Supply Chain Matters encountered a conflict last week, namely two of our favorite technology vendor customer conferences occurring during the same dates, but on opposite parts of the U.S..  While we have provided detailed commentary concerning the Kinaxis Kinexions 2011 conference,along with our appearance as a invited panelist, we would be remiss without adding some highlights from this year’s Emptoris Empower 2011 customer conference.

Emptoris is a one of the leading best-of-breed technology providers in applications supporting strategic sourcing, supplier management, services procurement and contract management. The annual Empower conference provides us the opportunity to familiarize and refresh as to leading procurement related best practices from multitudes of industries as well as to have open access and interact with  senior procurement executives representing well recognized corporate names.

Supply Chain Matters was alerted to two major announcements for this year’s conference. The first announcement concerned the upgraded release of version 9 of the Emptoris suite. In the increased ease of use category, this new release  includes a more intuitive interface to improve user interaction with various features and applications, along with tighter integration support for Microsoft Office integration. Also included is broader web browser compatibility and support for mobility based access via Apple iPad and a variety of mobile devices. Added functionality includes support for program management, suite-wide information and business process intelligence including a virtual supplier master, along with enhanced supplier life cycle management. The latter is the assimilation of the capabilities of Xcitec, which Emptoris acquired last spring.

The company also introduced enhancements to its services procurement application. Emptoris Services Procurement 9.3 includes support for mobile access and reporting from a variety of mobile operating systems including those of Apple iOS, Android, and Blackberry.

For more detailed perspectives regarding Emptoris 2011, readers can review the detailed coverage penned by Jason Busch on the Spend Matters blog.  Jason also attends this conference most every year, and provides an in-depth perspective.

Supply Chain Matters has often advised our readers and clients to specifically focus on the broader business process and time-to-value considerations when evaluating the deployment of advanced technology. In today’s dynamic and quickly changing business environment, new technology must to non-disruptive, must enhance productivity and support needs to start small and ramp quickly.  It is therefore noteworthy that vendors such as Emptoris have placed greater emphasis on usability and adoption, functionality that does not inhibit the ‘super user’ or novice in adopting the application and generating value from the technology.

In the coming weeks we will schedule a more detailed briefing with Emptoris regarding its new and future software releases  and will feature further commentary.

Bob Ferrari

Last week, while traveling,  I received word of the sudden passing of a former SAP colleague, Stefan Theis, who lost a brave fight with cancer at an all too early age. At the time of his passing, Stefan was the head of the line of business solutions team for SAP supply chain planning.

Stefan’s efforts were was very instrumental in charting the direction and support programs for SAP’s supply chain management applications. I had the honor to work with Stefan for over two years.

The following is a tribute which I have submitted for his family and SAP colleagues:

I was shocked and saddened to learn of the news regarding the passing of Stefan Theis. I came to know Stefan in 2002 when I arrived at SAP to lead Supply Chain Management product marketing. I have great respect for Stefan’s abilities in understanding the detailed functionalities of SAP supply chain applications, along with his abilities to meet with customers and help resolve their supply chain planning and collaboration process needs. Stefan was not shy in expressing his viewpoints, but was also very respectful of other viewpoints. He truly cared about customers and their needs, and passionately advocated for improved functionality.

More importantly, I valued my friendship with Stefan, including his unique style of humor and his passion for sports. We had many enjoyable coffee room conversations regarding automobile racing and soccer. I was impressed with his passion for biking to and from his office. During my trips to Walldorf, I would often make the time to visit Stefan to have conversations regarding organizational and technical developments at SAP, means to improve product marketing, as well as to have humorous conversation on organizational politics.

We have lost a contributor in the supply chain management community. I will miss Stefan.

I extend my deepest condolences to his family, friends and SAP colleagues.

