Driving operational resiliency will be the focus of supply chain strategies in 2014 and beyond, a recent report suggests.
In its annual list of predictions of what to expect in the year ahead for the supply chain sector, experts at IDC Manufacturing Insights insist that many of the challenges that burdened companies and manufacturers in recent years will again surface in 2014 – perhaps in greater quantities and possibly with more strength.
“In the context of the 3D value chain, operation resiliency is clearly dependent upon being demand aware and data driven, but it is also about digital execution – leveraging data to broaden and extend ‘supply chain intelligence,” explains Simon Ellis, practice director of Supply Chain Strategies at IDC Manufacturing Insights.
“So, IDC Manufacturing Insights expects that for 2014, operation resilience will come to the forefront and underpin manufacturers supply chain strategy moving forward,” he adds.
Challenges that await manufacturers, according to the analysis, include:
- Complex and extended global supply networks;
- Volatile demand;
- The accelerating pace of business;
- Inflation and direct input costs.
And according to Ellis, these challenges will likely spill over in 2015 and years after year after that.
“I tend to look at this more from the perspective of this being something of a journey for supply chains,” he tells Leo Rommel of Industry Today.
Here’s why: IDC has a proven track record of effectively predicting upcoming trends and challenges for the industry. As such, many of those trends have snowballed in the passing years since – and Ellie says they’ll escalate throughout 2014.
For instance, in 2013, IDC talked about the importance of supply-chain resiliency, with responsiveness as a first principle.
The year before that, its annual list of 10 predictions centered on the value of speed and responsiveness across the demand and supply sides of supply chains.
“That year, we talked about the balance across the supply chains and sort of cadence disconnects between the supply and demand sides and how many organizations we’re being asked to be much faster, quicker, and more responsive,” Ellis says.
In 2011, IDC addressed the mounting theme of supply chain complexity, balanced with the need to simplify and segment. And in 2010, forecasts revolved around how to evolve from fixed cost-driven supply networks to variable-cost value networks.
“From my perspective, what we’re talking about in 2014 is kind of a natural progression of those trends and sort of the operationalization of supply-chain resiliency and being operationally resilient,” Ellis says.
THE INTRICACY OF RESILIENCY
Upping operational resiliency is growing in magnitude because of supply networks are more complex and extended than ever, Ellis explains.
“The promise of globalization certainly has played out on the supply side of the supply chain,” Ellis says. “You have a lot of companies chasing low-cost manufacturing, so they have long lead times. They’ve got high levels of complexity.”
This is can prove rather problematic when agility and responsiveness are required, the report says, both of which are required as volatile demand continues to climb.
“Consumers, if you’re talking about consumer-oriented manufacturing segments, they’re less brand loyal than ever,” Ellis says. “So, you’ve got complexity and extending times on the supply side. You’ve got high levels of volatility. And you’ve got this continuing pressure on supply chains to be faster, to be more agile. Then, you’ve got sort of the cost side, the inflation and direct simple costs.”
According to the aforementioned report, inflation and direct input costs continues to be worrisome for manufacturers “that are seeing recent margin declines and volatility” because they frequently “lack the ability to make price increases stick or are already at a cost disadvantage” against the competition.
“When you put all of those elements into a cauldron and boil it up, you get this need for responsiveness and operational resiliency,” Ellis says. “For me, that ultimately is what drives our predictions this year.”
It’s summarizes IDC’s first few predictions for 2014, according to the report.
“It’s very much about finding ways to be more operationally resilient, to be able to recover more quickly from both external and internal influences,” he adds.
The following are IDC’s predictions for 2014, with some additional commentary from Ellis:
Prediction #1: Operational resiliency will be the focus of supply chain strategies in 2014 and beyond.
Prediction #2: Supply chain technology investment will involve modernizing existing systems while also trying new approaches.
Prediction #3: Volatile demand and extending supply will put pressure on supply networks to be closer to demand.
Another emphasized theme within this prediction is the still-growing concept of profitable proximity sourcing, Ellis says.
“This year, sort of the way we articulated it is that volatile demand – extending supply – is putting more pressure and will continue to put pressure on supply networks to be closer to demand,” Ellis says.
But it’s not necessarily about bringing more manufacturing back to the U.S., although it could be, he says.
“It’s about how I, as a manufacturing organization, make sure that I crush down those long lead times and that I actually start to make or assemble products closer to their eventual points of demand,” Ellis explains. “And so this notion of near sourcing – profitable proximity sourcing – was very much seen in supply-chain organizations. We saw this desire to bring manufacturing and assembly closer to demand.”
Prediction #4: The need to be faster will require manufacturers to explore more deeply integrated supply-chain planning and fulfillment functions.
“The need to be faster will require manufacturers to explore more deeply integrated supply chains,” Ellis says. “Integrated supply-chain planning and integrated business planning have been used synonymously with S&OP for years.”
On the supply-chain planning and supply-chain execution side, industry is likely to see manufacturers be more integrated in terms of how they think of integrated supply-chain planning and fulfillment functions.
“It doesn’t necessarily mean that all of their IT tools have to come from SAP or from Oracle, but when they start to think about planning and execution, they’re all tied together and highly integrated, so that you can make better or faster decisions,” Ellis says.
Prediction #5: No longer exclusive to consumer industries, manufacturers will look for ways to further develop a “demand orientation” through demand sensing and capture.
Prediction #6: Manufacturers will prioritize risk and resilience capabilities, particularly in supply chain monitoring and visibility.
“Every year I kind of have this sort of perhaps naïve view that this is the year that manufacturers will kind of wake up and realize how important it is to understand risk management in the supply chain,” Ellis says. “Then the year concludes, and they haven’t, and I think, well, maybe it’ll happen next year.”
But truth be told, supply-chain monitoring of visibility is “a really important piece,” Ellis says, especially when it comes to enhancing operational resiliency.
“I have this joke that I use regularly that says visibility is in the top-ten things in the hall of fame of overused supply-chain terms. I mean, we use visibility far too much, but the reality is that it’s really important,” Ellis adds.
Bottom line, he says, is that if you can’t see what’s going on in your supply chain, you can’t intervene. And you certainly can’t be proactive.
“You’ll spend your entire time and your entire resource pool fighting fires, and that really isn’t a very productive way to do it,” Ellis says. “Manufacturers need to know what the drivers of risk are, so that they can make intelligent, informed decisions about what to do.”
Prediction #7: Global trade management will mature as a critical capacity in managing growth in emerging markets.
Prediction #8: Manufacturers will renew interest in the data management and governance organization.
Prediction #9: In the context of procurement and interest in driving more production collaboration, B2B commerce networks will become anthropological “dig sites”
Prediction #10: Manufacturers will seek new ways to extract data-driven value, leveraging mobile and cloud for access anywhere, anytime.
About IDC Manufacturing Insights
IDC Manufacturing Insights assists manufacturing businesses and IT leaders, as well as the suppliers who serve them in making more effective technology decisions by providing accurate, timely, and insightful fact-based research and consulting services. Staffed by senior analysts with decades of industry experience, its global research analyzes and advises on business and technology issues facing asset intensive, brand oriented, technology oriented, and engineering oriented manufacturing industries.