Over the past couple of weeks, SCDigest editor Dan Gilmore has highlight supply chain predictions for 2012 from a variety of supply chain gurus and well-known industry analysts. You can find those columns here: Supply Chain Guru Predictions Part 1 and Part 2.

As promised then, we are here offering the full text comments from each of oiur gurus. This week you will find the predictions sent to us by Gene Tyndall, Dr. David Simchi-Levi, Jim Barnes, Mike Regan and Marc Wulfraat. Next week, we'll do the same with 2012 predictions by the analysts at Gartner and IDC

Gene Tyndall
EVP
Tompkins International

I am pleased to again this Year suggest some predictions, or trends, that we see out there for Supply Chains in 2012. Last Year I suggested five trends that, if the majority of supply chain managers around the globe could improve on, the value of supply chain excellence would escalate to executive agendas and thus advance the global economy and the profession.

I can hardly take credit for any such advances, but I am very pleased to have seen a better understanding of true supply chain costs; some simplification of the complexities; more effective supply chain organizations; more competence in supply chain skills; and a better understanding of how supply chains should contribute to shareholder value. Of course, we have further to go on all these five, but I would observe that the progress has been noticeable.

What do we see for 2012? Well, these trends will continue, because they are about improving the economy and our companies that operate more and more Internationally. But, to be more predictive, let's consider the following four trends:

1. As the economy improves slightly, the question is whether the changes made by most companies to survive during the multiyear Recession will continue as business as usual. Cost reductions, lean practices, more outsourcing, and tighter control of operating costs and capital made the headlines. Will these continue? I would predict for many, they will. The uncertainly, the risks, and the volatility are continuing. Most management teams have become risk adverse, and they will remain so this year.

2. However, the changing customer/consumer is demanding more, and companies cannot afford to try and meet the new needs with old ways. Multi-channel sales will expand and e-Commerce will grow. The e-Fulfillment strategies and operations are in need of challenging, and innovation. The customers are the drivers of change in these times.

3. Demand-Driven Supply Chains will expand. There simply is no way to grow profitably without transforming supply chains to the "new demand-driven" strategies and operations. As technologies have improved for supply chain visibility, and apps have improved for optimizations across the multi-party supply chains, so have new ways of operating demand and supply. While S&OP advances have made some incremental progress, forecasting accuracy remains elusive. Thus, we need solutions that read POS near real-time and drive supply back across the chain with dramatically improved lead times.

4. And, last but not least, the supply side. What about the return of production to the U.S.? The so-called "nearshoring" to Mexico and other Americas? Despite the highly optimistic predictions of the U.S. catching up to China in 3-4 years in manufacturing, we just do not see that. We do see important gains in U.S. manufacturing, in nearsourcing of some final assembly, especially in Mexico, and more postponement of final packaging, as well as key suppliers to the OEM's locating more functions to the U.S. But, the sum of all this will still not be significant when measured against the huge gains in China production. This profile will not change until the U.S. provides substantial regulatory relief and major incentives. Most supply chains will continue to involve long lead times and ocean transport. Hence, the focus must be on #3 above.

As always, predictions are risky, and often wrong. Trends, however, tend to be dominant and prevalent. Good luck in 2012!

Dr. David Simchi-Levi
Professor
MIT

Some of the issues that have been in the forefront in 2011 will likely dominate the attention of executives in 2012:

(1) Supply chain risk management:

The news in 2011 was dominated with the fallout from two major catastrophic events – the Japanese Tsunami in March and the floods in Thailand in September. Companies will focuse on understanding their risks, modifying their strategies (very few companies) and creating contingency plans.

(2) Supplier performance monitoring:

The demand for more supplier accountability, exemplified by the recent criticism of Apple in regards to work conditions at FoxConn, will require more focus on supplier performance monitoring. This of course is also part of effective risk mitigation strategies.

(3) Manufacturing moves closer to demand:

The anxiety over the decline of manufacturing in the US and attempts to understand and revitalize it are taking center stage. Some recent data shows a new trend towards regional manufacturing (see my Sloan Management Review paper on Is It Time to Rethink Your Manufaturing Strategy?) This is driven by oil price, labor cost in developing countries and the risk associated with low-cost-country sourcing and manufacturing strategies.

(4) Implementation of Supply Chain segmentation and flexibility strategies:

With the proliferation of channels, products and different customer value propositions, many companies need to segment their supply chain strategy. Indeed, the recent success of Dell, which successfully transformed its supply chain to address these challenges, will encourage other companies to follow.

(5) Investment in sustainability:

Many companies are initiating projects for more efficient packaging and sustainability practices. On the legislative front, California approved a carbon cap and trade policy, Australia instituted a new carbon tax and there is talk of a UN carbon fee on cargo ships. Therefore, there is pressure on companies to invest in reducing carbon emissions and sustainability despite the seeming lack of interest at the US federal level.

(6) Technology:

Technology will continue to advance on many fronts including:

• Increased use of business analytics - expected boost is likely to come from In-memory technology and investments in this area

• Increased use of RFID for tracking and end to end traceability

• Continued migration to cloud computing

• Innovative use of tablets and cell phones in retail.

