Supply Chain and Logistics Predictions for 2016

Well, my big audacious prediction for 2015 did not come true. Google did not acquire a third-party logistics (3PL) company or a logistics software vendor. And business relationships did not become more Vested this year — if anything, they reverted back to being “win-lose” arrangements (see Walmart’s Message to Suppliers: Talk to the Hand and The High Cost of Poor Supplier Relationships).

But some of my other predictions did hit the mark or came close. For example, 3PLs and software vendors did pay more attention to serving the needs of small and mid-sized businesses (SMBs) and companies in the Energy and Process Industries (see TMS for SMB: Breaking Down the Barriers, Oil & Gas Companies Focus on Eliminating Supply Chain Waste, and Collaboration and Optimization in the Oil & Gas Industry). And more companies are treating Supply Chain Design as a continuous business process instead of a standalone project or a once-a-year exercise (see Supply Chain Design: Growing Scope, Community, and Collaboration).

What will happen in 2016?

Making supply chain and logistics predictions is like throwing darts at a moving target. Sometimes you get lucky and hit the mark; other times you miss the bullseye by a mile. When making predictions, it’s easy to look at recent trends and simply project them forward. But this assumes that the factors behind those trends will remain the same, which is often a false assumption. In other cases, we simply fail to see the forest for the trees when making predictions.

That said, there are several high-level trends and factors that will impact supply chain and logistics strategies and operations in 2016:

• Oil Prices: Just a few years ago, there was plenty of talk about oil prices potentially reaching $300 per barrel and the impact it would have on supply chain and logistics networks and processes (e.g., more near-shoring and larger, less frequent shipments to minimize transportation costs). Today, with oil prices below $35 per barrel, the talk has shifted to prices declining even further, to perhaps $20 per barrel due to oversupply. How will transportation, inventory, and sourcing policy decisions change in light of this cheap oil environment?

• Interest Rates: The Federal Reserve in the United States is expected to raise interest rates this week, the first increase since cutting the rate to near zero following the Great Recession in 2008. Like oil prices, interest rates impact supply chain policies and decisions, especially with regards to inventory. Will interest rates continue to climb in 2016, and if so, what impact will it have on inventory levels? Or will any rate increases, if they actually occur, be short-lived? Of course, what happens in the U.S. has a ripple effect on the world economy and the monetary policies of other central banks, which ultimately impacts the supply chains of foreign companies too.

• Terrorism: The recent terrorist attacks in Paris and San Bernardino, coupled with the ongoing instability in Syria and Iraq and the spread of ISIS, have raised the risk for terrorism-related supply chain disruptions in 2016. As history has shown, terrorist attacks (and how the world responds to them) affects oil prices, stock markets, consumer confidence and spending, and trade lanes — and they can trigger new regulations and security measures, which could increase supply chain costs and lead times. In short, the increased threat of terrorism underscores the importance of taking a smarter approach to supply chain risk management, which was one of my predictions for 2014.

• Sustainability: Will the climate change agreement reached at the COP21 meeting in Paris this past weekend change supply chains in 2016? It’s too soon to know, but considering that the agreement is voluntary and there are no enforcement mechanisms in place, my sense is that very little will change over the next twelve months. Countries and companies that have already embraced sustainability will continue to lead the way, while everyone else will wait for binding laws and regulations to emerge before taking meaningful action. It’s also important to note that shipping and aviation, two industries with significant greenhouse gas emissions, are not included in the COP21 agreement. So, the ball is in the court of those industries and their governing bodies to come up with their own sustainability goals and plans.

Take all of these factors, and toss in a U.S. presidential election, and what you get is an unpredictable year ahead.

But I’ll dust off my crystal ball, nonetheless, because coming up with predictions is a fun exercise for me and it usually generates some thoughtful ideas and conversations.

With so much going on in the industry, I could have generated a list of 100 predictions or more, but I limited myself to just seven predictions this year, focused on trends that probably won’t grab the headlines elsewhere. [UPDATE: I added an eighth prediction based on some news issued by IBM last week: Blockchain technology will make its debut in supply chain management].

