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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, many of which are unique. We pride ourselves on the quality of our content and insights regarding global supply chains.

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 based product marketing strategies or raising educational awareness to new technologies. We are currently offering an attractive discounted rate for the remaining three months of 2011.

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Next week we will be attending the annual conference of the Council of Supply Chain Management Professionals (CSCMP) being held in Philadelphia.  This is one of the premiere educational and professional conferences among the supply chain management community and we are looking forward to catching-up with friends and colleagues.

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.

Next week we will be attending the annual conference of the Council of Supply Chain Management Professionals (CSCMP) being held in Philadelphia.  This is one of the premiere educational and professional conferences among the supply chain management community and we are looking forward to catching-up with friends and colleagues.

If readers are planning on attending, please stop us in the hallways or send us an email. We will be hosting one of the tables at the Roundtable Luncheon on Tuesday, representing the New England Regional Chapter of CSCMP.  Supply Chain Matters will also be blogging some of our impressions and observations from this year’s conference.

Bob Ferrari, Executive Editor

The following commentary can also be viewed and commented on the Supply Chain Expert Community web site where Bob Ferrari, the author is a featured guest blogger.

Over these past few weeks, Supply Chain Matters and others in social and print media have been providing insights and commentary as to how quickly global supply chain dynamics are changing in value-chain networks involving high tech and consumer electronics.  In particular, we point to the PC and smartphone segment. Changing economic forces and sudden events are precipitating change, and these forces may not be to the  liking of certain existing players.  The implications for the supply chain community is heightened awareness to strategic trends and product sourcing strategies, since high tech and consumer electronics supply networks may well have different landscapes of key players in the months to come. It is now crucially important to keep senior management educated as to the implications of these developments.

Our particular commentary began in June, noting key highlights from Hon Hai’s annual meeting and  some of the signposts for a changed contract manufacturing landscape. The eroding margins and competitive dynamics of contract manufacturing point to the strategic need to move further up in the value-chain and into the turf of some existing suppliers.  In August, the two bombshell announcements of Steve Jobs resignation at Apple and HP’s intent to spin-off its PSG division and abandon its efforts in  tablet  computing with the leveraging of the Palm WebOS operating system, created a value-chain network of turmoil and uncertainty, which continues.  Supply chain community members residing in these networks can well relate to current conference, hallway and break room speculation as to what may be coming.

Financial media is also honing in on these developments and changing forces and the Financial Times, Bloomberg BusinessWeek and the Wall Street Journal among others have published supply chain impact articles. In late August, announcement came that Japan’s Sony , Toshiba, and Hitachi Ltd. will together merge their money-losing small liquid-crystal display operations to form a single company to be named Japan Display.  In mid-September, FT published an article indicating that Samsung needs to hit the reset button and focus more on the core software that is crucial to its increased focus on high-end consumer electronics. The perceived motivation for HP’s prior decision to investigate strategic options was to concentrate more on the valued software and services element.

This week the WSJ published an article, Nokia’s Troubles Hit Suppliers (paid subscription or metered free view may be  required) that correlates the market struggles at Nokia Corp. and Research In Motion to the consequent ripple effects among major suppliers. Noted was that as semiconductor chip suppliers try to find additional business beyond Nokia’s dwindling volumes, they are discovering that the two biggest smartphone players, Apple and Samsung have locked them out of the market by virtue of designing and manufacturing their own devices. A market researcher cited that Texas Instruments shipped 85 percent of its application processor output to Nokia last year, and has now TI has had to reset Wall Street earnings guidance. The HP decision to abandon WebOS also impacted TI, to the benefit of Qualcomm in the applications processor supply landscape of suppliers. What technologies and capabilities suppliers adopt and who they select as strategic business partners has major business implications. What the major OEM’s elect as continuing strategy, particularly Apple, Samsung and of course, HP, will also precipitate accelerated change.

All of these developments point to continuing turbulence among and across high tech and consumer electronics value-chains, and now more than ever, firms in these segments need to continually re-visit their strategic sourcing and supply plans for long-term implications.   The top tier OEM’s and tier one suppliers want to participate in broader swaths of the value-chain. Suppliers seek more diversity and cushioning to industry developments. Software, operating systems and after-market services are the new high margin areas while hardware seems to be becoming the orphan or the cost of entry to more profitable segments.

