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

In this week’s Gartner’s First Thing Monday update, Jim Shepherd pens a somewhat controversial commentary titled Do You Really Need an IT Department Anymore? (Sign-up account required).

In his commentary, Jim argues that since firms expect people to type their own letters make their own travel arrangements and administer their own payroll and benefits plans, is it not time for departments to manage and have accountability for their own software applications?

Jim offers a number of arguments in his commentary. The principle argument is that department managers do not take responsibility for determining their information systems requirements and that a business should be staffed to manage its own systems.  Regarding the obvious question for who will have responsibility of managing overall IT infrastructure, Jim’s argues: “… there are few companies that could really claim that application management or data center operations are either a core competency or a business differentiator, especially since there are lots of options for cost-effectively outsourcing this stuff to organizations that do this for a living.”

Readers certainly may have their own pro or con opinion about eliminating IT and can feed these views back to Jim at Gartner.  However, since supply chain business processes interrelate with many other enterprise processes, the argument of eliminating IT, if embraced, has significant implications for our supply chain community. With that in mind, I will share some considerations for discussion items with the supply chain community in mind.

Before handing over the keys to IT, let us consider the following:

• Many firms continue to struggle in overcoming supply chain wide functional stovepipes in strategy formulation and goal alignment. Before taking over the keys to IT, should teams first achieve some form of organizational alignment?
• With IT comes the budget for software investment and maintenance spending.  That may be a pro or a con, depending upon your particular organization’s corporate perspectives.  It could translate to increased innovation and agility for responding to global-wide supply chain business process needs, inserting systems of innovation or differentiation where required.  On the other hand, it could be another budget line-item subject to further supply chain cost reduction efforts.  Either orientation could be applicable. Another consideration relates to which team holds overall P&L responsibility, individual businesses or the supply chain function.
• What about IT technical skill requirements?  There has been much recognition of late about growing general management and technical skill gaps among various supply chain functions.  Is our community ready to embrace the technical aspects of managing IT applications and business intelligence needs? Here again, some organizations may be ready, some not so ready. We have observed many successful efforts of IT and systems responsibility embedded under the supply chain organizational umbrella.   Some organizations, however, may not be close to ready.
• Supply chain functional ownership of IT may not sit well with the major ERP providers who have marketing and sales strategies pegged to the career strategy of  CIO and his/her IT team.  Are you ready to deal with the hordes of ERP sales and business development types calling on you to consider maintaining annual maintenance, development or new investment spending? Do you have the patience to accept multi-year promises of promised functionality? Do you have the stones to recommend a dis-investment in any existing ERP application?
• When applications go down and suddenly stop working, who are you going to call when your team owns applications? Is the fault related to  the IT infrastructure outsourcing entity, the software vendor, the network connection, or an outside hacker attack?  Are you ready to place this determination on your plate?  After all, you have nobody in IT to bug!

Regardless of who owns IT applications, do not presume that ownership of accurate data and robust business process such as S&OP is part of this debate.  Supply chain teams own these, regardless of the ownership of IT.

Perhaps this can be some food for thought and conversation over beer and burgers during the 4^th of July weekend.

Feel free to chime in with your own viewpoints and do not forget to sign-up for that management development course: How to Manage IT in Five Easy Steps!

Bob Ferrari

A rather interesting news analysis article in today’s print edition of the Financial Times, penned by Leslie Hook in Beijing  (paid subscription or sign-up account required) makes the observation that China’s import demand for  key commodities has been rather quiet this year, suggesting that there is cutback underway.  The key question poised is whether this cutback will be longstanding. While copper, coal and various base metals are currently experiencing reduced demand, will this trend be longer-lasting?

The article points to analysts indicating that the drop is due to several factors including slower economic growth and a move to run down inventories. Supply Chain Matters concurs and in watching these China trends over the past two years, we have noted signs of speculative inventory hoarding in the past. FT notes that the current high global prices for most commodities make it less attractive for Chinese manufacturers to currently hold large stocks of raw materials.

