This Week in SCDigest

What is causing this change? No one seems quite sure. A very weak European economy, sluggish growth in the US, and a slowdown in China are usually at the top of the suspect list. I am not sure how much falling commodity prices play a role in pushing down the dollar numbers, but believe that must be a factor, though it wouldn’t explain the mere 1% growth in 2015 container volumes.

One short-term casualty for sure is the view prevalent in 2008-10 or so that emerging markets would be the salvation for multi-national companies searching desperately for growth. Many of those markets (e.g., Russia, Brazil, even to an extent China) have economies in the tank right now.

But I do not believe that is the long term trend. A couple of years ago, the consultants at McKinsey wrote that "By 2025, annual consumption in emerging markets will reach $30 trillion - the biggest growth opportunity in the history of capitalism."

Sourcing opportunities are also changing rapidly, with clearly some move out of China to other Southeast Asia nations, Eastern Europe, Mexico, and increasingly Africa (though still very small in total volumes).

So while in the near term global trade growth has slowed, and may stay that was for some time, I would still say that overall company success will for most will be heavily dependent at how good they are at global supply chain, even as our thinking about global manufacturing strategies, cost versus responsiveness, and especially supply chain risk management continues to evolve.

Now onto some data points from the 2016 Global Sourcing and Trade Management Benchmark Study, based on survey results from 200 companies.

As we often do in these studies, we began asking respondents how they would rank themselves in terms of both process and technology support for global sourcing and inbound logistics.

Even at the process level the majority of respondents say they are average at best, with a combined 52% saying they were either average or below average in these areas in terms of process maturity. 

Conversely, about one-fifth of respondents (21%) rated themselves as very strong in global sourcing processes. Where do you think you stand?

"We are very decentralized in our approach to global sourcing," one respondent noted in a comment. "There are many opportunities to leverage our scale more effectively."

"We have multiple shipments that are not being consolidated, and without effective process and standardization, volumes cannot be managed," another noted.

As is usually the case, the self-ratings for the level of technology support were much lower, with a combined 64% saying they were average or below average, with just 15.6% saying they were very strong in global sourcing/trade technology enablement.

It has been generally recognized that technology support for global sourcing and trade management processes has been behind for most companies versus the growth they have seen in global trade, so this result is far from surprising, and confirmed by other responses in the study.

Among the many areas of sourcing and trade management the study looked at was the ability of companies to accurately estimate global lead times for suppliers. This capability is hugely important in terms of managing inventories.

As shown in the graphic below, just over 50% of respondents say their lead time estimates are somewhat accurate, while only 12.4% say their estimates are highly accurate. In addition, a substantial 37% say their lead time estimates are not very accurate for these global deliveries.

"Lumpy flow of goods challenges capacity constraints at several points in the supply chain," one respondent observed. "We have extra time built into lead time to account for systematically created congestion."

The survey data also showed that less than half of companies (39.2%) are currently tracking and reporting on global lead time variability, versus 47% that are not performing such tracking and 13% that say they are just starting.

SCDigest wonders if even this doesn't overstate the case a bit. Over the past few years a number of supply chain academics have reported being thwarted in projects to analyze global lead time variability because of the difficulty in obtaining accurate data from shippers.

Anyway, this is all good stuff, and I encourage you to access the full report.

Finally, there are interesting developments in the area of what is usually called Global Trade Management (GTM) software.

From the development of the category in the late 1990s through much of the 2000s, the focus on GTM was on the nuts and bolts of automating import and export processes, along with systems to monitor and enforce compliance in such areas as product classification, denied party screening and more. These traditional solutions were heavily driven by content, the labor intensive process of monitoring and updating changes to these rules country by country, day by day. 

But in the last few years, leading GTM solution providers have expanded through development or acquisition into several new areas, such as global sourcing and vendor collaboration, global transportation management, and end-to-end supply chain visibility.

A recent example of this is GTM leader Amber Road acquiring global sourcing provider ecVision in early 2015.

This is a very interesting development and positions GTM providers potentially as an important fourth center of gravity in terms of supply chain software within companies, joining traditional solution blocks of supply chain planning, supply chain execution/logistics and procurement.

Before this footprint expansion, GTM was often viewed as a niche category that sort of stood off by itself to address the unique issues of import/export and trade compliance, again heavily focused on content. But that is changing, especially as companies such as retailer Crate & Barrel combine global logistics, compliance and finance into a single organization.

I have a lot more to say but as always I am out of room. BTW, you may notice a new look at scdigest.com. Visit often.

Any reaction to these thoughts on global supply chain and GTM? Let us know your thoughts at the Feedback section below.

Another great column, but, it points out the false hope in the thinking of a lot of retailers in their battle against Amazon. It may make us feel good to point out that Amazon isn’t making any money, but, Amazon reinvests over 10% of revenue in R&D ("Technology and content" on their income statement) and this is on top of their capital investments. No other retailer reinvests even 1%. Amazon could tweak that spending a bit and the profits would flow. So, to answer your question, even a drop in their stock price will not cause Amazon to back away from free delivery.

Speaking of free delivery, yes there is a cost to delivery and the price to the consumer will be zero but covered by the margins of the retailer. Retailers in their stores don’t break out the rent on the price of goods so this why are we so concerned with charging specifically for delivery? Delivery is just one part of the costs of the internet retail supply chain to reach the customer just as rent and sales staff are expenses for the in-store supply chain.

Amazon understands, and our analysis confirms, that delivery costs will drop dramatically as internet retail grabs a larger and larger share of the total retail market and Amazon continues the shift to shipping locally from local fulfillment centers since they backed away from fighting the sales tax issue in 2013. That is another scary thought for retailers that 2%-3% of revenue could flow to the bottom line as delivery costs for Amazon fall. Amazon will continue to grab market share and will be incredibly positioned for this future of eCommerce.

There are real reasons why Amazon enjoys such a high valuation as their profits are miniscule. The smart money understands these reasons and for another perspective I would like to refer your readers to an October 19, 2015 analyst report from Robert W. Baird & Co. which explains other reasons for how far ahead Amazon is of most all other major retailers. Hopefully we will start to see bolder responses from retailers or it will be like Walmart mowing down their discount department store competitors in the 80s and 90s.

Steve Wilson
eCommerce Supply Chain Transformation
Tompkins International

Once again, excellent article with factual data and charts. The PMI chart was very telling and a clear indicator of what some folks are fearing about 2016. I just saw the movie "The Big Short" about the Mortgage and Banking industry and what amazed me was how so many "experts" missed the telltale analytics which clearly foresaw the economy on the brink!

We need folks focused on the key analytics and BI that allow us to understand what is happening now, what it is signaling and then make the management decisions to shape the future business. As they say, the only way to forecast the future is to make the future and understanding comes from key analytics and BI metrics. Keep showing us these great indicators!!

Tom Dadmun
Retired VP of Supply Chain
Adtran