency to accurate, timely and complete events and data - transactions, content and relevant supply chain information - within and across organizations and supply chains."

Getting E2ESCV into opportunities, threats and value network status to improve planning and operational execution is a key capability for supply chain success. Our recently conducted survey with end-user organizations regarding the adoption of visibility solutions found:

• There is a discrepancy between what is offered in the market (the "provider view") and what is actually implemented at end-user organizations, providing visibility to their extended value chains (the "user view").

• Most visibility initiatives are focused on one supply chain functional domain, such as logistics order/shipment traceability, source purchase order management, or manufacturing performance and capacity availability, and such initiatives do not have an end-to-end scope. They enhance and expand to an outside-in, multi-enterprise value network view.

In contrast to established business applications like ERP or CRM, there are no existing comprehensive suites with a variety of functionalities for multiple visibility domains - plan/demand management, source, make and deliver. They are more-best-of-breed offerings from a broader range of functionalities down to niche offerings for industry or functionality.

End-user organizations might still need multiple different solutions to get the required E2ESCV.

Market Implications:

Because E2ESCV requires the collaboration of multiple - typically independent - trading partners, technology could help improve visibility capabilities across companies' value chains. The potential for subsequent business improvement - integrating multiple parties and allowing them to view and share transactions, content and status information - is considerable.

Together, people, processes, technology and services could enable this end-to-end view of a company's extended value chain. Collaboration and visibility platforms can connect an enterprise with its business partners, providing these capabilities/features:

• Near-real-time communication
• Cross-network collaboration
• Multisystem connectivity
• What-if scenarios and modeling
• Multi-tenant, cloud-based architectural setup (case-dependent)

Gartner has seen a marked increase in end-user inquires about E2ESCV, which indicates demand is growing and that SCM organizations now recognize the importance of improved transparency.

However, when it comes to actual initiatives, we continue to find they are mainly siloed within one supply chain domain and not end to end. Two key reasons for this are the lack of maturity of the ecosystem and the inability to identify a clear ROI for investing in such solutions.


In Gartner's annual SCM User Wants and Needs study, we evaluated application utilization across a wide array of application types, including visibility. We wanted to determine how well and extensively organizations were exploiting their applications. We found that a small percentage (13%) is fully utilizing visibility, while the remaining respondents have yet to reach their goals. We believe this will improve over time if companies approach visibility initiatives properly.


Gartner analyst Greg Aimi weighed on the topic of "value-based" outsourcing relationships, the fifth of Gartner's 2014 predicts.

Key Findings:

Over 90% of logistics outsourcing relationships use fixed cost, transaction cost or cost-plus fee structures today that are not value-based relationship structures.

Value-based relationships in logistics outsourcing, such as with the vested outsourcing model, are gaining in popularity but finding challenges in implementation from traditional purchasing and legal practices.

The dominant initial reason companies look to outsource logistics is cost savings. This approach tends to lead to suboptimal agreements in terms of achieving higher-level business objectives.

Market Implications:

While the popularity of value-based logistics outsourcing is on the rise, early attempts to create these unique types of relationships are being met with significant challenges within the buying organizations, in particular within the procurement and legal organizations.

With the advent of more-formalized programs, such as University of Tennessee's vested outsourcing, the concept of value-based logistics outsourcing is gaining momentum. The potential value created by logistics providers is they are becoming more involved in their customers' supply chains. Being inherently incentivized to help their customers achieve their supply chain and business objectives has been shown to create a significant advantage over more typical outsourcing models.

The problem is that value-based logistics outsourcing agreements require a significant change to the typical contractual agreements for logistical services. Instead of providing the more typical SLA measures for specific tasks, such as pallet throughput or order fulfillment rate, these agreements try to define measures that ensure the two companies are achieving a particular business outcome, such as "increase customer delivery reliability to 98% or better in 18 months."

Early attempts to create these types of relationship structures show that it's easier for the business-side members of the two potential partners to agree to these newer relationship structures; however, when these arrangements are brought to corporate for finalization, procurement tends to want to negotiate strictly on price, and the legal department requires standard terms and conditions. Both of these practices undermine the value-based agreement principles.

