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Supplier Suspends Sales of Inventory to Major Retailer


This past August, this author penned a Supply Chain Matters blog commentary: The Newest Phase for Elongated Supplier Payments- More Aggressive Push Back. The essence of that commentary was that with many more multi-industry procurement teams extending supplier payments under the umbrella of working capital savings, suppliers themselves are now more aggressive in pushing back, especially when their own financial performance takes a hit from a key customer.  In some cases, such suppliers utilize the threat of supply disruption to force more timely payments.

We cited supplier aggressiveness examples related to AB In-Bev, Boeing, General Motors, Tesco and Volkswagen.

Today, The Wall Street Journal reports (Paid subscription required) on yet another example, this time involving retail firm Sears Holding.

Jakks Pacific the fifth largest designer and marketer of toys and consumer products featuring a wide range of popular branded products and children’s toy licenses announced the suspension of supplying products to retailer K-Mart, part of Sears Holdings. The stated reason, according to reports, was concerns related to the financial health of the retail chain and to minimize risks of not being paid for inventory. While Jakks senior management did not initially disclose the name of the a stated “major retailer”, business media digging confirmed the identity of that retailer.

Normally, supplier pushback on concerns for delayed payments are not extraordinary news. Sears Holding itself has been itself financially challenged as a result of declining sales and profits and subsequent business restructuring and store closings. Sears CEO Edward Lampert had to recently respond to speculation that the K-Mart franchise was about to close in the light of previous decisions to shutter upwards of 130 K-Mart retail stores. In a blog posting featured on the firm’s SHS Holdings blog, Lampert indicated that there are no plans and there have never been any plans to close the Kmart format. He further calls into question whether intended parties seek to do harm to the retailer for other gain.

By our lens, the extraordinary aspect is the overall timing of the supply suspension, coming just before the all-important and business critical holidays fulfillment period. The vast majority of sales related to children’s toys occur during the Christmas holiday season. The other aspect to timing relates to the Wall Street community’s concerns as to whether other key suppliers will take the same actions related to Sears and K-Mart.

The CEO of Jakks indicated to the WSJ that the decision impacted his firm’s financial performance during the recent quarter as revenues fell by 10 percent, and the company’s stock value plunged by 15 percent. Reviewing the toy supplier’s latest third quarter financial results, we indeed noted the citing of suspended sales “to a major customer that is experiencing challenges” but there is mention to other causal factors such as the impact of Brexit and negative foreign currency effects. A balance sheet review indicates that there has been a nearly $109 million increase (63 percent) increase net accounts receivable over the past nine months. Working capital balances have eroded by nearly $24 million over the last year.

On its part, K-Mart management reinforces that it has an active and long-standing relationship with Jakks and that it continues to receive inventory from this supplier. One wonders whether that implies that compromises are already at-play. The SHS Holdings blog further weighed in a blog commentary from is CFO: Just the Facts- Vendor Relationships. It states in-part:

We can tell you that we have had a longstanding relationship with Jakks as we do with our tens of thousands of other suppliers and vendors. Despite the speculation and rush to report the negative, we have always paid our vendors for orders we have placed and as part of the normal negotiations between retailers and vendors, there are occasionally disputes over prices, allocations of product and other terms.”

That latter statement regarding occasional disputes can be interpreted in various ways depending on the perspectives of supplier or major customer. The tone of the commentary can have different interpretations as well. The transfer of the burden of working capital management or cash flow ultimately comes with certain consequences which need to be managed.

Regardless, the overall trending of increased supplier aggressiveness is prevalent, especially when such suppliers perceive their own financial and operational harm.

Wal-Mart, IBM and Tsinghua University Announce Joint Collaboration on Food Safety Tracking Technology


This week, global retailer Wal-Mart along with IBM and Tsinghua University announced a joint effort to improve the tracking and movement of food products across China in an effort to improve overall food safety.  The government of China has identified food authentication and supply chain tracking as a critical concern to quickly find and eliminate sources of food contamination within the country.

