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Added Evidence to Structural Business Changes Impacting Consumer Goods Producers

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Supply Chain Matters provides added rather important data point concerning the ongoing significant business challenges associated with many large consumer packaged goods providers and their associated supply chain teams. Multiple U.S. based food producers continue to serve up grim financial and operating news from their latest quarter. Most all of these ongoing challenges are attributed to the industry’s abilities to adapt to fundamental shifts in consumer tastes, changes in previous market growth assumptions and now, the added significant financial implications related to foreign currency effects.

This week, the largest globally focused food manufacturer by revenues, Nestle SA, reported its slowest annual sales growth since 2009 and 2015 will likely provide added challenges. Nestle’s organic sales growth for all of fiscal 2014 was reported as 4.5 percent, a number that perhaps most other large CPG producers would relish at this point.  But, that number fell below Nestle’s declared growth target of five to six percent organic growth. Real internal sales growth was noted as 2.3 percent while operating profit was up 30 basis points in constant currencies but 10 basis points in net.  In terms of quantification, Overall sales in 2014 were down 0.6 percent and Nestle executives indicated that negative foreign exchange shaved that number by 5.5 percentage points, which is a very significant amount.

From a geographic perspective Nestle’s organic growth was described as broad-based and included 5.4 percent for the Americas, 1.9 percent in Europe and 5.7 percent in Asia, Africa and Oceania.  Business media noted that growth in developed and emerging markets is moderating.  The CPG producer indicated the need to adapt with the fast-changing expectations of the Chinese consumer.  In fact, throughout its earnings release, there is a constant theme of continuous product innovation, re-formulation and re-launching, which all impact the underlying supply chain.

Other noteworthy financial numbers were that Nestle’s cost of goods sold (COGS) fell by 30 basis points driven by product mix and pricing actions along with savings generated by Nestle’s Continuous Excellence program which more than offset increases in raw material costs. Distribution costs were up 10 basis points. The global CPG producer has further established a Nestle Business Excellence initiative at the executive board level in an effort to aggregate line-of-business support services. Thus, the pressure on costs, added efficiencies and productivity continue along with needs for continuous innovation and resiliency to global market changes

Campbell Soup also reported financial results this week, along with added plans for a multi-year zero-based cost focused initiative to slash costs and restructure certain operations. CEO Denise Morrison provided another profound quote: “We are well aware of the mounting distrust of so-called Big Food, the large food companies and legacy brands on which millions of consumers have relied on for so long” and further noting that changing consumer tastes remain a key challenge for the industry. Campbell’s has plans to re-organize its businesses by product category as opposed to geographic regions. According to reporting from The Wall Street Journal, Campbell’s has hired Accenture, the same consultancy that assisted 3G Capital with its efforts to consolidate the operations of HJ Heinz, ant those of Mondelez International, to assist in the Campbell initiative.

Supply Chain Matters reiterates that rapidly shifting industry markets and consumer preferences imply a critical need for increased product innovation and quicker introduction of new products. These capabilities need to be obviously enhanced, in spite of continued pressures to reduce costs. Volatile and rapidly changing global markets require that Sales and Operations Planning (S&OP) teams be more responsive and anticipate such changes.  The focus clearly turns toward an outside-in perspective, allowing the supply chain to quickly sense changes in product or regional demand and respond as quickly as possible to market opportunities or threats. Finally, supply chain segmentation strategies, those that orient supply chain resources to the most influential customers, most profitable market segments or highest customer growth opportunities are now ever more essential.

Bob Ferrari

© 2015, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.


Evidence of a New Business and Supply Chain Headwind: A Stronger U.S. Dollar

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During this period of earnings announcements for the December-ending quarter, a new and significant headwind, the effects of the U.S. dollar, has appeared for industry supply chains with operations anchored in the United States.  That was significantly delivered to Wall Street by yesterday’s earnings announcement from Procter and Gamble, which currently has nearly two-thirds of its revenues coming from outside of the U.S. Procter and Gamble was not alone, even the likes of Apple encountered the same headwinds.