The key question however is whether this pullback represents a temporary drawdown of existing raw material inventories or whether this is a longer-term trend impacting the state of overall global demand for commodities.  Is this a concerted effort to force commodity prices lower, only to create buying opportunities in the not too distant future?

We believe the key test will come at the end of 2011, after end-of-year and New Year holiday production volumes are completed and shipped to retail and other industrial customers.  China’s import activities tend to increase in the Q4 or Q1 time periods reflecting the influence of production cycles. We recommend that sourcing and procurement teams not get overly excited that a bend in the commodities speculation and demand curve is imminent, but rather that global dynamics continue to play out.

What about your view?  Long or short-term trend?

Bob Ferrari

We would like to remind providers of supply chain related technology and services that there are opportunities for being a named sponsor of the Supply Chain Matters blog.  Blog sponsors appear in our sponsorship panel located on the right-hand side.

Blogs have come to be a very influential source of opinion and thought leadership with this site being among the top ten blogs commenting on global supply chain developments  in business process and information technology.  Supply Chain Matters provides global reach with an average of 30 to 40 thousand monthly visitors, with an increasing number of unique first-time visitors.

As a sponsor of Supply Chain Matters, your company will be recognized not only for its products and services, but also a supporter of quality thought leadership.  Sponsorships are also available that include services in spring boarding your social media and product marketing strategies.

We would also like to remind major sponsors of conferences related to supply chain executive and business topics that we also provide opportunities for promoting your conference agenda on Supply Chain Matters. Previous conference advertisers have gained considerable click-through rates to conference registration sites.

For further information, you can either complete a sponsorship inquiry form, or send an email with your name, company, email and telephone contact information.  Please send email inquiries to: info <at> supply-chain-matters <dot> com.

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

Last week much of the aviation industry came together at the Paris Air Show and the event may well be remembered by Airbus as a spectacularly successful event.  The show also provided our supply chain community critical reminders of the importance that proper timing of new products and value-chain collaboration can play in an industry market.

During last week’s event, Airbus landed a total of 730 orders for aircraft at a catalog value of slightly more than $72 billion, which was double what executives previously estimated.  Not bad at all for one week’s haul, and an envy for any value-chain.

The primary headline however was the short-haul aircraft market and recent release of the updated A320neo, which accounted for 667 orders representing over 91 percent of commitments made at the show. The A320neo further attracted one of the largest orders on-record for Airbus, 200 A320neo aircraft from AirAsia Bhd valued at $18.5 billion. Airbus has now accumulated 1029 orders of the updated A320 since its announcement in December, an order volume that is sure to capture the attention of Airbus competitors. Another takeaway from the enormous success of the updated A320 is the new market power and enthusiasm of Asia based and lower-cost airlines that have fueled buying interest thus far.

The “neo” (new engine option) A320 boasts of an efficiency improvement package which incorporates both wing Sharklets and newer engine technology that Airbus claims will deliver 15 percent reduced fuel consumption, less CO2 consumption, additional payload and 500 additional nautical miles of aircraft range.  Airbus claims that the updated A320neo can deliver 16 percent less fuel burn per seat compared to Boeing’s 737-800, and 1300 more nautical mile range than Bombardier’s new C-series CS300 aircraft. One other product marketing claim is that the updated A320 has 95 percent spares commonality with the existing A320 family.

Two different aircraft engine options are being made available for the A320neo, the Pratt or Whitney PurePower PW11000G geared turbofan, or the CFM International LEAP-X. Each of the engine manufacturers collaborated with Airbus on meeting fuel efficiency and design targets. CFM is the engineering and product design consortium among France’s Snecma (SAFRAN Group) and General Electric Aircraft Engine Group. The LEAP-X turbofan is characterized as a new generation aircraft engine designed to leverage the newest technologies.  CFM has secured firm orders for 910 LEAP-X1A engines thus far valued at more than $11 billion in catalog pricing.  CFM engines are also exclusive to powering the Boeing 737-600, 737-700, and 737-800 aircraft.

