Yesterday, E2open announced its acquisition of Orchestro, a Cloud based demand signal repository and analytics platform provider catering to Retail and CPG Industry Omni-channel business process fulfillment needs. Financial details of the acquisition were not disclosed, which is not a surprise since E2open was taken private in February of 2015.
This acquisition comes on the heels of the firm’s acquisition of product demand sourcing provider Terra Technology in March, and a further indication of an unfolding strategy centered on expanding technology support for specific industry related supply chain B2B and B2C business process network needs.
This author and industry analyst has had the opportunity to have been briefed by both vendors within the last nine months.
Orchestro’s concentration has been on demand-driven CPG companies requiring what that firm describes as an analytical edge. This technology provider was founded in 1999 primarily as a data harmonization services provider, and morphed to target specific CPG and Retail industry needs. The firm’s marketing message currently reads:
“We harmonize, analyze, and monetize demand data across omni-channels to drive profitable actions both in-store and online.”
Orchestro’s lighthouse customer listing includes very well-known CPG and food and beverage names including Campbell’s, Coca Cola, General Mills, Kellogg’s, Kraft, Mars, PepsiCo, among others. The primary customer target has been product category managers seeking more intelligence related to product promotion execution, new product introduction effectiveness, broker effectiveness as well as inventory optimization. In essence, Orchestro supports the needs of CPG firms to establish an enterprise-class demand signal repository which today is a more complex challenge because of the rapidly expanding focus on Omni-channel customer fulfillment. The firm’s TANGO Insights service supports needs for deeper analytics utilizing interactive dashboards and results. A complementing TANGO Science service provides support for more predictive analytics and workflow support for product promotions and on-shelf availability. Recent interest has come from various S&OP teams seeking more specific methods to be more predictive related to supporting changing product demand and in-stock requirements in an Omni-channel environment.
If reader’s have not gathered thus far, this latest acquisition has a common theme with that of the Terra Technology acquisition, that being a more concentrated focus in supporting high profile consumer product goods producer’s unique customer-facing needs as well as a deeper emphasis on providing an end-to-end platform supporting complex distribution and Omni-channel customer fulfillment. As noted in our prior commentary related to the Terra acquisition, the strategy unfolding is to augment E2open’s synchronized supply chain execution platform with augmented capabilities in supporting product demand planning and sensing. Once more, there is an obvious common thread among the customer names of both acquired vendors.
From a technology market perspective this latest E2open acquisition is from this author’s lens, signifies another shot across the bow to existing supply chain planning and demand management best-of-breed providers such as JDA Software, Kinaxis and other smaller, specialized analytics firms who have been targeting larger CPG manufacturers and their supply chain ecosystems. The augmentation of analytics with an end-to-end supply chain execution platform is a different approach that involves far more members of the overall supply chain ecosystem. Once more, E2open has gained an initial foothold in many of these stellar accounts.
We again re-iterate that the benefits of technology acquisition only come with subsequent integration of technology, people and business process expertise. In the specific case of Orchestro, the customer base is somewhat product management focused with different needs than the broad supply chain management community.
In order to be able to conduct its current wave of acquisitions, E2open made significant cuts in prior headcount resources and support budgets in order to regain profitability, thus this latest acquisition adds more speculation as to whether E2open needs to reinvest in its own business needs, beyond just a direct sales team.
We therefore advise existing customers of Orchestro and of Terra Technology to await the specific elements and timetables of the planned integration of all of this augmented technology. On paper, the strategy and the approach toward integrating customer fulfillment execution with deeper analytics and process intelligence is sound. But as with many of these efforts, the proof and the long-term success come with follow-through and without added distractions.
© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.
Two Contrasting Events: Brexit and the Expanded Panama Canal Add New Dimensions for More Active Planning – Part Two
It’s the last Monday in June and as we pen this part two Supply Chain Matters advisory commentary two major developments over these past few days are going to have a definitive long-term impact on various industry supply chains. One is the unexpected results of the referendum by voters in the United Kingdom endorsing an exit from the European Union. Our part one posting of this series addressed our initial perspectives and recommendations regarding Brexit. In this part two advisory, we will address yesterday’s formal opening of an expanded Panama Canal.
