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AMR 2008 Supply Chain Prediction
Author: LCCMod1, Created on: Jan 31, 2008 5:47 PM

At about the same time, Noha Tohamy, John Fontanella, and Greg Aimi, analysts from AMR Research, also released a set of what they expect will be the top trends for the coming year, which by special arrangement SCDigest is offering its readers.

The AMR list of the top Supply Chain Trends for 2008:

1.SCM and logistics technology markets enjoy healthy growth. In our supply chain spending report, twice as many companies say they will increase spending on supply chain technologies, projecting to grow their budgets by nearly 12% for 2008 (See The Supply Chain Management Spending Report, 2007-2008). The 12% growth in supply chain technology spending will target controlling costs, raising productivity, and improving customer service. Companies can no longer make due with their 10-15 year old SCM systems. The research shows that an application replacement cycle is in progress as competition and globalization are driving the move to newer technologies.

2.Near shoring presents a viable alternative to low-cost country off-shoring. AMR believes that the trend of near shoring will continue to gather steam in 2008 for multiple reasons. Companies are discovering hidden costs of low-cost country outsourcing ranging from the loss in their ability to be demand driven or to manage product quality and protect their brand image. Additionally, focus will remain on the goal of protecting domestic producers against unfair trade practices of countries like China and encouraging US manufacturing through tax incentives, especially in this presidential election year. Expect near-shore sourcing, manufacturing and design in the US and in the western hemisphere to be more closely analyzed as a more cost-effective – not just faster – alternative to low-cost country sourcing.

3.Best-of-breed vendors regain some lost ground from ERP competitors. In the same AMR Research spending report, respondents were evenly divided on which category of vendors they will rely on for new technologies and replacement of existing applications. ERP vendors have gained a strong foothold in areas like demand planning and inventory management, but users still prefer best-of-breed solutions – either packaged or custom-built – in areas like transportation management, warehouse management, and network design, as well as for collaborative processes such as Vendor Managed Inventory (VMI) that extend outside of the four walls of the enterprise.

4.SCM outsourcing alleviates SCM talent shortage in increasingly complex global supply chains. When combined, several current industry factors are propelling the growth of logistics and greater supply chain outsourcing. A decade of staff downsizing, the globalization of supply chains, the complexity of operating today’s demand driven networks, and the rise of the offshore, low-cost, back-office outsourcing firms have naturally produced an awareness and, frankly, a new level of acceptance, of outsourcing. 2008 will prove to be a fertile year for outsourcing. Look for a slow expansion of additional supply chain services beyond the traditional transportation and warehousing offerings.

5.Companies manage risk for business continuity and competitive advantage. Whereas cost efficiencies, customer service improvement, inventory reductions, and other fundamental goals will remain top priorities for supply chain organizations, emphasis on supply chain risk mitigation will grow in 2008. Realizing that risk in global supply chains is unavoidable, companies will build a risk-conscious culture, to ensure business continuity. Leading companies will take risk mitigation a step further, building competitive advantage by continuously balancing risk and reward to expand their market presence, improve their profitability, or capture bigger market share from their competitors.

6.Impressive returns on investment from current projects nudge RFID back into the spotlight. Whereas from arm’s length the RFID solution market looks listless, closer examination shows a different picture. Early adopters have been building hands-on experience in implementing RFID, a better understanding of its potential value, as well as limitations, and they are becoming less concerned about the risk of the technology obsolescence. Technology providers have been working hard to keep pace with end user expectations. Along with ongoing tag and reader development, enterprise software solutions have focused on easier management and distribution of RFID data collected. Look for wider adoption of item level tracking, ranging from pharmaceutical e-pedigree to apparel and footwear inventory management. Having demonstrated value, the use in asset tracking and management will continue to expand. More exciting will be the adoption of RFID in emerging markets such as India and Brazil, where companies are defining their supply chain processes from the ground up with RFID as a foundational technology enabler.

7.Software vendors expand their managed services offerings to deliver results. Software implementations often fail to deliver the benefits expected because oftentimes skills within the organization are insufficient to maximize the value that sophisticated technology can potentially provide. To help companies reach their goals, many software vendors and service providers are coupling domain expertise along with deep application knowledge to not only conceptualize, but actualize the benefits their software and services can bring to an organization. The menu of managed services runs the gamut from B2B electronic connectivity to demand planning, forecasting, and transportation management. In fact, in some of the SaaS transportation networks and managed services, offerings are being adopted by the more mature users, suggesting that increasingly, it does not matter who presses the keys as long as process performance is being achieved.

8.S&OP technologies – not just processes – take center stage. Viewed as the make-or-break process for profitably matching demand with supply, designing S&OP processes and building a supporting organization were high on business priority lists in 2007. But now, more companies are realizing that building S&OP excellence is constrained by their existing S&OP technologies. Look for better definition of the S&OP technology market space and wider adoption of S&OP functionality that enables fast what-if analysis, profitable demand and supply shaping, and structured internal and external user collaboration and consensus building.

9.Connectivity grows in importance as companies extend their value networks. Companies are increasingly realizing that electronic connectivity is necessary to sustain and scale up collaborative relationships with trading partners. But cost and complexity of building this connectivity had traditionally limited the scope of integration to just a small segment of a company’s trading community. In 2008, we expect to see a growing acceptance of third party networks, created by integration hubs and Software as a Service (SaaS) providers that enable companies to more rapidly and easily connect to a broader segment of their customer, supplier, and service provider bases. We will also see some game-changing strategies in the B2B connectivity market that will alter pricing structures and deployment options.

10.What-if analysis and simulation-based tools see growing adoption. Gone are the days when users’ expected a black-box optimization engine to churn their data, model their problem and generate a definitive optimal solution. User companies are now more interested in decision support tools that – while still leveraging optimization techniques – can allow them to conduct scenario planning, what-if analysis, and compare the trade-offs among multiple options. Similarly, simulation techniques will see wider adoption as the emphasis continues to shift from the ever elusive “single optimal solution” to better understanding of the impact of different supply chain decisions on the top line, customer service levels, and other business priorities.

Conclusion: In 2008, global companies will continue to focus on supply chains as a necessary enabler to business growth. To do that, companies will search for better strategies to manage their extended supply chains profitably. These strategies will span the deployment of technologies like RFID and S&OP and the analysis of alternative business models like near shoring and expanded SCM and logistics managed services. Companies will also focus on alleviating supply chain challenges that could negatively impact their long-term growth potential, including the shortage in SCM talent and the limited connectivity and increased supply chain risk in their global value networks.

What’s your take on AMR’s predictions for 2008? What do you think is missing from either this list or the SCDigest expert panel’s comments? Let us know your thought at the Feedback button below