According to an Airbus brochure, deliveries of the A320neo are planned to begin in October 2015, and according to financial media reports from last week’s show, many neo customers were motivated to place orders to secure their delivery slots, which are now estimated to be in 2018

Boeing, arch competitor to Airbus, competes in this short-haul aircraft segment with the popular 737 series aircraft. Other new market competitors include Bombardier and its C-Series line and China’s Comac. Boeing has yet to decide whether to re-power its proposed new version 737NG or come up with a new design that would offer airline customers greater cost savings.  Industry speculation is that large influential airline customers including Southwest Airlines and Ryanair have been urging Boeing to decide on a direction for the 737NS.  Judging from last week’s unprecedented activity among airlines willing to plunk down a monetary commitment, Boeing may well be in a difficult catch-up position, since it only garnered 80 new orders for 737’s last week. Reports indicate that Boeing may well opt for a entirely new design for the 737. That new design will have to best the A320neo performance as well as meet expected delivery windows for customers, which places more pressure on Boeing teams.  The commercial arm of Boeing also continues to play major catch-up with overdue deliveries of the 787 Dreamliner aircraft, and that track record does not bode well for Boeing’s predictability.

The Eagles had a very popular tune, In a New York Minute, who’s first refrain included these lyrics:

In a New York Minute
Everything can change
In a New York Minute
Things can get pretty strange
In a New York Minute
Everything can change
In a New York Minute

The airline industry, and especially its new wave of Asia, Middle East and emerging market carriers are redefining low-cost travel, growth and profitability, and now, aircraft market demand. Last week was perhaps a watershed event in determining the new competitive dynamics in listening to customer needs and proper timing of a new product. We can gather some important learning from this one show.

Bob Ferrari

Much attention is made in the financial media and blogosphere on the reported earnings of both FedEx and UPS since they are barometers to trends occurring within global logistics and the broader business economy as a whole.

This week, FedEx released its fiscal fourth quarter and end-of-year earnings and there were some interesting takeaways.  Highlights included:

• Q4 revenues up 12 percent with operating income up 28 percent year-over-year in the midst of rising aviation and diesel fuel prices. Net income was reported as $558 million, up 33 percent from last year. Total fiscal year revenues increased 13 percent with operating income up 19 percent for the full year.
• Operating margin increase a full percentage point to 8.4 percent
• Within the FedEx operating entities, the most significant headline revolved around FedEx Ground whose daily package volume grew by 6 percent in the quarter while operating income was up 31 percent from the year earlier.  This is an indicator that shippers are increasingly turning more to ground vs. air as a preferred method for domestic shipping.
• Within the FedEx Express segment, international daily package volume increased 6 percent with the company noting exports from Asia (particularly China and India) as a positive trend.
• The headline for the FedEx Freight segment was accomplishing operating profitability after a series of consolidations and yield management actions.
• FedEx has also grown overall headcount to slightly more than levels reported in 2008, at the beginning of the global recession, which is an indicator that internal productivity and cost control measures are having a positive impact. The company indicates that it will invest an additional $4.2 billion in fiscal 2012 in facilities, vehicles and IT. We would not be surprised to note that some of these investments would include continuing efforts toward sustainability and carbon reduction efforts.

Regarding the broader global economy, FedEx is basing its forthcoming business plan assumptions on the U.S. economy growing 2.5 percent in 2011, and 3.5 percent in 2012.  Assumptions also factor that the price of oil will average $95 a barrel in the current fiscal year.  Supply Chain Matters believes that these numbers may be a bit too optimistic given recent reports of mounting economic headwinds within China, the U.S., and other emerging economies as well as continued social unrest across the Middle East.

Overall the barometer from FedEx indicates high pressure and sunny skies but certain threats of storms remain in the forecast.

Bob Ferrari