Rob Handfield’s 2020 Supply Chain Predictions
This article was originally posted by Rob Hanfield, executive director of Supply Chain Resource Cooperative and Bank of America University distinguished professor of operations and supply chain management, for the Supply Chain Resource Cooperative on December 18, 2019.
Although I didn’t come out with any new years’ predictions last year at this time, it’s the start of a new decade, so predictions are definitely in order. However, I also came to realize that I’ve been writing this blog now for more than a decade! The first one, I believe, was in January 2002, just two years after I founded the SCRC. The topic? The “New Supply Chain Model“. A lot has happened in the last two decades, and I’m hopeful that I’ll still be around at the end of the next one to see how many of these predictions have come to pass! Looking through these predictions is also a good reminder of all the great work that our SCRC faculty and staff have put together this past year, as well as our fantastic students. 2019 was a year where we accomplished a LOT of activities, as you’ll see below.
Given that we are about to enter a new decade, I thought it would be good to give these forecasts a good “think” (as they say in the soon-to-be-ex-EU-member UK), and come up with some predictions that could also be a bit provocative for discussion. Many of these flow directly from research initiatives, workshops, and blog posts I’ve worked on this past year, and represent my best gut-feel of what I think will happen in the coming decade. Some of these events will not likely occur in the next year, as I’ve tried to extend these predictions and recommendations for managers out to a timeline spanning 2020-2029, (which also gives me a bit of room for error). I’m in a unique position as an academic where I get to speak to a lot of executives and hear their insights, but also am exposed to some of the latest thinking from research academics as well. I take all of these inputs, and sift them through my own personal “hype” filter, and presto: here they are.
- Automated vehicles will NOT likely emerge during the next decade. By this, I mean fully automated vehicles, driverless. You won’t be able to read this blog while driving down the road (at least not legally!) This is based on some of the best-known insights from academic researcher Missy Cummings at Duke University. In her opinion, the safety issues have to be overcome, and the technology, despite its promoters, is nowhere near ready for driverless. In the interim, however, we may see flotillas of trucks connected, driving 6 inches apart from each other, with a driver in the lead vehicle. This is likely to become prevalent in the next two years. Given the safety concerns on the Boeing 737MAX, we may see the opposite occur in planes, and humans may start to have more control over the controls than they have in the past.
- Traffic congestion will continue to increase, and curbside parking for drivers will become more difficult. Traffic laws will make it more difficult for trucks to enter large urban areas. As noted in a recent WSJ story, the massive growth in e-commerce has come at a price, with more trucks on the road. (If you drive to work, get used to the fact that it is going to take you longer to get there, not less time.) . Many cities in this article have experienced 300% growth in the number of delivery parcels on their streets since 2010. In addition to UPS and FedEx, Amazon now has their own trucks on the road, often driven by individuals who may not have the rigorous training available to other drivers. Another sign of this growth is the heavy investment in leased distribution facilities being made by Blackrock and other major financial investors. They are betting that this continue to grow for sure.. On top of that, the increase of Uber Freight, food delivery services, and a plethora of other services is causing congestion to rise rapidly. European countries have responded by prohibiting delivery trucks from entering urban centers during peak traffic hours (e.g. during the day); expect the same to occur in North America. Already, cities like Washington and Philadelphia are providing delivery only zones, but this may not be enough.
- The volume of counterfeit products being sold through e-commerce channels will continue to grow exponentially, leading to an outcry from customers. As we noted in a recent CAPS study, the problem of counterfeiting is no longer being confined to luxury handbags and shoes. Rampant counterfeiting is growing in a variety of sectors, including aerospace, industrial components, toys, electronics, cigarettes, and even beverages like beer. Not surprisingly, the majority of counterfeit products are coming from China and Hong Kong, based on analysis of customs seizures. E-commerce providers like Amazon and Ali Baba seem unable to stem the tide, despite their vehement claims to be taking measures to do so. Amazon was also called out as one of the worst (and one of the few remaining) retailers still sourcing from unsafe factories in Bangladesh deemed to be non-compliant with the ILO convention. Even worse, a spokesperson stated that Amazon doesn’t inspect factories making clothing that it buys from wholesalers or that comes from third-party sellers. Instead, it expects those wholesalers and sellers to adhere to the same safety standards. Without significant preventive measures or regulatory repercussions combined with significant law enforcement task forces, this is likely to continue to grow throughout the decade. Despite the threats made by the Trump administration to China on the theft of Intellectual Property, counterfeiting will likely continue and grow faster than ever. However, pressure will increase on Amazon to better enforce the source of its products, and regulatory action will likely ensue. Consumers who will increasingly buy through e-commerce channels will not be the driving force for change, unless significant progress is made to increase transparency on the origin of apparel, and increased pressure on governments in India, Bangladesh, Vietnam, and Cambodia to improve the working conditions of these factories. This could also lead to another trend (discussed next).
- The demise of globalization will continue; localization of supply chains will become more commonplace across multiple industries. As discussed by senior executives at our recent SCRC panel meeting, different industries will shift their supply chain design and supply base at different rates, depending on the ability to localize and the concentration of suppliers in specific regions. Despite the major disruptions to supply chains posed by the likes of Brexit and the Trump Chinese tariffs, some organizations view this as an opportunity. Some companies are re-thinking offshoring of pharmaceuticals, due to the challenges posed by product recalls. By thinking through how local trading blocs are shaping, combining these views with increased analytical frameworks to allow speed of decision-making, and employing commercial contracting frameworks that allow corporations to retain the advantage of uncertainty for their business, l predict that some leading companies will thrive in these times of uncertainty. Those that sit back and wait, however, may not.
