Whether you reside in a large or smaller, up and coming business, accurate product planning is always essential to insure timely and responsive supply chain customer fulfillment, especially when new products are introduced to the market. For consumer electronics, the first few months of customer demand are the most critical. That includes the demand expected among different model variants of a product.
A reminder of such importance is reflected in this week’s business headlines concerning Samsung Electronics, and its recent release of the Galaxy S6 smartphone family. The company alerted its investors this week that second-quarter earnings would be disappointing because of laggard sales of its new Galaxy S6 model. According to a published report by The Wall Street Journal, Samsung may have misjudged demand.
The WSJ cites informed sources as indicating that when the Galaxy S6 family was launched April, the established supply and manufacturing plan called for demand for the Galaxy S6 to be four times more than that of the Galaxy S6 Edge, curve screen variant. It turned out that consumer demand was evenly split between both devices which led to a surplus of unsold S6 devices and an eventual shortage of the higher priced Edge model. Samsung’s supply chain teams then had to scramble to boost component supply and contract manufacturing levels of the Edge model.
As to how much the planning snafu contributed to a sales or revenue shortfall will come when formal quarterly results are reported. Final quarterly results are due later this month. However, the WSJ observed that the company’s stock has fallen 17 percent since the April launch of the Galaxy S6.
Certainly, Samsung is but one visible example of the importance of more dynamic and agile supply chain planning. Other manufacturers and retailers have experienced similar lessons, some public, others not as public but equally challenging.
The report serves as another timely reminder of insuring that adequate resources and more agile planning methods that sense product demand are continually incorporated in your supply chain planning.
Survey of Retail and CPG CEO’s Reflects Today’s Realities of Higher Costs Associated With Online Customer Fulfillment
A new joint study of senior retail and CPG industry CEO’s conducted by PwC under the sponsorship of JDA Software confirms what many in our supply chain community have believed; the increasing profitability challenges being brought about by the higher costs associated to today’s online customer fulfillment demands.
This study, The Omni Channel Fulfillment Imperative, reinforces that an enormous amount of money, energy and time is being spent by retailers and consumer goods manufacturers to improve their Omni-channel fulfillment capabilities. While this may not be surprising given the current business environment, the report reveals an unexpected and disturbing fact: only 16 percent of companies openly indicate that they can fulfill Omni-channel demand profitably.
The survey itself included a reported 410 retail and consumer goods companies from eight different countries. The authors included some CPG company’s views in order to gain perspectives from both ends of the customer fulfillment supply chain, along with the reality that may CPG firms have increased their direct online fulfillment presence. Nearly 51 percent of responses were reportedly weighted toward the classification of top 250-1000 retailers, while 22 percent represented the top 250 retailers.
Supply Chain Matters had the opportunity to speak with Wayne Usie, Senior Vice President of Retail Industry at JDA Software about this study and its messages. Usie aptly pointed out that most retailers remain optimistic for top line revenue growth, they are acknowledging that their firms originally designed their supply chains around the bulk movement of goods from suppliers, through distribution centers and eventually to stores and consumers. Today’s business demands of Omni-channel and online customer fulfillment require a far different set of capabilities. The other important insight is that in their original design that emphasized distribution center centric flows, retail supply chains can often mask the true source of customer channel demand. That has a significant influence on how to plan and efficiently position inventory associated with today’s Omni-channel dynamics.
From our lens, other important perspectives brought forward by this study was the indication by 71 percent of CEO’s polled that Omni-channel fulfillment was a top priority for retail business. Keep in mind that merchandising and sales strategies have often been top priorities for retail businesses. This different perspective, we believe, is the new reality of online and Omni-channel reflecting that the fulfillment supply chain has become an important focus.
Other profound findings were the indication that 67 percent of CEO’s believe that the cost to fulfill orders across channels is increasing, and that 88 percent (a near total consensus) cited transportation and logistics as a fulfillment capability that needs the most attention. Supply Chain Matters believes that this is a reflection of the continued high costs trending of free or same-day shipping that is impacting retail supply chains, especially those with lower product margins. Much of the survey data reflects the threats brought about by global online retailers such as Amazon, Wal-Mart. The major global package carrier’s increase in rates and the shift to dimensional-based freight pricing this year has not helped and probably added even more concerns and needs for alternative methods.
