Last week, SCDigest editor Dan Gilmore highlighted supply chain predictions for 2016 from a number of supply chain gurus. You can find that column here: Supply Chain Guru Predictions for 2016.
As promised then, we are also offering the full text comments from each of our gurus. We have made two of the guru predictions into separate Expert Insight columns, including Marc Wulfraat's excellent insights on Amazon.com's incredible logistics moves, and The Hackett Group's Chris Sawchuk on predictions for 2016 in procurement.
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No longer will we forecast to "one number"; we will forecast a range of material flow behaviors based on daily optimized flow plans that will have collaboratively agreed upon upper and lower control bands of shared risk.
Rich Sherman |
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This week, here are the full text predictions from pundits Gene Tyndall, Mike Regan, David Schneider, Michael Watson, Chris Gopal, and Richard Sherman. Good stuff.
So let's get right to it, starting with Mike Regan.
Predictions from Mike Regan, TranzAct Technologies
Many
prediction columns like to highlight emerging technologies or trends
that could potentially impact your business. Understanding technology
and trends is important, but here is one more immediate item to consider
- in 2016, your job may be at risk!
Why is your job at risk?
First,
based on my research, I predict the economy will remain soft throughout
much of 2016. Consequently, C-Level executives - especially those in
publicly traded companies - will demand that transportation and supply
chain professionals turn over every stone in order to reduce costs. And
if the cost cuts are not deep enough, or if your C-Level executives
conclude that someone else can de
liver more savings - or if they
simply decide to downsize - you could be replaced.
Before dismissing this as a "boy
crying wolf" scenario, let me explain. I have rarely seen as many senior
level transportation and supply chain executives let go as I did in the
latter half of 2015. Make no mistake about it, in 2016, your company
will expect you to take a scalpel to your budget and deliver significant
savings. If not, it could be you that gets cut.
Here is a key question for
shippers and third parties in 2016, "How will you reduce freight costs
when the carriers are looking for higher rates to cover increases in
their operating costs?"
With the exception of fuel,
carriers are experiencing higher operating costs (e.g., equipment,
driver compensation, insurance). Add to that the financial impact of
recent - and forthcoming - FMCSA regulations. And with the decline in
fuel surcharges, the carriers can no longer use them to mask their
actual cost increases. Considering all these factors, I am predicting a
very challenging rate negotiation environment.
 If
carriers are unable to get the rate increases they need to operate
profitably, they will be unlikely to add significant capacity. Overall,
they will remain focused on financial yields from good customers and
look for ways to augment their pricing to increase revenue. In the LTL
sector, expect more dimensional- and density-based pricing, which
(according to the carriers) more accurately reflects the costs for space
being utilized on their trailers. In the Truckload sector, expect
additional accessorial charges, especially for detention or anything
else that consumes drivers' time.
(One side note: there is a real
possibility that we will see consolidation in the motor carrier sector,
because the economic environment may create some unique opportunities
for financially-healthy carriers.)
Second, in "lean" organizations,
the focus is on eliminating waste and keeping inventory levels as low as
possible. But smaller inventories imply more frequent and/or smaller
shipments—and more shipments mean higher freight costs. Therefore,
transportation and supply chain professionals must have the necessary
tools to demonstrate the correlation between lean programs and freight
costs to their organizations.
With C-Level executives continuing
to demand reduced costs and bottom line results, shippers have two
choices:
• Get lower rates
• Implement more efficient supply chain processes that drive out costs
Given the
pressure to reduce costs, I predict more shippers will implement/rely
upon advanced Transportation Management Systems that can analyze their
data to find more cost-effective ways to operate their business. These
tools can highlight how freight is impacted by procurement, supply
chain, and sales practices. You can employ this to create a dialogue
with your C-Level about changes your organization needs to make to
achieve transportation savings.
Finally, given this mandate, you must decide:
1. Do I take the risk that we can
deliver these savings internally and rely on company resources, systems,
and support
or
2. Do I employ the outside expert resources to deliver the results that can increase profits and advance my career?
Savvy shippers, who care about
their careers, will choose the latter option. That is a prediction that
will be true in 2016 - and beyond.
