2023 Predictions

The new year is always an opportunity to review and predict. My last post covered the review aspect, so let me indulge in some predictions for the future and my rationale for thinking that way. I appreciate that predictions and forecasts are more often wrong than accurate, but let’s play along.

My view on the near to medium-term future trends are:

1. Technology failure rates will increase. The number of projects seems to have increased during COVID, while the underlying causes for failure haven’t changed, and the business community has a history of not learning from the past and continues to manage these projects the same way, expecting a different result. We have seen numerous ERP projects fail, and of course, there is the big ASX blockchain failure making the news. If you are embarking on technology projects this year, you need great project oversight and governance.
    
2. Supply chain disruptions will continue despite container prices dropping and goods are now flowing much more freely than they have in the recent past. China’s COVID response means factories, warehouses, and port capacities will be constrained due to the level of illness they are experiencing. Unless you have alternative suppliers, your material flow will be constrained. Unless you have leveraged the 4Vs in my supply chain model and adjusted your dashboards accordingly, your supply will be at risk to the whim or capacity of your supplier. If the predicted recession hits and consumer demand drops, many companies will have too much inventory – the inventory they purchased to provide themselves comfort around how they managed the disruptions. The cost of comfort is about to become real as I expect a significant increase in write-offs in next year’s financial statements.
    
3. While gaining traction in markets like Europe and the USA, reshoring or nearshoring of manufacturing capability will not gain favour here in Australia. While Australia’s energy cost continues to surge, a company’s ability to compete with Australian labour and energy costs means the shift home will simply not happen. Executives should investigate alternatives to China. Areas such as Vietnam, Malaysia and Latin American countries like Mexico should be considered. It is interesting to note that China’s labour costs have been more expensive than Mexico’s since 2014. Manufacturing success in this country relies on automation. This is where your focus should be.
    
4. Inflation will be beaten in the longer term but will face significant headwinds from increased industrial action, energy price rises, and constrained investment in productivity tools such as machinery that automates production processes. Executives can give themselves a head start by deploying technology that enhances productivity, whether that is in the form of new equipment or software. 
    
5. We will have to deal with the predicted recession. In addition to the productivity measures mentioned above, executives should start working on realigning capital utilisation, particularly in inventory management. Many firms had a knee-jerk reaction to the supply chain disruptions and are finding they are over-capitalised in inventory. 
   
   A recent article in The Australian Financial Review highlighted this situation. For example, 99 Bikes were reported as “Riding into a stock hangover”. It was reported that they had an “inventory oversupply” as they cancelled a year’s supply of bikes from suppliers. Their inventory had grown by 65%, to $94 million, on sales of $344 million, to deal with their supply chain issues and lack of reliability. Lululemon also reported an increase in inventory of 85% over the previous year and suffered a 10% drop in share price. 41% of their product range was on sale eroding margins significantly.
   
   The classic situation of having too much of the wrong inventory and not enough of the right inventory in the right place when needed has rung extraordinarily true over the past three years. Boy, do they need my supply chain audit services. Sorry, that self-promotion was a tad self-indulgent.
    
6. Cloud versions of ERPs will become more difficult for ERP vendors to sell over time. Recent subscription cost increases have been substantial in nature. Add to this the substantial increases in labour costs vendors have had to pay for quality people, and their desire to pass this additional cost on to clients in the form of higher hourly rates being charged for professional services, making the business case for a change of system is now much more difficult. I predict a substantial number of executives will defer decisions to change their system and work on making better use of the system they currently have. This substantially reduces the risk – not to mention the cost of ERP renovation is significantly less than a replacement.
    
7. Cybercrime will continue to increase. Yes, I know this is no prediction, really, as we are experiencing this already. The pressure on Boards and senior executives will become more intense. Focus on a company’s ability to recover quickly will become key. While many companies are focusing on prevention, as they should, I’m not convinced recovery is receiving the focus it needs. 
    
8. Many technology fads, usually pushed by large consulting firms, such as Blockchain, AI (Artificial Intelligence), and Digital Twins, will continue to disappoint. The recent decision by the Board of the ASX to axe their CHESS settlement system’s replacement with a blockchain application is the canary in the coal mine. Be careful with your technology decisions.
    
9. Innovative use of BI (Business Intelligence) will deliver significant insights and benefits to executives and improve decision-making. Especially when it is used to develop well-designed behaviour-based dashboards. Remember, in past newsletters, I have written about the importance of having dashboards developed around the behaviours you want to foster in the business. Too many measures or KPIs get gamed and develop unhealthy behaviours. Dashboards that are behaviour based deliver significantly better value and reduce the risk of unwanted gaming. These tools haven’t been utilised as expertly as they can be, and I believe this area will receive more of the technology spend than buying new technology will.

That’s all for now. I would be interested in your views on these predictions, so please feel free to reach out and engage in a conversation about them. I am keen to hear your views.

I am likewise keen to hear about topics you feel should be discussed. If you have any that you would like to be covered in future editions, please reach out and let me know.

If you’re an executive or owner of a mid-sized or large company and want to discuss ideas on how you can use supply chain tools, business systems and technology to dramatically improve efficiency, decrease costs, increase profits and enhance scalability, give me a call.

© David Ogilvie