2013 has certainly been an interesting year! I’ve had the good fortune to be presented with opportunities for compelling discussions with a significant group of leading thinkers, senior executives in procurement, logistics, and technology management over this past year. I also worked with a team of leading thinkers in developing the Future of Procurement Report (published by KPMG), as well as publish the BVL International Global Logistics Trends and Strategies report with a team of leading academics and executives in Europe, China, North and South America, Russia, and India. I visited the BVL Kongress in Berlin, and also attended the International Institute for Analytics “Chief Analytics Officer” meeting last summer. I helped create the first North American chapter of BVL International in the Carolinas, and we hosted two meetings at Volvo in North Carolina and Thyssen-Krupp in South Carolina. We just finished hosting over 150 executives at our Supply Chain Resource Cooperative, with a theme on Supply Chain Analytics. As 2013 comes to a close, here are some of my thoughts regarding the supply chain trends we are likely to see emerge in 2014. Not surprisingly, analytics is at the top of the list. Here is what I expect to see next year:
Global supply chain footprints will continue to expand.
Organizations in multiple sectors are continuing to pursue global growth strategies that focus on expansion into new regions. In particular, the focal BRIC (Brazil, Russia, India, and China) represent major targets for expansion, but with them come a host of new problem that enterprises have little to no experience in dealing with in terms of logistics capabilities. Major growth strategies are driven by economic realities, currency movements, government regulations, or access to existing logistics networks. With globalization, the need to partner with local logistics service providers becomes an imperative. Such providers understand domestic transportation issues, and can plan to develop long-term solutions to complex local distribution challenges.
As Companies Expand Globally, So Will the Level of Operational Complexity
The globalization of organizational supply chains will continue to expand, as organizations seek growth markets in the BRIC countries of Brazil, Russia, India, and China. This combination has proven to be a lucrative target, but has also changed direction. Globalization is now increasingly linked to labor costs in countries such as China, as well as fuel costs and regulatory shifts, which are in turn driving a dramatic impact on where companies source, where they produce, and the complexity of processes required to sell to the customer.
This complexity is occurring in many forms. First, products are becoming more complex, as organizations need to create more diverse sets of options, packaging designs, and logistics arrangements. Customers increasingly want customized solutions, and require specific logistics delivery requirements. This means that companies need to have more facilities in more countries, with more suppliers, greater diversity in product and packaging needs, more e-commerce and other market channels, and more part numbers. Complexity is also occurring due to increases in local delivery requirements. In many emerging countries, there is a massive expansion in small neighborhood stores, which brings a strong challenge in our distribution network. Small stores translate into an increase in deliveries and a decrease in size of truckloads. Layer on top of that the spread of urbanization, the economic uncertainty, the Middle East disturbances, and you have a powerful set of possible complicated interactions that is produced!
Increased Globalization Brings Increased Risks of Supply Disruption
Globalization linked with increasing labor costs in countries such as China, as well as fuel costs and regulatory shifts, are driving a dramatic impact on where companies source, where they produce, and the complexity of processes required to sell to the customer. Risk is accelerating, and every two weeks companies encounter some sort of logistics problem as a result of volcanoes, wars, tsunamis, or other complications. Another major source of risk is the unreliability of global logistics channels, especially the challenges associated with ocean freight lines, which are becoming increasing unreliable. Labor issues at ports, larger ships, port capacity, and multiple other issues are driving executives to worry about the status of their shipments and whether they will reach their destinations in time to meet customer requirements.
Regulatory Requirements Will Grow as Governments Seek to Overcome Shortfalls in Operating Revenue
As organization’s global footprint expands, by far the biggest trend that emerged in all of the interviews was the increasing complexity of logistics regulations, protectionist policies, product regulations, compliance to customs, trade, local content issues, and security requirements. Governments are often using regulatory requirements to fine companies for lack of compliance, add additional customs duties and taxes to imports, and use other tricks to overcome the major shortfall in tax revenue that exists in many countries’ budgets. As the private sector seeks to expand its growth in emerging countries, there is increasing pressure economically in these countries to levy import codes and product restrictions to drive revenue and protect local industries. The barrier of regulatory issues is a shifting target which is continually changing, yet the fines and penalties for non-compliance are on the rise. These regulations render it more difficult to meet increasing customer requirements for reliable product delivery, and make it challenging to be able to plan using normal lead times, inventory requirements, and scheduling. Multiple interviews reveal the complex and shifting nature of government regulations, making it more evident than ever that “the government is part of every supply chain!”
Supply Chain Technology Investments Will Continue to Escalate. Our BVL study points to the fact that top performers are investing in a solid basis of robust logistics and supply chain data collection and analytical technologies to be able to manage an increasingly complex global environment. This will also involve negotiating with government agencies to negotiate data streams that will meet their requirements. To do so, however, requires that a foundation be constructed to enable tracking of events, transactions, and build a strong data-based analytics foundation (ERP, 2D barcode). Such technologies will become the foundation for network optimization, global material visibility, and end-to-end integration. As multiple parties across the extended global supply chain have access to the same “sheet of music”, the global supply chain orchestra will be playing their instruments and produce a masterpiece of sound. Technologies can help to integrate planning processes and ensure aligned responses to global events, and also provide a foundation for analytics that will become more important in the near future for competitive decision-making. Technology will also enable tracking of events beyond first tier suppliers, and provides a real-time update of key performance indicators used to ensure optimization of supply chain plans
Cost Pressures Will Continue to Escalate. We will continue to see cost pressure at all levels in the supply chain: at the retail level, on manufacturing, distribution and warehouses, transportation, and raw material supply. As organizations continue to seek opportunities to meet difficult cost targets, top performers will recognize that the real opportunity lies in collaborative cost reductions initiatives. The age of “hard ball negotiating” is over. Even more so, traditional negotiating methods that focus on “tips and tricks”, playing hardball, and other games will be replaced by individuals who are highly trained in “fact-based negotiation”. A more sophisticated supply chain manager who will be more prepared through increased investment in market intelligence, cost modeling, and power-leverage knowledge will be more effective at working with a partner to drive down costs, while keeping an eye on margins to make them palatable, but not excessive. All parties in the supply chain will need to have a common view to cost reduction through productivity, quality improvements, value-added activity, transportation efficiency, and working capital management. One of the developments we see is the need for closer integration of engineering and supply chain managers. In fact, NC State just created a new program called the “Masters of Supply Chain Engineering and Management” to combine these two elements…expect to see more programs that follow this model.