Predictions from Gene Tyndall, Tompkins International
I am pleased again this year to offer my predictions for supply chains in 2016.
As I reviewed my predictions last
January, I was correct directionally on most. It seems that predicting
supply chain trends is simpler than predicting events or specifics, so I
will stay with this theme this year.
First, let's assume the consensus of
macroeconomic predictions will be reasonably accurate. These do indeed
impact supply chain trends, as we know, especially in terms of
logistics - freight and inventories. Some of these are:
• Modest GDP growth (2.7% vs. 2015 at 2.5%)
• Overall inflation (to 2.4% from just 0.7% in 2015)
• Crude oil prices ($45 per barrel, up from today's $37) and more exports
• Stock market (to 19,000 but more volatility)
• The pan-Asean Trade Pact (will be approved)
• Speed will matter and triumph (in all business processes).
So, with these in mind, my "top 5" for supply chains this year would be as follows:
1. Let's start this year with
"people and the talent shortage". We see several companies struggling
with senior level expertise, as so many "baby boomers" have retired or
are in the final months of their career. This problem is largely a
generational issue, but it is also the fact that demand exceeds supply.
As companies have expanded globally, and evolved into multi-channels,
the talent needs and requirements have increased. One key initiative
that is helping the gap already is the "Leading Women in Supply Chain"
program started by our good friend and strong supply chain leader Ann
Drake, in 2013. Titled "AWESOME", this group has expanded to hundreds of
members and held its largest conference this year at J&J. Thanks
to Ann for starting this group and widening its membership, thus
expanding our leader resources and future executives.
 2. Distribution has taken on new strategic importance and will continue to
upgrade this year. New requirements for e-fulfillment operations will
get most of the attention; however, the opening of the new Panama Canal
will intensify the need for large-scale facilities as well. We see more
automation, and increaseing uses of robots, coming this year.
Facilities that share both pallet shipments and item boxes are becoming
more common, just as are those with specialized operations. The real
driver is the Operations Strategy of the company and its needed
capabilities.
In addition, we see no peaking of
outsourcing Logistics. The key questions here are what best meets the
needs of the company - the large 3PL's such as XPO and others, or the
smaller, more specialized companies? There are several criteria to be
evaluated in selecting, maintaining, and/or improving the right service
providers for the individual customer company.
3. Operations Strategies are
finally catching on as the right linkages for business strategies with
execution. The identification of what "capabilities" are necessary in
order to achieve the business goals has been made more evident by the
explosion of e-Commerce and its "Omnichannel" objectives. This is true
for not only by Retailers, but by all companies that buy, make, move, or
distribute products. Amazon's explosive growth has awakened others to
the need for counter-solutions, often for survival, but always for
protecting and growing market share. Further, the growth of
"cross-border Omnichannel" will challenge many companies to execute
these as a critical success factor for profitable growth.
This awareness of the importance of
operations strategies has also surfaced as one of the critical
objectives of the S&OP Process. A successful S&OP Process
aligns the company to execute in alignment with its business goals. As
S&OP processes mature, and morph into "integrated business
planning", the leading companies that get this right will be known to
excel in supply chain management - to best balance supply and demand,
lead in customer satisfaction and profitable growth, and thus create
stakeholder value.
4. Technology, of course, will
increase and expand. Not only more into decision-support systems and
tools, and "artificial intelligence"; but, also with the Internet of
Things (IoT), with robotics, with freight moves, and with some impact
with drones. We are expecting more robotics in Distribution Centers for
Material Handling, along with smarter automated designs. For example,
look for robots in support of container unloading and unloading, and for
certain picking modules. Many 3PL's are investing more into technology
for not only efficiency, but also for speed and human error reductions.
Technological innovation is more possible in 2016 than ever before, as
the costs to develop and offer it from "the Cloud" are more acceptable
than before.
5. Last, but certainly not least, is
Risk Management. This trend will continue throughout 2016, as the
threat of Terrorism expands; as weather crises occur; as globalization
expands; and as Labor unrests challenge facilities - to name a few of
the major risks. A few are somewhat predictable, though not when or
where; while others can only be expected. This places a complex
challenge on supply chain leaders to continue to establish mitigation
strategies, for suppliers, for service providers, for customers, and for
their own internal risks, such as errors, technology failures, or other
surprises.
