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2010 Supply Chain Trends
We’re over a quarter of the way through 2010 and this year is shaping up to be another remarkable year in supply chain. Below are some of the biggest trends we’re seeing in the industry and reflected through client operations.
- Transparent Supply Chain Technology Platform
- Green is Real and Here to Stay
- Globalization, Low Cost Country Outsourcing, Domestic Outsourcing… Focused on Cost Reduction
- Global Talent
- The Generation Gap
- Strong Survive & Weak Die
I’d enjoy hearing from you, especially if you strongly agree or disagree with any of these points. And if you’re planning to attend NA 2010, please let me know. I’d welcome the chance to grab a cup of coffee at the show, or a cocktail with you at our sponsored cocktail reception.
Best regards,
Jim Barnes
jbarnes@envistacorp.com
Click here to check out my blog.
2010 Transportation Trends
1. Transparent Supply Chain Technology “Platform”
At enVista, we categorize supply chains into four fundamental types: Distribution, Manufacturing, Purchasing and Service-Centric. For example, a vertically integrated CPG company would be classified as a hybrid of three different supply chains (Manufacturing, Purchasing and Distribution), compared to a retailer who is a hybrid of two types (Purchasing and Distribution centric). At the end of the day, and regardless of which type of supply chain your company is, your supply chain is required to meet or exceed the end customer’s expectations while maintaining profitability.
Supply chains are becoming ever more complex. In recent years, they have also become more dynamic in nature due to economic pressures. Thus, agility has become imperative to competitive advantage. There is an increasing interdependence on technology, processes and people. The Supply Chain Eco-System is continuously evolving, and what has worked in the past is no guarantee for future success. Technology solutions used to manage supply chains are vastly different based upon the business objectives of the company. A pure e-commerce retailer has much different software requirements compared to a manufacturer of cell phones. One solution does not fit all.
To manage and execute their supply chains, Supply Chain practitioners have historically had to use: 1) enterprise resource planning (ERP), 2) best of breed (BOB) or 3) legacy or home grown solutions. Over the last decade many companies have used a combination of BOB applications with their ERP system. Or in the case of some retailers, they have used a combination of BOB solutions for merchandising, replenishment, allocations, financials and distribution, and home grown legacy solutions to manage their business.
Many of the ERP software vendors have tried to develop end to end solutions, but have struggled in the area of optimization and execution. To overcome the functionality gaps in their core solution they have made acquisitions. On the other hand, non-ERP providers who have focused on execution and optimization have made acquisitions to overcome their inability to plan and become the transaction of “record”; the single data model for the enterprise.
These supply chain software companies have either built or acquired a "suite" of solutions that may or may not be integrated, but more importantly, do not work on a common data model with shared business objects. The extreme is a software vendor that has made numerous acquisitions or has developed solutions on different technology stacks that are not integrated but rather “assembled” with a common user interface to look like a “suite”. The underpinning solutions are not integrated and do not share data between applications.
In an ideal world, supply chain leaders would completely align and develop their strategy based upon business objectives and desired outcomes that have been developed by their company’s executives. The supply chain team would behave knowing the decisions and actions they make impact either 1) customer service, 2) top line revenue, and/or 3) profitability. Unfortunately, in many retail environments or complex supply chain environments, resources make decisions in a vacuum not knowing in REAL time the impact their decisions may have on the supply chain upstream and down-stream.
Let’s look at, for example, a merchant/buyer who decides to bring in a ski-related product early because of potential spike in demand (forecasted snowstorm). They decide to expedite the freight and the only the supplier that has the desired inventory in stock can ship on Friday, meaning the warehouse will have to work on Saturday and deliver to the store during the weekend. Sounds great in theory, but what is the cost and service impact of that decision? If the snowstorm does not hit as predicted, what is the impact of the extra inventory, space in the warehouse and expedited transportation cost? On the other hand, if the snowstorm does hit and the buyer was right, it is dubious he or she knew the impact on margins and the cost to serve prior to making the decision. The best case would be if the buyer’s platform architecture used SOAP and WSDL to allow for easy integration to other applications, widgets, and programming languages and informed the buyer of the snowstorm proactively because the demand planning and replenishment system was tied to the National Weather Bureau. An integrated platform would more easily allow employees to make more informed decisions and understand implications across business areas and departments.
