While industry supply chain teams wrap-up their various 2015 strategic, tactical, and operational line-of-business and supply chain focused performance objectives, we continue with our series of Supply Chain Matters postings looking back on our 2015 Predictions for Industry and Global Supply Chains that we published in December of 2014.
Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008. 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. Thus, not only do we publish our annualized predictions, but every year in November, look-back and score the predictions that we published for the year. After we conclude the self-rating process, we will then unveil our 2016 predictions for the upcoming year.
As has been our custom, our scoring process will be based on a four point scale. Four will be the highest score, an indicator that we totally nailed the prediction. One is the lowest score, an indicator of, what on earth were we thinking? Ratings in the 2-3 range reflect that we probably had the right intent but events turned out different. Admittedly, our self-rating is subjective and readers are welcomed to add their own assessment of our predictions concerning this year.
In the initial posting of this Predictions Score Card series, we looked back at both Prediction One– global supply chain activity during the year, and Prediction Two– trends in overall commodity and supply chain inbound costs.
In our Part Two posting, we revisited Prediction Three– the momentum in U.S. and North America based production and supply chain activity, as well as Prediction Four– wide multi-industry interest in Internet of Things.
In Part Three, we revisited our supply chain industry-specific predictions.
We focus this commentary on predictions six through eight.
2015 Prediction Six: A Stalling of Big Data and Predictive Analytics in Favor of Alternative Application Focused Strategies
Self-Rating: 2.5 (Max Score 4.0)
We predicted that the promise of Big Data and Predictive Analytics technology in enabling more insightful and predictive decision-making at the enterprise level would stall in 2015, mainly 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. We felt that the term Big Data itself was 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 was collecting and harvesting “smarter data”.
We are actually pleased that from the technology side, vendors provided special attention towards helping customers to narrow the scope of analytics initiatives, helping organizations to initially pilot both the technology as well as the organizational skills and change management perspectives. Thus, this proactive attention muted our prediction.
A further concern we raised was the organizational challenges in addressing security and governance of mission critical data. Here again, our polling of both vendors and end-users across multiple industry settings indicates that a lot more attention was focused in this area. While legitimate concerns remain, especially in the light of even more cyber-security and hacker information attacks, IT and line-of-business teams seem to taking proactive and balanced approaches. The need to be more predictive and be far more agile to business change seems too prominent.
We further predicted that more supply chain, procurement and S&OP focused applications would be augmented with embedded predictive analytics and machine learning capabilities. We felt that supply chain planning applications that include predictive analytics and/or augmented simulation will continue to lead in this effort. For the most part, supply chain planning vendors such as JDA Software, Kinaxis, Oracle and others are indeed developing and releasing more predictive analytics capabilities. Specialized supply chain operational and financial intelligence vendors such as River Logic and Every Angle are concentrating specifically in the need for more predictive and prescriptive capabilities across cross-functional and enterprise environments.
Interest levels in enabling more predictive capabilities remains high among industry supply chains, and organizations are taking a balanced and risk-aware approach. Thus our self-rating reflects a lower score relative to our original prediction.
2015 Prediction Seven: A Turbulent Year in Global Transportation
Self-Rating: 3.5 (Max Score 4.0)
We obviously for the most part, nailed this prediction, but then again, as we entered 2015, the signs were obvious. Our one misreading of turbulence was that of the U.S. rail industry.
We predicted a continuing shake-out of excess capacity among ocean container shipping lines leading the re-sizing of global transportation fleets. That trend continues in earnest, with more ocean container ships being idled. For the most part, shipping rates collapsed for most of 2015 leading to a buyer’s market, despite multiple attempts among carriers to influence higher rates. By October, industry watcher Drewry predicted upwards of another three years of industry overcapacity while the CEO of industry leader Maersk Lines, openly called for further industry consolidation. In November, China’s two ocean container lines announced their intention to merge while speculation continued that Neptune Orient Line was seeking a buyer.
