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Predictions from Supply Chain Gurus for 2018 - Full Text Version Part 1


Complete Predictions from Dr. Mike Watson, Mike Regan, Gene Tyndall, and Dr. Chris Gopal; Part 2 Next Week

Feb. 12, 2018
SCDigest Editorial Staff

Recently, , SCDigest editor Dan Gilmore highlighted supply chain predictions for 2018 from a number of supply chain gurus in our virtual panel. You can find those columns here: Supply Chain Guru Predictions for 2018, and Supply Chain Guru Predictions for 2018 Part 2.

As promised in those columns, as usual we are also offering the full text predictions from of the gurus highlighted in Gilmore's columns.

Supply Chain Digest Says...

These increases of this magnitude will result in blown freight budgets and cause more C-Level executives to pay attention to this thing called "freight."


Mike Regan

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So below are the full text predictions from pundits Dr. Michael Watson (OpEx Analytics and Northwestern University); Mike Regan (TranzAct Technologies); Gene Tyndall (Tompkins International); ; and Dr. Chris Gopal (consultant and University of California - San Diego, Rady School of Management,). Really good stuff.


Full text predictions from the rest of our gurus next week.


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


Predictions on Supply Chain Network Design and Analytics from Dr. Michael Watson of OpEx Analytics and Northwestern University


Here are my predictions for what is in store in network design and analytics:

1. Retailer OTIF (on-time, in full- see this article and the one that precedes it ) penalties will cause many manufactures to invest more in analytics to prevent these penalties. This will include better network design (so you are set up to hit the OTIF), better transportation analytics (to make sure you hit the time window), and better inventory analysis (to make sure you have the stuff when you need it).

2. Related to #1: As the manufacturers do better analysis around OTIF, we are predicting that a lot of the blame will actually fall on the retailers. This could be because the retailer picks up with their own trucks, changes the order within the agreed lead-time, or doesn't have the capacity to unload in their yard on time. This means some retailers will have to do their own analytics to help fix the problems.

3. Direct to Customer will continue to drive analytics and network design. I heard a great talk from Home Depot at CSCMP talking about their journey to deliver directly. Besides the IT work, there is a lot of network design and analytics that go into these solutions. This includes deciding where to pull from, figuring out an inventory strategy, deciding the fleet size or how to outsource, and how to plan and schedule your capacity. You need to have some fast analytics running behind the scenes to make sure that you can deliver when you promise.

4. Our final prediction is that in 2018 almost any company that analyzes data will call it "Artificial Intelligence." We only see this buzzword gaining more and more traction. As long as you realize this is being used as an umbrella term for any type of analysis, you will be fine. Just don't think it automatically means some of the advancements in deep neural networks or reinforcement learning (which are the newer techniques that helped reinvigorate the term a few years ago.

Predictions from Mike Regan, TranzAct Technologies, on the Transportation Sector


Here's our bold prediction: The Perfect Storm has come ashore and it is going to wallop a lot of shipper freight budgets!

In a 2014 article entitled, "The Coming US Logistics Cost Crack-Up," Dan Gilmore outlined a number of factors that pointed to a capacity crunch and significant increases in carrier rates in the next few years. Those increases did not materialize in 2015 or 2016, but in 2017 we saw signs that the increases were arriving - with a vengeance.

And it now looks like in 2018, shippers will experience rate increases across the board that will be higher than they have ever experienced before.

This "Transportation Perfect Storm" will expose transportation/supply chain operational and technological fault lines for shippers.

On one side of the fault line will be shippers who have done a couple of things that will get them through this capacity crisis. First, they will have a demonstrated track record for having built truly collaborative relationships with their carriers over the years. The carriers have excellent data and know which shippers have supported them in the past, as opposed to shippers that have talked a good game but who have consistently been focused on getting the lowest possible rates. Second, these shippers will have proactively invested in managing their transportation operations as well as implementing the necessary technology to be able to get their freight moved at a reasonable price.

On the other side of the fault line will be shippers who have treated transportation as an afterthought or viewed it as a necessary evil. Consequently, they really don't have a strategy or the operational or technological tools to aggressively manage their freight spend. These shippers will see rate increases of at least 8% to 15 %.

Our second bold prediction is that these increases of this magnitude will result in blown freight budgets and cause more C-Level executives to pay attention to this thing called "freight." As one CEO recently told us, "For the first time ever, my Board wants to review our Transportation Spend Management Program."

