The Supply Chain Matters blog continues in our series of blogs that provide added detail and perspective for each of our ten 2020 Predictions for Industry and Global Supply Chains which we unveiled in mid-December.
In our Part One posting in this predictions series, we explored for our readers 2020 Prediction One, what industry and global supply chain teams should anticipate in terms of global and regional economic outlooks.
In Part Two of this predictions series, we explored the detail of 2020 Prediction Two, what we expect to occur in global procurement and strategic supply management challenges and trends.
In Part Three of this series we detailed what to expect in the area of supply chain talent management, retention and skills development.
Part Four in this prediction series highlighted what to expect in the area of supply chain management related cybersecurity and information security threats in the coming year.
Part Five of this series highlighted what we predict will occur regarding Supply Chain Digital Transformation efforts in the coming year.
Our Part Six posting highlighted what we anticipate business teams will likely and should prioritize in the leveraging of supply chain management focused advanced technologies, and what technology and services providers should concentrate on in meeting customer needs in the coming year.
Part Seven in this series, highlighted our predictions for global transportation contracting and services, logistics services and industry processes in the coming year.
In this Part Eight blog, we highlight both Prediction Eight, which relates to the ongoing multiyear transition to Digitally Enabled Response Networks, and Prediction Nine, the ongoing positioning for global online B2C and B2B commerce likely being scaled back or refocused in the coming year.
Overview and Introduction
On an annual basis, and since our inception in 2008, The Ferrari Consulting and Research Group and our associated Supply Chain Matters blog publishes a series of supply chain management focused annual predictions which are both described, monitored and scored for actual occurrence at the conclusion of the year.
Such predictions are provided to clients, technology providers and blog readers in the spirit of advising senior and line-of-business executives, multi-industry cross-functional supply chain management and supporting information technology teams a sensing of what to expect in the coming year, Our goal is to depict how likely global, regional, economic, business and industry trends will impact and likely influence required supply chain management actions in the coming year.
The context of these predictions include a broad cross-functional umbrella of what is today considered supply chain management, and includes areas of leadership and strategy, product management, strategic sourcing and procurement, supply chain planning and customer fulfillment, manufacturing, logistics, transportation and customer service management.
Now to our two specific predictions:
2020 Prediction Eight: The Multi-Year transition toward Digitally Enabled Response Networks Will Similarly Be More Line of Business Focused in 2020.
Notions of Digitally Enabled Response Networks
In 2018, we initially described the notions of Digitally Enabled Response Networks as a multi-year effort in business response processes, talent and advanced technology capabilities directed at the automation and synchronized decision-making responsiveness of either end-to-end customer demand fulfillment, supply network response, or combinations of both capabilities. They are representative of a foundation for Supply Chain Digital Transformation enablement but are specific to businesses focusing on direct to consumer or business to business customer fulfillment, or services focused business models that cater to end-to-end automation of product or services fulfillment.
Overall, such networks represent unified capability that moves beyond “chain” to that of dynamic network ecosystems linking near real-time customer demand to available supply in an autonomous process driven response. Such capability includes extensions of planning and fulfillment processes externally, involving key customers, suppliers and services providers in a federation of highly connected and integrated supply and product demand response networks. In many cases it requires Cloud based B2B connectivity linking various networks, including the notions of Internet of Things (IoT), Artificial Intelligence and Machine-Learning (AI/ML) enabled capabilities, or often. combinations of both.
Initial examples of such capabilities that we have researched and written about include machines that communicate their operational state and trigger the need for either needed consumable products or repair parts. Other examples are retail or online outlets that communicate inventory replenishment needs directly to supply network partners based on anticipated or actual demand patterns. The notions of smart appliances, automobiles and trucks, intelligence-laded industrial machines communicating specific needs all fall into this umbrella. They all embrace the connecting of physical to digital processes in various forms of process automation and peer-to-peer collaboration and synchronized decision-making.
Year 2020 Prediction Summary
Similar to our previously noted 2020 Prediction Five addressing Supply Chain Digital Transformation initiatives in the coming year, our belief is that Digitally Enabled Response Network focused initiatives will similarly be more line-of-business or specific business level objective focused in the coming year.
We predict that priorities will be weighted either by near-term line-of-business, customer demand fulfillment or supply network process response needs. End to end extended supply chain visibility and coordinated decision making will remain as the predominant objective, but in definitive scope initiatives that have measurable and meaningful business benefits relative to directly supporting top-line revenue growth or building strategic capability that can be leveraged among multiple business lines.
