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Alibaba’s Enormous Online Commerce Potential

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Supply Chain Matters provides a brief contrast to our prior posted commentary regarding Wal-Mart’s efforts to spread out holiday promotions in the coming holiday surge. The Wall Street Journal reports that yesterday, which was China’s celebration of Singles’ Day, online provider Alibaba set a record for China’s largest online shopping day.  The online provider’s various online properties processed a reported $9.3 billion in sales, most likely the equivalent to the Black Friday or Cyber Monday shopping holidays in the United States.

The WSJ notes that last year, Alibaba processed $5.9 billion in Singles’ Day sales. China’s premiere online provider also offered a number of pre-holiday promotions which allowed consumers to order ahead of time and complete their sales transaction on the holiday.  Keep in mind that for the most part, Chinese consumers shun the use of credit cards in favor of cash or mobile based payments.

In its fiscal year ending in March, Alibaba recorded the equivalent of $275 billion in various online sales which the WSJ notes is bigger than the combined online sales of Amazon and eBay combined. Included in the information surrounding its recent initial public offering of stock the online provider noted that it is just tapping the enormous potential of its online market.

We can sometimes get enamored with names such as Amazon and Wal-Mart but Alibaba is indeed an evolving player to reckon with in the coming era of online commerce and retail supply chain customer fulfillment.

Bob Ferrari


Industrial Robot Demand Reinforces Production Automation in Low Cost Manufacturing Regions

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Supply Chain Matters has featured prior commentaries regarding the evolving digitization of manufacturing and the entry of advanced robotics to springboard the next wave of manufacturing productivity and labor cost savings, particularly in former low cost manufacturing regions. A recent perspective focused on the largest global contract manufacturer, Foxconn, collaborating with Google on advanced robotics applied to human assembly operations.

We alerted from a Twitter posting from Colin Masson of Microsoft to a report published by World Industrial Reporter regarding a recent disclosure from International Federation of Robots (IFR). That organization reports that industry investments in robotics have been on a sustained rise since 2010.  While robot investments are slowing down in certain industries, others are increasing at hefty rates. IFR indicates that electrical/electronics industry investments are on the rise in applications related to retooling production processes.  A more revealing statistic was that growth in the order of 21 percent is expected in China, Taiwan, South Korea and other Southeast Asia regions in 2014.  Robots sales in the Americas are forecasted to grow 11 percent in that same period. Once more, IFR indicates that robot sales in the Asia/Australia region will grow 16 percent on average, per year, in the period from 2015-2017.  Specifically for China, IFR predicts that 400,000 industrial robots will be installed among that country’s factories by 2017.

That is obviously a strong data point indicating that low-cost manufacturing regions are indeed looking to invest in advanced and more cost affordable robotics to leverage production operations. IFR points to the entry of new on-shore domestic suppliers to add to the competitive landscape. Readers will further note that later in the report, an auto industry robotics specialist indicates that the direct interaction between humans and robots remains in beginning stages.

Then again, with Google invested in this area, that perspective may quickly change in the coming months.


Supply Chain Matters News Capsule-August 29; McDonalds, Boeing, Oracle E-Business Suite

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It’s the end of the calendar work week and the prelude to the Labor Day Holiday weekend in the U.S… This commentary is our running news capsule of developments related to previous Supply Chain Matters posted commentaries or news developments.

In this capsule commentary, we include the following updates:

Report that McDonalds is Reevaluating its China Supplier

Boeing and a Major Supply Chain Partner Land a Big Order

Oracle Announces Release of E-Business Suite 12.2.4

 

Report that McDonalds is Reevaluating its China Supplier

A few weeks ago, Supply Chain Matters highlighted a Wall Street Journal report that indicated that in the light of China’s food regulators finding the existence of certain expired meat products within the McDonalds supply chain in China that the restaurant chain was going to give the benefit of doubt to its long-time supply chain supplier of 59 years, OSI Group, who’s China based subsidiary, Shanghai Husi Food Company was allegedly implicated in the expired meat mis-labeling investigation.

