Cautious optimism remains among manufacturers despite the fact that the National Association of Manufacturers quarter four 2018 survey reported the second straight quarterly drop in confidence. Just 88.7 percent of survey respondents stated they felt either somewhat or very positive about their company’s outlook. This is the lowest figure since the first quarter of 2017 when it hit 93.3 percent, but still significantly higher than 2016 when the percentage of positive responses hit a low of 56.6 percent.
Despite the dip in positive responses, manufacturers are still largely positive about the expectation of pro-growth policies like tax reform.
While lower corporate tax rates and better treatment of depreciation will make CEOs cautiously optimistic, the uncertainty and turbulence awaiting will temper enthusiasm. According to the NAM survey, manufacturers see the four biggest business challenges as attracting and retaining a quality workforce, increased raw materials costs, trade uncertainties, and rising health care and insurance costs. Uncertainty about tariffs and trade, an unpredictable global economic climate, rising commodity costs, a tightening labor market along with overwhelming logistics challenges, not the least of which are driver shortages, will all play a role in the transformation of the supply chains in most industries.
In March, The Strategic Logistics Summit for CEOs and other C-Suite executives at the FedEx Experience Center in Memphis will bring together CEOs from across industries to explore how successful organizations are thinking strategically about the new terrain of global commerce and technology—and separate the hype from reality.
The big question CEOs need to answer in the new year will be, “Is your supply chain ready for what lies ahead?” Without adequate supply chain optimization, two problems will result: You will not be able to take advantage of new growth opportunities due to an inability to fulfill orders and deliver on customer expectations and you will not be able to adequately address new challenges and unexpected disruptions that may be on the horizon.
What will impact the supply chain in 2019?
Positive factors impacting the supply chain include the drive towards Internet of Things and Industry 4.0, which will deliver greater visibility and efficiency across the buy-make-move-fulfill supply chain. These technologies will certainly be disruptive, but those companies who respond to these new dynamics will thrive.
In the coming year tariffs, geopolitical uncertainty and availability in logistical assets will make supply chains more complex, with leadership needing to take a more sophisticated, data-driven approach, gaining intelligence deep into the supply chain – understanding who their suppliers’ suppliers are, and who their customers’ customers are to allow them to improve demand and supply planning along with predicting potential disruptions to the end-to-end supply chain.
Global trade disputes and other factors such as Brexit, declining oil prices and a weakening Chinese market are causing some to worry about a global economic downturn, with a number of analysts predicting a global recession by 2020. While this is certainly not optimistic, businesses doing forward planning and supply chain optimization can take advantage of the present positives in the economy to prepare for any downturn in the near future.
Another challenge will be a growing skills crisis and a shortage of supply chain talent. Companies will need to change their views of the supply chain from a siloed set of functional cost centers, to a strategic cross-functional competitive weapon.
Also driving changes in the supply chain will be the continuing move towards a digital supply chain with predictive and prescriptive tools developed from Industry 4.0. Data analytics and artificial intelligence are rapidly changing how companies do business and it will continue to accelerate. The benefits of Industry 4.0 include greater visibility, efficiencies and enabling prescriptive capabilities across the buy-make-move-fulfill supply chain – failure to adapt and prepare for this accelerating transition could be devastating.
Are your supply chain and operations ready?
Supply chains and operations contain significant bottlenecks best seen during the best of economic times hindering an organization’s ability to maximize growth and can be sources of increased cost and can drain cash in economic slowdowns. Optimizing for growth today sets up critical improvements for when times are more challenging. There is no mutual exclusivity, high performing supply chains and operations are equally successful in both environments.
The three big questions CEOs need to ask are:
- How will suppliers respond rapidly to increasing or decreasing demand?
- To what extent are manufacturing and operating distribution facilities prepared to cope with an increase or decrease in demand while maintain quality and service with appropriate cost and cash levels?
- How do your logistics capabilities have enough capacity and responsiveness to accommodate an increase or decrease in demand?
Regardless of a favorable tax environment, the potential of economic growth or a downturn in the economy money will be left on the table if your supply chain and operational facilities cannot respond to the opportunities as quickly as, or faster than, your competitors. Responding to new opportunities goes beyond your internal production capabilities. Your company’s entire global supply chain must be optimized to capitalize on those opportunities. Without adequate preparation, you may be leaving money on the table as a result of an inability to deliver on customer expectations and fulfill a changing flow of orders.
Capitalizing on opportunities
Good news should always be met with preparation, and potential challenges with even more preparation. Even with potential challenges now and in the near future, new opportunities for growth are presenting themselves by outperforming competitors, even disrupting the entire services equation within your industry. CEOs need to be confident their global supply chains and operations are ready to capitalize on the anticipated growth opportunities and adapt with greater responsiveness to meet the risks that inevitably come with opportunity.
Adapting with greater responsiveness means being proactive, gaining actionable insights and moving to a more integrated end-to-end supply chain under a single corporate supply chain and operations approach designed to serve the customer. This end-to-end supply chain, including all operations and customer service, is moving to one executive leading this global complex set of functions to help better serve the customer while preparing for whatever the future holds. Trade war, driver shortage, increasing or decreasing demand, cost or cash challenges or not, there are opportunities to drive out cost, release cash and enable growth in the end-to-end supply chain through Total Value Optimization, a strategy that allows the company to anticipate and meet demand by synchronizing the buy-make-move-fulfill supply chain to deliver the greatest value to customers and investors at the lowest cost to business.
Stress testing supply chain and operations
Supply chains and operations are vulnerable to stress, both from flaws in internal planning and design and from external factors. Stress testing the supply chain is an essential part of optimization, and ensuring that the supply chain is ready to withstand challenges and take advantage of new opportunities. This stress-test may involve identifying potential bottlenecks. New technologies including IoT, blockchain and artificial intelligence may help to identify and implement new opportunities, but at the same time will increase the volume of data and create more potential chokepoints that must be identified, re-evaluated and repaired.
It’s fair to say nearly every business has its weak links in the end to end supply chain. Knowing where those weak links are and when they are likely to break down is the first step towards success through Total Value Optimization and achieving the greatest value at the lowest cost to business.
Proactively preparing for the new year – and transforming your supply chain into a competitive weapon – requires responding to both opportunities and challenges, and the coming year will have both in abundance.