Bob Ferrari

As industry analysts, influencers and consultants, we often look to concrete examples validating how a firm’s supply chain capabilities have proven to be strategic to its business results, and to its competitive standing in its industry.  Apple often fits this category, and the latest recognition of the strategic implications of Apple’s supply chain is reflected in a recent New York Times published article, Apple’s Lower Prices Are All Part of the Plan.  (metered free view or paid subscription required).

This article looks back at previous product introductions of Apple’s products, including the iPhone, iPad and MacBook, and notes how Apple’s scale and leverage in capacity, production, logistics and long-term procurement of parts have provided enormous strategic leverage. Many competitors have had difficulty in undercutting Apple in product sectors of ultra-thin laptops, tablets, and smartphones.  The Times article notes that Apple has not been shy in tapping its huge war chest of cash to take long-term gambles in locking-up supplies of key parts for years. It quotes a former Apple executive and current venture capitalist as noting that: “… Apple’s management of its supply chain had become a (its) “strategic weapon”.”

How many companies are willing to invest cash in strategic procurement and long-term capacity commitment decisions?

 There is, however, another important aspect of supply chain strategy brought out by the example of Apple, one that we believe should gain more consideration. In many industry settings in addition to consumer electronics, hardware products are becoming the leveraged platform to facilitate add-on sales of content, services or other products. This is often referred to as the razor blade model, where the razor can be aggressively priced in order to leverage the more profitable sales of blades. The overall product strategy is scale, and the supply chain strategy should be one of supporting high-volume, configure-to-stock products.

In Apple’s example, most all of its consumer devices leverage the sale of content for the music site iTunes.  Similarly, the company is rolling out its own cloud storage services as an additional upsell of services.  In other industry settings, namely consumer and industrial equipment sales, aerospace, and other products, more profitable services are leveraged by the volume penetration of the hardware platform.

This raises an interesting question in terms of product planning. Should the P&L and supply chain cost considerations be managed on the basis of the product alone, or on the broader aspects of added services revenues that the product will leverage? Do cross-organizational conflicts or functional barriers in goals prohibit these types of considerations?

The Times article notes that one of Apple’s competitors for the iPad was Motorola’s Xoom, which hit the market with an entry price of $899, considerably above the iPad’s $499 entry price.  Motorola later released an adjusted entry-level model priced at $599.  Would that extra $100 in unit revenues be offset by after-market content revenues?  The same examples could probably be argued for attempts by Research In Motion and Hewlett Packard to gain a presence of scale in the tablet market.  For Supply Chain Matters and other industry observers, HP’s fire sale price of $99 to cleanout inventory, which sold out in 48 hours, was further evidence that consumers are sensitive to price features and functionality.  Amazon’s new release of the Kindle Fire could prove to be another living test of whether the scale of volume hardware sales leverages broader and more profitable services revenue, and whether the supply chain strategy should incorporate a broader revenue return.  Supply Chain Matters will feature a follow-on commentary regarding Amazon.

In the meantime, is a supply chain strategy that incorporates considerations of product and add-on revenue potential an important consideration for your organization?

Bob Ferrari

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

Since our initial Supply Chain Matters alert ten days ago regarding monsoon-related floods impacting Thailand, the magnitude of the ramifications supply chain disruption is becoming more measurable for automotive, high tech and consumer electronics supply chains, and the duration of disruption more extended.  Meanwhile, water is massing just outside the capital city of Bangkok with the provincial governor warning that heavy flooding in the city is imminent. The United Nations is now warning of pending food shortages in the regions as rice and other vegetable crops become more inundated with flood waters.

Last week, high tech electronics firms were compelled to issue business impact statements.

Thailand represents significant disk drive production output, estimated to be close to 25 percent. Some estimates that global output could fall as much as 30 percent in the next three months, which is a significant magnitude of disruption. Industry forecaster iSuppli is indicating that industry disk drive supply could constrained until Q4-2012, which is sobering. The test will be how much of residual inventory and allocation strategy can buffer the impact for those further up the value-chain.

