The Supply Chain Matters blog features a series of commentaries that look back and review 2018 Predictions for Industry and Global Supply Chains that were published by our research arm at the beginning of this year.
As industry supply chain management teams continue efforts in achieving 2018 final quarter strategic, tactical, and operational line-of-business performance objectives, this is the opportunity for Supply Chain Matters to look back and review our prior 2018 Predictions for Industry and Global Supply Chains.
Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our inception in 2008 and our approach is to view predictions as an important resource for our clients and readers. Thus, we do not view them as a light, one-time exercise. Unlike other industry analyst firms, our predictions for the most part, do not take a perspective of a three to five-year window. Our belief is that industry business and supply chain management process needs are changing rather quickly and that leaders need a more focused view of what needs to be accomplished in a 1 to 2-year timeframe.
After looking-back at current year predictions, we will transition into the unveiling of our 2019 Predictions beginning in early December.
An important part of annualized predictions is assessing what really occurred and why. Thus, every year in November, we look-back and score our predictions for the year. As has been our custom, our scoring process is based on a four-point scale. Four will be the highest score, an indicator that the prediction indeed occurred. One is the lowest score, an indicator of, what-on-earth were we thinking? Ratings in the 2-3 range reflect that we probably identified the right trending, but events turned out differently. Admittedly, our self-rating is subjective, and readers are welcomed to add their own assessment of our individual predictions in feedback comments.
Let’s begin our self-assessment process.
2018 Predictions Review
2018 Prediction One- A Buoyant Global Economic Outlook Comes with Important Signs of Caution for Industry Supply Chains.
Self-Rating: 4.0 (Max Score 4.0)
We pegged this prediction based on widely followed economic forecasts, most notably the World Economic Outlook published each October by the International Monetary Fund (IMF). The report had forecasted overall global growth as being 3.6 percent in 2017 with a cautionary note indicating the medium-term risks were tilted toward the downside. The signs of caution were focused on added global supply chain disruptions and heightened global trade or tariff tensions that would spawn from the Trump Administration’s aggressive trade agenda.
This year’s updated World Economic Outlook report published in October 2018 is forecasting both 2018 and 2019 global economic growth to be 3.7 percent. The report authors indicated that growth has now become less balanced and may have peaked in some major economies such as the Eurozone and the United Kingdom. Downside risks to growth are further noted as rising in the past six months with the potential for any upside surprises having receded. One of the more significant headlines for 2018 was that the economy of the United States reached full employment status with the unemployment rate reported as a 50 year low in November.
However, global supply chain activity, reflected by the J.P. Morgan Manufacturing PMI, after starting the year at a value of 54.5, trended lower during the second-half of the year, and fell to its lowest level in two years at a value of 52.1 in October. Rates of growth in output and new orders continue to weaken amid heightened global trade and tariff tensions. Intermediate and investment goods production also registered their lowest PMI readings in two years. All of this likely points to downward indicators heading into 2019.
Developed nations continue to outperform developing nations in the first-half, which economists point to the United States as being the prime growth engine. The second-half has reflected a change in that trend. Concerns for the Eurozone region intensified in the second-half with the IHS Eurozone Manufacturing PMI falling for a third consecutive month by the end of October. Survey data collected by the report authors suggest that business expectations have slid to levels not seen in six years and primarily focused on global trade and heightened political tensions. Compounding such concerns are growing fears of a hard Brexit anticipated in the first-half of 2019 which could add further disruption to Eurozone industry supply networks.
Finally, at the time of this prediction assessment, China and the U.S. remain in a heightened trade war of imposed tariffs which are increasingly impacting individual business and industry product cost factors.
2018 Prediction Two- An Optimistic Yet Challenging Year for Industry Supply Management Teams.
Self-Rating: 3.8 (Max Score 4.0)
We noted compounding carryover challenges from 2017 and added ones for 2018. Global supply management challenges are turning out to be far more than originally predicted and optimism has generally turned towards heightened concerns.
At the beginning of the year, inbound commodity costs were generally forecasted to have modest increases. Metals and Minerals were expected to ease slightly. Then came the Trump Administration’s steel and aluminum import tariffs, followed by other rounds of tariffs impacting industry markets.
The IMF’s Primary Commodities Price Index rose 3.3 percent between February to August 2018, primarily driven by higher energy prices.
Speculators pounced on the explosive need for lithium, cobalt, zinc and minerals needed to produce future electric automobile and transport equipment. Energy prices were expected to rise by 4 percent in 2018. Crude oil prices climbed from $60 at the start of this year, spiked to $76 in June, and as we pen this look-back, pricing is hovering at $69-$70 per barrel.