(Supply Chain Trends and Issues Article - Continued Below)

Jim Barnes
President
enVista

As retailers look to increase comp sales they will focus less on “least cost supply chains” but the “best managed supply chains.” Why? Because while a retailer may save $.10 to move a pair shoes by optimizing their transportation they are missing out on $40 gross margin opportunity by improving their in stock % and therefore driving increased comp sales. 2008 and 2009 was about survival 2012 is about improving the customer experience.

Retailers who have the appropriate planning, assortment and allocation solutions to get the “right SKU” to the “right store” at the “right time” with the “right quantity” will crush their competition. Those who are focused and reducing their “reaction time” which is the time an item is sold to the time it back on the shelf will win the retail game. In 2012 and beyond it needs to be about speed to market, total cycle time reduction which eliminates variability, and therefore reduces inventory.

I predict that retailers (fashion, highly seasonal, high value) will start to bring manufacturing back to the US. What is worse: paying an extra $20 to make a high end blouse/shirt or losing $100 because you have to liquidate it through a mark down strategy?

I am not saying that retailers should bring ALL manufacturing back to the US/Mexico but a hybrid model where retailers can react to lumpy demand. The only way to move from push to pull is by reducing cycle times in the total supply chain. It is obvious easier to forecast when an item takes one week from factory to store then 12 weeks.

Software companies’ that I believe get it and will make an impact this year are JustEnough in Merchant Planning, Main Street Commerce in multi-channel order management and allocation, and Empower in store scheduling and work force management. These companies have comprehensive solution suites solving real supply chain problems from source to consumption.

I am working a number of large retailers and they are not executing the basics in supply “standard” practices let alone “best” practices!

Mike Regan

CEO

TranzAct Technologies

We think there are three things that you are going to want to pay attention too in 2012:

1. The rate structure for the carries as we progress into 2012: we think the carriers will get more aggressive in seeking higher rate increases as the economy improves. The reason for this is real simple. It costs more to operate a truck today, and with the carriers having done a great job in managing their capacity, there will be less equipment to haul freight if the economy continues to improve.

2. The second thing you are going to have to watch is called the "preferred shipper" area. Specifically, customers and shippers are going to have to look at their operations to see how they can become a preferred shipper with the carriers. One carrier put it best to me, saying "If rates go up, shippers are going to have to look at what we call those "moments of truth" - how easy is it for a carrier to do business with my company?" The reality is that the easier it is to do business with you, the lower your rates will be.

3. We believe the issue of supply chain risk is going to be an increasingly important topic throughout the year. Last year we had the earthquake/tsunami in Japan and the flooding in Thailand. There were also some other natural disasters which exposed the fact that as companies continue to shrink their inventories and run in a Lean manner any disruption has a disproportionate impact on a company's operations.

Marc Wulfraat

President and Founder

MWPVL International Inc.

Our prediction for 2012 is a slightly upbeat repeat of 2011 with one exception, where growth and optimism is the order of the day, and that is in Internet Retailing.  In particular, the incredible and controversial success of Amazon.com is an important modern-day renaissance story that needs to be understood because of its impact on the traditional retail sector.

In 1994, the Amazon's distribution network consisted of Jeff Bezos' garage in Seattle.  Fast forward to year-end 2011 and Amazon now operates 26 fulfillment centers within the U.S. exceeding 20 Million square feet  with an additional 43 fulfillment centers other countries including  Canada, the United Kingdom, Germany, France, Japan and China.  In 2012, Amazon has plans to add 17 fulfillment centers globally (including India), many of which exceed 1 Million square feet.  Amazon is one of the few companies that has been on a massive hiring spree in an uncertain economy and by all accounts there is no signs of this growth tapering off.

The success of Amazon and other Internet retailers like Crate & Barrel is clearly proof that consumers are changing the way that they go to market.  To this end, our predictions for 2012 are:

• Many retailers  have outsourced their e-commerce  distribution / fulfillment centers and there are significantly differing levels of satisfaction with this strategy.  When peak volumes need to be shipped on Black Friday and Cyber Monday, there are plenty of pain-filled stories where product did not get out the door. We predict that more retailers are going to move towards self-distribution to gain better control over their supporting distribution operations, particularly for the Internet retail channel.

• We predict that the success of Amazon will attract more competition from retailers that operate in niche markets and also from large retailers that have the ability to scale their web store front to include thousands of non-stock items that are fulfilled through supporting distributor-suppliers.  Home Depot and Costco are great examples of retailers that have been successful in leveraging supplier-partners to expand their product offering by having the supplier transparently perform the supporting fulfillment function. 

• For the supplier community, it is becoming imperative to provide support for multiple retailer web storefronts and this involves a fair amount operational and technological complexity.  The Internet customer expects to receive their shipment within 3 - 5 days when inventory is available and the web store front accepts their order.   If suppliers cannot transparently support retailer we store fronts then they will quickly lose market share to competitors that can.

In short, we predict that 2012 will be another important high-growth year for the Internet retail channel. As such, retailers and their supplier-partners will be spending significant capital and energy to strengthen their supporting distribution operations and infrastructure for this channel.  

Next week, we will be back with more detailed predictions from the analysts.

What do you think of these guru predictions for 2012? What especially resonates with you? Any predictions you would like to make for the year? Let us know your thoughts at the Feedback button below.

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