As last year, I hope these "top
5" predictions for Supply Chain Management help leaders prepare for and
respond better in 2016. We continue to see more "fire-fighting" being
necessary in many companies than time available for leadership,
strategy, planning, and mentoring. Sure, the world is complex, as are
supply chains, but achieving and maintaining operational excellence are
value creation drivers, and the leading companies prove that each day.
Predictions on Supply Chain Network Design and Analytics from Dr. Michael Watson of Opex Analytics and Northwestern Unoversity
 Top 3 Predictions for supply chain network design in 2016:
1. Modeling will become more
collaborative. Modeling has always required data and feedback from many
different people in the organization. Now, cloud-based technology now
makes it easier to have different people in the organization work on the
input files and explore the results.
2. Your team will learn the term
data munging. Preparing data for a modeling exercise can involve
working with 20-40 different data files and going through 100s of
different steps. This is cumbersome in Excel and Access. Data munging
refers to the process of going through those steps to prepare the data.
But, more interesting, there are now tools (Alteryx and LLamasoft's
DataGuru to name two) that allow you to systematically execute and
repeat these steps. These tools also make it easier to remember what
you did when you return to work after a long weekend.
3. Machine learning will help you
understand your data and automate the modeling building. When working
with complex and detailed transaction data, machine learning algorithms
will help you get deeper insights into your data. It will also help you
automate the model building processing by cleaning the data, filling in
missing gaps, and pointing out inconsistencies in the data.
(See More Below)
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Predictions from David Schneider of David K. Schneider & Associates
It
all comes down to the price of oil. The lower the price of crude goes,
the slower the economy grows. This year will confound  many, as oil goes too far and kneecaps US economic growth.
While many
are going to cheer the price of crude oil dropping below $30BBL, the
drop is going to undercut industrial growth in the US. Oil
exploitation, drilling and infrastructure all drove the industrial
growth post 2010. The shale oil producers can cut just so much cost
before they have to fold, and we are going to see many fold in the first
half of 2016.
Any
company that made hard objects used in machines, like steel, or
precision parts, or pumps, valves, pipe, compressors, those
manufacturers have already seen a drop in demand, and cut purchases and
workforce. The railroads are feeling the pinch, as demand for pipe and
other products drop. The rails are going to feel a bigger pinch as the
sweet crude of the shale stops flowing and the crude by rail (CBR)
volume drops. Refiners who jumped on the CBR will feel the delayed
pinch as they can't get the crude they want without tapping via pipeline
the stored excess in Cushing and other tank farms around the country.
Boom/bust. That
is the way the oil business continues to swing. It will show a whipsaw
this year and cut into the broader economy.
Grain farmers
enjoyed three huge years of favorable weather and growing conditions,
including the folks who grow corn. But demand for US grains dropped as
less corn converted into ethanol, and fewer countries found American
grain affordable because of the strong dollar. Grain storage is close
to peak, and if it does not turn, there may be fewer acres of land
growing grains. That is hard for Deere, Case New Holland, Monsanto, and
the rail roads who move the bulk fertilizers and the grain to markets.
Farm incomes will drop, and food prices may soften.
The low price of
oil is changing the economics between rail and truck. Some shippers
are now seeing an advantage of moving freight out of containers in port
and trucking to inland destination rather than intermodal moves. A few
years of attention to packaging, and dim weight now pushes more value
into cubic foot of freight. While trucking capacity may be tight in
some lanes, there is always capacity appearing as the economy slows
down. So intermodal rail volume will drop, or at best stay even with
last year. Coal moves are down, as are everything else. The railroads
are going to have a hard year.
Saving fuel is no longer the
incentive it was just 18 months ago. Revenue and cash flow generation
will start to be more important as the ripple effect of the low cost of
oil and natural gas starts to work across the broader economy. It is a
story of too much of a good thing, where the price goes too low for too
long.