This leads to why I believe supply chains should ideally run on a universal technology (“transparent platform”) whereby there is complete transparency and “one version of the truth” across business areas. A platform offers more than just visibility and alerts, which are historical in nature. Even greater benefit is offered when multiple applications that reside on a single platform are used for optimization and predictive ‘what if’ analysis. In my previous example, if there was a single platform sharing the same data model and with common business objects then the buyer could understand the impact of his or her decision prior to issuing the PO to the supplier. The buyer could determine in an informed way the best option as weighed against supply chain and overall executive level objectives (customer service, top line revenue, profitability). What if I execute one PO and expedite the freight by having the vendor drop ship to a few stores, versus shipping to the DC? What if I ship to the stores on Monday vs. Saturday, what is the impact to my sale through rate on the item and transportation cost? My point is that this level of intelligence is impossible without a single platform that is synchronized from source to consumption. The buyer could have completely eroded his margins on the item because the merchandise had to be air freighted from the east coast.
The trend for 2010 and beyond is for supply chain-centric software technology firms to develop their solutions on a single “transparent platform,” which runs on one technology stack with one data model. Supply Chain Planning and Execution centric software vendors are adopting integrated workflows and user personalization (defined roles) with common business objects. This means there is only one item master, purchase order, and sales order. This minimizes master data integrity issues and ensures that ALL supply chain management personnel are using the same data. Data integrity is key when trying to develop multiple reports, dashboards or queries across an organization’s enterprise and supply chain.
Having common business objects that are shared across applications are mission critical to drive the lowest total cost of ownership. In addition, common business objects are shared between applications (functionality) allowing for either simultaneous optimization or common work flow. An example would be optimizing PO order consolidation for an inbound load plan and sharing that consolidation with the WMS. Having one PO table within the database that is used by both the WMS and TMS with shared business objects allows for improved work flow through out a company’s supply chain. Last but not least, a platform allows for transparency and drives accountability within the end user community. For example, a vendor is going to be late with a shipment based upon the initially requested must arrive by date (MABB). An alert is sent to the buyer, replenishment team, inbound receiving team and transportation team providing each with visibility to react to the alert, but more importantly, allowing the applications to re-plan automatically. This could mean sourcing the product from the other vendor or expediting the freight and knowing the impact to cost in advance.
The new splash and buzz is about getting on one “transparent platform”. Technology has matured to allow for a common work flow layers, business objects layers, optimization layers, web services layers and business intelligence (management reporting) layers. Supply chains are not getting simpler to manage, they are getting more complex. The future is about cross-functional awareness and organizational accountability through a “Transparent Technology Platform” which reduces the complexity and simplifies decision-making and execution.
2. Green is Real and Here to Stay
Open up any business or consumer publication these days and you can usually find content and advertisements centered on Green messaging. While there may be a slight level of ‘hype’ currently, the bottom line is that consumers have shifted toward becoming more environmentally conscious and in turn expect businesses and government to follow in kind. I live in San Francisco and it is a city mandate that residents must compost all food that is bio-degradable. I have three different garbage pales. Yes, three! One is for recyclable materials, another is for non recyclable materials and still another for composting. Supply chain centric companies (Retail, CPG, Manufacturers, B2C, and Transportation) are going to be affected by both governmental policy makers and consumers that are environmentally conscious. Supply chain centric organizations (Manufacturers and/or Distributors) in the near future will need to build environmentally sustainable global supply chains. The trend for most companies is that it is “cool” to be GREEN on a marketing level. However, most companies don’t see being GREEN as a competitive differentiator; hence they are not investing in reducing their carbon footprint. However, supply chain centric organizations will not have a choice as global policy makers develop local, state, country and global laws. After spending the last 9 months in Europe, the U.S. is behind. European companies are constantly looking at means to reduce their carbon footprint output, specifically in the area end consumer packaging and packaging used for shipments. Their focus is simple: less is more. Leading companies will go Green beyond marketing hype to make Green initiatives a competitive differentiator and a means to reduce overall supply chain costs. Supply chain has gone 'ever green'.