Question 9 of this survey queered on likely internal challenges likely to occur over the next 12 months. Indications were remarkably equally balanced and also from our lens, point to many supply chain related implications including inventory management, effectively integrating physical stores with online business models and failing to consistently meet customer expectations across all channels. Reflecting on such a listing, we believe that the data is yet another revealing indication that not all customers can have the same fulfillment service-level dimensions, hence the need for more discernable supply chain segmentation strategies, aligned to expected customer service and business profitability needs.
The complete PwC Survey as well as a summary infographic can be accessed at this web link. (some registration information required). A further perspective of the survey can be garnered in a posting authored by Wayne Usie on JDA’s Supply Chain Nation blog.
Supply Chain Matters will reflect more on the effects of Omni-channel retail in our live coverage of the upcoming JDA FOCUS 2015 conference occurring later this month.
Disclosure: JDA Software is a Lead sponsor of the Supply Chain Matters blog and a client of its parent, The Ferrari Consulting and Research Group LLC.
It was nearly 10 years ago when the initial hype of item-level tracking enabled by RFID began to emerge across retail and other consumer and industrial focused supply chains. The vision for the ability to connect the physical and digital aspects of the supply chain was within grasp and the hype cycle was extensive. Our readers might recall Wal-Mart’s highly visible corporate initiative for mandating RFID-enabled tracking across its supply chain as well as the U.S. Department of Defense efforts to do the same. But something happened, namely learning that seems to be rather consistent with advanced technology initiatives.
In the early days of RFID, there were challenges involved with the economic cost of individual RFID tags. Recall the threshold number of tags eventually costing less than 5 cents each. The IT infrastructure of required mobile and fixed readers, antennae, and database systems was more expensive than vendors were communicating. Industry-wide consistent information transfer standards development was elusive because either technology vendors continued to advocate for certain proprietary standards, hoping to cash in on the new technology wave, or specific industry groups themselves favored certain standards.
It is therefore very noteworthy to reflect on results of a recent survey conducted by GS1’s US Apparel and General Merchandise Initiative. For those unfamiliar, GS1 is a global information standards based organization that fosters trading-partner collaboration through adoption of global-wide consistent item numbering and identification electronic information exchange. Keep in-mind that apparel and merchandise supply chains operate on narrowest of product margins, with cost, inventory and shrinkage being prime challenges. Apparel and general merchandise was one of the prime targets of the early RFID mandates.
Last week the organization released the results of a 2014 survey providing indicators for how apparel and general merchandise manufacturers and retailers are utilizing item level Electronic Product Code (EPC) enabled RFID tracking. That survey indicates that nearly half of the manufacturers surveyed now indicating that they are currently implementing RFID, with a further 21 percent planning to implement within the next 12 months.
Of the retailers surveyed by GS1, more than half reported current implementation efforts underway with another 19 percent planning to implement in the next 12 months. Retail respondents indicated that on average, 47 percent of items received in their supply chains have RFID tags. In the news release, an Auburn University researcher indicates that retailers are garnering greater than 95 percent inventory accuracy, decreased out-of-stocks, increased margins and expedited returns. That phrase should sound familiar since it was the original declared benefits of the prior mandate efforts.
In the current clock-speed cadence of business where results are measured and expected in weeks and short months, 10 years is a lifetime. Yet, that it what was required for the technology maturity and economics of RFID item-tracking to reach what appears to be the dawn of mainstream adoption. This GS1 survey announcement should be viewed in that light.
For RFID enabled item-tracking, the early innovators have paved the way of learning and economics, as well as what worked and what did not. We at Supply Chain Matters have already brought to light the next wave of item-level tracking, sensor tags that can monitor the composition, state and movement of products across the global supply chain utilizing today’s mobile technologies and near-field communications (NFC). These tags will eventually provide for use cases in supply chain settings requiring higher levels of monitoring and detailed visibility such as fresh foods, pharmaceuticals, aerospace and others.
What is ever more important is that as a community, we learn from previous technology adoption curves where elements of business process adoption, standards and cost-effective technology all interplay. One obvious conclusion is that supplier mandates for technology implementation will not work if these elements have not been realistically evaluated.
Beyond all the hype are the inherent realities. Advanced technology does provide meaningful business benefits when applied to well-understood business process needs, challenges and cost factors. Technology adoption is not driven by vendor product marketing but by business education, process maturity, people and process realities.
© 2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.
The following is a Supply Chain Matters guest blog commentary contributed by Ken Sickles, Vice President of Product & Strategy, 1WorldSync. As a result of a recent briefing regarding the increasing importance of the product information supply chain we invited 1WorldSync to contribute this educational commentary for all readers.
