While many in the Supply Chain world will posit that there was nothing to fix because the chain worked and was never broken, the fact is that the challenges that we saw over the past two years were a manifestation of Supply Chains built on the expectation that globalization with its interdependence and interconnectedness are here to stay. The pandemic, though unprecedented, exposed the vulnerabilities and weak foundation on which our consumption dependence was built. With more challenges, including regional and global conflicts and the devastating effects of climate change, structural changes need to be made inter and intra countries. While the US Infrastructure bill was passed, the difficult task of repairing the ports, airports, bridges, and roads has barely gotten off the ground.
Supply Chain stayed in the limelight amidst a tumultuous start to the year with the war in Ukraine, continuing covid lockdowns in China, and of course the relentless rise in inflation across most of the developed world. Accountability is a wonderful thing! It is always humbling to review one’s prognostications and opinions, learn lessons from it and attempt to do a better job moving forward. So, in that spirit, I re-visited my predictions for 2022 (Supply chain trends for 2022: We broke it, let us fix it!) to score my thoughts before I write my piece on what I foresee for 2023!
Noted below each of my predictions are reflections on the status and my thinking on its accuracy. Would be great to hear from you the reader on its veracity.
Prediction 1. The fever will break – not just Covid and its mutating variants, but Supply chain challenges.
- With the factory of the world and its subsidiaries in Southeast Asia closing or slowing down for a few weeks in late January and early February, the long line of ships waiting to dock, and in the news every day, will give way to flowers being transported from Latin America and Europe for Valentine’s day!
- Demand will swing back to services from products.
- Halloween 2022 costumes and large percentage of school and Christmas 2022 gifts are already in US inventory.
November 2022 – On target!
- Ships waiting to dock in the west coast ports went back to business as usual and ocean rates from Asia plummeted.
- Consumers who were holed up at home during the pandemic, moved away from buying more products to enjoy restaurants, travel and outdoor experiences.
- As predicted warehouses were full of Inventory – often of the wrong kind – and retailers took huge hits to their bottom line by marking down goods and selling it in bulk to discount retailers.
Prediction 2. Pre seed venture funding will accelerate with a view to solving SC challenges of the past two years through technology. Along with some pure play incumbents, retailers who have acquired logistics firms will invest and acquire several of these startups. Perhaps:
- Maersk will expand its footprint in the US through a quick acquisition of a logistics incumbent
- Small and mid-sized logistics firms will merge or form agreements to gain scale and compete with incumbents
- Other sector leaders, besides medium/large retailers, with core logistics needs will invest/acquire logistics tech firms, partner with platforms that provide micro fulfillment and on demand services
November 2022 – On target!
Despite the contraction in venture funding, supply chain startups in the seed through growth phases attracted upwards of $7bn from investors who are bullish on its prospects. Automation – not just autonomous vehicles – within Supply Chain systems received a boost due to the pandemic challenges and will change the efficiency and look of future chains.
- While Maersk expanded its footprint in the US with its acquisition of Pilot Freight, the firm also acquired LF Logistics and Senator Freight Forwarding to expand beyond the ocean roots into 3PL and Air Freight.
- The acquisitions in the small and medium logistics sector continued unabated as firms looked to scale and manage their unit costs with spiraling inflation and recession a real threat
- Whether it is the Shopify acquisition of Deliverr or that of Quiet Logistics by American Eagle, there has been a trend for platforms to compete with Amazon, Walmart, and Target by bringing competing retailers on board on a common logistics platform. There are more than 80 retailers signed to the Quiet Platform
Prediction 3. Change in forecasting methodologies (see “Has the just in time system run its course”)
- Not just algorithm or AI driven but more intuitive and dynamic with perturbations built in for better risk management
- Better inventory management and product positioning closer to end consumer
- Measurement of key metrics across the chain will become critical
November 2022 – Mixed!
- As highlighted by the challenges several retailers faced with inventory, this continues to be a work in progress. While investments in automation and AI driven robotic technology have increased, I have not read anything about forecasting methodologies changing significantly. It may well be for competitive reasons!
- As mentioned earlier, retailers were saddled with the wrong inventory.
- While customers, at least in the US, like speed of delivery it cannot be the primary metric to measure customer experience. This is a work in progress.
Prediction 4. As demographics and immigration regulations change the labor challenges will continue – whether it is drivers, warehouse, or gig workers for final mile delivery. Look out for:
- Better pay, hours and benefits to ensure retention
- Increasing number of firms that offer Commercial Driver Training to obtain licensing and offer on demand labor resources – maybe a minor dent to the large driver shortage. Leverage a diverse work force and tandem teams
- Short term policy changes including age, visa relaxations
- Automation – where safety and regulation are not barriers
November 2022 – Mixed!
Without a doubt labor was a challenge, with a plethora of choice the average employee, at least in the first few months of the year, saw their starting wages increase substantially. This increased the urgency among logistics and fulfillment firms to automate warehouse functions and invest in retaining their existing workforce.
Prediction 5. Penalties and incentives for reducing container hoarding
- Streamlined visibility and tracking of all equipment – not just goods – across the entire chain
- Integrated technology
November 2022 – TBD
It is unknown on the status of this, however companies are investing in technology or partnering with new technology vendors such as Fourkites or Project 44 on visibility.
Prediction 6. Demand for 3PL/4PL will significantly increase – rebranding to Supply Chain as a service?
- Modal and Fleet expansion and partnerships – leveraging the rail and inland water network?
- Micro fulfillment centers/warehouses and leveraging platforms
November 2022 – On Target
This is happening, as one heard on the latest earnings call UPS is actively promoting its Supply Chain as a service which integrates all its services end to end and provides an opportunity for turnkey solutions to new and growing customers across different sectors.
Prediction 7. China+n strategy to shorten the supply chain and for alternative production and manufacturing.
- Expanding operations in Mexico, Canada, Latin America and if regulations can be revisited Puerto Rico especially for healthcare/pharma
- Niche manufacturing in the US
November 2022 – On Target
China’s zero covid policy accelerated the trend to alternative sources of production more than a concerted strategy to near shore the supply chain. Multinationals have started the process of developing production and manufacturing in multiple countries including China. While China will continue to have an outsize role in the immediate future, it is highly likely that it will remain one among many five years from now.
Prediction 8. While the conventional wisdom is for sustainability to take center stage, I suspect only minimal measures will be undertaken to keep shareholders at bay.
- Not too bullish on culture and process changes that are in progress to weave it into the fabric of legacy firms
- Optimistic about startups and new ventures building it from the ground up
November 2022 – Mixed
Cop27 UN report highlighted greenwashing – about corporations misleading the public to believe they are doing more on sustainability then they are. While technology is a key enabler to integrate sustainability efforts into everyday processes, not many firms are likely to invest in them during these inflationary and recessionary times. That role will fall to startups and there are signs that investment in this area has increased.
Source: Transport Intelligence, January 5, 2023
Author: Raghu Ramachandran, Business Analyst and Founding Partner of 13 Colony Global