Tomorrow, I will be attending the Emptoris annual customer conference here in Boston.

I’ve attended this conference in the past, and the folks at Emptoris do a nice job of putting together a rather interactive and interesting conference for its customer base.

There should be two significant announcements at this year’s conference.  Emptoris has been on a search for a new CEO, and that person’s name will be announced during the conference.  Even though I know the name, I’ve been asked to refrain from mentioning the person until after the official press release.

Emptoris will also be unveiling for its customers the highlight of its latest version 8 release.  I’ve had a pre-briefing on the product and some of the newer functionality is very timely in providing support for supply risk analysis, actionable intelligence, and advanced scenario modeling.  The company has been gaining some momentum in landing customer deals, particularly in service and government related industries.

 If you plan to be at attending this conference, please say hello.

Bob Ferrari

Over these past weeks there have been constant reminders in industry and financial-related media, as well as the blogsphere, pointing out the strategic importance of optimized inventory management. 

Have you seen them? 

Is your organization positioned to take advantage?

Supply Chain Matters has provided many posts this year commenting on how quickly various manufacturers and industry segments have reduced their overall inventory levels.  My latest posting on this topic, Inventory Reductions- Don’t Rest on Your Accomplishments, paints a picture of the current state of inventory management across industries. That state was reinforced to me from a couple of speakers at last week’s Council of Supply Chain Management Professionals (CSCMP) conference, all noting how low inventory levels have been driven to.

The retail industry is especially embracing smarter inventory management, especially in light of the upcoming holiday season. An article in the Wall Street Journal print edition, Retailers Fret About Inventory Levels for Holidays, notes the results from a survey completed by BDO Seidman LLP, indicates that 79 percent of CFO’s among top 100 retailers by sales, say too much inventory poses a greater risk to their holiday sales.  

Much has already been written and commented regarding Wal-Mart‘s latest initiative, Project Impact, which aims to implement cleaner, less cluttered stores to improve the shopping experience. Besides a smarter looking store layout, Wal-Mart has also been hard at work on more efficient inventory stocking strategies, strategies focused on stocking fast-moving, or more high-demand items vs. slower-moving, or less profitable items. Others major retailers have been following suite in various forms.  We commented previously on Toys R’ Us, and their strategy to open 350 temporary stores stocked with just high-attraction items, in an attempt to spark upcoming holiday sales. Drug chain Walgreen Company has also been hard at work in revamping its stores.  According to an article in today’s Wall Street Journal, (subscription may be required) Walgreen’s cash flow from operations has increased 55% in the latest quarter which ended August 31, mainly because of lower inventories. The article further notes that stores typically squeeze 22,000 different items on shelves, but newly remodeled Walgreen stores carry 4000 fewer items. In total, Walgreen reduced the value of inventory per store by more than 11%.

Meanwhile, the inventory cutbacks by major retailers also cascade themselves to other tiers of the supply chain.  Case in point, apparel makers Nike and Addidas have also had to trim inventories, not only to respond to retailer cutbacks, but also to buffer margin erosion in their own businesses. According to Nike, worldwide orders of shoes and apparel for delivery between September 2009 and January 2010, an indicator of future sales, fell 6% compared with last year’s same quarter. Even consumer goods giant Procter and Gamble was not immune.  Commentary from its fourth quarter earnings results is laced with commentary reflecting cutbacks in trade inventories across many of its product divisions.

Optimization and smart management of inventory will continue to play a very strategic role for firms to survive the current economic downturn. More importantly, when recovery in markets does return, strategic inventory management will play an ever more crucial role, as supply chains determine which inventory investments are the smartest.

 Bob Ferrari

Wall Street has been in a positive trading mood these past few days, driven by a number of short-term indicators.  One of these motivators has been a resurgence of merger & acquisition efforts among drug and pharmaceutical companies.  It seems that rising worldwide concerns regarding the threat of influenza pandemic has caused certain drug companies who manufacture and distribute vaccines to become very attractive targets. 

