Global supply chains faced their fair share of new and existing challenges in 2007.
While improving both cost efficiencies and customer-service levels remained top of mind for supply chain executives, they are now chartered with enabling new business priorities, such as support for growth through more rapid innovation, increased flexibility to respond to demand variations, and sustainability and environmental needs.
Furthermore, in 2007, global supply chain risk took center stage with stories like Mattel’s major issue with lead paint on toys and Dell’s portable battery recall, amplifying the need for mitigating the potential for supply chain disruptions.
What does 2008 hold for supply chain management (SCM) and logistics?
AMR Research believes that a confluence of economic, technology, and political factors will further emphasise that SCM and logistics are keys to the future success of global businesses.
Specifically, here are the top ten supply chain management and logistics trends that AMR anticipates in 2008.
1. SCM and logistics technology markets enjoy healthy growth: In our supply chain spending study, twice as many companies said they will increase spending on supply chain technologies, projecting to grow their budgets by nearly 12% for 2008).
The 12% growth in supply chain technology spending will target controlling costs, raising productivity, and improving customer service. Companies can no longer make do with their 10 to 15 year old SCM systems.
The research shows that an application replacement cycle is in progress as competition and globalisation are driving the move to newer technologies.
2. Near-shoring presents a viable alternative to low-cost country offshoring: AMR Research believes that the trend of near-shoring will continue to gather steam in 2008 for multiple reasons.
Companies are discovering some hidden costs of low-cost country outsourcing ranging from the loss in their ability to be demand driven or to manage product quality and protect their brand image.
Additionally, focus will remain on the goal of protecting domestic producers against unfair trade practices of countries like China and encouraging US manufacturing through tax incentives, especially in this presidential election year.
Expect near-shore sourcing, manufacturing, and design in the United States and in the western hemisphere to be closely analysed as a more cost-effective—not just faster—alternative to low-cost country sourcing.
3. Best-of-breed vendors regain some lost ground from ERP competitors: In the same AMR Research Report on SCM spending, respondents were evenly divided on which category of vendors they will rely on for new technologies and replacement of existing applications.
ERP vendors have gained a strong foothold in areas like demand planning and inventory management.
However, users still prefer best-of-breed applications, either packaged or custom-built, in areas like transportation management, warehouse management, and network design as well as for collaborative processes such as vendor-managed inventory (VMI) that extend outside of the four walls of the enterprise.
4. SCM outsourcing alleviates the SCM talent shortage in increasingly complex global supply chains: When combined, several current industry factors are propelling the growth of logistics and greater supply chain outsourcing.
A decade of staff downsizing, the globalisation of supply chains, the complexity of operating today’s demand-driven networks, and the rise of the offshore, low-cost back-office outsourcing firms have naturally produced an awareness and a new level of acceptance of outsourcing.
2008 will prove to be a fertile year for outsourcing.
Look for a slow expansion of additional supply chain services beyond the traditional transportation and warehousing offerings.
5. Companies manage risk for business continuity and competitive advantage: Whereas cost efficiencies, customer service improvement, inventory reductions and other fundamental goals will remain top priorities for supply chain organisation, emphasis on supply chain risk mitigation will grow in 2008.
Realising that risk in global supply chains is unavoidable, companies will build a risk-conscious culture, to ensure business continuity.
Leading companies will take risk mitigation a step further, building competitive advantage by continuously balancing risk and reward to expand their market presence, improve their profitability or capture bigger market share from their competitors.
6. Impressive returns on investment from current projects nudge RFID back into the spotlight: From arm’s length, the RFID application market looks somewhat listless.
Closer examination shows a very different picture.
Early adopters now have hands-on experience implementing RFID and a better understanding of its potential value as well as limitations.
Ongoing standards development eases the concerns of those companies that fear technological obsolescence.
Technology providers have been working hard to keep pace with end-user expectations.
Along with tag and reader development, enterprise software applications are focused on easing management and distribution of the RFID data collected.
Look for big advances in item-level tracking that will demonstrate the unmistakable value in the technology in industries as varied as pharmaceutical, publishing, healthcare, and apparel and footwear.
Already shown to be a major growth area, the use of RFID in asset tracking and management will continue to expand.
We will also see exciting and innovative applications of the technology in emerging markets such as India and Brazil, where companies are defining their supply chain processes from the ground up with RFID as a foundational technology enabler.
7. Software vendors expand their managed-services offerings to deliver results: Software implementations often fail to deliver the benefits expected because oftentimes skills within the organization are insufficient to maximize the value that sophisticated technology can potentially provide.
To help companies reach their goals, many software vendors and service providers are coupling domain expertise with deep application knowledge to not only conceptualize, but also actualize the benefits their software and services can bring to an organization.
The menu of managed services runs the gamut from business-to-business (B2B) electronic connectivity to demand planning, forecasting, and transportation management.
In fact, some of the software-as-a-service (SaaS) transportation networks and managed-services offerings are being adopted by the more mature users, suggesting that increasingly, it does not matter who presses the keys as long as process performance is being achieved.
8. S&OP technologies—not just processes—take center stage: Viewed as the make-or-break process for profitably matching demand with supply, designing sales and operations planning (S&OP) processes and building a supporting organisation were high on business priority lists in 2007.
But now, more companies are realizing that building S&OP excellence is constrained by their existing S&OP technologies.
Look for better definition of the S&OP technology market space and wider adoption of S&OP functionality that enables fast what-if analysis, profitable demand and supply shaping, and structured internal and external user collaboration and consensus building.
9. Connectivity grows in importance as companies extend their value networks: Companies are increasingly realizing that electronic connectivity is necessary to sustain and scale up collaborative relationships with trading partners.
But the cost and complexity of building this connectivity had traditionally limited the scope of integration to just a small segment of a company’s trading community.
In 2008 we expect
to see a growing acceptance of third-party networks, created by integration hubs and SaaS providers that enable companies to more rapidly and easily connect to a broader segment of their customer, supplier, and service provider bases.
We will also see some game-changing strategies in the B2B connectivity market that will alter pricing structures and deployment options.
10. What-if analysis and simulation-based tools see growing adoption: Gone are the days when users expected a black-box optimisation engine to churn their data, model their problem, and generate a definitive optimal solution.
User companies are now more interested in decision-support tools that, while still using optimization techniques, can allow them to conduct scenario planning, perform what-if analysis, and compare the trade-offs among multiple options.
Similarly, simulation techniques will see wider adoption as the emphasis continues to shift from the ever-elusive “single optimal solution” to a better understanding of the effect of different supply chain decisions on the top line, customer-service levels, and other business priorities.
In 2008, global companies will continue to focus on supply chains as a necessary enabler for business growth. To do that, companies will search for better strategies to manage their extended supply chains profitably.
These strategies will span the deployment of technologies like RFID and S&OP and the analysis of alternative business models like both near-shoring and expanded SCM and logistics managed services.
Companies will also focus on alleviating supply chain challenges that could negatively affect their long-term growth potential, including the shortage in SCM talent, limited connectivity, and increased supply chain risk in global value networks.