With this posting, we will wrap-up our Supply Chain Matters series outlining in more detail, 2016 Predictions for Industry and Global Supply Chains. These predictions are provided in the spirit of assisting industry supply chain teams in setting management objectives for the year ahead as well as helping our readers and clients to prepare supply chain management and line-of-business teams in establishing meaningful programs, initiatives and educational agendas.
The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and service management.
Our predictions series includes a re-look at all that occurred in the current year, a reflection of future implications, and soliciting input from clients and other supply chain and blogosphere observers. Unlike others, we incorporate a lot of thought and perspective into our annual predictions and take the time to actually scorecard our annual predictions at the end of the year.
Readers are welcomed to review our complete listing of all ten 2016 predictions for industry and global supply chains.
In our Part One posting, we dived into Prediction One that addressed what industry supply chains should anticipate in global chain activity and Prediction Two, what to expect for inbound commodity and component costs as well as unique challenges for sourcing and procurement teams in the coming year.
Part Two of our in-detail predictions explored Prediction Three, turbulence and continued change in global transportation / logistics, and Prediction Four, the growing supply chain talent and skills gap requiring organizations to be more innovative and resourceful.
Part Three reviewed our prediction of certain industry-specific challenges occurring in 2016.
Part Four dived into Prediction Six, S&OP processes morphing into broader forms of integrated business planning, and Prediction Seven, how Internet of Things initiatives will dive further into line-of-business deployment realities.
In this posting, we further explore into our final three predictions.
2016 Prediction Eight: Geopolitical Developments Centered on Global Trade Agreements Will Present New Concerns and Challenges for Specific Industry Supply Chains.
Major developments surrounding global trade will occupy the attention of many industry and regional geographic supply chain organizations in 2016. They will impact current tactical and to some extent, strategic plans related to the import and export of goods. The most prominent will be the ratification process involving the proposed Trans-Pacific Partnership (TPP), China’s potentially competing One Belt, One Road (OBOR) initiative, Transatlantic Trade and Investment Partnership (T-TIP) and the Country of Origin Labeling (COOL) directive. All of these combined will require industry supply chain teams to allocate dedicated management attention to each, along with implications and/or conflicting strategies implied by each.
Details of the recently adopted Trans-Pacific Partnership will continue to unfold in 2016 while individual sponsoring countries undertake the process of ratification. Supply Chain Matters published a first look at TPP elements in November. As TPP details continue to emerge, industry supply chains will begin to uncover certain strategic and tactical impacts related to current global sourcing strategies. Some of these impacts will relate to specific industries and include either current or potential future global value-chain strategies that exist in China, Vietnam, Japan, the Eurozone or other countries. China will continue to drive and influence its One Belt, One Road (OBOR) initiative placing additional political and specific industry pressures on certain TPP participants. Industry supply chain teams will thus be caught in the middle of geopolitical pressures and forces in relation to pending strategic sourcing or value-chain design strategies.
The original COOL legislation had good intent, requiring meat products sold in supermarkets and grocery stores to specifically indicate where the animal was born, raised and slaughtered. Reports indicate that the original law was prompted by the lobbying of U.S. ranchers who compete with the Canadian cattle industry, and later garnered the interest of consumer watchdog interests. In 2015, the World Trade Organization ruled that the U.S. efforts was anti-competitive to Canadian and Mexican animal ranchers. This issue will need resolution in 2016 along with potentially conflicting standards coming from The Transatlantic Trade and Investment Partnership (T-TIP). T-TIP is a trade agreement among the 28 European Union member countries and the United States. It addresses increased access to both member markets for goods and services but it comes with certain definitions as to product branding and country of origin. For instance, parmesan cheese can only originate from certain regions of Italy, and other products of a similar nature have to be labeled or termed differently. The measure further calls for singular approval processes for products, standardized customs and border forms and fees.
Global trade advisory firms such as Livingston International and others are advising industry supply chains to prepare for a number of potential scenarios involving the ongoing trade dispute process invoked by COOL. We certainly concur. While industry supply chain teams might perceive that legislation affecting packaging disclosure of meat products has little to do with service parts, chocolates and wine, it indeed does.
All of these global trade issues will percolate in the coming year and they well may get complex and confusing to sort out.
2016 Prediction Nine: Alibaba and Amazon Will Expand Their Presence in Customer Logistics Fulfillment.
There are stronger indications that online giants Alibaba and Amazon will expand their presence in last-mile customer fulfillment. Increasing transportation rates and surcharges from both FedEx and UPS in 2015, and in the coming year, along with building frustrations over service arrangements make this prediction more viable for the most influential online retailers as well as more evidence pointing to such capabilities.
