There was a rather dramatic but not unexpected announcement today concerning supply chain technology.  IBM has entered into a definitive agreement to acquire Sterling Commerce from its current corporate owner AT&T.  The deal, which is expected to close in the second half of 2010, calls for an all-cash transaction of $1.4 billion, and AT&T anticipates recording a one-time $750 million gain in the quarter in which the transaction closes. SBC Communications, which later became AT&T, originally acquired Sterling in 2000 at the near height of the B2B Internet era for $3.9 billion in stock.

Supply Chain Matters first take at this acquisition is a mixed one, and that is why we chose to utilize the word ‘dramatic’.  Sterling customers gain the deep pockets and reputation of IBM, one of top global IT providers.  But at the same time, certain flexibilities in the use and deployment of B2B integration components surrounding Sterling applications may become more proprietary over time as IBM introduces the complete array of WebSphere integration components.  Sterling integrators, particularly those with broader supply chain advisory services may also be impacted over time, since IBM has its own professional and industry focused business services teams.

Our most recent coverage of Sterling Commerce was a mere few weeks ago attending the Sterling Customer 2010 Customer Connection Conference.  In a summary impressions posting, I noted that thinking out of the box, a more leveraged use of supply chain technology will be rather important in navigating into this next post-recessionary era, and that Sterling and its partner network are listening and responding to customer needs for supply chain agility.  Today’s announcement can either accelerate or detract from that mission.

The history of Sterling Commerce is a rather interesting one and reflects a company built around acquisitions.  The genesis of the company comes from its original EDI and B2B transaction integration business.  Acquisitions of WMS and order fulfillment provider Yantra in 2005, and TMS provider Nistevo in 2006 were added, and as noted, the company has been operating as a subsidiary of AT&T for about ten years.  At its recent customer conference, Sterling announced new cloud computing options in support of its various multichannel order fulfillment applications, an announcement that will no doubt take on a more IBM focus.

IBM’s WebSphere group is the actual acquirer of Sterling.  In a written statement, Craig Haymen, General Manager of the WebSphere unit notes that this acquisition will give IBM new tools to help clients build more dynamic business networks and a more consistent customer experience across channels. IBM stands to gain the more than 18000 current Sterling customers, and as we noted in April, some of the most visible and prominent names within the retail industry.  Following the close, approximately 2500 Sterling employees will be integrated into the WebSphere organization.  Supply Chain Matters readers may also recall that this same IBM division had also acquired the former supply chain technology group of ILOG, providing business rules engine, multi-echelon inventory optimization and supply chain network design functionality of the former Logic-Tools.

Interesting enough, IBM was in the EDI business for many years but chose to divest of its EDI VAN service in 2004. EDI technology has changed somewhat since that time, but in the case of Sterling, IBM seems more interested in the order fulfillment and broader B2B integration application offerings provided by Sterling. An Analyst briefing document also notes that Sterling Commerce applications will augmented by WebSphere offerings, and assume an IBM brand within the first year thus making them available to the IBM global sales teams.

Recently at an annual investor conference, CEO Sam Palmisano outlined a bold plan for IBM to invest $20 billion in acquisitions over the next five years, along with a challenge to have half of the that company’s profit coming from software offerings.  It is rather interesting to note that the first salvo of this campaign involves supply chain and B2B connectivity.

 Bob Ferrari

There continues to be rather interesting movements occurring within the high tech and consumer electronics industry segments, movements that are strategically related to supply chain structure and composition.  During these past months Supply Chain Matters has commented on the contrasting strategic supply chain activity occurring among certain high tech consumer electronics companies.  In a recent posting in March, Will Sony’s supply chain rise to yet another challenge?, I noted that Sony Corporation had cut $3.6 billion USD in costs primarily from supply chain cost reductions, including closing 20% of its owned manufacturing plants, and now transitioning to an outsourced contract manufacturing strategy.  At the same time, the television business is rebounding and Sony has established a goal to ramp-up production by 70% in the upcoming fiscal year, while attempting to complete this same transition.  Panasonic Corporation, also based in Japan, is also increasing its dependence on external contract manufacturing while planning for increased demand. Rival Vizio, on the other hand, after seven years in the business and practicing a fully outsourced supply and contract manufacturing strategy, has become the second largest U.S. TV brand and is closing in on number one brand Samsung. In our recent Supply Chain Matters commentary on Vizio, we noted how the company is now offering two of its contract manufacturers equity stakes in the company as a means to ensure aligned goal fulfillment.

