On the eve of the beginning of the chronological New Year, it is our time to reflect, look back and scorecard our Supply Chain Matters 2013 Predictions for Global Supply Chains which we published nearly a year ago.
Readers are welcomed to review our predictions for 2014 which we outlined previously in a series of detailed commentaries. But now is the time to look back and reflect on what we previously predicted and what actually occurred in 2013.
In our previous Part One posting, we scored our first five predictions for this year. We now move toward the final five of our predictions and how they fared.
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.
2013 Prediction Six: Supply Chain Organizations Must Either Embrace and Augment Resiliency or Deal with the Consequences of Poor Business Outcomes.
This particular prediction was motivated by the constant volatility in product demand, supply, and other unplanned events impacting industry supply chains. Volatility exposes the vulnerabilities of existing planning, execution or S&OP processes. Throughout 2013, there were increased incidents of supply chain disruption including a major port strike, the threats of port strikes on involving the U.S. west and east coast ports, major factory and warehouse fires along with continued incidents of unprecedented natural disasters. Just this weekend, a fire destroyed the workshop of internal movement parts-making supplier to Swatch Group and other competitive watch suppliers. Swatch supplies roughly 60 percent of movements used in all Swiss watches. As we pen this update, it remains unclear as to the extent of the damage or parts disruption.
Throughout 2013, we observed more and more evidence of manufacturers investing in people, process and technology augmentation that would address resiliency and more predictive decision-making capabilities. This was further reflected in robust software sales from vendors and services providers that concentrated in enabling resiliency, risk-mitigation and more responsive supply chain decision-making capabilities.
We predicted that Supply Chain Control Tower (SCCT) initiatives, beyond those in high tech and consumer electronics supply chains, would come more to the forefront this year. That turned out to be not the case. There were various reasons including the need for further education, organizational readiness to take on such as an initiative and technology vendors themselves who moved away from articulation of SCCT concepts in their product marketing. This area was a missed prediction for us but we continue in our efforts to provide broader market education in this area.
2013 Prediction Seven: Chinese based Manufacturing and Service Firms will Markedly Increase Their Presence and Influence within Industry Supply Chains
The essence of this prediction stemmed from China’s leadership which was encouraging more companies to buy assets overseas and to make strategic investments across targeted industry supply chains. Having in excess of $3 trillion of foreign-exchange reserves helped in the bankrolling of such investments. While natural resource and energy continue to be the predominant strategy our belief was that other industry or geographic penetration strategies would play out in 2013, and that indeed turned out to be the case.
Chinese firms indeed turned their attention toward machinery interests across Europe, making select investments in distressed companies. Zoomlion Heavy Industry Science and Technology, a state owned construction equipment producer acquired German equipment maker M-Tec inDecember. Sany Heavy Industries has quietly acquired two German based firms, Putzmeister and Intermix and entered a joint venture with Austria based Palfinger. In the United States, Sany invested in a $60 million office building and adjoining warehouse outside Atlanta in an effort to develop a more significant presence in the U.S. construction equipment market. According to a Wall Street Journal report earlier in the year, Sany has been “scouting for acquisitions and joint ventures to gain a broader product line, more sales and rental outlets.”
Tianjin Pipe has invested in a $1.3 billion manufacturing plant in Texas to produce seamless-steel pipe for the oil and gas industry. That plant is expected to be completed in 2014. Hisense USA, the subsidiary of home-appliance and electronics producer Hisense Electric is branching out to become a stand-alone brand of flat panel TV’s and mobile handsets from a plant in Georgia. A growing number of China based textile producers including Keer Group and JN Fibers have been investing in new production facilities in the U.S. southeast to supply fabric yarn to Central America apparel producers. Energy costs in the U.S. have become far cheaper not to mention transportation cost advantages for shipping yarns and industrial fibers to Central America, an evolving low-cost manufacturing alternative for the Americas market. These strategic investments allow Chinese yarn and fabric producers a means to overcome existing U.S. tariff barriers for fabric composition.
The most visible and noteworthy investment was the acquisition by China’s largest meat producer, Shuanghui Group, of major pork producer Smithfield Foodsfor approximately $4.7 billion. The primary purpose of this acquisition was stated as fostering more export of Smithfield branded pork products towards China’s booming consumer market. The reality however is now the presence of a prominent Chinese based food producer within an important segment of the U.S. pork products supply chain. The deal also won approval from U.S. regulatory bodies. Since the Smithfield acquisition, there has been added speculation about added acquisitions in the dairy sector.
We believe we nailed this prediction and thus provided ourselves a generous rating.
2013 Prediction Eight: The Executive Level Voice and Shared Accountability of Supply Chain will Extend into Three Broader Areas
Rating: 2.0 (see below qualifier)
The basis of this prediction was our belief that evolving needs for product design, customer fulfillment and customer service now umbrella, voluntarily or involuntarily, more accountability for the supply chain leadership executive. Visible incidents of botched new product introductions because of initial quality issues or premature component failures across automotive, aerospace and consumer electronic brands during 2012 led us to this broader prediction. The new era of Service Lifecycle Management where OEM’s or capital equipment manufacturers offer customer pay by use or pay by hour leasing options was yet another motivator for broadening the accountability umbrella of the supply chain organization.
