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Predictions from Supply Chain Gurus for 2018 - Full Text Version Part 2

 

Complete Predictions from Rich Sherman, Marc Wulfraat, and David Schneider

Feb. 19, 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...


"Every company that we are working with right now, regardless of industry, is seeking to speed up order turnaround and delivery time."

 

Marc Wulfraat


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Last week, we published 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 - Sand Diego, Rady School of Management,). See Predictions from Supply Chain Gurus for 2018 - Full Text Version Part 1

 

This week, we get the full text predictions from Rich Sherman (long-time industry pundit now at Tata Consultancy Services); Marc Wulfraat, president of MWPVL International; and David Schneider of his own consulting firm.

 

So let's get right to it, starting with Rich Sherman.

 


Predictions from Rich Sherman, Global Supply Chain Practice & Center of Excellence at Tata Consultancy Services

 

As digital technologies evolve and companies unwrap the glitter and calm the hype, we believe that 2018 will mark the year of "Digital Clarity." I like to tell people that I've been helping companies go "digital" and "cloud" for 40 years. It's just that back then we called it data processing and service bureaus.

The biggest difference between now and then (besides the whole Moore's Law and Gate's Infinite Bandwidth effects) is connectivity. Mobility, sensors, monitors, and the Internet of Things enable connectivity to automate the collection of data at every point of the supply chain from the point of demand cognizance to the point of supply origination. And, we're doing it in real time!

Blockchain technology will also be demystified. The highly secure, shared data base will evolve into a channel platform in which all of the data being collected can be deposited. The data will be authenticated and secure and ledgers maintained to enable secure access and tracking. It will be the E2E repository of channel data forming the basis for supply network analytics and visibility. Applications will be developed like "Lego" blocks to plug into the data platform.

As I wrote in a guest column for SCDigest last year, analytics will be the competitive lever that can lead to an extinction event for many companies. Advances in machine learning and Artificial Intelligence are maturing; and, cognitive analytics are improving supply chain performance at unheard of rates. Data is only as good as the analytics that produce insights and insights are only as good as the data used to produce them. It takes time to deploy and/or access the new sources of data from mobile devices (consumer behavior), monitors and sensors, and other data collection technologies comprising the Internet of Things.

It takes time to develop the hypotheses to define and collect enough data to begin to produce insights and conclusions. As companies advance their analytic maturity, their competitors that aren't implementing advanced analytics fall further behind. At some point, the advantages from mature analytics based on new data sources and learning over time will be impossible for some competitors to overcome. There is no skipping historical learning and unable to catch up and compete, laggards will face extinction.

Mobile data and location based services are becoming more pervasive, sophisticated, and a source of behavioral analytics for marketers. In research that TCS conducted with the University of Texas at Arlington on digital technologies, supply chain managers placed little value on social media. However, as marketers (the people creating demand) become more sophisticated in their use of social media, personalization, mobile data, GPS, and omnichannel strategies, operations will increasingly have to develop planning and fulfillment responses to individual consumer demand.

"Last mile logistics" continues to be one of the hottest topics in supply chain. Point of demand data (Mobile device and sensor) will be the basis for developing cost effective last mile strategies. For example, as consumers are searching product and placing orders, we can sense the demand, localize it, and develop incentives for the consumer to select the most profitable delivery location and method – home, office, pick up at store, lockers, etc. The number of mobile devices currently exceeds the number of people in the world, so if you don't have initiatives to leverage it, you're behind your competition.

Cloud computing deployment is also becoming more clearly understood and rapidly becoming as pervasive as computing itself and the Internet. It's the most "back to the future" of digital technologies. Service bureaus were once a major market; but, by the early 90s with the advances in desktop and laptop computing; and, the breaking down of the "glass house," service bureaus nearly became extinct. Today, Amazon is generating more profitable business with its "web services" that its eCommerce business. Deployment leveraging cloud technology, advanced analytics, and blockchain platforms will emerge as a new enterprise system strategies as companies continue to seek more agile and adaptive systems while reducing their overall costs. Cloud computing is rapidly being recognized for its power, scalability, and affordability.

