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.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
The Associated Press and other media outlets today reported that AB InBev expects to cut approximately 3 percent of its total global workforce, the equivalent of thousands of jobs, once the giant consumer goods conglomerate complete it latest $110 billion mega acquisition, that being rival beer brewer SABMiller.
The AP report notes that with a combined global workforce of roughly 230,000 employees, the 3 percent cutback could amount to around 6600 employees over a three-year period.
Such news should not at all be surprising, given the track record of performance from InBev’s controlling investor 3G Capital. The Brazil based private equity firm is noted for its zeal for zero-based budgeting techniques, along with a formula for the shedding of thousands of employees and across the board cuts in all forms of “unnecessary” expenses. Such zeal includes the extension of payment intervals involving suppliers which have been reported to average in the hundreds of days.
In our October 2015 Supply Chain Matters commentary, Are Mega Acquisitions Toxic for Product Process and Supply Chain Innovation, we observed that the sheer size and scope of bringing together two global beer giants is sure to provide added challenges in rationalizing product innovation, consolidation of business systems, supply and demand fulfillment capabilities on a global scale. Thus, today’s report is not at all surprising.
This week’s report additionally notes that InBev is yet to evaluate “front-office supply departments, for which integration plans are not completed.” By our lens, that is the indication of even more cuts to come along with other potential consolidations in the above noted areas.
In October, we observed that acquisitions of the dizzying scope and magnitude of-late have led to months of organizational disruption and changing management focus. That is especially pertinent in industries such as food and beverage and consumer goods, where consumer preferences and buying trends have caused upheavals among existing players and have led to current consolidation or growth via acquisition. Many of such past mega acquisitions have admittedly mixed results as to overall long-term success.
The open question is whether such acquisitions are likely toxic for required needs for product, process and supply chain focused innovation, agility and capability efforts, not to mention enhanced collaborative relationships with value-chain partners.
We have our views, but the ongoing new AB InBev consolidation efforts may provide different evidence.
Of late, the trend of extending payment terms to suppliers should not be any new news to many of our Supply Chain Matters readers since such practices continue to gain multi-industry momentum. Such momentum continues because private equity firms and high powered consultants in finance now advocate and practice this tactic as a means to boost earnings and operating cash flow. However, what we view as an even more disturbing trend is current more aggressive efforts by suppliers to now push back by exercising whatever options they have, up to and including significant supply disruptions.
To ascertain the scope of the trend towards extending payments to suppliers, we exercised a Google search this morning on the term: News- suppliers not being paid. That search yielded and eye-popping 9.7 million item results, an obvious indication of industry-wide trending.
Just about a year ago, Bloomberg published an article: Big Companies Don’t Pay Their Bills on Time. The author, Justin Fox attributed the increased trend among large global companies to extend payments to suppliers to two principle influences. The first was Amazon, that being yet another aspect what we often describe as “the Amazon effect.” In essence, the online retailer had a cash conversion cycle of negative 24 days in 2014, meaning the online retailer received cash from customers 24 days before it was paid out to suppliers. The other major influence was noted as Brazilian private-equity firm 3G Capital which has acquired well known consumer brands and operates primarily today as Anheuser-Busch InBev. A chart in the Bloomberg report indicates that since the acquisition of Anheuser in 2008, supplier payments stretched to near 260 days by 2014 with InBev on-average paying suppliers 176 days after the company was paid by customers. That is nearly six months of cash float.
Similarly, after previously attending this year’s Institute of Supply Management (ISM) annual conference, this author penned a blog commentary on a session where private equity firm representatives leveraged their stated tactic of operational intervention and improvement, namely concentration in procurement policies to harvest cash flow and margin savings.
The Bloomberg article further charts well-known names Procter and Gamble, Mondelez and Kimberly-Clark, who collectively have to now respond to 3G’s industry presence with the acquisition of both Heinz and Kraft. in the consumer-goods sector. By 2014, days payable outstanding for all three had grown to between 70 and 85 days.
And so the ripple effect of this trend continues offering the brand owner opportunities to leverage cash flows, product margins and profitability, while the ripple effects cascade down the to the remainder of the supply chain.
The open question now remains as to what are various industry norms for paying suppliers, and invariably, the principles of supplier survival and stakeholder interest come into play when such practices become more wide-spread. More and more, such incidents seem to be on the increase.
