I’ve arrived at the SAP Insider sponsored Logistics and Supply Chain conference here in Orlando and was pleased to observe lots of attendees from many different organizations. This combined SCM-PLM-Manufacturing conference attracted 1700 registrants and it appears by my eye that most have arrived.

Today’s sessions were jam packed.  In addition this morning’s keynote address delivered by Richard Campione, SAP’s Senior Vive President for Suite Solution Management, I managed to sit-in on a number of informative sessions throughout the day.

In one session, Transforming your internal and external manufacturing operations into an integrated responsive network, Michael Lipton of SAP provided a detailed overview of the SAP’s end-to-end process deployment functionality addressing manufacturing network planning and execution.  SAP had embarked on a two-year effort to develop and implement cross-application support offerings that are tied to broad end-to-end processes such as manufacturing network planning.  It was interesting for this author to finally get a look at how the various SCM and manufacturing application components have been integrated in various scenarios to support network planning, outsourced manufacturing or material supply and replenishment.  In this presentation, Mike also touched upon the brand new offering of SAP Supply Chain Response Management, a termed solution extension that utilizes certain what-if planning and rapid response capabilities from third-party provider ICON-SCM.  There has not been a tremendous amount of external communication regarding this new extension, which now appears on the SAP price listing and includes dedicated SAP level one and two support. I was somewhat surprised at the amount of initial integration that has already been incorporated to SAP APO SNP.  Mike has a more detailed presentation scheduled later in the week should draw a lot of attendance.  Some SAP customers may be initially confused as to whether SCRM overlaps in functionality with SAP Supply Network Collaboration (SNC).  I managed to get some clarity to that question which will be outlined in a later commentary regarding my one-on-one interviews with SAP executives.

One other interesting observation from today was in attending a featured discussion forum: How to leverage S&OP to improve demand and supply planning.   I unfortunately arrived late and discovered standing-room only attendance for this session, which is yet more evidence of how top-of-mind the topic of S&OP has become in the supply chain community.  A lot of the interaction was focused on challenges in bringing together cross-functional inputs within an S&OP process and the different challenges within some process vs. discrete industry environments. There was also a useful interchange on how important is forecast accuracy, with the majority of this session’s participants leaning toward good enough, is good enough.  Once you have the best available forecast, concentrate on responsive means to adjust to changing business re-planning and adjustment needs.

Supply Chain Matters will provide ongoing commentary from the SAP Insider SCM conference so stay tuned for further updates.

Bob Ferrari

The following commentary can be viewed and commented upon on the Supply Chain Expert Community web site.

Last year, after the announcement of  the AMR /Gartner Research ranking of Top 25 Supply Chains for 2010, I penned a Supply Chain Expert Community commentary, Should Contract Manufacturers be Included in Anyone’s Top 25 Supply Chains?.  My commentary was directed at the lack of consideration of any major contract manufacturer in the AMR ranking, and for that matter, any Asia-based global manufacturer.

Since many contract manufacturers (CM’s) have become such a key participant in industry value-chains, my view was that contract manufacturers should be considered in this or any other ranking. At the same time, if the broad rating criteria of being demand-driven, financial performance, time-to-market, S&OP and market responsiveness were weighted in the ranking, than the dilemma may be whether a CM is a major ‘contracted supplier’ or a self-contained brand owner and distributor.  The one critical performance metric of return-on-assets (ROA) may well be the Achilles heel in the AMR Top 25 ranking since we all know that CM’s came into existence as a means of brand owners to shed expensive design and manufacturing assets.

In a March 14, Gartner First Thing Monday commentary, (complimentary sign-up account required) AMR’s vice-president Kevin O’Marah acknowledges that Asia based supply chains should be considered in the overall ranking, and further notes that the overall ranking may have been flawed. AMR will soon release a cut of 2010 data based on the highest-scoring companies based in Asia Pacific, but industry peer ratings among Asia-based manufacturers have become a challenge.. Further noted is that the top five 2010 listing would include the names of Samsung, LG, BHP Billiton, Toyota.  The primary advantage for these companies are their performance in ROA.

According to the commentary, the only CM to make the 2010 listing would have been Flextronics, primarily from the enthusiasm of key customer Research In Motion (RIM).  O’Marah also questions: “Where is Foxconn?” The largest of all the CM’s is not considered in noted capabilities by Asia industry peers.

From my lens, AMR should be complimented for extending the Top 25 ranking to include Asia based manufacturers and retailers.  Overcoming the challenge of garnering an industry peer level forum resident within Asia, I’m sure, can be overcome in time.

The more knotty issue perhaps continues to lie on the weighting of ROA in the ranking criteria, and whether this presents a obstacle for inclusion of major CM’s.  In another words, if names like Apple, IBM, Dell, HP and others qualify as Top 25, are their major CM’s a key enabler of that ranking?

Is it time for a listing of just the Top 25 CM’s, with different quantitative and qualitative ranking criteria?

What’s your view/

Bob Ferrari

Beginning on Tuesday March 22, Supply Chain Matters will be in Orlando  attending and providing commentary from the SAP Logistics and Supply Chain, PLM, and MFG 2011 conferences being sponsored by the SAP Insider organization.  In addition to Supply Chain Matters commentaries, readers can also look forward to authored commentaries on the SAP Insider blog as well.

This conference occurs annually, draws fairly large attendance, and is where SAP supply chain management customers gather to exchange learning, education and insights regarding SAP’s current and future technology addressing global supply chain process needs.

If you are attending this conference, please seek me out or drop us an email.  We would enjoy speaking with you.

We also extend thanks to SAP for inviting and hosting us at this key customer event.

