The following posting is this author’s weekly guest commentary on the Supply Chain Expert Community web site.

S&OP and supply chain planning teams within B2C and retail focused supply chains are especially challenged this holiday buying season. The period from the Thanksgiving Holiday in the U.S. through the holidays that extend into January of 2013 are a period of seasonal surge, where profitability for the entire year may be at stake.

In 2011, seven individual shopping days surpassed $1 billion in online consumer orders, with peak volumes experienced on Black Friday weekend, Cyber Monday, and every Monday leading up to December 15^th. The implication was that orders came in huge surges, and supply chains that were not prepared, particularly those without robust inventory allocation or tight inventory visibility across their brick-and-mortar retail and online retail systems paid a price in customer loyalty. Response management proved to be a key capability for those that benefitted in the 2011 surge.

According to the latest numbers from marketing analytics firm comScore, Inc., U.S. retail e-commerce spending is up nearly 16 percent in the first 26 days of November.  Cyber Monday online sales are now estimated to be nearly $1.5 billion, a corresponding 16 percent increase from last year. The hottest products during Cyber Monday were consumer electronics, computers, video games and consoles. If last year’s online trends hold true, B2C supply chains can expect continued weekly surges.

The 2012 holiday season adds even more challenges.  Many consumer electronics supply chains are supply constrained because of either late new product introduction, or new technologies such as LCD displays that are experiencing lower manufacturing yield challenges. There is a fierce battle among electronic tablet providers for market share volume.  In the gaming console area, Nintendo has nearly sold-out of its new Wii U console and its supply chain is challenged to fulfill remaining holiday demand.

On the demand side, the state of the global economy adds particular challenges for planning individual country demand. Reports indicate that shopping patterns within the Eurozone countries, currently challenged with high unemployment and a highly uncertain economic outlook is considerably different than previous years. Tighter consumer budgets have motivated online and traditional retailers to promote lower-priced goods. According to a recent article published in The Wall Street Journal, European consumers are refraining from buying presents for each other, impacting demand for electronic gadgets and jewelry. Toy sales, on the other hand, remain stable thus far. Shoppers in Spain and Italy are scaling back as much as 4 percent while 9 out of 10 shoppers in France are seeking special promotions before making a buying decision. Consumers in Germany on the other hand, have shown indicators of a slight increase in holiday sales. Similarly, consumers in China are concerned about the contraction in that economy and are expected to cut-back in holiday buying.

There should therefore be no doubt that consumers will leverage all of the mobile and online technologies at their disposal to find the best deals.  That will obviously add to more added tensions among sales and marketing and supply chain teams in what types of promotions and product will be offered in the coming weeks.

In addition to robust response management capabilities, S&OP and supply chain planning teams among B2C supply chains will need to focus on fulfillment plans by individual country, and by individual channel. Inventory balancing will again be a critical capability to insure revenue plans are fulfilled, while not having inventory isolated in a non-performing channel or geographic region. Online retailers will continue to offer aggressive price promotions for the remainder of the holiday surge on inventory that can still be garnered, while combination brick and mortar and online stores will counter with their own promotions to keep people visiting physical stores.  All of these activities will no doubt, challenge S&OP teams to near daily planning of activities.

For B2C supply chains, it is going to be interesting remaining few weeks, and we should expect these supply chain teams to be heads-down in response management and pulling off last-minute supply miracles.

It will also be interesting to reflect on the potential winners, when the dust finally settles.

What’s your view?

Bob Ferrari

The Wall Street Journal and other news media report that this past weekend, yet another fire occurred at a Bangladesh apparel factory, with more than 100 workers reported killed in the blaze. This latest incident caused thousands of Bangladeshi’s to protest for safer working conditions, causing the temporary closing of over 200 exiting factories in the industrial zone just north of Dhaka.  Some of these protests turned violet.

