7 Challenges Facing Supply Chain Leaders in 2019

Now that the dust has settled on 2018, the pressures and priorities of the current year have become clear.

While “top trends” lists are a dime a dozen, we think this one has some unique insights into the challenges and opportunities that will, or should, occupy the minds of supply chain leaders in 2019 and beyond. To provide this balanced insight, we canvassed our panel of internal experts and identified the following seven challenges.

Immediate challenges

1. Predictions of a potential macroeconomic downturn are abundant

The positive aspect of the modern information era is that we’ve gained broader and more timely insight into the metrics which drive economies and financial markets. However, I’m less confident that the ubiquity of prognosticators and their predictions is a positive development. The current uncertainty around our near-term macroeconomic conditions feels comparable to driving your car straight into a tornado watch. Forecasters say all the conditions for a tornado are surrounding us, but should we pull over when all we’re experiencing is some clouds and light wind (at our back)?

Now apply this analogy to the business sector, and you can see how this situation puts supply chain leadership in a difficult position. Board directors and activist shareholders are asking them to develop a defensive posture while simultaneously pushing for innovation and performance improvements that will hopefully enable the growth and competitiveness required to take advantage of current momentum. It’s a difficult balance to maintain.

Unfortunately, the stress from speculation surrounding a global economic slowdown, possible Brexit contagion, and unresolved trade wars will impact, and in some cases delay, strategic investments in the supply chain throughout 2019. As the year progresses, I certainly hope we gain a clearer understanding of whether macro-tailwinds will shift to headwinds. (They already have in a small handful of European economies, but forgive me if I don’t consider a “slowing” 6.6% GDP growth in China to be a headwind.)

Regardless, we will always find ourselves managing the delicate balance of assessing macroeconomic health and the resulting impact on our respective enterprises. Business leaders will always be faced with the challenge of assessing and answering questions of prioritization and agility: How do I prioritize my “must have” investments that are just as critical to our success in bad times as in good? How do I make my investments “self-funding”? How do I accelerate my “time to value” to stand up new capabilities? Supply chain leaders now have a seat at the executive leadership table — welcome!

— Mike Kilgore, President & CEO

2. Freight capacity equilibrium appears to be achieved

The North American capacity crunch that rocked freight markets in late 2017 and most of 2018 destroyed transportation budgets, induced FUD (i.e., fear, uncertainty, doubt) across all industries, and caused C-suite executives, board members, and shareholders to lower their earnings reports and revenue expectations. Not only that, we heard a wide array of speculation concerning the impact of ELDs on the driver shortage, which only further complicated the frenetic rate environment. We saw both spot and contract rates spike to their highest levels in decades, and transportation procurement professionals across North America struggled with carriers not living up to commitments made only weeks earlier. Luckily, as 2018 came to a close, the transportation markets were clearly cooling off.

2019 should prove more favorable for shippers than the previous 18 months. We saw truck orders increased to record levels in 2018 to meet demand, and as that capacity manifests itself, I believe stabilizing rates may even present opportunities for savings. ELD regulations may actually turn out to be a good thing for the industry as carriers can now use that data to increase transportation network efficiency and help optimize fleet utilization. The pain shippers felt through most of the previous year appears to be behind us, and both carriers and shippers should expect a more balanced transportation environment in 2019.

— Kevin Zweier, Vice President, Transportation

3. The difficulties of talent acquisition and retainment are growing

It’s no secret organizations are having trouble finding and retaining people with the technical and analytical skills required to efficiently manage and improve their supply chains. U.S. unemployment is currently hovering around 3.8 percent. However, this rate doesn’t necessarily reflect the size of the hiring pool which possesses the unique skills needed for supply chain success, including advanced data analysis as well as transformation and leadership. This means that organizations who typically do not compete with each other on the commercial field of play are now competing in the talent arena.

As a result, supply chain leaders should consider evaluating the sourcing of skills similarly to the way they source raw materials, warehousing, logistics, etc. The evaluation can be distilled into a “make or buy” decision. Where skills must be developed internally, attracting and retaining highly-skilled talent through dynamic experiences and constant challenges are key. Successful companies can attract junior talent by allowing them time to rotate through the organization in order to learn new skills and hone their passion.

Where skills are tight, companies should look to identify partners who can augment their team by bringing strength to their “bench” in specific competencies. For example, network optimization skills are a challenge to capture and retain. In this case, blending internal and external resources oftentimes achieves the best result.

