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The All-Important Apple Product Availability Weekend- Supply Chain Fulfillment Put to the Test

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Today marks simultaneous but select global-wide product availability release of Apple’s latest announced iPhone 6 models, and as noted in our previous Supply Chain Matters commentary, the supply chain is again being again put to the test in assuring customer fulfillment expectations. Consumers from Hong Kong, select European countries and the U.S. now have the opportunity to get their hands on the new models.

The Apple marketing gods pay special attention in hyping sales in the first weekend of iPhone availability.  It adds to the optics of long lines of consumers queuing-up to get their hands on the latest and greatest smartphones and motivating consumers to buy now, while there is still some in-stock. Like other consumer focused companies, revenues in the upcoming holiday quarter can account for a substantial portion of expected financial results.

Thus far, published product reviews concerning the new models have been positive, which adds to positive consumer perceptions. At this same time last year, Apple set a record of 9 million iPhone 5 smartphones being sold on the initial full weekend. That performance came in the midst of ongoing production yield challenges with the premium iPhone 5s model, which demonstrated the highest consumer demand. In 2012, 5 million iPhones were sold on the initial weekend.  Wall Street analysts are floating a number indicating an expectation of 10 million as the bogey for iPhone 6 sales in the first weekend. The bar of expectations grows ever higher.

Earlier this week Apple reported that it had more than 4 million preorders in-hand among the new iPhone 6 and iPhone 6 Plus models during the first 24 hours since the product launch event. Apple also indicated that many of these pre-orders will be delivered in October, a sign of setting proper supply chain realities. Indeed, smartphone carriers such as AT&T, Sprint and Verizon are quoting October availability with the U.S., with the Plus model being especially stretched-up for availability.

One rather critical difference this year is that Apple has not been able to extend planned availability of the new model iPhone within China. Last year, China was included in first weekend sales availability. A published article in the New York Times last week (paid subscription or free metered view) reported that Apple communicated a last-minute decision to delay availability to the three state-owned mobile service providers even though these carriers had already queued advertising and launch campaigns. Increased speculation across Wall Street and business media corridors is that China’s regulators are still voicing concerns regarding national security associated with the iPhone itself.  No specifics as to when these concerns will be alleviated has led to added speculation that a grey market for both the new iPhone 6 and older iPhone 5 models will become rampart during the weeks leading up to the end of the year.

However, if Apple’s supply chain planners had factored availability of new models for China on weekend launch, they well may be scrambling to re-configure that inventory to satisfy pent-up demand in adjacent regional markets.

As a community, we often commiserate on the dynamic tensions and often conflicting goals among sales and marketing and supply chain teams which often manifests itself in the S&OP process.  Apple’s supply chain teams are not immune to such tension. Over the coming weeks, as the marketing and sales machine cranks-up consumer motivations to buy, the supply chain will deal with the realities of limited supply, production hiccups and product allocation conflicts among various channels that invariably come up in such situations.  Air freight capacity is already allocated and we can all look for the clear signs of scramble and response.

While some supply chains are challenged with collaborating with sales and marketing on stimulating and shaping product demand, Apple has the current challenge of meeting very high expectations involving an outsourced supply network with many moving parts.  They have pulled miracles in the past, and the stakes get even higher. 

Rabbit_Hat_SizedLet’s look to observe the new collection of rabbits out of the hat with the ongoing    2014 iPhone fulfillment launch.

Stay tuned for updates.

 

 

 

 

Bob Ferrari


Lululemon Reported to be Turning the Corner from Previous Supply Chain Snafu

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Supply Chain Matters provides our readers periodic updates to examples of how supply chain snafus can impact business performance. In that light, we have provided ongoing commentaries related to Lululemon Athletica and its prior sourcing and production snafus of one of its most popular line of yoga pants for women.

In March of 2013 this global B2C online and brick and mortar specialty retailer was forced to both recall and stop selling its most popular line of women’s summer yoga pants after discovering that the “sheerness” of the fabric allowed too much to be seen underneath.  The CEO was compelled to publically apologize to customers for the problem and a short time later, announced her desire to step down from her CEO role due to personal reasons. Later in 2013, both a new CEO and Chief Products Officer was brought on-board, unfortunately too late to make any influential impact regarding the 2013 holiday buying period.

The latest business media update for Lululemon reflects a sales recovery with new product designs now becoming attractive for shoppers. Last week, the specialty retailer provided higher-than-expected revenues and profits and raised its outlook for the full year.  Online sales increased 30 percent from the year earlier while sales at physical outlets decreased 5 percent. In its reporting, The Wall Street Journal declared: “a sign that efforts to put supply-chain problems and fashion missteps behind are beginning to deliver results.”  Prospective investors were certainly impressed, sending the stock upwards in double-digits.