The latest incident involved an eight story factory operated by Tazeen Fashions Limited, a subsidiary of Tuba Group.  About 1400 people worked at the factory, the majority of which were women. Survivors indicated that the main exit doors were locked and there were no emergency exits in the building. According to the Canada based Maquila Solidarity Network, past incidents of apparel factory fires have killed over 600 people in the past six years, the latest being a December 2010 incident. Ironically, another fire ta a separate factory within a northern Dhaka suburb broke out Monday, but it was quickly extinguished. Today, police arrested and questioned three factory officials suspected of locking in the workers who died. Some workers, however, expressed support for the factory owner, indicating he was sensitive to worker protests for more pay and against rough treatment of workers.

The factory supplied apparel for sourcing consolidator Li & Fung, who is a supplier to major retailers such as Wal-Mart stores. The WSJ reported (paid subscription or free metered view) that late Monday, Wal-Mart indicated that this factory was no longer authorized to supply clothing to that global retailer, and that Wal-Mart had cut ties to a supplier that had apparently sub-contracted production to the subject factory without authorization. The WSJ notes that documents posted on Tuba Group’s website include a letter from Wal-Mart’s ethical sourcing department informing Tazeen Fashions that a May 2011 audit had found the factory to be “high-risk”. The letter indicated that two more such findings within two years would lead to a one-year suspension. An Associated Press story syndicated in The Huffington Post Business section indicates that in addition to Wal-Mart, the factory also produced apparel for Disney, Sears and other global retailers, some of whom believed that they had stopped sourcing goods at this particular factory. Both Sears and Disney spokespersons also indicated no knowledge that their goods were being produced by Tazeen.

All of these denials of sourcing knowledge obviously point to blind eyes related to the overall apparel sourcing chain and the use of intermediaries to buffer sub-contracting decisions.  While lots of visibility of late has been directed at military style working conditions within high tech and consumer electronics factories in China, apparel factories have had far worse working conditions. Contracts may contain clauses that require disclosure of all factories within the supply chain, but there is a distinct difference in contract language vs. active enforcement. The sourcing of apparel production remains the most sensitive to relentless needs for lowest direct labor costs, causing constant movement in the selection of low-cost manufacturing regions and respective factories that span all parts of the globe.

It is tragic that fires of such proportions, with global visibility, have to call our attention to such conditions, and that retailers and distributors can continue to claim lack of visibility or awareness to such conditions.  Retailers and the apparel industry are long overdue in coming up with a global-wide, enforceable set of worker safety standards. In March, international and Bangladeshi labor-rights groups indicated that PVH Corp., which owns the Tommy Hilfiger and Calvin Klein brands, and many others, had agreed to be part of a pilot two-year fire-safety program. These efforts need to be intensified on a global-wide basis

Bob Ferrari

We would like to extend to all of our U.S. readers and throughout the globe, warm Thanksgiving Greetings and best wishes for the holiday.  This is a holiday to reflect on the blessings of family and life, along with all blessings.  We trust that readers will have the opportunity to enjoy the company, good food, and libations of this traditional holiday.

Supply Chain Matters will publish limited activity over the next few days as we take some time to enjoy the company of extended family.

Bob Ferrari, Founder and Executive Editor

On the eve of the Thanksgiving Holiday here in the U.S., a holiday to look back and reflect on the blessings of family and life, it is also our time to reflect and scorecard our Supply Chain Matters 2012 Predictions for Global Supply Chains which we published nearly a year ago. Our annual process is to first scorecard the current year’s predictions before publishing our upcoming 2013 predictions during December.

Our scoring process this year will be on a four point scale.  Four will be the highest score, an indicator that we totally nailed the prediction.  One is the lowest score, an indicator of; what were we thinking?

In our Part One posting, we reflected on the initial three predictions issued nearly a year ago.

Our Part Two posting scored Prediction Four, focused on specific industry supply chain challenges in 2012.

Part Three scored Predictions Five through Seven.

In this final Part Four commentary we will look back and score Predictions Eight through Ten.

2012 Prediction Eight: The challenges related to higher incidents of counterfeit products, cargo theft and other unscrupulous activities within and across global supply chains will finally motivate government and industry to step-up process standards and corrective mitigation efforts.