Supply Chain Analytics Will Emerge as a Key Enabler to Performance. We predict six key business process areas will be impacted by the need for better business analytics: design, source, make (manufacture), deliver, and market (sell). To be able to truly understand the scale and scope of these processes, organizations will deploy supply chain engineers to study and document the value chain, mapping the activities, and working with partners to identify critical points in the process where data collection is required. They will then deploy sophisticated and innovative approaches to mining data exhaust from these processes, to provide real-time indicators of activity that can drive the appropriate decisions. Leading organizations will put together teams of subject matter experts to be able to identify the key business problems that exist across the six major areas of the supply chain, and brainstorm about the need for information both within the segment (e.g design needs customer requirements information from marketing), but also information that is produced in that vertical that is needed by other vertical silos (e.g. anufacturing needs specifications from design for equipment calibration, sourcing needs the specifications for outsourced components). In framing these solutions, analytics teams will need to think broadly about the sources of data, and the types of business decisions that will be made. We envision six key areas where this will occur.
Internal Analytics Applications Will Focus on Business Intelligence, ERP, and Product/Process Cost Data. As mentioned earlier, cost analytics will be key in this area. Such efforts draw on the ability of organizations to establish a strong cost-modeling database “backbone”, which draws on cost data from multiple points in the supply chain. This backbone will use different types of cost data, including actual data, assumptions about the data based on prior history, and approximated data based on “best available information”. Cost models will be used not so much for specific decisions, but will be used as directional indicators to drive business strategies, productive conversations with supply chain partners, and internal discussions with engineers, sales account managers, and purchasing category managers.
Network Analytics Applications Will Draw on Data from Partners with a Focus on Sharing Across Platforms. Leading companies know that to be successful, they will need to collaborate, and build trust, that will result in sharing of critical data across platforms. Many legal teams are loath to do this, but the fact is that knowledge and data sharing drives better performance….period. This includes monitoring of performance data, estimation of capacity, logistics network information, as well as product specifications, modular designs, production forecasts, and in-depth tacit knowledge associated with process engineering and improvement. Value to the business is increasingly driven by knowledge of supply markets, and the ability to communicate nuggets of information based on deep intelligence and insight into the current and future state of these markets. This includes not only macro-level forces, but also specific movements in markets and individual suppliers that signify the tipping point of major shifts in market dynamics.
Procurement will play a key role in monitoring supply base conditions. This idea of procurement acting as an early warning system and as an enabler of decision-support is becoming increasingly recognized. However, the idea of procurement as a market-facing forecaster is a new role for many companies. As such, the capability to absorb, translate and codify market-facing intelligence into meaningful implications and actions is an important capability organizations are seeking to initiate in 2014.
Future supply chain network analytics systems will integrate external partners to create dashboards, triggers, and notices, which will be consolidated into a stream of knowledge to alert executives about the sensitivities that exist within their extended supply chain. These types of data may need to be collected and stored in the cloud, and than partitioned and shared with different supply chain partners who are part of the trusted network. Intellectual Property issues will need to be developed in conjunction with the legal team in developing these shared analytics platforms, but in the end, those who are able to drive these solutions more quickly will become the winners.
Collaborative Analytics Will Determine the Winners Information derived through collaborative sharing of information from diverse sources, sometimes pulled together from various sources, and jointly acted on will build capabilities that will be difficult, if not impossible, for competitors to copy and mimic. Such systems will involve large quantities of data, in multiple forms, used to derive meaningful and directionally correct signals for impetus that drive categories. More important than the data is the ability of managers in the same supply chains to view it concurrently, and act in a parallel and consistent manner to make decisions that avoid disruption, create margin, or drive down costs. This involves development of data collection mechanisms that pull multiple government, private, and public indicators of material and labor price movements, capacity, and supply, and convert these through translation and decision analysis algorithms into specific early warnings, trend indicators, and category managers. The emphasis will be on early directional detection, rather than on specific predictions on exact, perhaps rash and speculative, movements to be made.
Community-based Analytics – analytics that are contributing to insights on sustainable supply chains and corporate social responsibility, both critical imperatives for manufacturing companies today. We predict that the importance of corporate social responsibility will continue to escalate in 2014, as the press continues to focus on working conditions in emerging countries. This will increasingly require companies to focus on labor human rights and life cycle analysis of their products, and identifying opportunities that will not only consider the working conditions and the ethical treatment of workers, but also the broader community-based awareness that is occurring in their customer base, as well as opportunities to taking out costs.
I feel pretty good about these predictions….they have come up in just about every conversation I have with executives today. I’ll be running some of these thoughts by a senior group of procurement executives later this week, and might still have an opportunity to augment or revise these before the year end!