Just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog share our annual ten predictions concerning industry and global supply chains for the coming year. We have maintained this tradition since the founding of this blog in 2008 and it continues to be quite popular with our readers and clients.  Supply Chain Matters Blog

These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, as well as helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas. Predictions are sourced from synthesizing developments and trends that are occurring in supply chain business, process and technology dimensions, researching various economic, industry and other forecasting data, along with input from clients, thought leaders and global supply chain observers.

We take predictions seriously and align our research and blog commentaries to focus on specific prediction areas throughout the coming year.  Supply Chain Matters will revisit each of our annual predictions at the end of the year to ascertain how close or how far each fared.

Part One of this posting series outlined our first five predictions for 2015.  In this Part Two posting, we share our remaining five predictions.

 

2015 Prediction Six: A Stalling of Big Data and Predictive Analytics in Favor of Alternative Application Focused Strategies

We anticipate that the promise of Big Data and Predictive Analytics technology in enabling more insightful and predictive decision-making stalls in 2015 because of certain technology and organizational constraints. The promises in capabilities to analyze terabyte streams of enterprise structured and unstructured data related to customers, products, suppliers and equipment are dependent on software and database capabilities that can accommodate large data streams and simultaneous user inquiries.  The term Big Data itself is a symptom of a far more perplexing problem, namely that enterprises, organizations and industry supply chains are currently overwhelmed by collecting too much extraneous data.  The challenge at-hand is collecting and harvesting “smarter data”.

Database applications such as Hardoop provide the promise of smarter data, but for the time being, such applications need to be designed with more focused managed scope needs and requirements.

On the organizational side, one of the highest in-demand skills is that of a data scientist and the forces of demand far outpacing current supply has made these specialists quite expensive. Once more, what companies seek is more than just data analysis and interpretation skills but knowledge of customers, markets and business processes. That implies leveraging, building or training such skills among existing experienced teams, those with intimate understanding of the firms end-to-end supply chain.  A further organizational challenge is addressing inherent concerns focused on security and governance of the mission critical sensitive data inherent in managing business operations.

Because of the above noted constraints, in 2015, IT leaders will influence line of business and supply chain functional teams to narrow the scope of these initiatives within certain supply chain process areas.  For technology support, look for more supply chain, procurement and  S&OP focused applications to be augmented with embedded predictive analytics and machine learning capabilities. Supply chain planning applications that include predictive analytics and/or augmented simulation will continue to lead in this effort. Expect similar efforts for cloud-based B2B supply chain network application and services. This will accommodate line-of-business needs for shorter-term, narrowed scope initiatives for smarter data and more predictive or prescriptive capabilities to respond to specific supply chain related business challenges.. We anticipate that best-of-breed technology vendors will lead with innovation in these areas while larger ERP and enterprise services providers will continue to communicate longer timetables for such functionality.

Narrowing current smarter data and predictive analytics within supply chain focused applications provides more likelihood for timelier benefits and will be a likely continuing trend in 2015 as broader streaming data efforts are re-focused and organizational challenges are resolved.

 

2015 Prediction Seven: A Turbulent Year in Global Transportation

Expect a turbulent 2015 involving competitive market, regulatory and business realities impacting global transportation, railroads and contracted logistics services.

These include the continuing shake-out of excess capacity among ocean container shipping lines and the re-sizing of global transportation and airfreight fleets. The reality of more super-sized container ships calling on ports not equipped for timely unloading and loading has made its presence. The “perfect storm” of dysfunction among U.S. west coast ports in the latter half of 2014 will have implications in how shippers, exporters and retailers route future shipments destined for the United States and global markets. Canada’s west coast ports will likely benefit along with U.S. Gulf and east coast ports.  More importantly, the issues uncovered in labor contract negotiations, independent trucking’s driver contracts, the leasing and 3rd party deployment of tractor-trailer carriages to transport containers must be addressed by transportation industry and labor union players to avoid a repeat of what occurred in 2014. As we noted in our previous predictions in 2014, the desire for carriers or logistics providers to be asset light invariably leads to implications for having assets and equipment positioned for shipper vs. industry benefits.

Canada and U.S. based railroads will likewise encounter turbulence in industry shipping needs for accommodating higher volumes of crude-oil shipments under existing regulatory speed and safety constants while resolving additional multi-country regulatory requirements for upgrading thousands of tank cars to new safety standards. The Railway Supply Institute, a railcar industry trade group has argued that there is not enough tank car retrofit existing capacity to meet proposed regulatory deadlines for upgrading nearly 17,000 tank cars to new safety standards.  This will lead to more industry and regulatory dynamics in 2015. Agricultural and bulk commodity shippers are caught in the middle of this dynamic as service levels continue to erode, leading to additional pressures by regulators on railroads to accommodate this important economic segment. Already, the share of Canadian based wheat exports to the U.S. has reached a six year low because of these dynamics.  This balancing act is likely to spur higher rates and added transport dynamics in 2015.

The plunging cost of crude oil prices which is  forecasted to continue in 2015 will add to turbulence involving existing fuel surcharges affixed to transport rate structures. Carriers and parcel shipment firms will likely attempt to drag out the suspension of fuel surcharges to protect or sustain ongoing margins. Carriers with a strong reliance on fuel surcharges for margins may find themselves in financial difficulty.

Finally, the implications of omni-channel commerce in B2C and B2B markets will face a number of important tests.  Carriers FedEx and UPS implementation of dimensional pricing rates in 2015, causing the transportation rates of bulky but lower value shipments to be far higher will likely motivate consumers and procurement teams to revise shopping practices and place additional pressures on online providers to adsorb such costs.  Amazon and Google have been positioning to control broader aspects of logistics and parcel delivery, and 2015 could well feature additional acquisition announcements from either or both players. Amidst further global-wide governmental and legislative pushback, ride-sharing services firm Uber may well alter its business strategy to focus more on priority package delivery vs. people.

