|Last week, SCDigest editor Dan Gilmore highlighted supply chain predictions for 2017 from a number of supply chain gurus in our virtual panel. You can find that column here: Supply Chain Guru Predictions for 2017.
The second half of his two part column series will run this week, with more summaries from rest of our panel.
As promised in that column, as usual we are also offering the full text predictions from of the gurus highlighted in Gilmore’s column last week. We will similarly publish the full text predictions from the second half of the panel that will be featured in the week’s column.
Supply Chain Digest Says…
|Nothing will change management structures, company cultures, behaviors, or processes themselves, until business executives learn to appreciate the contributions of supply chains as business value drivers.
So below are the full text predictions from pundits Mike Regan (TranzAct Technologies); Gene Tyndall (Tompkins International); Dr. Michael Watson (OpEx Analytics and Northwestern University; and Jim Barnes (enVista). Good stuff.
So let’s get right to it, starting with Mike Regan.
Predictions from Mike Regan, TranzAct Technologies, on the Trucking Sector
Here’s our bold prediction: For those of us who grew up watching I Love Lucy, 2017 will be the “Ricki Ricardo Year” where, just like Lucy, shippers will have, “a lot of explaining to do.”
In 2014, Dan Gilmore wrote an article, “The Coming US Logistics Cost Crack-Up?” The point of that article was to highlight factors that could cause significant increases in carrier rates in the upcoming years. Those increases did not materialize in 2015 or 2016. But 2017 will be the year that people experience the beginning of the consequences foretold in that article.
In 2016, we predicted that shippers would take advantage of a soft transportation market and adopt a more aggressive posture in their rate negotiations with carriers. In 2017, the proverbial shoe will be on the other foot, and carriers will be taking advantage of tight capacity and looking for higher rates. The impact on transportation budgets will be determined by just how quickly these new contracts and pricing go in to effect.
Consequently, increases of 5% to 7% from truckload carriers may not be immediately reflected in year-to-date budget numbers, but monthly trend numbers could result in transportation and logistics executives having to explain significant budget variances to their C-Level executives.
In 2017, we predict that more shippers will begin to apply Lean Principles to address the significant waste and inefficient processes involved in managing their transportation spend. As prices come down, the interest in using technology to streamline logistics processes will go up.
As we get closer to the December timeline for ELD’s, the market will get a better understanding on how the ELD mandate will affect productivity and capacity. This will increase pressure on carriers to look into technologies that enable them to maximize the value of their assets (drivers and trucks).
As retailers (and others) refine their delivery requirements (e.g. Wal-Mart’s On Time-In Full program), companies will be looking for real time data on their shipments. That is why we predict continued interest in development/advancement of communication technologies that provide information to carriers and shippers about the location of their trucks and freight.
There will continue to be development of the “technology of the future” (e.g. driverless trucks and the “Uberization” of trucking), but in 2017 the impact of these technologies will be minimal.
So if you are a shipper, begin looking at what processes you need to tighten up and what technologies can help you become more efficient. If you wait until rates have already risen, and your budget is severely impacted, you will be left with a lot of explaining to do!
Predictions from Gene Tyndall, Tompkins International
I am pleased again this year to offer my predictions for Supply Chains in 2017.
To begin with, I am avoiding the obvious forecasts for the year, for example:
• The U.S. macro-economy will expand under the new President, which will be positive for most all business sectors.
• The Digital disruptions will continue, as Amazon, Uber, and other digital-based companies grow and expand into both domestic and international markets, and also into both consumer and industrial segments.
• Cloud-computing will continue to expand, and accelerate, as businesses invest more into less expensive, highly secure, and faster implementations for supply chain systems and apps.
• Customer-centricity is finally prevailing as fundamental to demand-driven supply chains, which by their nature, are more amenable to cost management and predictability than supply-driven long lead times with demand uncertainty.
• Supply chain risk management will not diminish, even as some degree on US-based manufacturing growth is achieved, as many suppliers and components remain global in locations, and risks of disruptions are everywhere.
And, several more could be cited, as again this year, there are no shortages of predictions about the economy, businesses, and the workforce.
So, here are my most important “top 3” substantive predictions for Supply Chains, with the above forecasts serving as the backdrop:
1. Let’s start with Supply Chain Planning (SCP), which most agree creates the supply chains, or adjusts them, based on known conditions and expected sales. Despite the fact that the “art and science” of SCP has improved, and many companies are making use of advanced tools, it continues to be difficult to point to substantive results of plans.
Annual plans, for instance, are often out of date 6 months into them, as markets change, online order volumes expand, and customer preferences are variable. In addition, Supply Chain planners continue to struggle with integration and alignment with other strategies and plans of their companies. While S&OP processes are meant to improve this prevailing situation, there are too few solid examples of “Integrated Business Planning” (IBP), where all plans are driven by an enterprise-wide strategy.