P&G reported a 31 percent drop in profit as the stronger U.S. dollar diluted the effects of a modest 2 percent organic sales growth. Net income dropped nearly a billion dollars from the year earlier quarter. According to business media reporting, foreign exchange pressures reduced net sales by 5 percentage points. Once more, P&G indicated that these currency effects will continue to be a drag within 2015, potentially cutting net earnings by 12 percent or in excess of another billion dollars.

The implications are obvious including a continued selloff of underperforming brands and businesses.  One published financial commentary report by The Wall Street Journal implied the continuance of “ruthless cost cutting” and a continued slim-down of brands. P&G has further undertaken ongoing efforts to source more production among emerging global regions, and those efforts are likely to accelerate in momentum.

The strong headwinds of currency were not just restricted to consumer product goods. Today’s WSJ reports that it is now evident that:

“The currency effects are hitting a wide swath of corporate America- from consumer products giant Procter and Gamble Co. to technology stalwart Microsoft Corp.  to pharmaceutical company Pfizer Inc.. Those companies and others have expanded aggressively overseas in search of growth and now are finding that those sales are shrinking in value or not keeping-up with dollar-based costs.”

Further cited was a quote from the CEO of Caterpillar indicating: “The rising dollar will not be good for U.S. manufacturing or the U.S. economy.” The obvious fears for investors and economists alike is that the U.S. dollar’s explosive gains will backfire for U.S. based companies by reducing the price attractiveness of goods offered in foreign countries as well as reducing the value of foreign-based revenues.

The implications to U.S. centered industry supply chains are the needs for yet further shifting of strategies and resources. The existing momentum for U.S. manufacturing may well moderate with these latest developments. Initiatives directed at supporting increased top-line revenue growth now have the added challenges for more flexible, global-wide sourcing of production and distribution needs. Operations, procurement and product management teams that believed that they could get a breather from draconian and distracting cost-cutting directives will once again face the realities of having to cut deeply into domestic focused capabilities and resources.

We often cite the accelerated clock speed of business as a crucial indicator for agility and resiliency for industry supply chain strategy. Here is yet another example where perceptions of a  booming U.S. economy quickly change to the overall business and supply chain implications of the subsequent currency effects.

Bob Ferrari


Breaking: Cereal Producer Post Holdings to Acquire MOM Brands

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The merger and acquisition churn involving consumer product goods producers continues, and with that CPG supply chains must continue to adapt to such changes. Today’s announcement from Post Holdings is yet another example of the constantly changing challenges for CPG focused supply chains having to adapt to both rapidly changing end-market as well as internal industry forces.

Today, Post Holdings, a self-termed a consumer packaged goods holding company operating in the center-of-the-store, active nutrition, refrigerated and private label food categories, announced that it had agreed to acquire privately-held MOM Brands Company for a reported $1.15 billion. This deal brings together both the No. 3 and No. 4 players in cereal based on dollar sales value. Together, they are expected to have an 18 percent share of the U.S. cold cereal market measured by revenue. Post currently has an 11 percent share.

Under the terms of this announcement, St. Louis Missouri based Post will pay MOM $1.05 billion in cash and issue MOM stockholders 2.45 million shares of Post stock. The deal is expected to close by the third quarter.

According to the announcement, MOM Brands is noted as a leader in the ready-to-eat (“RTE”) cereal value segment, with over 95 years of experience in providing high quality RTE and hot cereal products, strategically targeting the value segment in branded RTE cereal, private label, and hot wheat and oatmeal. Various business reports indicate this deal will provide Post a presence in the growing bagged cereal and hot cereal businesses, two of MOM Brands’ strongholds. MOM Brands now joins Post’s other brands of Honey Bunches of Oats®, Grape-Nuts Cereal®, PowerBar® Raisin Bran Cereal®, and a larger variety of other brands.

The acquisition announcement was timed with Post’s better-than-expected financial outlook issued for its December-ending quarter.