That said, I certainly believe many of the sexy trends everyone is talking about these days — such Internet of Things, Cloud, Mobile, Business/Artificial Intelligence, Robots, Omni-channel, Same-day Delivery, 3D Printing, Driverless Trucks, Regulations and Trade Agreements, and Mergers and Acquisitions — will continue to evolve in 2016, as will many of the predictions I made last year (and the year before that too).

So, with darts in hand, here are my supply chain and logistics predictions for 2016:

The Transportation Management System (TMS) market will become more barbell-shaped as Software-as-a-Self-Service solutions emerge.

We’re seeing the TMS market move in two opposite directions: some solutions are becoming broader, more integrated, and feature-rich (multi-mode, multi-geography, complex optimization), while others are offering more limited capabilities, but with a stronger focus on ease of use, faster deployment, affordable and transparent pricing, and meeting the needs of the small and mid-sized business (SMB) market.

Included in the latter category are a new generation of transportation marketplaces and online services, such as Cargomatic, Freightos, and FreightFriend, that are much-improved versions of their dotcom predecessors.

In short, the definition of TMS is changing, which means shippers of all sizes need to take a new look at the solutions available in the market, and a new look at the provider landscape (which includes 3PLs), and determine how they align with their near-term and long-term transportation management requirements.

For related commentary, see:

• TMS in the SMB Market: The Evolution Toward Software-as-a-Self-Service
• TMS for SMB: Breaking Down the Barriers
• The Rebirth of Transportation Marketplaces (UberCARGO, Cargomatic, and Freight Friend)
• Guess Who Announced New Transportation Management Software (TMS) Functionality Yesterday

More companies will start addressing one of the weakest links in their supply chain transformation journey: Workforce Planning

While many companies have invested significant time and money over the years to improve their demand, supply, and manufacturing planning capabilities, they have underinvested in workforce planning and optimization, and they’re now starting to feel the consequences.  

Take a look at the retail industry, for example, which hired more than 750,000 workers between October and December to support the holiday season. As the Wall Street Journal reported recently, “retailers have come under fire for low pay and a practice known as on-call scheduling that changes workers’ hours with little notice [emphasis mine]. Gap Inc., Abercrombie & Fitch Inc. and L Brands Inc.’s Victoria’s Secret chain are doing away with the erratic scheduling.” To me, the practice of on-call scheduling is a symptom of poor workforce planning capabilities.

At the Quintiq World Tour Philadelphia conference in October, Southwest Airlines, which has more than 18,000 employees across 90+ airports, discussed how trying to do headcount planning, schedule development, and scenario evaluation manually, while taking into account regulations and labor agreements, was becoming a losing battle for them.

And it’s becoming a losing battle for every company still relying on spreadsheets and whiteboards for workforce planning

Other dimensions of workforce planning include streamlining and automating the talent acquisition process and developing training, retention, and compensation programs that are well-aligned with the needs and expectations of today’s workforce.

As Howard Schultz, the CEO of Starbucks, said at the 2015 Council of Supply Chain Management Professionals (CSCMP) Annual Conference: “Contrary to what many people believe, investing in employees is not dilutive to a company’s financial results and shareholder value — it’s actually accretive.”

For related commentary, see:

• Never Living the Same Day Twice: The Art and Joy of Solving Supply Chain Puzzles
• Insights from Kenco Customer Summit 2015
• The Case for Competing on Logistics Talent
• Aligning Warehouse Labor Management with Omni-Channel Strategy

We’ll see increased innovation to simplify and expedite trading partner (B2B) connectivity, with APIs and Web Services replacing EDI as the preferred approach moving forward.

As I’ve argued before, software alone is not enough to enable supply chain processes and innovation. Companies also need B2B connectivity — that is, the ability to exchange data, documents, and other information with external business partners and their systems, and to do so in a scalable, flexible, and cost-effective way.

Supply Chain Operating Networks (SCONs), which are the business equivalent of Facebook and LinkedIn, have enabled communities of trading partners to communicate, collaborate, and execute business processes in more efficient, scalable, and innovative ways. However, the traditional onboarding process, which relies on Electronic Data Interchange (EDI) mapping and testing, is still too labor-intensive and time-consuming.

“A while back, we did a calculation showing that for a company with 5,000 trading partners, it would take us about 300 years to onboard them at the rate we were doing it, which was obviously not acceptable, especially when you’re talking about a network and trying to create change and enable collaboration,” said Arun Samuga, VP of Research and Development at Elemica, on Talking Logistics earlier this year. “We realized that we needed to reduce the onboarding process from months to weeks to days, and eventually, to hours.”