Today’s Wall Street Journal features an article, U.S. Drug Companies Chase Vaccines (subscription may be required). The article notes that these specific target companies are attractive because vaccine sales are growing faster than that of other prescription medicines, and are essentially immune to generic competition. Governmental agencies are reliable buyers, and the willingness to pay is rather high, given the threat to large populations. Order volumes are rather large because of the need to stockpile doses for the target population. Deals such as Johnson and Johnson buying an 18% stake in Dutch company Crucell NV, Abbott Laboratories acquiring Belgium’s Solvay SA, and Pfizer Inc.’s efforts to acquire Wyeth have been noted as examples of this trend.

In reading about the usual financial engineering that tends to motivate these deals, I wondered how much consideration has been made to the supply chain competencies and implications involved in these deals.  Think about it, on-time delivery is one of the most critical needs surrounding vaccine production. Late delivery could risk the lives and well being of many people. Risks Are high, and bad or poor quality vaccine can severely damage a company’s creditability or reputation in the market.

Vaccine manufacturing and distribution represents a rather complex set of supply chain challenges.  The new product planning process must be swift, since new strains of disease appear every year, and vaccines need to be constantly modified. Demand is very high volume, and seasonal in nature.  Production planning has many variables, including the overall quality or characteristics of compounds, the consistency of yields in the production process, and the need for potential prioritization of shipments to countries of greatest need. Quality specifications are obviously very high, conforming to all forms of regulated manufacturing, documentation, and tracking needs.

More importantly, pharmaceutical and drug producers for the most part, do not tend to view supply chain as a key competency in their business models of investment.  Clinical trials, research and development tend to garner the lion’s share of investment dollars in business process or information technology needs.

Opinions from Wall Street financial analysts tend to surround all of the commentary related to these deals, and I, for one, would like to add a missing voice.  Let’s discuss the need for identifying the synergies concerning the required supply chain competencies within these combined companies. 

Will combining supply chain operations make business sense, or will the acquired organization offer more in supply chain process and skills? 

Is the goal added profitability through volume, or added profitability through a more responsive and agile supply chain?

Will the need to combine operations of these various companies over the coming months distract from the need to have perfect order fulfillment?

I would especially like to challenge supply chain professionals within drug and pharmaceutical industry sectors to add their commentary to this dialogue.

 Bob Ferrari

This week has brought continued news of positive momentum in the area of green and sustainability efforts across high tech related supply chains.

For the first time, Apple Computer released its first environmental impact study.  To no surprise, actual use of products accounts for 53% of the 10.2 metric tons of greenhouse gas emissions associated with the lifecycle analysis of Apple products, followed by 38% derived from manufacturing.  Interestingly, transportation accounts for 5%, while facilities account for 3%.  Apple attributed much of the progress related to reduction of overall greenhouse gases in its efforts to reduce the amount of toxic materials used in its products as well as more streamlined packaging.  Apple has also extended its efforts to audit more supply chain partners, including 83 facilities in 2008, up from 39 in 2007.  Overall, it was not a bad report.

At the furthest end of the high tech value chain, Taiwan Semiconductor Manufacturing Co. Ltd (TSMC), a significant producer of computer chips for many Original Equipment Manufacturers (OEM”s), announced that it has completed its Supply Chain Carbon Inventory Assistance Plan, the first company in Taiwan to complete such a study.  TSMC not only actively inventories and tracks its own greenhouse gas emissions, but also requires suppliers to do so as well. The current plan includes 36 factories and 20 partner companies in disclosure, representing a wide variety of suppliers of raw material and chemical compounds to semiconductor manufacturing.  TSMC has also embarked on an educational program across Taiwan to share its experiences in conducting a supply chain carbon inventory, in hopes of motivating other companies to initiate such programs.