In July, we highlighted the dialogue of ‘closed’ vs. ‘open’ supply chains, specifically that closed supply chains are a highly integrated set of networks where product technologies are owned by the company orchestrating the vale-chain.  Apple and Samsung are the high visibility examples today. Add the implication of service offerings and the discussions can tend to get quite interesting.

Supply Chain Matters believes that the current accelerating dynamics occurring in high tech value chains make it imperative that senior management is continually educated to developments and that strategic strategy sessions and interchange be more than just a periodic occurrence.  Sourcing, product management and procurement need to broaden the lenses of visibility to industry developments, while increasing their two-way communications with the broader supply chain management team as to what is being heard and what can be expected. Supply chain management needs to speak as one voice.

We further recommend that high tech and consumer electronics teams allocate specific time in the executive level S&OP process to an industry development and strategy discussion.

Now is the time for supply chain management to be the eyes and ears to industry movement and long-term implications.

Bob Ferrari

©2011 The Ferrari Consulting and Research Group LLC

In many retail and consumer-focused industry supply chains, the last three months of the calendar year represent the peak point of global supply chain resources as companies position for the end-of-year holiday buying season.  The open question, however, is what to expect this year?

This is the period where supply chains are planning,  procuring and positioning inventories for peak holiday buying and promotions in the coming months, and a lot of logistical volumes should be moving from Asia toward key market consumption regions. Then again, most of this year’s growth has come from emerging markets, and the question is whether holiday peak movement reverses, from west to Asia.

Traditional financial media has been focused on the executive commentary provided in the recent quarterly operating results from both FedEx and UPS.  Scott Davis, UPS chairmen has been quoted that he expects “slow growth” to continue but does not anticipate another global recession. UPS continues to predict record healthy earnings in 2011, a “solid” upcoming holiday season but the company admits that it has observed shipment volumes in the U.S. “basically stall” during the recent quarter.  Also noted, was that UPS international air freight originating from Asia has experienced a noteworthy slowdown.

FedEx experienced strong performance from its ground shipment segments in its latest quarter, but it, too, pointed to significant slowdowns in international air movements from Asia, so much so, that it has taken action to throttle back available airlift capacity.  FedEx chairmen Fred Smith was a bit more cautious in his commentary, noting that while FedEx is not anticipating a “double-dip”, the company expects slower international economic growth.  A key determinant noted was consumer sentiment.

So what is really occurring across global supply chains?

Consumer confidence seems to be in the dumper, since continuous news reports of global economic collapse and dysfunctional legislative actions in the U.S. and Europe have not provided any sense of optimism. China has experience significant spikes in inflation and Chinese consumers are reeling from larger increases in food and staples. The Chinese government is aggressively ratcheting-down China’s economy in fears of vast over-heating.

On the supply side, scanning the key China PMI index, it increased slightly in August to 50.9 from 50.7 in July, with unremarkable export order volume.  That does not reflect that any significant ramp-up in production activities has occurred as yet.  Global trade intelligence platform vendor Panjiva, who predominantly tracks water borne shipments, however, indicated a steady seasonal growth in August trade activity.  The ports of Long Beach and Seattle, major transfer points for Asia to U.S. ocean container traffic each reported unremarkable inbound volumes, while the port of Savannah on the east coast recorded the lowest volumes since February.

The U.S. focused  ISM PMI for August came in at 50.6, down from 50.3 in July, with the index for new orders only slightly up.  Inventories however are spiking, which could be either good or bad, depending on seasonal holiday buying demand in the coming weeks.

In essence, the global supply chain picture appears very confused in terms of planning and ramp-up and teams need to be focused on various business scenarios.

Some readers may disagree, while others may add more insight as to what’s really occurring, and how to best prepare for efficiently fulfilling product and service demand for the remainder of 2011.

Supply Chain Matters offers two alternatives for sharing perspectives and current thinking.

Readers can respond in the comments section attached to this commentary and share what planning assumptions your teams are implementing for end-of-year plans to fulfill customer demand

Alternatively, readers can  respond to our new interactive poll which is located in the right-hand panel.  When we gather a significant sample of responses, we will report the findings.

In the meantime, insure that your sales and operations planning teams are keen to plan for various business scenarios since the end-of-year picture seems unpredictable.

Bob Ferrari

Readers of this blog are often aware that one of the features of Supply Chain Matters is to follow certain supply chain transformation efforts involving either manufacturers or retailers.  Our goal has always been to tie existing news and developments with some form of context, whether crisis, transformational or renewal related.  In essence, we enjoy connecting some of the dots for our readers when supply chain business process and technology initiatives make a discernable competitive advantage.

