Supply Chain Predictions for 2020
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 them flow directly from research initiatives and workshops I have worked on this past year, and represent my best gut feeling of what I think will happen in the coming decade.
Some of these events will likely not occur in the next year, as I have tried to extend out these predictions and recommendations for managers to a timeline spanning 2020–2029, (which also gives me a bit of room for error). I am in a unique position as an academic in that I get to speak to many executives and hear their insights, but I am exposed to some of the latest thinking from research academics as well. I take all these inputs and sift them through my own personal “hype” filter, and presto: here they are.
1. Automated vehicles will not likely emerge during the next decade.
By this, I mean fully automated, driverless vehicles. However, you will not be able to read this blog while driving down the road (at least not legally!). This is based on some of the best 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’ claims, is nowhere near ready for driverless vehicles. In the interim, however, we may see convoys of trucks connected, driving six 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 737 MAX, we may see the opposite occur in planes, and humans may start to have more control over the cockpit controls than they have had in the past.
2. 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.
The massive growth in e-commerce has come at a price, with more trucks on the road. Many cities have experienced a 300 percent growth in the number of delivery parcels on their streets since 2010, according to a WSJ article. In addition to UPS and FedEx, Amazon now has its 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 will continue to grow for sure.
On top of that, the growth 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.
3. The volume of counterfeit products being sold through e-commerce channels will continue to grow exponentially, leading to an outcry from customers.
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. The problem of counterfeiting is no longer 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.
Based on an analysis of customs seizures, the majority of counterfeit products are coming from China and Hong Kong. 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. Without significant preventive measures or regulatory repercussions combined with significant law enforcement task forces, this is likely to continue to grow throughout the decade.
However, pressure will increase on Amazon to better enforce the sourcing of its products, and regulatory action will likely ensue.
4. The demise of globalization will continue; the localization of supply chains will become more commonplace across multiple industries.
Different industries will shift their supply chain design and their supply base, albeit at different rates depending on their ability to localize, as well as on the concentration of suppliers in specific regions.
Despite major disruptions to supply chains posed by the likes of Brexit and the Trump Chinese tariffs, some organizations view the situation as an opportunity. Some companies are rethinking the offshoring of pharmaceuticals due to the challenges posed by product recalls.
By thinking through how local trading blocs are shaping themselves, combining the above views with increased analytical frameworks to allow greater 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.
5. Applications of artificial intelligence in supply chains will grow, but not as fast as the press would have you believe! Data quality will improve—very slowly.
AI and machine-based learning (MBL) is a grind, and it takes a great deal of work to enable machines to mimic the dexterity and thinking of the human brain. A recent executive forum held at North Carolina State University (NCSU) found that that digital transformation cannot be acquired “off the shelf,” and installed on top of your ERP system, to give it analytical capability! The real changes that will take place will require far more investment in people—and specifically, in working on new and emerging ways of using data for improved decision-making. This will require much experimentation and proof-of-concept work before the real path ahead becomes apparent.
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, the Chief Procurement Officer and Supply Chain Officer at California’s Flex. 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. 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 likely remain problematic for several years to come.
6. Relationships will continue to become more important, and will continue to be the glue that ties supply chains together.
Person-to-person relationships are key to supply chains. This involves building trust through managing performance expectations, writing better statements of work expectations in contracts, reviewing performance through scorecards and quarterly business reviews, and other relationship management skills, which will become more important than ever.
Organizations that focus on building strong relationships with supply chain partners will thrive; those that do not, and that look for short-term cost improvements, will suffer. Integration cannot be put in place by a system, but requires problem-solving for events that cannot be written down in a contract. Thinking about how to find alternatives in such cases will be key task. On the other hand, senior leadership support of relationship management programs will support the growth and blooming of these relationships.
A key part of improving the relationships between parties in the supply chain will be the development of better ways to manage contract risk. Disruptive events cannot be predicted, but we can think about how we will manage them when they do occur.
7. 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 the White House in November. We will see increased levels of trade wars, the emergence of trade blocs (beginning with Canada, the U.S., and Mexico), and the Chinese silk road.
Many companies hope the trade wars will go away; some will develop tactical actions. The companies that succeed will take proactive steps to relocate their supply base, redesign their supply chains, and think about the localization of their supply chains. They will think about the benefits of lower amounts of working capital, not to mention the benefits of collaboration by having people nearby who speak the same language.
8. 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 will foster the development of these people by providing them with opportunities to grow, to solve problems analytically, and to work with datasets that allow them to explore and identify solutions. In these environments, it is not just about money, but about collaborating with universities to identify the right kinds of people. Once you hire them, be sure to 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 driving and warehouse work. A recent workshop held at NCSU illustrated how difficult it is to fill these roles, and indicated that organizations may need to think creatively about how to exploit the gig economy while also creating new incentives for the next generation of logistics worker.
9. Roles such as chief supply chain officer (CSCO) will struggle with an increased set of demands for change, and the pressure to perform will ramp up on multiple fronts.
A recent Deloitte chief procurement officer (CPO) survey found that the external risks of a political economic downturn, as well as the potential for uncertainty given the trade wars, is creating a great deal of anxiety for CPOs. In addition to feeling the ongoing pressure to cut costs in the face of economic and political risks, CPOs will need to push forward with “digital” transformation internally. Executives will continue to be faced with higher readings on the “VUCA-meter” (volatility, uncertainty, complexity, and ambiguity). Data can potentially become the new “oil.” However, progress on this front is being held up by the abysmal quality of data that exists in most organizations’ supply chain systems, and it requires increased levels of data governance. One of the biggest threats that CSCOs will face, which most of them have not really thought about yet, is cybersecurity. Major hacks of industrial supply chains will likely shut down a dozen or more major supply chains in the coming decade, causing all sorts of chaos and increased shortages. Let us hope these do not occur in the energy, hospital, or pharmaceutical sector.
10. The bio-based economy is growing, and will continue to grow, as manufacturers look to find new sources of materials that are sustainable and use renewable resources.
NCSU recently completed a report for the U.S. Department of Agriculture that highlighted the many opportunities for utilizing such materials in tires, running shoes, and disposable cups and plates, as well as in automobiles and packaging. The number of innovators will grow, and as this feedstock continues to become more available, its cost will drop and it will become more economically feasible to use. The U.S. government may also begin to establish tax subsidies and havens for producers, adding further incentives to grow bio-based 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 is all for this year’s predictions. Some have a higher margin of error than others, but there you have it!
(Note: Dr. Rob Handfield is a Co-Founder and Director Emeritus of Beroe Inc. A version of this article first appeared in NCSU’s Supply Chain Resource Cooperative website)
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