By Erik Diks, Managing Director | and | Bas Daver, Principal | Chainalytics Europe
Designing valuable supply chains would be easy if we could predict the future effectively. However, history has shown the opposite. Chris Caplice, Executive Director of the MIT Center for Transportation and Logistics and Chief Scientist at Chainalytics, states “we humans are so bad at planning for the future, because we try to predict the future” – and we are horrible at that! Look, for example, at predictions surrounding oil prices, adoption of mobile communication, digitization or even Brexit: the harsh reality is radically different than predicted.
Prepare Instead of Predict
If predicting the future proves ineffective, what can we do instead? One solution is to shift the focus from prediction to preparation. As Caplice suggests, we must create a handful of plausible, alternative future scenarios that together contain the most relevant dimensions of uncertainty. From there, we should focus on preparing for the effects, rather than predicting individual events.
Scenarios are typically sets of driving forces: events that you typically cannot control, cannot influence, cannot conceive. Here’s a handful of driving forces that have a huge impact on today’s supply chain solutions and approaches.
According to Gartner, the Emerging 7 economies, which includes countries like China, India, and Russia, are expected to grow faster in GDP than the Group of 7* and will have a larger influence on future demand.
The interest rate has been very low the last several years, and will probably remain low for quite some period (despite the recent FED decision to raise the rates). Many companies seem to be acting out of sync with this new reality, as reducing working capital is still seen as a priority. Another example is the steep rise of labor wages in China. As a result, companies are building additional resilience by re-shoring or near-shoring part of their supply chain. Shifting part of their supply chain close to the end customer will contribute to the need for faster time-to-market deliveries and management of fast changing market dynamics.
China average annual wages 2006-2015
A driving economic force that will continue to have significant impact is of course the changing consumer buying behavior. Consumers want more convenience and are relying upon e-commerce and online shopping to find it.
With each generation, consumers are adopting new technologies quicker and quicker. Take the car for example.Introduced around the 1900s but needed 75 years to get to an 80 percent adoption rate. The TV was introduced in the 1960s, but only needed 25 years for that. Today’s new technologies, such as mobile phone, have seen widespread adoption within less than 10 years. As a consequence, it remains vital for each business to understand what new technological developments will mean for their futures.
New technologies that will impact many supply chains over the next 10 years are 3D printing, Robotics, Automated Vehicle Technology (AVT), and the Internet of Things (IoT). AVT will significantly change our lives and businesses. With the technology already in place and beta testing already deployed in multiple countries, these new “driverless” trucks will have a major impact on supply chain and distribution networks, as the technology and efficiencies will allow longer long-haul distances as well as the improved spreading of transportation over time.
More “Things” are getting connected every day. An excellent example of “digital business network innovation” is the Hamburg smartPORT, presented by Michael Burkett, research VP at Gartner at the Gartner Supply Chain Executive Conference in London 2016, which points out how productivity has increased by more than 12% by applying IoT and big data technology effectively. Traffic management now uses sensors in bridges and roads. Water way information, tides, occupancy of docks, container ID and location are processed centrally to enable smooth trade flows creating the need for increased supply chain efficiency.
Next to Brexit (domino-effect with other countries?) we should consider multiple other geopolitical forces, and prepare for the effects. Some examples to examine would be the political instability in geographies like Turkey or Ukraine and the migration flows. Additionally changing country/EU legislation (CO2), or changing cost differences between countries in transportation, labor and real estate will also impact future supply chains.
Next to these economic, technological and geopolitical forces, you must think of the numerous social and environmental influences to consider. Each of which will be useful to investigate the impact and prepare for those.
Scenario Planning should be an Integral Part of Future Supply Chain Planning
All these driving forces must be taken into account when creating a good set of future scenarios. These scenario plans will then need to be incorporated into the formal process of future supply chain planning and defining effective supply chain strategies with regard to supply chain networks, operating model and organization, inventory policies and asset and tax optimization. Predicting the future may be impossible, but preparing for it will always remain a best-practice for any organization.
*Canada, France, Germany, Italy, Japan, the United Kingdom and the United States
Bas Daver is a principal at Chainalytics Europe, a leading provider of supply chain consulting, analytics, and market intelligence services. An independent, analytical, open, communicative and problem-solving professional, Bas is highly focused on results. He likes to work in teams and is able to gain results and to realize change together with others, who benefit from his ability to adapt and create effective, efficient supply chains and operations, processes and organisations.
Erik Diks is managing director of Chainalytics Europe, where he is responsible for all sales and delivery of Chainalytics’ end-to-end supply chain consulting services. He brings over 20 years of broad supply chain strategy, supply chain network design, sales and operations planning (S&OP), demand and supply planning, and product and customer portfolio optimization to his work with Chainalytics clients.
Read more about Chainalytics’ supply chain expertise:
- (BLOG) Put the S in S&OP
- (BLOG) Cost-to-Serve: The Pursuit of Truth About Profitability
- (BLOG) European Truckload Market is Stable but Uncertainty is High