— Irv Grossman, Executive Vice President, Americas

Long-term developments

4. Omni-channel offerings will keep expanding, wreaking havoc on operations and more

This one seems a bit obvious, but here’s the truth: Many organizations have yet to nail down a solid plan for their supply chain to efficiently handle the growing shift in buying behavior. For the longest time, it was easy to fall into the assumption that omni-channel would only be a B2C problem, but that’s no longer the case. Sure, omni-channel originated in that space and still primarily exists there, but we’re seeing it’s influence stretch well into the B2B marketplace. And many manufacturers are unprepared to meet the operational requirements needed for direct-to-consumer fulfillment, which are vastly different than B2B distribution.

The biggest challenge of omni-channel is its breadth. It touches every single aspect of the supply chain, meaning there’s no quick solution to implement. Network design, facility design, operations, systems, packaging, inventory deployment, supply chain planning, etc. All of it needs to adapt to the evolving marketplace or organizations will find themselves losing ground as they struggle to meet the expectations of an expanding business model. Operational capabilities and agility are key, meaning that manufacturers must now implement pick, pack, ship, and return processes that were previously managed by traditional retail distributors. And that’s just the first step of many to addressing an incredibly complex challenge.

— Kirk Waldrop, Vice President, Supply Chain Operations

5. Tailored services through segmentation will cease to be optional

As we talk with our clients, we see many striving to meet the unique needs of their customers, and they realize that a “one size fits all” supply chain is not an effective strategy to be successful. For example, the needs of an industrial customer, who orders products in bulk quantities, are completely different than the needs of a retail customer. Some customers expect flexibility in terms of responsiveness, while others just want a reliable and cost-effective service. Companies that recognize how to tailor their supply chain to meet these various customer segments will be successful.

With each identified segment, you’ll need to determine how to control the supply chain, i.e., through differentiated service level targets or differentiation between the inventory control policy (MTO or MTS). Determining how many supply chains you will need requires a good understanding of your current product and service offerings as well as your cost-to-serve modeling capabilities. A small survey we recently conducted among 27 supply chain executives reveals that most of them think they need more supply chains to meet their various customer needs. However, most participants agreed a manageable amount is somewhere between three to five supply chains. A segmented product portfolio in addition to segmented customer identifiers will allow you to determine the appropriate amount for your organization.

— Erik Diks, Managing Director, Europe

6. Continuous supply chain alignment will be the new norm

Supply chain management continues to receive increased recognition at many organizations. Companies now see the value of implementing supply chain focused strategies to achieve better alignment with the company’s broader business initiatives. One area we see this growing is with the ongoing orchestration of S&OP and/or IBP, allowing for improved end-to-end visibility to maximize the value of the supply chain.

But as business needs change and grow, the periodic evaluation of network design, supply and demand planning processes, cost balancing, and operational capacity is no longer sufficient. A need for continuous modeling has become more prevalent than ever before, and while many organizations recognize the importance of consistent evaluation, they also beginning to realize the difficulties on building and sustaining an internal team capable of managing this process. Many try to develop internal competencies, and have the right intentions, but they almost never last. As the complexity of your supply chain continues to increase, you should evaluate and determine which operational strategies you can do internally, and which ones will need to be outsourced to achieve the desired results.

— Jonathan Whitaker, Principal, Integrated Demand & Supply Planning

7. Technology and innovation will become increasingly scalable

As with all technology advancements, supply chain professionals should be careful when navigating the hype surrounding buzzwords such as “blockchain” and “artificial intelligence.” While blockchain may eventually prove useful to supply chain processes, we have yet to witness any capability and scalability to justify long-term investment. I think innovations in artificial intelligence and machine learning represent a decades long journey in supply chain optimization and predictive analytics.

Earlier periods of innovation leveraged the exponential explosion in the access to computing power and the availability of reliable, large scale datasets. The current era has witnessed the arrival of well-designed platforms, tools, and languages – both open source and commercial. These technologies have enabled a broader class of supply chain professionals to design, implement, and deploy AI and ML engines, whereas historical advancements in this area required computer scientists and a significant R&D budget. This current transition represents a democratization of supply chain analytics.

I do think the adoption of revolutionary advances such as electric powertrains, autonomous vehicles and robotics will continue to increase. Investments in these concepts will continue to become more commonplace, and as a result, organizations will see cost reductions and efficiency improvements within these programs. Furthermore, IoT and the expansion of connected devices will allow for stronger planning processes and overall communication across the organization.

— Ken Justin, Chief Analytics Officer

We expect 2019 to be another exciting year for global supply chains, and we look forward to working with talented professionals like yourself to constantly explore new methods for improvement. As innovation continues to shape the supply chain space, we remain committed to embracing the numerous challenges impacting organizations of all sizes and industries. We wish everyone a productive year and can’t wait to see what accomplishments are made throughout 2019.