March 19, 2014

Supply chain execs' ambitions exceed their grasp—for now

MHI and Deloitte study reveals goals of supply chain executives and the constraints they face.

By DC Velocity Staff

Supply chain executives have plenty of ambition, but they worry about having the resources to execute their plans.

A new study issued Wednesday by MHI and Deloitte Consulting LLP found that developing supply chains to handle multichannel fulfillment is high on the agenda for most supply chain executives. And making use of supply chain analytics to help get there is also a major goal. But they say they are constrained by a shortage of talent and their businesses' relentless focus on cutting costs.

The study, the first edition of what is expected to be an annual report, was the focus of a keynote presentation at Modex, MHI's material handling and supply chain exhibition and conference in Atlanta. MHI CEO George Prest and Scott Sopher, a principal for Deloitte Consulting LLP and leader of its Supply Chain & Manufacturing Operations practice, presented the findings from the study, "The 2014 MHI Annual Industry Report - Innovations That Drive Supply Chains."

Sopher discussed the challenge supply chain managers face in shifting operations to meet the demands of multichannel or omnichannel fulfillment. "What's happening is that the way customers can order is much more advanced than fulfillment operations," he said. The majority of respondents to the survey saw multichannel as a strategic imperative, and 60 percent expect shipment frequency to increase. But a large proportion admit to a lack of capabilities in current operations to execute a multichannel strategy.

However, nearly three-fourths (74 percent) of retailers expect their investments in multichannel fulfillment to increase over the next three years. Sopher expects to see companies developing DCs that can fulfill demands from all channels from a single set of inventory. He added that he believes that significant innovation in material handling equipment will be needed for those strategies to work.

One of the key tools for improving supply chain operations, survey respondents seem to agree, is supply chain analytics. Sopher described supply chain analytics as leveraging both internal and external data to reduce costs and improve operations. What's made greater use of analytics possible, he said, is the availability of vast amounts of data, lower data storage costs, greater processing speeds, visualization tools, and improved analytical tools.

But while 80 percent of respondents see analytics as very important or moderately important, a large percentage of firms report a lack of capabilities to execute. "Clearly, there are gaps in capabilities," Sopher said.

Another major obstacle reported by survey respondents is a supply chain and logistics talent pool that's far shallower than needed. Prest, citing MHI's "U.S. Roadmap for Material Handling & Logistics" report, said the supply chain will create 1.4 million jobs by 2018. And those jobs will carry a median salary of $80,000. But finding that talent is proving a perennial problem, with 65 percent reporting a gap in needed skill sets in their companies.

The executives also expressed frustration with their companies' focus on cost cutting, which many see as impeding needed investment. "The study showed that the number one priority for supply chain executives is controlling costs. That's nothing new," Prest said. But he added that focusing on cost and limiting investment may harm companies' long-term profitability.

Three other issues will affect supply chains in the not-too-distant future: sustainability, 3-D printing, and mobile and machine-to-machine technologies.

Sopher said that sustainability is already an important goal in many supply chains, but that the focus on costs may impede investments in that area.

He also sees major changes coming as a result of development of 3-D printing technology. "I think this will have a dramatic impact on the way of life for people in the supply chain space," he said. Possible effects he listed include minimizing tooling, reducing manufacturing staffs, and dramatic impacts on transportation and distribution.

Those effects may be a ways off for many industries: 79 percent of the survey respondents have no plans to invest or increase investment in 3-D printing or say they don't know if it is even applicable for their companies. "People are not convinced yet of its strategic importance," Sopher said. "But I do think companies should keep a really close eye on this."

Mobility and machine-to-machine technologies, he said, could also prove to be game changers in supply chains as wearables and other tools continue to advance. Survey respondents agree: More than 50 percent of respondents see supply chain mobility as important. Close to half expect to deploy more mobile capabilities in warehouse operations, and a similar percentage plan to do so in inventory management applications.

MHI and Deloitte intend to repeat the survey late this year and will report the results during the ProMat show in Chicago in March 2015.

More coverage from MODEX 2014