If you predicted that we would publish a “predictions for 2012” piece today, then congratulations, you are a true visionary! Of course, it was a safe bet to make because we always share what we see in our crystal balls this time of the year (click here and here for our 2011 and 2010 predictions, respectively).
Our predictions don’t always hit the mark, but our main goal is not to be 100 percent accurate (or even 10 percent), but to stir up ideas and conversation.
So, here’s what we see happening in the weeks and months ahead…and after you’ve read and thought about our predictions, post a comment and tell us what you see in your crystal ball.
Several of my predictions for 2012 are updates or refinements of predictions I made last year. Just like playing the lottery, if you don’t hit the jackpot the first time, why not try again?
1. Companies will continue to adopt social media tools in supply chain and logistics processes. I’ve been conducting a simple test the past few years: whenever I speak at an industry conference, I ask people in the audience how many of them use social media tools like Facebook, LinkedIn, and Twitter. Five years ago, relatively few hands went up; today, almost everybody raises their hands. Another sign of the times: it was standing room only at the social media in supply chain management session I moderated at the CSCMP Annual Global Conference this past October. Many supply chain executives (and their companies) are still in the “crawl” phase when it comes to using social media tools to communicate and collaborate with colleagues and partners, and there are still plenty of skeptics around. But several factors will continue to drive greater adoption, including enterprise and supply chain software vendors embedding social media capabilities in their solutions (see Manhattan Associates and Oracle), young professionals proving the value of these tools to upper management, and executives “thinking beyond Facebook.” To read more of our postings on this topic, check out our Social Media archive.
2. Supply Chain Risk Management becomes a higher priority for companies. The Japan earthquake this past March brought this topic to the forefront again…and I’m betting it will stay there next year and beyond. In my commentary about the earthquake, I wrote:
Supply chain management is about managing risks…And since risks are dynamic in nature, with new ones emerging all the time, companies must continuously study the landscape and determine which risks are worth addressing now and how. Simply put, what costs and other tradeoffs are you willing to incur today to avoid a much costlier scenario tomorrow?
Natural disasters are an ever-present threat and their impact on supply chains can be very costly (see how Intel expects a $1 billion shortfall in Q4 revenues due to the floods in Thailand). But I believe the biggest risk companies will face next year, which will impact supply chain networks and sourcing decisions, is currency exchange rates. Just last week, for example, in a Wall Street Journal article, Toyota’s president Aiko Toyoda said the following in response to the yen’s record highs against the US dollar: “It doesn’t make sense at the current yen rate [to export compact cars], so that is why we might take various steps such as shifting [production] overseas, using different suppliers and increasing local procurement.” Boeing and Sharp are also adjusting their supply chain networks in response to supply and currency risks. The growing debt crisis in Europe and its impact on the euro only add fuel to the fire.
Will 2012 be the year when a major cyber attack brings down supply chains? I first wrote about this growing threat in July 2010 (see “The Next 9/11: The Risk of a Supply Chain Cyberwar”) and the risk is even greater today as the number (and sophistication) of cyber attacks from China and elsewhere continue to rise.
In short, as I’ve said before, risk is supply chain’s middle name. Companies that manage supply chain risks effectively will outperform those that ignore or are blindsided by them.
3. Traditional enterprise and supply chain software vendors will accelerate their investments in cloud computing and software-as-a-service. I shared my viewpoint and analysis on this topic last week in response to SAP’s acquisition of SuccessFactors, so I won’t repeat myself here. I’ll just add that these vendors will also increase their investments in B2B connectivity, which I predicted last year too and SAP (again) illustrated with its acquisition of Crossgate back in September. In the meantime, established SaaS vendors–particularly those in the transportation management systems (TMS) and global trade mangement (GTM) markets–will continue to leverage their established networks, and the information flowing through them, to enable new forms of collaborative business processes and business intelligence (see, for example, “The Missing Link in Transportation Business Intelligence”).
4. Transportation will remain under a cloud of uncertainty. What will happen to transportation costs and capacity next year? Your guess is as good as mine. If the Hours of Service (HOS) rules get changed, which I’m betting against, capacity will tighten and rates will increase beyond expected levels. What about fuel prices? They’ll continue to fluctuate in response to economic conditions and what happens on the supply side, particularly in Libya and the Middle East. What should shippers do? Stay focused on the long-term trends, which point to tighter trucking capacity and higher fuel costs, and look for cost-saving opportunities that make sense to implement regardless of market conditions, such as taking greater control of inbound operations and other practices I talked about recently in “Questions for Adrian.”