We predicted that the “perfect storm” of dysfunction among U.S. west coast ports in the latter half of 2014 would have implications in how shippers, exporters and retailers route future shipments destined for the United States and global markets. That trend indeed manifested itself with ongoing reports indicating that this year’s traditional holiday seasonal surge in shipping really never occurred. Retail and other industry supply chains suffered a sizable inventory overhang as 2014 holiday inventories arrived in the early part of 2015. While 2015 data relative to a volume shift among U.S. West Coast, Gulf and East Coast port activity is still to be determined, current trending numbers to-date point to supply chain teams indeed exercising a more balanced inbound routing. We pointed to the issues uncovered in 2014 labor contract negotiations, and work stoppages involving independent trucking’s driver contracts, the leasing and 3rd party deployment of tractor-trailer carriages to transport containers as needing to be addressed by transportation industry and labor union players to avoid a repeat of what occurred in 2014. Those issues remain at-odds, especially among independent truckers without full-time labor agreements that account for idle and delay time.
One of the most prominent turbulence areas was increased merger and acquisition activity in the third-party logistics sector. We predicted that the added complexities and service needs related to Omni-channel and industry-specific logistics would continue to spur more service and technology requirements by customers on third-party logistics providers (3PL’s), forcing them to invest in broader technological and systems capabilities along with broader scale, or risk losing business to larger more versatile providers. The acquisition announcement by FedEx of GENCO at the end of 2014 portended this dynamic in 2015. Indeed that came to pass with continuous announcements of M&A activity involving both larger and smaller industry players. Among the most prominent, in April, FedEx announced its intent to acquire TNT Express for $4.8 billion. That announcement came in the wake of UPS’s previous failed attempt to acquire TNT after encountering stiff regulatory resistance. In September, XPO Logistics announced its intent to acquire Con-Way for an estimated $3 billion raising the specter of further industry consolidation. In October, Denmark based DSV announced its intent to acquire U.S. based UTi Worldwide.
We predicted that the plunging cost of crude oil prices would further 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. That turned out to be the case and the most visible attempts were from FedEx and UPS who each announced added fuel surcharges for both 2015 and 2016.
Turning to railroads, we predicted that Canadian and U.S. based railroads would encounter turbulence in accommodating higher volumes of crude oil shipments as well as increased regulatory pressures for upgrading sub-standard tank cars to new safety standards. The opposite occurred. The continuous decline of world crude oil prices triggered a noteworthy reduction in U.S. domestic crude production leading to lower oil train volumes. With lower volume, regulatory pressures for tank car upgrading seemed to have eased but there was a crisis involving the December 2015 deadline for railroads to have implemented positive train control technology. That deadline was extended over an additional three year horizon.
2015 Prediction Eight: Sales and Operations Planning Transitions to Broader Scope Information Management Augmented by What-If and Simulation Activities.
Self-Rating: 3.5 (Max Score 4.0)
We have long advocated that today’s more globally based supply chains require end-to-end business network technology support in supply chain execution, customer fulfillment and more integrated business planning dimensions. With that perspective, we predicted 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. We believed that this would most likely include deeper, cross-application information connections to product demand pipelines, augmented with traditional and social media based demand sensing. We further anticipated more-timely information connections with external or outsourced suppliers along with key customers, leveraging cloud-based planning and fulfillment synchronization networks.
Because of these needs, we expected 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.
Our polling of technology vendors including where specific market interest occurred in 2015 reinforced that industry supply chain and line-of-business teams indeed expressed desires for integrating broader information streams and more contextual-based decision-making capabilities. Also on the vendor side, briefings on product strategy pointed to consistent themes for augmenting S&OP process support with broader aspects of network-wide information and with more prescriptive and predictive decision-making capabilities.
When we made our prediction, we had in-mind that certain existing B2B business network technology providers would become more attractive in M&A activity. In February, private equity firm Insight Venture Partners announced its intent to take E2open Inc. private. In June, best-of-breed supply chain planning provider JDA Software announced a strategic partnership with Google directed at deployment of a supply chain wide public cloud capability. In August, ERP provider Infor announced its acquisition of GT Nexus declaring the advent of the “first global commerce cloud” for small and large enterprises. Infor’s stated objectives are to implement broader supply chain business network support capabilities including S&OP processes. And at its annual customer conference in late October, Oracle announced its public SCM Cloud offering with the ability to integrate a broader B2B business network. Meanwhile, SAP continued with its efforts to broaden its Ariba B2B platform for broader support of direct materials procurement and integrated business planning.
In our next and final posting, we will look back on our final two predictions for 2015.
In the meantime, feel free to add to our dialogue by sharing your own impressions and insights regarding these specific industry challenges in 2015.
©2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.