I Will Be Wrong Again: Supply Chain and Logistics Predictions for 2017

By Adrian Gonzalez

Past performance is not indicative of future results. This is not only true for financial investments, but also for supply chain and logistics predictions.

Like I said last year, 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.

Here’s one of my predictions for 2016 that hit the mark: Blockchain Technology Will Make Its Debut in Supply Chain Management.

Throughout this year, we’ve seen various announcements related to the use of blockchain technology in supply chain management. For example, in a Wall Street Journal article back in June, Chris Ballinger, CFO and head of strategic innovation at Toyota Financial Services, talked about the supply chain opportunities he sees with blockchain technology:

The online distributed ledger, which makes it easier for participants to track the ownership of an asset, could be applied to track auto parts as they move between countries and factories, he said.

Keeping more accurate records in real-time of the thousands of parts that go into building a typical car would make Toyota more efficient, he said. Such monitoring could also help during supply chain disruptions. “If you have a tsunami and part of your supply chain is knocked out, as happened a few years ago, you have better info about where parts are,” he said, referring to the earthquake and subsequent tsunami that struck Japan in 2011. Toyota temporarily shut two factories in the aftermath.

Other examples: The United States Postal Service (USPS) published a report in May titled Blockchain Technology: Possibilities for the U.S. Postal Service, with supply chain management as one of the focus areas; in October, as reported by Reuters, “IBM, U.S. retailer Walmart and Tsinghua University announced a joint effort to track the movement of food products in China using blockchain technology to improve food safety in the world’s second-largest economy”; and just last month, Mahindra and IBM announced they are developing a blockchain solution for supply chain finance.

But just like in baseball, for every home run hit, there are many more bloop singles and strikeouts. I’ve been wrong with many of my predictions in the past (still waiting for a major third-party logistics provider to buy a major software company or vice versa), and I will be wrong again. But I continue to dust off my crystal ball, nonetheless, because coming up with predictions is a fun exercise for me and they usually generate some thoughtful ideas and conversations.

What will happen in 2017?

I’ll begin with several high-level trends and factors that will impact supply chain and logistics strategies and operations in the coming year:

President Donald Trump: Will he kill the Trans-Pacific Partnership (TPP) and renegotiate NAFTA? Will he impose tariffs on imports from U.S. companies that move manufacturing operations overseas? Will he declare China a currency manipulator? Will he take a more protectionist stance toward trade? The answers to those questions and more could significantly impact supply chain strategies, everything from sourcing decisions to network design, which is why my prediction from two years ago — that more companies will start treating Supply Chain Design as a continuous business process — is now a critical necessity.

Oil Prices: In mid January of this year, oil prices were about $35 per barrel. In recent days, the price has varied between $50 and $53 per barrel — a 43 percent increase from the start of the year. Will prices continue to increase in 2017? The answer depends largely on whether OPEC, Russia, and other oil producers adhere to the supply cuts they pledged to on December 10th. If they actually follow through on their promise and oil prices continue to rise next year, how will transportation, inventory, and sourcing policy decisions change in response? And if prices climb high enough, will that prompt U.S. producers to restart fracking operations, thus causing supplies to increase again?

Interest Rates: The Federal Reserve of the United States did not raise interest rates this year — that is, until this week when it raised its short-term rate to a range of 0.5%-0.75% from 0.25% to 0.5%. The Fed has also expects to make three rate hikes in 2017 instead of two under its prior forecast. Like oil prices, interest rates impact supply chain policies and decisions, especially with regards to inventory. Assuming these anticipated rate hikes occur, what impact will they have on inventory levels? 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.

Russia, Iran, North Korea, and ISIS: Call them “The Unpredictables” (you can probably add China to the mix too). All of these entities could have a destabilizing effect on world peace and prosperity, whether it’s Russia and its military actions in Syria and elsewhere (not to mention its fighter jets buzzing U.S. planes and ships); Iran and North Korea and their nuclear ambitions; ISIS exporting its brand of terrorism around the world; and China building islands in the South China Sea (and reportedly putting weapons on them). As history has shown, terrorist attacks and regional conflicts and how the world responds to them affect 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 ever-growing threat of terrorism and regional conflict underscores the importance of taking a smarter approach to supply chain risk management, which was one of my predictions for 2014.

I also believe that many of the sexy trends everyone continues to talk about today — such Internet of Things, Cloud, Mobile, Business Intelligence, Artificial Intelligence, Robots, Omni-channel, Same-day Delivery, 3D Printing, and Driverless Trucks — will continue to move forward in 2017, as will many of the predictions I made last year.

