Many of the key supply chain trends in 2019 will be continuations from years prior. However, the details, progress, and intensity will differ greatly. ARC Advisory Group believes the following trends will be the most impactful to the supply chain and logistics domain through 2019.
Global Trade, Tariffs, and Free Trade Agreements
My colleagues and I have been writing periodically on Logistics Viewpoints about the current global trade environment. How could we not? Remember the Trans-Pacific Partnership (TPP)? That topic seems like ancient history. Then the parade of tariffs began (see Tariff Impact: What You Can Do Now to Manage Risk). First we had the tariffs on washing machines and then steel and aluminum. More recently we have witnessed a volley of tariffs going back and forth between the US and China, and the successful renegotiation of NAFTA into the USMCA. Of course, the negotiations that establish tariffs and trade agreements are impacted by related topics such as economic sanctions. Most recently, Huawei’s CFO was detained by the Canadian authorities (at the request of the US) for violations related to Iran sanctions. Finally, let’s not forget the hand-wringing that is occurring in the UK with respect to the Brexit vote. The direction of that initiative could have widespread trade ramifications, including broader supply chain disruption. According to Lorenzo Rossetti, the customs development director at UK-based BluJay Solutions (Grosvenor), “Politically, there is a huge amount of uncertainty. On top of political uncertainly, businesses are finding it difficult to determine what they need to do. Some clients are establishing specific customs mitigation processes, but many companies are taking a wait and see approach which may be detrimental to future operations. For example, customs delays pose production shut down risks to just-in-time auto manufacturers and others with similar operations.”
It is difficult to determine what will occur in the world of cross-border trade in 2019. But my best guess is there will be plenty of headlines. And with taxes and duties accounting for a substantial portion of cost of goods sold, it is likely that companies will be reevaluating the impact on their global supply chains. Last year at this time, my colleague Steve Banker wrote, “The move to install tariffs and bring more production back to America has gone much more slowly than I expected following the election of Donald Trump.” I think it’s fair to say that the process accelerated in 2018. Let’s hope for amicable progressions in 2019.
Logistics Labor Shortages and Automation
The Conference Board recently published a report forecasting blue-collar labor shortages to continue through 2019 and beyond. Transportation labor is explicitly noted as an area with growing shortages due to the rapid growth in online shopping that is creating strong demand for delivery drivers. The labor shortages are also a contributing factor to the widespread transportation capacity shortage in the US. Driverless trucks are one proposed long-term solution to the problem. But there are more practical solutions to the problem that can be implemented right now. “There is available capacity, it is just locked up,” according to Chris Jones of Descartes. “2019 will be the year of collaborative transportation management. Shippers and LSPs will open up visibility to capacity in their network to others, expanding their transportation ecosystem, unlocking underutilized capacity while reducing deadhead miles.”
The fulfillment demands of the e-commerce boom are also making warehouse labor extremely tight. Warehouses are finding it increasingly difficult to fill open warehouse jobs. The current environment is best exemplified by what a 3PL executive said to Steve Banker, “If an ex-con with a burglary record shows up, we say ‘We know you will steal from us, but we can really use the help. You’re hired!’” That statement should be taken with a grain of salt, but you get the point.
Warehouses are also increasing adoption of automation to meet the requirements of direct-to-consumer fulfillment. The highly variable characteristics of today’s e-commerce industry are causing retailers and other distribution operations to seek out more adaptable and scalable solutions. The growth trend of shuttle system purchases and autonomous mobile robotics in the warehouse will continue. However, warehouse automation is often only a part of the solution to a company’s fulfilment needs. And it is expected to only mitigate, not solve, the labor supply-demand imbalance. Peter Schnorbach, Product Manager of Manhattan Associates Labor Management sees the tight labor market continuing. “The warehouse labor shortage cannot be solved with automation in the short-run. Companies simply cannot retool quickly enough. Wages will continue to rise due to demand. Therefore, companies need to be more creative about how they recruit and retain workers. For example, employee engagement programs that tie rewards or other valuables to worker performance are effective at increasing job satisfaction and overall productivity.”
