This is the third posting outlining each of the Supply Chain Matters ten predictions for global chains in 2011. Part One commented on predictions one through three, and Part Two provided commentary on predictions four through seven.
In this posting, we complete our predictions commentary with a look at predictions eight though through ten..
Prediction Eight: Two industry sectors, B2C and healthcare, will be especially effected by significant supply chain process impacts in 2011.
In the retail, wholesale and E-Commerce sectors, the advent of the more economically stressed, sophisticated and demanding consumer, now equipped with computer savvy, smartphones and mobile applications, will alter the retail buying landscape for years to come. Consumers have found and demonstrated powerful new weapons in smartphones and leveraged use of the Internet. They also know that the influence pendulum has shifted in favor of the buyer.
The ability to significantly influence product selection choices, shop and easily place orders via the Internet, and the increased ability to actually perform real-time price comparisons while in a retail store are capabilities that consumers will embrace even more. The implications for retailers are significant, and throughout 2011, retailers and B2C commerce providers will need to be ‘fast-a-foot’ in staying ahead of this trend. The most important indicator of the implications came when electronics retailer Best Buy announced a quarterly sales shortfall in December. When post 2010 holiday shopping volumes are all tabulated, we may well see which retailers and e-commerce providers were the overall winners and losers, and how consumer buying patterns played out.
Retailers will be faced with critical decisions on areas to invest in accommodating multi-channel commerce or multi-channel operational process integration needs. Consumers who want to be engaged in the buying experience will expect the same supply chain wide visibility as manufacturers and suppliers expect from their internal processes. As an example, think of the Dominos Pizza buying experience. Inform me, the consumer, when my purchased product is going to be made, when it ships from the factory, and the exact time it will arrive. Similarly, if I am shopping in a store, inform me if an out-of-stock item can be found in another nearby store, and reserve that item for me. Think item level visibility.
The second significantly impacted industry in 2011 will be pharmaceutical and healthcare related value-chains. Significant changes in strategic business models, healthcare reform initiatives emanating from multiple countries and desires to grow sales in emerging markets have brought home a renewed sensitivity to supply chain agility and consistency in operational excellence. The healthcare supply chain was already highly segmented and non-aligned to joint stakeholder value-chain performance, but as the Bob Dylan tune laments, “Times, They Are A- Changing”. Aggregate inventory levels are excessive, over five months of days inventory outstanding on average.
We along with others have commented on a more demanding healthcare consumer, a more acute competitive landscape, and the need to introduce modern supply chain practices within life science, vaccine and healthcare related supply chains. Healthcare supply chains face similar challenges as high tech or consumer products and many best practices can be transferred.
For pharmaceutical and healthcare value-chains, the year 2011 should hopefully bring new opportunities for stakeholder alignment, along with advanced practices in planning, inventory optimization, supplier and customer collaboration.
Prediction Nine: The landscape for the global outsourcing of components and finished goods production will shift again in 2011.
Recent trends in supply chain global outsourcing were motivated by two fundamental business forces. The first relates to competitiveness in product cost, where outsourcing activities were driven by needs for securing the lowest cost producer of components and finished goods while conforming to specific specification of design and quality. The second was driven by market access, the need to have a supply chain or value-transformation presence in a promising emerging market such as China or India. It is the former that has driven the bulk of outsourcing activity. Access to emerging markets has become more of a challenge as some countries continue to initiate barriers to market entry among perceived foreign manufacturers or as issues of copying of product design continue to occur.
In 2011, industry observers point to more shifting sands as labor costs continue to explode in China and other regions and as issues of IP protection become more of a concern. There are also building storm clouds in global currency risks which manufacturers must also factor in their strategies for 2011. Some industry observers are already pointing toward countries such as Vietnam or Indonesia as the new opportunities for low-cost sourcing, while others note that having a combination of balanced in and out sourcing options can be the best hedge for intellectual property protection and shifting currency trends.
We predict that in 2011 there will be much more attention paid to outsourcing strategies and to analyzing all the pertinent factors motivating these strategies. We also expect further shifts, particularly in low margin or highly sensitive IP product areas.
While on this subject, do not be surprised to see one or another of the aircraft, high tech or telecommunications manufacturers having to modify or alter their component sourcing strategies in 2011.
Prediction Ten: Supply chain related green and sustainability programs will continue in 2011 and beyond, but at a slower pace.
In our report card of 2010, we noted that while sustainability and carbon tracking were not as robust as we had earlier predicted, supply chain carbon tracking and sustainability efforts will remain on corporate agendas for some years to come. While a positive sustainability profile often makes good business sense, there has been a noticeable slowdown in momentum. The perceived failures in motivating global wide sustainability milestones and the effects of global recession in changed consumer buying decisions have made business cases for accelerating green and sustainability programs somewhat problematic.
To date, the unspoken aspects to supply chain wide sustainability efforts have been directed at achieving cost reduction as well as sustainability goals. Saving energy, water consumption or packaging costs can all relate to the bottom line,. As long as supply chain related green and sustainability efforts can be directly associated with either cost reduction or positive impressions on the brand, than these initiatives will continue to be supported in 2011. Progress, however, will come in multi-year scope and dimensions.
This concludes our listing of what you can expect to see within global supply chains in 2011. The year 2010 brought many challenges and 2011 will bring similar challenges. Periods of uncertainty tend to separate the industry leaders from the followers, and 2011 will provide another backdrop for industry competition among supply chains.
Please feel free to comment on any of these predictions, as well as offering any that we may have neglected to mention. Readers are also welcomed to participate in our polling question (placed in the lower right-hand panel) regarding the key business priorities for your organization in 2011.
We will also be producing a complimentary research report which outlines each of these predictions in detail. If you would like a copy, please provide your name, company or affiliation, and return email address. Requests should be sent to: info <at> supply-chain-matters <dot> com.
We extend to all of our readers our best wishes for the holidays, along with a period of rest and renewal with family and friends.
The Supply Chain Matters Team.