2017—The Year of Simpler and Safer Supply Chains?

 
Many cannot wait for 2016 to end—think of the mid-year tumults of a potential Grexit (Greece’s ongoing insolvency crisis), then Brexit, Donald Trump’s unexpected US presidency, the tragedy of Aleppo, and the sad passing of so many great musicians and artists.
 
When it comes to the supply chain management (SCM) software market, it’s tempting to say that 2017 will be more of the same, as it was in 2016. Without straying too much into political territory and making predictions based on the outcome of the US election, the same micro- and macro-trends remain (see figure 1). With that said, there are some new supply chain themes coming to light for 2017.
 

Figure 1. Supply chain trends (Source: SAP)  

Last-mile Delivery Methods

What will happen to the “uberization” idea for last-mile deliveries? It seems like every industry has a host of startups trying to be the Uber of their sector. Yet to date, no one has been successful, at least not at the scale of Uber. So, are we over Uber and supply chain uberization? Is this the year we all realize it isn't likely to happen, or is this the year someone makes it happen? For its last-mile delivery needs, Amazon Flex is an Uber-like offering that employs individuals with free time and guarantees them a decent hourly pay—but Amazon is not exactly a startup.
 
Drones and self-driving or autonomous vehicles are also being experimented with for last-mile delivery needs. In late 2016, Uber’s self-driving truck made its first autonomous delivery, of 50,000 cans of Budweiser beer. There are still many details to iron out, from regulations and insurance to the potential for fatal accidents. But in 2017, forward-thinking companies will likely begin to move beyond publicity stunts to limited use of self-driving vehicles in real-world delivery scenarios (BlackBerry being the most recent one to jump on the bandwagon).
 
Drones may actually reach maturity first, though, assuming the Federal Aviation Administration (FAA) regulations can be worked out. Amazon, for one, is actively pursuing a 30-minute delivery concept and very recently made the very first customer order delivery via a drone. Many companies, from Google to Walmart, are also investigating drones. Could 2017 therefore be the year shippers like UPS and FedEx also start dabbling with this technology? Research shows that customers do not necessarily want free shipping if they have to wait, clueless, for days—and would rather pay for the certainty of when exactly (within 15-30 minutes) the goods or services will be delivered. Drones will also get some use monitoring non-accessible assets (e.g., power lines, offshore platforms) for repair needs or traffic monitoring.    

Sifting Through Supply Chain’s Big Data

The recent EY report explains that new digital business models are increasingly more complex, including an entire ecosystem of data. Think of the use of unstructured data (weather data, social feeds, point of sale data, etc.) nowadays in planning. EY notes that companies that are able to effectively manage this complexity will maintain a competitive advantage. Unmanaged, the complexity becomes a barrier to innovation, inhibits a company’s ability to derive meaningful insights, and, in fact, becomes a barrier to achieving the automation and efficiency needed to be relevant and competitive in today’s market.
 
Some of the key points from the report are that the winners in the (supply chain) big data era will be those companies that are best able to rapidly cull relevant insights out of enormously complex and fast-growing data sets. But rising data complexity presents an existential challenge for supply chains (figure 2). The always-on nature of business requires complete visibility into one’s operations to know, at a moment’s notice, what is happening and what needs to be done to adjust plans to meet customer requirements and business objectives. The need for advanced analytics and data visualization will continue to grow in 2017 as teams struggle to keep up with responding to changes in complex, global supply chains. Supply chain teams need the ability to quickly evaluate multiple “what-if” scenarios to identify and execute the action that will drive the most business benefit.
 

Figure 2. Anatomy of the supply chain of the future (Source: JDA Software)
 
The adaptive intelligent apps are where Oracle (and many other vendors and experts, for that matter) sees the future of supply chain going. EY’s report opines that machine learning can significantly accelerate “time to insight,” but it is no substitute for the hard work of enterprise data management strategy development and data simplification.  

IoT and Blockchain Taking Hold?