Yesterday, after nine years and in excess of $5 billion in investment, the Panama Canal Authority formally opened new locks on both the Pacific and Atlantic Ocean facing entries to accommodate the transit of far larger ships. The first ocean container ship to transit the expanded canal, the renamed Cosco Shipping Panama, operated by Costco Shipping Lines traversed an expanded canal from the Atlantic to the Pacific side.
The opening of this well-known expanded waterway was completed after nearly two years of delay, and considerable cost overruns. At one point in 2014, a stalemate raised doubts as to whether this huge infrastructure project would ever be completed. Container vessels with capacity in excess of 12,000 TEU’s are now expected to be able to take advantage of the widened canal with promised faster direct transit times from Asia based ports directly to eastern United States ports, thus avoiding inter-modal movements across the United States. The other opportunity is for east coast based regional shippers to now have a direct transit route to East Asia.
There has been much anticipation as well as speculation regarding the benefits of an expanded Panama Canal. About a year ago, The Boston Consulting Group (BSC) and C.H. Robinson released a joint study-How the Panama Canal Expansion is Redrawing the Logistics Map, and predicted that by 2020, up to ten percent of container traffic bound for the United States from East Asia could shift their destination to U.S. East Coast ports. According to the authors, that shifting volume is equivalent to building a port double the size of the existing Ports of Savannah and Charleston. The study concluded that this container routing shift will permanently alter the competitive balance among U.S. East and West Coast ports as well as the battleground region for determining the most cost efficient or service-sensitive assumptions in logistics and transportation routing. The BSC study concluded that time-sensitive cargo may continue to route through U.S. west coast while cost sensitive or high density cargos may have economic advantages in east coast port routings.
Since then, other studies have pointed to new opportunities in logistics and transportation related to direct Asia to U.S. and converse goods transit, including the operation of new inland ports.
However, the one current gating factor is that many of the key U.S. East Coast ports are still working on infrastructure projects that would allow larger vessels to call on such ports. The ports currently best prepared to handle these larger vessels are the Ports of Miami and Savannah. Both the Ports of Baltimore and Charleston have active dredging projects underway while the combined Ports of New York and New Jersey still have significant infrastructure requirements yet to be overcome including a bridge near Bayonne New Jersey.
As we noted in a previous Supply Chain Matters commentary, a current boom in distribution and warehouse development includes large investments in east coast regions. The State of South Carolina is aggressively positioning its logistics and distribution infrastructure to be an economic beneficiary of the new routing. Over six million square feet of warehouse space is under construction in the Greenville- Spartanburg region mostly being attributed to the ability to support direct ocean container movements from Asia to the U.S. An inland port at nearby Greer South Carolina is connected by rail to the Port of Charleston. From the Greenville- Spartanburg area, trucks can transit goods to the rest of major eastern U.S. cities or to U.S. Midwest manufacturing regions within a day’s drive. Thus, an alternative option opens up for direct transit and distribution of goods.
A lot will depend on active analysis and modeling by logistics and transportation as well as S&OP teams on the various cost and service options related to ocean movements to U.S. West Coast ports with intermodal truck and mail inland vs. direct ocean transit to U.S. East Coast ports with adjacent inland distribution and transit. A factor in modeling will be assumptions on port and infrastructure readiness as well as direct labor environment. Another uncertain factor is the all-important long-term cost of fuel, which is currently still hovering at unprecedented low levels.
Needless to state, global supply chain logistics and distribution routing has no changed. Active global supply chain network modeling and assessment has become an all-important necessity followed by capability elements for ensuring broader supply chain wide visibility. The expanded Panama Canal now opens a long anticipated new opportunity but comes with differing and changing assumptions.
Be prepared with people, technology and more informed decision-making capabilities.
© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.