To accomplish this turnaround, supplier relationships were augmented and a new line of fashion products was accelerated to provide more online and store shelf assortment in July, a traditional transitional period from summer to fall.  The product line had emphasis other than basic black and gray, which resulted in higher cost and a near 4 basis point erosion in gross margin.

More supply chain challenges remain including upping the assortment of in-demand products that consumers demand as well as further supply chain process improvements. However, the situation seems more of a positive direction.

Our community is often reminded of the both the immediate costs associated with supply chain disruption as well as the longer-term impacts to brand and stock-price.  In the specific case of Lululemon, it has been a span of 18 months of such impacts and learning.  During that time, competitors have managed to seize an opportunity and provide consumers with other attractive and functional choices.

As acknowledged by company management, more work remains and it wilol certainly include a closer relationship of product design and supply chain.

Bob Ferrari


Many Signs of a Highly Competitive Online Holiday Buying Season

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Streaming reports over the past several weeks provide every indication to Supply Chain Matters that supply chain teams need to be prepared for highly competitive, promotional-driven online buying activity in the upcoming holiday buying surge. If there were thoughts that last year’s period was stressful, we venture that this year will bring similar stress. As we have further noted in prior commentaries, the evidence is growing that shoppers have permanently altered their shopping habits in favor of online. Thus, this year will provide interesting online challenges and we predict another round of blame games.

Similar to last year, the period between the Thanksgiving and Christmas holidays is relatively short.  If the combination of bad weather and savvy online consumers plays out again when online consumers waited for the most attractive last-minute deals, online business results will be factored by which online retailer offers the best promotions as well as free shipping.

Let’s reflect on some current data points.

UPS, which was literally thrown under the bus as the Grinch that stole Christmas in 2013, recently announced an all-out effort to augment its operational capabilities during the peak holiday shipping period.  These efforts result from a $500 million investment by UPS after last year’s incidents were evaluated. Included is that for the first time in the parcel shipping’s firm’s 107 year history, UPS will operate full U.S. based air and ground operations on the day after the Thanksgiving holiday, the traditional Black Friday shopping period, in order to stay ahead of expected surge in delivery activity. UPS is also implementing plans to augment its package-car capabilities by an additional 10 percent over last year’s levels as well as dramatically flexing its capacity and intermodal capabilities at its Worldport central hub. Brown will also deploy what it terms as pop-up “mobile distribution center villages” that will function across various U.S, network points beginning with the expected holiday delivery surge. A complete detail of the UPS surge effort can be garnered from this published DCVelocity article.

No doubt parcel delivery giant FedEx will also have augmented capabilities and as noted in our recent commentary, the U.S. Postal Service has aggressively jumped-in offering both Sunday delivery and more aggressive small parcel shipping rates.

Retailers have also had to implement contingency ocean container transport plans amid the ongoing threat of west coast port disruptions prompted by ongoing labor negotiations. That may lead to earlier product promotions to offload bloated inventories.

Many online retailers have garnered their own online marketing and customer fulfillment learning from 2013. Some examples: Staples announced a series of enhancements to the omnichannel experience for its customers, including the ability to buy online and pick-up purchases at a local retail outlet that same-day. According to the announcement, Staples.com will automatically display the inventory available at the three closest retail brick and mortar stores, and indication that such stores now become online mini distribution sites. Customer have the continued option for shipping their online purchases direct to a local store with free shipping. In late August, Macy’s announced its $1 billion technology and infrastructure investment in omnichannel capabilities. That effort now includes the ability for online consumers to order online and pick-up their merchandise within 675 full-line stores. Wal-Mart has plowed $500 million into its new online E-commerce business, including the addition of three new online fulfillment centers, and had plans to invest an additional $150 million in the current fiscal year. Last year, the retailer was cited as having the highest online sales growth, 30 percent compared to Amazon’s 20 percent gain. Wal-Mart now has upwards of $10 billion of total revenues coming from its online channels, and no-doubt this aggressive retailer will be offering consumers attractive online offers.

Other online retailers such as Best Buy, recovering from previous stings with balancing brick and mortar and online capabilities are also preparing for more aggressive omnichannel support capabilities.

In a prior Supply Chain Matters commentary stemming from the IBM Smarter Commerce event, we highlighted what IBM described a “dark store” which is one that can serve as a localized fulfillment entity for limited volumes, or be able to convert to a broader based customer shipment fulfillment entity after retail closing hours. We may well observe some pilot applications of this capability in the coming period.

And then there is the gorilla of online fulfillment, Amazon, which continues to provide indications that it will again be prepared to offer aggressive product promotional and free shipping capabilities, including same-day delivery orchestrated by Amazon’s own package delivery network. There have been published implications that Google and its Google Shopping Express will offer retailers added options for online promotional activity including same-day or Sunday delivery.

