Global commercial real estate firm CBRE Group Inc. has released a research report indicating that over the next decade, 20 markets worldwide—including South Florida; Santiago, Chile; Bajio, Mexico; and Philadelphia—are set to emerge as global logistics hubs.
The concept of emerging global logistics hubs was brought forward to in the book, Logistics Clusters, Delivering Value and Driving Growth, authored by Yossi Sheffi at MIT’s Center for Logistics and Transportation.
According to the CBRE research report, while global hubs will continue to best meet the needs of companies with international supply chains that encompass the sourcing, manufacturing, distribution and sale of goods, there are 20 specific regional hubs that are poised to become major players in the network for global trade. Although they currently serve as central processing locations for regional supply chain networks, the report cites a number of factors are shifting the dynamics of international distribution and catapulting some regional hubs into the supply chain spotlight. We have attached the report’s infographic that names these various hubs.
The CBRE research points to significant logistics investments, such as the ongoing expansion of the Panama Canal, regional industry production cluster, such as those manifested in the automotive sector, the ongoing impacts of Omni-channel and E-Commerce, and evolving trade agreements as major impetus factors for these new emerging logistics centers.
In the latter, the report cites The Trans-Pacific Partnership (TPP) as a potential trade agreement that will have drastic effects on global trade routes and manufacturing demand in Asia. Supply Chain Matters has recently published our initial impressions of the impacts of TPP.
For the implication of e-commerce’s impact on customer fulfillment and supporting logistics, the report indicates:
“In the past, a network of regional centers that fed into the local supply chains with 3-4 day delivery time coverage of the region was sufficient to meet service standards. However, compressed service times—in many cases, to overnight or same-day delivery—has reshaped the supply chain and has often resulted in distribution direct to the consumer from a global or large regional hub. The Eastern Pennsylvania region, anchored by Philadelphia but fueled by the growth of the Lehigh Valley, is an example of a hub that has been transformed by this new technology. This mid-Atlantic location enjoys access to over100 million people within a one-day drive, including key metropolitan areas such as New York, Washington, D.C., and Boston.”
“E-commerce shipments are smaller in size and require more technology and expertise to execute efficiently. As a result, modern logistics facilities are being developed in the traditionally strong logistics hubs of Tokyo, Seoul and Taipei. Brick-and-mortar retailers are entering the online sales market, resulting in strong demand for modern logistics in Tokyo, as logistics networks must be upgraded to accommodate the higher volumes of package movement. Additionally, the online trend is strong in Taiwan and South Korea, where 83% and 73% of shoppers, respectively, go online to avoid going to a physical store.”
There are many other insights and observations regarding rapidly shifting patterns of logistics which are impacting commercial real estate investment. However, what should be of concern to supply chain and Sales and Operations teams are the implications to existing distribution fulfillment networks that were formed under far different business process assumptions than today’s Omni-channel and global production strategy world.
The report itself can be accessed at this CBRE hosted web link. Please note that registration and account sign-up is required to download this complimentary report.
Hewlett Packard Now Operating as Two Separate Companies: Supply Chain Test Comes in the Coming Weeks
Today marks the official first day of high-tech firm Hewlett Packard operating as two separate and distinct companies. One company, Hewlett Packard Enterprise Company will oversee operations of the former HP Enterprise division, a $55 billion dollar entity. The other, HP Inc., will oversee operations of the former HP Printer and PC divisions, of equivalent revenue size. Supply Chain Matters commented on this proposed split, along with supply chain implications in a July commentary, as we envisioned a very busy summer across the company.
The massive HP split involved separating balance sheets, facilities, IT systems and applications, including those related directly to the support of HP’s end-to-end supply chain. Purchase agreements among various suppliers would have to be recast foe each new company along with various special agreements.
A published article from the San Jose Mercury Times provides perspective on the scope and efforts that went into this split, which overall involved 300,000 employees among 651 global locations. Formal planning began last February and initially involved a flow chart that consumed a 40 foot length, 10 foot high wall. Approximately 60,000 employees had to be moved to separate locations, along with a reported 2700 bank accounts and IT systems.
An interesting perspective brought out in the article was the planning could not be a consensus-driven decision-making process. Instead, a small group of executive decision-makers were supported by a separation project team that grew to about 400 people.
The real-test of this separation comes over the coming weeks as the spilt processes and systems begin efforts as two separate enterprises. From a supply chain and product management perspective, key sensitivities will be seamless uninterrupted operation of both order fulfillment, supply chain planning and execution systems. A further perspective will be how inbound direct material and indirect materials contracts are structured, implemented and managed under the split. The Mercury Times report indicates that HP Labs will remain as a separate research and development center shared by both companies.