The added costs for fulfilling online orders are likely to increase over the coming months because of the current boom in overall demand for large-scale distribution and warehouse space across the United States as well as other regions.
Reuters reports that real estate investment trusts (REITs) that weight their portfolios towards warehouse and distribution real estate holdings have now become the favorite of Wall Street interests because of the current pent-up demand for additional space from retailers. The report specifically mentions logistics real estate services provider Prologis, which counts Amazon as its largest customer, as raising rents a record 20 percent in the first three months of this year. The report cites Morningstar data as indicating that fund ownership in real estate investment firms such as Prologis and Duke Realty Corp. has increased 30 percent or more in the last quarter.
The trend was further reinforced by a recent announcement from the world’s largest commercial real estate services and investment firm, CBRE Group that indicated that- “Voracious global demand for e-commerce fulfillment centers fueled a 2.8 percent year-over-year increase in prime logistics rents globally, led by double-digit percentage gains in U.S. coastal markets.”
According to a recent CBRE report, six of the top 10 markets with the fastest growing prime logistics rents globally were within the United States. Among what CBRE ranks as the Top 10 Global Logistics Hubs by Prime Rent Growth:
- New Jersey
- Inland Empire
- Midlands, United Kingdom
- Santiago Chile
- Ciudad Juarez Mexico
- Los Angeles- Orange County
- Dallas- Fort Worth
- Seoul South Korea
The Wall Street Journal recently published an infographic indicating current areas of warehouse space under construction across the U.S… That mapping indicates the largest double-digit increases in construction of warehouse space focused in the Dallas-Fort Worth and Houston areas, Los Angeles and Inland Empire, Chicago, Atlanta and Greenville/Spartanburg SC areas. From our lens, that data would indicate broad geography coverage for online fulfillment needs.
And, cost increases are not just confined to warehouse and distribution space.
We have brought reader attention to increasing rate increases by the major parcel transportation and delivery firms, including added surcharges and handling fees. As consumers continue to purchase online items that are larger, more bulky and heavier, there has been increasing demand for logistics delivery services. That is providing opportunities for traditional less-than-truckload (LTL) carriers who are increasingly being called on to provide additional delivery services to support online purchases of hard line goods. This will likely require some LTL providers to invest in augmented technology and logistics assets, which will add to rates charged.
As we have further highlighted, the largest high profile retailers such as Amazon and Wal-Mart continue to aggressively invest in more internal and owned resources in augmenting their own parcel transportation, logistics and last-mile delivery networks under the banner of premium, free shipping services. That is obviously part of the reason for the current building and investment boom underway. A continued competitive battle fueled by multi-billion investments adds to the supply-demand imbalances and speculators to drive up costs further.
However, other retailers with limited financial resources are now faced with the realities of even more increasing cost challenges associated with online customer fulfillment. No doubt, something will have to give. Either retailers will become more creative in prime, no-cost free- shipping membership programs that can offset the effect of added fulfillment costs or the largest retailers with financial scale will become more dominant retail fulfillment platforms.
Our takeaway for retail and B2C focused supply chain organizations and procurement services teams is to up your game in supply chain network modeling and strategy implications. Insure that you factor the real possibilities of more added costs in distribution, logistics, transportation and inventory carrying costs. The coming months may well be very challenging, including the upcoming 2016 holiday online fulfillment surge which will more than likely test limited capacity in certain key areas, forcing teams into more costly alternatives. Be wise, be pro-warned, and conduct rigorous scenario based planning.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
In February of 2015, Lumber Liquidators, at the time, one of the largest and fastest growing retailers of hardwood and laminate flooring in North America was involved in a supply chain expose. Approaching 18 months later, the retailer continues to deal with the customer, brand and financial impacts of that disclosure.
In 2015, a broadcast report from CBS News’s 60 Minutes television program turned a public light on the retailer’s supply chain in terms of sourcing and product composition. That report declared that much of the retailer’s laminate flooring that was sourced and produced in China may fail to meet health and safety standards, because it contains high levels of formaldehyde, a known cancer causing chemical.