Sorry, but I don't see a happy picture until crude goes back to $50BBL.
Predictions from Dr. Chris Gopal, Drucker School at Claremont
 First,
the supply chain will increasingly be seen as a driver of revenue and
customer management. The customer-driven supply chain ("designing the
supply chain from the customer looking back") is now more than on
time/in full delivery. It is the customer experience life cycle (from
the time a customer browses or needs something through purchase, pay,
deliver, service and return) for different segments without any
"unnecessary excellence."
It
includes customer acquisition and retention, the ease of doing
business, differentiated service offerings and personalized service,
co-planning and execution, and the maintenance of brand equity through
"socially responsible" sourcing and supplier tracking for mandates such
as conflict minerals and corruption. The key will be achieving these at
the best cost and risk structure.
Secondly, new developments in
manufacturing technologies and automation will change the cost, risk and
customer dynamics of the supply chain. These include additive
manufacturing, Manufacturing 4.0, "intelligent" robots, warehouse
automation and autonomous vehicles. These are radically changing the old
"economies of scale" cost curves and structures, enabling lot sizes of
one, leading to final operations facilities close to the customer (and
away from risky areas), and involving customers in the design and
fulfillment processes. A likely outcome could be the reduction in
outsourcing as labor content drops and the design-manufacturing process
becomes a core competency.
Thirdly, dashboards and basic
analytics will drive the "intelligent" supply chain. The focus will be
on basic actionable intelligence in the supply chain, including daily
dashboards and core analytics around customers, supply, inventory, sales
& operations planning, fulfillment and finance. "Intelligence" will
replace the "big data' hype, and companies will start placing a great
deal more attention to developing predictive and prescriptive "advanced"
analytics driven by the Internet of Things. However, it will be the
basic dashboards, information and on-demand "what-if" analysis that will
be the main concerns of executives in the coming year.
Fourth, talent management and
education at the executive and manager level will become an increasingly
important part of executive attention and competitive strategy. If
there is a critical success factor to achieve success in today's highly
variable and complex environment, this is it. Supply Chains are facing a
serious skill shortfall. Executive Education and "upskilling" will
focus on functional competency AND the "holistic" view of the supply
chain - impacts on the customer, organization, finances, stock price and
other functions.
In addition, companies will be investing in the
training of technicians, factory and warehouse workers in new
technologies. It is becoming apparent that the new environment requires
a higher level of supply chain skills, and that indiscriminate
outsourcing is leading to a dangerous and risky loss of skill and
capability.
Finally, the increasing economic
and geo-political uncertainties (China, fuel and transportation costs,
government regulations, terrorism, to name a few) will increase the
visibility of risk and the strategies and structure to mitigate it. It
is not just cost per unit that is driving trends such as
"re/near-shoring" or "in-housing", locations in proximity to markets,
redundancy in supply and suppliers and forward buying, but the strategic
need to maintain control, mitigate risk, manage brand equity and stop
loss of core capabilities and intellectual capital. Risk will be
defined as more than major geo-political and natural disaster events that disrupt supply -
and is an increasing part of the BOD agenda and supply chain strategy.
Predictions from Richard Sherman of Tata Consultancy Services and a Well-Known Supply Chain Analyst
 In
my book "Supply Chain Transformation," I marked the millennium as the
dawning of the "Connected Age." In 2016, connected commerce is emerging
as the 21st Century business as usual. With mobility, GPS/Location Based
Services, Big Data/Analytics, Robotics, Cloud/Pervasive Computing,
Additive Manufacturing, and an Internet of Everything/Industrial
Internet, 2016 will mark the beginning of the long awaited
transformation of tradition sequential, linear supply "chain" thinking
to digitally enabled, systems, and supply "network" thinking.
We like to call the Next
Generation supply chain the Smart Digital Supply Network (SDSN).
Regardless of what we call it, 2016 will ring in major changes that
remove the constraints tradition planning and execution models have
labored with over the years:
The Rise of Digital Demand Management
Despite the impact that accurate,
timely demand planning and management has on the financial health of the
company, we have become so accustomed to the forecast always being
wrong that many companies don't invest either financial or human capital
to improve it. Look for that to change as the SDSN is adopted by more
companies. The Demand Management Program Office lead by a Chief Demand
Officer or outsourced to a Planning as a Service provider is emerging.
