In early January of this year, The Ferrari Consulting and Research Group published our annual 2020 Predictions for Industry and Global Supply Chains Research Advisory report for our clients and Supply Chain Matters blog readership. The report was made available for complimentary downloading on our website Research Center in late February, after initial distribution to clients.
Needless to state, the ongoing COVID-19 coronavirus global outbreak has significant implications for our published predictions, and thus we, like many other research firms, are now planning to publish a needed update, likely when more definite global-wide and regional economic and industry data becomes more succinct.
For the time being, we thought it would be helpful to summarize some initial thought perspectives relative to some of our predictions at the start of this year, and how such predictions are likely to change in a post COVID-19 world
A Very Changed Outlook
Our predictions for the year 2020 reflected external data pointing to an overall business climate of high economic and business uncertainties, with indications of a cautious global economic outlook for the year. We echoed published data reflecting prominent downside geo-political and financial risks, along with a global trade conflict climate that questioned the future of global trade over the coming 2-3 years.
Now, COVID-19, a clearly Black Swan global event has changed and made mute even these cautious assumptions.
Coming into the year 2020, the IMF World Economic Outlook published in October 2019 had forecasted a global growth rate of 3.3 percent in 2020. China was expected to grow at 5.8 percent, the Eurozone at 1.4 percent, and the United States at 2.1 percent.
Last week, at the Journal of Business Commerce TPM 20 online event, Dr. Nariman Behrauesh, a highly respected economist who serves as the Chief Economist at IHS Markit delivered sobering messages regarding the global economy in the wake of COVID-19. His bottom-line takeaway message was that current outlooks: “are likely to get worse before things gets better,” with forecasts rapidly changing with each passing week. He indicated that the world is headed toward recession given the reality that the only way to stop global virus spread was to freeze economic activity. The open question expressed was how deep the global recession will be, and obviously, only time will tell.
Just to share one data point, at the time of this webcast, IHS’s forecast of global wide growth in 2020 was noted as likely 0.7 percent, (compared with the IMF forecast of 3.3 percent) with a bounce back to 2.4 percent in the year 2021. Global wide economic stimulus measures were noted to be key in the ability of global supply chains to be able to bounce back.
For multi-industry supply chain management teams, the assumption is likely that downside economic and business risks have arrived in many dimensions, thus staying attentive to communicated business priorities, protecting the personal health and safety of respective employees, and maintaining lines of communication with customers, suppliers, health and government agencies are the paramount priority.
The global economic and market impact assessments will obviously become clearer in the days and weeks to come, thus assume the worst and hope for the best.
First Thoughts on Some Individual Predictions
In the remainder of this blog commentary we touch upon some of our detailed predictions and our initial thoughts on what is likely to change in certain areas.
Prediction Two indicated unparalleled levels of global supply network management challenges, especially centered on components and products produced in China, leading to structural sourcing shifts during 2020-2021. That prediction remains relevant, and the timeline for certain industry sectors will likely be accelerated.
The growing consensus is that what COVID-19 has exposed is that supply sourcing predicated on lowest-cost region reveals glaring deficiencies to supply chain disruption risk and responsiveness among certain industries, especially those where domestic supply chain capabilities will now be deemed to be in the nation’s strategic interest. The virus has additionally made naked the flaws of Just-In-Time inventory management processes across a globally extended supply network product value-chain.
Among various industry settings, there will likely be significant reassessments. However, the realities of China’s inherent manufacturing, in-country supplier networks, and overall logistics and transportation infrastructure will temper the timelines of change. The open challenge is how much?
In the area of commodity cost predictions, The World Bank Commodity Markets Outlook published in October 2019 forecasted commodity prices trending lower in 2020, driven by ongoing trade tensions and weaknesses in global trade, manufacturing, and output growth. Energy prices were expected to average 15 percent lower.
COVID-19 has obviously added far different dimensions of manufacturing contraction, which are yet to be assessed. With Saudi Arabia now invoking unprecedented declines in global oil prices, battling with Russia and the United States for ultimate control of global oil markets, another significant uncertainty is added. For the time being, global transportation and logistics team can leverage the benefits of current historically low fossil fuel prices. Going forward, in the short term, inflationary price pressures for non-fuel commodities and components may have to be managed. A further open question is maintaining momentum in areas of supply chain sustainability and renewal, given a shift to more domestic or near-shored supply chains.
Prediction Three reflected our belief that supply chain management talent management strategies would turn towards retention, training and reskilling as budgets begin to tighten and certain work becomes more automated.
Talent management will obviously remain a priority for the very fact that developed talent skills are being counted on to navigate supply chain and business response to the current crisis. In priority areas such as healthcare delivery, personal protection, needed medicines and drugs, the innovation and creative responses of people will make a difference.
With global populations now mandated to staying in residences to blunt further disease outbreak, the ability of online retail platforms to respond to new consumer needs are under test. In the U.S., major online retailers such as Amazon, Walmart and other are seeking to recruit in excess of 300,000 new interim workers to aide in online customer fulfillment efforts. Instacart announced today an intent to hire upwards of an additional 300,000 workers to augment home-based food delivery. All of this added hiring is of the scale of a holiday fulfillment period and introduces workers to the aspects of supply chain management workings.
We trust and hope that any impacts to talent as a result of economic shock that will unfold over the coming weeks will be temporary and buffeted by legislative stimulus.
Supply Chain Digital Transformation
Our Prediction Five and Prediction Eight addressed the areas of Supply Chain Digital Transformation as well as the latter Digitally Enabled Response Networks. Our belief was that business initiatives addressing each of these capabilities would focus on near-term tactical Line-of-Business needs this year.
With so many businesses and their respective supply chain management support teams now having little choice but to rely on online and digital means of communications, information exchange, collaboration and decision making, tactical may well turn to essential in the coming weeks and months. Organizations that were struggling with inherent skills readiness or change management issues are receiving crash courses in adoption and use, regardless of pain factors. Indeed, business cases and executive mandates manage transformation timelines, and our initial sense is that such timelines will be accelerated post COVID-19.
Technology Enabled Disruption of Global Transportation and Logistics Services
Prediction Seven addressed the ongoing implications of a permanent shift by consumers and small and medium businesses toward a preference for online buying. This implies a far different and more digitally based set of integrated logistics and transportation customer fulfillment capabilities that integrate physical and digital.
An industry model ripe for disruption and new thinking, enabled by more advanced technology and innovation funding remains the epicenter of such change.
COVID-19 has brought stark awareness to the need for greater levels of end-to-end supply chain visibility, connecting physical and digitally based information sources in near real-time dimensions. Even an industry icon Amazon was overwhelmed by a sudden unexpected flood in online customer fulfillment needs, despite deep pocketed technology investments. Inventory management strategy was the exposed weak link.
When the virus eventually subsides, we feel that many businesses will be assessing their critical dependence on integrating online customer fulfillment information and decision-making needs including a serous consideration for Cloud based B2B network platforms that link various supply chain management customer fulfillment, supplier and transportation networks and process alerting capabilities.
In a matter of a few short months, predictions for 2020 have poignant new meanings.
Areas of supply network sourcing have new consequences and require deep assessments related to business and market risk. Areas in need of process transformation have new meaning and timeline, and advanced technologies will play a more visible role in the path forward.
In the end, we remain of the belief of this blog’s banner, that Supply Chains Do Matter in business strategy and outcomes.
Bob Ferrari, Managing Director, The Ferrari Consulting and Research Group
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