The top 6 supply chain logistics trends for 2016
Popular “Space Age” TV shows from the 1960s like Lost in Space, My Favorite Martian, The Jetsons and even Star Trek all featured futuristic wearable “smart” technology, personal jetpacks, remote drones and intelligent robots.
“It’s essential to have flexibility and adaptability.” – Rayford Collins, supply chain optimization expert with the UPS Customer Solutions group.
Fast-forward a few decades, and much of that technology has hit the market.
A recent report by the World Economic Forum, “Deep Shift: Technology Tipping Points and Societal Impact,” projects that wearable devices, 3-D printing, implantable technology, connected homes, automated workers, driverless cars and smart cities will likely reach critical mass in the mid-2020s.
For now, in early 2016, supply chain managers and business leaders face more practical, down-to-earth issues: a slow-growth economy, intense competition and relentless pressure to control costs.
But to stay competitive this year, business owners and supply chain managers must stay up to speed on tomorrow’s hottest innovations to keep pace with present-day challenges.
Here are six supply chain logistics trends to watch for in 2016.
1. Increased collaboration and sharing
Manufacturers spend more than 50 percent of their revenue in their supply chains, and seek to pull as much value as possible from those relationships, according to CGN & Associates. Collaborating with suppliers is not new, but the emphasis on it continues to intensify.
“What we are seeing at UPS are companies reducing the number of suppliers and developing tighter business partnerships with those that remain in the chain,” says Rayford Collins, a specialist in supply chain optimization with the UPS Customer Solutions Group.
The primary driver is cost management by means of improved leverage, Collins says.
“If I put more eggs in one basket I can leverage that business into different incentive or procurement tiers,” he says. “Fewer suppliers on the market increase efficiency and allows for more seamless integration of technology as well. I also create some efficiencies by reducing the supplier network.”
The “next level” in business collaboration ties to the evolving sharing economy, according to the World Economic Forum report cited earlier. Consider Uber, Airbnb and peer-to-peer lending services, which capitalize on collaborative consumption. Businesses are likely to use collaborative distribution, reverse logistics and cooperative sourcing to reduce costs, improve efficiency and optimize their supply chains, say the consultants at Kinaxis, a cloud-based solution provider.
2. End-to-end visibility
Improving visibility within the walls of an enterprise and across its end-to-end supply chain is a top priority for 85 percent of global supply chain executives, according to a recent Aberdeen Group study. Visibility is a prerequisite to supply chain agility and responsiveness.
Of course, before a company can reduce inventory or landed costs, it needs visibility into both.
“Technology is both an enabler and an essential ingredient in end-to-end visibility,” Collins says. “There’s a real focus on the customer experience, whether it’s an internal or external customer.” Consumers want to know where a product is from the time it leaves the factory until it reaches the destination.
“That’s especially true with consumers in e-commerce, where they want to use smartphones for price comparisons, research and order tracking,” he says.
3. Big data, better decisions
The World Economic Forum study predicts that in the next five years, we will see 50 billion Internet-connected devices and that the data from these devices will translate into better business decisions. Data accumulating today already consists of everything clickable, from Facebook and Twitter to e-mails, e-commerce “buy” buttons and everything in between. The McKinsey Global Institute identifies several key areas where big-data efficiencies are possible, including marketing, operations and supply chains.
“Analyzing data close to real time can allow marketing to work with procurement on inventory, so everyone knows what to buy and where to put it based on demand,” Collins says. “We are already using predictive analytics to look for weather patterns and adjust to air or rail movement if roads are likely to flood. Another option is to overlay historical data with visibility data to put contingency plans in place.”
Supply chain innovations and the need to be closer to the end customer will win out over labor cost in the years ahead, according to McKinsey Global Institute research. Rising wages in Asia, higher transportation costs and the need for faster time-to-market deliveries are contributing factors.
McKinsey explains next-shoring as a shift from outsourcing overseas to developing products “next to” where they will be sold. It’s an umbrella term to incorporate rightshoring, nearshoring, reshoring and onshoring strategies.
“We are seeing a lot of nearshoring – meaning relocating manufacturing to Mexico or Canada,” Collins says. “Labor costs are still lower, and transit times are shorter, so customer service improves.”
Onshoring, or moving either manufacturing or assembly back to the U.S., is increasingly popular, especially with smaller or high-tech businesses. “Quality control, improved JIT [just-in-time] inventory management and tax law changes make manufacturing in the U.S. a break-even, even if products cost more to produce here,” he says.
5. Agile inventory management
You can expect closer collaboration with suppliers, improved visibility and predictive analysis to dramatically improve inventory management in nontraditional ways, Collins says. “The idea is to treat product as inventory regardless of where it is located – before it is ever in the warehouse – and to make changes to the end destination while it is in transit.”
The result: Products get to the consumer (distributor, wholesaler, retailer or end user) faster.
“You reduce everyone’s inventory carrying cost, the operational cost of handling a product multiple times, and the cost of storing it.”
6. A push for redundancy
There’s no doubt that supply chain management is risky business. As reported in Supply Chain Insights, 80 percent of companies surveyed had at least one material disruption in 2013, and most had three. What’s more, just over 40 percent of supply chain disruptions came from Tier 2 suppliers and below. A study led by Paul Dittmann, PhD, executive director of the Global Supply Chain Institute at the University of Tennessee, found that if a natural disaster or equipment failure shut down a company facility, about half the firms (53 percent) had a backup plan – which means the other half didn’t.
“As a result of natural disasters and especially more recent terrorist threats, we are seeing an influx of requests from smaller customers, or those who only have one operation or one distribution center, for a second physical location so that they can stay in business and continue to fill orders,” Collins says.
Sometimes growing companies will add another location rather than add a second or third shift in just one place, he says. “You should at least have product stored in a third-party location that you can pull from if need be. It’s essential to have flexibility and adaptability.”