In the retail industry, the supply chain has long been viewed as critical to success and profitability. Companies with tremendous reputations like Apple and Wal-Mart have long enjoyed the fiscal and customer satisfaction benefits of an efficient supply chain. But the retail industry is changing, and so will the supply chain.
In the past decade, advances in primarily mobile and social technologies have allowed consumers to become much more digital and connected to information and each other, and it has altered the way they discover and purchase products. While e-commerce has grown to almost 10% of the overall retail industry, analysts estimate as much as 50% of the retail industry is influenced by a consumers digital interactions. These “digital consumers” have a thirst for transparency about the products they are buying, and their thirst for information about them seems unquenchable. In some cases, digital consumers are so vocal about their needs; we are seeing governments put regulations in place requiring consumer transparency (e.g. EU 1169 – a European Union regulation requiring digital access to nutritional, ingredient, and allergen information for consumers at the point of sale).
The result is retail and manufacturing organizations have to be better at capturing, managing, and sharing product data through the supply chain. In fact, the need is so great, a data supply chain in its own right needs to be developed. Developing a Product Information Supply Chain, tightly integrated with the traditional supply chain, will help organizations ensure that ultimately consumers in the digital world have complete, up to date, and quality information where and when they need it in their purchase lifecycle.
We are already seeing evidence of the product information supply chain taking shape. The industry is investing heavily in the software and processes that create and share product information. From the product development – aggregation and management of product data at the manufacturer – to setting an item up for sale at a retail or online store – to presenting that information to the consumer. Industry organizations such as GS1 are investing in new initiatives and capabilities to support the product information supply chain.
While the supply chain has long been a critical component to success in the retail industry, the product information supply chain may be an even more important to success in the future of the retail industry, as every consumer becomes a digital consumer.
Today’s front page headline article of The Wall Street Journal, Weaker Euro Ripples Around the World, reflects far deepening foreign currency headwinds for producers whose supply chain costs and operations are weighted in U.S. dollars. For senior supply chain, procurement and sales and operations planning (S&OP) process leaders, it is further compelling evidence that existing supply chain cost and product sourcing strategies will come under enormous scrutiny and pressures in the weeks and months to come.
Supply Chain Matters has already called reader attention to recent corporate quarterly financial results reflecting substantial impacts to earnings as a result of the strengthening U.S. dollar against major foreign currencies. B2C and consumer product goods companies are especially impacted, but so are many other industries as well. The headwinds are strong and concerning.
To cite but a few examples, Procter & Gamble recently reported a 31 percent drop in profit as the stronger U.S. dollar diluted the effects of a modest 2 percent organic sales growth. Foreign exchange pressures had the effect of reducing net sales by a significant 5 percentage points. Mondelez International recently reported that foreign currency headwinds delivered a $149 million hit to its operating income in its prior quarter, in spite of recently rising prices across the board. Conversely, globally diverse CPG firm Nestle was able to sustain a 4 percent organic sales growth in that company’s first-half.
The European Central Bank (ECB) has embarked on its own form of quantitative easing, similar to what the United States embarked on after the severe global economic crisis that began in 2008-2009. The ECB is prepared to print upwards of €1 trillion to buy the bonds or assets of various Eurozone countries to boost their economies and keep European interest rates low. The immediate result is that value of the Euro against the U.S. dollar reportedly has declined by more than a fifth since June, and has now reached its lowest point since 2003. That is obviously good news for European manufacturers and service providers, as well as other foreign based producers not pegged to U.S. dollar costs. This situation is expected to continue for many more months.
Companies whose supply chain and operational costs as well as product pricing is anchored in U.S. dollars now face considerable financial headwinds, motivating some U.S. based firms to quickly raise prices within foreign markets. Many U.S. based manufacturers have upwards of half of existing revenues stemming from export markets.
The compounding effect is added costs and potentially lower export sales as foreign based manufacturers take advantage of a pricing advantage within their export markets. According to the WSJ, business leaders, economists and policy makers are becoming convinced that the Euro’s drop is helping to turn the tide in Europe’s favor. There is further concern that the U.S. Federal Reserve will have to ultimately raise interest rates as well.
For procurement, supply chain and sales and operations planning process leaders, the current financial challenge to the business requires that various planning scenarios and subsequent options be developed to ascertain ways and means to reduce costs or mitigate currency impacts in cost of goods sold (COGS) or in back-up sourcing strategies that are anchored in other than the US dollar. Teams need to able to assess various options to meet quickly and considerably changing sales and product margin goals. Without such plans and subsequent supply chain actions, previous cost and productivity savings efforts can be neutralized.