Overshadowing all of this activity is industry giant Samsung Electronics Co. which of late has made a dramatic presence in global television sales.  The key difference, however, is that Samsung is both an OEM and a key component supplier.  We previously noted that Samsung expects to dominate the market for the key component of plasma and liquid-crystal (LCD) displays.  Beyond being a critical supplier to the digital television market, Samsung is also a dominant supplier in flash memory devices and a strategic supplier to Apple.  Samsung has astutely placed itself in the strategic supply chain of many of today’s most popular electronic gadgets.

Within this industry backdrop, Samsung made a dramatic and bold announcement this week,  According to a recent Wall Street Journal article, (paid subscription may be required) the company plans to double spending on factories and equipment to a record $15.6 billion USD this year.  As noted in the article, most see Samsung positioning to gain a bigger lead in memory chips and flat-screen television components.  Samsung will build its first new LCD component factory since 2008, as well as other investments in memory chip and other electronic component production.

The article quotes one Asia-based market analyst as noting that the announcement may be a bit of showmanship on the part of Samsung.  I tend to believe otherwise.  It is rather an extension of a vertical manufacturing sourcing strategy that could place Samsung in an even more powerful position as both an OEM and a component supplier.  I believe that Samsung understands supply chain strategy, coupled with long-term market trends.  Its presence as both an OEM and a key supplier of consumer electronics markets is noteworthy, and as the major Japanese based players continue to transition to a more outsourced supply chain, could place Samsung at an ever more strategic presence.  To add more evidence, a corresponding Samsung related article appearing in The Financial Times  (free preview sign-up required) noted that Samsung’s chairman, Lee Kun-hee, would meet with Sony’s CEO Sir Howard Stringer.  While both companies will not elaborate on the subject matters of such a meeting, we can all comfortably speculate that strategic supply may be one agenda item.

Industry inflection points can often result in the recovery phases of major economic downturns.  The consumer electronics sector has and will continue to be under the looking glass as t undergoes such inflection changes, and in my view, supply chain strategy and movements will be the key determinant to the end result.

 We invite industry participants and other supply chain professionals to share their observations in the Comments section below this posting

 Bob Ferrari

Now in day three of SAP Sapphire Conference and events are becoming a blur.  Overall, this has been a good Sapphire, far better than the past two years.  Many of global based bloggers have been noting their observations and I invite Supply Chain Matters readers to take them all in.  You may especially enjoy comments from Vinnie Merchandani over on Deal Architect, whom I have come to get to know better from our interactions these past few days. I’m also looking forward to reading an advanced copy of his new book.

 Here are my summary thoughts as I wind down my activity here at SapphireNow.

 On a positive note:

