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State of the Global Supply Chain:A Look at the Top Issues Facing Industry Executives for 2016 and Beyond

Copyright © 2016 GT Nexus. All rights reserved.

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INTRODUCTIONGT Nexus set out to discover the top supply chain issues facing manufacturers for 2016 and beyond. We did so by partnering with researcher, YouGov, a global online community of 1.2 million individuals, to see where senior manufacturing executives stand on things like:

• The technologies and industry issues that have the most notable impact on the supply chain

• Their primary supply chain challenges and goals for improvement

• Whether or not they have a Chief Supply Chain Offer in place to help manage the above

The results indicate that manufacturers expect to face major supply chain challenges and risks in 2016 stemming from external factors, often beyond their control. While meeting ever-changing customer demand is deemed a priority, the data suggests their execution roadmap is misguided, being focused more on cost cutting than other things like having a senior supply chain leader in place. This starts at the top level, where 76% of manufacturers operate without a Chief Supply Chain Officer. With almost half of manufacturers reporting a disruption that impacted business in the past 12 months, this gap in strategic direction to address broader supply chain agility appears to be a major concern.

The sample size for our study was 250 US-based senior manufacturing executives, and fieldwork was undertaken in December 2015 via an online survey.

Read on to see what manufacturing executives had to say, and let us know if you agree based on happenings in your own business. We look forward to your thoughts.

GT Nexus ManufacturingInsights@gtnexus.com

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SECTIONSONE: Challenges PAGE 4

• Supply Chain Disruptions Over the Past 12 Months PAGE 5

• Top Supply Chain Issues PAGE 6

• Issues Projected to Have the Most Notable Impact on the Supply Chain PAGE 7

TWO: Technology PAGE 8

• Technology that Will Most Heavily Impact Supply Chains in 2016 PAGE 9

• Tools and Technology Currently Used to Manage the Supply Chain PAGE 10

THREE: Operations PAGE 11

• Commonality of the Chief Supply Chain Offer Role PAGE 12

• Top Supply Chain Goals for the Near Future PAGE 13

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CHALLENGES What you’re about to see: It seems there’s news almost daily about supply chain disruptions, and they come at an immense cost. From the deadly Tianjin explosion last September that snarled Chinese – and global – supply chains, to the west coast port strike that, for months, brought one of the world’s largest ports to a crawl and cost retailers an estimated $7 billion (Management consulting firm Kurt Salmon), there’s no way of predicting these disruptions. But organizations can be proactively prepared to minimize the impact.

Here, we’ll dig into what supply chain leaders dealt with in terms of disruption throughout 2015 and what they deem will be the most notable supply chain challenges both now and in the future.

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Supply Chain Disruptions Over the Past 12 Months

Key FindingsForty three percent of manufacturers reported a disruption that impacted business in the past 12 months. These were a combination of both external issues, like disruptions caused by weather and labor strikes, and internal issues, such as technology challenges, the well-documented gap in supply chain talent and so forth.

This number is lower than other studies, such as the Supply Chain Resilience Report 2015, which found that 74% of respondents experienced at least one instance of supply chain disruption. The study, conducted by Zurich and the Business Continuity Institute, also found that 70% of those polled lack visibility over their whole supply chain, which makes businesses susceptible to disasters. Another study, the Allianz Risk Barometer 2016, also indicated a higher number of organizations who said they’ve experienced supply chain disruption. It noted that business interruption, including supply chain disruption, was the top risk identified by respondents for the fourth year in succession.

ImplicationsVirtually no business involved in producing or selling products is immune to supply chain disruption. Events such as natural disasters that impact supply chains are unavoidable, and a host of other disruptions – everything from supplier shortfalls to product transport challenges to labor strikes, terrorism and social unrest – occur with surprising frequency. Yet, as referenced in the introduction, and as you’ll see in more detail in the Operations section, the majority of respondents noted they don’t have a Chief Supply Chain Officer to manage these disruptions.

As supply chains become increasingly complex and susceptible to disruption, an agile supply chain that enables seamless adjustments to be made on the fly is critical. Having visibility across the supply chain is the single most important way to mitigate the impact of disruptions. You can only control what you can see. Organizations must position themselves to be able to respond quickly and effectively when disruption occurs.

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ImplicationsThe most commonly cited supply chain challenge is keeping up with changing customer demands. Manufacturers face pressure to manage and meet expectations for things like quality, delivery and pricing. Research conducted by our parent company, Infor, published by Manufacturing.net found that 50% of manufacturers indicated their customers expect better quality at the same price. Demands like this have ramifications up and down the entire supply chain. Agility is critical for ensuring constantly changing demands are met.

