Forecast 2010: Supply Chains Must Prepare for Upward Demand Trends

Dec. 10, 2009
Responsiveness and collaboration will be key to supply chain success across industries in 2010, predicts executives at i2 Technologies

Kelly Thomas, senior VP of product strategy and planning with supply chain software vendor i2 Technologies Inc., believes that “business as usual” is a thing of the past, thanks to the economic meltdown of the past two years. Going forward, he says, companies must actively refine their supply chains to be prepared for upward demand trends in 2010. At the same time, companies must minimize their exposure to financial risks in a market that will still be characterized by uncertainty. To achieve that, supply chains must stay closely tuned to their customers’ needs, and learn to react faster to changes on a global landscape.

Following are some supply chain-focused predictions from i2’s supply chain experts on what companies can expect to see in 2010:

* Manufacturers will make rapid incremental planning and inventory optimization the “new normal.”

As demand became increasingly uncertain during the downturn, businesses resorted to more frequent operational planning with multiple scenarios and focused on optimization of inventory deployment across their supply chains to free up cash. This allowed manufacturers to keep operational efficiency improvements ahead of declining demand. As demand recovers, companies will seek to gain margin leverage on the efficiencies and productivity improvements gained in the downturn. Processes and systems for rapid incremental planning will become the “the new normal.”

Smart managers will demand real-time insight into operations as well as advanced visibility with scenarios that allow them to “see around corners.” Leading companies will implement closed-loop solutions for sales and operations planning to standardize these new rapid-response capabilities. Multi-echelon inventory optimization with frequent review of deployment policies will become part of normal operations at leading companies. In addition, new delivery models that grew in importance during the downturn will increasingly become part of the mainstream, such as cloud computing, managed services and software-as-a-service (SaaS).

* Brand owners and retailers will synchronize operations through shelf-centered collaboration.

Consumers in mature markets have dramatically cut back on spending. The household savings rate in the U.S. has increased to as high as 6% from negative numbers only two years ago. While this may have positive long-term effects, it will likely create multi-year pressures on brand manufacturers and retailers. This means brand manufacturers will be fighting for a bigger slice of consumers’ constrained budgets. While price compression may have become part of most business models, those who can break through the clutter and re-emerge with brand strength will flourish in the future.

One logical strategy for building brand strength is to extend the power and efficiency of supply chain collaboration to the retail shelf. Today, delivering superior customer satisfaction through shelf awareness is crucial to retaining customers, and it’s the new wave in retail optimization. Retailers and brand owners will increasingly deploy shelf-centered collaboration tools to improve supply chain performance, thereby responding swiftly to consumer trends, knowing customers’ buying preferences and opening new revenue opportunities.

* Shippers will adopt new partnership models to support the “green” movement.

Driven by economic, social and regulatory pressures, global shippers are seeking more cost-effective and sustainable ways to move product from source to shelves. They have worked to streamline and strengthen their own transportation networks, but in recent years, the more eco-friendly companies have expanded those efforts to include suppliers, partners and customers. To further reduce their costs and carbon footprints, many large shippers will begin to take steps toward forming collaborative partnerships in a consortium-based business model.

The multi-shipper collaboration will leverage cross-shipper visibility, powerful analytics and a transaction-based exchange that encourages shippers to share and optimize excess and available trucking capacity. Meanwhile, small- to medium-sized shippers will look to deploy transportation optimization solutions through SaaS delivery models to stay efficient, responsive and earth-conscious.

* Automakers will restructure the supply chain amid power shift and globalization.

The global economic downturn has led to a complete restructuring of the automotive supply chain in mature markets and an acceleration of power shift to emerging players in Korea and China. At current unit sales levels, China has already surpassed the U.S., whereas demand in the U.S. has fallen by more than 42% from the peak year of the business cycle, which is the largest such decline since the Great Depression. Even previously immune Japanese manufacturers have been negatively impacted by the downturn.

Amidst this backdrop, global business processes for supply chain management will become increasingly important. Japanese manufacturers may re-evaluate their build-where-you-sell philosophy, as their U.S. and European counterparts will run at much lower volume-breakeven points and use the restructuring of their dealer networks to run far leaner channel inventory profiles. Korean automakers will leverage their global processes and integrated supply chain management technology infrastructures to continue to gain global share. All of this will lead to a renewed interest in global order-to-delivery and lease-landed-cost sourcing processes.

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