Throughout 2013 there were continued developments of premature quality and component failures among the above mentioned industry groups. While Ford Motor has introduced quite a number of new vehicle models, its quality indicators are slipping precipitously. Business media headlines were consumed with continuous reports of additional component failure incidents involving Boeing’s 787 Dreamliner aircraft. Other incidents that have escaped media visibility continue.
Candidly, our rating of this prediction has been a challenge since we have had difficulty in securing anecdotal or hard evidence of clear increased or broader functional accountabilities among industry supply chain teams. Our intent was to develop a detailed research study to explore this area in 2013 but a lack of time and a specific research sponsor thwarted our efforts. Therefore, we cannot in good conscience provide ourselves an overly positive rating even though our gut belief is that we were on the right track with this prediction. We therefore defer to our readers to add further commentary and perspectives as to whether broader and increased accountability indeed occurred during 2013. Look for flash poll early in the New Year to ascertain if a broader umbrella of accountability is underway.
2013 Prediction Nine: Higher and More Expensive Incidents of Counterfeit Products, Physical and IP Theft or Grey Market Activities Would Motivate Stepped-Up Mitigation Efforts.
The incidents and challenges surrounding the continued existence of counterfeit products, physical and intellectual property theft, and grey market activities unquestionably continued across multiple industry fronts throughout 2013. In 2012, U.S. Customs and Border Protection alone seized over $178 million in counterfeit goods coming into the United States. Among pharmaceutical and healthcare supply chains, the U.S. Food and Drug Administration (FDA) had to once again alert physicians and healthcare providers to yet another batch of the cancer fighting drug Avastin early in 2013. In March, U.S. Customs officials seized $3.6 million in counterfeit Viagra and Cialis in a warehouse in South Carolina. That same raid also uncovered a large quantity of counterfeit golf clubs within the same warehouse. Counterfeit drugs were not just in proprietary but generic versions of drugs as well. Generic manufacturer Teva Pharmaceutical had to step-up quality inspections of its off-patent heartburn drugs across Europe after healthcare providers and patients noticed miss-spellings in the drug labels. The World Health Organization (WHO) disclosed that there is still no accurate estimate of the global scale of counterfeit medicines. Reports by others groups suggest that the size of the global counterfeit drugs industry could run into hundreds of billions of dollars.
The United Nations Office on Drugs and Crime concluded in an April report that counterfeit goods, mainly originating from China, have become as profitable as illegal drug trafficking for Asia based criminal gangs. The UN agency concluded that counterfeit goods traced to China are the direct source of about two-thirds of the world’s counterfeit goods. Many watchdog agencies have concluded that counterfeiters have become far more sophisticated in their methods of production and distribution. China is also the primary area of the most concern regarding intellectual property (IP) protection, and has become a primary motivator for current decisions to near source design and manufacturing to other consuming regions such as the United States.
Despite all the above evidence and incidents, industry supply chains such as the pharmaceutical industry continue to battle a rising tide. While many firms have specific compliance leadership and staff resources, efforts generally were directed at certain controls within current budgetary parameters. They include early detection, audit and product packaging techniques to make it more difficult for counterfeiters to distribute fake goods. Calls from governmental agencies for stricter or mandated tracking, inspections and controls remain muted and subject to political lobbying. Private industry must step-up and come up with enhanced solutions.
Meanwhile, consumers, patients and services providers continue to remain the victims. While we correctly predicted the wide-scale scope of the ongoing problem, stepped-up mitigation efforts apparently lagged.
2013 Prediction Ten: Cloud Computing and Managed Services Options Continue to Gain More Traction Provided that Vendors Resolve Lingering Customer Concerns.
The year 2013 featured the ongoing shift of influence and the ultimate decision in technology buying moving away from IT and towards the business side, with the continued counsel of the CIO and IT teams. The fate of technology investments to enable expected and more timely business outcomes is quickly shifting into the hands of business and supply chain teams. At the same time, huge multi-year technology transformation initiatives were shunned in favor of targeted, tactical business process change initiatives of average 3-6 months duration that phase-in capabilities toward a desired multi-phased end-goal. This fostered a greater attraction toward cloud computing, managed services or best-of-breed selection options that
provided teams managed scope and much quicker time-to-benefit.
During the year, industry analyst and other published surveys pointed to less resistance for certain supply chain mission critical processes moving toward hybrid or public clouds, provided that vendors could ensure strict security standards, less onerous contract language and quicker implementation methodologies. However, the November-December incident involving the security breach of retailer Target’s point-of-sale systems will most likely significantly re-ignite security concerns again in 2014.
In 2013, many supply chain technology vendors continued their wholesale shifts at providing customers broad cloud-based options in planning, B2B collaboration and execution management. Thus far, customers seem to be comfortable with adopting such options, but again, in managed scope. Tight budgets for technology adoption also contributed to the attractiveness for cloud-based options since technology investments can be funded within business operating budgets.
This concludes our 2013 Predictions scorecard. We trust that you, our readers, secured benefit from these predictions as they transpired this year. While we did not hit a home run on every prediction, we were certainly in the game.
Readers are invited to add their observations in the Comments area regarding our predictions for this year and our self-rating.
Sincere thanks for your continued loyal readership throughout 2013 and we extend our wishes for a productive and rewarding 2014.
Bob Ferrari, Executive Editor and Managing Director
© 2013 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.