Okay, with all that said, and knowing full well that I’ll be wrong more often than right, here are my supply chain and logistics predictions for 2017:

The Cloud Gets Hacked: We’ll see a rise in cyber attacks, with supply chain and logistics operations becoming new targets.

As I write this, there is plenty of chatter in the media about whether Russian hackers interfered with/influenced the U.S. presidential election, and just yesterday Yahoo disclosed that a 2013 hacker attack compromised more than 1 billion accounts (in addition to the 500 million user accounts that were hacked in 2014). Also this week, Quest Diagnostics, a New Jersey-based medical laboratory company, disclosed a data breach affecting about 34,000 people, with hackers stealing personal and medical information of customers. On the transportation front, Delta Airlines, Southwest Airlines, JetBlue, and British Airways all experienced computer outages this year resulting in significant delays, flight cancellations, and financial losses. Although there’s no evidence that hackers were involved in those incidents, they illustrate the havoc a cyber attack could create on logistics operations.

Cyber risk and security is getting more attention from the ocean shipping community too. In February 2016, BIMCO and other leading shipping organisations launched a set of guidelines “to help the global shipping industry prevent major safety, environmental and commercial issues that could result from a cyber incident onboard a ship.”

And in June 2016, the International Maritime Organization issued its own guidelines on maritime cyber risk management after “having considered the urgent need to raise awareness on cyber risk threats and vulnerabilities.”

It’s only a question of time, I believe, before these words from Matthew Mather’s book CyberStorm becomes an actual headline: “FedEx and UPS have ground to a complete standstill today due to what they say is a virus in their logistics shipping software.”

For related commentary, see:

The Convergence of Commerce and Logistics Continues

The traditional lines between software vendors, third-party logistics providers (3PLs), and consultants have been blurring for a long time. Now we’re witnessing a new convergence emerging: between the front-end of e-commerce and the back-end, namely logistics.

Earlier this year, for example, Symphony Commerce, a provider of cloud technology for e-commerce platforms, raised $11 million to grow its fulfillment business. As reported by TechCrunch:

Symphony, which helps companies like Gatorade and Hershey’s manage their web business, is doubling down on its logistics services [emphasis mine], by helping these brands enable faster shipping. With order management tools and a network of warehouses, Symphony says its offerings will make it easier for large companies to provide two-day shipping or even same-hour delivery in major metropolitan areas.

Yes, Symphony, a company that started out as a software company enabling the front-end of the e-commerce process, is now a third-party logistics provider (3PL) too.

And just a few weeks ago, as reported in DC Velocity:

Prominent supply chain consulting firm Tompkins International plans to become a fourth-party logistics provider (4PL), managing a group of prominent companies that will pool their services in an unconventional approach to capturing a share of the fast-growing e-commerce fulfillment market. The venture, the MonarchFx Alliance, will be headed by James Tompkins, founder of the consultancy that bears his name. MonarchFx will team with third-party logistics (3PL) providers Kenco Logistics and NFI Interactive Logistics Inc. and software developer JDA Software Group Inc. to offer same-day, next-day, and two-day deliveries across the U.S., Tompkins said.

We’re also seeing this convergence happening on the technology front, with e-commerce and logistics applications coming together — see Enspire Commerce, for example, as well as JDA’s partnership with IBM and Descartes’ acquisition of pixi and its recent partnership with MyWebGrocer.

What’s next? It wouldn’t surprise me if leading social networks — most likely Facebook or Google — moved beyond search and advertising and became more directly involved in commerce and logistics too.

For related commentary, see:

Companies Revisit Tax-Efficient Supply Chain Management (TESCM)

Tax-Efficient Supply Chain Management (also referred to as Tax-Effective SCM) is not a new concept, but it will be more important than ever moving forward in light of the changes President-elect Trump promises to make to the U.S. tax code (including his proposal to allow U.S. firms to repatriate funds held overseas with only a 10% payment versus the current 35% rate), as well as his intent to renegotiate NAFTA and impose new tariffs on imports, and let’s not forget about Brexit and its yet-to-be-determined impact on trade.

What is TESCM? Lee Oster, who was the Tax Effective Supply Chain Management leader at Ernst & Young, defined it this way a few years ago in a Supply Chain Brain article, which serves as a good primer on the topic:

TESCM, or tax-effective supply chain management, is the process of integrating tax planning into the overall management of your company’s supply chain, factoring in where to locate functions and assets of your business, centralized management and control over the risks, and which entity will legally and economically assume the risks. It is an operationally driven approach to tax planning, putting in place a flexible international structure fully aligned with the new business processes and designed to deliver sustainable, long-term reductions in effective tax rate.