Supply Chain Matters has highlighted today’s announcement since the history of Post Holdings provides a pertinent example on the continuous changing state of CPG focused supply chains.

The Company’s web site provides an historic capsule upon which we have extracted important milestones:

“Post is over 115-year old with (to borrow a phrase) “a new birth of freedom1.” Post traces its heritage to C. W. Post who introduced Grape-Nuts®, the first natural ready-to-eat cereal marketed to enhance health and vitality, in 1897. Our history serves as a reflection of strategy, marketing, finance and governance during much of the 20th century. C. W. Post invented a cereal and a drink at a time when brands were beginning to resonate with the American consumer. His son-in-law, E. F. Hutton, saw the value of bringing together several brands under one corporate owner and General Foods Corporation was born.”

“General Foods was acquired by Philip Morris in 1985. Subsequently, Philip Morris purchased Kraft and merged it with General Foods…..Kraft sold Post to private-label manufacturer Ralcorp. Post was spun off into a separate, independent company on February 3, 2012.”

Ralcorp itself was acquired by ConAgra Foods in January 2013.

Since its spinoff as an independent company, Post has been an active acquirer of small and larger producers. Acquisitions have included peanut butter producers American Blanching Co. and Golden Bay Foods, eggs and diary producer Michael Foods, snack foods producers PowerBar and Musashi Brands. The Michael Foods acquisition was reported to have exceeded $2.4 billion.

A published report from the Minneapolis Star Tribune reports that the 95-year-old MOM Brands has grown steadily over the past 15 years, particularly capturing share in the low-price or “value” segment of the cold cereal business. That report indicates that MOM will continue to operate as a separate business under Post.

As is often the case in CPG deals, the Post acquisition comes with the usual expectations of added cost synergies, specifically $50 million in run-rate savings by the third year, including sharing of administrative services, infrastructure, sales and marketing. The Star report points out that MOM Brands employs 251 at its Lakeville corporate office and that some jobs there might be in jeopardy, as they often are in post-buyout cost cuts. We would not be all surprised if cost synergies are further applied to supply chain related input costs, functions and services. Such acquisitions often burden the acquirer with added debt or stock dividend expectations which, in-turn, fuel the need for additional cost savings.

While Post continues with its acquisitions spree, the top two producers in this cereal category, namely General Mills and Kellogg have each declared multi-year cost cutting or capacity consolidation initiatives. Supply Chain Matters has provided a focused commentaries on General Mills, the latest being September of last year. In early January, this producer announced the closure of two of its Pillsbury dough factories, adding to the elimination of another 500 jobs over the more than 1000 job cuts announced last year. In 2013, Kellogg announced a billion dollar Project K cost-savings plan that would extend over four years shedding an estimated 2000 supply chain jobs.

CPG supply chains do indeed have their own unique set of challenges. Producers riding the wave of consumer changing tastes and demands for healthier products must continue to innovate or grow or be consumed themselves by producers needing to fuel market growth expectations.

Bob Ferrari

© 2015, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.

 


U.S. Manufacturing Momentum- The Uncovering of Continuing Challenges

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Within our Annual 2015 Predictions for Industry and Global Supply Chains (now available in a full complimentary research report), Prediction Three notes that the momentum for U.S. and North America based manufacturing sourcing resurgence continues but will uncover broader supply chain ecosystem needs or deficiencies. This week, The Wall Street Journal featured a front page article, Companies Tiptoe Back Toward ‘Made in the USA’ (paid subscription required) that reinforces the tenets of our prediction.

The article profiles a select group of various mid-market industry manufacturers located in the United States such as Thorley Industries, K’Nex Brands, PrideSports, Capital Brands LLC and Lasko, that have addressed the option of returning manufacturing to the U.S. Brought forward are the renewed attraction of lower inventory and transportation costs, stable wage rates and the importance of better control and protection of intellectual property. Another attraction was noted as less international travel, teleconference time and distraction among supply chain and product management teams. Having had manufacturing presence already in the U.S. or North America helps in evaluating a nearshoring decision.

