First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  February 12, 2009  
  Supply Chain 2009 - Predictions Amid Uncertainty  

I think I am justifiably proud of the supply chain and logistics community we have built and continue to expand here at Supply Chain Digest.

So, I am glad this year that I could count again on a great group of supply chain experts to offer their predictions on what the supply chain will hold in 2009.

We did this same thing last year, which garnered very positive feedback. (See Key Trends Impacting Supply Chain Management and Logistics for 2008.) For this year, just to mix things up, we asked a few gurus to offer predictions again for 2009, and asked a few new pundits to offer their thoughts as well.

Gilmore Says:

"When times get tough, many companies head for the trenches and turn inward in terms of their priorities,” Langley said. “This is exactly the wrong thing to do."

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I am highly impressed again this year with the level of thinking our experts provide. The group represents a spectrum from those whom I know well and consider friends, to those I know casually and more by reputation and the work they have done, but I was confident all would have something interesting to say.

It goes without saying that these are very unusual times. To their credit, our experts go way beyond just saying “times will be tough,” and also emphasize what companies should be doing to both cope now, but also to prepare for the brighter future.

I wish I had more room to include their comments, but you can find them all in their entirety here: Supply Chain Gurus Have Their Say - Supply Chain and Logistics Predictions for 2009. Below, I select a few of what I saw as the best insights:

Our friend Gene Tyndall of Tompkins Associates says, “The smart executive teams will ask 3 questions: (1) How can we become more efficient, more lean, and more productive, without hurting our future? (2) How can we decide on, and stay focused on, the right initiatives that will improve our operations. (3) How can we come out of the recession stronger?”

But, he notes that reducing costs will obviously be high on the supply chain agenda: “Smart companies will attack cost drivers deep into supply chains – no matter where they exist in the mega processes of buy, make, move, store, or sell,” Tyndall says.

Dr. David Simchi-Levi of MIT and ILOG says that in this environment, “it is important to focus on three dimensions: Cost, Cash and Service. That is, it is important to identify strategies to reduce cost and cut working capital (cash), while at the same time maintain or increase service levels.”

He also says that now, as never before in this dynamic environment, increasing supply chain flexibility is critical. “Introducing flexibility into manufacturing, supply chain, and network strategies is essential if companies are to respond effectively to ongoing change,” he says, but notes that “the question is how to achieve flexibility and how much of it is required, since flexibility does not come free.”

Among his several recommendations for supply chain managers, Dr. John Langley of Georgia Tech says companies must re-assess what their core competencies really are, and think more collaboratively.

“More than ever before, it is essential for supply chain organizations to meaningfully assess their core competencies and to make tough decisions as they arise,” Langley says. He also says that in tougher times, the need for supply chain collaboration is more, not less.

“When times get tough, many companies head for the trenches and turn inward in terms of their priorities,” Langley said. “This is exactly the wrong thing to do, particularly as it relates to the need for inter-organizational cooperation in the supply chain.”

Jon Kirkegaard of DCRA Inc. says the tough times may help companies better understand the link between supply chain performance and overall company performance.

“Supply chain measurements are a leading indicator of a business’ cash flow generation and working capital consumption, and that they are far less corruptible then traditional GAAP accounting systems,” he says.

He also says times like these will further separate the supply chain winners from losers. “Companies will further differentiate themselves as the “haves” (firms with solid supply chain strategies and designs) versus the “have nots,” and will gain in terms of market share and profit margins,” he says. “For investors, the “haves” are good long-term holds. Firms without a real supply chain strategy and the experienced talent to implement that strategy in day-to-day operations will flounder and likely make decisions that compound their challenges.”

Andrew White of Gartner takes a mostly longer term view, saying that there are changes afoot in the software market.

“Most innovative business functionality will be added to enterprise application portfolios through edge applications, rather than enhancements to core applications,” he says. That means, in part, that “best of breed is back. Especially given the economic climate, many firms are having to focus on high value-add and focused initiatives that align better with niche and focused offerings, not full blown enterprise replacement strategies.”

Another analyst, Simon Ellis of IDC/Manufacturing Insights, offers 10 predictions for 2009. We liked number 5, which says larger firms better get thinking now about the financial condition of their suppliers.

“Economic uncertainty, particularly for smaller suppliers in emerging economies, causes manufacturer 'brand owners' to consider strategic investments at critical supply points and financial support for key suppliers,” Ellis predicts.

He also says these times will cause a new framework for thinking about the Green Supply Chain. Sustainability will “discover metrics,” he says. Green will “no longer [be just] a feel-good public relations proposition or even a regulatory compliance mandate. Emerging standard measures and a desire to benchmark will impact sustainability initiatives and the associated investment in technology and services.”

He also sees RFID becoming “just another tool in the toolkit” – an event we have been predicting for some time, as happened to bar codes in the 1990s. When that happens, volumes rise, but the excitement largely disappears.

David Schneider, former logistics executive at Pep Boys and now of David K. Schneider and Company (and new SCDigest blogger), thinks for several reasons that 2009 will bring slowly but steadily rising oil and fuel prices, with the “danger that the rise in diesel will be slow enough to “cook” the carriers before they notice it,” like the proverbial frog in the pot of slowly boiling water.

He also believes that the most heavily leveraged (i.e., in debt) carriers will fail or be forced to sell, and that we will see in 2009 still more carrier capacity leaving the market that will be tough to replace as the economy recovers.

He adds that supply chain “Profit Loss Prevention” will be “the mantra of the strong and the few, and they will fix the profit leaks before they feel too much pain. The slow will see the leaks, but will not get the patches in place in time before they sink.”

Finally, CEOs are busy, and our friend Art Mesher of Descartes System Group in Waterloo, Ontario, didn’t quite have time to get his more formal predictions in, so he asked us to go with these ideas off the top of his head: “(1) Canada gets electricity, (2) Newfoundland becomes the next China, and (3) 2009 is the year that two-dimensional bar code installs exceed the pace of RFID system installs.” On a more serious note, Mesher did add one prediction by way of his Blackberry: "Unbundling service levels will become a primary theme, as companies will become willing to accept lower services levels as long as it comes with an even lower cost. Failure to reduce prices will result in lost business. Failure to reduce service levels and, hence, costs when lowering prices will result in financial disaster."

Again, for the full comments of our pundits, go to: Supply Chain Gurus Have Their Say - Supply Chain and Logistics Predictions for 2009.

Do any of these comments or predictions resonate with you? Any seem off-base? What are your SCM predictions for 2009? Let us know your thoughts at the Feedback button below.

Let us know your thoughts at the Feedback button below.

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