EY’s report also suggests that the Internet of Things (IoT) and blockchain technologies promise benefits potentially greater than the cloud-mobile-social-big-data technologies that supply chains are grappling with today. The IoT is probably not yet in the mainstream phase, but rather at advanced pilot phases at some forward-leaning companies; think of telematics in vehicles, loss prevention in retail stores and warehouses (cameras and radio-frequency identification [RFID]), stores’ foot-traffic monitoring, diagnostics in field service, etc.
 
IoT comes in handy for the individualization trend that leads to the “lot size one,” with multi-faceted configuration and a variable demand with regional and localized requirements. As a result, companies need to increase product variants while reducing costs. Achim Schneider and Richard Howells, VPs at SAP, believe that the growing demand for individualized products is changing the way companies design, make, and deliver to their customers. Designing for personalization means building a product platform (with many variants and options), and products need to be smarter and connected to take advantage of IoT. While virtually all companies believe their customers strongly value individualized products, most say it’s hard to get a clear understanding of what customers are willing to pay for. So manufacturers will have to get better at analyzing disparate data, sensing demand, actually predicting market drivers, and responding quickly and precisely, which brings us back to EY’s big data report.
 
Blockchain being fully transparent, traceable, and decentralized provides opportunities to flatten supply chains (with faster and direct payments and settlements, and no middlemen). Blockchain is a decentralized database that maintains a constantly growing list of records (or blocks), each of which includes a timestamp and a link to a previous block. A core component of Bitcoin, blockchain serves as an electronic ledger that is duplicated on thousands of servers and can’t be retroactively altered. Its main value propositions are therefore speed and cost, but what makes blockchain unique is transparency and auditability.
 
One could think of blockchain-enabled, smart, self-executing contracts, but also of scenarios like part traceability. In aviation, full transparency for involved parties on the history of the spare parts is key (who owned it, who performed maintenance, who used it). Could blockchain help here? Our guess is that blockchain is perhaps a couple of years away from widespread commercial use, until we get packaged tools from renowned software vendors (IBM, Microsoft, etc.), and until some regulatory issues are ironed out (especially cross-border trade and payments).  

Transportation Management Trends

With Kewill’s 2016 acquisition of LeanLogistics, there seems to be plenty of interest in cloud transportation management system (TMS) software and related technologies. Cloud Logistics seems to be doing well, though still in its infancy as a startup. This past year, Project44, FourKites, and other similar cloud software companies got pretty big funding.
 
Other than the likely market consolidation, what will be interesting is that ocean shipping is historically cheap right now (with no end in sight with the widening of the Panama Canal). If more manufacturing comes back to the US, that means less demand for ocean shipping, which makes it even cheaper. It could be a vicious cycle that eventually puts more ships in a dry dock in an attempt to raise prices, which will, in turn, keep more jobs in the US and Mexico.
 
Brian Hodgson, VP of sales and marketing at Descartes, observes that in the TMS space he is seeing increased home delivery, with the need to schedule appointments at order entry. He is also seeing (perhaps coming as a bit of a surprise) more focus on managing inbound transportation. Many companies were traditionally planning and optimizing outbound transportation, while their inbound vendor deliveries were often managed by the supplier, with freight pre-paid. Now, they are looking to take on more of that transportation load, and convert that to a freight payment at collection. One Descartes customer reportedly saved more than $6 million per year on 30,000 loads. The company converted two-thirds of loads from pre-paid to collect, and also moved another 1,000 or so to get picked up as backhauls with the company’s own fleet.  

Even More Focus on Supply Risk

Luc Janssen, QAD’s senior director of R&D for manufacturing and supply chain solutions, believes that for years, if not decades, global supply chains have roiled. We have witnessed an explosion of new suppliers, nearly constant restructuring of longstanding suppliers, rapid development of economies in emerging markets, more efficient and alternative means of shipping, and more agile distribution techniques. Because of highly dynamic supply chains, manufacturers have had to continually balance the risks of supply chain globalization with the gains associated with lower costs.
 