(Supply Chain Trends and Issues Article - Continued Below)



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IDC Manufacturing Insights, Predictions for Manufacturing


Simon Ellis, Robert Parker and the rest of the gang at IDC offered these 10 predictions for manufacturing for 2014:


Prediction #1: Manufacturers Will Begin to Build 3D Value Chains

Prediction #2: Operational, Information, and Consumer Technology Will Converge to Reshape Approaches to Technology Management

Prediction #3: Operational Resiliency Will Be the Focus of Supply Chain Strategies in 2014 and Beyond

Prediction #4: Supply Chain Technology Investment Will Involve Modernizing Existing Systems While also Trying New Approaches

Prediction #5: The Modernization of the Underlying B2B Commerce Backbone Will Become an Investment Priority for IT

Prediction #6: Product Life-Cycle Management Strategies Will Become Increasingly Global, Multidisciplinary, Innovation Based, and Customer Focused

Prediction #7: PLM Initiatives Will Focus on Value Realization

Prediction #8: "Servitization Optimization" Will Be Core to Future Profitable Revenue Growth, and Leading Manufacturers Will Make the Necessary Investments to Enable These Strategies

Prediction #9: On Its Way Toward the Factory of the Future, 2014 Will Set the Stage for a New Manufacturing Renaissance

Prediction #10: Plant Floor IT Investments Will Continue to Become a Higher Share of the Overall Technology Investment Portfolio

We'll first offer the drill down on prediction no. 3, relative to renewed focus on resiliency:


In last year's predictions, we talked extensively about the need for supply chain resiliency in the context of both internal and external challenges. Indeed, the pressures on supply chains to deliver in an increasingly demanding world come from both external and internal sources.


Yet what we found as the year progressed was that, yes, manufacturers do aspire to resiliency but are not always sure where to focus and when to begin. It became apparent that the road to resiliency is a multiyear journey that will inform supply chain strategies for years to come. Certainly strategically, in 2013, many manufacturers began the process of determining the "what"; and we expect manufacturers in 2014 to begin to consider the "how" and the "when."


While the notion of operational resiliency will inform many of the remaining predictions for 2014, its underpinning is rooted in the extreme granularity of data (both upstream and downstream), the increasing need for "accurate" speed in the supply chain, and operational visibility into supply and demand. In detail:


Extreme granularity. While the notion of big data is well established, the operational ability of the supply chain to both sift through available data and convert data into an actionable, timely response is critical - and this is where the value lies. Many manufacturers have told us that they don't fully leverage data they know within the business, let along that which exists outside the business. The ability to be operationally resilient requires tapping into all of these potential sources of insight.

Accurate speed. It is not enough for manufacturers to be fast, they must be fast and accurate, delivering the right set of products and services, just more quickly. The lack of resiliency will hamper the ability of the business to both anticipate problems and react quickly to mitigate these problems.


Operational visibility. There is an old saying that "if you don't measure it, you can't improve it"; well, with regard to visibility, "if you can't see it, you can't react to it." Disruptions of any kind are easier to manage if you have some advance warning - not to mitigate necessarily but to react quickly and take advantage of limited alternative. Operational resiliency is the "early bird."


Next, more detail on prediction no. 9, on a manufacturing renaissance:


The manufacturing industry - and production processes in particular - is back on stage as a source of wealth, particularly in developed economies. Over the past 10-15 years, the manufacturing industry was "neglected" with respect to other industries such as finance and services. Today, a number of countries around the world are investing to develop and attract more manufacturing.


President Obama's key second-term strategy was based around reviving American manufacturing. In 2013, the National Network for Manufacturing Innovation has been created, consisting of regional hubs that will accelerate development and adoption of cutting-edge manufacturing technologies for making new, globally competitive products.

China has become the largest world market for robots and production automation, which will help China better manage raising wages and guarantee higher product quality.

The European Commission has enforced policies to raise the GDP share of manufacturing from today's historical low of 16% to 20%. Germany, with its 21% of GDP from manufacturing, is leading the way toward designing the future of manufacturing through the "Industrie 4.0" initiative that defines the "fourth industrial revolution" as highly automated and based on the use of "cyberphysical" systems (i.e., sensors-enabled systems that can intelligently communicate through the Internet of things).


With greatest attention from governments and a better business outlook expected in 2014, the manufacturing industry is entering into a new phase of renaissance. Among the trends that will be evident in 2014:


With manufacturing becoming an essential source of wealth, global economies - both developed and emerging countries - will fiercely compete to develop and attract high-end manufacturing capabilities in industries such as aerospace, industrial machinery and equipment, semiconductors, specialty chemicals, and pharmaceutical.


Aging workforce, unattractiveness of plant floor workplace, and the lack of skilled resources in the marketplace will be emerging as top challenges. A battle among manufacturing companies to retain and attack the best skills will be evident, particularly for production engineering and manufacturing operational skills.


Manufacturers will continue their journey toward the people-intensive factory of the future. During 2014, manufacturers will be busy making their factories more resilient and improve plant floor visibility. The end goal is making those factories faster to align themselves with the speed of the marketplace.


During 2014 and beyond, manufacturers will primarily invest in:


• Standardizing production processes across their network of factories and create better visibility, coordination, and orchestration


Better coordinating plant floor operations by collating all operational processes under a common orchestration approach



Hope you enjoyed this year's analysts predictions.


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