Disk drive maker Western Digital indicated that flooding of production facilities within Thailand, which represents close to 60 percent of its hard disk drive production, is having a “significant impact” on operations and its ability to fulfill customer demand. The facility represents 10 percent of Western’s total worldwide output. Seagate Technology, another disk drive manufacturer indicated its production will be impacted in the current quarter though it indicated that its Thailand facilities remain operational.

The floods are additionally impacting component suppliers with ON Semiconductor, Hutchinson Technology and Microsemi Corp. each indicating a substantial impact in supply. ON Semiconductor indicated that its Sanyo chip operations will remain shutdown indefinitely. Severe damage is suspected but workers have been unable to assess the overall damage. According to a Wall Street Journal report, the company expects the flooding to impact earnings for a minimum of 3-4 quarters with an estimated $40 million to $60 million in lost revenues per quarter.

Both Nikon and Sony have also indicated disruptions may impact the production of digital cameras and lenses as well as delay new product launches. These producers will already in the process of mitigating disruptions from the March tsunami that impacted northern Japan.

The potential impact to PC related companies could not come at a more inopportune time.  Customer shipments to satisfy the upcoming 2011 holiday buying season are about to occur while the implication of consumer preference for tablet and smartphones threaten to erode revenues and product margins. While many PC manufacturers remain silent, Apple CEO Tim Cook was quoted that he expects an overall industry shortage of disk drives.  A statement such as this emulating from the head of Apple is a sure indication of industry concern. Industry shortages will lead to price spikes and potential hoarding if suppliers do not institute controls.  The head of contract manufacturer Jabil’s supply chain, indicated at the Kinexions conference last week that if it were not for the proactive anti-hoarding and allocation buffer policies of Japan based component suppliers after the March tsunami, the situation could have been a lot worse for contract manufacturers. The same potential situation faces PC OEM’s who procure the bulk of disk drive inventory for their respective contract manufacturers.

Similarly, automotive supply chains are now incurring the impacts of the floods. A Wall Street Journal report indicates that Toyota will reduce production hours at its plants in Japan for the remainder of this week in order to cope with expected shortages of some parts. Toyota had previously scaled back production volumes in Indonesia the Philippines and Vietnam, and three plants in Thailand due to parts shortages. An estimated 100 parts have been impacted by supply disruptions.

We often communicate the overall importance of the ability for supply chain teams to perform scenario and contingency planning.  What if supply chain component supply was impacted by 10-20-30 percent? Unfortunately, in high tech and automotive sectors, these scenarios are becoming very real. As was the case after the Japan tsunami, the resiliency and determination of supply chain teams will be ultimate test of how long and to what degree, industry supply chains are impacted by the monsoon floods that remain occurring throughout Thailand and the Asia region.

Bob Ferrari

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

This is our fifth and final posting concerning the Kinaxis Kinexions 2011 conference held last week in Phoenix.  Readers can review previous commentaries by clicking on the following links:

Dispatch One

Dispatch Two

Dispatch Three

Dispatch Four

The persona of Kinaxis events frequently includes three consistent themes, Learn-Laugh-Share, and Kinexions 2011 did not disappoint in terms of an enjoyable experience.  We genuinely like to attend Kinaxis events. Attendees once again were treated to the humor of Bill Dubois and the Late, Late, Show format of speaker interaction. The presentations and conference content were all very informative and the customer appreciation event was a lot of fun. Congratulations to Kirsten Watson and to all of the Kinaxis conference planning team for conducting a great conference.

Besides the usual complement of enthusiastic customers, the headline for Kinexions 2011 was the announcement that the company’s core product will be renamed Kinaxis RapidResponse Control Tower. The implication of this announcement is that the existing RapidResponse functionality of supply chain planning and response management along with S&OP process support will be expanded into areas of sales force optimization, profitability analysis, workforce and sales force optimization.  The concept of supply chain control towers coupled to more predictive analytics is gaining lots of interest in complex, highly outsourced supply chains such as the high tech and consumer electronics industry, and no doubt, Kinaxis management wanted to steer the functionality of RapidResponse toward supporting these needs.  One of the thoughts we “tweeted” during the conference is our belief that customer needs and technology developments are aligning toward a new era of supply chain predictive analytics.