Agriculture related prices were forecasted to stabilize, and then came China’s import tariffs specifically targeted at key commodities such as soybeans, corn, wheat, and meat products. Catastrophic storms in the forms of Hurricane Florence and Hurricane Michael that hit the U.S. southeastern states this Fall incurred meaningful impacts to agricultural and livestock supply with the effects likely to be felt in December 2018 and early 2019.
We predicted the role of procurement would shift from transactional P2P procurement to strategic advisor in the area of global supply management. The notion of a more challenging year for procurement has indeed occurred, but the scope and complexity of challenges is far more than originally predicted by many. The imposition of successive rounds of import and export tariffs has placed added complexities and inbound cost pressures related to global supply management. Many organizations across multiple industries are in the process of evaluating or executing shifts in global sourcing of component and finished products. Strategic Sourcing and Procurement teams are coming to believe that escalating trade and tariff tensions were not a fleeting event and that continued trade conflicts will likely extend into 2019.
Bottom-line, procurement and supply chain management teams have experienced a very challenging 2018, one that required far more emphasis on supporting senior management with lots of analytical and scenario-based information related to the need for altering global sourcing and supplier selection.
2018 Prediction Three- The Supply Chain Talent Perfect Storm Intensifies.
Self-Rating: 4.0 (Max Score 4.0)
We defined the supply chain talent perfect storm as that of increased demand for specialized skills meeting limited available talent supply. Most all of our clients and blog readers can readily attest to the current intensity related to talent retention and acquisition.
Shortages of talent for transportation, logistics, manufacturing, and IT disciplines abound in many industry settings, and the outlook points to added challenges and added needs to recruit and compensate for required people skills. Supply chain management challenges now extend globally, across Western, Central and Eastern Europe, many portions of Asia and other regions.
During the year we updated readers that supply chain management jobs were increasing in value but focusing on broader needs and that employers were willing to ease barriers for entry-level recruiting.
Market demand and supply pressures have led to increased compensation for the most in-demand skills. In May, we highlighted both APICS and ISM sponsored supply chain management compensation and salary surveys. The APICS data indicated that the average salary for SCM professionals was in excess of $85,000 in 2017 and that upwards of 90 percent of respondents indicated an average salary increase of 3 percent in 2017. The ISM data reported that average salaries for procurement and supply management professionals rose 4.1 percent in 2017. In categories needing attention was a noticeable pay gap among men and women with similar responsibilities. Other data points to ongoing imbalances in hiring and tension of female and minority representation in management areas.
In the good news, not so good news category, U.S. unemployment fell to a 50 year low of 3.7 percent in September, adding to continued talent challenges in the months to come.
In rather specialized, in-demand fields such as artificial intelligence, salaries have climbed to astronomical levels due to a lack of available talent. Bloomberg reported in February that newly graduated Ph.D.’s in machine-learning and data science were garnering starting salaries in excess of $300,000. Such trends are forcing companies into decisions as to whether to rely on outside software vendors or contractors rather than build such systems internally. If companies are fortunate to have such a resource, it is likely a highly shared resource across multiple lines-of-business or functions. Technology providers such as Facebook and Google are creating their own internal training programs, while China is boasting that the country has far more AI experienced talent than other global nations.
We predicted that growing smaller and medium-sized businesses would be especially challenged for talent needs in 2018, as larger firms had the added financial resources to recruit in-demand talent. A February 2018 survey involving over 700 small business owners conducted for The Wall Street Journal indicated that nearly two-thirds of such companies were experiencing shortages of skilled workers, with 87 percent increasing recruitment efforts or sponsored training programs while 60 percent boosting compensation levels.
Indeed, this prediction turned out to be a no-brainer, yet the implications will continue to remain significant for industry and global supply chain management.
This concludes Part One of our look-back self-evaluation of our series of 2018 Predictions for Industry and Global Supply Chains.
In our subsequent posting we will revisit 2018 Predictions Four though Seven.
We are also actively in the process of researching and completing the formulation of our 2019 predictions which will be initially unveiled during the month of December with detailed deep-dives scheduled into January 2019.
Once again, if readers and specific technology and services providers wish to contribute their thoughts relative to what to expect in 2019, please insure that you contact us no later than November 30. Again, please utilize the email address; feedback <at> supply-chain-matters <dot> com to contact us with your inputs.
© Copyright 2018. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.