Autonomous vehicle technology is rapidly evolving. Vehicles are already being produced and sold with self-driving capability. The passenger and commercial vehicle markets are reaching clarity in the adoption of self-driving vehicles and more people are embracing it than challenging it. In 2018, we will see an increase in self-driving commercial vehicle pilots and early adoption in many areas. It's the answer to driver shortages, safety, congestion, and capacity. "Uberization" of commercial transportation will transform contract pricing to transactional supply-demand pricing which will be disruptive in itself. Look for some States' Department of Transportation to negotiate national contracts with carriers and/or shippers to utilize "toll tag" technology to move more commercial traffic onto underutilized toll roads.

Finally, 2018 is also a year of clarity for robotics, drones, and additive manufacturing. First, robotics are becoming more affordable, autonomous, and deployable for more and more logistics applications. It's the answer to future labor shortages. It is becoming clear that robots are capable of replacing manual labor; however, increased requirements for skilled and technical labor is also growing rapidly. Drone technology is also becoming clearer. Mass delivery by drone is probably not going to happen; however, delivery of emergency products and products to remote areas are already gaining traction.

Drones for inventory control and warehouse management are also growing markets. Additive manufacturing using 3D printing technology is also growing; however, companies are first assessing their product portfolios to determine which products are most suited to 3D printing. The medical device market, for example, is rapidly embracing and adopting advanced manufacturing technologies.

2018 will be an exciting year to "C" as companies more clearly understand the value in the convergence of digital technologies with deployments and adoption rapidly increasing. We'll "C" Clarity, Convergence, Collaboration, Communication, Cloud Computing, Competition, Competencies, Capacity, and Connected Commerce.


Predictions from Marc Wulfraat, president of MWPVL International

 

In 2017, Moody's Investor Services identified 26 distressed retailers with troubled financials that could make them potential bankruptcy risks. The list of 26 represents a stunning 19% of the retailers that Moody's tracks and it surpasses the list of 19 recorded at the peak of the Great Recession. While 2017 will no doubt be remembered for its record-setting pace of retail bankruptcy and store closings, the question is whether or not the situation will improve or worsen in 2018.

At the start of 2018, the following 26 retailers are under heightened distress due to heavy debt loads and low amounts of available cash as per the Moody's list: 99 Cents Only Stores, BI-LO Holding Finance, Bluestem Brands (Fingerhut, Old Pueblo Traders and Appleseed's), Boardriders (Quicksilver), The Fresh Market, General Nutrition Centers, Guitar Center, SHO Holding Corp., Tops Holding II Corp (Tops and Orchard Fresh supermarkets), Fairway Group Holdings Corp, Neiman Marcus Group, Bon Ton Stores, Nine West Holdings, Sears Holdings, Claire's Stores, Calceus Acquisition (parent company of Cole Haan), Charlotte Russe, FULLBEAUTY Brands Holdings, Payless, David's Bridal, Everest Holdings (manages Eddie Bauer), Evergreen AcqCo 1 (Savers thrift stores), J. Crew Group, TOMS Shoes, Vince, and Indra Holdings (parent company of Totes Isotoner).

Furthermore, according to Garrick Brown of Cushman & Wakefield, major retail store closures increased from 4,000 in 2016, to 9,000 in 2017, with the forecast for 2018 anticipated to be 13,000, many of which will be anchor stores at shopping malls, particularly if Sears and/or Bon Ton Stores declares bankruptcy.

This profound turbulence in the retail landscape is not just about distressed retailers. Talk to any major retailer with a healthy balance sheet and the story of the day is that the business is shifting from away retail to on-line, and that store closures are being planned. By way of example, the recent announcement that Walmart is abruptly closing 63 Sam's Clubs stores of which 10 will be converted into regional e-commerce fulfillment centers seems to be the order of the day.

