Two things you should never do on an empty stomach: shop for groceries, and predict the future. In the case of the latter, that must be a guiding principle of the San Francisco Roundtable of the Council of Supply Chain Management Professionals, which takes care to feed attendees before presenting its annual, much-anticipated predictions for the coming year and beyond.
For the fourth straight year, SFRT offered an after-dinner roster of Silicon Valley visionaries, whose speculations were subjected in real time to feedback from fellow panelists and audience members. Here, then, according to five industry experts and their on-site critics, is what supply-chain executives can expect to see in the months and years ahead.
Prediction: "The Chinese miracle is kind of over." So spoke Jim Miller, vice president of worldwide operations with Google, and if his words sound familiar, you're not just experiencing deja vu. He's been saying the same thing for three years in a row, and he's getting closer and closer to being right. Miller is suspicious of recent statistics he sees coming out of China - a 7.2-percent increase in GDP with near-zero inflation, to name a couple. "That," he said, "is almost impossible." In 2013, he believes, manufacturers in China will face severe logistical problems as they move inland, to less developed parts of the country. Meanwhile, the re-shoring of plant capacity to the West will continue. "It's not the collapse of the Chinese government," Miller said, "but in 10 years we're going to look back and say that maybe this isn't the miracle we thought it was."
Response: As usual, Miller wasn't without his gainsayers, among them Mark Buck, another veteran of the SFRT crystal-ball sessions and currently global supply chain and procurement leader with Bio-Rad Laboratories. "The business climate is changing," he acknowledged, "but I'm still considering China when I source." Companies aren't just drawn there by low production costs, he noted. They can obtain higher quality than in other countries with comparably cheap labor. Buck is convinced that China will address its economic and political problems as they relate to the business sector. "For 5,000 years, they've figured it out."
Also in the "nay" camp was Kerry McCracken, vice president of business solutions for the Integrated Network Solutions Segment of Flextronics. Many companies with a total-cost perspective will continue to produce in Asia, she said, while acknowledging that some sourcing patterns will shift. Devin Fidler, research director of the Technology Horizons Program at the aptly named Institute for the Future, said China's economy will continue to experience strong growth, even if it's "only" in the high single digits.
"I stand by my prediction," replied Miller. While he's not expecting a "calamitous" drop in China's manufacturing base, "in the next three to five years we're going to see fairly large-scale change."
Prediction: Cyber-security will be a growing concern in the coming year. "There will be heightened awareness across the entire electronics supply chain, with special focus on telecommunications, coming shortly after the new year," said Craig Cuffie, vice president of supply chain and chief procurement officer with Clearwire Communications. Companies will face higher costs in such areas as inspection and testing, and product lead times will be negatively affected. At the same time, new regulations and legislation will become a greater burden. "Everyone is going to have to go out and hire lobbyists," said Cuffie.
Response: No dissension from the other panelists, although Buck said the picture will be more complicated than the one painted by Cuffie. Cultural differences must be overcome, he said, with companies reaching out to the Chinese "to help them understand what is important to us." Closer relations with the country's ministries and local governments can lead to greater trust and, ultimately, fewer concerns about security. But Cuffie said the issue isn't one of understanding another culture. "It's a matter of national security."
Prediction: Expect a "rearranging of the deck chairs" by companies moving production around the globe to take advantage of the lowest-cost sources, according to McCracken. But it won't just be about following the money, she said. "Now people are much more sophisticated." Product will be sourced in China, other parts of Asia and even Europe. "There's going to be a lot of disruption," she warned.
Response: Panelists and audience agreed, although some questioned how companies were going to pay for these diversified sourcing strategies. McCracken was quick to note that she wasn't foreseeing a mass exodus of electronics supply chains from China and Asia. Businesses will take into account such factors as the value of product, the various drivers of freight cost and tax incentives. They'll be deploying sophisticated software tools to analyze their supply chains in depth.
Prediction: Within five to 10 years, the internet will become more of a tool for "disrupting commerce," said Fidler. Businesses will address the "last-mile" problem by routing more product directly to customers. Even the U.S. Postal Service is getting into the act, with the introduction of same-day delivery in select cities.
Response: Divided. "What we do at a personal level does not translate into B2B relationships," McCracken said. "Pinging to some guy to deliver a multimillion-dollar product is not going to happen."
"I like the concept," said Cuffie, "but corporations are going to have a big problem with it." Fidler replied that it will depend on the item being shipped. "We're going to have to work out where those lines are," he said.
Prediction: Expect 2013 to be "a stagflation kind of year," said Buck. The battle between the Obama Administration and Republicans over the federal budget, tax policy and the self-created "fiscal cliff" will have a dampening effect on the economy. Prices will flatten or decline. "No one's going to be investing cash," Buck said. "You're going to see things start to crumble. Maybe things will start to price up at the end of the year."
Response: Cuffie said he was more hopeful than Buck of a better year. "I've got five adult children and they need to get out of my house and get jobs," he joked. (Or maybe he was dead serious.) The stock market, he noted, appears to be headed in the right direction. "The overall direction of the long story arc is positive."
"There's a lot of hope and pent-up demand," Buck acknowledged. "People are waiting to see how they can invest their money." Still, he said, "it's a global economy. Next year is going to be tough."
Here's hoping he's wrong about that one.
Next: Five more predictions from the San Francisco Roundtable.
- Robert J. Bowman, SupplyChainBrain
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