3. Globalization, Low Cost Country Outsourcing, Domestic Outsourcing… Focused on Cost Reduction
An ongoing trend, and one that will continue, is for companies to look for low cost country manufacturing and sourcing. China has been the dominant player as the low cost country for manufacturing for the last 20 years; however Vietnam, South Korea and Taiwan are emerging as low cost country adversaries. In the case of software development, India has been and remains by far the leader in low cost software development and customer call support. However, the Philippines and Morocco are alternative countries for software development and call center support.
In 2010, U.S. based companies with domestic supply chains will continue to evaluate cost reduction programs that are focused on reducing fixed and variable warehousing costs, inventory and transportation. Although LEAN is used widely for manufacturing centric companies, distribution and purchasing centric companies have NOT yet caught on to the concept of LEAN. LEAN thinking is not part of a distribution-centric company’s mindset. It is unfortunate, but true that many Executives are not making LEAN a corporate wide initiative and hence not a top priority within their company. I meet very few executives who can explain basic LEAN principles. Integrating LEAN principles and practices remain a key opportunity for most organizations.
Although the 3PL market was hit extremely hard, companies will continue to evaluate domestic and global 3PLs to manage their network. From our experience, companies now have a renewed focus on their core competencies and are and subsequently evaluating ways to clean up both their P&L and balance sheets by offloading asset-based services to third parties.
4. Global Talent
There is a serious shortage of supply chain professionals that have global knowledge. As a result, it is extremely difficult for many companies to outsource to low cost countries when their talent pool lacks the skills, experience and knowledge necessary to conduct business outside the U.S. Unfortunately, most Americans have not traveled outside the U.S., let alone worked in a foreign country. Not to mention, many Americans are not bi-lingual compared to EMEA and APAC resources, which does create a barrier when conducting business. And while most business around the world is conducted in English, we Americans lack an understanding of the cultural and societal differences within these countries and the subtle differences in the meaning of language. The mindset “what is good in the U.S. must be good for you” is quite common. U.S. Universities must create and develop international programs that require students to live abroad and learn to fluently speak another language (even two or three). One of my biggest personal regrets is that I don’t speak Chinese and German. Germany is the largest country in Europe (85M) and I don’t need to tell you how big China is. China has now surpassed Germany as the largest exporter.
5. The Generation Gap
The generational gap in today’s workforce is getting wider and companies that recognize the gap can capitalize on what motivates each generation. Baby Boomers, born between 1944-1964, hold most leadership positions within companies today. Their attributes often include a competitive attitude and an unrelenting work ethic. Generation Xers, born between 1965-1981, are the newest leaders to rise within the ranks of organizations and are often recognized by a no-nonsense approach to business and a comfortable attitude toward change. Millennials, born between 1982-2003, are the newest members of the workplace and are often recognized by their technical prowess and exceptional team spirit. This cross-generational workforce bring enormous opportunity for every company ready and willing to take advantage.
With healthier lifestyles and longer life expectancies, employees will continue to be actively engaged in the workforce longer. With multiple generations actively engaged in the workforce, the generational divide is not just a passing fad. Specific generations and their general attributes will change over time of course, as older generations retire and newer generations enter the labor force, but the differences between them will only continue.
6. Strong Survive & Weak Die
2009 was a dismal year for Supply Chain Projects. Our economic meltdown between late 2008 through 2009 has impacted the vast array of services, equipment, consultants and software providers. Companies, and specifically retailers, reduced capital expenditures or cut off spending on Supply Chain projects. I believe we are going to see additional fall out (companies going out of business) or significant consolidation in the space. Fourth Quarter software sales were up. Numerous MHE vendors and 3rd party integrators revenues have been reduced by as much as 50%.
In 2010 we are seeing a renewed focus on supply chain strategy and investments. Projects that were on hold have been given the green light. Companies that were heads down trying to survive are looking out longer term. It’s not the big that eat the small; it’s the fast that eat the slow. Supply chain is a key area of competitive advantage and cost savings – and now is the time to take a closer look at strengthening positioning and transitioning from a mode of surviving to thriving.
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