The following Supply Chain Matters blog is part of our ongoing series of deep dives into each of our previously unveiled ten 2017 Predictions for Industry and Global Supply Chains.
At the start of the New Year, our parent, the Ferrari Consulting and Research Group along with our Supply Chain Matters blog as a broadcast medium, provide a series of predictions for the coming year. These predictions are shared in the spirit of assisting industry specific and global supply chain cross-functional teams in helping to set management objectives for the year ahead. Our further goal is helping our readers and clients to prepare supply chain management and line-of-business teams in establishing impactful programs, initiatives, and educational agendas.
The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and customer service management.
In an earlier Supply Chain Matters posting we provided a deep dive into Prediction One- Subdued World Economic Outlook and Heighted Uncertainty to Test Industry Supply Chain Agility.
In this second-deep dive posting, we drill down on Prediction Two.
2017 Prediction Two: A Challenging Year in Procurement with Renewed Emphasis on Strategic and Technical Skill Needs
Unlike 2016, what is becoming near certain is that in 2017 multi-industry supply chains will be managing a period of rising inbound component and service costs with an increased urgency to augment skill and talent needs.
The IMF Primary Commodities Index has increased 22 percent since February 2016 with the strongest increases attributed to fuel costs. Non-fuel commodity prices have increased as well, with metals pricing increasing 12 percent during 2016 and agricultural commodity prices increasing 9 percent during the year.
In late December 2016, the widely tracked Standard and Poor’s GSCI index of broad based commodities was up over 11 percent year-to-date. Energy was up 16.2 percent, Industrial Metals up 23.8 percent while Agriculture was down 2.34 percent.
The World Bank’s Commodity Markets Outlook published in October 2016 called for most commodity prices to rise in 2017, with energy prices expected to increase 24 percent during the year. The agency forecasted oil prices to average $55 per barrel during the year with stronger-than-expected OPEC production supply cuts evident in 2017. The usual caveats come with any major oil supply disruptions caused by global political tensions of conflicts across the Middle East. Non-energy commodity prices were expected to rise 2 percent in 2017. Downside risks for metals included caveats pertaining to a further slowdown of production growth in China, while upside risks were reflected in government-directed supply restraints across Asia and reluctance by producers to activate idle capacity if global demand picks-up.
Business Advisor and Strategic Skills
A challenge for sourcing teams among U.S. based manufacturing firms will be educating senior management on the implications of any added tariffs or trade barriers brought about by the new Trump administration and a Republican Party dominated Congress. Another reality is that in certain industry sectors, value and supply chain supply competencies have deeper roots in the lower cost manufacturing regions of China and other Asian nations. Any new potential shifts of product or end-item manufacturing sourcing back to the U.S. will have to factor the broader supply chain impacts of such decisions. We have included further observation insights in 2017 Prediction Four– First Signs of Global Trade Protectionism.
The role of the Chief Procurement Officer (CPO) will continue to evolve in 2017, requiring strategic business advisor skills in ascertaining various impacts to a rapidly changing global supply chain sourcing picture, supply chain risk factors and needs for higher levels of joint innovation from suppliers. Tactical leadership skills will likely be focused in facilitating a renewed business agenda for increased procurement costs savings to meet expected business margin and financial performance goals.
That will be challenging given the expected trends for rising inbound costs across many spend dimensions and categories. In some areas, increased foreign currency headwinds will present either added challenges or opportunities. For many businesses, low-hanging opportunistic cost savings opportunities have been already exploited which implies that with each significant year, the challenge drives deeper into the more complex areas of both indirect and direct procurement cost opportunities.
Industry supply chain teams that previously nurtured or invested in strong, collaborative key supplier relationships will experience the true benefits of such efforts as heightened supply chain risk and uncertainty increases, requiring a greater dependency on loyal and consistent suppliers.
Skills and Talent Management
One of the most significant challenges in 2017 will be in skills development and filling-in skill gaps in replacing retiring staff with increased levels of required technical skills based backgrounds. Procurement teams have already consistently communicated changed skills requirements brought about by procurement’s changed role as being more of a strategic business advisor as compared to transactional procurement execution.
This challenge is not confined solely to procurement but across many other manufacturing, supply chain, IT, and product management areas. So much so that we have included Prediction Three- Supply Chain Talent Perfect Storm within our ten 2017 predictions.
The skills and talent challenge will become more apparent as this function is called upon to broaden collaboration and decision analysis efforts with product design management and key global and domestic suppliers. Initiatives directed toward regulatory compliance changes, ongoing supply chain sustainability initiatives and changing contracted indirect services needs will require teams to increase collaboration efforts with other supply chain and business functions.
Increasingly, a fully integrated strategic sourcing and procurement process will become necessary and that will likely require augmented investments in technology beyond singular procurement business processes.
The Institute of Supply Management (ISM) serves as the principal professional organization for procurement. In March of 2016, we had the opportunity to interview Tom Derry, CEO of ISM. Regarding the topic of skills development, the following was discussed:
“The responsibilities and scope of procurement are changing rather rapidly and there is a need to constantly stay current. To be effective, procurement professionals need to understand the broader capabilities of the supply chain such as planning, logistics and transportation. A procurement professional does not necessarily need to be an overall expert, but should be knowledgeable to the needed capabilities and impacts of decisions across the entire supply chain.”
In preparing this prediction related to procurement, we further had the opportunity to speak with Kristian O’Meara, Senior Vice President, Value Engineering at Bravo Solution. In his current role, O’Meara has had many interactions with procurement teams. He described the current skills challenge as an “HR hurdle”, the lack of talent depth, as one of the biggest challenges for this function in 2017. The stakes are often high. He cited industry data and observations from procurement executives themselves indicating that a missed-hire of adequately skilled or trained talent can amount to upwards of an 18-24-month setback in any given key role’s contribution to support business outcomes. That factors assumptions regarding that the average times to recruit available talent in the market, added with a 6-9 average learning curve for an individual to come up to speed in each role.
This concludes our Prediction Two drilldown in our series of 2017 predictions. In our next posting of this series, we dive into Prediction Three that calls for a supply chain talent perfect storm in the coming year.
If readers or clients require further clarity, or wish to contribute additional thoughts related to what to anticipate in the coming year, you can contact us via email: feedback <at> supply-chain-matters <dot> com. Our final blog commentary of the series will include a summation of additional contributed thoughts for what to expect.
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