On an annual basis, the Ferrari Consulting and Research Group provides a series of supply chain management predictions for the coming year. These predictions are provided to our clients and readers of this Supply Chain Matters blog in the spirit of advising line-of-business, multi-industry cross-functional supply chain management and supporting IT teams a sensing of meaningful initiatives, programs or capabilities we feel will be of importance.
Our process began with a revisit and self-evaluation of the prior year’s 2017 predictions along with soliciting input from clients, organizations and supply chain technology and services providers. The context of these predictions includes a broad cross-functional umbrella of what today is supply chain management, and includes areas of supply chain leadership and strategy, product management, strategic sourcing, and procurement, planning and execution, manufacturing, transportation and logistics, online fulfillment.
Subsequent multi-part follow-on blogs to be published in January will provide deeper perspectives and added insights to each of our 2018 predictions.
Throughout the coming year, clients and readers should anticipate augmented research reports and continuous updates to addressing the areas identified in these predictions.
In this particular second of unveiling blogs, we highlight the second five of our 2018 predictions with some brief summarized descriptors.
2018 Prediction Six: Make America Great and Changing Global Trade Policies Will Provide a Challenging Tactical and Strategic Landscape of U.S. Manufacturers.
In 2017, we predicted that major developments surrounding global trade policies would occupy the attention of many industry supply chain strategists. The ascendency of President Donald Trump and the subsequent series of actions related to a Make America Great political agenda have added lots of uncertainties as to current trade policies and practices. Fortunately, our most dire predictions did not occur this year but 2018 provides another year of added uncertainties.
Heightened trade tensions continue in a current environment of better than expected global economic expansion. That can lead to heads-down complacency for industry supply chains to just go with the flow. The open question is whether another shoe will fall, whether that be ever more heightened tensions concerning North Korea’s nuclear intentions, the ultimate result of the Brexit and NAFTA 2.0 negotiations, increased local trade provisions across the European Union, or which countries assume de-facto leadership in reconstituted Trans Pacific Partnership trade policies.
For these reasons, we are predicting that the Make America Great agenda opens the real possibilities of changed trade policies and that will provide a challenging tactical and strategic landscape for U.S. manufacturers, retailers and supply chain services providers in 2018.
2018 Prediction Seven: Global Transportation Carrier Network and Third-Party Logistics Strategies Turn Towards Achieving Added Scale and Efficiencies.
For the fourth consecutive year, we are compelled to include a prediction related to global and regional transportation and logistics capabilities and their changing industry dynamics impacts on multi-industry supply chain shippers and freight recipients. The reasons are again obvious, namely that immutable multi-industry digital commerce adoption trends, especially in consumer retail and B2B commerce sectors continue to drive both explosive growth in transportation, customer fulfillment logistics and real-estate needs, but at the same time, fuel more rapid forces for industry transformation or consolidation.
Because of such forces, we predict continuous developments and announcements in this sector, including new strategic alliances, mergers, added acquisitions and some fallout. Some of these announcements could be significant and far reaching similar to Amazon’s prior strategic move to institute expanded global transportation and customer fulfillment logistics capabilities. We predict that 2018 will the year where major parcel transportation and customer logistics networks step-up their competition for the mindshare and broader influence of larger numbers of online customers or online platform providers.
2018 Prediction Eight: Positioning for Global Retail Dominance Will Shift into Higher Gear with New Providers Serving as Spoilers
This prediction is also an extension of our 2017 prediction regarding Alibaba and Amazon continuing to position for online retail platform dominance. Both global retail platform providers are extending capabilities that include B2B-to-B2C and pure B2C fulfillment in strategic global geographies, with the Asian region being a key target in terms of long-term growth. We predicted that Alibaba would likely be the wild card in built-out capabilities for supporting large-scale online and physical cash payments in in supporting customer fulfillment logistics infrastructure. That indeed occurred, but Alibaba further stepped-up efforts to invest-in or partner with major in-store retailers to be an extension of the online experience.
In 2018, we anticipate such positioning to shift into higher gear and all the signs point to an end-state of overall retail that will include combined online and physical store experience and fulfillment elements. Some describe this as the tipping point for retail business or a bricks-to-clicks transformation where retail stores are strategically located in key buyer population regions, and where a physical retail presence serves as the extension or fulfillment capability of the online shopping model affording customer broader options. The implications of moving from distribution center to store fulfillment, towards distribution and distributed customer fulfillment supported by optimizing overall pools of inventory is a far different management model.
We view Alibaba, Amazon as the continued leaders and likely Walmart and China’s JD.com, through its newly announced alliance with Tencent, as two potential spoilers, each leading the way in ongoing development and automation of such models in 2018. Alibaba’s online domination across China under attack from JD.com as will likely broader portions of Asia under attack from Amazon’s efforts to expand presence in India and across Asia. The battle lines will obviously increase.
2018 Prediction Nine: Supply Chains Will Begin a Discernable Multi-Year Transition Toward Digitally-Enabled Response Networks
For 2018, we have added an admittedly multi-year prediction, one that will require assessment and longer-term planning across multiple industry supply chain and related services providers over the next one to three years. Early adopters will demonstrate initial signs of such capabilities in 2018 and 2019.