In May of 2015 the retailer announced that it is suspending all of its China sourced laminate flooring products. The retailer took further action as well. According to its web site, the retailer has systematically enhanced its compliance and sustainability practices across all of its business sectors. That included the hiring of a skilled and experienced senior executive to be the company’s Chief Compliance Officer (CCO), reporting directly to the CEO, John Presley. This CCO has led a team of professionals through an intensive evaluation of policies, processes and of the firm’s supply chain. That evaluation process included:
- Reorganizing our company to better align processes with a commitment to quality and safety.
- Installing a new risk assessment and evaluation process of every Lumber Liquidators supplier in every location.
- Terminating relationships with suppliers who do not meet standards.
- Adopting a detailed code of business conduct that, among many other requirements, mandates that each Lumber Liquidators employee be accountable for compliance in his or her area of responsibility.
Lumber Liquidators and the U.S. Consumer Product Safety Commission further agreed to a “recall to test” action, which is the term the CPSC uses to describe a testing program where the retailer agreed to initiate an in-home air quality testing program for consumers who purchased Chinese-made laminate flooring between February 2012 and May 2015. That testing program continues and consumers are offered a test kit for no-charge.
The retailer currently reports that tests involving over 1,300 floor samples have been completed without one testing above the designated CPSC’s remediation guidelines.
The latest development came last week when the retailer agreed not to resume sales of its previously sourced laminate wood flooring from supply sources in China.
According to news reports, more than 600,000 consumers bought the Chinese sourced laminate flooring over an estimated four year horizon. That would indicate that there are a lot more flooring installations that have yet to be tested thus far. After consultation with U.S. regulatory and consumer product safety agencies, the impacted consumers have been informed to not remove the flooring, because removal could cause added, more harmful exposure to formaldehyde. Rather, regulators want consumers to work directly with Lumber Liquidators on additional testing and remediation needs. If the emission level is elevated, the retailer has agreed to work with homeowners to increase the air flow in affected homes or remove a small plank of wood flooring and conduct additional tests, free of charge.
The retailer continues to assure affected consumers that the China sourced flooring meets acceptable standards of chemical emissions.
Readers can gain any additional information and guidelines at this specific CPSC web site.
The financial, brand and other fallout from this incident continues. Shares of the company’s stock have reportedly dropped nearly a quarter this year, and the retailer reported its first annual financial loss in a least a decade. In its latest quarter, the retailer reported revenues down 10 percent with a wider loss.
Consumers directly affected by the China sourced laminate flooring obviously have their own impressions, now having to deal with guidelines that are somewhat less-specific as to remedies.
It is important to reiterate our previous takeaway to supply chain audiences regarding this ongoing incident. It is yet another example of the needs for transparency across the global supply chain, particularly when an individual country’s or state’s product safety standards considerably differ. As business and industry media have acknowledged, there is no apparent recognized national U.S. standard for indoor formaldehyde concentrations and global wide standards vary among agencies. Interpretation of standards can tend to take on a different lens from different suppliers and thus the need for vigilant and consistent supplier monitoring and risk awareness.
Lumber Liquidators has learned an important lesson in supplier sourcing and in standards interpretation. Affected consumers continue to learn an important lesson as-well.
Wal-Mart, the world’s largest retailer held its annual meeting at the beginning of this month, and business and general media has provided lots of subsequent news coverage.
During the annual investor meeting held on June 2nd that included upwards of 14,000 attendees, Wal-Mart CEO Doug McMillon urged employees and investors to reimagine the future of the retail landscape. He further added that the retailer is picking up the pace of change, and from the overall supply chain lens, winds of significant change remain evident for many months to come. Such a change will place added burdens on suppliers to insure that Wal-Mart maintains both its global leadership role but also its needs to added profitability.
Many published reports related to Wal-Mart over these past two weeks point to the retailer as being at an important crossroads in terms of its long-held dominance in pricing and convenience. We call particular reader attention to a published Economist article: Walmart- Thinking Outside the box, (Paid subscription required) which provides an in-depth perspective on strategies and business needs.