Obviously, the good news here was that the November 1st separation milestone was completed as required. The systems shakeout period will hopefully occur without major snafus.
The Wall Street Journal reports that two major Apple suppliers are locked in a fierce battle for control of Taiwan based Siliconware Precision Industries, known as SPIL. (Paid subscription required) This skirmish places Apple as having to be attune to its ongoing relationships among two rather important key suppliers.
The battle centers around a new component-packaging technology termed system-in-package or SiP which is essentially a number of integrated circuits enclosed in a single module (package). SiP can support all or most of the functions of an electronic system, and is typically used inside a mobile phone or consumer device such as Apple’s iPhone.
According to the report, SPIL currently supplies SiP services in small volume and is seeking to roll out this technology on a far broader scale in 2017. The report cites Bernstein Research as indicating that Apple alone will account for $3.1 billion in SiP component orders this year, and that amount could double by 2017.
The two existing Apple suppliers vying for control of SPIL are Advanced Semiconductor Engineering (ASE) and none other than contract manufacturing services provider Foxconn, through its parent, Hon Hai Precision Industries.
ASE is noted as the world’s biggest chip assembler, recently acquired a 25 percent stake in SPIL. In late August, SPIL announced a deal to collaborate with Hon Hai Precision that included a share swap that would afford the contract manufacturer a bigger equity stake and more voting clout than ASE. The WSJ opines that because Foxconn has an existing close collaborate relationship with Apple and its product design teams, SPIL has a better chance for leveraging expanded Apple business. Further noted is that collaboration with SPIL aides in Foxconn’s goals to diversify into lower tiers of the high tech supply chain including semiconductors.
From our Supply Chain Matters lens, we concur with the WSJ that this ongoing battle for emerging supplier control very much underscores the importance that Apple’s scale and business potential has for key suppliers. It further underscores how existing close relationships with key suppliers can influence future strategic supply decisions, particularly when such influence extends to the influence of future product design. In this specific case, individuals within Apple’s strategic sourcing and iPhone product design teams will have to eventually play the role of peacemaker.
In just a few days, certain industries have been rocked by the announcement of mega acquisitions, with many pending implications.
First was the announcement of Dell’s planned acquisition of EMC Corp. for a reported $67 billion. The sheer size and complexity of these two high tech providers will surely present major challenges in the rationalization of products, sales channels and supply chains. Some could rightfully argue that both of these companies were struggling with long-term growth strategies in their respective segments. Dell needs to move away from PC’s while EMC is mostly a collection of data management products that have yet to spur significant growth. The reported crown jewel is that of VMware, which activist investors have pressured to be spun-off as a separate unit.
And what about the scope of the added debt burden required in the financing this combination? One can only imagine the “cost savings synergies” that are being promised to investors in order to favor a positive opinion. As the Wall Street Journal just reported, Dell which was once a supply chain icon has transformed its supply chain from a predominant consumer to one of a business to business focus. The addition of the complexity of EMC’s broad product lines will add additional challenges of channels and complexity. Rival HP remains in the process of splitting itself into two separate companies, each having to manage its own product innovation, business systems and supply chain fulfillment capabilities.
Of even greater significance is the announced takeover by AB InBev of SABMiller for a sweetened sum of $104 billion. Business media reports indicate that this proposed tie-up, representing the fourth-largest takeover in history, is sure to trigger regulatory scrutiny in multiple geographic regions, including perhaps Africa, China, the European Union and the United States. According to reporting from The Wall Street Journal, in the U.S. alone, InBev commands roughly 45 percent market share while SABMiller brands command a further 25 percent. Such scrutiny is likely to lead to the shedding of existing brands and/or facilities to other industry players as well as concerns for too much market leverage. SABMiller’s board of director’s was able to negotiate a reported $3 billion break-up fee if the proposed deal cannot be consummated. Some indicate that regulatory review can take up to a year to complete.
The other important consideration is the global beer market itself, which for the first time, is showing signs of a global decline. Growth however, remains in low-volume specialty craft beers and in emerging markets such as Africa, China and Russia.
InBev parent 3G Capital and its recent orchestration of the coming together of Heinz and Kraft Foods has already sent tremors across consumer product goods supply chains with its zeal for zero-based budgeting techniques and shedding of thousands of employees and across the board cuts in all forms of “unnecessary” expenses. However, the sheer size and scope of bringing together two global beer giants is sure to provided added challenges in rationalizing product innovation, consolidation of business systems, supply and demand fulfillment capabilities on a global scale.
At the recent APICS 2015 conference, Dr. Steven Melnyk of Michigan State University shared his insights on the topic of supply chain performance in a superior presentation. One statement that hit the mark for this analyst was that: “innovation requires slack time, time for failure and experimentation and time for timely response to market opportunities.” Dr. Melnyk further opined: “slack time dies with a lean process.”