This announcement bears watching among consumer goods focused supply chains since this new effort will be leveraging what is termed as blockchain technology. This form of technology is increasingly being identified by supply chain focused technology providers for applicability in providing higher levels of intelligence regarding the movement of materials across a supply chain or B2B network. In essence, it fosters the sharing of data and information across a network of computers and as noted in the announcement, is gaining broader recognition due to its applicability in recording and keeping track of assets and materials. This form of technology currently powers digital bitcoin currency use.

According to IBM, when applied to the food supply chain, product information such as farm origin details, batch numbers, processing data, expiration dates, storage temperatures and shipping details can be digitally connected to food items, and the information is entered on the blockchain at every step of the process.

The technology can further aide retailers such as Wal-Mart in managing the shelf-life of products within individual stores and in having access to the traceability aspects of the product’s supply chain. In the specific applicability to Wal-Mart, the announcement indicates that the retailer plans to utilize IBM Blockchain based on Linux Foundation’s Hyperledger Project, which is an open source software project approach that builds on blockchain tools.

Obviously, the closest applicability for the leveraged use of blockchain technology is in current B2B EDI messaging networks that record various movement and transactions among various supply chain trading partners. While attending the recent IBM Empower 2016 conference, executives made mention of upcoming announcements related to IBM’s Sterling Commerce B2B technology and future applicability for this technology.

OpenText, another major B2B technology network provider has also indicated a development direction that augments existing EDI and transactional messaging with broader analytics capabilities.

The takeaway for readers is to begin to consider the possibilities for utilizing EDI messaging and other transactional, content, and unstructured data passing along B2B trading networks as sources of broader supply chain intelligence and analytics related to needs in regulatory compliance, traceability and reduction of waste.

We believe there will be more initiative announcements forthcoming such as the one from retailer Wal-Mart, initiatives that will leverage B2B trading network information towards efforts to integrate value-chain physical flows with needs for broader intelligence and analytics related to more-informed and timely decision-making.

Stay tuned.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Breaking Supply Chain News: Blast Occurrence at BASF Ludwigshafen Chemical Production Complex

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Reports indicated that that an explosion has occurred at the massive BASF chemical production complex in Ludwigshafen Germany.

Initial indications are that two employees have unfortunately lost their lives and two others are currently missing.  Six people are reported as seriously injured as a result of the explosion which reportedly occurred on a supply line connecting a harbor and a tank depot on the Ludwigshafen site at around 1120 local time (0920 GMT).

As many our readers may be aware, BASF is one of the largest global manufacturers of chemicals utilized across multi-industry supply chains.The Ludwigshafen site, which is 50 miles south of Frankfurt, is recognized as world’s largest chemical complex, covering an area of 10 square kilometers (four square miles) and employing 39,000 workers.

Reports we are monitoring indicate that production operations have been suspended at the BASF steamcrackers utilized to convert hydrocarbons into other chemicals. According to a published report from The Wall Street Journal, it is believed that the current suspension will initially suspend the supply of raw material chemicals supporting 20 other plants which are either in the process of shutdown or only partially operating.

According to a published report by Reuters, news of the explosion came less than two hours after BASF ad indicated that four people were injured in a gas explosion at its Lampertheim facility, a plant near Ludwigshafen that makes additives for plastics.

Obviously this is troubling news for many industry supply chains, particularly those residing in the Eurozone, and bears continual monitoring for any ongoing disruption of product supply chains.


A Non-Traditional Supply Chain and Capacity Planning Automation Effort Underway at Ford Motor


This author had the opportunity to attend the Kinaxis Kinexions customer conference last week. Among the customer presentations there was a rather insightful talk from a supply chain executive at Ford Motor Company. This presentation delivered by David Thomas, Director of Global Capacity Planning at Ford was titled, Creating Global Standards Across Regional Sites, provided important insights on building and adopting global-wide data and business process standards without the use of traditional waterfall based program and change management methodologies. This technology effort underway at Ford is so different and novel, and conference attendees were citing this presentation as noteworthy and insightful.  Thus are we sharing the highlights with our broader multi-industry cross-functional supply chain readership community.