Score: 2.5

This collective area had been percolating for many years and we developed our predictions we anticipated that 2012 would be the year when government and industry finally become motivated to take action to address the growing incidents of non-conforming materials that have penetrated multi-industry global supply chains.   A snapshot of 2012 events clearly indicates that government stepped-up its enforcement efforts. The same could not be stated for active industry efforts, and thus, our rating score reflects a missed prediction.

In our industry-related prediction pertaining to Pharmaceutical and Healthcare, we noted that increased shortages of drugs led to more unscrupulous and criminal behavior relative to grey market supply, especially incidents of counterfeit and fake life-saving drugs such as Avastain for the treatment of cancer. U.S. government regulatory agencies clamped-down and discovered counterfeit drug supply routes that crossed multiple foreign countries and corporate entities, with violations of drug safety standards.  What was once believed to be a suspected problem with counterfeit drugs originating from Canadian based distributors has turned out to be far wider in global origins, and continues to be an area of strong concern.  During 2012 there was a severe shortage of generic, sterile injectable drugs that caused multiple healthcare providers to have to alter or stop life-saving treatments. This led to extraordinary efforts to ration and allocate supplies, which in-turn, added more motivation for grey market and counterfeiters to take advantage.

Supply Chain Matters believes that if it was not for the U.S. Presidential election event, there would have been more legislative cries for industry to step-up tracing and drug safety efforts. Unlike the U.S., Europe has been gearing up additional 2013 country-specific pilot programs for validating the genealogy of pharmaceutical drugs via serial number identification.

Regarding cargo theft, while brazen criminals stepped up their sophistication of methods in stealing whole cargo shipments, to our knowledge, there were no noteworthy major loss incidents.  That is not to declare that cargo theft incidents are on the wane, but rather mitigation efforts have protected the most expensive cargoes. 

2012 Prediction Nine: Wider scale adoption of in-memory computing technologies, coupled with broader leveraging of data mining, have the potential to be game changing influences on supply chain wide business planning and response management.

Score: 3.5

This prediction has been included for two consecutive years, but 2012 provided a heck of a lot more progress and demonstration of the business benefits of predictive analytics, powered by the latest advances in in-memory technologies.  We therefore score our prediction in a high range.  It has taken some time but the era of predictive analytics powered by in-memory and other advanced IT technologies has begun to be discovered for significant impacts to business outcomes.

What has moved this area forward are broader demonstrations of the compelling business benefits. The most visible was the 2012 U.S. Presidential election, where leveraged use of advanced analytics by the Obama for President Re-election team effectively targeted the U.S. wide voting population among the critical eight swing States, along with their hot button issues that led to a sweeping of all but one swing state.  Similarly, a number of books have been published, the latest being The Signal and the Noise, by New York Times Blogger Nate Silver, who exactly predicted the state- by- state results of the U.S. Presidential election.  Supply chain teams such as Amazon, Barnes and Noble, Dell, Cisco Systems, Procter and Gamble, and others have also actively deployed advanced analytical capabilities in supply chain wide business planning and response management.

The enterprise vendor with the highest game-changing impact for leveraging in-memory and predictive analytics capability is SAP, and its HANA development platform.  In June, SAP boldly announced that HANA had become the fastest growing technology platform in that company’s history. SAP had established a 2012 revenue goal of €100 million for HANA, and indicated that it exceeded that goal by €60 million. This newly released family includes restricted availability of the SAP Sales and Operations Planning (S&OP), Powered by HANA application, which provides some rather interesting potential in what-if and simulation decision making capabilities. Similarly, Oracle has been touting increased development efforts concerning in-memory and advanced analytics, particularly in the areas of supply chain planning support.

2012 Prediction Ten: The leveraged use of systems of engagement, namely mobile and social media applications within select supply chain business process areas, will gain additional momentum.

Score: 3.5

In 2012, leveraging mobile-based applications access, interaction and applications interchange was a red hot topic among most all software vendors, particularly ERP and Enterprise vendors.  It seemed that every 2012 customer conference featured announcements related to enabling mobile based computing, or demonstrating leading-edge applications that incorporated combinations of mobile and social media based interaction and collaboration.