In early July, General Motors encountered a brief supply disruption over a contract dispute and bankruptcy filing from Clark-Cutler-McDermott Co. a component supplier for 175 acoustic insulation and interior trim parts that are apparently utilized in nearly every vehicle GM produces in North America. The supplier stopped producing parts for GM after work shifts on a Friday and laid off its workforce. Subsequently the supplier refused to grant GM access to any remaining inventory or production tools forcing GM layers to enter a legal process proceeding in bankruptcy court to gain rights to tooling and any leftover inventory.
In late July, avionics producer Rockwell Collins issued a public statement directed at Boeing, indicating that the commercial aircraft producer owed Rockwell $30-$40 million in overdue supplier payments and noted as a breach of contractual supply agreements between the two companies. Rockwell supplies cockpit avionics displays for the Boeing 787 and newly developed 737 MAX aircraft. The CEO of Rockwell openly indicated in his firm’s report of financial performance that Boeing had contributed to Rockwell’s reported financial shortfalls. In its reporting, The Wall Street Journal observed that the industry relationship among Rockwell and Boeing was previously noted for positive collaboration in ongoing cost-control efforts resulting in Rockwell gaining additional supply contracts involving other produced commercial and military aircraft.
Similarly, British based GKN, a supplier of cabin windows, ice protection systems and winglets, openly called Boeing to task for extending supplier payments. Both Reuters and The Wall Street Journal had earlier reported that to boost its cash flows, Boeing was extending supplier payments from 30 days, too upwards of 120 days while at the same time continuing efforts to scale-up the supply chain to address upwards of ten years in booked orders.
The most recent public incident of outright supply disruption is now Volkswagen dealing with the possibility of reduced working hours involving multiple German based final assembly plants resulting from a supplier dispute with two suppliers, Car Trim and ES Automobilguss. Car Trim reportedly supplies parts for seating and ES Automobilguss produces gearbox components for a variety of different VW car models. As of today, business media is reporting that negotiations are ongoing to resolve the matter after the suppliers cut component supply deliveries feeding four final assembly plants. The suppliers have denied responsibility for the situation, indicating that VW cancelled contracts without explanation or compensation and the decision to halt delivery was taken to protect their own workforces. As we pen this posting, upwards of 10,000 workers at VW’s main plant in Wolfsburg, Germany are close to being idled due to parts shortages. Both suppliers, which are part of holding company Prevent, have denied any responsibility in the pending supply disruption claiming that VW is responsible for creating its own supply crisis because of the lack of timely payments to suppliers and that the suppliers’ decisions were taken to protect their own workforces and financial health.
Thus we observe a common theme beginning to manifest across different industry supply chain settings, more aggressive supplier push-back to existing payment terms and the transfer of the burden of cash-flow.
In prior Supply Chain Matters postings, this Editor has not been very keen on such strategies namely because of the short and longer-term havoc imposed on supply chain capabilities and ongoing relationships. But, with the realities of the current business environment being what they are, and with so many firms now under the short-term professional looking glass, the elongated payment strategies extend, testing such relationships. This is obviously not healthy, and many other voices are beginning or have already concluded as-such.
Our prior advice to procurement professionals was essentially to be forewarned and prepared since those possessing or prepared with termed financial engineering skills can reap some short-term financial and other bonus rewards.
We now extend advice to the broader supply chain management leadership and operations management communities. If you have little choice but to exercise such strategies, best be prepared for the new consequences of supplier push back and potentially harmful supply disruptions and eroded supplier relationships.
The age old adage remains that long-term success is built on two-way, win-win relationships. An I win-you lose relationships helps lawyers to stay gainfully engaged and your supply chain to be in constant jeopardy. When times are good, such strategies can yield some benefits. When times are challenged, such as the 2008-2009 global recession, they often lead to massive supply disruptions or calls for mutual sacrifice from suppliers. They further lead to missed opportunities for joint-collaboration on product and process innovation since suppliers are indeed savvy to stick with customers to consistently try to adhere to win-win relationship building.
© Copyright 2016. The Ferrari Consulting and Research Group LLC and the Supply Chain Matters® blog. All rights reserved.
From time-to-time as developments warrant throughout the year, we publish various succinct research advisories to clients and blog readers focused on specific industry, line-of-business, functional or technology trending that warrant specific attention for both management teams and supply chain management professionals. Normally our advisories are included within regular blog posts, but when significance warrants, and content length dictates that we provide deeper insights, we will now provide these advisories in our Research Center as complimentary downloads.