- Applications of artificial intelligence in supply chains will grow, but not as fast as the press would have you believe! Data quality will improve… but very slowly. As we noted in a prior blog, AI and Machine-based Learning is a grind, and it takes a lot of work to enable machines to mimic the dexterity and thinking of the human brain. A recent executive forum held in January 2018 found that that digital transformation can’t be acquired “off the shelf”, installed on top of your ERP system, and create an analytical capability! The real changes that will take place will require far more investment in people – and specifically, working on new and emerging ways of using data for improved decision-making. This will require a lot of experimentation, and proof of concept work before the real path ahead becomes apparent. While the “human in the loop” line of thinking posits that human decision-making will always be part of the process, according to leading thinkers like Tom Linton (who spoke at our last SCRC meeting). One of the biggest limits to the growth of digital transformation is poor data quality. To exploit technologies such as blockchain, AI, and MBL, organizations will need to focus on how to improve their data quality. We recently completed our third annual Data Governance survey, and found that while data quality appears to be improving, the organization and categorization of data does not appear to be advancing as represented by the increase in time spent trying to find data. This will remain problematic, likely for several years to come.
- Relationships will continue to become more important, and will continue to be the glue that ties together supply chains. As I noted in a recent podcast, person to person relationships are key. This involves building trust through management of performance expectations, writing better statements of work in contracts, reviewing performance through scorecards and quarterly business reviews, and other relationship management skills which will become more important than ever. Organizations who focus on building strong relationships with supply chain partners will thrive; those who don’t, and who look for short-term cost improvements will suffer. (Exhibit A is Kraft-Heinz, which I wrote about in a recent blog). Integration can’t be put in place by a system, but requires problem-solving for events that can’t be written down in a contract, thinking about how to find alternatives in such cases will be key. On the other hand, senior leadership support of relationship management programs will support the growth and blooming of these relationships, as indicated by recent survey results. A key part of improving the relationships between parties in the supply chain will be the development of better ways to manage contract risk, as Tim Cummins from IACCM shared with me in a recent podcast. Disruptive events can’t be predicted, but we can think about how to manage them when they do occur.
- Tariffs will continue to not only remain in place, but will likely become part of the new normal. They are not a flash in the pan, and will not go away (regardless of who ends up in theWhite House in November). As noted in a recent SCRC meeting and panel discussion, we will see increased levels of trade wars, the emergence of trade blocs (beginning with Canada, the US and Mexico), and the Chinese silk road. Many companies hope trade wars will go away, some will develop tactical actions, but the companies that succeed will take proactive steps to relocate their supply base, redesign their supply chains, and think about localization of their supply chains. They will think about the benefits of lower working capital and collaboration by having people nearby who speak the same language.
- Talent will continue to remain a challenge. Finding and retaining the RIGHT people is important. Successful organizations will look for people who are curious, and foster development of these people by providing them with opportunities to grow, to solve problems analytically, to work with datasets that allow them to explore and identify solutions . In these environments, it’s not just about money, but about collaborating with universities to identify the rights kinds of people. Once you hire them, put them in an environment that will challenge them, where they will learn and work on different things. In addition, organizations may need to think about new staffing models, particularly in areas like truck drivers and warehouse workers. A recent workshop we held in March of 2019 illustrated how difficult it is to fill these roles, and that organizations may need to think creatively about how to exploit the gig economy, but also create new incentives for the next generation of logistics worker.
- Chief Supply Chain Officer roles will struggle with an increased set of demands for change, and the pressure to perform will ramp up on multiple fronts. A recent Deloitte CPO survey found that he external risks of a political economic downturn as well as the potential for uncertainty given the trade wars is creating a lot of anxiety for CPOs. In addition to feeling the on-going pressure to cut costs in the face of economic and political risks, CPO’s will need to push forward with “digital” transformation internally, (as noted in a podcast I did with Pierre Mitchell, and it isn’t clear that he isn’t a big fan of the term “digital” anymore!) Executives will continue to be faced with higher readings on the VUCA-meter (Volatility, Uncertainty, Complexity and Ambiguity). Finally, he also alludes to the “Fourth Industrial Revolution”, where data is the “new oil”. However, progress on this front is being held up by, (you guessed it), the abysmal quality of data that exists in most organization’s supply chain systems, and which requires increased levels of data governance.) . One of the biggest threats that CSCO’s will face, which they haven’t really thought about yet, is cyber-security. Major hacks of industrial supply chains will likely shut down a dozen or more major supply chains in the coming decade, causing all sorts to chaos and increased shortages. Let’s hope these don’t occur in the energy, hospital, or pharmaceutical sector.
- The biobased economy is growing, and will continue to grow, as manufacturers look to find new sources of materials that are sustainable and which use renewable resources. A recent report we completed for the USDA highlighted the many opportunities for utilizing such materials in tires, running shoes, disposable cups and plates, as well as automobiles and packaging. The number of innovators will grow, and as these feedstocks continue to become more available, their cost will drop and they will become more economically feasible to use. The US Government may also begin to establish tax subsidies and havens for producers, adding further incentives to grow biobased materials. The winners of all this will be the farmers, who will find a new market for their corn, soybean, and forest products, and the dependence on Chinese exports will hopefully be diminished.
Okay, so that’s it for this year’s predictions. Some have a higher margin of error than others, but there you have it. Talk to you in the next decade!