ARC’s discussions with companies using collaborative warehouse robots (cobots) also show that these automation solutions add stability to warehouse staffing needs. For example, Port Logistics Group stated that workforce stability has become the most valuable benefit to the company’s Locus Robotics project. As wages increase, ARC expects the adoption of cobot systems to increase. ARC expects 2019 to be a breakout year for adoption of these emerging robotics solutions.
The “Digital Supply Chain” will be the Logistics Technology Concept of the Year
The “digital supply chain” is a conceptual umbrella term that will continue to be used to identify supply chain software, communications, and automation efforts that meet certain digital criteria. The term is broad enough to include a wide range of technologies and use cases. But there is not one universally (or even widely) accepted definition of the digital supply chain. However, digitization – information communication and storage in digital, computer readable format – is certainly a core requirement. Personally, I like the Amber Road definition that also includes normalized and structured data that enables collaboration, automation, and analysis. Very often the digital supply chain terminology is used to describe a digital transformation that meets the digitization criterion and is advanced in another aspect such as supply chain scope, depth and breadth of analytics, or incorporation of data from the “digital edge.”
Many digital supply chain initiatives come in the form of extended supply chain visibility. As an example, Pfizer’s digital supply chain journey was driven by the desire to gain real-time shipment visibility across its large and complex extended supply chain. The company wanted to replace the disparate systems, intermittent phone calls, and emails with a connected digital network. This digitization project resulted in the Pfizer Trackit application that tracks the shipment of 15,000 stock keeping units utilizing data from Pfizer and supply chain partners while allowing customers to access timely and accurate data through an online application. We will continue to hear about broad-based digital supply chain transformations such as Pfizer’s in 2019.
The incorporation of IoT data is another core element in digital supply chain initiatives. In a sense, IoT is nothing new in supply chain, as real-time WMS and fleet management solutions have been in use for a couple decades. However, the scale at which “digital edge” technologies are producing useful data has expanded exponentially since then. Today’s more advanced warehouse control systems (WCS), also known as warehouse execution systems (WES), are digital real-time systems within the four walls of the warehouse that receive sensor inputs from automation across the system, evaluate according to predetermined guidelines, and respond in near real-time to achieve operational objectives. The implementation of a WES is a form of digital supply chain initiative because of the sophisticated digital feedback that occurs between the edge devices (warehouse automation) and the centralized software intelligence that processes the sensor feedback and orchestrates warehouse subsystems. Warehouse automation providers such as Dematic and Fortna, and WMS providers such as Manhattan Associates and HighJump, provide WES platforms that allow warehouses to operate with the agility required to meet the fulfillment expectations of today’s online consumers. As warehouse automation suppliers continue to build out their software capabilities and WMS suppliers extend their warehouse control system capabilities, the warehouse will be ripe ground for digital transformations in 2019.
Finally, there is the digital control tower concept which includes extended supply chain visibility; relevant data from “the edge” such as social, weather, and news feeds or IoT data such as GPS fleet data; advanced analytics that provide both broad-based and detailed insights into the end-to-end supply chain; and the ability to take action. The solutions vary by offering, but certainly qualify as digital supply chain offerings. They also tend to leverage another technology that is our next 2019 supply chain trend to watch – Machine Learning and AI.
Machine Learning and AI Enhancements will be Widespread
Machine learning and artificial intelligence have certainly been hot buzzwords in 2018. But there are substantial supply chain and logistics technology efforts behind these buzzwords. In fact, many of the more innovative logistics technology enhancements have included machine learning. And we expect these development efforts to accelerate through 2019 and beyond. Here is why.
Machine learning is especially useful for large, dynamic data sets where the relationship between the dependent variable and the independent variables is fluid. Large amounts of data are more prevalent than ever in today’s supply chains, thanks to computing enhancements and technologies on the digital edge. As a general technology, machine learning is applicable to a wide-range of logistics technologies. It is being applied to enhance warehouse management systems, robotic vision systems, supply chain planning, supply chain visibility, and more. Furthermore, fulfillment operations are placing a greater premium on adaptability to meet shorter fulfillment horizons and the constantly changing needs of the market. The need to skillfully adapt is not going to subside. We foresee machine learning being applied much more extensively across the supply chain in 2019 and beyond. Have a Happy 2019!