B2C focused marketing and supply chain teams have planned all year for the upcoming holiday buying surge. No doubt, there have been budget dynamics as to which segment received the bulk of investments, the online marketing and promotional side, or the back-end online customer service and fulfillment.  Preparations have been made and the ultimate test comes in but a few weeks. New learning as well as finger-point will be ever more interesting to observe.

Keep your web browser connected to Supply Chain Matters for our continued coverage of B2C/B2B omnichannel commerce learning during the 2014 holiday surge.

Bob Ferrari


Gartner Announces Ranking of Top 15 European Supply Chains

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This week, Gartner unveiled its annual regional listing of what the analyst firm considers to be fifteen of the best supply chains in the European region. Gartner conducts this ranking as a supplement to its Top 25 Global Supply Chain rankings that are traditionally announced in the fall.  According to Gartner, the top three European supply chains, Unilever,Inditex and H&M, remain unchanged and continue to lead in supply chain excellence while Seagate Technology made its debut in the number four ranking. Three new company supply chains also made a presence in the Gartner Europe ranking.

The published ranking for Europe Top 15 supply chains were noted as:

  1. Unilever (ranked 4th in 2014 Top 25 global ranking)
  2. Inditex (ranked 11th in 2014 Top 25 global ranking)
  3. H&M (ranked 13th in 2014 Top 25 global ranking)
  4. Seagate Technology (ranked 20th in 2014 Top 25 ranking)
  5. Nestle (ranked 25th in 2014 Top 25 ranking)
  6. L’Oreal
  7. BMW
  8. GlaxoSmithKline
  9. Diageo
  10.  Ahold
  11. Delphi Automotive
  12. BASF
  13. Volkswagen
  14. Reckitt Benckiser
  15. Syngenta

 

Similar to our view of this week’s Gartner’s Asia-Pacific rankings, Supply Chain Matters believes that this ranking reflects how we would have voted if we were part of the external or peer voting panel.  Unilever is indeed a great supply chain competing in a very challenging CPG industry group. As we noted in our commentary associated with Gartner’s Top 25 ranking, Unilever has made steady progress over the past three years and deserves special recognition. Inditex has long been an icon when describing a top retail focused supply chain that is extraordinary in sensing and responding to fashion and customer demand. Seagate Technology as well, has bounced back from the near disaster of disruption and supply shortages caused by the 2011 floods in Thailand. L’Oreal has made great strides in integrating supply chain planning and execution across its supply chain business network. Nestle deserves its recognition especially in leading with industry-leading supply chain sustainability initiatives.

Three of the Gartner European Top 15 reside in the automotive industry sector which has been an industry segment not previously noted for consistent supply chain excellence. Both BMW and Volkswagen have been deploying a global based product platform strategy and have weathered the European economic crisis through a focus on international markets.

Also noteworthy is the appearance of two pharmaceutical supply chains, Glaxo and Reckitt in Gartner’s Europe ranking.

We believe that a ranking of the top Europe supply chains has even more significance given the ongoing challenges related to the severe economic conditions that have impacted Europe. These are supply chains that had to demonstrate various aspects of resiliency to insure required business and product outcomes.

Tip of the HatSupply Chain Matters again extends its congratulations and recognition to each of the named supply chain organizations for achieving such recognition.  There is obviously hard work that goes into achieving such recognition and citation and it should be acknowledged.

Bob Ferrari

 


Gartner Announces Top Ten Best Supply Chains in Asia Pacific Region

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Today, Gartner published its annual regional listing of what the analyst firm considers to be ten of the best supply chains in the Asia-Pacific region. Gartner conducts this ranking as a supplement to its Top 25 Global Supply Chain Rankings that are traditionally announced in the fall.  According to Gartner, while most of these regionally-based supply chains still need to elevate their supply chain capabilities to compete on a global level, many have dramatically improved their position.

The published ranking for Asia-Pacific Top Ten supply chains were noted as:

  1. Samsung Electronics (ranked 6th in 2014 Top 25 global ranking)
  2. Lenovo Group (ranked 16th in 2014 Top 25 global ranking)
  3. Toyota (reported to have moved up three places in the top ten Asia-Pacific and up 22 places in global ranking but not in current 2014 Top 25 global ranking)
  4. Hyundai
  5. Huawei
  6. Woolworths
  7. Honda
  8. Flextronics
  9. LG Electronics
  10. Sony

 

Overall, Supply Chain Matters believes that this ranking reflects how we would have voted if we were part of the external or peer voting panel.  Samsung is especially noteworthy since by many accounts its supply chain is supporting more product and perhaps process innovation than that of its arch competitor, Apple. It is quite interesting to note the appearance of three automotive OEM’s in the Asia Pacific ranking while there are no automotive OEM’s ranked in the global Top 25 rankings. We have been especially impressed with Honda’s global manufacturing sourcing strategies that have helped the company overcome currency challenges and better service global product demand.