In late 2015, social media including Supply Chain Matters picked-up a report indicating that an undisclosed major retailer was piloting its own chartered air freight services. An initial report of Amazon’s involvement in secretive air freight services came from a posting by Motherboard which referred to operation “Aerosmith” launched in September from an unknown corporation and run by Ohio-based aviation services provider Air Transport Services Group (ATSG). The report indicated that the unnamed company had leased four Boeing 767 air freight aircraft and was operating out of the Wilmington Air Park near Columbus Ohio, a former DHL air freight hub. As we went to press with these predictions in the middle of December 2015, The Seattle Times reported, citing cargo industry executives that Amazon was separately negotiating to lease 20 Boeing 767 air cargo jets for its own air-delivery service. Similarly, The Wall Street Journal, citing more than a dozen current and former executives from both Amazon and UPS, literally confirmed that the online retailer is taking steps to move closer to last mile delivery. The reason, Amazon’s shipping costs were reported as being 11.7 percent of total revenues, up from 10.7 percent a year ago. According to the WSJ report, Amazon’s spending with UPS exceeds $1 billion alone.
Another data point was Amazon itself which at a holiday focused shipping event, disclosed that it has acquired and deployed thousands of its own Amazon Prime branded fleet of tractor-trailers for transportation needs among its various customer fulfillment and logistics sorting centers.
These three separate but related developments, dedicated surface and air freight capabilities, coupled with well-timed holiday announcements on advanced drone delivery vehicles all lead to our prediction that all of these capabilities will unveil themselves in a more end-to-end contiguous customer fulfillment and premium last-mile delivery capability for Amazon Prime members in 2016.
Similarly in 2015, Alibaba conducted one of the largest online shopping events to-date. According to China based Alibaba, this year’s Singles Day online event recorded a record 91.2 billion yuan ($14.3 billion) in one-day gross sales. Volume was reported as surpassing last year’s $9.3 billion in sales after 12 hours. For the sake of comparison, 2014 and 2015 online Black Friday and Cyber Monday volumes do not come close to that of this year’s Singles Day event for the Chinese online retailer and its other associated online sites. Because of the last-mile delivery challenges within China, Alibaba continues to invest in its own last-mile customer delivery capabilities, and in 2015, came reports of expanding relationships with other global parcel delivery entities such as the U.S. Postal Service.
Amazon and Alibaba will continue to move upstream in last-mile parcel delivery capabilities and this will serve as a wake-up call for remaining online retailers with dependence on higher customer fulfillment and logistics costs. Free Shipping policies have consistently attracted online consumers in buying decisions and offsetting costs will remain the determinant of profitability of online orders in the months to come. Consequently, existing parcel delivery service providers will experience more shipper pushback regarding rate structures.
Needless to state, the industry dynamics of B2C online last mile customer fulfillment are about to change in 2016.
2016 Prediction Ten: A High Visibility Supply Chain Snafu or Event with Business Implications
This is a prediction that we are obviously reluctant to publish for readers and clients. However, our observation of industry supply chains being whiplashed with unprecedented business change and growing global chain risks leads us to this prediction.
The potential for supply chain disruption, whether from natural disasters, political or other unforeseen or unexpected events has greatly increased. The significant explosions and fire that occurred in the proximity to the logistics complex at the Port of Tiajin in 2015 were the latest reminder. Some firms are dealing with the financial and business effects of that event.
Continued pressures to reduce overall supply chain costs in 2016 leads us to conclude that there may well be one or more high visibility supply chain or key supplier breakdowns in the coming year. Industry supply chains that have already undergone multiple years of cost or staffing reductions are likely candidates. Also are industries with highly extended value-chains without adequate risk mitigation. Significantly reduced resources, capacity or product quality assurance and monitoring will likely be casual factors, although public statements will indicate otherwise.
Suppliers will continue to experience pressures to reduce costs but at the same time provide more agility and responsiveness to changing needs. As we approach 2016, there is already an uptick in product recall incidents along with certain supplier quality shortfalls. We believe that the wide scale adoption of zero-based budgeting techniques increases the overall supply chain risk profile.
As to what industries such a snafu will occur, consumer product goods, food, retail, high tech consumer electronics and perhaps medical equipment are likely profiles. We hesitate to add commercial aerospace to this prediction, but that could be possible.
This concludes our series of deep-dives into all ten of Supply Chain Matters 2016 predictions.
All of the content presented in this series along with added detailed perspectives will be incorporated in a comprehensive research report available for complimentary downloading in early January in our Supply Chain Matters Research Center. Look for an upcoming announcement as to availability.
In the meantime, share your own predictions over and above those that we have outlined. Utilize the Comments section associated with this posting or email us directly with your predictions at: feedback <at> supply-chain-matters <dot> com. We have already received other insightful predictions and look forward to accumulating others.
We will share all contributed predictions in a supplemental predictions commentary at the end of December.
We take this opportunity to thank all of our readers and designated sponsors for their loyal following throughout 2015. Please take the opportunity to review the capabilities of each of our sponsors.
We extend a Happy Holidays wish to all and best wishes for the coming New Year.
Rest-up, renew and re-generate during the holidays and let’s collectively tackle various industry and global supply chain challenges throughout 2016.
Bob Ferrari, Founder and Executive Editor
©2015 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog.
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