There is little doubt that the movement toward online is having compelling implications on B2B, B2C and B2B-to-B2C customer fulfillment expectations and required experiences. The term “The Amazon Effect” has clear meaning and new trepidation for many manufacturers, retailers and services providers as existing industry business models continue to be disrupted.
The future on-demand economy is now an unstoppable force. where customers and consumers will continue to expect a seamless buying experience, and where continuous industry disruptors strive to market, influence and distribute innovative experiences directly to consumers and businesses. How such experiences are supported, managed, and synchronized leads to what we have termed as Digitally Enabled Response Networks. This will require different line-of-business and supporting product value-chain and distribution strategies. The term “supply chain” will increasingly be subsumed by the broader Enabled Response Networks capabilities and 2018 is a year of understanding of what that implies for retailers and manufacturers.
Each year we include industry-unique predictions, those that are especially specific to that industry’s supply chain business strategies and capabilities. For 2018, we predict the following:
Automotive and Truck Industry Supply Chains
- The all-in industry movement toward development and production of far larger numbers of electric and hybrid powered cars and trucks requires stepped-up efforts in comprehensive global strategic sourcing and supply management strategy as well as a longer-term infrastructure readiness strategy. In 2018, the challenge will be global OEM efforts in locking-in strategic supply of the battery component value-chain that includes long-term supplies of lithium, cobalt, and copper. There will also be efforts to influence the epicenter of battery technology advancements and production among either China, Japan or the U.S. and Europe.
- If NAFTA 2.0 trade talks collapse in 2018, automotive supply chains will experience meaningful impacts as to product margins and longer-tern production sourcing strategies.
- Tesla will likely experience additional challenges in ramping-up Model 3 production volumes motivating the need for bolder production and supply chain capability moves or loss of competitive advantage. Chinese or European start-up disruptors will challenge Tesla for consumer mindshare, but General Motors and/or Toyota will leverage existing global supply chains and production capacity to gain market and mindshare advantage.
- Anticipate more industry M&A activity as companies position for greater leverage and control of an industry that brings together autonomous, shared-ride and electrically-powered vehicles to global markets.
Commercial Aerospace Industry Supply Chains
- Commercial aerospace supply chains will likely run into more potholes in plans to scale-up production levels and satisfy investor interests for greater short-term returns. Like 2017, select aircraft engine producers will be the critical dependency in accelerating production cadence with GE Aerospace, Pratt & Whitney and Rolls Royce being the major suppliers to watch.
- M&A among key industry component supplier community will likely continue in 2018.
- Airbus will tackle a special challenge in that many key executive leaders have announced their exit in the next two years with senior leadership continuity of new product development and ongoing supply chain scale-up strategies an important consideration.
- Industry supply chains may require some altered component sourcing depending on the clarity and progress of ongoing Brexit trade negotiation in 2018.
- With Airbus as a new strategic partner, the Bombardier C-Series aircraft will secure additional order volumes.
Consumer Product Goods Industry Supply Chains
- The online direct-to-consumer distribution model explodes with added emphasis on fresh food and consumer products direct distribution. Such efforts will directly impact existing logistics and distribution strategies.
- Expect continued M&A among major CPG, Food, and Beverage manufacturers, perhaps one or two major acquisitions involving global brands will add more disruption to respective impacted supply chains.
- Walmart and Amazon will continue as tough price negotiators resulting in aggressive industry-wide price competition. Suppliers will walk a fine line in balancing cost vs, volume output strategy needs.
Multi-Industry Online Commerce
- Amazon’s multi-faceted strategy leaps stumble, while others gain some traction in online customer fulfillment and execution. Cost affordable real-estate becomes a bigger challenge leading to further consideration of contracted or 3PL outsourcing in online fulfillment.
High-Tech and Consumer Electronics Supply Chains
- All eyes will be on Apple, and on the product management and supply chain network efforts to scale-up production levels of the iPhone X and iPhone 8 while at the same time continue to compete with lower-cost and equivalent functionality from existing global smartphone providers.
- All eyes will also be on what Apple elects to do with its vast sums of cash parked in foreign accounts and whether that implies a major acquisition. An open question is whether such funds are invested in broader and more advanced supply chain production and process innovation capabilities or a broader U.S. Manufacturing presence to satisfy Make America Great policies and initiatives.
- If in 2018 trade relations among the U.S. and China sour and result in punitive tariff and other trade actions, high-tech supply chains experience meaningful impacts.
This concludes the unveiling of our ten predictions for the coming year. Beginning in January, Supply Chain Matters will publish deeper dives for each of our predictions, and throughout 2018 our combined entities will feature additional research and thought leadership on these topical areas.
Again, readers and clients are invited to share their individual predictions for the upcoming year and Supply Chain Matters will highlight contributed predictions in subsequent blogs.
On behalf of our existing and virtual team that makes-up Supply Chain Matters, we extend best wishes to all our clients and readers for a productive and rewarding 2018.
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