I believe both companies should be applauded for their proactive efforts in tracking carbon emissions, and making more sound business cases for insuring greener supply chains.

 Bob Ferrari

If you have been a regular visitor to Supply Chain Matters, you may have already read my previous four posts providing live commentary from the Council Of Supply Chain Management Professionals 2009 Annual Conference.  In case you had not, here are the links to Post One, Post Two, Post Three, and Post Four.

I’ve been attending this particular conference for many years, as an attendee, presenter, and sponsoring information technology marketing executive. In that context, I will complete my commentary with some overall impressions and thoughts concerning this year’s conference. 

In my opinion, the overall quality of this year’s conference was excellent.  Attendance was lower than in past year’s, but as I pointed out to fellow attendees, most companies seem to be continuing to cut back on attendance. Supply chain innovators and conference supporters, such as Procter and Gamble, having only three attendees, or Hewlett Packard having but two attendees, are clear signs that companies are still restricting conference and educational-related travel. Many attendees I spoke with indicated that they had driven to the conference.

I found most of the presentations to be high quality, and I especially liked the lengthening of presentation sessions to 90 minutes, rather than the previous 60 minutes.  In my particular roundtable session on supply chain risk management, it afforded ample time for peer exchange and interchange on various aspects of the topic. Dan Gilmore noted on his summary on Supply Chain Digest that these 90 minute sessions seemed to drag.   I observed that a small number of sessions I attended did drag in the last few minutes, but I believe it has more to do with making efficient and lively use of the time, so attendees are given time to discuss and inteact on the topic.

Many attendees spoke highly of the first day keynote. Gary Maxwell, Senior Vice President of International Supply Chain for Wal-Mart, spoke to the notion that you don’t have to be “world-class” in different markets, but rather “best-in-market”. The implication was that too often, companies tend to invest too much in automation and process. The overall message has merit and resonates.  But the question left in my mind is whether Wal-Mart has learned from its previous efforts to mandate change among its supplier base. Recall the previous mandates for supplier RFID adoption because of Wal-Mart’s needs in item-level tracking and store efficiency, which have now been set aside  The most recent mandate outlines sustainability tracking, and a recent Newsweek article ranks Wal-Mart as the 39^th greenest company. Do mandates help the other 38 companies, such as Nike, Procter and Gamble and others ahead of Wal-Mart to be “best-in-market”?

 I was pleased to see more presentations focused on holistic supply chain process capabilities, touching themes related to managing risk, adaptive analytics, and mapping supply chain goals to the “C-suite” or Wall Street.  CSCMP should continue to emphasize these topics. In both circulating with and hearing presentations from existing senior supply chain managers, I still get a sense that managers are too heads-down in the operations to be able to do “big-picture” thinking.  As companies begin to enter the new and quite different recovery phrase, having a broader strategic sense of direction will become even more imperative. Remaining competitive is not just about distribution center automation or long-term transportation contracting.

Congratulations go out to Intel’s supply chain team for winning the 2009 Supply Chain Innovation Award.  It was well deserved.  Intel early discovered that incremental process improvements were not going to get their supply chain capabilities to competitive standards.  Instead they embarked on a different transformational path, investing in advanced analytical inventory management and other transformational capabilities.  Kudos also go out to runners-up Dresser Rand, Telllabs, and Kraft Foods.

As mentioned in my Part Four commentary, the most pertinent session of the entire conference, at least for me, was the session titled Wall Street’s Perspective on Supply Chain.  If you or your management teams had any doubts as to the critical importance of supply chain in overall business strategy, it was addressed in this session.  It validated that Wall Street does indeed recognize the value of supply chains, either as a generator of cash or value, or as a means of competitive differentiation in specific markets.  How that perception is going to be made and executed is a function of how supply chain managers position their strategies and initiatives.

Hopefully, the 2010 conference will present a better economic climate and will continue to provide opportunities for broader attendance and quality education.

 Bob Ferrari