• I absolutely love the single global Sapphire format with simulcasts from each geographic region, and live broadcasts over the Internet.  It brings forward the power of SAP as a global based provider, as well as common business interests among global based companies. It also reinforces SAP’s commitment in sustainability since it would appear that air travel for consecutive events has been reduced, On the other hand, I must admit I have never witnessed such a demonstration of multiple broadcast technology as I have visually observed at this conference.  Three TV studios on the show floor, portable podcasts and webcasts are all happening, and it is impressive. Just behind me, there is a live podcast involving multiple bloggers being transmitted direct from our designated blogger area.
• It was good to observe that SAP is back on-track.  This is the SAP that we all use to know, demonstrating sensitivity to customer business and technology needs. SAP is listening to customer feedback, and now needs to execute.
• Contrary to what traditional product marketers may think, having company executives perform their own live demos on real data has enormous power.  In all the years I have attended Sapphire, I never imagined I would observe Hasso Plattner, Chairperson of the SAP Supervisory Board perform a live system demo, on-stage, utilizing an Apple iPad.  Really cool, and enormously powerful because it legitimizes the power of the technology
• If SAP is able to really pull-off the in-memory analytics technology strategy articulated at this conference, it will be both a market game-changer, as well as a supply chain business intelligence game changer. Sorry Ian Kimbell, but your entertaining demonstrations have been outsourced to actual SAP executives.  How refreshing is that!
• Having industry analyst, bloggers and media actually sit on the show floor does work effectively.  The SAP Global Communications team did a tremendous job in finding the right location, insuring computing and other resources were available, and going out of their way to make all of us feel welcomed.  I echo the notations from other bloggers on the special cudos to Mike Prosceno and Stacey Fish of SAP Global Communications for their extraordinary efforts and demeanor in accommodating all blogger and influencer needs.  Readers should be aware that there are few companies that match SAP in embracing all social media outlet in conference coverage.
• I continue to be impressed with Vishal Sikka, SAP CTO and Board Member.  He has a pragmatic and down-to-earth perspective on technology capabilities and the realities of the SAP installed base.  I’m convinced that he also understands supply chains since he frequently refers to supply chain analogies.

In the needs work category:

• I’ve already penned some comments noting that the SAP SCM area needs to help SAP customers take maximum advantage of this new era of more responsive supply chain related analytics and business intelligence.
• If SAP is successful in pulling off this notion of in –memory analytics capability, there will be an enormous need in helping supply chain professionals to be comfortable in utilizing and leveraging this technology in their daily work.  That need transcends PowerPoint and information portals, and I believe will need to involve the broader SAP SCM ecosystem community.
• Application release cycles need to meet customer business needs vs. SAP’s internal development priorities and calendars.  One example, after many years of patient waiting, SAP Transportation Management customers can finally anticipate the release of SAP Transportation Management 8.0.  The functionality looks really good, but why did it have to take so long to come to market?
• More synergy among SAP SRM and SCM solution development teams.  SAP customers have already sensed that the global supply chain process umbrella has a very broad spectrum and now includes elements of new product introduction, strategic sourcing, quality and product traceability, contract manufacturing, logistics and customer service management.  Relationships with suppliers are ever more strategic, and require broader information and analysis needs. Procurement and supply chain teams have common information needs in managing risks, and SAP should lead the way for its customers by overcoming its own barriers.

I will be sharing additional comments and observations later when I get the opportunity to organize my various notes,

Bob Ferrari

In the multiple years that I have attended SAP’s combined ASUG/Sapphire Conferences, I often check-in on the progress and direction of SAP Supply Chain Management (SCM) applications portfolio.   If you were attending this combined conference as a casual SAP supply chain management customer, I’m not quite sure that you would get a deep sense of strategic direction for SCM, since the picture does not seem clear to me at this point, at least for public consumption. Yesterday I had the opportunity to chat with two very knowledgeable SAP supply chain management executives.

Within the SAP SCM Suite itself, Supply Network Collaboration (SNC) has gained customer adoption momentum and interest.  There are three main areas of collaboration process support: supplier facing; customer facing; and recently added contract manufacturing collaboration facing process support.  SAP reports over 500 customers utilizing SNC, and it was noted that SNC customer interest continued through this past period of economic recession.  Release 7 was a major release for SNC, and this new platform can now take advantage of the Enhancement Packs release cycle across the entire SCM suite.

The bread and butter Advanced Planning and Optimization (APO) supply chain planning application has also reached Release 7 status, and Enhancement Pack releases later in 2010 will help SAP customers to leverage more process support with SNC, to include a new “Clear to Build” process developed specifically for high tech and consumer electronics companies.  One area for discussion is helping APO customers solidify their longer term supply chain business analytics and intelligence information retrieval strategies.  Many SAP customers remain on earlier release versions of APO, where SAP Business Warehouse (BW) was encouraged as being the foundation for extracting and returning supply chain planning information, including that from APO.  With the newer additions of Business Objects and potentially Sybase analytical tools, along with partner solutions such as SmartOps or other inventory optimization applications, it is my feeling that SAP will need a broader proactive outreach to provide SCM customers a variety of automated supply chain business intelligence extract strategies.