Since the global financial crisis of 2008-2009, the Ford Motor Company has been focused on “One Ford”, a series of foundational initiatives directed at overhauling unaligned management and business processes. This umbrella initiative was designed to address Ford’s internal tendencies toward regionally-based independence in P&L, product development and product value-chain strategies. Rather than operating as a single global based company, the emphasis was more toward disparate, top-heavy independent operating divisions. As was the case with many other manufacturing companies, the “near-death” experiences of the financial crisis provided the wake-up call to the requirement that Ford had to change.

Indeed, Ford was able to quickly bounce back from the financial crisis but Thomas described hitting another wall by 2011. Unforeseen global capacity restrictions were hindering growth.  The major supply disruptions brought on by the devastating tsunami that impacted Northern Japan, and the major floods that effected Thailand’s automotive sector were another reminder that the company’s overall sales and operations planning was not globally aligned for capacity and resource based decision-making. That prompted the need for a global capacity planning initiative that would be able to coordinate global response to capacity and supply alignment needs based on singular planning data.

This global capacity planning team soon concluded that there were no existing global standards related to product and capacity data across Ford. Spreadsheets were the dominant planning mechanism, with differing dimensions of data and information that hindered any global perspectives to dimension problems or to assess resolution actions. Thomas described the prior dominant atmosphere as being described internally as “dumpster diving for data.” The team quickly came to the conclusion that a global-wide set of data standards supported by a single global planning system had to be initiated as quickly as possible. However, the initial goal was to provide consequential evidence that global-wide data standards would result in far more effective capacity and resource planning.

Rather than traditional system program management, the steering team elected to focus on a faster innovation cadence, that of two-month development processes. A total of 14 cycles of fast innovation focused at building management credibility on the business value of a globally aligned data supporting a common S&OP framework. Thomas described the selection of a pilot development window as a purposeful effort to uncover needs and provide more positive evidence to the business value for global data and information standards to improve decision-making. These efforts included painful methods directed at mapping data tables and building simplified Excel based extraction tools. Eventually, a cobbled together single view of global and capacity that included all regions, markets and major components was developed, enough to convince senior management of the value of a singular, authored, S&OP framework. Thomas described this pilot phase as advocating that a lot of little adjustments with improved visibility can save hundreds of millions of dollars.

This initial pilot effort provided the impetus to secure formal approval to move forward in the development of a global-based S&OP systems support initiative that remains underway across Ford. It is being designed to move away from a current monthly planning process to more agile, better-informed and more predictive planning.

For the subsequent phase of off-the-shelf application selection and implementation, the steering team again avoided a big-bang, multi-year waterfall planning effort that would involve as-is and to-be state analysis, and instead elected to go with a tops-down approach. Thomas indicated that the steering team avoided waterfall global workshops to depict future state needs because: “nobody would ever agree.” Thomas’s described a viewpoint that people are often conditioned by the tools they currently utilize to perform their jobs. Instead the effort was directed at the expectation that Ford will have a global S&OP system framework that would launch on-time without major business disruption.

The agile development approach carried over, and development teams now work to what was described as continuous two-week development milestones. Rather than assemble and allocate on a full-time basis a dedicated global team of Ford employees to manage overall implementation, a decision was made to utilize dedicated externally based experts, those that were not anchored in Ford’s past practices. The people who will ultimately utilized the global system work alongside the external team during the review phases. The current effort is described as including 9 dedicated resources from Kinaxis along with resources from Deloitte, Prana Consulting and Ford’s internal IT staff. Efforts are now underway to build full data transparency across all product demand and supply, along with provisions for regionally-based S&OP efforts that are collectively based on a more timely, global based planning data.

Thomas indicated that Ford is about 6-9 months away from global launch of its singular S&OP process framework. It was described as a big-change for thousands of people who do not really want their existing jobs to change but do want their jobs to be easier in the needs for gathering common, more insightful and meaningful supply-chain wide data that can provide for more informed decision-making relative to line-of-business and functional supply chain goals. Then again, a continuous development cycle is already providing the evidence of the benefits of a singular planning data model along with the value of managed scope efforts that stream continuous economic benefits for the business. Gone are the days of big-bang implementations that risk business disruption and significant added costs of change management and implementation.