The above stated, we continue to believe that such capabilities will be fundamental to business future growth, regardless of the highly uncertain economic environment that C-Suite executives must navigate. Thus, the continuation of momentum in such capabilities will remain strategic in a pre- or post-recession environment. However, in the current year, we anticipate that initiatives will likely be more focused on a chosen few, most important network response capabilities that will address the most promising top-line revenue expansion opportunities.
We therefore believe that Digitally Enabled Response Network capabilities will likely be positioned under the umbrella of increased business efficiency, productivity and market responsiveness categories of budgeting and resource allocation, and likely tied to near-term, succinct identifiable and quantified business benefits.
Technology Support Landscape
For B2B platform and enterprise advanced technology and services providers, the obvious implication is that the focus enabling Digitally Enabled Response Networks in 2020 must be keenly focused on assisting customers and prospects on enablement of near-term business objectives while assuring said buying groups that platforms are flexible enough to meet both long and shorter-term objectives. A critical consideration will be the ability to integrate a customer’s data and information stacks spanning both internally installed legacy systems and existing, multi-vendor Cloud based systems.
Promises of long development timelines or elongated solution timetables related to information integration, by our lens, will not be well received other than to seek other market alternatives, likely with log-term recurring cost as a significant determinant. Subscription based pricing for Cloud based platforms must be market competitive or market differentiating, since proposals for rigid elongated multi-year platform payments without considerations for an unpredictable business or industry environment are not going to be favorably looked upon by individual C-Suite executives.
2020 Prediction Nine: The Positioning for Global Online Retail and B2B Presence will Scale Back Toward More Geographic, Omnichannel and Regionally Focused Online Fulfillment, Federated Logistics, Payment and Last-Mile Delivery Network Capabilities.
This specific prediction is somewhat of a carryover from that of 2019, when we predicted that the positioning for global online B2C retail and B2B platform presence among Alibaba, Amazon, Walmart and select others would meet the realities of domestic and international geo-political forces, the investment community and ongoing trade tensions.
We identified to three overriding forces in 2019 which carryover to the current year in different dimensions of market realities:
- China’s dominant online providers Alibaba and JD.com as publicly held companies were accountable for delivering expected revenues and profits. In the second-half of 2019, Alibaba raised an additional $20 billion of equity in non-U.S. markets in order to reduce U.S. investor influence in light of the continuing trade tensions among China and the United States. In spite of an expected slowdown in China’s online economy, both providers managed to achieve impressive revenue growth, while continuing strategic investments in more geographic regional based capabilities.
- The same growing fears of an ever more escalating trade war involving what could likely be two very large online market communities resulted in different mercantile alliances such as China and Russia, or China and select Middle East or African regions. China’s own domestic economy continues to show strains of economic stress as consumers reportedly have cut down on overall spending. The implication is that Alibaba would continue to focus a growth strategy on other designated key geographic regions favorable to China. For all of the dominant global online players, strategic countries are identified, and strategies remain on garnering customer stickiness and market-share while fending off domestic and international competitors, or concerns among local governments for too much foreign influence.
- The market prize remains that of India, with an online market expected to eventually be upwards of $100 billion in the next three years. This country’s retail sector it largely dominated by very large numbers of small retail shops and shopping stalls. Local food, grocery and merchandise shops termed “kiranas” largely dominate the brick and mortar landscape and retail economy. In this specific region, Amazon, Alibaba, Walmart, and to some extent local retail channels are fiercely competing for online market traction. National and local government political factions continue to favor India’s domestic online and brick and mortar players with restrictions for investments in domestic retail players by foreign entities. In 2019, India was the area where global online players met their match with domestic political forces neutering strategies for increased presence, forcing most all of these players to adapt or modify their plans and efforts.
Year 2020 Prediction Summary
We predict that efforts among Alibaba, Amazon, Walmart, and to some extent, select domestic and other online players seeking international growth, will scale-back toward more clearly defined geographic or regionally-focused online customer fulfillment strategies. Emphasize will focus on more of a complimentary Omnichannel presence, while at the same time orchestrating and continuing to develop forms of federated online payment, logistics and last-mile customer delivery or pick-up and pay capabilities. Complimentary implies a combined B2C as well as a B2B collection of capabilities, similar to what is occurring across China, the United States and other key regions.
The battlegrounds will continue to center on the most lucrative growth markets for combinations of both online B2B and retail commerce activities.
