This Supply Chain Matters commentary features Part Three of 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.
In our prior Part One installment, we revisited our first three current year predictions.
In our Part Two installment, we reviewed Predictions Four through Six.
In this Part Three installment, we revisit Predictions Seven through Nine.
2018 Prediction Seven: Global Transportation Carrier Network and Third-Party Logistics Strategies Turn Towards Achieving Added Scale.
Self-Rating: 3.0 (Max Score 4.0)
For the fourth consecutive year, we were compelled to include a prediction related to global transportation and logistics industry capabilities and their changing industry dynamics impacts on multi-industry supply chain and parcel recipients.
We declared that 2018 will be the year that features physical or virtual scaling of online logistics fulfillment networks among multiple retail, grocery, and other product and services categories, accomplished by large money flows or technology investments. The open question was which online consumers, providers or existing transportation and logistics platform providers would benefit the most.
The reasons were obvious, namely that immutable multi-industry digital commerce adoption trends, especially in consumer retail and B2B commerce have driven both explosive growth in transportation, customer fulfillment logistics and real-estate needs, but at the same time, drive more rapid forces for industry transformation or consolidation in order to leverage market scale. Compounding this trend have been a growing shortage of trucking capacity across the United States and parts of the Eurozone sector, leading to dramatic market increases in trucking transportation rates.
Because of such forces, we predicted continuous developments and announcements in this sector, including new strategic alliances, mergers, added acquisitions and some fallout. We viewed the 2017 mega-merger involving U.S. trucking firms Knight and Swift Transportation as a forerunner to 2018 activity. Surface trucking carriers achieved market pricing leverage, and our belief was that this would lead to prospects for added mergers and acquisitions to achieve added market scale and rate leverage.
A robust U.S. economy, low unemployment and resurgent consumer and business spending continued throughout 2018, all of which continued to stretch overall trucking capacity which has led to even higher increases in overall surface transportation costs leading to higher profits among carriers. However, the trucking industry also began to discover that acquisitions bring a more difficult set of challenges related to scale which can only be addressed by additional investment in advanced technology. Accounting issues related to the valuation of trucking assets has been a gnawing challenge as-well. A further development was the added presence of a host of new freshly funded start-up firms such as Convoy, Transfix, Uber Freight and others, offering a series of online platform or App offerings for securing transportation and added services.
What occurred instead of continued mega acquisitions was a movement toward added investments in advanced technology as well as in adjacent services such as freight brokerage and online tendering. Firms elected an in-house development and added services integration strategy in lieu of current more expensive acquisitions, as least for now. Earlier this year, XPO logistics unveiled an online freight marketplace, XPO Connect, where shippers can secure transportation as well as monitor capacity, rate and availability trends across various U.S. regions. In-turn, global freight brokerage C.H. Robinson Worldwide has teamed up with DB Schenker and XPO Logistics are collectively investing millions in added technology and outright tuck-in acquisitions of online freight platforms.
The essence of our prediction related to achieving broader scale is indeed occurring, the methods were different than we anticipated.
We hinted of major moves from either of the three global based small parcel carriers, DHL, FedEx or UPS to begin to align global networks to achieve added scale and influence. That has not come to pass, at least not in 2018. Instead, these carriers are also branching out into added online services.
We speculated that as Amazon continued with its integration of food retailer Whole Foods as an integral part of its fresh foods retailing strategy, we would not be surprised if a major food broker and distributor becomes an exclusive partner to Amazon for expanded downstream acquisition and distribution for fresh food products. Indeed, food broker and distributor United Natural Foods (UNFI) has become that entity with the announced acquisition of food and grocery retailer and distributor Supervalu in July 2018. We viewed this development as a strategic move to add further geographic distribution depth along with broader traditional grocery and food product variety for both Whole Foods and Amazon’s customer fulfillment needs.
2018 Prediction Eight: Positioning for Global Retail Dominance Will Shift into Higher Gear with New Providers and Spoilers.
Self-Rating: 3.0 (Max Score 4.0)
In 2018, we anticipated that Alibaba would shift into higher gear in establishing an integrated online and physical store shopping experience to be better positioned to grow its online platform’s attraction among other countries. We believed that Amazon with double-down on its multi-billion investments in establishing a local presence in India, a country considered to be one of fastest growing online markets in the coming years.
The spoiler from our view, was global retailer Walmart, and its ongoing aggressive efforts to be a dominant player in integrated online and physical retail customer fulfillment. At the time of our prediction, Walmart was choosing a strategic partner in China and considering a stepped-up effort to compete in the India market.
