Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide our series of predictions for the coming year. These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, as well as helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the upcoming New Year.
In Part One of this series, we unveiled the methodology and complete listing of our 2014 predictions.
Part Two of this series summarized Prediction One related on what to expect in the global economy and Prediction Two, what to expect in procurement costs.
In this posting, we explore Predictions Three and Four.
Prediction Three: Continued Momentum Associated with the Resurgence of U.S. and North America Based Manufacturing
Throughout 2013, our Supply Chain Matters weekly and quarterly newsletter commentaries have highlighted the increased attractiveness, ongoing momentum and the paradigm shifts for more and more firms to invest in U.S. based manufacturing.
Labor rates in China, the hub of global manufacturing are now five times higher than in 2000 and continue to grow at double-digit rates. The Boston Consulting Group indicates that wage growth across China grew 19 percent between 2005 and 2010. The government of China has additionally set a target for a 13 percent increase of the minimum wage through 2015. Global transportation costs have increased significantly. The new abundance of natural gas supplies have led to significant cost advantage in terms of energy consumption vs. other global regions. In March of 2013, The Boston Consulting Group issued its report “Made in America” which noted: “”Within five years, rising Chinese wages, higher U.S. productivity, a weaker dollar, and other factors will virtually close the cost gap between the U.S. and China for many goods consumed in North America.”
There were many examples of this momentum in 2013 across multiple industry sectors which we will be cited in our detailed research report. The most notable and visible catalysts have been Apple’s plans to invest in a Mac computer production, Motorola’s (division of Google, Inc.) decision to source its new Moto X line of smartphones in the U.S. to offer customers mass customization options for their phones, and the Wal-Mart commitment to purchase an additional $50 billion in U.S.-made products over the next 10 years
In the area of government and private sponsorships, President Obama announced the creation of three more public-private manufacturing research institutes as nodes of a $1 billion National Network for Manufacturing Innovation (NNMI) for the United States. Also announced was a program titled Investing in Manufacturing Communities Partnership, the first phase of a two-phase effort aimed squarely at communities and regions, announced by the Commerce Department’s Economic Development Administration (EDA).
As of November 2013, U.S. manufacturing activity as depicted by the Institute of Supply Management (ISM) PMI Index was recorded as 4.2 percentage points higher than the beginning of the year, and 6.2 points higher than the June reading, representing both the highest reading since June of 2011 and increased momentum from other geographic areas.
Mexico has also benefitted from the new attractiveness of North America with some cost sensitive industry supply chains electing to source in Mexico as an alternative to China or Eastern Europe.
We therefore conclude that this momentum will continue into 2014 with additional announcements from manufacturers and retailers as they continue with nearshoring strategies that align the supply chain closest to major geographic market fulfillment. That is not to preclude any further growth in China and other parts of Asia, but more of the reflection of supply chain re-alignment linked to strategic geographic growth markets and production cost advantages.
Prediction Four: Supply Chain and Manufacturing Talent Management Remains a Continual Challenge
Since 2012, industry forums, executive roundtables, business media and industry analyst research have continued to identify supply chain related talent acquisition and retention as an ongoing challenge. This challenge continues to frustrate organizations with each passing year, and 2014 will be no exception.
In its Chief Supply Chain Officer (CSCO) Report 2013 conducted by SCM World, 44 percent of senior executives indicate that challenges for recruiting and developing talent has not changed over the past two years. Over three-quarters of respondents view the same degree of difficulty or an increase in difficulty. That report concludes: “Developing talented leaders or rising stars within the supply chain organization has yet to be systematized or made repeatable in a meaningful or effective manner.” Similar types of findings are also evident in the product sourcing and procurement community.
In the area of manufacturing, a recently concluded MIT study which addressed recommendations for global competitiveness in U.S. based manufacturing surveyed 2700 manufacturing establishments. That study notes that while 41 percent of hiring managers validate that core production workers have become more difficult to recruit during 2010-2012, most employers do not experience extended vacancies, which was defined as three months or greater. MIT researchers point to a continued aging and highly experienced manufacturing workforce that has reached retirement and to specific challenges of training workers for today’s much more demanding technically oriented manufacturing skills. A parallel is drawn to the highly successful on-the-job manufacturing focused apprenticeship programs in Germany that prepare workers for the skills that are required in today’s more technically focused shop floor.
As noted in our 2013 predictions, in the broader aspects of supply chain management, skills in demand are identified as broader cross-functional management coupled with leadership skills in supply chain strategy, change management and regulatory compliance. The new dimensions of integrating supply chain requirements in new product introduction plans has taken on more need. Recruitment and retention challenges continue to span geographies, and continue to be identified as challenges in high volume manufacturing regions such as China and the rest of Southeast Asia. Supply Chain Matters made mention of a 2013 report that indicate that Chinese students view a manufacturing career as “dirty and unfulfilling work” and instead seek out other occupational areas most closely aligned to high tech and alternative energy focused areas.
Professionals who have acquired, or have been trained in necessary skills continue to find themselves in high demand, causing the employee’s former organization an added frustration of a lost investment in talent.
In the manufacturing area, more visibility is being placed on whether starting salaries are adequate along with more formal on-the-job training opportunities. In order to attract prospective manufacturers, state, federal, municipal and local governments have showered firms with many forms of economic incentives that include manufacturing and other forms of job training programs. Manufacturing firms have come to rely on such external subsidies and thus are reluctant to invest themselves in worker training programs.
Certainly, some progress has been made and many professional organizations such as the Supply Chain Council, Council for Supply Chain Management Professionals (CSCMP) and Association for Operations Management (APICS) have created much more awareness to careers across supply chain management. Academic colleges and universities have been adding more supply chain focused academic and advanced degree programs. In mid-2013, the Wall Street Journal published an article declaring that one of the hottest new MBA areas (paid subscription or free metered view) in terms of starting salary and career growth was a concentration in supply chain management. That article named a number of colleges and universities adding new programs. In its reporting of challenges, Bloomberg cited a study from the Georgia Center for Innovation and Logistics indicating that nearly 200,000 U.S. supply chain jobs will go unfilled each year through 2018 because of the lack for qualified talent.
Thus in 2014, supply chain and manufacturing talent acquisition and retention will remain a challenge with lots of joint industry, government, academic, and indeed individual supply chain organizational work remaining to accomplished. We further predict that some progress will be made with more innovative approaches and efforts and we hope to highlight these throughout the year so other teams can benefit.
This concludes Part Three of our 2014 Predictions series. Keep your browser focused on Supply Chain Matters as we highlight Prediction Five, unique industry supply chain challenges in 2014, later this week.
As always, readers are encouraged to add individual or their own organizational perspectives to these predictions in the Comments section associated to each of the postings in this series
© 2013 The Ferrari Consulting and Research Group LLC, and the Supply Chain Matters Blog. All rights reserved