At least three of the Gartner Asia-Pacific top ten, namely Samsung, Lenovo and Hyundai practice some form of supply chain vertical integration strategies.

However we were somewhat quite taken-back by the appearance of Sony’s in this top ten ranking, given its profitability challenges in the past few years.  Sony has also been aggressively outsourcing parts of its television and certain parts of its consumer electronics supply chain to contract manufacturers in order to aggressively reduce costs.  Gartner’s own admission is that Sony is lagging behind some of major competitors.

Again, we are shocked with the lack of recognition toward Foxconn Technology (Hon- Hai Precision), the world’s largest contract manufacturer by revenue and output volume. Foxconn is a major supplier and serves as the lead contract manufacturer for Gartner’s consistently ranked number one global supply chain of Apple. This CMS’s ability to respond to Apple’s intense product innovation requirements as well as rapidly scale volume production is highly noteworthy. We remain highly curious as to why Flextronics does not appear in this top ten regional ranking, let alone the global ranking, but then again, social responsibility strategies concerning workers may be a weighting factor. Another supply chain worthy of consideration is that of TSMC, the world’s largest semiconductor manufacturer.

Supply Chain Matters has featured commentaries on many of Gartner’s ranked top ten Asia Pacific supply chains.  They can be accessed by utilizing our Search box: i.e. Samsung supply chain.

Bob Ferrari


The U.S. Postal Service Suddenly Changes the Dynamics of Parcel Shipping and Online Commerce

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This week, the U.S. Postal Service (USPS) suddenly changed the dynamics related to shipping costs in B2C/B2B online commerce and the beneficiaries may well be online customers and mass retailers. The agency aggressively cut shipping prices involving small packages in what the Wall Street Journal described as: “..aiming to steal business from both FedEx Corp. and United Parcel Service Inc.,”

In effect, the Postal Service is acknowledging that its parcel rates were not competitive with its market competitors and it wants to do something about that.  The steepest rate cuts are targeted to large volume shippers with packages of less than 5 pounds, with cuts involving other package weights and volumes. In its reporting, the Wall Street Journal (paid subscription or free metered view) cites an industry observer as indicating that a number of E-commerce shippers are either considering or have elected to now utilize the USPS as a result of this rate price change. In its article, WSJ further features a table that contrasts carrier shipping costs for 5-10-20 pound packages which clearly depicts more competitive USPS rates, especially when shippers factor the added fuel and other surcharges incurred by both FedEx and UPS. The USPS does not apply surcharges and has been the last-mile delivery mechanism for many rural addresses in the United States.

In previous Supply Chain Matters commentaries, we raised awareness that planned dimensional-based rate increases initially announced by FedEx and subsequently UPS  would have definite impacts to E-commerce shipments in 2015. These rate hikes especially involved low weight but high bulk item shipments such as a case of toilet paper or paper towels.

Both FedEx and UPS were not at all pleased by the latest USPS pricing move and have each logged formal protests and claiming foul. No doubt, certain members of the U.S. Congress may be receiving protest calls.  Then again, the cry concerning the USPS was to stop hemorrhaging money and this may well be a bold step in that direction. Officials at the USPS indicate that they will make money with these more competitive rates.

The USPS has made other important moves including partnering with online retailers Amazonfor Sunday deliveries, This week provided an additional announcement that Amazon, specifically its Amazon Fresh unit, and the USPS will partner in a trail to shuttle insulated containers of food products and groceries to residences in San Francisco, and perhaps other urban markets as well.

In the view of Supply Chain Matters, this latest move sets-up a whole different dynamic for B2C/B2B online customer fulfillment in the forthcoming holiday buying peak period.  Online retailers who want to maintain attractive free shipping options now have a potential new alternative to control costs of such programs.  Both FedEx and UPS will have to deal with a different competitive landscape in terms of rates.

Readers will recall that during the 2013 holiday surge period, the prime headline was the blame game directed at package delivery carriers carrier’s UPS, and to some extent FedEx, inability to handle the last-minute online fulfillment volumes that swamped logistics networks in the two days prior to the Christmas holiday. Both carriers have since invested in added logistics capabilities and have alerted online retailers that there may be a premium cost involved in supporting last-minute or time-sensitive shipments. Amazon for one has also been working on developing its own parcel delivery network.

The USPS has in all likelihood, added itself to this dynamic in the upcoming period. Reducing rates is one strategy, but delivering on-time at the height of crunch periods when all networks are tapped is the other test of competitiveness. We will all have to wait and observe.

In the meantime, we extend a Supply Chain Matters thumbs-up to the USPS for finally making bold moves.

 

You and I as online consumers, and many online retailers and businesses stand to benefit with these latest USPS moves.

Bob Ferrari


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