In our travels, Supply Chain Matters began to hear some companies begin to speak to methods for monitoring social media channels for early-warning indicators of new product market acceptance.  One organization practicing active use is the Barnes and Noble Nook supply chain business team, who monitors consumer chatter regarding upcoming and new book titles.

During major supply chain disruptions in 2012, such as the Hurricane Sandy super storm that impacted the Northeast U.S., there were far more manufacturing, service and other firms utilizing Twitter and Facebook to account for employee safety and assess initial indications of the severity of damage, flooding and destruction.  An usually high frequency of severe typhoons impacted eastern Asian coastal countries in the July through September period, and more initial information regarding conditions on the ground came from social media. In late April, a series of severe tornadoes impacted the Wichita Kansas area, causing severe multiple building damage to Spirit AeroSystems Holdings, a major airframe supplier for Boeing and other aerospace OEM’s.  The company suffered a complete suspension of power and gas, with the consequence of the interruption of all phone and computer connectivity preventing any off-site coordination of response.  Spirit employees utilized personal cell phones, social media and emails to communicate with one another, outside contractors and customers during the immediate aftermath of the storms, and Spirit was able to resume production operations in a matter of a few days.

Our Supply Chain Matters 2012 prediction was that the momentum for leveraging systems of engagement would accelerate for tech-savvy organizations, and we believe that was indeed the case in 2012. The power and potential of social media in establishing communication links, forming virtual ad-hoc teams in time of need and discovering information is indeed, not been a passing fad.  However, obstacles remain with corporate policies and broader understanding of the plus and minus aspects.

This concludes our four part series for self-rating our 2012 Predictions for Global Supply Chains.  Readers are again encouraged to share their perceptions regarding important predictive milestones that occurred this year. Readers can also comment on our final scoring.

Beginning in mid-December, we will move on to publish our 2013 Predictions for Global Supply Chains. We certainly appreciate reader input on what should be expected in 2013. You can send your comments to info <at> supply-chain-matters <dot> com.

Bob Ferrari

On the eve of the Thanksgiving Holiday here in the U.S., a holiday to look back and reflect on the blessings of family and life, it is also our time to reflect and scorecard our Supply Chain Matters 2012 Predictions for Global Supply Chains which we published nearly a year ago. Our annual process is to first scorecard the current year’s predictions before publishing our upcoming 2013 predictions during December.

Our scoring process this year will be on a four point scale.  Four will be the highest score, an indicator that we totally nailed the prediction.  One is the lowest score, an indicator of; what were we thinking?

In our Part One posting, we reflected on the initial three predictions issued nearly a year ago.

Our Part Two posting scored Prediction Four, focused on specific industry supply chain challenges in 2012.

In this commentary we will look back and score Predictions Five through Seven.

2012 Prediction Five:  The concept for “supply chain control tower’ coupled with more leveraged use of predictive analytics will come to the forefront, but in 2012 there will be a need for vendors and consultants to focus on market education and early adoption support.

Score: 3.5

We feel very good about this particular prediction since the subject matter of supply chain control towers is gaining increased interest among supply chain and IT teams.  The control tower concept originates primarily from OEM’s in the high tech and consumer electronics industry that are deeply involved in supply chain planning and fulfillment execution in a highly extended and complex network. They have come to understand that constant volatility in product demand, supply, and other unplanned events are exposing the vulnerabilities of cadence or process driven planning, execution or S&OP decision-making processes. The term itself is not one that was primarily conceived by technology vendors, but rather industry visionaries who now acutely understand that there is need to have both extended supply chain visibility and decision control of all that is occurring across the multiple tiers of supply chain and partner relationships. A control tower can become a single utility view for tracking information related to supply chain wide events, decisions and information flow. In essence, it can provide an information hub that supports two-way decision-making, interaction and extended collaboration for what is occurring and what needs to occur.

