Is 2013 The Year Of Collaboration?

It wouldn’t be the new year without both a look back and look forward. Here is the second of two articles that do just that and are worth your time. As with all things Supply Chain related, only time will tell whether and how fast these come to fruition. - Greg Chabon


Collaboration and responsiveness aren’t new trends in supply chain management but Mark Woodward, CEO of E2open, predicts major shifts in the industry will make them more important than ever.

Woodward outlines his 2013 predictions in a guest column featured on Forbes’ blog CIO Network. In the column, Woodward writes about why he believes the time has come for concepts like fast data, supply chain control towers and social supply chains to be major players. He also breaks down why he believes all of those factors will contribute to a shift away from static to dynamic risk management.

 “Risk management tools will move beyond identifying weak links and ginning up responses to hypothetical problems to providing the information and communication platform needed to assess and manage situations as they occur—mitigating downside when the inevitable hits the fan,” Woodward writes.

Big Data And Planning: 2012 In The Rearview Mirror

It wouldn’t be year's end without both a look back and look forward.  Here is the first of two articles that do just that and are worth your time.  As with all things Supply Chain related, only time will tell whether and how fast these come to fruition. - Greg Chabon

  

Our friends at SupplyChain Management Review gave Sean Riley, Director of Supply Chain Innovation for Software AG, some space to talk about the five most important industry trends in 2012 and not surprisingly he hits on some solid points.

Riley’s list:

1. Improved customer service over cost-cutting
2. Execution moves ahead of demand and supply planning
3. Resurgence of contingency planning
4. End-to-end partner communications and collaborative execution
5. Big Data is becoming mandatory

On point #5 (Big Data), Riley explains why systems able to analyze these massive data pools are so important and will likely continue to grow in 2013: “Leveraging these tools with supply chain visibility solutions will quickly become a ‘must have’ rather than a ‘nice to have’ as companies utilizing these tools set the bar for the new normal in supply chain performance,” he wrote.

Supply Chains and Oil Supply: Are We Headed for "Another Oil Shock?"

With the United States in the throes of our every-four-year political wrestling match, the topic of energy, and specifically oil, is near the top of the list (as if it ever were very far from the top). Global supply and demand of petroleum, instability in oil producing countries, and prices at the pump in the U.S. have heightened attention to world oil supply.

So what does all this mean for supply chains? McKinsey & Company just released an analysis in the McKinsey Quarterly titled “Another Oil Shock?” which assesses the likelihood of oil supply and demand on prices, impact on supply chains, and reactions. They look at several scenarios – both “gentle” and “violent” collisions of supply and demand.

While it is very hard to predict how this could unfold, I was intrigued by their observation of how the impact could be received:

If the shock scenario outlined above unfolded, sustained high oil prices would challenge the top and bottom lines of many companies. However, high prices also could create opportunities for companies to differentiate themselves from competitors whose cost structures and operating approaches were ill suited to the new environment. And for companies on the front lines of the resource productivity revolution, a prolonged oil price increase would be beneficial. Providers of a range of new technologies—from car batteries for electric vehicles, to horizontal drilling and other tools for unconventional oil extraction, to biofuel production techniques, to electricity cogeneration equipment for manufacturers—would see their businesses grow, faster, than they would in a world of lower oil prices.

Companies would do well to assess the impact of sustained, high oil prices on their supply chains and being, now, to evaluate how they would deal with such events to maintain a stable, profitable supply chain.

- Greg Chabon

Supply Shortages Should Be A Contract Consideration

As I was flying back from Denver, where I was a presenter on a panel addressing contract drafting and negotiating at the Association of Corporate Counsel Annual Conference, I looked through the Wall Street Journal. One article was particularly interesting – “Wary Firms Are ‘Destocking’” (subscription required).

Seems that DuPont and 3M are reporting that manufacturers are starting to reduce their raw material inventories as they hedge what may be a worsening economic forecast for 2012. This reminded me of a section of the ACC presentation where we discussed force majeure clauses and how they have become much more than simple “boilerplate” in commercial contracts. Typically, the force majeure clause addresses “acts of God” that are beyond a party’s control and will excuse non-performance under the agreement. Over the past several years, I’ve seen “shortage of materials” find its way into force majeure clauses.

As we mentioned at the ACC conference, buyers need to be aware of the inclusion of a “materials shortage” provision that might excuse performance by your supplier. In light the WSJ article, this risk may be increasing. I think it may be appropriate to include as a force majeure event an industry-wide materials shortage affecting everyone – conversely I think it is reasonable for a buyer to expect a supplier to manage its own supply chain to maintain materials supplies sufficient to meet orders.

Also, consider adding to your standard force majeure clause provisions addressing how remaining inventory or production capacity will be allocated during a force majeure that limits, rather than cripples, production by your supplier.

- Greg Chabon

Higher Gas Prices Putting Squeeze on Supply Chains

So as Summer gets here and we’re all gnashing our teeth about oil and gasoline prices as we try to head to the beach, the mountains, or elsewhere, I was interested to see Michael Koploy’s recent blog post discussing some very interest data on oil and gasoline prices and their effect on supply chain links.

The one that I found most interesting is that the cost to ship a load of tables and trade displays from Orlando to Seattle increased almost 32% from 2010 to 2011. While paying more at the pump is irritating to all of us as consumers, the effect of higher oil and gasoline prices on supply chains is truly eye opening.

- Greg Chabon

The Impact of the Japanese Disasters on Global Supply Chains

In the wake of the terrible and multiple disasters in Japan, global markets and companies everywhere are being reminded of the impact disruptions anywhere, and especially in key markets like Japan, have on supply chains. The New York Times published an article earlier this week, highlighting this issue and it is a definite “must read.”

One of observations the Times makes that I find intriguing is this: Commenting on the potential disruptions of global businesses, the Times noted “The good news for the world’s manufacturing economy is that the sectors where Japan plays a vital role are fairly mature, global industries. Consider computing and electronics. For major components, like semiconductors, production is now spread across several countries. By contrast, in the early 1990s, virtually all 486-microprocessors — the engines of the most powerful personal computers of the time — were made at a single Intel factory near Jerusalem.”

The disruption in the computing and electronics sector is muted due to strategic diversification of production. The lesson is clear – review your supply chain now, identify those weak links (sole or single-source, heavy concentration in a single geographic location, etc) and take steps to start diversifying sourcing. It may not be a tsunami, a nuclear reactor accident, or other major tragedy. It could be a labor strike, flu epidemic or other less dramatic event that could disrupt your supply chain.

Consider disruption planning to be a requirement in your supply agreements for key vendors, and review those plans. Have your key suppliers identify their alternatives to keep your supply intact. If you are the sole source vendor to a key customer, discuss with them how they can help you diversify (warehousing, maybe even some capital investment to set up parallel production).

- Greg Chabon

New Report on Warehouse Management Systems Market Trends

Blogger and market analyst Michael Koploy has written an report on "2011 Market Trends: Warehouse Management Systems." Just thought this might be of interest to some of our readers.