No doubt, Kinaxis wanted to gain an upper-hand in being identified with offering supply chain control tower process support, but more importantly, to be recognized as the single supply chain decision platform that can best assimilate all supply chain related decision-support information. Kinaxis is currently working with four other development customers on various aspects of deployment, and it will important to monitor how these deployments impact business results over time.

It will be interesting to also watch one other provider of control tower functionality that Supply Chain Matters has noted. Business process management (BPM) provider Progress Software has developed a control tower type application to support supply chain process execution and visibility.

An obvious open question remains as to whether prospects and customers will embrace a “cloud” deployment of this functionality, given the mission critical and security sensitive nature of global supply chain related information.  While not a lot of cloud deployment information was openly shared during the conference, we suspect that Kinaxis management will continue to provide flexibility in customer deployment options. Our hallway conversations with some select Kinaxis customers noted some concerns in gaining access to non-core supply chain information sources such as financial planning, product management and CRM.  The implication is that Kinaxis sales teams will have to target more education to the IT audiences of prospects.

Supply Chain Matters often looks forward to hearing the customer presentations delivered at Kinexions, as well as the hallway conversations.  The primary reason is that the Kinaxis customer base represents many tiers of global supply chains, from the most innovative OEM’s and product innovators such as Amgen, Cisco, and others, to large-scale contract manufacturers and mid-market companies.  What you often find is that the mid and lower tier supply chain players, that have to manage single digit gross margins are often the most innovative in finding methods to innovate planning, response and customer service process needs.  These players are often tasked by larger, more dominant supply chain partners to provide broader visibility and more responsive response to changing business needs, and as Jabil astutely pointed out, they must also be able to out maneuver large OEM’s in terms of periods of short supply or supply chain disruptive events.

Make no mistake, innovation occurs at all levels of global supply chains.

As we noted in our detailed commentary, the Kinaxis team also decided to invite a broader group of well recognized industry analysts, systems integrators and bloggers to this year’s conference in order to broaden the visibility of the company.  Kinaxis is a privately owned company and this overt step to broaden the company’s visibility in the market may be a prelude to other options down the road, perhaps taking the company public.

The influencer track provided a great opportunity for invited guests to gain a broader understanding of RapidResponse capabilities, including its current scalability among customer deployments.  Some scalability numbers shared were 20 million plus input records processed per second and 20,000 planned orders or 300,000 dependent demands processed per second in MRP calculations.  We have noted in past commentaries that this application is unique in that it spans well beyond just supply chain planning utilization support and includes aspects of supply-chain wide visibility, S&OP process support, and other uses.  It is not uncommon to hear that some RapidResponse customers have end-user counts in the hundreds and thousands. A persistent layer of broad-based supply chain planning information, business scenario related data modeling, and most importantly, the business rules surrounding the data are all housed within the RapidResponse engine. This lends itself to a viable interactive decision-support platform for planning and managing the supply chain. It is no surprise that many of Kinaxis’s newest customers have been attracted by support for their respective S&OP and other broad based decision oriented processes.

It was also rather important for Kinaxis management to clarify that RapidResponse does not exist without the existence of current backbone ERP or legacy systems.  Rather, it enhances the need for supply chain and business planning decision-making without having to rip-out existing ERP systems or endure disruptive upgrading of applications and ERP vendor technology stacks.

In summary, we believe that Kinaxis remains as a technology provider with lots of momentum in the market, with the potential to provide further innovation in predictive analytics and supply-chain decision support.  We believe that next year’s Kinexions may well provide more customer evidence of these evolving capabilities.

Bob Ferrari

Added Note: Kinaxis is one of other named sponsors of the Supply Chain Matters blog and the author provides services to this vendor.