Welcome to Supply Chain Matters coverage of the SAP Sapphire Conference, coming to you from Orlando Florida.  Our first posting will dwell on initial events and impressions.

The most interesting aspect of this year’s conference is that it is a virtual conference, simultaneously held in both U.S. and European venues.  I personally like this format, and believe it will help to bring out the strengths of SAP as a global provider. 

As one powerful example, our sessions began this morning with a global news conference that featured each of the SAP Co-CEO’s fielding questions live from each venue.  Co-CEO Jim Hagemann Snabe was on satellite feed from Frankfurt, and Bill McDermott anchored the Orlando venue.  Needless to say, the prime topic of discussion from each side of the Atlantic was the recently announced acquisition of Sybase by SAP.  Many questions were peppered on why the acquisition, how the acquisition fits with SAP strategy, and indirectly, did SAP pay too much.  Both executives were very clear to point out SAP does not acquire to gain market share, but rather to move the company forward.  The other emphatic statement was that Sybase will support SAP’s strategy to empower the mobile workforce, the on-device leg of the three legged delivery strategy that also includes on-premise and on-demand.  I observed a very noticeable trait among the SAP’s senior executives to stress the importance of SAP’s existing partner relationships in mobile, database and analytical applications by name. This was no doubt motivated by perhaps the initial concerns from key partners regarding the thrust of the Sybase acquisition. and SAP executives are feeling a need to smooth the waters.

The other key theme for this year’s conference is SAP Business by Design, and the general product launch scheduled for later this summer.  While SAP is emphasizing the progress and momentum of this strategic product, there have not been a lot of details thus far.

Both of these themes have impact on global supply chain process enablement.  Each of SAP’s Co-CEO’s made frequent reference to supply chain applications as an important benefit for mobility and on-device use.  SAP Business by Design will also include a supply chain component, including planning, procurement, manufacturing and of course, analytics and reporting.  My goal here in Orlando is to seek out more detail, and there is an open question in my mind as to whether such details are available for public consumption. I’ll have more impressions to share after some initial interviews with SAP’s supply chain leadership team.

 Bob Ferrari

I would like to remind supply chain software, technology and services firms that a limited number of 2010 sponsorship slots are now available for the Supply Chain Matters blog.  In addition to the premiere Gold sponsorship slot, we also have available sponsorship opportunities for Bronze and Associate sponsorships that will provide your organization a very compelling cost/benefit tradeoff. 

Blogs have gained even more readership popularity within the global supply chain audiences, and Supply Chain Matters was recognized as one of Top 100 Analyst blogs by Technobabble 2.0.  Recent announcements and changes in the overall supply chain media space can also motivate your organization to seek other alternatives for visibility of your brand and product capabilities. We are offering special discounts in sponsorships for the remainder of 2010.

As a sponsor of Supply Chain Matters, your organization receives a number of important key benefits:

• Brand identity and web site access through appearance in our sponsorship panel
• Recognition of quality-oriented supply chain thought leadership as a sponsor of one of the top three most widely read blogs in this area.
• An important leveraging tool for augmenting your Internet and social media inbound marketing strategies for lead identification.
• In certain categories, my personal bundled consulting services in social media and product marketing strategies.

 The opportunity to join our other quality-oriented and satisfied sponsors is available. For detailed additional information related to blog sponsorship, please contact Bob Ferrari, Executive Editor at the following email address:

 bferrari (at) blog1 (dot) com.

Bob Ferrari

Executive Editor

Supply Chain Matters readers may not help but notice that SAP has been quite visible of late, for many reasons.  First and foremost, a change of leadership at the top resulting in a co-CEO management structure that was brought about by a rebellion of SAP customers and internal employees.  In a past posting, SAP Co-CEO’s Outreach Begins- Finally A Grounding, I noted that it has become rather apparent these past months that SAP lost some perspective on its customers, instead, focusing more on SAP’s needs to continue to grow in a rather challenging and highly competitive enterprise software market, one that SAP was constantly being outflanked.  Oracle has been a particular thorn in the crown.  SAP’s timing on increasing software maintenance revenues did not go over well with installed base customers, particularly those residing in Europe. We have lamented on a lost momentum in enhancing supply chain management process enablement capabilities..  SAP employees are frustrated that senior management was not listening to their concerns regarding the company and their own careers.

Thus, it should be of no surprise that both CEO’s have wasted no time to try to present a more visible and proactive persona for SAP.  There is also a distinct tone that the new CEO’s want to make SAP’s presence well known in their first 100 days of management, both in outreach to customers, and in the marketplace. There are of course obvious reasons, but more on that in later postings.