At the same time, Amazon continues to churn out sales increases that defy the laws of gravity. Amazon's forecasted 2017 sales revenue is $177 Billion, up 30% from $136 Billion in 2016. Looking ahead, Wall Street analysts are projecting 2018 revenues to increase by 29% to $229 Billion, and 2019 revenues to increase by 21% to $277 Billion. If this comes to fruition, then the implication is that $100 Billion of retail spending will shift away from established brick and mortar retailers to Amazon. Keep in mind that there is some serious investor capital backing up these projections, so even if Amazon's net income remains at around 1%, their stock price will continue to go through the roof because earnings per share estimates are expected to increase significantly due to anticipated higher earnings per share.

All this to say that Amazon will continue its record-level spending on distribution infrastructure build-out in 2018, which is good for suppliers of buildings and equipment, and bad for Amazon's competitors. We track Amazon's distribution infrastructure closely and by our estimates, in 2017, Amazon added about 26.6 Million square feet of distribution space in the U.S. and another 12.6 Million square feet in the rest of the world. In 2018, we are aware of an additional 23 Million square feet of distribution space being added to the U.S. market and we fully expect that this number will be closer to 30 Million by year-end 2018. To put this into perspective, Amazon's total square footage of warehouse space in the United States is currently equivalent to 3.5 Central Parks and in 2018 this will likely increase to 4.4 – and that is only floor-level space (i.e. mezzanine space is excluded from these figures).

Looking ahead, Amazon also plans to open its own airport hub in Hebron, KY sometime in 2020. This mammoth $1.5 Billion project will catapult the company into the transportation sector in a very significant way. The sortation facility will enable coast to coast service levels of 2 days for the major metro markets serviced by Amazon – without the need to rely on the duopoly of FedEx or UPS. By our estimates, this implies that Amazon will be in a position to move packages to 80 - 85% of the continental U.S. population such that the last mile delivery can be performed by either USPS, regional parcel carriers, or Amazon Flex drivers. The real question is whether or not the USPS can keep up with the increase in volumes being demanded of them by Amazon and all other e-commerce shippers.

Amazon is continuously raising the bar in terms of competitive pricing, rapid service levels, and innovative thinking. It is just a question of time before they figure out new ways to reduce their reliance on human labor within their fulfillment centers by implementing automated picking machines for a subset of the SKUs that can be handled by robots. Everything that this company does is having an impact on all of us, whether we know it or not. Very few of us can smugly wake up in the morning believing that our business model is "Amazon-proof". By way of example, every company that we are working with right now, regardless of industry, is seeking to speed up order turnaround and delivery time. There is an immense top-down pressure to rethink the supply chain with the goal to improve speed to market. The pendulum of power has officially swung away from the manufacturer and even the retailer, and now the consumer has the power.


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Amazon is continuously raising the bar in terms of competitive pricing, rapid service levels, and innovative thinking. It is just a question of time before they figure out new ways to reduce their reliance on human labor within their fulfillment centers by implementing automated picking machines for a subset of the SKUs that can be handled by robots. Everything that this company does is having an impact on all of us, whether we know it or not. Very few of us can smugly wake up in the morning believing that our business model is "Amazon-proof."

By way of example, every company that we are working with right now, regardless of industry, is seeking to speed up order turnaround and delivery time. There is an immense top-down pressure to rethink the supply chain with the goal to improve speed to market. The pendulum of power has officially swung away from the manufacturer and even the retailer, and now the consumer has the power. In closing, I predict that 2018 will be a year of unprecedented retail distress and bankruptcies, that retail store closures will increase significantly as sales revenue continues to shift to the e-commerce channel, and that companies from all walks of life will invest heavily into supply chain strategies that enable improvements in their speed-to-market.

In closing, I predict that 2018 will be a year of unprecedented retail distress and bankruptcies, that retail store closures will increase significantly as sales revenue continues to shift to the e-commerce channel, and that companies from all walks of life will invest heavily into supply chain strategies that enable improvements in their speed-to-market. '

 


Predictions from David Schneider, president of David K. Schnider & Associates

 

The following is my predictions for the next year.

The combination of the new tax laws, low unemployment, improved consumer demand, increasing interest rates, increased industrial capital demands and shifting trade policy creates a complex multi-variable problem that defies simple predictions.