My prediction: there will be further progress toward robust and implementable planning, but not widespread transformations to effective S&OP, much less an effective IBP. The reason: this requires more than artificial intelligence, advanced optimization, or predictive analytics. The commonly used phrase to explain good performance, “the integration of people, process, and technology”, will remain elusive for most companies.
2. Next, let’s consider the trends in Digitalization. There is no question that the “Digital Age” is upon us; the real questions are “so what?” and “what next?”. Digital thinking and its components have only just begun to impact supply chains – whether in planning or in execution. Yet, its business disruptions are more and more evident. Digital transformations put companies into “uncharted territory”, which makes the design of practical planning scenarios both challenging and complex. The normal objectives of effective supply chains – fast, efficient, flexible, and agile – are even more complicated to achieve in execution.
My prediction: more and more implementation of digital components, such as Internet of Things (IoT), robotics, artificial intelligence, and others, will find their way onto digital “platforms” that will produce impressive results. This will be especially true in DC’s and in Fulfillment Centers (FC’s). But, creating digital supply chains requires a journey, not a project, so we will only see incremental improvements.
3. Next, let’s consider the issues surrounding Supply Chains in the executive suite. While the last few years have produced significant gains in getting supply chains on executive agendas, we still have a ways to go. With only 25% of companies having a designated Chief Supply Chain Officer (CSCO), we have to wonder why this surprisingly low number remains the case.
Further, we still find gaps in Operations Strategies vis-à-vis Business Strategies, which lead to problems with capabilities and missed opportunities. Even further, we still find senior leaders viewing their supply chains as “cost centers,” and thus push for continuous cost reductions, without understanding the value creation of high-performing supply chains for achieving and sustaining customer loyalties.
One of the lingering key factors for this situation is the recurring functional views vs. process views – i.e., operating the company through functional managers, and not through business process leaders. Not only are opportunities lost due to terminology conflicts, but also through functional performance measures. Reducing costs by functions is less difficult than through processes (e.g., order to delivery, procure to pay, or product design to customer), but thus far less important or value-based.
My prediction: we will see gradual progress in this area, but not widespread gains. Neither ERP systems, nor advanced business planning tools, nor granular analytics, will change management structures, company cultures, behaviors, or processes themselves, until business executives learn to appreciate the contributions of supply chains as business value drivers.
Let’s hope my predictions for continued gradual progress in these 3 critical areas prove to be exceeded. My previous annual predictions proved to be overly optimistic. Thus, I am suggesting for this year that the complexities of people (talent), processes (redesigns and culture), and technologies (Digitalization, Advanced Analytics, AI, and others), will once again limit the transformation of supply chains as forming the most important executive business goal on the agenda.
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 and analytics in 2017:
1. In global companies, we are seeing a trend to more frequent runs to determine if there is a savings because of foreign exchange rates. This is followed by the ability to switch sources quickly. This is a hard process to set up, but if you can do it, you can get find $100K-$250K savings per model run.
2. We also predict that data engineering will continue to be viewed as an important skill. Data engineering is the art and science of blending data from multiple (and different sources), automatically cleaning and filtering the data, and transforming the data to be useful for analysis. For example, on the easy side this is taking customer data and geocoding the information or transforming a table with monhtly demand as column headers and normalizing it.
On the harder side, this is combining different demand files and automatically converting to the correct units and currency based on the source file, automatically cleaning out data that meets certain criteria. This is work that has always been done. But, it was originally all done in Excel and then Access, But, now with tools like LLamasoft’s Data Guru or Alteryx you can do it much better and faster.
3. We predict that network design modelers will start to use more open source tools, like R and Python. For example, you may need to do some statistical tests on the data prior to running a network model – you may run a regression to predict transportation prices, a forecast to project demand out the next 5 years, or do some data mining to look for bad data. The growth in the use of open source tools will come from two directions. From a career development perspective, your network design modelers will want to know this technology. Second, as your business asks more of your modeling team, you will need all the horsepower it can get to keep up.
1. Should we retire the term ‘Omnichannel strategy’ and replace it with Unified Commerce or Enterprise Commerce? From my perspective, the answer is yes, yesterday. Omnichannel as a strategy is dead. The term served a purpose to get traditional (brick-and-mortar) retailers to start thinking about how to break down organizational silos. The reality is that omni-channel is an inward-facing focus versus a customer-centric approach where retailers actually want and need to focus. Customers do not care about, nor speak in terms of channels.
Does a customer say, “Hey Fred, I bought this from the Nordstrom ecommerce channel?” No, they simply expect retailers to make it easy for them to buy and return the items they want, anywhere and anytime. What matters the most in retail commerce is the ability to source inventory closest to the demand point, regardless of order capture form factor and the ability to delight the customer.