In the recent Q1 earnings briefings, both Bill McDermott and Jim Snabe boasted how the company was now pointed in the right direction, which included double digit growth in software and software-related services revenue in the previous quarter, to include a 10% boost in support revenues.  There were statements that the market is improving, that the company was experiencing a healthy mix of both large and small deal transactions, and that average deal sizes were up. In the Q&A from analysts, it was noted that 37% of sales growth came from the Business Objects segment, which has been the target for the SAP field organization. Both CEO’s also wasted no time in appearing in multiple news outlets across the globe to announce the resurgence of SAP, and how seamless the Business Objects integration was. 

Today featured the next chapter of this increased visibility, with the announcement of SAP’s intention to acquire database technology vendor Sybase Inc. for $5.8 billion, including debt assumption.  That price represented a 56% premium to the May 11^th closing price of Sybase stock, and roughly a four and one-half premium on current Sybase earnings.  Sybase’s database technology is by no means a leader in its market segment, but does offer some interesting technology options related to leveraging in-memory technology or making information queries via mobile devices, but we have to wonder if this is all worth the premium price offered by SAP.  According to The Wall Street Journal, the primary architect of the deal was Jim McDermott, who has been friends with the current Sybase CEO John Chen for some years. There are all forms of opinions percolating about this acquisition, including one from a Cowen and Company analyst who sees this as a desperate move by SAP to counter Oracle’s market traction. My initial take concurs with that of Vinnie Mirchandani on Deal Architect, namely that SAP has much work to do, and does need another large distraction with a Sybase integration.  But I also will remain open-minded.

Next week, SAP will be conducting its annual ASUG and Sapphire users conference in Orlando, and Supply Chain Matters has been invited to attend.  We will be providing coverage of conference events and announcements, along with impressions concerning the various SAP manufacturing, procurement and supply chain applications. We will further be on the lookout for the tone of SAP as well as the sense of direction.  

Make a note to come back next week and read of our various commentaries.

Invited bloggers have been advised that this year, we will be sitting directly on the show floor, which should be very interesting.  If you are planning on attending the conference in person, drop by the bloggers corral and say hello.  Look for the guy with the receding hairline!

A final note- I chose the headline of this posting for a specific purpose.  When I led supply chain product marketing at SAP, some of the industry and solution management executives would sometimes lament that SAP needs to make more “noise” in the market, equating “noise” to gathering attention by customers.  I’m not sure whether this new phase equates to that phrase.

What’s your view?

 Bob Ferrari

The goal of this three-part series has been to assess trends and determine how major supply chain participants, including downstream, upstream and transportation , are currently experiencing and viewing 2010 business levels, and how the general post recessionary recovery is manifesting itself among industry supply chains. In Supply Chain Matters Global Supply Chain Snapshot-Part One, we observed Q1 results of some lower-tier downstream companies that supply various other upstream supply chains. Supply Chain Matters Global Supply Chain Snapshot- Part Two reviewed some selective sampling of global based manufacturers who tend to be the engines of global supply chain activities.

In this posting, we will focus on a sampling of major transportation carriers to ascertain Q1 trends. As noted in our initial posting, we certainly do not pretend to be trained economists, and please do not view these postings as a basis to plan for the remainder of the year. It is, however, interesting to put information points into a context, and begin a commentary on what lies in store for supply chain for the remainder of 2010.

As in our previous two commentaries, a selective snapshot across transportation segments that support all levels of supply chain activities reflects a positive upswing in Q1, but cautionary notes also prevail.  Issues of excess capacity, or reduced capacity in certain segments, uncertainty on fuel costs, and uneasiness brought on by increased disruption events such as the recent volcanic ash incident across Europe, are all evident.  An unusually severe winter weather pattern did not seem to impact carriers, which is good news.

While severe cutbacks in overhead in labor costs are now bearing fruit in significant profitability increases, capacity  issues are evident in certain transportation sectors. Railroads, airfreight and ocean carriers have excess capacity while truck transportation in the U.S. has the opposite problem of significantly reduced capacity as many independents have been forced into bankruptcy by the recession.  As you will note, most carriers are cautiously optimistic that the first signs of recovery are manifesting itself in supply chain activity.