We still believe, and 2012 reinforced that supply chain control tower remains of increasing interest but the market is still in early adoption phase, with needs for continued education.  This author has conducted some specific webinars and presentations directed at market education, which have reinforced the need for more emphasis on the business process and change management enablement aspects of control towers vs. the pure technology. These messages have since been reinforced by other industry analyst firms. Results of interactive surveys and customer interviews continue to  reinforce high interest levels. Our prediction that technology vendors would approach this capability from four perspectives played out in 2012, with the bulk of momentum coming from the supply chain planning, response management and B2B segment. We will have more comment as we look toward our 2013 prediction in this area.

2012 Prediction Six: Cloud computing and managed services options directed at enabling supply chain business processes will continue to gain more traction.

Score: 3.5

The momentum for cloud computing technology adoption did accelerate in 2012.  The reasons were a perfect storm of business forces.  High business uncertainties and concerns for a global economic downturn across multiple industries have driven a reluctance to expend high levels of up-front capital.  Increased vulnerabilities to major incidents of supply chain disruption have uncovered needs to quickly fix holes in extended visibility, enhanced business intelligence and more informed decision making. Cost control efforts in 2012 have turned more towards aggressive reduction in IT owned infrastructure and consequent annual operating and applications integration costs.

Technology vendors have also stepped-up and provided additional private and public-based cloud computing options across broader footprints of applications.  Supply chain and IT teams have additionally come to understand that cloud computing options provide more compelling options for faster implementation and user adoption, while at the same time, eliminating needs for added up-front IT hardware while providing more options for potential applications dis-investment later, if business conditions warrant.

The acknowledgement signs to the increased market attraction of cloud computing again fueled major acquisition efforts among enterprise and ERP vendors to augment additional options for customers.  The most visible was SAP’s May 2012 announcement of the intent to acquire B2B supplier management provider Ariba for $4.5 billion, which includes the real nugget, the Ariba Business Network. There were many other acquisitions focused on broader cloud computing options, too numerous to mention in this commentary.

We also heard reports from vendors and consultants that more managed services options directed at select supply chain process areas gained more attractiveness and customer interest in 2012, not only in areas such as third party logistics, order fulfillment and aftermarket services, but in some cases, mission critical defined processes such as supply chain planning and business intelligence.  Again, service providers have stepped-up with broader process and deeper technology support options.

The bottom-line in 2012 was a marked increase in cloud computing  and managed services market activity.

2012 Prediction Seven: Expect additional M&A and strategic partnership activity among supply chain technology, consulting services and ERP providers as vendors shore up application areas with the best prospects for sustained future growth.

Score: 2.5

This prediction was positioned as the natural follow-on to predictions five and six. As concepts of supply chain control tower, more leveraged deployment of predictive analytics, multi-channel supply chain operations management and cloud computing options gain more traction and interest among technology buyers, the vendor community would make additional market moves in either acquisition or strategic partnerships to shore up overall product offerings for buyers. 

We actually went so far as to predict two smaller vendors in the planning area, and perhaps one or two players in the B2B procurement area were likely targets in 2012.  We already made mention of SAP’s acquisition of B2B procurement vendor Ariba, so it looks like we got that one right.  In the supply chain planning space, rather than one of the smaller, more innovative players being acquired, it actually turned out to be the largest best-of-breed SCP provider.  The October surprise was the announcement that JDA Software and RedPrarie intend to merge together into a private company focused on combined planning and execution technology support. Candidly, that was not what we had in mind, but it is certainly noteworthy.

In other areas, Amazon acquired warehouse automation and advanced robotics vendor Kiva Systems, which by our point of view was a strategy to enhance Amazon’s same or next day delivery capabilities as well as lock out Kiva technology from the remainder of the market. While we speculated on significant supply chain or B2B related acquisition activity from players such as IBM, Google, Microsoft or Salesforce.com, they did not come to pass, at least in 2012.  In the case of IBM, we speculate that they are continuing with integration efforts of previous acquisitions.

Thus, we will not give ourselves an overly stellar rating on this particular area of prediction.  One out of four isn’t that bad.

Readers are again encouraged to share their observations regarding general predictions and what actually occurred among industry supply chains in 2012.

Bob Ferrari