This week, the WSJ published a follow-up report that now indicates that McDonalds is reconsidering its prior relationship with OSI Group. The report quotes a corporate spokesperson as indicating that in the past six weeks, the OSI partnership for supply of China outlets has been suspended. After due-diligence investigation by McDonalds, the chain suspended all cooperation with Shanghai Husi as of July 20th, which precipitated a near three week shortage of meat products for outlets in China and Hong Kong. The chain is instead positioning alternative suppliers Cargill and Keystone Foods to increase supply capacity within China.

Considering both WSJ reports spanning a month, its somewhat confusing to ascertain if McDonald’s has indeed been standing by a loyal supplier. We can only speculate that due diligence either uncovered troubling labeling practices or the restaurant chain feels an entirely new supplier slate is needed for China and other Asia outlets.

 

Boeing and a Major Supply Chain Partner Land a Big Order

In our ongoing Supply Chain Matters commentaries directed at commercial aerospace supply chains, we have echoed the new buying influence of airlines and leasing operators supporting emerging market regions such as China and greater Asia.

This week, Boeing and Singapore based BOC Aviation, a leading aircraft lessor in Asia, announced a near $9 billion order, at list prices, for a total of 82 new aircraft. The order includes 50 of Boeing’s 737 MAX 8s, 30 Next-Generation 737-800’s and two 777-300 Extended Range aircraft. These new aircraft are destined for expansion or replacement needs for a number of unnamed airline operators across Asia with deliveries spanning the time period from 2016 to 2021. According to a published report by Bloomberg and The Seattle Times, the estimated order is more likely to be $4.2 billion when discounting is factored. That is obviously a reflection of buyer power.

The Boeing order follows a mid-July announcement from BOC Aviation of an order from Airbus consisting of an additional 43 A320 and A321 series aircraft with deliveries extending through 2019. Airbus had additionally landed a sale of $11.8 billion of new aircraft from Japan based lessor SMBC Aviation. The Bloomberg report quotes a spokesperson as indicating that BOC Aviation projects receiving an average 27 planes a year starting in 2015, while also disposing of 20 to 30 annually.

In the adage that a rising tide raises all supply chain boats, another major beneficiary of the bulk BOC Aviation order involves the aircraft engine consortium of CFM International, the joint venture between General Electric and Safran.  CFM was the recipient for orders involving 100 LEAP-1B and 60 CFM56-7BE engines that is valued at $2 billion at list prices.  The engine orders additionally include longer-term, multi-year service and maintenance considerations.

 

Oracle Announces Release of E-Business Suite 12.2.4

Oracle recently announced the release of Oracle E-Business Suite 12.2.4. According to the announcement, this latest release provides an updated user experience, significant customer-driven enhancements across the applications suite, with added integrations to Oracle Cloud Solutions.

This particular release has many enhancements related to the support of various supply chain procurement and customer fulfillment technology enhancements. Highlights include:

Oracle Procurement: Web ADI–enabled spreadsheet creation and modification of purchase order lines, schedules, and distributions to improve buyer productivity when dealing with large orders.

Oracle iProcurement: A streamlined single-step checkout flow allowing employees to quickly complete shopping activities and initiate the requisition approval process.

Oracle Procurement Contracts: Improved buyer efficiency from auditing of contract documents by reviewing details of policy deviations and net clause additions.

Oracle Services Procurement: Enhanced capabilities provide buyers with greater flexibility to support a broad range of complex order scenarios.

Oracle Channel Revenue Management: Improved volume offer capabilities and a streamlined user interface enable users to quickly adapt to changing business conditions.

Oracle Order Management: A long overdue new HTML user interface addressing improved usability, greater flexibility, and a more modern user experience.

Oracle Yard Management: A new solution enables manufacturing, distribution, and asset-intensive organizations to manage and track the flow of trailers and their contents into, within, and out of the yards of distribution centers, production campuses, transportation terminals, and other facilities.

Oracle Manufacturing: Significant usability improvements in the Oracle Manufacturing Execution System (MES) help improve operator productivity by simplifying time entry and quality collection. New capabilities to manage the auto-de-kit (disassembly) of serialized products supports customer returns and internal reuse of component parts.

Oracle Enterprise Asset Management: Enhancements to support linear assets in industries, such as oil and gas, utilities, and public sector, help improve productivity and retire costly integrations and custom code.