The added complexities and service needs for omni-channel and industry-specific logistics needs continue to spur more service and technology requirements by customers on third-party logistics providers (3PL’s). Individual 3Pl’s must therefore invest in broader technological and systems capabilities and scale, or risk losing business to larger more versatile providers.  The acquisition announcement by FedEx of GENCO this month portends this dynamic in the coming months.

 

2015 Prediction Eight: Sales and Operations Planning transitions to broader scope information management connectivity augmented by what-if and simulation capabilities

In order to more proactively respond to today’s constantly changing and complex business requirements, we predict that select industry sales and operations planning (S&OP) processes will begin efforts to transition toward inclusion of broader aspects of  internal and external business planning, response management and predictive decision-making capabilities. This will most likely include deeper, cross-application information connections to product demand pipelines, augmented with traditional and social media based demand sensing. We further anticipate more-timely information connections with external or outsourced suppliers along with key customers, leveraging cloud-based planning and fulfillment synchronization networks.  In those industries with more rapid new product introduction (NPI) cycles such as high tech, telecommunications, consumer products and electronics, the two-way flow of new product introduction (NPI), product management and program milestone information will be a consideration as well.

Because of these needs, expect B2B supply chain business network providers, including ERP players, to deepen their support for broader integrated business planning needs by leveraging cloud-based platforms or networks. Again, best-of-breed vendors have the ability to lead in this innovation. ERP provider SAP has already declared its intent to enhance its existing S&OP focused application towards more external integrated business planning elements.

Existing supply chain planning providers will have to deepen their connectivity to external cloud-based networks or risk being displaced by broader cloud-based network capabilities that synchronize planning, collaboration as well as execution information.  In that light, we anticipate additional M&A or strategic alliance activity among best-of-breed planning and cloud-based platform providers in 2015. Similarly, 2015 entrants to the supply chain and enterprise technology arena will leverage Salesforce.com and other cloud-based platforms to broaden end-to-end supply chain visibility, deeper collaboration and more informed decision-making. One particular ERP player will have to make some major moves in this space.

 

2015 Prediction Nine: Industry supply chain step-up efforts towards supply chain vertical integration and modular product platform strategies with impacts on contract manufacturing sourcing models.

For the past three years, we have observed and highlighted on Supply Chain Matters, a number of manufacturing focused supply chains moving more towards various forms of supply vertical integration.  The automotive industry has clearly been on this path while some high-tech manufacturers have embarked on initiatives as well. The newer, more technology laden  versions of new models Airbus and Being commercial aircraft are demonstrating these strategies. The models varied by industry setting but the shift was discerning.  This year, after reviewing data within SCM World’s published Chief Supply Chain Officer Report 2014 , we became even more convinced that industry or company specific vertical integration and modular product platform strategies would begin to accelerate in 2015. This movement comes from the realization that more and more products share common parts and components and that modular manufacturing design and deployment strategies make sense because they can facilitate more flexibility in geographical and individual customer fulfillment as well as product differentiation for various market channels while providing added protections for risk.

This strategy shift will begin to have impacts on contract manufacturing models in the latter-half of 2015, or even 2016, since these strategies involve a good portion of manufacturing value-added moving back to internal manufacturing. Since contract manufacturing arrangements for the most part stem from multi-year contracts, the impacts will be felt at contract renewal time.  Many contract manufacturers currently operate on very slim product margins and symptoms of the evidence of these shifts will be reflected in even more deteriorating margins. We expect some contract manufacturers such as Foxconn, continuing to move upstream or downstream in an industry value chain to leverage the ability to either be considered a more strategic component player or eventually manufacture individually branded end-products. Likewise, key retailers and 3PL’s will asked to implement more production focused final assembly of finished goods postponement strategies at time of customer fulfillment.

Because of these strategy shifts, or perhaps anticipating such shifts, we would not all be surprised by active M&A activity among the impacted industry players noted above.

 

2015 Prediction Ten: Service supply chains garner increased attention and new investment interest.

We predict that in 2015 multiple equipment manufacturers and services providers will place added emphasis in evaluating their service focused supply chains.  This includes after-market business process services, service parts, service delivery supply and demand networks. There will be two distinct motivations for increased investment and we anticipate that lines-of-business will be the prime investment leaders.

In the light of increasing incidents and broader occurrence of product recalls brought about by tighter global regulation, manufacturers have no choice but to protect the brand and customer retention.  Service focused supply chains are the response mechanism that provide timely resolution to product quality or malfunction issues while root-cause defect areas are traced and investigated across the extended supply chain. Too often, there has been a “throw it over the wall” mentality involving service beyond product sale and thus the after-market service supply chain has lagged in process modernization and investment. Automotive industry services focused supply chains are the obvious prospect in 2015 along with industrial and medical equipment providers.

As noted in Prediction Four, IoT coupled to connectivity networks has the potential to drive new, more innovative, predictive focused product as a service platforms where connected machines and equipment serve as the demand sensing signal for maintenance, repair or consumable parts. Thus, the other investment motivator for service networks is enabling newer augmented line-of-business service revenue models that leverage IoT networks. We expect firms such as General Electric and Tesla Motors to serve as a benchmark in this area, but others will follow in the coming year.

 

This concludes the unveiling of Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains.

How did we fare? Have these Predictions resonated for you and your organization? Did we miss an important prediction for the coming year?

Let us know either via Comments to this series or email feedback: info@supply-chain-matters <dot> com .

In early January, the complete listing of 2015 Predictions will be made available in a research report available for complimentary downloading.

Once extend we extend best wishes for the holiday season and the upcoming New Year.

Bob Ferrari

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