The year 2017 will perhaps be the first time since 2008 (and before that the first time since the last global recession of about 25 years ago) that will witness a near halt in the growth of supply chain complexity. Why will supply chains experience at least a temporary interruption in growth of complexity? Risk in global supply chains is likely to rise considerably, which will cause buyers to temper their choices to more secure and dependable sources—even if some cost savings must be sacrificed. In addition to Brexit and anticipated shifts in trade agreements due to the incoming US administration, there is no clear reduction in: the number and intensity of geopolitical hotspots; increased payment and credit risk associated with a less regulated financial environment; and a spreading awareness that a complex supply network presents a palpable security risk.
 
Some industries, such as automotive, already employ a standard template for measuring supplier risk, which is called MMOG/LE. With a riskier overall global environment, supplier risk management tools such as MMOG/LE will be more in vogue. Manufacturers will either quickly drop those suppliers that are not performing or will reduce their dependence on those that clearly do not measure up. There are also secure tools for supplier management and for supplier collaboration, which will also gain favor as original equipment manufacturers (OEMs) and those at the top of the supply chain continually look for guarantee delivery and quality.
 
Similarly, supply chain planning (SCP) software tools will be increasingly looked to for more accurate forecasting and network optimization, given the riskier environment. Quality management solutions, which have already gained favor with manufacturers in the last several years to deal with ever-evolving regulatory reporting requirements, will also continue to be adopted, this time more to ensure suppliers are meeting the standards set forth by regulators and OEMs, rather than the manufacturer.
 
When the world enters a new phase of uncertainty, as in 2017, there is a flight to safety and certainty. That means payment systems such as blockchain and Bitcoin will be given a rest, manufacturers will more proactively look for shipping routes that avoid potential trouble, and the suppliers that can prove their own sustainability and predictability will succeed while flightier suppliers will diminish.  

Self-driving Supply Chains, Rather?

Jeff Bodenstab, VP of marketing at ToolsGroup, says that there has been a lot of news and hoopla about driverless cars. He thinks 2017 will be a year for something like “driverless supply chain planning.” If this sounds futuristic, consider these results, which show just how far highly autonomous planning systems have already come with the following early adopters (these latest results have all been documented and were made public in 2016, and the companies describe their implementations as transformative):
 

• Lennox Residential achieved 99.7% no touch, computer-controlled automation in its planning and replenishment. At Lennox, 997 of 1,000 planning decisions have been automated to the point where there is no manual intervention at all.
• At Costa Express, just one planner now handles the planning for 5,600 point of sale (POS) systems. Unmanned coffee stations transmit POS data every 15 minutes to help forecast demand, optimize inventory, and generate replenishment proposals for distribution and procurement.
• Internet retailer Wayfair reported a 6 to 1 reduction in planning workload by moving to highly autonomous forecasting and SCP.
• In the UK, the National Health Service is now using telemetry to send inventory and demand signals to an automated planning system to manage that nation’s blood supply chain.

 
We are approaching the day when supply chain systems monitor status, generate predictive alarms, and translate operational targets into direct control actions—all with minimal manual intervention. ToolsGroup called this taking the planner from “in the loop” to “on the loop.” This phrase came from the world of semi-autonomous drones, where operators can leave much of the detailed decision making to the drone itself and only intervene for higher-level decisions.
 
Jayne Archbold, CEO of Iptor Supply Chain Systems (former IBS AB), states that the vendor’s own research points to a fundamental truth: for many distribution businesses, about 90% of processes and orders are routine. The other 10%—the exceptions, the one-offs, the special requirements—can wreak havoc on a business if not managed properly. Therefore, Iptor believes there will be an increasing focus on what it calls the 90/10 rule—the need for SCM software vendors to focus on the 10% of orders that are “exceptions.”
 
“We believe it is the vendors that help distribution-focused organizations fulfill these orders who will drive added value in distribution. It is essential that vendors help their customers solve their most complex order management and fulfillment challenges to succeed in the future. This highlights the importance of being able to rule the exception in a distribution market that is ever-changing, increasingly complex, and highly competitive.”  