Leveraging new and more abundant sources of real time end to end data,
data scientists and engineers will generate significantly more accurate
and timely plans at the SKU by location level unencumbered by functional
"silos" and lack of visibility to new conditions that cause history to
change. These more accurate forecasts will turbocharge S&OP/IBF
processes while supporting and improving the $million day to day working
capital decisions that planners and schedulers make based on custom
spreadsheets and tribal knowledge.
Supply Network Transparency is the New Supply Chain Visibility
No longer the holy grail of the
supply chain, visibility will be replaced with the information sharing
and transparency of the SDSN. In 2016, the next generation of visibility
will be advanced descriptive, diagnostic, predictive, and prescriptive
analytics base on monitoring supply network data end to end to sense
variation from plan and alert the appropriate associate to take
prescribed actions to bring the flow back within objective. Track and
Trace and regulatory compliance will be ubiquitous. Visibility will be
unnecessary as the data and analytics to provide relevant information
and recommendations will be transparent to the user.
Process Control for the Supply Network
Fueled by end to end real time data
and advanced analytics, 2016 will bring realization to the vision of an
"I4NI" or substituting "information for inventory." Fifty-two week
rolling forecasts recalculated daily by the Demand Management Program
Office will enable process control applications across the supply
network. No longer will we forecast to "one number"; we will forecast a
range of material flow behaviors based on daily optimized flow plans
that will have collaboratively agreed upon upper and lower control bands
of shared risk. As the flow is monitored in real time, the system will
sense if actual demand is trending up or down toward the agreed control
points. If the trending places the flow at risk of exceeding the control
bands, planners are immediately alerted and provided with prescriptive
actions to take to bring the flow back under control in response to the
variation from plan.
Manufacturing 4.0, the Factory of the Future, and the Warehouse of the Future
No longer an "inside" the four
walls process, the SDSN breaks down the four walls of the factory and
warehouse and connects them with all of the other nodes in the network. A
"Digital Thread" connects research, engineering, and/or design groups
with procurement, production and distribution aligning them to
collaborate on new products, engineering changes, and other product
improvements. Additive manufacturing technologies such as 3D printing,
combined with advanced robotics, both fixed and autonomous, will
transform traditional manufacturing and warehousing operations as they
assume new roles in the SDSN.
Connected Commerce Replaces eCommerce And Omnichannel Reigns
The transparency and analytics of
the SDSN will expose much of the presumed Emperor's new clothes. Are
Amazon and Ali Baba "Humpty Dumpties" sitting on the wall? Sure,
eCommerce is growing rapidly; but, at still less than 10% of retail
sales, online sales with home delivery are pushing the capabilities and
capacity of our parcel management system. Drones, you think?
Think of
the number of home delivery vehicles that traverse your neighborhood
daily and the number of packages each holds. I don't want to open my
door one day to see a swarm of drones like a scene out of "The Birds."
The SDSN will enable data-driven segmented selling and fulfillment
strategies that are truly Omnichannel, leveraging the best buy and
deliver strategies to provide the best response to the customer/segment
served.
The Tip of the Iceberg of the Connected Age
Transformation and change are
inevitable. Growth is optional based on whether you embrace the digital
world intentionally or are unintentionally consumed by it. Regardless,
I'd like to offer two quotes that I think sum up the transformation that
is upon us in 2016. First, Joe Krause, dotcom pioneer and partner at
Google Ventures said in a recent BBC interview on changing markets: "The
20th Century was about dozens of markets of millions of consumers.
The
21st Century is about millions of markets of dozens of consumers!"
Traditional supply chain planning and execution models and thinking
simply are not adequate to compete in the 21st Century Connected Age. If
you don't agree with me, than I would offer a quote from Charlie Feld,
Author and Thought Leader, Founder of the Feld Group Institute: "If you
don't like change, then you're going to hate extinction!"
Hope you enjoyed this year's guru predictions.
Any
reaction to any of these 2016 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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