Supply Chain Matters extends praise to Ford’s ongoing transformational planning efforts and we look forward to learning more about the post implementation results.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

Contrasts in the Planning for the Upcoming Retail and Online Holiday Surge Period


In the wake of overly optimistic forecasts of retail spending expected in the coming holiday fulfillment surge quarter, key online providers and parcel carriers are indicating their plans for temporary seasonal holiday related hiring.  However, it would seem that each comes with differing business assumptions.

On the parcel logistics, transportation and last fulfillment front, UPS recently indicated that it plans to hire upwards of 95,000 temporary workers, about the same as last year, to handle this year’s expected volume. UPS was caught totally off-guard with surge network volumes 2013 but has since invested in increased automation and advanced technology. Rival FedEx has also invested in automation technology and has indicated plans to hire 55,000 temporary holiday workers while anticipating a 12 percent increase in package volumes for the current year. Both carriers have been challenged with their past hub and spoke focused transport and delivery networks being able to handle increasing holiday related surge volumes of online focused orders and have since begun deploying mobile and flexible pop-up logistics centers to handle surge volumes related to specific high population areas. With online consumers now inclined to order larger dimensional sized items, both carriers are now focused on allocating separate sortation centers for handling such parcel shipments.

However, despite numerous parcel rate and package surcharge increases focused on higher dimensional packaging during these past two years, both carriers have exhibited a keen focus on increased profitability and shareholder returns.  However, according to data from Shipmatrix, FedEx and UPS together now make-up 40-45 percent of deliveries while the U.S. Postal Service representing most of the remaining volume.

Amazon, on the other hand, seems to be planning and anticipating a rather robust period of holiday activity during the next three months. The online provider has indicated plans to hire upwards of 120,000 seasonal workers in order to meet expected volumes.  That is a 20 percent increase from last year’s holiday related hiring. Once more, the online retailer indicated that it transitioned upwards of 14,000 2015 seasonal workers to regular full-time positions adding more significance to this year’s hiring requirements.  fba_sized

Readers will recall that last year, estimates were that upwards of 40 percent of all online orders originated on the Amazon online platform, a rather astounding number. Amazon’s reporting data related to last year’s holiday surge quarter indicated that the fulfillment By Amazon program allowed 3rd party merchants to ship over one billion units on behalf of merchants. During the latter stages of 2015, the industry further observed bold investments by Amazon in leasing its own air freight, ocean container, surface transportation and logistics sortation capabilities which are obviously now included in temporary worker requirements.

Another report indicates that Amazon is currently restricting the ability of new Fulfilled by Amazon merchants to position all categories of inventory at Amazon distribution centers in advance of the holidays. That appears to be another indication for anticipating even higher fulfillment volumes this year and Amazon apparently does not want to risk swamping its current warehouses with these added inventories. According to this report, the stocking restriction freeze for new merchants extends to December 19, too late for these merchants to benefit from the bulk of this year’s anticipated online orders. Last year, inventory of third-party merchants reportedly spiked Amazon’s operating costs, prompting investments in added warehouse capacity for this year.

Similarly, Wal-Mart current efforts for more aggressively investing in online fulfillment capabilities and compete more aggressively with Amazon would indicate more planning for higher volumes of online orders and customer fulfillment capabilities. Three additional fulfillment centers dedicated to online activity should be operational for the current quarter.

Thus is the contrast in planning for the current holiday surge.  Carriers are betting on increased automation and network flexibility to buffer the need for temporary workers.  The major online retailers, in particular Amazon, are aggressively planning for increased volumes and more overall control of customer fulfillment. Traditional brick and mortar retail outlets are going with optimistic sales forecasts and plans to further leverage online and physical store interactions. Each have even more sophisticated planning tools and strategists who have toiled most of this year to anticipated expected volumes, but with differing perspectives, assumptions and shifting business goals.

As always and once again, such planning shifts portray an interesting contrast in what we all get to observe during the coming weeks.

Stay tuned.


Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


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