Building brand loyalty is the cornerstone of good retailing. How your customer buys from you and how you deliver inventory (merchandise) to your customer with efficiency and speed impacts brand loyalty. Thus, 2017 and beyond will be about speed to delivery and convenience. The internet of things (IOT) has created a consumer expectation that one can have what they want, when they want it, which is almost always immediately.
Therefore, the retail winners versus losers will strategically position inventory sources closest to the demand point to be able to deliver in minutes or hours. Technology will not be the barrier to service. Resource capacity and how a retailer or distributor positions and leverages assets in their fulfillment network will determine whether or not a unified commerce experience is achieved. I also predict that Amazon will buy a major apparel or footwear brand or store chain, like Nike, Under Armour or Staples. As it stands today, Amazon is the second largest apparel retailer behind Walmart and Staples has a significant delivery network for business to business.
2. Traditional ecommerce will die over time and will be replaced with only a handful of marketplaces, such as Amazon, Ebay, Jet (Walmart), Groupon, Wayfair, Etsy, etc. Brands will have a hard time competing with marketplaces that have an integrated, enabling unified commerce technology platform and fulfillment distribution networks to deliver in hours versus days, and this includes physical stores. Why? Based on factors described in my above prediction, along with item assortment. An expanded Item assortment is key. If you can shop on a single site or marketplace that has everything you need to complete your Christmas shopping at a competitive price versus ten sites, eight out of 10 customers will opt to complete that transaction from a single marketplace.
So how do you compete with marketplaces? You need to create a personalized online shopping experience with item assortments custom curated for the individual. The challenge with e-commerce sites today is that there is nothing intimate about them, which is why they at best deliver conversion rates of only 1% to 2%. The future is where digital and brick-and-mortar meet. For example, sales associates can and should be leveraged as taste makers, empowered to create unique webstores for their in-store clients within minutes. Promotions can be emailed to that shopper offering discounts for purchases made within a given timeline to help drive sales. When custom webstores are created, conversion rates exceed 20% and cart sizes increase because the assortment is specific to the customer. Again, customer-centric solutions will be key for competitive advantage and brand loyalty.
3. Two years ago I predicted that Amazon would build out their own carrier network after UPS’s less than stellar holiday fulfillment performance. Will there be coopetition with UPS? I believe the answer is yes, but Amazon will only use common carriers focused on long-haul transportation moves. Last-mile delivery within dense geographical areas will be managed and delivered by an Amazon delivery network. Thus, I believe we will certainly encounter more Amazon trucks in the near future.
What is more difficult to build – a marketplace or a fulfilment distribution network? I hope you said, a fulfilment distribution network and supporting operations. It took co-founder Marc Lore less than three years to build Jet.com, which was sold to Walmart for $3.3B, plus $300M in stock to paid out over time. How long has it taken UPS and FedEx to build out their delivery network? 30+ years. Clearly a fulfillment distribution network is harder to build. So when is UPS or FedEx going to wake up and buy a marketplace?
4. ERP for retailers is also dead. Enterprise Commerce organizations that capture demand through multiple form factors and locations don’t require an ERP. What is required is a Unified Commerce or Enterprise Commerce Platform that manages and optimizes item attributes, pricing, promotions, item assortments (digital and physical catalogs), customer master, enterprise inventory visibility, order life cycle, payment life cycle, fulfillment execution, shipment and carrier data via an integration platform as a service (iPaaS). Enterprise Commerce is the post-modern ERP for traditional retailers and the future for all retailers, regardless of how they engage with the customer.
Therefore, traditional ecommerce platforms, order management, point of sale, product information management, pricing and promotions, physical and virtual catalog platforms will merge into a common platform. Oracle’s acquisition of Micros (POS, OMS and Digital Platform), Salesforce acquisition of Demandware, Manhattan Associates’ acquisition of Global Bay, the newly formed KIBO (OMS, Digital Platform and POS), and Enspire Commerce (POS, OMS, PIM, EDI, fulfillment execution, and digital micro sites) are the eventual future for traditional retailers, but these solutions represent the current approach for retailers with a focus on customer engagement.
5) Retail winners are going to be those that focus on inventory flow and compressing cycle times. We need to borrow from manufacturing-centric supply chains that have historically been focused on decreasing lead times and eliminating waste (Lean thinking). The future of retail supply chain will be focusing on increments of one – one customer and one unit as the batch size. Zara has done a phenomenal job of being vertically integrated where they can deliver from design to shelf in less than 30 days. I predict more retailers will move to implement these types of practices in an effort to reduce waste, improve inventory turns and reduce total supply cost while servicing the customer in a unified manner.