As to how long this current challenge continues it very much an individual industry or corporate decision. One thing is clear, however. This is a period where analytical and data-driven decision-making capabilities will prove to be rather important.
© 2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.
In previous Supply Chain Matters commentaries addressing supply chain teams utilizing SAP as their technology backbone, we have observed that utilization of SAP’s supply chain focused applications can serve as both a blessing and a curse. The blessing comes from the structural rigor for integrating enterprise-wide transactional, operational execution and master data with supply and demand planning. This rigor is sometimes cited as a curse; since today’s highly dynamic business processes are expected to respond to ever increasing levels of network-wide complexity and changing business models.
In June 2014, we called reader attention to SAP’s strategic intent to transition its supply chain technology, specifically the need for businesses to transform their supply chains to demand networks – which implies deeper, more agile support capabilities for integrated business planning (IBP). With this shift, SAP is acknowledging that many industries must transform to be more product demand-centric and that demand drives supply chain response. In essence, SAP’s intends to enhance and deploy a broader next-generation supply chain platform, described as a “many to many” supply chain control tower platform, underpinned by IBP and response orchestration. The implication of this strategy change is perhaps the obvious admission that SAP APO, as it was originally designed and modified these past 15 years, will need to be significantly augmented by other technologies.
The conundrum implied with this strategy shift is that the sheer scope of this transition will take many more years, a journey involving incremental phase-ins. The reality is that while SAP transforms its supply chain support, business requirements are constantly changing and require a more immediate timetable.
That is why there are increasing signs that the SAP community has begun to evaluate other alternatives for surrounding SAP APO with augmented, cloud-based and other planning and decision-making capabilities that can enable business needs in a much shorter timetable. Two of these needs are augmenting demand sensing capabilities and enhancing supply chain planner productivity. In this commentary, we briefly explore each of these needs.
There is little question that the new era of online, omni-channel or multi-channel customer fulfillment has driven far more product options, shorter product lifecycles, added SKU’s and demand streams. With the clock speed of business far more volatile, traditional methods of historical based forecasting lack the ability to sense continual changes in product demand. Quarterly or monthly planning cycles can no longer keep-up. SAP APO was originally developed to support a top-down approach to planning and forecasting, often implemented at high-level, aggregated product family level planning. When such high level SAP APO forecasts are subsequently split to item-location levels for inventory resource requirements, crucial item-level product demand information can often be masked. This problem takes on even more significance for supply chains with complex channels, large-scale distribution, or more frequent new product introduction cycles. Today’s business needs further require supply chain segmentation strategies where supply chains key-in on customer product demand and service needs, allowing the supply chain to respond to individual SKU or point-of-sale demand shifts.
All of this implies a more predictive, stochastic based product demand modeling approach that senses individual item-level demand changes at the item, location or channel level. Also, continued pressure on cost control and overall inventory increasingly requires seamless integration with multi-echelon inventory optimization methods to optimize inventory in various demand trends and/or scenarios.
These advanced demand sensing and modeling techniques are now offered by certain best-of-breed supply chain planning providers. The good news for the SAP APO community is that many providers, as well as specialized systems integrator firms, recognize the need for a co-existence strategy, where planning applications with more advanced demand sensing and predictive capabilities augment existing planning processes. Rather than rip and replace, these providers support a surround and augment strategy. For added perspectives on the above, The Innovator’s Solution blog features two commentaries, Supply Chain Innovation: Living with SAP APO and Improving Demand Forecasting and Planning with Machine Learning. Both provide added perspectives and specific examples.
The second challenge is increasing supply chain planner productivity. With the product complexities and rapid clock speed of business noted above, planners need to allocate more time to managing true demand and supply exceptions vs. constantly chasing planning errors and false positives. This problem has added significance for the SAP APO community, since experienced planners remain in high demand because of their system and business knowledge, and attract higher compensation. Planners need augmented tools and capabilities to not only provide more responsive planning and predictability, but to provide greater levels of supply chain business intelligence to sales and operations and overall business planning processes. Thus, augmented planning technology that can provide capabilities such as machine learning, rules-based business modeling, and advanced monitoring and exceptions dashboards predicated on a singular data model.
Supply chain management teams with SAP as their backbone have added options in their journey toward more demand-driven, integrated business planning. These options include both SAP as well as best-of-breed augmentation, depending on line-of-business and supply chain business outcome needs.
Disclosure: ToolsGroup is a current client of Supply Chain Matters parent, the Ferrari Consulting and Research Group LLC.
© 2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.