An ongoing story involves home improvement retailing, which began with Home Depot and its efforts to overcome supply chain fulfillment capabilities gaps with its prime rival, Lowes. Our initial commentary began in early 2010, Can Home Depot Close Its Supply Chain Gap?, and was followed by a subsequent commentary in September 2010, Home Depot Making Progress in Closing the Supply Chain Gap.  The essence of these ongoing initiatives from Home Depot were an avoidance of a previous ‘big IT’ approach in favor of concerted investments in specific supply chain related process enablement capabilities.

During the bulk of last year, the Depot embarked on a $250 million investment in improved supply chain capabilities on both supply chain operations and planning. There was a rather large effort to shift inventory replenishment strategies toward more centralized planning, which included the majority of inbound inventory activity moving through 19 regionalized flow-through deployment centers. Additional investments were made in inventory optimization, supply chain network design and inventory forecasting technology which were all part of a three year effort focused on supply chain transformation.

In late February, the Wall Street Journal featured an article reflecting on Lowe’s operating results while noting that while Lowe’s demonstrated respectable results, these results were not quite as good as those of Home Depot.  Noted specifically was that in the midst of severe winter conditions that occurred in the U.S. throughout Q4, Lowe’s had run out of key inventory while Home Depot was able to capitalize on strong sales of snow blowers, shovels and other storm-related needs  by more responsive inventory replenishment strategies. A quote from the WSJ notes: “The question is which retailer will win the latest round in their three –decade-long battle for customers, as consumers resume spending on projects once again.” Also included is a quote from Lowe’s CEO Robert Niblock: “The competition has certainly gotten better.”

To update our commentary, we recently reviewed the latest operating results from both retailers.

In its briefing of Q2-2011 operating results, Home Depot senior executives again made specific mention of the positive bottom-line contributions made from recent investments in supply chain capabilities. Specifically, benefits of the ongoing supply chain transformation in the U.S. contributed 26 basis points of margin expansion while improving delivery, service and transportation cost savings to U.S. stores.  Centralized supply chain inventory management and the now deployed 19 regional distribution centers presently  handle 63 percent of total goods, up from 50 percent in the previous quarter.  Also noted was an expansion of supply chain improvement initiatives within outlets serving Canada and Mexico. As severe weather and drought impacted many parts of the U.S., Home Depot was able to satisfy demand for essential items in storm recovery, reconstruction  and landscaping needs.

Meanwhile, Lowe’s continues to fall short of expectations.  The company’s Q2-2011 operating results featured flat sales for the first six months, an associated 2 percent decline in operating profitability, and a decision to close seven retail locations. Gross margin has decreased 37 basis points and the company is facing some additional tough decisions to improve profitability.  There is now 2 percent more inventory than a year ago and inventory turnover has declined 3 basis points.  Last week the retailer announced a major restructuring of U.S. store reporting structures along with a restructuring of merchandising operations. Three operational executives have left the retailer.

For supply chain related initiatives, Lowe’s executives have highlighted the implementation of an Integrated Planning and Execution (IP&E) initiative to enable a more market-driven approach for merchandising while supporting efforts for some local region uniqueness.  This seems to be a different approach than that taken by competitor Home Depot, that noted centralized inventory ordering and replenishment. While we were not initially able to investigate the details of IP&E, we trust that he has some tenets to a market-driven S&OP process. Lowe’s has also begun deploying 42,000 handheld terminals for U.S. and Canadian stores, while merchandising structure and alignment remains in transition. That seems at the surface to be implementing automation without first fixing inventory and assortment management.

In April of 2010, Lowe’s CEO noted that he was confident that Lowe’s supply chain capabilities would continue to provide a competitive edge [over Home Depot]. Obviously that statement is no longer apparent, and Home Depot’s supply chain initiatives are providing continued boost to the bottom line. The chairs have swapped, and now Home Depot is leading in meaningful supply chain responsiveness.

Supply chain renewal and innovation does matter in retail and in other industry supply chains and this ongoing case study of home improvement retail rivals reflects the ups and downs of each.

Supply Chain Matters will continue to monitor and highlight these industry case studies.

Bob Ferrari

©2011 The Ferrari Consulting and Research Group LLC and Supply Chain Matters