However, the interviews of companies do bring forward the current realities that in certain industries: “The U.S. needs to rebuild its supplier base, as well as invest in more efficient manufacturing equipment.” One example cited is small electric motors utilized in consumer or industrial products. The economics involved in the manufacturing of such motors requires manual assembly as well as very high scaled volumes, and China remains the most globally competitive sourcing of smaller motors. Another highlighted drawback is the ability of certain Chinese manufacturers to flex their workforces in large volumes. There are other select component supply examples as well.

Supply Chain Matters readers are certainly aware that Apple’s manufacturing sourcing strategies that favor China are because of the workforce flexibilities of contract manufacturers who came add thousands of workers in a matter of weeks, as well as their ability to respond to frequent product design changes.

In the end, manufacturing sourcing will always be highly dependent on the industry, supply chain ecosystem, product demand sourcing and overall economics involved in landed costs of a product.  It requires that procurement teams continue to hone their strategic sourcing skills and have very collaborative relationships with product management and other supply chain focused planning and execution teams. Supply chain leaders themselves need to be deeply immersed in the various tenets of a strategic sourcing decision including the detailed analysis of pros and cons.

Quantitative numbers reflected in U.S. and North America PMI Indices continue to reflect increased manufacturing momentum for U.S. and North America based manufacturing, but in today’s business climate, the economics can often change, and thus sourcing is no longer a static initiative but rather a continual evaluation and assessment process. Such decision processes can greatly benefit from more sophisticated tools and technologies.

Bob Ferrari


An Unexpected Senior Leadership Change at Kraft Foods

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In our recently published Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains, Prediction Five identified specific industry supply chain challenges.  One of the industries we cited was consumer products industry (CPG) where a shifting market and multiple years of stagnated growth have precipitated added emphasis on increased efficiencies and further cost reductions across specific brand owner supply chains.

Last week provided yet more evidence of this trend with the sudden unexpected announcement of the retirement of Kraft Foods CEO Tony Vernon. The current chairman, John Cahill will take over the CEO role with a mandate to speed-up business change.

According to a published report from the Chicago Tribune (paid subscription or free interval viewing): “Kraft has struggled with a portfolio that focuses on the United States and a string of price increases that rivals didn’t match.” The Tribune speculates that with this senior leadership change, Kraft could embark on bigger changes including a restructuring or a breakup of the company.  Other business media reports indicate the possibility of increased deal activity involving the selling-off of under-performing brands. Cahill, who will assume both roles at the end of this month joined Kraft almost three years ago as the Executive Chairman, North American Grocery, and became Executive Chairman when Kraft was spilt from the now Mondelez International. Former roles included three year tenure at a private equity firm, and nine year executive stints at PepsiCo. and Pepsi Bottling Group.

From our lens, the criticism that Kraft was hampered by a product portfolio too anchored in the U.S. is a bit of a misnomer since the Kraft split resulted in the most attractive global growth brands moving over to Mondelez. For that matter, the declared strategic intent of the split was to create two smaller consumer products companies focused on different growth objectives, one being international snacks and convenience foods and the other,  North American cheese and food brands. In a September 2013 Supply Chain Matters commentary related to Kraft’s supply chain profile at that time, we outlined the significant business process and systems challenges that the Kraft supply chain team had to inherent after the 2011 split.  We were tremendously impressed with the leadership of Bob Gorski, Kraft’s Executive Vice President for Integrated Supply Chain. Our readers should consider re-reading this commentary since it paints a picture of the starting point to some corporate splits within the industry.

Supply Chain Matters has noted in previous CPG industry focused commentaries that Mondelez itself has struggled with its growth objectives since the split. In late July, that company announced a CEO level restructuring eliminating the role of chief marketing officer and subsequently more aggressive re-structuring and cost efficiency efforts. That restructuring came after considerable amounts of cost savings was extracted from supply chain operations in order to fund more aggressive marketing efforts.

No doubt our community can expect further developments concerning Kraft, perhaps even Mondelez in the year ahead.  These are continued examples of the unique challenges being undertaken by large CPG companies and their respective supply chain organizations in the year to come.

