Introduction

Industry supply chain management teams continue efforts in achieving 2019 final quarter strategic, tactical, and operational line-of-business performance objectives and expected business outcomes, especially in this all too important final quarter. This affords Supply Chain Matters the opportunity to look back and review our prior 2019 Predictions for Industry and Global Supply Chains, which were published at the beginning of this year.

The Ferrari Consulting and Research Group, the parent of the Supply Chain Matters blog has published our annual predictions for industry and global supply chains since our inception in 2008. Our approach is to view predictions as an important resource for our clients and blog 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 sole perspective of a three to five-year window with nebulous degrees of probability. Our belief is that induThe Ferrari Consulting and Research Groupstry business and supply chain management process needs are changing rather quickly and that leaders need a focused view of what could likely occur from business, functional and advanced technology perspectives in a one to three-year timeframe. 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.

After looking-back at current year predictions, we will then transition into the unveiling of our 2020 Predictions expected to occur starting in mid-December.

 

In the Part One posting of this series, we revisited 2019 Prediction One, which related to what supply chain management teams would have anticipated in global economic outlook, and Prediction Two, the notions of supply chain talent recruitment and retention reaching alarming levels.

In our Part Two posting, we revisited 2019 Prediction Three, which related to unprecedented levels of global supply network challenges, along with 2019 Prediction Four, the notion that supply chain cybersecurity and information safeguarding was mandatory.

Our Part Three posting of this series was an assessment of Prediction Five, Supply Chain Management Digital Transformation strategies requiring strategic roadmaps, and Prediction Six, multi-year transition toward Digitally Enabled Response Networks.

 

2019 Prediction Seven: Continued Shifting of Business Focused Advanced Technology Investment Priorities and Added Supply Chain Management Technology Market Developments.

Self-Rating:  3.0 out of a maximum 4.0 score

 

We predicted that 2019 would present various industry supply chain management teams with an overriding need to shift advanced technology investment priorities based on individual line-of-business or industry-specific priorities. Such priorities would come from external and internal business needs and developments as referenced in our other 2019 predictions, namely:

  • Prediction One indicated a lot of caution on the part of senior business and financial executives to hold-off on major investment or change initiatives pending some signs of stability in overall geo-political and trade environments.
  • Prediction Five calling for revised digital transformation roadmaps based on line-of-business, talent and business process prioritization, which will surely influence advanced technology investment and market growth timelines.
  • Prediction Six calling for the multi-year transition to Digitally Enabled Responsive Networks in supporting Omni-Channel customer fulfillment needs.

We felt that each of our other associated predictions noted above, and other specific business factors would add weight or deterrence to advanced technology investment priorities in 2019.

While the year has not completed, it would appear from the sales and pipeline reports from various supply chain management targeted technology providers that this year did not provide a pullback in advanced technology investment. Instead, investments were indeed targeted at specific business priorities.

One clearly appears to be needs for supporting required digital-based customer fulfillment processes as customers continue to seek more timely delivery and complete status of orders and shipments. No doubt, the threat of Amazon and its increased commitment to one-day or same-day delivery has added emphasis to such needs.

The other priority is enhancing end-to-end supply chain planning, visibility and more responsive decision-making. Many of the best-of-breed supply chain planning as well as ERP providers offering broad and robust end-to-end supply chain planning and decision-making support capabilities have indeed been logging positive growth in revenues.