Our third bold prediction is that escalating freight costs will cause freight to be used as a competitive differentiator. As one expert recently noted: "Tumultuous times create winner and losers. Some companies will use the capacity crunch to their advantage; other companies will be hurt by their inability to effectively adapt to what is occurring." Along this line, expect more companies to implement chargeback programs based on mandating tighter delivery requirements and penalties for failure to meet those deadlines (i.e. Wal-Mart's "On Time-In Full" program). Companies emphasize the operational benefits of these initiatives, but the truth is that these chargeback programs serve as a profit center and can help mitigate the impact of rising freight costs.

2018 should be a wild, exciting and extremely challenging year for shippers.

Predictions from Gene Tyndall, EVP, Tompkins International


I am pleased again this year to offer my predictions for Supply Chains in 2018.

As with last year, I will suggest my most important top 3 substantive predictions.
First, a brief re-visit of my top 3 in 2017 and their outcomes:

1. Supply Chain Planning: I predicted further progress toward comprehensive and implementable plans, but no widespread transformations for effective S&OP, much less toward more common IBP.
My EOY view: Results continue to be illusive, for many reasons, but progress continues at most companies.

2. Digitalization: More and more to occur, such as IoT, AI, AR, Drones, 3-D Printing, and others (including Blockchains).

My EOY view: Clearly important advancements have been made. The new technologies continue, though, to outpace their adoption, as risk aversion remains prevalent.

3. Executive Suite: Gradual progress for supply chain management, but barriers such as management structures, company culture, behaviors, recognition and reward systems, and fundamental knowledge of supply chain capabilities for revenue growth, will limit CSCO's and C-Suite agendas.

My EOY view: Some progress, but the barriers still constrain innovation, other than in e-Commerce, where business survival is threatened.

Now, on to this Year. Here are my "top 3" predictions.

A. First, an obvious trend. The highly positive state of the economy will drive more supply chain innovation and transformation; however, more by natural events than by astute design. Forecasts of 3% GDP growth can "rise all boats". When companies have positive cash flows and higher discretionary income, there is more capital to invest, and new plant and equipment rises to the top of executive agendas. Adoption of new technologies, coupled with e-Commerce and Digitalization, will generate more investments, new products and services, and new efficiencies within infrastructure as well as new plant and equipment. This does not necessarily imply that investments will be optimized, or even well justified, only that the capital is there for reinvesting in the business. The certainty of the positive economy is outweighed by the uncertainty of the markets, the disrupters, and customer buying behavior. Thus, we will see investments (including M&A) but not necessarily the right ones.

B. The amazing growth of e-Commerce, fueled by the "Amazon Effect", will intensify the impacts on all companies – not just on Retail and consumer buying, but on all industries. Business e-Commerce will keep pace with consumer online ordering; C2B (Returns) will continue to expand; and we will see more C2C transactions as well. All these create new supply chains, new business processes, new technologies, and new services.

Amazon, of course, is dominating the e-Commerce world. 44% of all U.S. e-Commerce business in 2017 was by Amazon. Its growing private label products alone produced over $400M in revenues.
Our MonarchFx (a Tompkins Company) is but one example of innovative start-ups with new operating models to provide alternative solutions in the e-Commerce world.

C. My third "top 3" is related to the top 2, but deserves calling out separately. This prediction is concerned with transformation, digitalization, reinvention, and change – all terms that we will hear even more about this year. Retail gets the most media attention because of store closings, but big change is impacting every industry and every segment. This is not the first "warning" to executives, but it will be the most prevalent and the most challenging for many. If all companies do not change, they will be disrupted, beaten competitively, or simply regarded as obsolete. Why? There are 3 key factors:

• Customers, customers, and customers. As millennials become the largest buying group, their values and attitudes differ from their parents. Brands are important, but not loyalty; prices are important, but not singularly; and sustainability and integrity are more important than ever. All companies must track WHY customers buy from them or not, not just who is buying, where, and when.

Technologies. Mentioned earlier, different types of technologies are changing costs, times, and quality. Digitization is one factor; however, robotics, 3-D Printing, computers, and the IoT are the critical success factors going forward. All businesses need to adapt these in innovative ways to compete, or simply stagnate.