5. When it comes to collaboration, more companies will start to “walk the talk.” I’ve shared my thoughts on collaboration in previous postings, including “Unraveling the True Meaning of Supply Chain Collaboration” and “Secret to Supply Chain Transformation: Asking Why, Then Taking Action.” Simply put, companies have always known that they’ve been leaving money on the table by not collaborating more effectively with suppliers, customers, or even industry peers–from sharing more timely and meaningful information with each other to sharing assets and resources like trucks and warehouses. The main stumbling block, to put it simply, is that every company wants the benefits of collaboration, but none of the risks, costs, and (in some cases) assets involved. Over the past two years, however, sparked to action by the economic downturn, companies are revisiting collaboration and looking for ways to get around that stumbling block. One approach is to apply the principles of Vested Outsourcing, a topic we have written a lot about in recent years (see, for example, “Have an Economist Negotiate Your Next 3PL Contract” and “Vested Outsourcing: Gain Sharing in a New Dress?”).
6. Customer Engagement Management will become a higher priority for 3PLs. I shared my view on this topic in “Operational Excellence is Not Enough: Why 3PLs Must Leverage Their Most Valuable Asset.” In a nutshell, many logistics service providers, if not most, do a poor job of engaging their community of customers. For example, relatively few 3PLs have customer advisory boards (CABs) or some other mechanism to bring their customers together, either in person or virtually, to facilitate peer-to-peer learning and knowledge exchange. Generally speaking, 3PLs focus the majority of their time and resources on two things: operations (meeting customer service and cost commitments) and sales (growing the business). Savvy 3PLs are recognizing that there needs to be a third leg on that stool– customer engagement management–and they are starting to invest in creating a community (a knowledge network) that their customers would highly value and greatly miss if they were to move elsewhere.
The very best supply chain predictions are those that are verifiable, involve something new yet highly significant, and are relevant to the field. Unfortunately, much of what is happening in the industry is either something that cannot be easily verified or is a longer term trend versus something striking and new.
Nonetheless, here are three predictions that we can grade as hit or miss this time next year:
- The pace of transportation regulation in the US will slow down because agencies don’t want to create any controversy as we enter an election year. Deadlines have already slipped for several pending rules, and many will slip further. A final ruling on Hours of Service (HOS) is particularly unlikely to take effect any time soon.
- Carrier Safety Measurement Safety data will not lead to driver shortages. We will know whether this is true when Morgan Stanley publishes its June 2012 freight transportation report. This report historically contains an index that compares increases in average driver wage and compensation rates to the Wages & Salaries of Private Industry Workers and the Consumer Price Index. I expect that truck driver’s wage increases will not exceed the average increase of wages and salaries of other industries.
- Actual growth of TMS and WMS markets will be lower than originally predicted. The economies in the US and Europe grew more modestly than expected. When ARC conducted its Warehouse Management and Transportation Management studies at the beginning of this year, we forecast that the WMS market would grow by close to 8 percent in 2011 and the TMS market by about 7 percent. When we update these studies again next year, I expect the actual growth rates to be lower than those projections. It’s also likely that we will lower our growth projections for 2012 and 2013 for these markets.
There are a few other things I believe will happen next year but can’t quantify and therefore won’t be able to verify in a year’s time. These include:
- Supply Chain Management software vendors will make their applications easier to use for power users. This is based on (a) providing more information and capabilities on a single dashboard screen so that users don’t have to continuously navigate back and forth between several screens, and (b) providing better Business Intelligence that is more real time, contains more benchmark data, and is more sensitive to context.
- Clearly, the economies of major Western countries and the multinationals headquartered there have diverged. The national economies are growing slowly, while the profits and revenues of multinationals are growing much more quickly. I believe this is one indication of a continued shift in the focus of globalization from low-cost country sourcing to developing supply chains that can support fulfilling demand in emerging nations.
Finally, there a few emerging trends where evidence of progress is still sparse, but where if we were to check back in five years or so we would have proof that these trends are real and having an impact. These include:
- Shelf-connected supply chains based on the use of Demand Signal Repositories, advanced predictive analytics, and granular demand forecasting is still much more rhetoric than reality. Few consumer goods companies, for example, are doing daily promotional forecasts at the store level. It is clear, however, that consumer goods executives expect their supply chain software vendors to have a good story of how their applications will enable the shelf-connected supply chain.
- Vested Outsourcing – i.e., moving away from traditional third party logistics contracts to more intelligently constructed outcome-based contracts – is still largely in the tire kicking stage. But enough large companies and their core 3PL partners are exploring this new relationship structure that in five years I expect we won’t be talking about this as an “emerging” trend any more.