Some Integrated (and Responsive) Planning Angles

Logility executive vice president of marketing Karin Bursa pointed out the following supply chain planning issues:

• Omnichannel continues to be a challenge for retail organizations, and 2017 looks to continue this trend. One reason is the lack of a formal omnichannel demand planning process. This lack of a cohesive integrated planning platform for all channels leads to siloed and incorrectly positioned inventory. Store replenishment becomes static and inefficient. Automating replenishment to retail based on real-time sales data boosts sell-through and reduces markdowns. Case in point: a global fast-fashion retailer increased its automated replenishment to 80%, allowing it to sell through its inventory in just 6 to 8 weeks while improving customer service.
• The evolution of sales and operations planning (S&OP) into integrated business planning (IBP). A goal for many organizations in 2017 is to mature their S&OP process from a focus on short-term execution to tactical and strategic planning supported by an integrated platform. By connecting both strategic and tactical planning horizons into a single platform, companies can ensure all business functions are working toward common business goals. Combining both volumetric and financial data, IBP distills complex, cumbersome, and disconnected tasks into a single integrated process that streamlines and unites planning activities to produce better business decisions. Combining data from sales, marketing, production, procurement, transportation, and finance, IBP creates one powerful planning framework by removing organizational and technology barriers and aligning and synchronizing plans across the extended supply chain.

 
Lauren Bossers, senior product marketing manager at Oracle, concurs with those “integrated planning with responsiveness” concepts, and adds more in her recent blog post.  

Automation: Job Killer or Enhancer?

Those folks who tend to lean toward free trade over protectionism think that manufacturing jobs can come back just as strongly (or more so) with corporate tax reform with free trade in place. After all, look at all of the foreign car plants that have opened up in the union-free US South in the last 10 to 15 years (Kia, Benz, BMW, Volkswagen, etc.). Still, it won’t be like our old plants, as they will be highly automated (which ties right back into the IoT). There were recent reports about the “new blue collar” jobs and how coal miners are successfully being taught basic coding. These are not the well-paid jobs for big software companies that require highly sophisticated tech skills, but rather website maintenance for banks and similar “blue collar coding jobs.” If we’re smart as a country and a society, we’ll recognize that robot and website maintenance are the new equivalents to some of the old mechanic jobs of years past and start training (and socializing) accordingly.
 
We think that anything that is routine and repeatable can be automated to some extent. There are even indications that drones for commercial aviation (and cargo even sooner) are not far away. The pilots would not necessarily be phased out altogether, but rather the need for a co-pilot would be eliminated (there is a massive ongoing pilot shortage, with many retiring right as demand for qualified pilots in Asia has skyrocketed). This allows the computer or robot to manage the mundane tasks, allowing the pilot to focus on the weather ahead, air traffic control communications, etc.
 
Now, truck drivers are greater in number and far less in expertise, training, and education, and the potential elimination of these jobs would be far more impactful. For now, one should imagine dedicated lanes for self-driving trucks. We might not be ready for them in our lanes, with soccer moms and school buses, any time in the near future. Maybe there could be a hybrid setup, like the pilot and automated co-pilot? Perhaps a driver will still be required, but the computer creates the need for a second, less stringent set of hours-of-service regulations—allowing for greater driver productivity? Until then, years away, there will be an acute shortage of drivers, and these are decently paid jobs.  

Final Thoughts

Other SCM software vendors not mentioned above but quite worth watching in 2017 include JDA Software, Manhattan Associates, E2open, Siemens Preactor, LLamasoft, Dassault Systèmes Quintiq, HighJump, Kinaxis, Steelwedge, Kewill, Epicor, Infor, and TAKE Supply Chain. In addition to the previously mentioned and quoted experts, I’d like to send a special thank you to David Landau, executive vice president at Cloud Logistics, and the IFS Labs team. As always, dear readers, your comments on SCM software trends, as well as input into any predictions for 2017 we might have missed, are welcome and highly appreciated as we launch into this new exciting year for enterprise software.  

Related Reading

• 7 Supply Chain Predictions for 2017
• Modern Integrated Business Planning Software with Steelwedge
• JDA FOCUS 2016: Riding the Wave of Connected and Cognitive Supply Chains
• Machine Learning for Demand Planning Process Automation
• What’s in Store in 2017 for Retailers?
• Product Development Software—Year in Review and Look Ahead to 2017
• Plex Systems Doubling Down on Cloud Manufacturing ERP Software Focus