Oracle Service: Enhanced spare parts planner’s dashboard provides rich user interaction to improve planner productivity.

Oracle Value Chain Planning: Numerous enhancements across multiple products include deeper industry functionality, such as minimum remaining shelf-life enhancements for the pharmaceutical and consumer goods industries, multistage production synchronization for process industries, and integration between Oracle Service Parts Planning and Oracle Enterprise Asset Management for asset-intensive industries. New promotions planning analytics in Oracle Advanced Planning Command Center improve business insight.

 

 


Apple Takes Steps in Requiring Safer Supply Chain Substances

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The bulk of Apple’s component supplier and contract manufacturing partners reside in China and Asia where many high tech electronics products are produced.  Unfortunately, this is an area that continues to deal with high levels of industrial pollution, worker safety and industrial accidents.

Apple is now taking meaningful steps to initiate substance regulations across its supplier network. 

According to a recent posting appearing on Apple Insider, the company is banning the use of cleaning agents’ benzene and n-hexane within supplier factories. This moves is part of Apple published Regulated Substances Specification which has recently been made available for open viewing. The purpose of this specification reads in-part:

We require our suppliers to adhere to this Regulated Substances Specification, which describes Apple’s global restrictions on the use of certain chemical substances or materials in our products, accessories, manufacturing processes, and packaging used for shipping products to Apple’s customers.”

Apple’s vice-president of Environmental Initiatives has additionally published a letter regarding the company’s stance on safe working environments. Apple further intends to establish a new advisory board made up of chemical and pollution prevention experts who are tasked with finding additional ways to minimize or eliminate the use of toxins across Apple’s supplier network.

These moves come after activist groups submitted petitions calling for the company to place a ban on dangerous substances.

The fact that one of the top rated global supply chains has taken this proactive stance regarding supply chain safety and environmental responsibility is quite meaningful.  Hopefully it will be an impetus for more high tech and consumer electronics brand owners to join in citing higher standards for safe chemical use.


The Catalyst for Rebuilding Component Supplier Networks in the U.S.- China’s Manufacturers

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Many supply chain industry publications, forums, industry analysts and indeed Supply Chain Matters have made note of the discernable shift in production outsourcing strategies in favor of near-shoring strategies where production is located in proximity to large geographic markets. 

Changing economics, the intent to protect valued intellectual property and the discovery of cheap and abundant forms of oil and natural gas have further fueled the continuing resurgence in U.S. and North American based manufacturing among many industry sectors. This trend is especially prevalent for small and medium-sized manufacturers who cannot afford to have elongated supply chains. The Wall Street Journal recently cited a statistic indicating that more than 80 percent of companies bringing work back to the U.S. have $200 million or less in revenue volumes.

If you have been reading reports reflecting companies within industries such as apparel, footwear or consumer electronics moving production operations from China back to the U.S., a challenge often cited is the lack of a reliable and industry competitive network of component or value-chain suppliers.  That was understandable given the mass exodus of such suppliers when industries flocked to China to secure direct labor savings. Rebuilding industry focused world-class component suppliers will take additional time as well as other economic and business related factors.

However, our news alerts came across quantification of a significant new data point and trend that could hasten the maturity of lower-tier supply chain networks within the U.S. 

The South China Morning Post published a report that indicates that China’s low-end manufacturers have also identified advantages for moving production operations from China to the United States and are moving operations at a quiet but aggressive pace.  The report quotes a consultancy as indicating that in the two year span from 2011 to 2013, investment by Chinese manufacturers in operations within the U.S. grew from $400 million to $2 billion, while the number of U.S. based jobs provided by Chinese manufacturers nearly quadrupled. Obviously, if these numbers are accurate, they reflect a significant and noteworthy trend.

While China’s manufacturers will remain dominant in their home country, the fact that value-chain and component suppliers are practicing nearshoring of certain operations is an obvious reflection that U.S. component supply chain capability will indeed improve.  OEM and brand manufacturers are obviously influencing their China based suppliers to assist in the effort.