Speed. Speed and supply chains are not new; what is new are the powerful capabilities to leverage tools, methods, processes, technologies, and smart logistics to shrink the times to: go to market; change in the market; try, fail, and re-do; and innovate. Change management has always been the major barrier to change, but in 2018 it will not hold up speed. People must adapt to change and speed, or else, and they will learn this.

These top 3 predictions are, admittedly, high-level, strategic, and broad-based. But, they will form the environment and context in 2018 within which tactical changes will have to occur. If these are not understood and considered carefully, no tactical changes will matter. 2018 will be the year of these 3 trends – larger capital investments; e-Commerce expanding everywhere; and supply chain speed driving everything. We will see which companies perform in these ways.

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Predictions from Dr. Chris Gopal, Consultant and Executive in Residence University of California - San Diego, Rady School of Management

It seems that, according to many analysts, most trends over this coming year will be directly driven by technology – artificial intelligence/cognitive computing, blockchain, "intelligent" robotics, "smart" logistics, driverless vehicles and the like. However, I'd like to highlight a few major management-oriented trends that I see picking up steam during 2018.

Technology Evaluation and Assessment – Determining the ROI:

As the technology revolution accelerates, technology will dominate the discussion of supply chain trends and issues. Experimentation will continue, and companies will continue to attempt to innovate, driven by new technologies, their development, and the huge amount of press dedicated to them. However, in talking and working with executives, it seems that the real trend coming to the fore is the evaluation and assessment of technology. In other words, the answers to a few important business questions:

- What is the actual application for these technologies in the organization?

- How do we assess the ROI for these technologies? The returns, yes. But, more important, the costs and timeframe to value?

- How much do we spend in pilots, and how much will the actual full-scale implementation cost, and what sort of time frame are we looking at?


- What are the risks – of failure, non-performance, people, resource allocation?

- For example, who in our company can put the "I" into "AI", and how do we manage it?

- And, if we're a medium-sized company, can we afford it?

These technologies are by no means inexpensive, and few currently really grasp the total costs and effort involved. This will require a hard-headed analysis of the true incremental benefits, risks and costs. An interesting question that's been put to me is "How can I use This technology (artificial intelligence or blockchain) in my business?"

This is a step beyond the "what problem are we trying to solve" question, but they go together. It requires an understanding of the business problems, the real capability of the technology, and an assessment of who in the organization can provide the supply chain expertise to develop and maintain it. These are no longer standardized ERP or process-based solutions that can be bought from a vendor and implemented to a standard template. They require Supply Chain expertise and experience - a skill set that is in short supply these days.

Back to the Basics – of Cost, Liquidity and Time:

It's interesting that a trend I'm noticing this year is an increasing emphasis on the "basics" – reducing costs, inventory and cash-to-cash cycle, and time – both process time and response to customers and changes. Costs of supply, process, and serving customers are being examined carefully using analytics "at the edges" and a fact-based, measured approach. Supply is being evaluated through the lens of Total Costs of Acquisition and Delivery.

And, while satisfying customer demand is important, companies are beginning to realize that overall cost-to-serve is critical to maintaining profitability. Increasing emphasis is being placed on managing inventory across the pipeline, including the deployment of safety and hedge stocks to meet an increasingly variable demand. Yes, improved Sales & Operations Planning and talent development are a renewed focus. 2018 will be a year where companies return to the basics of supply chain & operations management.

Re-Shoring will actually take place – Driven as much by Risk as Economics:

An increasing number of companies are re-visiting their operations locations decisions, based on a fairly large number of factors. The most important of these will revolve around risk, control and market proximity (cost per unit, total delivered cost, cost reductions will always be critical factors). Risk in terms of geo-political risk, government actions, trade restrictions and tariffs, supplier financial health and government control and, of course, compliance with Corporate Social Responsibility factors.

This last is taking on increased visibility owing to the increase in supply chain transparency, NGOs and social media. Brand Equity is becoming an important factor in the X-shoring and sourcing debate. The Control issue is one that is often overlooked until it happens – owing to changes in design, materials, demand and mix. Driven by the e-commerce revolution, inventory proximity to markets and the outsourcing to high-coverage third-party fulfillment providers will be one of the trends in 2018.

Hope you enjoyed these insightful predictions. Still more next week from the rest of our guru panel.

Any reaction to any of these 2018 predictions? Which did you like best and why? Let us know your thoughts at the Feedback section (email) or button below.


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