Other Specific Technology Areas

  • Regarding specific technology sectors, we predicted that in 2019 and 2020, industry supply chain management teams can anticipate leading Enterprise and B2B Business Network platform technology providers to broaden any-to-any data, information and decision-making support needs in areas of external transactional, identity, decision-support and operational Edge systems integration. That would include Application-to-Application, Cloud-to-Cloud, Device-to-Cloud and streaming data stream integration capabilities across networks. That was indeed the case, with such capabilities primarily coming from acquisitions of specialty technology providers in these areas.
  • We indicated that beyond the vendor and media hype, concerns related to the speed and scalability of Blockchain technology, and the lack of generally accepted global standards related to distributed ledgers, along with challenges related to underlying technical components would constrain activity to pilot proof-of-concepts. We pointed to some specific enterprise level technology vendors, such as IBM, attempting to cash in on locking-up key industry influencers. That is indeed what has occurred. While Blockchain remains as an important capability for specific supply chain business process support needs, wide-scale deployment remains one to two years away.
  • For Internet of Things (IoT) and Digital Twin technology deployments, we observed that wider-scale, multiple-process or line-of-business deployments will remain deferred until the cyber-threat landscape has built more creditable defenses to assuage stockholders, or until individual IoT technology providers add more comprehensive data and information protection safeguards, including conformance with global-wide information security standards that include encryption and autonomous monitoring of data security. That indeed occurred and positive efforts remain underway by select early business innovators and select enterprise technology providers, in addressing such challenges. Progress has been made in specific controlled pilot processes, but additional efforts will be required.
  • We identified the opportunity to expand and leverage the use of artificial intelligence and machine learning technology to transform supply and customer demand network capabilities in areas of increased automation, smarter interactive devices and more preemptive operations to avoid unplanned downtimes or business disruption. Such activity occurred on the vendor side, but the technology will require additional time to make a more widespread presence and payback in broader multi-industry applications. That stated, this year included very robust equity investments in many existing and new AI technology start-ups focusing on supply chain management business process and decision-making processes.
  • Our prediction for the overall technology segment was additional M&A activities among large enterprise, industry-specific and specialty best of breed Cloud technology providers in areas concerning supply chain management related capabilities. We further predicted 1-2 major M&A announcements specifically involving supply chain management focused technology providers. The strategy would involve building scale, broader industry access or tuck-in acquisitions to augment broader supply chain process support capabilities. Looking back, there was muted activity from large enterprise tech providers. In the best-of-breed segment, two announcements involved E2open’s acquisition of Amber Road, and Llamasoft’s acquisition of AI technology services provider Opex Analytics. In the global shipping segment, two ocean container lines announced technology services focused acquisitions, namely CMA CGM’s acquisition of Ceva Logistics and Maersk Line acquisition of online customs broker Vandergrift.
  • We predicted the continued presence of private-equity influence across the advanced technology landscape including the hottest supply chain management technology. We created our series This Week in Supply Chain Tech to highlight such developments and we found the need for multiple editions each and every quarter, especially profiling accelerated equity investments in logistics, distribution center real estate and AI areas. Finally, we predicted that IPO efforts would increase as the hottest SCM technology providers execute exit strategies.  That latter IPO prediction obviously did not occur.

 

2019 Prediction Eight: Global Logistics, Transportation and Third-Party Logistics Entities Confront Converging Forces of Industry Model Disruptors.

Self-Rating:  3.8 out of a maximum 4.0 score

This was one of our most complex predictions with many moving parts.

Essentially, our prediction was the implications of a permanent shift to online retail, and all that this requires in a far different logistics and last-mile fulfillment process needs would result in a convergence of forces between legacy thinking and innovators.

A manifestation was that global logistics, in the presence of DHL, FedEx or UPS, as well as other transportation and third-party logistics providers would begin to finally confront the forces of an industry business model disruption. This was coupled with the presence of Amazon and Alibaba and the now obvious realization that both are not only dominant online retail platforms but providers of select logistics and parcel last-mile delivery capabilities.

Our prediction declared that major global parcel carriers such as DHL, FedEx and UPS stubbornly clung to their network hub and spoke transportation routings only to then discover that major hubs became their singular bottlenecks when competing with Amazon.  Efforts to invest huge sums of money in material handling, logistics and network automation were funded by a strategy that extracted higher annual rates to pay for such investments. Indeed, an overall industry known for inward thinking and a continuous tendency to pass along rate increases to fund needed business expansion initiatives reached a circumspect point in 2018.

The seminal development in 2019 was FedEx’s decision to forego contract renewal of both air freight and surface parcel delivery contracts provided to Amazon. The decision was essentially that FedEx concluded that the carrier’s future rested in seeking growth supporting other retailers and online customer fulfillment business models.

A further seminal development this year was the ongoing declaration from ocean container carrier Maersk Line’s declared goal that in 2-3 years, half of its earnings would stem directly from inland logistics, meaning aggressive investments in added services and technologies that will support broader transportation movements, including services provided by long-time logistics industry participants.

They each were added evidence of converging industry forces.

Moderation in Rates for 2019

We predicted that with global manufacturing and supply chain activity levels expected to moderate this year, the surface transportation sector, and especially trucking, would experience the opposite of 2018 when rates skyrocketed. The same was predicted for ocean container rates, namely excess capacity vying for reduced market demand. That has also occurred, and the implications are becoming more visible with carrier financial performance reports with declining revenues and capacity utilization. While we pen our assessment just before the peak of this year’s holiday surge, many transportation providers are not likely to be able to recover from excess capacity when 2020 begins.

Other Related Predictions

While we predicted a continued high level of mergers and acquisitions this year, such activity is more likely in 2020 as traditional players find more innovative players more attractive for merger or acquisition efforts.

