At the close of each calendar year, IDC Manufacturing Insights produces a series of top 10 predictions documents, which was published earlier this year by Logistics Today. Given the fact that we are through the first half of 2010 and approaching 2011, we'd like to revisit those predictions to identify the ones we got right, but also to understand why some of our 2010 predictions don't appear to be correct or did not materialize as we had expected.
The overall theme for our supply chain predictions for 2010, and indeed our research for the year, was—and is—the notion of rethinking supply chain structures in an effort to move to more of a variable-cost-driven rather than a fixed-cost-driven network. This is a response to a great deal of uncertainty about whether individual markets or companies will return to prerecession sales and volume levels or whether current, hopefully post-recession, levels are the new baseline. With this overall theme in mind, the 2010 predictions document went on to be quite a bit more specific, with 10 supply chain predictions focusing on areas of continuing challenge for manufacturers.
It is quite interesting, when considering the top 10 supply chain predictions, to look at our most recent survey. The original predictions document was prepared in November 2009, based on our view of the industry at that point, versus the supply chain survey that was conducted in March 2010—a difference of only four months in elapsed time, but very different in terms of perceived consumer sentiment and the state of the economy overall. The alignment between our predictions and the results of the survey is quite good. Sales and operations planning (S&OP) appears in the survey results as the top application investment and features prominently in the predictions, as do inventory optimization, integrated supply chain planning and supply chain visibility.
So, specifically, how did we do on the 10 predictions?
1. The first prediction, "Dynamic optimization" will dominate capability investment to support redefining of the supply chain, is happening, but a bit slower than we thought. Manufacturers are taking a much narrower and more focused view in their IT investments by identifying a business problem and ensuring that the applications really are a "solution." Inventory optimization, specifically, has been in the top 2 prioritized applications in two recent industry surveys.
2. The second prediction, S&OP will reemerge as the synchronizing process for reconciling supply and demand, has proven to be true as there has been more discussion and activity around S&OP in 2010 than we have seen in the past five years combined. At IDC Manufacturing Insights, we do think, however, that there is a danger in assuming S&OP is the solution to all ills. At its heart, it is a consensus planning process, but it will not magically fix fundamental flaws in either demand or supply planning capabilities.
3. The third prediction, Balancing supply and demand across the value chain will prompt a strategic redesign of the supply network, links strongly with our research and describes an interesting longer-term trend about how companies will rethink global supply. We have written about Chinese workers demanding a "globally fair wage," and have seen some of this transpire in 2010. It is our view that this remains among the more fundamental shifts in supply chains, particularly as manufacturers increasingly look for variable-cost (i.e., outsourced) rather than fixed-cost (i.e., owned) capacity.
4. Although we believe the fourth prediction, Supply chain and product lifecycle management applications will increasingly converge as manufacturing companies focus on innovation delivery, will happen, it has not progressed in 2010 to the degree that we thought. Manufacturers are focusing on innovation delivery, but it remains to be seen how companies translate the process that is new product development and introduction and the tools to facilitate that process.
5. The fifth prediction, Intelligent supply chains will put broader visibility burden on supply chain organizations, both owned and outsourced, comes through very strongly in our research and links to hot topics like traceability (both intra-company and intercompany) and business analytics and, we expect, will drive IT spending over the next few years.
6. The sixth prediction, Supply chain organizations will invest in capabilities that facilitate global operations, remains a critical capability in our view, but it has not happened in 2010 to the degree we had anticipated. Certainly we will continue to watch this area.
7. The seventh prediction, of somewhat smaller scale, was our nod to the holiday season and expectations that Transportation capacity will tighten, causing supply chain organizations to rethink fulfillment strategies. Clearly, this is already transpiring as a number of manufacturers have told us they are already locking in carrier capacity for November and December.
8. The eighth prediction, The increasing pace of supply chain outsourcing/off-shoring will keep risk management high on the strategic agenda, but investment will remain focused on building risk awareness, remains a longer-term trend. Clearly, outsourcing continues, as does off-shoring (albeit at a reduced rate), yet the complexity of these blended supply networks does not seem to be resulting in the level of focus on risk that we might expect. Companies do continue to look at risk awareness, although in a more sporadic way than we had predicted.
9. The ninth prediction, Smart services and the need for persistent assets will create the inflection point for RFID, sensors and M2M (machine-to-machine), has not materialized as we had thought. We have certainly seen some interesting applications (apparel tagging in retail and RTI management in manufacturing), but even the most optimistic proponent would not characterize 2010 as any kind of inflection point.
10. The final and tenth prediction, Armed with metrics, manufacturers will move from sustainability reporting to intelligence, has made some traction with manufacturers, although perhaps not to quite the degree we had anticipated.
Simon Ellis is practice director, Supply Chain Strategies, with analyst firm IDC Manufacturing Insights.