Seven Supply Chain Trends to Watch in 2018
As the rate of globalization continues to grow, today's supply chain leaders will be faced with the challenge of continuing to drive operational improvements while satisfying increasingly complex patterns of customer demand. In addition to the complexity inherent in lengthy global supply chains and off-shored manufacturing operations, executives must now contend with increased customer expectations resulting from the 'Amazon Effect.' As the e-commerce giant continues to dominate the retail sector, its influence has begun to spread to other industries as customers now begin to accept Amazon's service levels as the status quo. In other words, consumers outside of retail have begun to ask the question 'Amazon could have this to me in two days - why can't you?" Going forward, the success of an organization's supply chain will depend on executives ability to strike a delicate balance between managing increasingly demanding customer expectations and cost efficiency.
Applied Value Group routinely conduct surveys of our executive clients within each of our core practice areas to synthesize what we see emerging as challenges for the coming year. In addition to calling out specific challenges for the upcoming year, respondents highlighted the need for updating business processes to reflect the adoption of new technologies. While new software based tools and IoT solutions offer significant improvement opportunities, the impact of IT and technology solutions can be diluted or even cause productivity disruptions if underlying practices are not changed. Although there are exciting new tools at the disposal of supply chain executives, basic principles of complexity management, process speed and transparency are what will set apart world-class organizations in the new year. Below are the trends our respondents identified as having a major impact in 2018.
Growing Demand for Data Driven Logistics
For many years now, supply chains have utilized statistical analyses and quantifiable performance indicators to measure success and drive improvements. However, defining actionable KPI's and implementing basic data analytics tools are just the first step in utilizing customer data. Supply chain organizations must recognize that IT software solutions are no longer the tool of innovators trying to get ahead of the curve but are necessary for all organizations to stay competitive. For organizations who have taken the steps to upgrade their management tools, leaders must now look to alter existing processes to utilize them. For sales organizations this means integrating data obtained from customer portal usage in the sales process. For R&D organizations this means transitioning to a 'voice of the customer' strategy. For supply chain organizations, this means increasing process speed and reducing response time so that organizations can respond to customer demand shifts more quickly. In 2018, we expect to see companies start using geography specific data to anticipate demand of certain products in a region and ship in advance.
Increasing Customer Expectations
Customers have different service level expectations for their deliveries than they did even a few years ago. As was previously stated in this article, consumer-facing supply chain superstars like Amazon and Zara have caused a shift in the status quo even outside of the industries that they are operating in. Amazon Prime subscribers (90 million in the US at the time of publishing) who are decision makers at B2B firms are far less likely to accept lead-times of twelve days when the entirety of the Amazon marketplace is available in two (and for no additional cost of shipping). An overwhelming majority of our respondents stressed the importance of balancing cost with target service levels - savvy organizations will take steps to make sure their customers expectations are met while making sure they are paid for their efforts. In 2018 it will be critical for supply chain organizations to develop rigorous criteria for customer segmentation so that they can appropriately tier delivery pricing options.
Labor Shortages will Drive Higher Logistics Costs
In a survey conducted by the Associated General Contractors of America, 73% of businesses said they had a difficult time finding qualified workers. 55% of respondents identified worker shortages as a bigger concern than federal regulations and low infrastructure investment. For US based logistics providers, this shortage is particularly pronounced in the truck driving industry. In what is being described as a 'logistics recession' the American Trucking Association reported in October of this year that they expect the national shortage of truck drivers to reach 50,000. There are several factors driving the shortage (wage stagnation, an aging workforce, and squeezed carrier margins) but the impact will be the same: increased rates from carriers. Supply chain leaders in 2018 will be tasked with the difficult feat of absorbing these rate hikes while simultaneously improving service delivery and maintaining efficiency.
Organizations will Develop Predictive Forecasting MethodS
After the financial crash in 2008, supply chain organizations were forced to adapt to increasingly volatile patterns of customer demand. Drastically reduced consumer spending resulted in unpredictable purchasing behaviors, making agility a primary focus for leading supply chain groups. Focus now is being directed towards discovering ways companies can become more proactive about anticipating demand movements. One way organizations are doing this is by utilizing installed base data as a method of predictive forecasting. Industrial manufacturers and OEM's have begun to take advantage of this data to improve forecasting for their aftermarket groups with remarkable results. Producers who take advantage of existing customer data (historical sales, geography, purchasing history, etc...) will find themselves at an advantage when it comes to forecasting in 2018.
Inventory Management Visibility
Supply chain leaders are making visibility into their inventory management processes a priority in 2018. Inventory control and item tracking is hardly a new issue in inventory management, but in the current environment of increased customer expectations it is being given renewed focus. A common scenario resulting from lack of visibility is that procurement staff will purchase stock that is already available in the warehouse, or (even worse) sales representatives will sell stock that is unavailable. Scenarios like the above often result from archaic inventory management infrastructure, lack of standardized processes, and poor communication channels. These inventory mishaps have the potential to cause serious strain on cash flows as inventory builds up as well as significant missed revenue opportunities if companies experience stockouts. In the era of social media when one dissatisfied customer post on Facebook can seriously impact a company's sales, savvy organizations who invest the resources and time to improving their inventory group will be at an advantage in 2018.
Supply Chain Tariffs and Network Design
Multinational corporations take into account a number of factors when designing their supply chains, including total landed cost (TLC), regulatory issues, lead times, and supplier quality and reliability. One critical aspect of TLC is tariffs, or a tax on the import of foreign goods. The stance of the new political administration on global trade has prompted many companies to run landed-cost scenarios to determine the impact of manufacturing cost increases at Mexican or Chinese nodes. While it appears that for now companies are adopting a 'wait and see' attitude before making major adjustments to their footprint, some are being more proactive. In a once unthinkable shift for automotive supply chains, Toyota recently announced the development of a $1.6 BUSD plant in Huntsville, AL. Indeed, foreign automakers are set to build as many vehicles in American factories as Detroit does.
Although many supply chain organizations will be aware of IoT and Artificial Intelligence solutions by now, many may lack a precise understanding of what blockchain technology is. Blockchain is a distributed ledger technology that allows for more secure transactions between parties that can happen independently of intermediaries. Major logistics players have already recognized the value of blockchain, with Maersk already testing a blockchain application for shipping insurance and UPS announcing their participation in the Blockchain in Transport Alliance (BiTA). Although blockchain may not achieve mainstream adoption for several more years, supply chain organizations that develop an understanding of the technology and how it will impact their business will be at an advantage to slow movers.