Lora Cecere, while at AMR Research, published a list of predictions for 2010 that are CPG and retail focused, which is her specialty. What is interesting about the list, in my opinion anyway, is that we will see a lot of retail behaviour begin to percolate down the supply chain. This is my first prediction, but it is really an observation of an acceleration of this phenomenon, rather than a beginning. At the heart of Lora’s predictions is the shift of power over the last 20-odd years from the brand owner to the retailer to the consumer. This is associated with a big increase of online shopping, or as Lora states “What’s old is new again, with e-commerce rising from the ashes of the dot.com bubble.” It is this re-emergence of e-commerce that has given the consumer the buying power. Of course, the recession has had a role to play by making price a key buying criterion, possibly the key criterion. But e-commerce allows the consumer to compare several alternatives, in terms of both brand and price, in a fraction of the time and with greatly reduced effort. While mall shopping isn’t going away any time soon, there is no doubt that e-commerce has shifted the buying power to the consumer through ease of use and ease of choice. For example, my daughter went to the mall with a friend and came home excited about a skirt she had seen in a store but couldn’t afford it. My wife called her friend to get a few more details and then spent about 20 minutes on the internet finding the best deal, which was 30% less than the store price, including shipping. It would have taken her at least 20 minutes to drive to the mall and the 30% reduction does not include the cost of driving to the mall. And it arrived in time for Christmas. What’s not to like about this story? So how does this relate to our market, which is much more in the low volume, high mix and build-to-order category, rather than the high volume, low mix and make-to-stock environment typical of CPG? As has been commented by many people before me, retail-like behaviour is being adopted in more industrial environments. I visited a fab-less semiconductor manufacturer in late December that is wrestling with increasing demands for a much wider choice of product capabilities coupled with expectations of greatly reduced order to delivery lead times. The lead time expectation is a lot less than the manufacturing lead time so the semiconductor manufacturer is looking at postponement strategies including, very importantly, die reservations in the foundry, which of course they do not own. Because of a greater product portfolio they cannot afford to keep the same levels of inventory because of the associated risks of price reduction and obsolescence. As I stated in the opening paragraph, the adoption of consumer behaviour in a business-to-business environment has been increasing over the past few years, and will only accelerate. Perhaps it is Lora’s point about the effect Wal-Mart is having on the supply chain that best captures the impact consumer and retail behaviour is having on the larger manufacturing sector. Because Wal-Mart is such a dominant player, initiatives enforced by Wal-Mart soon trickle down the supply chain through multiple tiers of supply and affect other industries too. Lora selects 3 initiatives: “sustainability scorecards, rethinking inventory strategies, and the initiation of the Supplier Alliance Program.” Let’s start with inventory. For centuries, inventory has been used as a buffer between demand and supply, starting with grain silo’s and other food stores. The fab-less semiconductor manufacturer I mentioned above is, like many other manufacturers, adopting postponement strategies including reducing inventories to preserve cash, while at the same time being faced by the need for shorter order to delivery times. Obviously there is a lot that can be done to improve manufacturing flexibility and shorten change-overs, but the biggest gains are to be had in reducing the order processing times, especially the time it takes to determine if the order can be delivered on time and in full. Given the reduction in inventory, the issue has gone from available-to-promise (promising from finished goods inventories) to capable-to-promise (determining if the products can be manufactured in time), blurring the distinction between execution and planning. The sustainability scorecard will perhaps have the biggest and widest long term effect on the supply chain. As stated in a New York Times article, “In the future they may also have information about the product’s carbon footprint, the gallons of water used to create it, and the air pollution left in its wake.” With the impact of environmental legislation also trickling through the supply chain, particularly the electronics supply chain, it will only be a short time before a full product sustainability scorecard will be required including “carbon” accounting. I think it is only some time before we will have a “carbon cost of goods sold.” And, as commented on in the NYT article by Tim Marrin, associate director of external relations for Procter & Gamble, “The last thing a supplier really wants is when you’re doing a separate index for every retailer.” Wal-Mart has the market “muscle” to see this through and to ensure a standard is adopted across the industry. For assembled products, such as consumer electronics, this means that the suppliers to the brand owners will also have to conform. Which is how we will see the “trickle down” effect influence the adoption of a sustainability index on labels permeate other industries. To be fair to high tech, particularly computing, they have had a start rating in effect for some years. But the Wal-Mart initiative will take this to a whole new level of detail and accountability. Am I just still too full of Christmas “cheer”?