Carriers are going to increase rates. They have to. To retain the current drivers they have and attract new drivers they will increase driver pay, pay for unloading and traffic delay, pay for mandatory training and certification. In lieu of pay increases some carriers are going to do more for driver comfort and health, working on ways for drivers to be home more often, better rest, better trucks. Some carriers may elect to replace tractors faster to upgrade to better technology. All of this focus on the driver will increase costs, and those costs will be passed on in higher rates.

Carriers are going to be more selective on the route they cover and the customers they haul for. Data analytics give the carriers some of the same tools as shippers – they can look at what they are hauling in the lanes, and look at the demand they see through the different 3PL asset light freight networks to rationalize their networks. Watch for carriers shifting capacity from competitive lanes to non-competitive lanes. Watch for carriers to get aggressive for the backhaul or repositioning lanes. The major carriers have been doing this for a few years now – watch as the middle-sized carriers start to pick up the same tools and skills.

Both manufacturing and distribution are still working through the pent-up demand for new material handling and logistics systems. Integration is still very difficult, as systems integrators are swamped and the capacity of automation controls houses that support supply chain are oversold. One trend building momentum is small integrators and controls houses being acquired by larger equipment manufacturers as the owners of these small companies want to sell out to retire. Acquisition is now the easy method for larger companies to improve capacity and service offering. Last year was the year of the mega players in automation eating the large players in material handling (Honeywell eating Intelligrated), this will be the year of the now larger fish eating the small fry.

Another accelerating trend is in the workforce – specifically in the management of complex initiatives and projects. There is a serious gap between the departing baby boomers and the incoming millennials in this vital area of management. The solutions companies are reaching for are vastly more complex in nature, more moving parts, higher speed, higher risk, and fewer resources to apply when things go wrong in implementation. While Program Managers – people who manage the integration of multiple projects in a major initiative – have always been in tight supply, the people with the vital experience are leaving the workforce. Many companies don't grasp the need for Program Management – and often overlook the vital function of this executive level but tactical role. The education system is not teaching this vital integration skill set, as good Program Management requires a combination of technical, financial, analytical and people skills that develop through tacit knowledge developed through experience.

The current poster child in Supply Chain is the shelf level shortages at Whole Foods, where a new inventory management policy (OTS – Order to Shelf) with new systems and a failing implementation are harming sales and customer expectations. The project started before the Amazon acquisition, the implementation of a new system based on average demands at SKU level with poor leadership and communications creating falling employee morale. Technically the program is working, but the outcome is less than desired from a revenue viewpoint. There are examples of this in other industries, as major manufacturers are rapidly rolling out new facilities that can't meet the schedule demands due to the lack of experienced and knowledgeable management in Program positions. There will be more stories of new initiative failures hitting the business and general press over the next few years, with blame falling C-Level executives for not managing change properly. It is much harder to make major policy level changes, like inventory policy, in an existing company than it is to just start fresh. We might have too many entrepreneurs and not enough manager leaders.

Trade policy is going to alter the demand for capital industrial equipment as near shoring in the US grows. Already international players are building new plants in the US – not just on trade policy but the reality of increased labor costs in Asia and the demands of cash flow. Outsourcing production to the other side of the globe for low labor is hampered by the realities of increasing material, transport and money costs. Rising interest rates put a financial pressure on companies who lack the capital depth to carry the cost of WIP in transit. US based companies now can shift cash back to the US, investing here to bring production closer to the US demand. Watch as global companies shift more production in-country to be close to the demand points – or shift some production close to raw materials resources to reduce allocation errors.

On a personal front; the generation after the millennials are going to be robot loving, robot building free agents of automation and matrix organizations. They will have better communication skills than the millennials, will have better thinking and reasoning skills, and will have more money in the bank when they go off to college or trade school. Non-school based STEM programs, like Dean Kaman's FIRST Robotics program, will be the driving force behind a different attitude about race and gender equality, ability based thinking and creative collaboration.


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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