By Poul Breil-Hansen, supply chain writer.
Financial uncertainty, climate, new technologies, social media, big data, clouds, outsourcing and reshoring, more power to end customers, growing complexity and unpredictable sales. Is the financial crisis behind us and is global growth on its way now? There are plenty of challenges that apply pressure on supply chain execution. Supply chain management and execution are still relatively new disciplines and there are a lot of unanswered questions to take into account. In this article, we cut out the shimmer and dare to focus on the 10 super tendencies that have the greatest effect on supply chain execution in 2015.
1) E, m and s-commerce
E, m and s-commerce (electronic, mobile and social-commerce) are growing rapidly around the world, while the rest of retail trade is either stagnating or experiencing decreased sales, and the trend now affects B2B. Until a couple of years ago, very few people outside China were familiar with the name of China's absolutely largest e-commerce company, Alibaba. This is no longer the case. Alibaba was listed on the stock exchange in the United States in 2014 and at the moment is beating both Amazon and eBay in the hunt for the growth in e-commerce revenue, which experts expect will exceed 10 percent a year globally during the next two to three years.
The dramatic growth of e-commerce will change the lives of many supply chains in the years to come. The chains must be faster, handle a broader range of products, be more flexible, react more strongly, deliver free of charge and be more efficient at handling returned products. That is a lot of things at once if you look at the fact that Alibaba.com is currently responsible for 60 percent of all packages that are delivered in China, so it becomes obvious that e-commerce must be taken very seriously.
All links in the supply chain from forecasting, order management, sorting, plucking, transport and return flow will be affected. Amazon already promises same-day delivery many places in the United States and India. This means that order receipt, sorting, plucking, shipping and delivery must take place within 12 hours and that the distance from the closest warehouse is not too far. The consequences for the supply chain include, for example:
- LOCAL: Companies must have a local presence so that they can quickly deliver on the same day.
- LABOR: It is important to have access to a sufficient number of qualified employees, which is a challenge, many places.
- PLAN: The ability to plan capacity, operations, product flow and delivery become crucial.
- INTELLIGENT IT: Flexible IT systems that can increase the transparency and product flow and storage become even more critical.
- DELIVERY: Free delivery to end users within limited windows of time becomes a competitive parameter.
- RETURN FLOW: Efficient handling of returned products so that they quickly return to the product flow becomes crucial.
2) Social networks
Another dominating future trend, which is already large in China, is the new social networks, which hype brands in completely new ways and influence business trends. In China, social networks such as QQ.com are beginning to play a major role. Facebook, Google and YouTube are largely prohibited in China, and this has made room for the innovation of new services and networks. QQ.com is a large collection of apps and services that are closely integrated. Consumers and retailers can, for example, see where the consumer is in real time and connect the consumer with offers for products, services or events that are just at hand or around the corner. The new social networks are already a serious power factor in the Chinese retail market, and the Dutch SCM professor René de Koster expects that they will spread to the rest of the world.
QQ.com offers music, shopping, microblogging, social online games, SMS messaging services, chat, video meetings etc., which are run by Tencent, which is China's second largest e-commerce group. Social media, such as Facebook, Twitter, Google+, YouTube, Instagram and others also play a main role in communication, marketing and shopping in the Western world today. The social media are providing completely new dimensions of planning in real time, which will challenge supply chain execution as we know it today. It will only increase the pressure that e-commerce places on reacting more quickly, less expensively and being more flexible etc.
3) More flexible and less expensive robots
One-third of the main tendencies comprise new generations of flexible, inexpensive robots that will make it easier for more companies to automate storage functions.
Kiva has already launched small, flexible robots, which Amazon and others have started to use. They are inexpensive to obtain, they are flexible and fast, and they make it easy to scale the storage up and down as needed. For a long time, large warehouses have implemented crane-based automated storage and retrieval systems (ASRSs). The new, flexible robot systems are called automated vehicle storage and retrieval systems (AVRSRs). They are far more accessible for small and medium-sized businesses, and according to Professor René de Koster, in the years to come, we will see a wave of manual warehouses that become automated with the new, flexible technology. This will primarily occur in areas where the cost of square meters and employee salaries are high, and the tendency will also include logistics providers or 3PLs, which are currently manually based.
4) Execution matters
We live in a world where the rate of change is increasing rapidly and the ability of the supply chains to make changes and transform themselves in a short time will be even more important in 2015 than previously. Efficient execution of major changes in the supply chain will, therefore, be a major factor in 2015. This may not be a big surprise to supply chain managers, who are faced with the challenges of executing strategies and major transformation programs on a day-to-day basis. But just how great the significance of successful implementation has on the health of the company may, in fact, surprise even experienced managers. A study carried out by McKinsey from August 2014 concludes that 25 percent of the companies that have the best implementation competences are 4.7 times better at making changes than the worst 25 percent. The 25 percent that were best also score 30 percent higher in a number of financial measurement points than the 25 percent that were worst. The most striking perhaps, is that the best retain value creation that is twice as high, two years after an implementation than is the case for the worst ones. This is remarkable, because everyone knows that all companies "lose" momentum and results over time after an implementation process.
5) Change requires leadership
There is a lot of management, but only a little leadership in modern supply chain departments. This is a problem, because, for example, it hinders execution, change and the retaining of skilled employees. More empathy, communication and respect are needed to release the full potential of both the organization and the value chain.
Poor or unqualified management - and these two things are often identical - result in slowness. All reactions, changes, implementations and throughput times, from ideas and concepts to results, take much too much time. This is a major problem for all functions, and not least a supply chain function, which to a high degree administers a company's and the supply chain's time. This is also a problem because today, supply chain execution is subject to frequent changes, which require fast reactions. There is a big difference between management and leadership, and the SCE discipline is still so immature that it is still dominated by a technical management approach, in which the focus is on KPIs, Excel sheets and technology instead of people and strategic directions and frameworks. The gains from good management include the release of potential and time saved. Time should be interpreted as the building of relationships, better reaction abilities and faster execution of changes.
The concept of "resistance to change" is much too often used as an explanation of failed change initiatives. But, according to management experts, it is not resistance to change that is the cause when things go wrong. Resistance to change is a result of a lack of focus on the human factors, for example lack of involvement, insufficient communication, not enough management involvement and participation, and insufficient ability to plane according to and prevent negative impressions of the objectives of the change.
Please read about the next five super trends in part 2 of the article.
The next five super trends are:
6. Sustainability and CSR
7. Good housekeeping
8. Supply chain visibility
9. Big data, mobility, IoT and social media
10. Cooperation and integration in the chain
Sources: Studies and material from Gartner Group, McKinsey, Cap Gemini, IMD, MIT CTL, Aberdeen Group, BVL International, KPMG, A.T. Kearney, Professor Martin Christopher/Cranfield School of Management and professor René de Koster/Erasmus University.