Once more, U.S. based manufacturers or all sizes , if they have not done so already, will discover that Chinese competitors can, and are more than willing to implement their own near-shoring strategies to support specific global markets.

If readers can provide additional quantification of this trend within their specific industry sectors, please share them in Comments area or send them directly via email.

Bob Ferrari


A Different Investment Environment Concerning China- Differentiating Market and Supply Chain Sourcing Strategies

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If you have been keeping-up with business headlines over the past several months, you may have noticed an emerging trend involving doing business within China that is impacting both large and small manufacturers and services providers.  Chinese regulators continue to intensify scrutiny of foreign-based technology, product and service providers and there is no reluctance to take on the highest profile companies. China’s business environment continues to change.

Supply Chain Matters has called attention to previous incidents.  Restaurant services providers McDonalds, Burger King and Yum Brands were cited by Chinese regulators for serving expired chicken and beef meat products in restaurants. Within the ocean container shipping industry, the proposed P3 Network alliance was scuttled by Chinese maritime regulators in June after both European Union and U.S. Maritime agencies had given a green light. Previous developments have involved large pharmaceutical producers along with Apple and other consumer electronics companies.

Today’s Wall Street Journal reports that China continues to step-up its antitrust efforts targeted at Western firms. Surprise inspections were made in the offices of Microsoft and Accenture regarding suspected monopolistic practices.  The WSJ notes that Windows XP has a nearly 55 percent market share within the country and consumers are angered over Microsoft’s prior decision to suspend support. Another agency is investigating Audi and Fiat Chrysler for alleged monopolistic practices. Previous reported investigations involved Daimler in its pricing of service and repair parts.  In the wake of the recent NSA information spying incidents, Apple’s iPhone was recently cited by Chinese regulators for not having proper information security, raising added concerns for China’s telecom and cellular network providers in offering other buyer choices besides the iPhone.

On a previous earnings briefing involving a mid-sized technology company we heard the CEO openly declare that the company’s efforts to actively sell technology within China was being temporarily shelved because of market feedback that China based firms were uncomfortable with evaluating any foreign-based technology options.

It is no secret that many foreign based firms made significant direct and indirect investments in China to gain access to a huge market. Ten years ago, this author can recall hearing companies talk about the vast potential of China’s market, a more open, less regulatory intensive environment that made investments in facilities and infrastructure happen rather quickly.  Much lower direct labor costs added the impetus for investing in production, supply chain and distribution facilities. While protection of intellectual and proprietary capital was always the most prominently identified risk factor, many companies made conscious decisions to invest anyway, given the huge potential of China’ markets.

Obviously the situation has significantly changed.  China’s leaders continue efforts to moderate overall growth to avoid an economic bubble. Supply chain teams are well aware of the double-digit explosion in direct labor rates that continues to occur. A plundering of resources and energy has led to increased environmental concerns given high levels of pollution and dirty air. And now, China’s regulatory agencies have been given the power to crackdown on abuses.

Recall that after the global financial crisis, manufacturers declared that added investments in U.S. manufacturing and supply chain capability were not attractive because of higher corporate tax rates, overly restrictive regulations and higher labor costs.  Similar arguments pursued regarding European Union investments. The discovery of new and cheaper energy sources in North America and global currency shifts have now altered the above noted concerns.

A lot has changed in the global environment, and will continue to change.  The realities of doing business internationally have many facets and challenges. Efforts to seek lower costs and less regulation compelled industry supply chains to flock to China. This has now caused China to initiate protections of its economy, labor force and environment.

The takeaway for supply chain leaders is that business decisions reflecting global market penetration and for supply and production sourcing are two different strategies. Obviously there are important dependencies on each strategy but both remain distinct. New market opportunities must always be evaluated and leveraged.

Global sourcing of supply and production is predicated on a number of important and related factors, and cannot be one-dimensional. Ultimately, singularly chasing the next lower-cost production opportunity is a short-term strategy that could end up costing more. Sourcing strategy is far more strategic, that must include balancing of factors that include product innovation, labor, transportation, risk management and other landed cost aspects.

Sourcing and procurement efforts can no longer be made in isolation, nor can they be static. They require continuous cross-functional and cross-business involvement.

Bob Ferrari

© The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.

 


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