 A snapshot of key segments indicates the following:

 International Air and Surface Freight

 DHL

• Total revenues up 4.4 % year-over-year
• Consolidated net profit up 81.4%
• Volume growth continues to accelerate: Asia strongest (up 30.3%) but Europe weakest
• Air freight volumes up 34%, Ocean Freight up 15.1%
• “Clear signs of economic recovery”

 Fedex

• Total revenues up 7%
• Operating income up 129%
• Operating margin increased to 4.8% , up from 2.2% in year earlier
• FedEx Express Segment: International priority shipping volumes up 18%, led by exports from Asia;  U.S. domestic average daily package volume grew 1%
• FedEx Ground Segment: Average daily package volume grew 5% year-over-year, due primarily to growth in B2B markets;  yield improved 2% due to higher weight per package.
• FedEx Freight Segment: LTL average daily shipments increased 26%, but operating income declined due to discounted pricing

 UPS

• Total revenue up 7%
• Operating profit up 39% year-over-year
• Operating margin increased to 8.9% from 6.6% a year earlier
• Average daily shipment volumes of 14.93 million packages, up 2.6% from a year ago
• Us> domestic package daily volume up slightly, the first year-over-year growth in two years
• International domestic package volume up 18%
• Export volume increased more than 9%
• Supply chain and freight businesses up 14%, with strength in high tech and healthcare sectors
• “We expect first quarter trends to continue through the year, producing revenue growth and additional operating leverage.”

 J.B Hunt Transport Services

• Total revenues up 17%
• Operating income up 18%
• Higher volumes in international segments, Dedicated Contract Services and truck segments
• Operating income and net earnings growth despite significantly lower base freight rates
• “The freight recession we have experienced for over three years showed signs of yielding to moderate volumes improvements throughout the current quarter.  We believe that this is partly attributable to increases in our customers supply chain activities and partly due to a continued shrinkage of available capacity,”

U.S. Railroads

Association of American Railroads noted overall freight traffic up 2.2% in Q1; traffic remains well below 2008 levels.

 Burlington Northern Sante Fe LLC (Berskshire Hathaway)

• Total revenues up 12.8%
• Operating profit up 48%

CSX

• Total revenues up 11%
• Operating profit up 24%
• Overall freight volumes up 5%
• Increased shipping activity in metals.; coal shipments remained weak

RailAmerica, Inc.

• March carloads rose 8.7% from a year ago
• Higher shipments of agricultural products, chemicals, metallic ores and metals

Union Pacific Corporation

• Total revenues up 16%
• Operating income up 47%
• Business volumes up 13% compared to a year ago
• Double-digit increased shipping activity in automotive, intermodal, chemicals and industrial products.
• “Feeling better about 2010 growth opportunities.”

Ocean Shipping

A posting on CommodityOnline notes that the Baltic Dry Index, a major recognized indicator of ocean shipping activity is showing weakness because of excess new capacity and higher rates, but is expected to increase 7% this year. The global market is highly dependent on China, the world’s top producer and consumer of iron ore.  In 2009, the total dry bulk fleet expanded by 10%, the strongest growth rate in fleet history, and is expected to grow an additional 12% in 2010.

This concludes our Q1 snapshot series.  Overall, cautious optimism prevails across major levels of global supply chains indicates that some positive momentum has begun, led by the emerging regions and export markets.  But, as we often know, this momentum could change if any economic setback, such as the effects of European sovereign debt crisis derails this momentum.

What about your perspective? Is your organization experiencing this same uptick in momentum?  Does you supply chain organization view the current environment as cautious or optimistic?

 Bob Ferrari

Earlier today, RedPrairie announced that it had completed the acquisition of WMS provider SmartTurn, which in our view is yet another indication of the increasing attractiveness of on-demand and hosted supply chain technology. Financial terms were not initially disclosed.

Supply Chain Matters initially discovered SmartTurn in October of 2008.  Our commentary, A Different Alternative for Warehouse and Inventory Management, we noted how this multi-tenant software-as-a-service provider could become a disrupter in the market by offering attractive cost affordability with fairly decent functionality. This company openly stated that it charged $500 per month per warehouse for an unlimited amount of users, which is somewhat attractive when one considers other WMS alternative applications in the market. Implementation times were also attractive, with the company boasting of some client implementations that ranged from two to three weeks. 

Since that time, SmartTurn has garnered additional small and mid-market manufacturers, distributors and third-party logistics firms. In November of 2009, the company announced that it had integrated its application with the inventory management system of SaaS ERP provider NetSuite. My sense that this was an initial move toward a potential acquisition by some SaaS based ERP or enterprise systems provider but it is now evident that RedPrairie was quicker to execute. Initial indications are that RedPrairie will maintain SmartTurn as an autonomous business unit with a mid-market focus.

As we have noted in various other commentary, SaaS applications in supply chain have definitely shown increased interest by customers for the reasons noted in our SmartTurn commentary. One of the latest entrants in the SaaS based WMS field is SnapFufil,which just made its U.S. market entry after a successful track record in Europe.

Bob Ferrari

(more…)