‘Tis the season for prognosticators to peer into their crystal balls and tell the world what they see. I tried to curb the urge to add my own two-cents on what the coming year holds for supply management. But Sourcing Innovation blogmaster Michael Lamoureux literally threw me on the bandwagon.

I’m embarassed to say he coaxed me using the road-tested “everyone-is-doing-it” tactic. Though sophomoric, it’s still a pretty persuasive technique. (How else do you think all those e-marketplaces got funded?) In fact, Spend Matters, Sourcing Innovation, The Purchasing Certification Blog, and (even) the e-Sourcing Forum all beat me to the punch, having already posted some interesting predictions. That doesn’t mean that I agree with all their projections. (No offense Michael, but will 2007 really be the year of Product Lifecycle Management? During my decade as analyst, I was always amused by my peer’s annual prediction that ”this will be PLM’s breakout year.”) But their predictions are more than worth the read.

I feel that my study of the Top 5 Supply Strategies as reported by 300 supply management executives was a pretty solid indicator of the direction of the industry and technology investment for the next 24 months. So I won’t rehash those findings. You can read those for yourself, here.

Instead, I believe the most poignant predictions are those that affect you personally. With this in mind, here are my Top 5 Picks on what supply managers will experience in 2007:

1. You will pay higher prices: As noted here last month, pundits predict that a weakening U.S. dollar, leaner inventories, and supply constraints (thanks in part to China’s voracious appetite) will boost prices for core commodities and services. Even Gartner’s Andy Kyte came out of his supply management research hiatus to predict that “…with the price of materials such as plastic and metals increasing, it looks as though CPOs are going to face a whole new set of challenges over the next 12 months.” Market watchers agree that prices for gold, silver, and platinum group metals will continue to climb. But some suggest that prices for other commodities, such as non-ferrous metals could cool in coming months.
2. You will experience a shock to your supply chain: Studies from AMR Research, Aberdeen Group, and others point to the same conclusion: despite growing concerns over supply disruptions, few companies are sufficiently prepared to assess or mitigate supply risks. Low-cost country sourcing coupled with lean and just-in-time inventory approaches have increased the likelihood of supply disruptions. (Not to mention tightening supply markets and inflation.)  AMR’s Mark Hillman reports that such factors have cuased supply managers to prioritize investments in risk management resources and technologies. But history shows that few companies really make such investments until they get burned. Just ask Ericsson, which wound up getting burned with a major supply outage and production shutdown due to overly aggressive cost-cutting and sole-sourcing strategies. The cell phone maker has since developed one of the most enviable risk management programs, creating risk profiles and approaches by commodity and corrective action strategies.
3. You will rethink your low-cost country sourcing strategy: The initial frenzy to source from low-cost countries resembled desperate parents looking to land a Tickle-me-Elmo or Xbox 360 during the holiday season. Allured by the siren song of low production and labor costs (and often pushed by chest-thumping CEOs) supply managers rushed to secure supply in emerging markets, particularly China. Now that the dust has settled, smart supply management organizations will begin retooling their global sourcing approaches to better reflect total costs — especially landed costs — and to better align with their company’s global manufacturing, sales, and customer support strategies. Consider General Motors, which, as described here, is reassessing its global supply base and sourcing decisions based on total landed cost and global business objectives. The move helped GM cut $2 billion from its procurement costs last year and was a contributor to the automaker’s first operating profit since 2004.
4. You will lose your top talent: A new Aberdeen Group study pegged recruiting and keeping top talent as the top risk facing CPOs today. My own interactions with supply management executives validates this finding in spades. The most-needed talents — strategic sourcing, category management, and technology management (not to mention experienced leaders) — are in short supply. Supply execs tell me that their best people (and even entire teams) are being poached by other companies. (Just consider how the disciples of Dave Nelson (Honda, John Deere, Delphi) and the late Gene Richter (HP and IBM) have become the hot free agents of supply transformation.) Keeping your best people will require you to pay competitively, provide a clear career path, provide ongoing training, and invest in technology — both to make your superstars more productive and to retain their knowledge if they leave.
5. You will embrace sustainable supply strategies: As I noted here last week, 2007 will be the year that environmentally and socially responsible supply strategies go mainstream. New environmental regulations and the need to offset supply price increases and risks will drive most of you to employ sustainable supply strategies. The smarter in the bunch will find ways to leverage these approaches to lower supply costs, secure supply, and drive greater sales and profits. One example: Hewlett-Packard now gets 60% more of the precious metals like copper and gold from its recycling program than from mining. This has given HP a much-needed cost and supply advantage over its competitors, which have been grappling with rising prices for these commodities. Find out what other leading organizations are doing, here.

I’m not much of a betting man, but I would wager that supply managers that don’t prepare for the above events will have a tough 2007.

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