Bob Ferrari


Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains- Part One

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Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide our annual ten predictions concerning industry and global supply chains for the coming year. We have maintained this tradition since the founding of this blog in 2008 and it continues to be quite popular with our readers and clients.  Supply Chain Matters Blog

These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, as well as helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the upcoming year. Predictions are sourced from synthesizing developments and trends that are occurring in supply chain business, process and technology dimensions, researching various economic, industry and other forecasting data, along with input from clients, thought leaders and global supply chain observers. We take predictions seriously and align our research and blog commentaries to focus on each specific prediction area throughout the coming year.

Supply Chain Matters will revisit each of our annual predictions at the end of the year to ascertain how close or how far each fared.  The report card regarding our 2014 Predictions can be re-visited at the below web links:

2014 Predictions Report Card- Part One

2014 Predictions Report Card- Part Two

2014 Predictions Report Card- Part Three

2014 Predictions Report Card- Part Four

2014 Predictions Report Card- Part Five

 

We continue to believe that industry analysts should openly state their insight and opinion of what to expect in the coming year without the need for a paid subscription.  Readers therefore have the opportunity to compare and contrast various sources of predictions.

As in the past, all ten of these 2015 predictions will be included in a more detailed research report which will be made available for no-cost downloads in our Research Center in January. Readers will be able to register to download a copy or can email us directly.  More details regarding that process will come later.

In this Part One posting, we outline our first five predictions for 2015.

Drum roll please …..

 

2015 Prediction One: More optimistic global economic growth with the usual caveats and uncertainties

Forecasts point to an optimistic global economic outlook for 2015 with continued cautions and unknowns for industry supply chains.  The bright spots will continue to be the United States and Mexico.

The October 2014 forecast from the International Monetary Fund (IMF) predicts 3.8 percent global growth vs. 3.3 percent in 2014. Advanced Economies are predicted to grow 2.3 percent vs. 1.8 percent in 2014. World trade growth is expected to expand 5 percent in dollar terms.

The most concern resides for the Eurozone, where tepid growth and deflation remains an identified and concerning risk.

China’s growth is predicted to be 7.1 percent vs projected 7.4 percent in 2014. China’s economic planners will be caught in a difficult balancing act to manage growth but deal with high levels of debt. We have read of more pessimistic forecasts foretelling of broader setbacks ahead for China’s economic growth, with concerns for a stumble.  Then again, China’s economic leaders were adroit in avoiding a stumble in 2014.

According to the IMF, developing economies are predicted to grow 5.0 percent vs. 4.4 percent in 2014.  A significant surprise will be India which is expected to grow 6.4 percent vs. 5.6 percent in 2014. Growth is expected to accelerate in Latin America with Brazil and Mexico leading the charge. Argentina remains an ongoing concern.

The IMF expects resurgence of U.S. economy to continue at 2.3 percent vs. projected 1.8 percent in 2014. However a poll of 50 economists conducted by The Wall Street Journal in September indicates closer to 3 percent U.S. GDP growth in 2015. For the United States, the ISM PMI Index in November was reported as 58.7, a significant 7.4 percentage points higher than the value recorded in January.

The J.P. Morgan Global Manufacturing PMI Index, a composite index and recognized benchmark of composite global supply chain and production activity provided mixed signals by November of 2014. An overall value of 51.8 was recorded in November reflecting expansion of manufacturing production for the 25th consecutive month, but the rate of expansion eased to its lowest level since August 2013. Growth in new orders was recorded as a 16-month low with the trend in international trade volumes stagnated. North America continues to be reported as a key growth region while concerns were expressed for stagnation in China and further subdued growth for the Eurozone sector.

Another area of concern is fluctuations or shifts in global currency, particularly Asian currencies and the Chinese yuan. As we pen these predictions, the currency of Russia has been impacted by significant de-valuation.

