We continue with 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 Supply Chain Matters Blogmanagement 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.

In this posting, we explore certain industry-specific challenges occurring in 2016.

2016 Prediction Five: Our Noted Supply Chain Industry-Specific Challenges

Each year when we publish our annual predictions, we include a specific prediction addressing what we feel will be industry-specific challenges dominating business and media headlines in the coming year.  In 2016, challenges will remain in B2C Online Retail, Commercial Aerospace, Consumer Product Goods (CPG) and Automotive industry sectors.  We have added a further 2016 industry challenge, that being current efforts to deploy more sustainable and health conscious agriculture and food based supply chains.

B2C and Online Retail

In 2015, global retailers continued to be challenged in emerging and traditional markets and in permanent shifts in consumer shopping behaviors. Industry CEO’s continue to openly admit that this is one of the most challenging eras for the retail industry. The byproduct of the late 2014 U.S. West Coast port disruption was retailers having a discernable overhang in inventories entering the 2015 fulfillment surge quarter.

While penning these predictions, the final online tally for 2015 is yet to be determined, but at the close of the 2015 Black Friday and Cyber Monday weekend, trending clearly points to a permanent shift in consumer sentiment towards online buying preferences in the order of double-digit shifts.  By mid-December 2015, reports began to reinforce that online orders were far more than originally anticipated with major parcel transportation provider FedEx and UPS networks falling behind in delivery commitments. Once again-finger-pointing among carriers and online retailers broke out as to which party exhibited accuracy of forecasting.

We predict more challenges for the retail industry in the coming year, unfortunately to include some high visibility bankruptcies. We also suspect that strategies to predominately route online orders to centralized customer fulfillment warehouses may have contributed to carrier network congestion because of the locations of these centers.

We believe that more integrated Omni-channel fulfillment capabilities will trump customer engagement Initiatives in 2016 in the ability to synchronize fulfillment execution with network-wide inventory policy and management with logistics and transportation cost implications.

Commercial Aerospace

Industry dominants Airbus and Boeing are both entering an unprecedented phase of ramping-up each of their individual global-based supply chains and ecosystems to make a dent in multi-year order backlogs over the next 3-4 years among new aircraft programs.

The implication for the commercial aerospace ecosystem is the ability to support a production cadence of nearly 100 per month or 1200 completed aircraft per year by 2019 with very little tolerance for disruptions or system component delays. That is a tall order for an engineered to order, high tolerance and quality centric industry eco system. The cracks were already showing in 2015 and there will be more in 2016. In June of 2015, key suppliers for both Boeing and Airbus were communicating their concerns about supply chain ramp-up plans and were urging the OEM’s to proceed cautiously.

We foresee a rather fragile commercial aerospace supply chain in 2016-17 with many increased risks and concerns. We expect the smaller industry OEM’s to be the primary victims of any supply disruptions.

Automotive Industry

Despite an improved economy and more optimistic consumers, the automotive industry continues to have its own unique set of challenges that will obviously extend into 2016.  An unprecedented level of industry-wide product recalls has taxed service management and repair parts supply chains which will overflow into 2016.  In 2015, the most visible driver was the ongoing series of recalls related to defective airbag inflators produced by supplier Takata that involved a multitude of global brands in 2016. The headline will shift to Volkswagen and its needs to address thousands of diesel-powered vehicles with illegal air pollution monitoring devices and software, which continues to impact the reputation of its brand.

Another concern for 2016 will center on China’s automotive sector where significant overcapacity amidst declining domestic demand will likely force more global exports.  GM is expected to import its first totally Chinese manufactured vehicle, a small SUV, into the U.S. market in 2016.

In 2015, initial buzz on the possibility of Apple getting the automobile business persisted. We concur with Fortune Magazine’s published prediction in November that Apple will likely buy Tesla to springboard entry into the industry as well as acquisition of a fully operating, vertically integrated supply chain.  If this occurs, it will be game-changing in the notion of a software company producing automobiles.  Google (Alphabet) is likely another potential player.

The bottom-line for the automobile industry in 2016 will be innovation in quality assurance, combined software and hardware innovation, alternative energy and Internet-of Things technologies. Automakers again run the risk of complacency in the current environment of unprecedented low prices of gasoline and diesel fuel, opting to promote higher margin trucks and luxury vehicles over those of more increased fuel efficiency and range. The theme for 2016 is which automakers spur more innovation and which focus on short-term profitability needs.

