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Supply Chain Trends To Watch In 2018

This article originally appeared on by Steve Banker

There are several key supply chain trends to watch in 2018.

Omnichannel Revenue Management

The retail supply chain has been going through a massive transformation. Traditional brick and mortar retailers seek to leverage their stores to better compete against Amazon and other ecommerce retailers. ARC’s Chris Cunnane does an annual survey omnichannel retail in conjunction with DC Velocity.  The main reason retailers invest in expensive omnichannel initiatives is to increase sales, increase market share, and improve customer loyalty.  Meanwhile, most retailers have trouble understanding just what their profitability is surrounding different omnichannel order flow paths.  For example, in my colleague’s latest survey a majority of retailers report they can’t even measure the financial impact of a return.

Driving unprofitable sales makes no sense.  Eventually retailers need to understand their true costs and margin based on the omnichannel flow path.  Will significantly more retailers begin tackling this problem this year?  We don’t know; that will be the focus of Chris’s next survey on this topic.  Further, if companies can measure their profitability, what are the best practices that separate more profitable retailers from less profitable ones? Solutions certainly exist in this area, but Chris’s research will also focus on process and people issues. Meanwhile B2B companies also need to improve their multichannel capabilities.

Logistics Workers, Labor Shortages, and Automation

The industry continues to discuss the driver shortage.  Basic economics tells us that if you raise wages, you will attract new drivers to the industry.  Not surprisingly, carriers remain reluctant to embrace that tactic. There continues to be discussion about whether autonomous vehicles could be a solution to the shortage.  They won’t be; at least not any time soon.  The technology challenges in getting to a fully autonomous truck are daunting. Because autonomous vehicles won’t happen soon, carriers need to take aggressive actions to lure new drivers into the industry and recruit and retain existing drivers.  Further, shippers and carriers can reduce empty miles, and thus reduce the need for drivers, by using transportation management and transportation network design solutions.

There has been less public discussion about looming labor shortages in warehousing. The amount of picking, because of omnichannel and ecommerce, has increased the need for warehouse workers.  But it is not a desirable job despite paying about $15 per hour on average. Logistics service providers are actively exploring the use of autonomous mobile robots to meet the labor shortage.  The economics, when bots are sold in a Robot as a Service (RaaS), make this form of automation a viable alternative to people. Expect booming sales in this market over the next few years.  ARC will be discussing autonomous mobile robots in some detail at ARC’s Annual Industry Forum in February in Orlando.  Please join us!

Tariffs and Global Supply Chain Networks

The move to install tariffs and bring more production back to America has gone much more slowly than I expected following the election of Donald Trump.  I have to admit that Frank McGuigan, the President and COO of Transplace, was much more prescient than I. Transplace is a leading provider cross-border intermodal services throughout North America. He better understood how slowly politics often moves and how significant a trading partner Mexico is for the U.S.  Similarly, the UK/European Brexit negotiations have moved at a glacial pace.

Jim Preuninger, the CEO at Amber Road, points out that in times of agrees that scenario analysis is critical.  Amber Road is a leading supplier of global trade management.  “In times of uncertainty, scenario building and analysis can be done preemptively to provide more time to fully understand, design, and implement needed changes.  Multinational companies design their supply chains taking into consideration many factors, including fully landed costs, regulatory issues – including tariffs, lead times, and supplier quality and reliability.”

But tariffs are a critical component of landed costs.  I reached out to Toby Brzoznowski, a cofounder and executive vice president at LLamasoft, on this topic.  LLamasoft is a leading provider of supply chain design software.  I asked him whether there was any evidence that multinationals were preemptively redesigning their supply chain networks – before the tariffs go into place – in the belief that eventually the costs of having manufacturing nodes in Mexico or China will go up significantly.  For example, maybe costs to manufacture in Indonesia are slightly higher, but the fear of Chinese tariffs tips the balance and manufacturers move their facilities from China to Indonesia.

Mr. Brzoznowski replied that “Day One after the elections, I heard of multiple companies that had put analysis projects in place to run landed-cost scenarios for a wide range of potential tariff increases, or changes to trade agreements.  However, as you said, things have not moved quickly, and it seems at this point that companies now have their contingencies mapped out but are sitting and waiting to see what happens.”

If significant new tariffs emerge, supply chain networks will change greatly. But politics in the US remain tumultuous. If the Trump administration does not impose new tariffs this year, it may not happen. The US House of Representatives could be taken over by Democrats in 2018; there is even a chance Trump could be impeached if the House goes Democrat. So, this remains an important trend to monitor, but whether tariffs will increase remains very difficult to predict.

The Hype Surrounding Digital Technologies Will Continue

Emerging technologies such as blockchain, 3D printing, autonomous mobile robots, IoT, machine learning, and related technologies continue to get a tremendous of amount of publicity. These technologies are being lumped together as “Digital” technologies, although the logic for that grouping – beyond the fact that they are all interesting, emerging technologies – is unclear. But these technologies are at very different points on the supply chain maturity curve. As previously mentioned, autonomous mobile robots are rapidly approaching maturity.  Blockchain is at the bottom of the maturity curve. ARC will continue to assess and report on the maturity of these technologies.

Steve is the Vice President of Supply Chain Services at ARC Advisory Group, a leading industry analyst and technology consulting company.