On the organizational side, it was good to hear that SAP SCM is moving in the direction of Global Solution Management for combined SCM, manufacturing and PLM,  that is supposed to umbrella all lines-of-business and all SCM platforms.  SAP Vice President Laurie Mitchell Kellor will lead this segment.   The goal is to provide one end-to-end SCM perspective across all three of the delivery platforms (on-premise, on-demand, on-device). The not so good news is that in my view, this re-organization has been painfully slow in execution.  I was also disappointed to once again hear that elements of procurement and SRM have not been placed under the umbrella of SCM, manufacturing and PLM.  That will not help SAP in figuring out a multi-platform integration strategy for global supply chain processes. There is little strategic information being shared, which additionally does not help SAP SCM prospects and customers sort out longer term capability needs, such as dynamic Sales and Operations Planning (S&OP) business intelligence support. 

Finally, I did get the opportunity to view a demo of the SCM functionality within new and upcoming SAP Business By Design suite.  The application interface is clear and easy to follow.  Use of some Microsoft tools allows for flexibility in defining any user roles or information needs.  The SCM functionality itself is fairly basic, with forecasting, demand and supply planning, purchase order, warehouse and order execution functionality.  At this point, there is very little supplier collaboration interface but there are provisions for EDI transactional support.

Bob Ferrari

There is one application area within SAP that can serve as a microcosm of how SAP can execute well in the market.  That area is corporate Sustainability.

At last year’s Sapphire conference, I was invited to attend SAP’s first ever executive roundtable discussion on the topic of sustainability.  The audience was diverse and knowledgeable on the topic of sustainability initiatives. Peter Graf, Executive Vice President of Sustainability Solutions outlined SAP’s commitment to mobilize the company to internally measure carbon consumption and corresponding carbon mitigation processes.  He helped champion SAP’s membership in the Sustainability Consortium and pledged to make SAP’s ongoing carbon consumption publically available for all to review.  SAP further announced the acquisition of Clear Standards, a carbon tracking application that SAP planned to utilize for both internal and external needs in carbon tracking, including the various tiers of the supply chain. For the past three years, the Dow Jones Sustainability Index has named SAP as the leader in the software sector.

One year later, the briefing at this year’s Sapphire conference was even more impressive.  SAP’s internal tracking processes have not only matured, but have also provided some interesting concepts in how to make data visual and interactive.  SAP utilizes its Business Objects Explorer tool as the engine for this interactive reporting, along with some other slick web-based visualization tools.  The just released 2009 Sustainability Report includes interactive tools that combine video, information and interaction that transformed a former publishing exercise into a two-way dialogue experience.  As you glance at the report you can note that while progress has been made in some areas, others have slipped.  SAP has not hidden this data and described the tracking process as providing some rather interesting learning. To assist external customers, SAP also provides a Sustainability Map, similar to other well-known SAP solution maps, that provides guidance on areas of sustainability process management support.  The supply chain management category includes Sourcing and Procurement, Traceability and Recall, Green Logistics, Supply Chain Design and Planning.  In April, SAP announced another acquisition in the Sustainability area, the intent to acquire TechniData AG, a long-time sustainability partner that helps SAP customers to track and manage compliance initiatives.

For sure, SAP is fulfilling roles for both leadership and evangelizing corporate responsibility for proactive sustainability strategy.  In adopting a strategy of dialogue and two-way interaction, SAP is gathering market and customer input on customer and employee needs for a proactive sustainability strategy, and perhaps comprehensive tracking and reporting tools.

The most important aspect of this impressive progress in Sustainability is that if the rest of SAP’s line-of-business and solution areas were to execute in this same manner of Define, Measure, Analyze,  Improve and Control, SAP would be a far more agile technology provider.

 Bob Ferrari