Supply Chain Digest: Top Ten Supply Chain Trends of 2006
By Dan Gilmore, Editor-in-Chief, Supply Chain Digest
Through special arrangement, what follows is an excerpt of a current story from Supply Chain Digest, presented here for discussion.
Recently, I highlighted many of the important stories Supply Chain Digest covered in 2006. As promised, I am now going to offer more general thoughts on the top trends in supply chain and logistics for 2006. Here is my list in reverse order.
10. Voice Technology in Distribution Goes Mainstream: It’s been building for the last couple of years, but voice technology in order picking and other distribution processes seemed to really go mainstream last year, as price and performance continue to improve, and the recognition of the productivity gains available become more widely understood.
9. Labor Unions at an Inflection Point: This was a story we covered with a piece on auto parts maker Delphi’s push to reduce its North American wages and move many operations offshore. If this trend continues, it could have big implications for supply chain costs and off-shoring decisions.
8.
Concern Over Commodities: Concern over the availability and price of raw materials
caused companies to rethink supply chain strategies. Caterpillar blamed a revenue
shortfall in part on the inability to receive needed super-sized tires; that in
turn was blamed on rubber shortfalls. Is anyone paying attention to all those
commodity deals and acquisitions Chinese companies are making worldwide?
7. Continued Supply Chain Vendor Consolidation: The year 2006 saw plenty of action with supply chain software pioneer Manugistics being acquired by JDA; Symbol Technologies agreeing to be acquired by Motorola, along with many others. Make no mistake  in a maturing software market, it’s now all about acquiring customers and taking out overhead costs through acquisitions.
6. The Perfect Storm Blew Over: Long term, we still have many transportation challenges to deal with, but port congestion was basically a non-issue and trucking capacity swung back more in balance with demand. Fuel prices even managed to drop throughout the fourth quarter. Enjoy it while you can…
5. Focus on Risk Management: A huge number of companies turned their attention to supply chain risk mitigation.
4. Supply Chain Icons Stub Their Toes: We’ve been talking about Dell and Wal-Mart as the supply chain leaders for so long, most of us say it without thinking. Both had troubles in 2006, with no clear path back to glory for either one. Important because it shows supply chain advantage is never forever, and if Wal-Mart someday loses it current level of dominance it will have huge ramifications across the supply chain.
3. RFID Slows – but Grows: Observers saw little momentum in terms of real action in the EPC-based consumer goods-to-retail market. Wal-Mart moved much of its attention to a series of other supply chain, store strategy and external issues, rather than the RFID roll out. The number of consumer goods manufacturers doing anything meaningful with RFID is still just a handful, and announcements on the retailer side were very quiet. On the other hand, we saw strong progress with RFID in a wide variety of other markets and applications, as a supporting technology, not a cause in itself.
2. Global Supply Chain Gets Serious: As we predicted early in the year, 2006 saw huge numbers of companies finally get that global supply chain isn’t a logistics sub-discipline  it’s an area where performance can mean the difference between success or mediocrity.
1. The Greening of the Supply Chain: The most significant trend will be that the environmentally friendly supply chain (aka sustainability) really turned the corner as companies started to take real action. To the surprise of many, an early leader: Wal-Mart. From energy efficiency to alternative fuels to packaging and much more, the supply chain will increasingly be colored green.
Discussion Questions: What are your thoughts on Supply Chain Digest’s Top 10 Supply Chain Trends for 2006? What would you add or subtract?
Many of the 2006 trends are continuations of trends from the past few years. One additional trend: environmental risk. 2006 wasn’t the year of Katrina II, but no one believes Katrina II is unlikely anymore. Hurricanes, ice storms, floods, blackouts, earthquakes are critical risks that will get more and more attention.
I think one big thing that is missing from the list is the effort to improve forecasting results. I think 2006 and future efforts to improve forecasts will have a huge impact on supply chain and store operations. Historically, we have managed by monitoring sales and orders. In the future, it will manage forecasts and inventory. By monitoring actual results against forecasts and using demand management to bring sales closer in line with preparations, we will make the whole supply chain operation much more efficient as we reduce inventory imbalances that require operational and discounting action to correct.
Dan has all the big trends for the year, bit I would put them in a slightly different order –
1. Global Supply Chain Gets Serious
2. RFID Slows – but Grows
3. Continued Supply Chain Vendor Consolidation
4. Focus on Risk Management
5. The Greening of the Supply Chain
6. Supply Chain Icons Stub Their Toes
7. Concern Over Commodities
8. Voice Technology in Distribution Goes Mainstream
9. The Perfect Storm Blew Over
10. Labor Unions at an Inflection Point
It’s a fact of business that sustainability will only be a top trend when it makes clear commercial sense, and we’re not there yet.
For my money, 2007 was the year when a significant number of companies finally learned how to turn supply chain upside down and begin to manage a demand chain.
Standard products offered to a wide homogeneous audience is inherently efficient, and a fair amount of everyone’s work is predicated on the assumption that this is the destination.
Increasingly, that assumption is open to change – as Safeway and Kroger and Delhaize all began to cluster stores, changing distribution systematically; as the limitless “long tail” concept began to seep into retailers consciousness beyond just specialty web application; as tribal marketing and other ideas began to supplant mass media — in a host of ways we are seeing a marketplace that begins to fragment and differentiate.
The supply chain improvement focus has always been about fulfilling large-scale predictable demand. The next challenge is how to fulfill small demands at the lowest possible level — the individual, the household.
This is an excellent list. I would applaud the identification of going green as the number one trend. While of the visibility still focuses around Wal-Mart, many other players are moving in this direction, and the good news is that it all appears to be market-driven.
One topic I’d like to add to the list is trading partner collaboration, i.e., the processes and practices that glue the modern supply chain together. We’re seeing a significant uptick in what could be called customer-driven collaboration by a number of the larger players, and it is adding clarity and effectiveness to the process of aligning key elements in the supply chain. We will hear more about this in 2007 and beyond.
The other trend we would add relates to the growing appreciation for end-to-end visibility in the supply chain. This may not feel like a new thought, but there’s a lot of energy being focused today on making it happen and when it does, there are real strategic benefits.
It is John Rand’s message which I believe better captures the concepts which will impact the supply chain this year and beyond. With the exception of a couple of new points such as sustainability, the balance of the issues capture …thinking.
Real breakthroughs and success will come through wholly new and developing supply chain concepts which fulfill the needs of the increasingly fragmented demand both within the US and across the world. The Global Marketplace hasn’t created a bigger Mass Market; it may be argued that it has hastened the end of the Mass Market (symptoms of this include the decline of brands and the dramatic shift towards micro marketing by locale, region, ethnicity and so on).
John points out, rightly so, that as the marketplace expands via the “long tail” it hastens the demise of “mass marketing” which in turn changes the dynamics historical of supply chain efficiencies.
The greatest challenges, and the next big winners, have yet to be defined. I place my money on the innovators who can move beyond traditional “top ten” supply chain issues. I agree again with John, while there will always be large-scale demand for certain commodity products, they will account an increasingly smaller proportion of the total marketplace demand. Those who figure out how to support those fragmented markets with specific product requirements in the most cost and operationally efficient manner will be the winners.