India Remains Key Battleground
In the case of India, after the lessons of 2019, online platform players will continue to seek and mature more Omnichannel focused strategies in order to gain competitive footholds.
Amazon continues to partner with existing dominant brick and mortar retail chains such as Future Retail. Both are partnering to extend the reach of the latter’s more than 1500 stores across India with Amazon India becoming an authorized online channel, and for food and grocery, Amazon’s Prime two-hour delivery platform will be operational in a number of large cities across the country. That stated, Amazon continues to be challenged by ongoing domestic political forces that seek to preserve the country’s existing and emerging domestic online and physical retail players.
According to a December 2019 report from online publication Quartz India: ”China’s two technology behemoths, Alibaba and Tencent, have been aggressively snapping up stakes in Indian startups in the last five years—and many of the firms they’ve helped fund have crossed the $1 billion threshold to become unicorns.” The publication indicates that collective Chinese investment in India based technology start-up reached $8 billion in 2019. Alibaba’s strategy is to reportedly continue to tackle the country’s mobile commerce market through strategic partnerships and investments in key domestic online players. However, the report indicates that Alibaba has some disappointment in the performance of some of its start-up bets and will likely adopt a wait-and-see-approach during the coming year.
Walmart, which has a large equity investment in domestic online platform provider Flipkart, has recently had to modify its prior strategies for the country. Rather than opening more of a combination of online and physical store presence, a new focus is reportedly centered on online provider Flipkart’s focus on B2B commerce supporting wholesale sales to local brick and mortar kiranas or stall- based merchants. At the same time, local merchants are utilized as local pickup and pay or last-mile delivery entities.
Domestically, one of India’s wealthiest entrepreneur is about to reportedly launch a new domestic online initiative leveraging the country’s retail shops as active intermediaries in an online buying experience.
The United States and North America- New Online B2B Battleground
In July of 2019, Alibaba introduced its B2B E-commerce platform to U.S. based manufacturers, suppliers, wholesalers and retailers for the first time. This move was an attempt to seize a new battleground in B2B online commerce related to this region.
The effort focused on allowing U.S. based businesses the ability to create their own digital based businesses on Alibaba.com to a reported 10 million buyers located in 190 countries. The announcement was perceived as providing a competitive alternative to Amazon Business, which allows U.S. businesses access to a market involving eight countries.
The major differences in Alibaba’s strategy is that online B2B sellers have to incur an upfront annualized Basic or Premium services payment to be able to take advantage of the platform’s services. Amazon Basic, on the other hand, allows businesses to sign-up for no-cost digital storefronts, but the platform extracts a percentage of all purchases transacted with domestic or global-based customers.
Alibaba further struck an alliance with office supplier retailer Office Depot, allowing that retailer U.S. based customer’s buying access to a number of international office and general merchandise product providers and suppliers including China. Office Depot, in-turn, garners the ability to sell its products online leveraging Alibaba’s online global presence.
During 2020, which is a Presidential Election year across the United States, the political backdrop of a China based online provider competing directly with Amazon in the online B2B market landscape may provide some political fireworks.
Growing concerns in Washington relative to Chinese based technology companies presenting cyber or data security threats are bound to spillover to the online commerce market if Alibaba gains market traction. Then again, President Trump has had an ongoing feud with Amazon founder Jeff Bezos, thus this market thrust could prove interesting to observe.
Our prediction is that the Alibaba U.S. thrust will likely fizzle in 2020, given the heighted political tensions among the two countries.
Other Key Regions
Other key regions to watch are those of Singapore and certain Middle East online markets. Prior investments in online focused federated logistics and last-mile customer fulfillment capabilities continue to be made. Here again, domestic political forces and the geo-political landscape in 2020 could lead to added moves or developments.
We once again encourage clients and readers to take the time to review what to anticipate in the coming year and how your organization can be best prepared.
At this point we have completed the highlighting of nine of our ten 2020 predictions. Our final area, typically Prediction Ten, addresses that of unique, industry-specific supply chain management online commerce and advanced technology driven developments that we believe will be become evident and concerning in the coming year. Our listing will include Automotive and Truck Manufacturing, Commercial Aircraft, Consumer Goods, High tech and Consumer Electronics supply chain management landscapes which will each be outlined in our detailed 2020 Predictions Research Advisory publishing later this month. Over the coming weeks, we will feature each of these industry-specific predictions on the Supply Chain Matters blog.
Stay tuned for an upcoming announcement on the complimentary availability on the 2020 Predictions report.
© Copyright 2020, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.