Supply Chain Trends to Watch in 2012

The Business Survey Committee of the Institute for Supply Management recently released its projections for the manufacturing industry. According to MarketWatch, ISM forecasts that manufacturing will continue to expand throughout 2012. Capital expenditures were up 11 percent in 2011 and are expected to increase nearly 2 percent in 2012.

ISM Forecast for 2012

Survey respondents report that the most challenging problems facing their businesses as they plan for 2012 are: poor sales (43.9 percent), government regulations (22 percent), inflation (17.4 percent), cost of labor (4.5 percent), quality of labor (4.5 percent), taxes (4.5 percent), and interest rates and finance (3 percent).

The panel also indicated that supply chain management practices will be improved in 2012 using the following strategies, listed in order: supplier performance management, strategic sourcing/supply base rationalization, demand planning/supplier lead time reduction, inventory management and control, and process and information systems improvements.

Trends to Watch

Based on these results, here are three supply chain trends to watch in 2012:

1. Making tweaks to the lean supply chain. The natural disaster events of 2011 have dramatically shown the level of risk that companies expose themselves to when they rely on a small number of vendors. As the industry moves forward, companies will need to figure out how to effectively manage suppliers and develop a plan to handle potential supply chain disruptions. Bob Ferrari, a leading supply chain consultant notes in a recent Fortune article, “The question now is, has the quest for lowest-cost production and hyperlean supply chains overridden and exposed vulnerability to significant business risk?”
2. New government regulations. The California Transparency in Supply Chains Act, S.B. 657, (the “Act” or “SB 657”) went into effect on January 1, 2012. This Act must be followed by retail sellers and manufacturers doing business in California with more than $100 million in annual gross receipts. Essentially companies will be required to announce what steps are taken to ensure their product supply chain is free from slavery and human trafficking. There are a number of steps you should take in order to prepare for compliance with this Act. For example, Sedgwick LLP recommends: “Determine whether a system is in place to ensure accountability and sufficient training for those employees responsible for managing the company’s supply chain and, if not, implement appropriate procedures. This will likely entail an analysis of supplier guidelines to confirm that suppliers have integrated human rights policies into their guidelines and standards.”
3. A return to speculative construction? SC Digest reports that “Speculative new construction will be the story of 2012, after two years of literally no new spec construction in the U.S.” In a report by Grubb & Ellis, vacancy rates have been declining and currently there is 10 million square feet of speculative construction under way.

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