To reiterate what I said earlier, this is yet another reason why companies need to start treating Supply Chain Design as a continuous business process instead of a standalone project or a once-a-year exercise.

For related commentary, see:

From Project to Continuous Business Process: The Evolution of Supply Chain Design

Show Me the Money! Investors Continue to See Opportunities in Supply Chain Operating Networks

Supply Chain Operating Networks (SCONs) are becoming the business equivalent of Facebook and LinkedIn, enabling communities of trading partners to communicate, collaborate, and execute business processes in more efficient, scalable, and innovative ways. I’ve been saying that for years and investors are now finally recognizing the unique value proposition and market opportunity of network-based solutions, as these 2016 deals illustrate:

TPG Capital to Acquire a Majority Stake in Leading Cloud-based Logistics Platform Transporeon (August 2016)
Thoma Bravo Announces Acquisition of Elemica (June 2016)
Kewill [owned by Francisco Partners] Announces Acquisition of LeanLogistics (May 2016)

And last month Koch Equity Development LLC, the investment and acquisition subsidiary of Koch Industries, invested over $2 billion in Infor, which according to the press release will provide the company “access to additional growth capital to accelerate innovation, expand distribution, and continue disrupting the enterprise applications industry.”

“The future belongs to networked companies,” said Infor CEO Charles Phillips this past July at the company’s user conference. It’s why Infor paid a hefty $675 million to acquire GT Nexus last year and why I believe Infor will use part of this new investment to expand its global commerce network, both organically and via other acquisitions.

Other notable deals in recent years include:

E2open acquired by Insight Venture Partners (January 2015).
Flextronics spins-off Elementum, raises $44 million in funding (February 2014).
Thoma Bravo acquires Global Healthcare Exchange (February 2014)
SAP’s acquisition of Ariba (May 2012)

Why is money flowing to Supply Chain Operating Networks? For all the reasons I’ve written about before (see links below), including the recognition by many in the market that for business processes involving many external trading partners, network-based solutions are the best platform. As Joe Dixon, SVP of Supply Chain at Brooks Brothers, commented at the GT Nexus Bridges 2015 conference: “SAP is our internal ERP system, GT Nexus is our external [supply chain] ERP system.”

What’s next for SCONs? In addition to more mergers and acquisitions, I believe we’ll see their solution footprint expand more broadly into the collaborative planning realm (see E2open’s acquisition of Terra Technology), as well as into the e-commerce realm, especially to enable drop shipping (see RevCascade and dsco).

For related commentary, see:

The Emergence of the Chief Network Effects Officer

Earlier this week, I highlighted how very few companies have Chief Supply Chain Officers. By not having a strong voice and advocate in the C-suite for supply chain management, companies run the risk of having disconnects between their business plans and their supply chain strategies and capabilities.

But considering the rising role and importance of Supply Chain Operating Networks, perhaps a new and different type of executive leader is needed, namely a Chief Network Effects Officer.

Michael Schrage, in a research paper titled “Rethinking Networks: Exploring Strategies for Making Users More Valuable,” defines network effects as follows, adding an important element to the traditional definition:

Technically, economists say ‘network effects’ — known also as ‘network externalities’ — exist when a product’s or service’s value to users increases as the number of users grow. But this traditional definition is woefully incomplete. Quality of use and users matters as much or more to value creation as quantity [emphasis mine]. In other words, the ‘how’ is as important as the ‘how much.’

Schrage also presents three key questions to assess the return on investment (ROI) of network effects:

How do we make it easier for our users to participate and create ‘connections’ they see as valuable?
How do we make it easier for ourselves to identify value from user participation, contributions, and links?
How should we (re)organize ourselves to best harvest the value of ‘network effects’ to measurably boost the quality, opportunity, and ‘user experiences’ of our offerings?

The “we” in the questions above refer primarily to network/platform providers, but I believe supply chain executives need to ask the same questions too. In other words, I believe the time has come for companies to view supply chain management through a ‘network effects’ prism, and when you do that, we’ll see today’s supply chain leaders and teams morph into tomorrow’s Chief Network Effects Officers and Network Effects teams.