Bob Ferrari

As we approach the tenth day after the devastating earthquake and tsunami that impacted northern Japan, some initial global supply chain implications are surfacing.  As we noted in our previous advisories one and two, it is still rather early to ascertain the specific industry impacts but some initial signs are evident.  The two most impacted industries initially appear to be automotive and high tech/consumer electronics, with some added concern for aerospace component suppliers.  While supply chains currently have some buffer inventories to get through these next couple weeks, we believe it is still uncertain to ascertain any specific issues.  Initial signs however are pointing to the potential for key component part shortages and/or price inflation for lower-tiered value-chain items.

Situation on the Ground

As we pen this commentary, the priority focus on the ground in Japan remains with taking care of survivors, recovery of the victims, and strong concerns controlling fires and the effects of radiation leakage from the five reactors located at the nuclear power station at Fukushima.  While the government has ordered the evacuation of residents directly in the impacted area of Fukushima, other survivors have decided that it may be prudent to leave the various areas of northern Japan.  Japanese and multinational companies continue to focus on insuring the safety and well-being of their employees and some companies have actually moved operations to other temporary locations. Transportation assets remain focused on the priorities of disaster relief and humanitarian aid for the victims.  The availability of consistent and reliable power throughout the country remains problematic, which has hampered the ability of production facilities to resume operations.

Automotive

Many automotive brands continue to deal with the after-effects with some supply shortages already beginning to appear.  General Motors will be stopping work at specific plants in Spain, Germany, and possibly South Korea because of spot part shortages.  GM CEO Dan Akerson acknowledged uncertainty over the short or longer-term extent of the impact.

Honda will extend shutdowns of its production facilities until March 23, and has indicated that 30 percent of the company’s 110 suppliers for both four wheel and two wheel vehicles are having difficulty in resuming operations. One news report notes that Honda has communicated to its U.S. based dealers that the company may not be able to resume full production until May.

Toyota notes that production in all in-country plants is suspended until March 22. Some concerns are being raised by industry observers regarding the specific impact to the Toyota Prius hybrid, whose component level value-chain is sourced in some of the impacted areas of northern Japan.

Nissan’s engine plant located in Iwaki remains offline and Nissan’s in-country plants also remain offline.

Semiconductor, High Tech and Consumer Electronics

While Qualcomm and Intel have issued statements indicating that global operations will be not be impacted by events in Japan, others remain in either a wait or see, or scramble mode to develop scenarios and plans to mitigate potential component shortages or severe price spikes.

Texas Instruments as already stated that its two impacted plants in the region would not return to full operations until July.

Much of the current concern is reflected on specific components related to NAND flash memory, DRAM memory, microcontrollers, LCD displays and electronic components.  Many of the value-chains of these components incorporate some or significant sourcing from Japan.

An analyst with Yuanta Investment Consulting in Taipei noted that 80 to 90 percent of the products that bond integrated circuits to glass panels for electronics displays come from Hitachi Chemical and Sony Chemical.

Within the semiconductor value-chain, bismaleimide thiazine or BT resins utilized to bond chipset packages, and an analyst for FBR Capital Markets noted that major supplier Mitsubishi Gas Chemicals has its plant located close to the site of the nuclear reactor incident.

The value-chain for high-end lithium-ion batteries that power many sophisticated consumer and high tech electronics also comes from Japan, which is fueling additional concerns about a potential disruption in supplies. CNET by way of All Things Digital comments that the production facilities for Sony and Hitachi which produces anodes are located within the evacuation radius of the troubled nuclear power plant.

Already, the threat of shortages is sparking price spikes among available supplies.

Another commentary on All Things Digital noted that at least five parts in Apple’s latest iPad2 device are sourced with Japanese supplies, three of which may be impacted. They include a glass display manufactured by Asahi Glass, the battery which is sourced to Apple Japan, and the electronic compass which is sourced from AKM Semiconductor. The commentary opines that because of Apple’s innovative design specifications, it may prove difficult to locate and qualify alternative suppliers.

Aerospace

The Wall Street Journal noted in its reporting that the three primary Japanese suppliers that build critical parts for Boeing’s 787 Dreamliner escaped major damage, according to Boeing.  We would add an interesting aside concerning Bombardier who similarly embarked on a major sub-component sourcing strategy for its C Series single-aisle aircraft in development, but elected instead to source 75% of the value-chain within North America, with additional sourcing in China and Europe.

Again, while the situation continues to unfold, and information is still a work-in-progress supply chain business planning, strategic sourcing and sales and operations planning teams need to be initiating scenario planning and mitigation alternatives.  This is the time for reaching-out and being patient with all impacted suppliers. It is also a time when cross-functional communication, synergy and teamwork will prove valuable over the coming weeks, as the situation unfolds.

Bob Ferrari

We have just added another interesting research report to our Supply Chain Matters complimentary research library. The report is titled:

Rolls Royce: Another Evolving Lesson in the New Social aspects of Risk Management for Supply Chains

This report reflects on the post- incident developments of the catastrophic Rolls Royce aircraft engine fire on board a Qantas A380 super jumbo aircraft, how social media played an important part in incident perceptions, and how the implications of social media manifest themselves in supply chain risk incidents.

This report can be accessed by either double-clicking on the title noted above or in our Research Center drop-down which is located on the top menu bar of the blog. A simple registration process is required to access these complimentary reports.

Research Calendar

In addition to the three currently available reports, The Ferrari Consulting and Research Group has scheduled the following topics on our research agenda:

Q2: Update and assessment on the current and future state of supply chain risk assessment and mitigation

Q3: Assessment of the current landscape of supply chain analytics and business intelligence

Q4: Changing landscape of supply chain traceability

The Ferrari Group also provides customized and paid research services and available reports. If you would like further information regarding these services, please send a request for information email to: supplychaininfo <at> theferrarigroup <dot> com.