The takeaway for industry supply chains and their sales and operations (S&OP) processes is to anticipate another year of needs to be able to predict supply chain demand and supply needs on an individual geographic region or country basis. Generalized planning no longer suffices and industry supply chain teams will need the means to be able to respond to short-term market opportunities or sudden changing trends.

2015 Prediction Two: General Moderation and Reduction of Commodity Costs with Industry Exceptions

Expect a continued overall moderation trend for the cost of commodities with certain industry specific exceptions.  Dramatically lower oil prices in 2015 will be the biggest headline driving commodity and pricing trends in 2015.

As of mid-December, the Standard & Poors GSCI Index of broad based commodities is projecting a 27 percent decrease in overall commodity prices over the next twelve months.

As we pen our 2015 predictions, the prices of crude oil have plunged to their lowest levels in five years after the International Energy Agency (IEA) cut its forecast for global oil demand on the fifth occasion in six months. The news has added volatility among global equity markets as investors become increasingly concerned about the implications. Global oil prices have consequently plunged from the peak of $110 per barrel to a range of $60-$70. Some forecasts now peg 2015 oil prices as low as $50 per barrel.

Global and industry supply chain strategies are driven by the forces related to oil prices and the cost of energy and thus this commodity trend looms large for broader implications in 2015. The open question is whether the trend is permanent or short-lived.

Purchasing and commodity teams can therefore anticipate inbound cost savings in the coming year with the usual exceptions related to unforeseen weather or risk events.

 

2015 Prediction Three: Momentum for U.S. and North America Based Manufacturing Sourcing Continues but Motivates Broader Needs

We predict that the momentum for U.S. and North America based manufacturing will continue in 2015 with discernable benefits for certain industries. The need to broaden investments in certain industry supply ecosystems and U.S. logistics and transportation infrastructure will continue to dominate business headlines and industry agenda.

Throughout 2014, U.S. and North America based supply chain related activity continued at a steady state.  As of October, 16 of the total 18 tracked industries within ISM’s PMI indices were reporting growth momentum.

The continued growth of U.S. and North America manufacturing comes from a number of factors not the least of which have been the ongoing double-digit increases of labor costs in China, increased positive momentum of the U.S. economy and more attractive energy costs throughout North America. Specific efforts by Wal-Mart, other retailers and manufacturers concerning significant long-term commitments for sourcing products in the region have helped immensely.

In August of 2014, the Boston Consulting Group noted in its report, Shifting Economics of Global Manufacturing, that in some cases, the shifts in relative costs of manufacturing among China and North America have placed Mexico as the cheaper low-cost manufacturing alternative.

However, the sourcing of U.S. and North America based manufacturing continues to uncover gaps in globally competitive component supply chain networks, many of which still reside in Asia or China. This is especially the case in high tech and consumer electronics, footwear, apparel and other industries. Continued momentum is thus increasingly dependent on further re-building of global cost competitive North America based supply ecosystems among multi-industry supply chains.

A caveat for 2015 stems from the plunging price of oil and energy outlined in Prediction Two which could influence some manufacturers to remain concentrated in an Asia or Eastern Europe based sourcing strategy.

 

2015 Prediction Four: Internet of Things (IoT) Continues to Attract Wide Multi-Industry Interest But Certain Challenges Need to be Purposely Addressed

Cross-industry interest levels and momentum surrounding B2B products and services leveraging Internet of Things (IoT) coupling sensor-based based technologies will continue to attract wide multi-industry interest. IoT provides a new era of interconnected and intelligent physical devices and/or machines that will revolutionize supply chain processes related to production, transportation, logistics and service management. We expect more technology vendors to jump into this area along with heightened M&A activity as these vendors position for industry needs and requirements.

IoT will further drive a convergence among product and service focused supply chain planning and execution processes as well as certain product lifecycle management information integration needs. PLM and SLM provider PTC is a current example of this dimension but other vendors will be attracted to this business model.

The realities in the lack of consistent or conflicting global-wide standards, overcoming data security concerns and scalability of networks will provide more visible challenges for broader industry deployments.  We have recently indicated a feeling of de-ja -vu for the replay of early RFID efforts, as vendors tended to ignore certain realities of the technology. Vendors will need to step-up efforts to address current challenges and individual industry needs.