This is the current challenge surrounding high tech, consumer product goods along with food and beverage supply chains and the stakes have escalated even more with this week’s mega-acquisitions. While companies continue to struggle to achieve growth in maturing or emerging markets, they turn to value chains for needed innovation and/or cost savings opportunities. Maturing markets require added product and process innovation and/or forced consolidation for pricing and channel distribution leverage.
Acquisitions of the dizzying scope announced in the last few days leads to months of organizational disruption and changing management strategies. 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 and capability efforts. We have our views, but we are more curious as to our readership views of this dilemma.
Chime-in and express your insights, especially if you reside in the affected industries surrounding this new wave of mega-acquisitions.
Supply Chain Matters provides a follow-up to our prior commentary: high tech supply chains- increased risks associated with global access. In that commentary, we posed the question of balancing the need of high tech firms for increased market access to China’s market with the added risks of intellectual property protection. Leading up to the visit by Chinese President Xi Jinping to the United States last week, prominent high tech firms elected to seek favor and seek new deals with Chinese partners.
The U.S.-China summit managed to yield some significant deals. On Friday, both countries agreed not to direct or support cyber-attacks that steal corporate information for economic benefit. The countries further agreed to cooperate more closely on the investigation of cybercrimes along with the creation of a high-level working group to combat such attacks. However, beyond the agreement are the actions and will of enforcement. President Obama declared: “We (United States) will be watching carefully as to make an assessment as to whether progress has been made in this area.” President Xi declared that the proper approach was to strengthen cooperation to avoid confrontation and politicization of the issue.
Prior to his summit meeting with President Obama, President Xi Jinping hosted an Internet Industry Forum meeting of prominent corporate high tech executives at the Seattle campus of Microsoft. In its reporting, The Seattle Times features a photo of the prominent high tech CEO’s invited to attend. The optics are stark. The CEO of Alibaba, Amazon, Apple, Cisco, Facebook, IBM, Lenovo, among others are shown as participants. U.S. and China based alike. The Times notes: “Based on the attendance for what was essentially a photo-op in Redmond, that tech industry is betting that their future relies on China.”
In conjunction with the Seattle and Washington meetings, Cisco Systems announced a partnership with China based Inspur Group Co. In June, Cisco indicated that it was prepared to invest more than $10 billion in China over the next several years. The irony of the current announcement was that Cisco was the key supplier to help build China’s internal Internet and was later accused of spying on Chinese citizens. Now its CEO declares: “There are certain geopolitical dynamics that we have to navigate.”
As we along with business media has noted, Chinese authorities have informed state-owned companies and agencies to buy more locally owned and produced high tech equipment and that has accelerated the strategic importance of domestic technology. Foreign based high tech companies now have to pick their partners in order to continue to expand revenues in China.
Surely not as a coincidence, India’s Prime Minister Narendra Modi visited Silicon Valley last week and made time to speak with prominent high tech and consumer electronics executives about investments in the country.
Market and technology access along with job-growth needs are all interwoven in moving parts with implications to global product innovation and value-chain strategies. There are no easy answers and thus are the risks, perils and strategy implications that continue to unwind within today’s globally based and far more competitive supply chains.
This week, Venture Beat, citing knowledgeable sources, indicated that Intel’s new 7360 LTE wireless modem chip will likely be some part of the new Apple iPhones in 2016. The commentary goes on to indicate that Intel’s inclusion as an iPhone supplier: “is as much about “second-sourcing’ as it is about the quality of the 7360 chip.” The report cautions that it remains unclear exactly which iPhone SKUs will contain the Intel sourced chip.
As Supply Chain Matters has previously echoed, Apple has active strategies addressing strategic and tactical supply risk and segmentation needs. This includes areas related to key components such as processor chips, displays, along with contract manufacturing needs. For the supply of modem chips for the iPhone, Qualcomm has far been the dominant supplier.
Intel arrived late to the mobile phone market and has since initiated earnest product development and other efforts directed at gaining traction. Venture Beat notes that Intel’s modem chip is highly regarded for being well-built, power efficient as well as fast. Further noted is that Intel acquired the former Infineon’s communications chip business in 2010 and since turned it into a seat of research and development for Intel’s next generation of LTE chips. Interesting enough and according to Venture Beat, Infineon once produced the 3G modem chips for iPhones at the Munich facility, but Apple quickly stopped sourcing the chips from Infineon after Intel bought the company.
Neither Intel nor Apple chose to comment to Venture Beat on their story.
We have often called attention to the risk, reward and peril aspects for being an Apple supplier. Even a high tech provider the size and stature of an Intel is not immune to procurement influence and supplier criteria factors that Apple can garner.