While global industry supply chain teams continue to work on enabling 2014 operational and business performance objectives, this is the opportunity for Supply Chain Matters to reflect on our 2014 Predictions for Global Supply Chains that we published in December of 2013.
Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008. We not only publish our annualized predictions, but score our predictions every year. After we conclude the self-rating process, we will then unveil our 2015 Annual Projections for Industry Supply Chain during the month of December.
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.
But now is the time to look back and reflect on what we previously predicted and what actually occurred in 2014.
Our 2014 prediction concerning industry economic outlook summarized key economic forecasts in late 2013. Based on our review, we believed that the global economy would continue to present an environment of uncertainty in many dimensions, and turned out to be the case. However, we did note that economic forecasts at the time concerning 2014 were a bit more optimistic but come with many cautions or caveats. That turned out to be the case as well.
Both the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) originally forecasted 3.6 percent global-wide for 2014 and both agencies point to notable downside risks. In its early October update, The IMF adjusted its 2014 global growth forecast to 3.3 percent. The weaker than expected forecast was attributed to setbacks to economic activity in the advanced economies of the Eurozone Japan and Latin America. The agency acknowledged an ongoing higher than expected growth rate for the United States, following a temporary setback in Q1. For the emerging market countries, the IMF scaled back its growth projection for this area to 4.4 percent, while nailing China’s growth rate at a current 7.4 percent rate.
In its mid-September update, the OECD also noted solid growth for the United States with growth strengthening in India, and around trend in Japan and China. That agency also reinforced tepid growth for the Eurozone, but generally reports sub-par world trade growth with a slow pace of improvement in labor markets.
Our own tracking of select global PMI indices further reinforced a mixed global picture with the United States outpacing other regions in production and supply chain activity. Overall, and as predicted, 2014 has been a challenging for industry S&OP teams to plan, adjust and respond to product demand trends within individual geographic regions.
As predicted, commodity costs continued to moderate this year. As of mid-November 2014, the Standard and Poor’s GSCI Commodity Index was down 16.25 percent year-to-date. Prices advanced early in the year as a result of an overly severe winter, drought conditions in Brazil and fear of continued hostilities within the Ukraine. With the exception of the U.S. west coast, U.S. farms recovered from 2013 severe drought conditions and produced record crops of corn and soybeans.
China continues to be the largest consumer of a large variety of commodities and continued moderating growth in that region caused commodity prices to generally slide. Lower global demand caused a general contraction in commodity markets with certain exceptions. Aggregating the overall decline has been a stronger valuation of the U.S. dollar amongst other global currencies.
Exceptions remain in global supplies of coffee and beef, brought about by severe drought conditions, and cocoa, which could be impacted by the current outbreak of Ebola in West Africa.
One of the most significant and noteworthy commodity trends in 2014 remains an overall 23 percent decline in the price of crude oil. At the beginning of this year, the U.S. Energy Information Administration (EIA) had forecasted a 2.8 percent in the price of West Texas Intermediate (WTI) crude oil with a 5.9 percent reduction in the per gallon cost of gasoline and diesel. At this writing, the price of crude has plunged to the mid-seventy dollar per barrel range. Retail prices for gasoline have broken through the $3 dollar per gallon barrier, 25 cents lower than a year ago and the lowest in nearly four years. The average price of diesel, currently $3.68 per gallon in the United States, is 16 cents lower than a year ago. Once more, current projections indicate oil prices will range in the $80 to $90 barrel range in 2015. This is all good news for global transportation and industry supply chain networks.
Summing-up, the easing of inbound pricing pressures afforded procurement teams the ability to hopefully turn attention to other important areas including deeper supplier collaboration, sustainability initiatives and joint product innovation.
This concludes Part One of our report card on our Supply Chain Matters 2014 Global Supply Chain Predictions. Stay tuned as we assess the remainder of our 2014 predictions in follow-on postings.
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