Respondents to the current survey also cited the high level of risk in global markets and having globally dispersed supply networks as top challenges. Supply chains today are more lengthy – and fragile – than ever, and that’s unlikely to change in the near future. As organizations continue to deal with global suppliers, and taking on the challenges of doing so (such as import and export tariffs, weather-related challenges, geo-political risk, and lack of visibility associated with a complex supply chain), keeping that risk in-check becomes paramount. The companies succeeding the most in doing so are the ones investing in technology that improves visibility and empowers them to best address market challenges.

Key FindingsWhen asked what their company’s biggest supply chain challenge is currently, more than a quarter (27%) of respondents said the top challenge is keeping up with ever-changing customer demands. This was followed by 12% of respondents who said their primary challenge is dealing with the high level of risk in global markets. The third most common answer, which coincides with the previous one, is the challenge of having a globally dispersed network of partners.

Top Supply Chain Issues

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ImplicationsTIME Magazine recently listed the top five geopolitical risks of 2015 as:

1. The politics of Europe

2. Russia

3. The effects of China slowdown

4. The weaponization of finance

5. ISIS, beyond Iraq and Syria

What this list might look like for 2016 remains to be seen, but chances are, we’ll see at least some of these as repeats when the list recaps the top risks in 2016 early next year.

All of these issues can relate back to the supply chain mainly in that some of these regions, which are impacted by political, economic and other issues, play a major role in global production and commerce. Geo-political risk drives market volatility and currency fluctuations, posing challenges for global trade. Having access to technology that can provide a high-definition picture of the supply chain, change suppliers and sourcing regions on the fly, and navigate natural disasters and other disruptions fluidly is critical.

Key FindingsIn addition to asking respondents what their most prevalent supply chain challenge is currently, we also sought to know what they predict will be their top challenge in the future. Nearly one third (29%) predict currency fluctuations and geo-political risk will be their biggest challenge. This is followed by 14% who said labor strikes would be their main challenge, and 9% who marked the Transpacific Partnership as being a the most notable issue for their supply chain.

Issues Projected to Have the Most Notable Impact on the Supply Chain

Nearly one third (29%) predict currency fluctuations and geo-political risk will be

their biggest challenge.

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TECHNOLOGYWhat you’re about to see: While some may not see or be ready to accept that technology will forever change what the supply chain is and what it does, delaying adoption can be harmful. Technology provides the opportunity for deeper visibility and greater collaboration, two factors that help to significantly mitigate supply chain issues. Technology also fosters innovation, leading to new found efficiencies and cost savings in the global supply chain.

The August 2015 article titled “Technology’s Role in Improving the Supply Chain” in industry publication SupplyChain 24/7 said, “The true value of technology in the supply chain is the benefit it brings to supply chain experts. Without cutting-edge technology, Supply Chain Execution experts would not be able to innovate nearly as much or provide end-users with fast, on-demand service.” Breakthroughs in technology have already revolutionized supply chains, and in today’s digital age, the importance of implementing these technologies is critical for a forward push and continued growth.

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ImplicationsThere remains a need for education around supply chain technology. If supply chain managers aren’t aware of the latest innovations within the industry and the benefits they provide, they risk falling behind.

Data provides the visibility needed to make better decisions. As we saw, 11% named “Having a globally dispersed network of partners” as the company’s biggest supply chain issue, making the task of achieving end-to-end visibility even more difficult as everyone may run on different systems. If businesses can collect data about where their shipment is at any moment, lost and delayed shipments have a better chance of being avoided, for example.

According to the April 2015 blog post titled “Five Ways the Internet of Things Will Benefit the Supply Chain” by Gartner, “as well as being a driver for business and supply chain transformation, IoT can also drive incremental benefits to existing supply chain processes spanning asset utilization, warehouse space optimization or production planning.” IoT is already impacting the supply chain and will continue to help the industry reinvent itself by facilitating better visibility and reducing blinds spots. This is done by providing intricate data on everything from weather and climate, to location information of transportation vehicles to delivery timing estimates and more.

Data and IoT may not be the sole answers to solving supply chain issues, but they can make problem resolution more efficient.

Key FindingsWhen asked which technology they believed would most heavily impact their supply chain in 2016, advanced analytics came out on top (13%), followed by the Internet of Things (11%), and 3D printing (9%).