For related commentary, see:

Here Comes the Chief Network Effects Officer

“Alexa, How Much Inventory Remains at Store X?” The Migration from Traditional User Interfaces to Chatbots and Virtual Assistants Begins

Okay, so I made this same prediction back in 2013 when I wrote the following under the banner of “Siri Comes to Enterprise Apps”:

Instead of manually executing tasks with a mouse or touch screen, why not speak them? We already see this in the consumer realm with smartphones, and in the warehouse too with voice picking technologies. It’s only a question of time before speech recognition gets embedded into other enterprise and supply chain applications. A TMS user, for example, can say to the system, “Show me all uncovered loads,” or an inventory manager can ask, “Which stores have less than three days inventory of product X?” and up come the results on the screen.

So maybe I was a few years premature on that prediction, but I’m feeling more confident about it now.

A few months ago, we welcomed a new member to our family: Alexa, the virtual assistant that comes with Amazon Echo. We all love Alexa and call out to her throughout the day, whether it’s my kids requesting songs or to play Harry Potter trivia with her, or my wife and I asking her about the weather, today’s news, or to play us some obscure song from the 80s. She doesn’t always understand us or get our requests right, but she’s become a fixture in our house and daily routines.

In a Wall Street Journal article last month titled “Chatbots Offer a New Interface for Corporate Software,” Kim Nash writes that “the convergence of messaging platforms, chatbots and increasingly powerful artificial intelligence could replace pointing, clicking and swiping with a more natural conversational interface between machines and humans.” The pace of chatbot development is accelerating, as this excerpt from the article illustrates:

Six months ago, Facebook Inc. said it would open its Messenger service, making it possible for businesses to build virtual assistants that can chat with the one billion-plus real people who use the communications platform each month.

Since then, developers have created more than 33,000 such “chatbots,” which have icons and nicknames that at first glance might not appear that different from a friend or relative in a user’s contact list.

In the logistics industry, UPS is already using chatbots. As reported in the Wall Street Journal:

UPS joined a variety of companies in sectors ranging from financial services to airlines that are betting on customers interacting with artificially intelligent virtual assistants that mimic human conversation, called “chatbots.”

Customers of UPS can now ask the chatbot to find nearby UPS locations, calculate shipping rates and show the location of a package.

“It used to be that executing a task with 1 click was better than 5 clicks,” Fab Brasca from JDA Software said at the Kenco Customer Summit in October, “but moving forward, no clicks will be better than 1 click.”

I think Alexa would agree.

Companies Get More Serious About Eradicating Slavery and Conflict Minerals from Supply Chains

How many slaves are in your supply chain? As I highlighted back in January, many companies still can’t answer that question effectively.

Earlier this year, for example, the Chartered Institute of Procurement & Supply (CIPS), a leading international body representing purchasing and supply management professionals, issued a press release highlighting findings from a survey it conducted showing that relatively few companies are ready to comply with the UK’s Modern Slavery Act, which was passed in March 2015 with enforcement set to begin on April 1, 2016.

As reported in the press release, “the Modern Slavery Act aims to prevent the use of forced labour in the UK economy by encouraging businesses to take a greater interest in the practices of their suppliers at home and abroad,” but one in five UK supply chain managers are unaware of the new rules.

Compliance with a similar law passed in California back in 2010 is equally poor. According to a recent report by the nonprofit group Development International, only 14% of Californian companies fully comply with the California Transparency in Supply Chains Act of 2010 (TISCA).

The lesson is clear: laws passed with good intentions but with no enforcement or consequences will barely move the needle on achieving their desired outcomes.

That said, it seems that more and more companies are getting motivated to take action heading into 2017, as evidenced by the news this week in the Wall Street Journal that “EcoVadis, a French technology firm that ranks companies for environmental responsibility, ethical treatment of workers and other practices, has received more than $30 million in venture funding, as the business of vetting corporate supply chains continues to grow rapidly.” According to the article:

Companies spend billions of dollars annually to ensure their suppliers aren’t using slave labor, polluting natural resources or engaging in political corruption. They often turn to third parties to investigate far-flung contractors and confirm to investors and consumers that they are behaving ethically.

EcoVadis, founded nine years ago by a pair of French entrepreneurs, is one of several companies aiming to make information about supply chains easier and cheaper to track. The firm provides details on miners, parts makers, garment factories and other companies worldwide that corporations can view before signing them on as suppliers. About 150 firms, including Johnson & Johnson, Nestlé SA and Verizon Communications Inc., use EcoVadis to track more than 30,000 suppliers.

I’ll repeat what I’ve been saying for years: If you want to create socially responsible supply chains, you have to develop a more granular and detailed understanding of your supply chains. You have to improve the way you communicate and collaborate with your suppliers, especially lower-tiered ones. And most importantly, you can’t outsource the responsibility; the buck ultimately stops with you, the brand owner. You have to see and walk your supply chain, from start to finish, with your own eyes and feet.