What occurred in 2018 was a stepped-up rivalry among Alibaba and other China online providers. China’s leading online platform was locked-up in a costly battle with Tencent Holdings over market control of the estimated $15.4 trillion in mobile payments across China. The real battle was about accessing broader customer intelligence on shopping habits. Alibaba also ran into added expense challenges that impacted profitability. In April the online giant acquired full control of food delivery platform Ele.me which valued this online platform at $9.5 billion. The acquisition added over three million local delivery persons. A global investment spree also involved added investments in Pakistan, Singapore and Middle East countries.
There was also speculation that China’s ruling leaders wanted to tamp down on the existing intense competition among the nation’s large and highly visible Internet experience providers. The race for major online retail platform providers positioning for global dominance then made a potentially meaningful turn in September when Alibaba founder and national icon Jack Ma announced his pending departure. According to some reports at that time, observers believe that Ma’s announced departure has something to do with the ongoing fallout of the Chinese government’s increasing hold on the country’s existing Internet and E-Commerce companies. From our view, Ma’s announcement was perhaps a sign of the increased friction that is occurring from unbridled, enthusiastic, and perceived deep-pocketed Chinese tech companies where the sky may be endless, and to the pragmatic notions that growth requires a detailed five-year plan.
In March, Amazon launched an online presence in Vietnam with the aim of competing directly with Alibaba on market share. In June, Amazon indeed upped its investment in India, committing an additional $2 billion on top of the prior $5 billion invested in that country. The announcement was attributed to be a countermeasure to Walmart’s announced intent in May to establish a majority stake in online provider Flipkart, India’s largest online retail platform. Amazon is the number two platform. Walmart also operates a wholesale business that supplies local kiranas mom and pop retailers across India which dominate the local physical retail landscape.
Alibaba rival JD.com made its own strategic moves, including upping its strategic relationship with Walmart in the offering of grocery and fresh food, and offering an equity interest in its logistics business to Tencent Holding. The online retailer further increased its presence and logistics capabilities in India, Indonesia, Malaysia, Philippines, Thailand and Vietnam as well as an intent in an online presence in the United States. Further announced were plans to launch an international research and innovation centers focused on supply chain management to be located in China, Australia, Silicon Valley, Chicago, Germany and the Netherlands.
The bottom-line of this prediction was that positioning for global retail dominance is indeed underway, but the realities of the financial, process and people investments require very deep pockets as well as patience and tolerance among stockholders, investors and individual countries. That might have muted the notions of “high-gear” but none-the-less, the objective remains clear.
2018 Prediction Nine: Supply Chains Will Begin a Discernable Multi-Year Transition Toward Digitally-Enabled Response Networks.
Self-Rating: 4.0 (Max Score 4.0)
For 2018, we added what we clearly stated was an admittedly multi-year perspective prediction, one that would require assessment and longer-term planning across multiple industry supply chain and related services providers over the next few years.
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.
In other words, it is no longer just a supply chain capability but rather a digitally-enabled response network that leverages multiple demand sensing, IoT, predictive and artificial intelligence enabled technologies to connect the digital with the physical assets of the response network.
We described the capability as the integration and synchronization of:
- Individual and collective product and services focused supply chains into a singular response network.
- Linking physical and digital capabilities.
- Leveraging of IoT, Manufacturing 4.0, Blockchain, Predictive-Cognitive and AI-based decision-making technologies to manage network synchronization, risks, and unplanned exceptions.
In 2018 we published three supplemental research advisory reports that profiled the early stage foundational buildout of Digitally Enabled Response Network capabilities in various industry settings that included retail and online telecommunication devices, online home good retailing, automated coffee beverage demand sensing and replenishment and more responsive human blood supply inventory stocking. We viewed these use cases as meaningful examples of how leading-edge companies are embracing this capability. We found ample evidence that early successes have convinced firms that they are on the right path towards overall supply and demand network digital transformation. These reports are now available in our Research Center for complimentary downloading.
Readers may have also noticed that we have consciously changed our terminology with less emphasis on “Supply Chain” and more emphasis and meaning to the opportunities for linking supply and customer demand networks in the context of digitally-based business models
In 2019, we already have plans to delve into further profiling of such efforts across other industry segments.
This concludes Part Three 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 Prediction Ten which served as our industry-specific predictions.
We are also actively in the process of researching and completing the formulation of our 2019 predictions while 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.
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