From an online perspective, Amazon continues as the dominant online retail platform, providing online shoppers with both competitive price and convenience. With further expansion in household consumables, grocery and other foods, Amazon will increasingly encroach on the Wal-Mart customer. Wal-Mart itself has invested a reported $10.5 billion within new information technology to enhance its online web presence and fulfillment capabilities. In January, both existing IT groups were also merged together into one singular group. Yet, industry media reports that online sales slowed to a 7 percent growth pace during the first quarter, below company and investor expectations.
CEO McMillon observes that his team has paid very close attention to current retail industry trends including the growth of online, and that his firm will dominate by executing a strategy that leverages the combination of online as well as physical distribution and retail store presence. Stores will serve both as a retail destination as well as an extension of online in customer pick-up and returns.
Within physical stores, the retailer has invested $2.7 billion in higher wages and employee training, but at the same time, consolidated its physical retail footprint by closing 269 stores. Efforts are once again underway to spruce-up stores, clean-up aisle clutter and include more fresh produce offerings. The retailer further announced that over the coming months, Wal-Mart will return to an aggressive pricing strategy, promising to once again reduce prices on a number of offered items.
This leads to the supply chain challenge that is currently underway, namely, to compensate for all of the added investments in operations and online capability, suppliers will have to divvy-up additional cost and price savings. In a sense, this is nothing new for Wal-Mart’s suppliers; however it appears as though it is taking on more aggressive dimensions. We initially highlighted stepped-up supplier pressures in April of last year, and consequent supplier push-back attempts in September.
One of the largest and most loyal suppliers to Wal-Mart has been global consumer packaged goods producer Procter& Gamble. The business relationship has extended for decades and today, P&G garners in excess of $10 billion in revenues from Wal-Mart alone.
Today’s edition of the Wall Street Journal features a front-page article: Wal-Mart and P&G: A $10 Billion Marriage Under Strain (Paid subscription required) that provides added insights into supplier relationships with the retailer. Over year ago, Supply Chain Matters highlighted a similar WSJ report on the intense competitive pressures of both firms, when the retailer elected to offer Persil, a European branded laundry detergent alongside P&G’s Tide branded detergent across Wal-Mart’s retail stores.
This latest report indicates that both firms: “are increasingly butting heads as both try to wring more revenue out of their slow-growing businesses.” The retailer in-essence is pressuring for reductions in prices for best-selling goods as it furthers efforts to invest in new capabilities, while P&G is attempting to protect both volume and profitability of its largest brands.
One other revelation brought out was that unlike all other suppliers, P&G does not have a contract that governs supplier agreements. Rather, both parties rely on in-person relationships, emails and handshakes to address supply programs and other particulars.
Returning to the broader Wal-Mart supplier community, the retailer’s new U.S. chief executive is reportedly spoke directly with suppliers in February and delivered a stern message concerning needs to work more on inefficiencies. The WSJ cites indicates that several people that attended indicated that the retailer expects “healthy tensions” will suppliers and will be “maniacal about managing costs.” The U.S. CEO is further pushing his procurement team to fight more aggressively in negotiations with suppliers and all buyers are now required to attend a workshop conducted by a U.K. based negotiations consultancy.
We suspect that some of our readers who reside in supplier organizations doing business with Wal-Mart may have already encountered the effects of this renewed supplier management efforts.
Thus is the evolving strategy of Wal-Mart, evolve quickly in the new era of retail by leveraging all existing assets, fight for every consumer in price and convenience, invest aggressively in needed new capabilities and garner any and all compensating cost reductions and efficiencies from existing suppliers to meet required financial bottom-line outcomes.
In some sense, the more things change, the more an organization can revert back to prior methods. In the end, we continue to question whether pounding suppliers is counter-productive, since process, cost and product innovation comes from all tiers of any supply chain in joint collaboration efforts.