This prompted Elemica to invest in innovating the onboarding process, which ultimately led to the company being issued two patents (see “Elemica Issued Patent for Innovation in Authenticating Commerce Partners” and “Elemica Awarded 2nd Patent on Supply Chain Operating Network”).

Although EDI remains well-entrenched, especially among large companies, the future of B2B connectivity is Application Program Interfaces (APIs) and web services. It’s the technology behind startups like Freightview and project44, for example. Jason Roberts, Managing Director at Freightview, put it this way in a recent episode of Talking Logistics: “EDI is like mailing a postcard to somebody and hoping they get it. APIs are more like having a real live phone call with somebody. This changes the economics not only of what’s involved in building a TMS, but it also allows for much quicker setups — from weeks and months down to hours or even minutes.”

Or as Arun Samuga put it, “As time passes, there will be a point where companies that rely only on EDI will be left behind.”

For related commentary, see:

• Software is Not Enough: SAP and Descartes Partner on TMS Connectivity
• Thoughts on Infor’s acquisition of GT Nexus
• Insights on the Power of Supply Chain Operating Networks

Parcel comes out of the shadows, with cross-border e-commerce the next frontier for growth.

E-commerce is still a small fraction of total retail sales, but it’s the fastest-growing segment of the industry (up 15.1 percent in Q3 2015 compared to Q3 2014 in the United States). Historically, cross-border e-commerce has played a minor role, but that’s starting to change. According to this year’s UPS Pulse of the Online Shopper U.S. study, 40% of consumers have purchased from retailers based outside the U.S., with nearly half (49%) reporting they did so to find better prices, and 35% said they wanted items that couldn’t be found in U.S. stores.

The rise of international e-commerce is a big reason why Pitney Bowes acquired Borderfree in May 2015 and why UPS acquired i-parcel last year. Although it may sound simple, enabling a consumer in one country to buy from an online retailer in another country is incredibly complex. In addition to language and currency considerations, there are many other factors that come into play, including cost factors (duties, taxes, brokerage fees), customs compliance requirements (product classification, restricted party screening, import/export documentation), and complying with the address formats of destination countries to prevent delays and other issues with last-mile delivery.

On the technology front, TMS vendors are starting to integrate parcel functionality within their multi-mode TMS solutions (see, for example, Kewill’s acquisition of the IBM Sterling TMS and the recent MercuryGate webcast, Parcel Freight and its Role in Enterprise Transportation Management, which features case studies from Celestica and FloWorks). TMS vendors are also adding global trade content capabilities to enable duty and tax calculations, restricted party screening, and other processes required for cross-border shipments (see, for example, Descartes’ acquisition of MK Data Services and its acquisition of Customs Info).

In short, as e-commerce continues to grow, especially cross-border e-commerce, parcel is becoming a more important transportation mode for manufacturers and retailers, which will drive greater demand for parcel solutions and services.

For related commentary, see:

• The Messy Reality of Cross-Border E-commerce
• What Role Does Global Trade Data Play in Today’s Supply Chains?

The 3PL value proposition gets flipped: instead of logistics services enabled by technology, it’s becoming outsourced IT and business intelligence services powered by logistics.

“If you haven’t realized it already, you’re in the information-handling business as much as you’re in the freight-handling business,” said Tom McLeod, President and Founder of McLeod Software, at the company’s user conference earlier this year. In other words, meeting a shipper’s capacity and service level requirements at a competitive cost is no longer enough; logistics service providers also need to meet the information requirements of shippers — that is, provide them with timely, accurate, and complete data and insights.

For the past few years, I’ve talked about the convergence of business models, specifically the business models of logistics service providers, technology companies, and consulting firms, and how shippers are looking for the right mix of technology, advice, and managed services from their 3PL partners. What’s becoming clear is that technology (including access to IT resources) and advice are contributing more to the overall value proposition these days.

For example, at a 3PL customer conference earlier this year, a leading customer presented a case study that focused not on transportation or warehousing services, but on the master data management and business intelligence services the 3PL was providing them. If the names and logos had been taken out of the presentation, you would have thought the customer was talking about an outsourced IT provider instead of a 3PL.