Consumer Packaged Food and Beverage Goods

Since 2014, we have included CPG in our industry-specific challenges for the coming year amid permanent changes in consumer tastes.  The year 2016 we be no exception, but this time, the stakes and the pain levels are far higher.

Consumers continue to shift their food shopping preferences away from traditional processed foods staples in favor of niche food providers that offer more perceived healthy foods containing natural and sustainable ingredients. This trend has become quite discernable and is reflected in financial results and negative growth now being experienced among many large and termed “Big-Food” global producers with iconic food brands. CPG firms continue to work frantically to create alternate choices either through acquisitions of up and coming natural foods providers, by developing new internal product creations, or both.

Declining profits and meager sales growth continues to spawn activist equity investors to influence certain CPG, food and beverage firms to consolidate.  We predict further M&A announcements in 2016, possibly involving blockbuster global brands. As a consequence, the industry is now consumed by zero-based budgeting and significant supply chain focused cost-cutting techniques.  Industry leaders and past veterans point to experiencing one of the most dynamic, challenging and disruptive periods ever seen in the industry.

In 2016, the winners or survivors will be those who can lead in product and process innovation and gut-wrenching transformation satisfy consumer preferences more healthy foods, while dealing with the significant distractions and de-moralization brought about by ZBB or other wide-ranging cost cutting initiatives. We further predict the food quality will suffer and there will be yet another uptick in highly visible food related product recalls in the coming year.

The True Organic, Green and Sustainable Food Supply Chain

We are adding this industry sector to our unique industry challenges in 2016.  Today’s consumers demand healthier food choices and more natural ingredients, are more interested in knowing where their food originated, the ingredients within food and how food is produced with sustainable methods. They are clearly holding well-known iconic food and restaurant brands accountable for increased commitment to this effort.

Throughout 2015, well known producers, food service providers and suppliers were compelled to respond. Brands such as Costco, Hershey, Kellogg, McDonalds, Nestle, Tyson Foods, Yum Brands and others have all embarked on initiatives directed at curbing the use of antibiotics in animals, artificial food coloring within food, and higher quality standards for suppliers. Yet, do consumers and providers realistically understand the significant challenges and timetables for these efforts?

There are clear realities to the challenges of this ongoing transition.  In April of 2015, The Wall Street Journal noted that the increasing need among consumers for more organic foods is literally: “hampering the growth of one of the hottest categories of the U.S. food industry.” Farmers, dairies and ranchers face significant costs and risks in attempting to convert from conventional to organic farming or animal production techniques. “While organic produce or livestock can command prices as high as three to four times that of conventional food, farmers generally have to sell their food at conventional prices during the transition.”

In other words, the entire food industry and respective shareholders need to come together in concerted efforts in 2016 and beyond to address realistic timetables and consumer expectations as to when true organic, green, sustainable and socially responsible foods will be available in adequate supply and at more affordable prices.  Providers and originators of meat, grocery and produce products will require financial incentives and economic resources to make such transitions over reasonable time periods.  The other obvious concern is food safety.  When massive scale methods are removed that focus on the use of harmful drugs, genetically modified methods of farming or raising animals in quicker time periods, what will be the near-term impact on food safety?

Thus in 2016 and beyond, all of the stakeholders associated with food supply chains need to move beyond press releases, marketing and rhetoric, and address a comprehensive set of plans, expectations, incentives and realistic timetables for when fully green, sustainable food supply chains will provide supply in the volume required to meet global needs, and in adhering to all required food safety standards.  We believe and anticipate that this will be an effort suited for global bodies and regulators such as the United Nations, World Health Organization or industry consortiums.  More overt actions and incentives need to come forward or these long-term commitments will slip even further.

Keep your browser pointed to Supply Chain Matters as we continue dive into each of the above 2016 predictions in more detail. In our Part Two posting we will explore Prediction Three- continued turbulence in global transportation and logistics, and Prediction Four- the widening of supply chain talent and skills gaps.

 

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 will share all contributed predictions in a final predictions of this 2016 series.

Bob Ferrari, Founder and Executive Editor

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