 

2015 Prediction Five: Noted Industry Specific Supply Chain Challenges

Noted industry specific supply chain challenges will remain in B2C-Retail, Aerospace and Consumer Product Goods (CPG) sectors.  Automotive manufacturers will have to address continued shifting trends in global market demand and a renewed imperative for corporate-wide product and vehicle platform quality conformance measures.

B2C and Retail

Global retailers continue to be challenged in emerging and traditional markets and in permanent shifts in consumer shopping behaviors. In 2014, retailers encountered the realities of lower margins for online fulfillment, the needs to invest in enhanced inventory management, distrusted fulfillment and order management capabilities, and the perfect-storm presence of developments that resulted in dysfunctional west coast ports.

Retail sales in China, Asia and Australia are expected to surpass that in North America, but China’s efforts in greater scrutiny of foreign-based retailers and service firms will likely continue to impact growth expectations in the coming year. According to industry and business media, retailers are expected to instead target the other so-termed MINI countries (Mexico, Indonesia, Nigeria, Turkey) for growth prospects in 2015.

The accelerating trends and implications of Omni-channel and online fulfillment will impact traditional retailers with more casualties recorded in 2015. Amazon, Google and Alibaba will continue to be industry disruptors, movers and shakers in 2015 and Wal-Mart.com may join that list. We would not be surprised if Alibaba concentrates acquisition efforts toward more U.S. and North America online properties to prepare for a presence.

Consumer Product Goods

CPG companies continued to view emerging markets such as China and India as important regions for future growth but experienced the effects a far more complex and risk-laden supply and regulatory networks. The heightened influence and actions of short-term focused activist equity investors, applying dimensions of financial engineering to one or more CPG companies will continue to have special impacts on consumer goods industry supply chains with added, more troublesome cost reduction and consolidation efforts dominating organizational energy and performance objectives. The new winners in CPG will continue to be smaller, more nimble producers who lead in product, supply chain business process and technology innovation.

Aerospace

Industry dominants Airbus and Boeing and their respective supply ecosystems will continue to be challenged with the needs for dramatically stepping-up to make a dent in multi-year order backlogs and in increasing the delivery pace for completed aircraft.  Dramatically lower costs of jet fuel in 2015 will likely present the unique challenges of airline customers easing off on delivery scheduling, but at the same time insuring their competitors do not garner strategic cost advantages in deployment of newer, more fuel efficient and technology laden aircraft. Middle East and Asian based airlines and leasing operators will continue to influence market dynamics and aircraft design needs.

Renewed hostilities involving Ukraine or severe economic or currency crisis within Russia could impact strategic supply of titanium and other metals.  The economic malaise that is expected to continue across the Eurozone region along with expected contraction in China will present 2015 challenges for Airbus and Boeing’s supply ecosystems. Boeing will especially be focused on continuing to influence more cost reduction and productivity efforts among its global suppliers while continuing to address identified issues from regulatory investigations in practicing added supplier oversight for design and production process quality.

 Automotive

In the U.S., an unprecedented and overwhelming level of product recall activity spurred by heightened regulatory compliance pressures will drive product quality and compliance as the overarching corporate-wide imperative. Cascading incidents in 2014 pointed to issues of quality lapses among global suppliers and early-warning of potential component defects. Existing product recall campaigns will most likely extend through the first-half of 2015, placing added strains on aftermarket service dealerships.  Japan based air bag inflator supplier Takada will continue to deal with its creditability crisis and could lose significant new business if it does not step-up and get-ahead of the airbag quality crisis. OEM General Motors will especially be under the looking glass in 2015.

 

This concludes Part One of Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains.  Part Two in this series will unveil our next five predictions.

We encourage readers to share in the Comments section their own predictions on what to expect in 2015.

In the meantime, we extend best wishes for the holiday season and the New year.

Bob Ferrari

©2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved


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