There have been several phases related to the ongoing explosion of online commerce and its impact on retail and B2C focused industry supply chains. Take note that 2016 marks the beginning of the newest phase, namely impacting the long-term presence of brick and mortar retail.
The watershed events have been recent Q2 financial performance results from various retailers, and more specifically, last week’s public acknowledgement by broad based merchandise retailer Macy’s that declining foot traffic makes the cost or value of real estate and physical store operations a new determinant of long-term strategy. The initial shockwave came in January with Wal-Mart’s announcement that it would close 260 stores globally, including 154 across the United States as part of comprehensive strategic alignment of strategy. By June, there is additional discernable evidence of this new phase.
In our Ferrari Consulting and Research Group Research Advisory– The Beginning of a New Phase of Online and Omni-Channel Fulfillment for B2C and Retail Supply Chains, we address background, the iteration of phases and including the tenets of this new phase, along with actions to consider.
Our only requirement for this complimentary research advisory report is that readers fill-out an electronic download form that requires some basic information. To download the report, access our Research Center from the top menu, double-click on the words Research Advisory- August 2016 on the right-hand side and complete the form.
August marks the traditional start of the peak transportation period leading up the October thru December peak holiday fulfillment period involving both traditional and online retail channels. Today we feature two Supply Chain Matters commentaries addressing two separate but important trends that will make the forthcoming period far different and perhaps far more challenging for industry supply chain teams. The first was our prior posting, Amazon’s continued strategic and tactical efforts in deploying owned logistics, transportation and last-mile delivery capabilities.
In this posting, we highlight a recent report echoing the currently gross overcapacity conditions concerning global ocean container fleets, a situation which supply chain and procurement teams need to pay close attention to in the coming weeks.
Global Trade Magazine reports that certain industry alliances involving ocean container shipping lines have now suspended shipping services available for the current peak holiday global shipping season. In this report, Why are Shipowners Parking Containships?, the publication observes that in ideal world, ship fleets would be fully utilized during this upcoming peak holiday period as goods make their way from Asian based suppliers and manufacturers to global markets in-time for the forthcoming holidays at the end of this year. Instead, the G6 Alliance has suspended transpacific service resulting in five of its six vessels being idled while the Ocean Three alliance suspended its Manhattan Bridge service idling nine container ships. The report cites Drewry Shipping Advisors proprietary data indicating that over 300 container vessels, with a combined capacity of over 800,000 TEU’s were idle by early July, at the start of this year’s peak shipping period. The report further implied that the ongoing peak period is rather weak and resulted in the decisions by shipping alliances to idle vessels much earlier in the season. More importantly, the report speculates that carriers are not only moving to park unused capacity earlier in the peak period, but further attempting to boost spot rates up by increasing load factors on remaining active vessels.
This commentary further declares:
“As deliveries of new ships continue, carriers are starting to run out of options on how to deploy them even their largest ships in today’s over-supplier market.”
The above is the obvious red flag to industry supply chains as the overcapacity crisis now reaches an extreme stage. Compounding the problem is the opening of the expanded Panama Canal that occurred in June, causing ships with 4500-5000 TEU capacity to be now idle as carriers begin to route their largest vessels directly through the canal.
For industry supply chain and services procurement teams, particularly those directly related to the retail industry, the coming peak season obviously requires very careful planning of inventory and capacity needs. Those that have a higher reliance on spot market movements and rates need to be especially vigilant in the coming months, particularly if inventory movement needs relate to supporting post-peak market needs in the January-March period. By the end of the year, the overcapacity situation involving ocean container lines should be even more of a challenge that can impact transit times as well as vessel availability.
Thus, it remains critically important for industry supply chain teams to pay close attention and double-check all planning related to inventory requirements and transportation servicing needs. This advice includes teams who have outsourced much of their transportation planning and execution needs to third-party providers. While there may be an assumption of predictable rates, industry dynamics are changing quickly, and along with this, vessel availability and global shipping transit times.
Technology can certainly aide in this area, particularly that which tracks spot ocean container shipping rates and vessel availability trends. But in the end, you cannot afford to assume that your transportation partners totally have your back, especially if you are an organization that dwarfs the shipping needs of far larger global retail or manufacturing enterprises. Small and medium businesses are often subject to the mercies of the spot market.
Insure your organization does its homework, constantly checks and validates planning assumptions and keeps a keen eye on spot market transportation rates. Consider using technology that can assist in navigating these unchartered waters.