Seven percent of respondents chose “Other,” showing the abundant technologies that can impact the supply chain. Radio Frequency Identification – or RFID – (3%) and drones (2%) don’t appear to be top of mind for manufacturers, but it will be interesting to see if that increases over time. What, unfortunately, isn’t surprising is 17% said they don’t know what technology will impact their supply chain and over one third (38%) of respondents believe their supply chain will not be impacted by technology.

Technology that Will Most Heavily Impact Supply Chains in 2016

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Tools and Technology Currently Used to Manage the Supply Chain

ImplicationsIt is no surprise manufacturers still direct their resources to Inventory, Factory and Transportation Management solutions as these technologies help align efforts of all parties involved, give employees enhanced visibility into their specific departments, and help companies break down the walls to operate more effectively and efficiently. At first glance, these tools may seem like a quick enhancement for any supply chain, but there are other considerations to keep in mind as your company continues to innovate, like the impact technology can have on supply chain finance and supplier collaboration.

When it comes to future use of technology, the adoption of solutions like inventory and network optimization tools is expected to rise. The 2015 Material Handling Institute annual industry report titled “Supply Chain Innovation—Making the impossible possible” notes 80-90% of respondents plan to have these tools in place by 2019. The adoption rate for growth technologies such as predictive analytics, wearables and mobile technologies is also expected to rise, reaching 70% in the next three-to-five years. Further, emerging technologies like driverless vehicles, drones, and 3D printing are also expected to become more prevalent in supply chain. The MHI survey states that 20% of logistics organizations are likely to exploit drones as part of their monitoring, searching and event management activities by 2017.

The success of a supply chain – and a company’s competitive edge – relies heavily on the ability to be more efficient and more informed. By injecting technology into the supply chain and by operating as a network with a similar information model to Facebook or LinkedIn, all parties are on the same informational page, providing deeper visibility into the whole picture.

Key FindingsThe technologies and tools currently being used to manage supply chains vary from company to company, depending on their needs and resources. Most notably, the tools currently being used are for inventory management (64%), factory management (35%) and transportation management (34%).

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OPERATIONS What you’re about to see: Running a global supply chain operation requires intricate planning, sourcing, delivery, measurement and a broad, seasoned, well-informed viewpoint. As David Morris of Fortune references in his article, Why Your Company Needs a Chief Supply Chain Officer, the continuation of globalization, complexity of products and increase in competition makes supply chain a subject that executives at the highest level must be tuned into it.

As you’ll see in this section, there are still a lot of companies operating without Chief Supply Chain Officers. While 32% of companies do have a similar role in place, it’s important to point out that it isn’t CSCO, hence, not C-level. Non-C-level titles tend not to report to the CEO, which is necessary since supply chains are so critical to corporate performance, especially in a globalized economy.

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Commonality of the Chief Supply Chain Offer Role

ImplicationsTo again reference the Fortune article, Why Your Company Needs a Chief Supply Chain Officer, Morris writes, “The success of behemoths like Apple has as much to do with their savvy management of far-flung factories as with design or marketing, and some companies are thriving thanks primarily to behind-the-scenes finesse.” This very behind-the-scenes finesse is what makes a company win or lose when it comes to supply chain, and this is driven by a) having someone in place to oversee it, and b) having a networked approach.

If you’re still not convinced supply chain is a critical and strategic domain that’s churning out new heads of companies, take a look at who runs Apple and Wal-Mart. Hint: They got their start in supply chain.

Key FindingsLess than a quarter (24%) of survey respondents said they currently have a Chief Supply Chain Officer in place. Thirty-two percent said they have something similar, but we presume it’s not at the C-level.

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ImplicationsSupply chain costs can easily spiral out of control given today’s complex business landscape. Supply chains are more expansive – and expensive – than they’ve been in year’s past, but complexity can be kept in-check by having a supply chain strategy, and C-level leader, in place. At the core of this strategy should be a networked approach. This means:

• Having connected to partners end-to-end

• Driving decisions based on operational information

• Establishing deep executional visibility and control

Taking this approach will help manufacturers achieve all of the goals they cited in this question, including what was identified as the top goal – reducing costs. Operating as a network does away with a reactiveness, breaks down the silos of information and facilitates a transparent, efficient environment.

Key FindingsAn overwhelming 41% of survey respondents stated their most important supply chain goal for the near future is to reduce costs. While this is of course important, it goes back to the issue we raised in the introduction that being more focused on cost cutting than efforts that support a strategic supply chain vision indicates what could be considered misguided priorities.

Top Supply Chain Goals for the Near Future

Interested in learning more or sharing insights on the report?

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EMAIL US: ManufacturingInsights@gtnexus.com

CALL US: +1-212-405-1855

Copyright © 2016 GT Nexus. All rights reserved.