We predicted a continuing attraction by consumers to food and grocery online ordering which will, in-turn, lead to more explosive growth of local delivery services either courier, regional of national in-scope. Looking back, this area has exploded, and online grocery has been cited by certain major retailers such as Amazon, Target and Walmart as contributing to continued double-digit growth rates. As for local food delivery service providers, what occurred was too many providers attempting to provide such services meeting the reality of added expenses.  That has led to some fall-off of the heard.

We predict that Amazon will once again serve as a nation-wide disruptor in this segment since many firms have not as yet mastered scale, efficiency and profitability. Likewise, internationally based providers will likely crack the code for food delivery efficiencies, particularly in China and other Asian nations.

A final area of this prediction area was our questioning of the acceptance by truckers, operators and overall logistics teams to the day-to-day use of advanced technology laden processes such on online brokerages, automated scheduling, dispatching and routing, and AI enhanced decision-making. At this point, we believe it is too early to make an overall assessment, but acceptance levels appear to be rather positive.

 

2019 Prediction Nine: Positioning for Global Online Retail Presence Meets the Realities of Geo-Political Forces and Trade Tensions.

Self-Rating: 3.0 out of a maximum 4.0 score

 

Our prediction was that in 2019, the ongoing positioning for online global retail presence among Alibaba and Amazon, would meet the realities of needs for garnering shorter term revenue and profitability to fund future investments and scale. Ongoing geo-political forces would mute any further aggressive global expansion plans until global trade and intellectual property protection concerns were addressed.

We pointed to three influences that would be in play during the year:

1) China’s dominant online providers as publicly held companies were accountable for delivering expected revenues and profits. While Amazon was able to convince investors to ride-out multiple years of profitless results in order to make strategic investments, the scale of China’s providers was far more extensive, and the expectations for shorter-term and longer-term profitability was far higher.

For the most part, Alibaba managed to side step reductions in online revenues by concentrating on marketing and promotions of global branded products. Earlier this month, as principal sponsor of China’s Singles Day online shopping holiday, Alibaba once again set another all-time record for one-day revenues and shipment volumes.

In second-half 2019, Alibaba decidedly elected to raise additional equity in non-U.S. markets, essentially a $20 billion dollar listing in Hong Kong, which turned out to be highly successful. This seems to be a concerted strategy to reduce U.S. investor influence in the light of continuing trade tensions among the U.S. and China.

2) The second was obvious growing fears of an ever more escalating trade and intellectual property protection war involving China and U.S., two of the largest economies and significant online marketplaces. Some geo-political experts had speculated that such a conflict might result in an increase mercantile alliance between China and Russia for trade and market opportunities. Alibaba had already announced a partnership with Russia’s emerging online shopping provider, which could set off alarm bells among other nations.

Strategic countries had been identified and strategies had to turn toward garnering customer stickiness and market-share in existing targeted countries while fending-off obvious domestic and international competitors. China’s own domestic economy was showing strains and broad-based consumers have reportedly been cutting back on spending other than traditional holiday related.

While China’s domestic consumer economy did experiences declines in consumer buying, Alibaba managed to run above the fray.

3) The prize in 2019 remained India, with an online market expected to be upwards of $100 billion by 2023.  Our belief was that domestic platform provider Flipkart, Amazon and to some extent Walmart, would fiercely compete for India’s online market dominance. In February of this year, the government of India began to enforce new requirements to essentially curb the growth of foreign-based online platform providers while protecting the country’s domestic retail players. These requirements banned online retailers from offering exclusive sales, the selling of products in which equity stakes are owned or offering special discounts and cash-back offers. That directive forced Amazon to initially remove hundreds of thousands of items sold by Cloudtail and Appario, indirectly held by the U.S. online retailer.

In May, India’s antitrust watchdog, the Competition Commission of India, turned its attention to the online sector, declaring concerns as to the possibility of Amazon acquiring Walmart controlled domestic player Flipkart.

Amazon’s strategy in India has been to evolve physical shopping presence across India’s various popular shopping malls until such time that the country elects to change its strict foreign domestic investment guidelines related to online retail. In August, reports indicated that Amazon was in exploratory talks with Reliance Retail, one of India’s largest brick and mortar retailers specializing in consumer electronics and mobile phones, in efforts to acquire a minority interest to establish its own toehold on that sector. Also, in August, Amazon acquired a minority stake in Future Retail, another large domestic brick and mortar retailer.

 

This concludes Part Four of our revisit and self-rating of 2019 Predictions for Industry and Global Supply Chains. We plan to revisit and self-assess our final industry-specific predictions after this year’s respective Thanksgiving, Black Friday and Cyber Monday holidays.

In the meantime, clients and readers are encouraged to continue to share their own specific assessments of what occurred this year, as well as their anticipations for the coming year.

 

Bob Ferrari

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