My prediction, and hope, is that more companies will take that walk this year.

For related commentary, see:

Move Over ELDs, Sleep Apnea Will Become the New Debate in Trucking

As the noise dies down around Electronic Logging Devices (ELDs), what will the trucking industry talk about most in 2017? Based on the buzz I’m beginning to hear at conferences, my guess is obstructive sleep apnea.

Back in March, the FMCSA and Federal Railroad Administration (FRA) announced that they are seeking public input during the next 90 days “on the impacts of screening, evaluating, and treating rail workers and commercial motor vehicle (CMV) drivers for obstructive sleep apnea (OSA)…The joint Advance Notice of Proposed Rulemaking (ANPRM) is the first step as both agencies consider whether to propose requirements specifically on OSA [emphasis mine].”

This action follows a law that was passed by Congress and signed by President Obama back in 2013 that states:

The Secretary of Transportation may implement or enforce a requirement providing for the screening, testing, or treatment (including consideration of all possible treatment alternatives) of individuals operating commercial motor vehicles for sleep disorders [that includes obstructive sleep apnea] only if the requirement is adopted pursuant to a rulemaking proceeding.

According to the American Academy of Sleep Medicine, obstructive sleep apnea (OSA) is a chronic disease that afflicts at least 25 million adults in the U.S., including more than 20 percent of commercial truck drivers. And as stated in the FMCSA press release:

Undiagnosed or inadequately treated moderate to severe OSA can cause unintended sleep episodes and deficits in attention, concentration, situational awareness, memory, and the capacity to safely respond to hazards when performing safety sensitive service. For individuals with OSA, eight hours of sleep can be less refreshing than four hours of ordinary, uninterrupted sleep, according to a study by the American Academy of Sleep Medicine. The size and scope of the potential problem means that OSA presents a critical safety issue for all modes and operations in the transportation industry.

Meanwhile, as reported last month by CCJ, “The Owner-Operator Independent Drivers Association filed a challenge with a federal appeals court against a 2015 U.S. DOT rule that altered the driver medical examination process. OOIDA claims the DOT slipped in a provision on sleep apnea screening into the final rule that was not included in the proposed rule, thereby bypassing the legal rulemaking process.”

And so the battle begins.

What impact will an OSA rule (if it ever comes) have on trucking capacity and productivity? Will the mandate cause drivers to exit the market? What impact will it have on shippers and costs?

Stay tuned for various studies, blog posts, and conference panel sessions on OSA in 2017.

For related commentary, see:

What’s Next After Electronic Logging Devices?

Software Vendors and 3PLs Will Embrace Simplicity-as-a-Service

In his keynote address at the JDA Focus 2016 conference, Razat Gaurav, JDA’s EVP and Chief Revenue Officer, offered a new definition for SaaS: Simplicity-as-a-Service. He mentioned it in reference to JDA’s ongoing efforts to improve the user experience of its solutions, but the phrase sparked a different question for me: What if Simplicity-as-a-Service became the main value proposition software vendors and third-party logistics providers (3PLs) offered their customers?

Which led to another question: How would I define Simplicity-as-a-Service in that context? Here’s what I came up with:

Simplicity-as-a-Service is enabling customers to achieve their desired outcomes in an ever-changing business environment with less time, effort, cost, risk, and resources.

For software vendors, offering Simplicity-as-a-Service goes beyond making user interfaces more intuitive and easy to use; it’s also about, for example, providing optimization, simulation, and analytical capabilities to help companies make smarter decisions faster. And it’s about removing the cost, resource, and risk barriers that have prevented many companies from deploying enterprise software solutions in the past, which is why most software vendors are shifting their business models toward cloud and software-as-a-service.

For 3PLs, Simplicity-as-a-Service is a more enlightened answer to the question, “What business are you in?” It is about, for example, helping companies enter new markets and introduce new products in a more timely, cost-effective, and less risky manner. It’s also about helping companies respond more quickly and intelligently to changing customer requirements, competitive threats, regulations, and other market forces.

The bottom line is that Simplicity-as-a-Service is why the business models of third-party logistics providers, software vendors, and consultants are converging today. As I wrote a couple of years ago in Putting 3PLs and Software Vendors in a Box, the reality is that manufacturers and retailers have a diversity of options today in terms of who can help them, and the right partner is the one that can provide them with the right mix of technology, services, and advice to help them achieve their desired outcomes.

For related commentary, see :