Generally speaking, it’s still difficult for supply chain and logistics executives to obtain IT support and funding for technology (in many cases, money and resources are tied up with other initiatives, such as multi-year ERP rollouts), so executives are looking to their 3PL partners to meet their technology needs, whether it’s software like a transportation management system, automation technology in the warehouse, or a business intelligence and analytics platform (e.g., a “Control Tower” solution).

There’s been a lot of buzz in recent years about how Amazon is becoming a 3PL. What’s ironic is that customers are pushing 3PLs to become more like Amazon — specifically, more like providers of cloud computing services such as Amazon Web Services.

This shift is forcing 3PLs to reevaluate their business models, as well as their pricing and go-to-market strategies, what technologies and resources to invest in, and how they communicate their value proposition to customers.

For related commentary, see

• My Advice for 3PLs and Shippers: Be Bold and Different
• Is Every Company a Technology Company?
• What Do Shippers Want? The Right Mix of Technology, Managed Services, and Advice

Drones will have a breakout year — not in delivering packages to consumers, but in the Yard and Warehouse.

Although using drones for customer deliveries gets all the buzz (see Amazon’s latest drone model and video), their use within distribution centers and yards for inventory management is equally compelling. For example, according to an article published by Reuters in October 2015, Walmart wants “to test drones for taking stock of trailers and other items in the parking lot of a warehouse using electronic tagging and other methods. A Wal-Mart distribution center could have hundreds of trailers waiting in its yard, and a drone could potentially be used to quickly account for what each one is holding.”

And last month, Kenco announced that it’s working with PINC Solutions on exploring the potential to deploy drones for yard management at Kenco distribution facilities. As Kristi Montgomery, VP at Kenco Innovation Labs, explains in the press release, “Kenco wants to use drones for managing real-time data gathering in outside yard operations. PINC’s patented RTLS sensor platform captures locations of assets and inventory, and can provide up-to-the-minute information that would allow Kenco to customize and segment yard operations based on customer needs and business rules.”

I also believe that using drones to deliver medicines to patients in remote areas, especially in places where there are no roads or where they are flooded or impassable half the time, which is the case in many developing countries — or using drones in humanitarian/disaster relief operations or in response to medical emergencies — is where we’ll also see the first truly beneficial applications of this technology.

For related commentary, see:

• A Kitty Hawk Moment in Drone Delivery?
• Drones – The Birth of a New Transportation Mode
• Netflix Developing Original Series About Logistics Called “D is for Drones”

There will be a lot less air shipped in boxes, trailers, and containers next year.

One of the biggest opportunities to reduce transportation costs and carbon emissions is to reduce the number of trucks required to ship products by developing smarter packaging and product designs.

Earlier this year, for example, the Wall Street Journal published an article highlighting how IKEA is designing its packaging with shipping in mind, which for one product alone is translating into almost 7,500 trucks being removed from the road annually.

The WSJ also published an article about Sealed Air Corporation’s new iBubble Wrap. Unlike the original Bubble Wrap, this new version is sold as flat plastic sheets that customers fill with air at their locations using a custom-made pump. Because the product ships as flat sheets instead of bulky rolls, one truckload of iBubble Wrap contains as much packing material as 47 truckloads of the old product!

The shift to dimensional weight pricing by UPS and FedEx for all ground packages in the U.S. and Canada has been another driving force for shippers to pay more attention to packaging. The bottom line is that shipping small items in large boxes just got a lot more expensive.

Therefore, in the year ahead, more shippers will ask themselves the same question IKEA and Sealed Air Corp. asked: Can small changes in packaging or product design significantly increase our load factor?

Companies will also ship less air by better optimizing trailer and container loading, minimizing empty backhauls, and engaging in collaborative shipping.

For related commentary, see :

• Bubble Wrap Loses Its Pop for Logistics Cost Savings
• The Better Goal: More Fuel Efficient Trucks or Using Fewer Trucks?

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What do you think of my supply chain and logistics predictions? What are your predictions for 2016? Post a comment and share your perspective!

Note: Descartes, Elemica, GT Nexus, Kewill, MercuryGate, and Quintiq are Talking Logistics sponsors.