Inditex, the parent company of fashion retailer Zara continues to invest in that retailer’s fast fashion capabilities.
The Wall Street Journal recently reported (paid subscription) on a $209 million investment in a new logistics hub, the tenth distribution center within Spain, which will be capable of distributing approximately 500,000 garments per day to over 6000 retail stores located within 87 countries. A further investment of $680 million has been directed for a logistics upgrade for various distribution centers including the Cabanillas, Spain hub.
Inditex continues to invest heavily in Zara’s competitive differentiator, namely the ability to quickly be able to turn any new fashion trend into finished garments in a matter of a few weeks. These latest investments on agile distribution hubs provide an added boost to back-end execution and store stocking needs. Zara is further in the process of changing its retail strategy, investing in larger retail footprints while closing smaller footprint stores and these new investments in faster logistics have been planned to aid in this strategy change.
In January of 2013, Supply Chain Matters reiterated our observations that that companies whose senior management team has a solid grounding and understanding in principles of operations and supply chain management can often have their supply chain serve as a competitive differentiator for business outcomes. The two founding business principles of Zara are:
- Give customers what they want
- Get goods to customers faster than anyone else
Few global specialty retailers have been able to match Zara’s success. Even as the Eurozone countries endured a long period of severe economic recession, Zara managed to maintain its admirable record of consistent revenue growth and sustained profitability. A leadership culture that fundamentally understands that supply chain agility, responsive logistics and valued people do matter in sustaining a competitive industry advantage.
This author recently had the opportunity to conduct an interview with Abe Eshkenazi, the CEO of APICS. Many of our reader audience is probably aware of the APICS organization, primarily from the organizations array of local chapter educational and certification programs. However, some may not be aware that APICS has been undergoing its own transformation as a professional educational organization. Most supply chain professionals probably have awareness to APICS from its various certification programs. But as Eshkenazi clearly communicated, the organization is much more, and its DNA is about “investing in content”.
This author has prior knowledge of the organization, having been recruited by APICS in 2008 to serve as a three year member of the original CSCP Certification Exam Review Committee.
In October 2013, APICS rebranded itself to position the organization as the: “professional association for supply chain and operations management and the premier provider of research, education and certification programs that elevate supply chain excellence, innovation and resilience. “ Throughout our Interview, CEO Eshkenazi provided an enthusiastic endorsement of the many dedicated members of supply chain and operations management professionals who continue to make-up both the past and now, future educational outreach programs of APICS. He described them as “second to none”. We would add from our Supply Chain Matters point-of-view, that indeed, this is the secret sauce to APICS and its efforts as an active provider of professional education.
The APICS organization is evolving to be more responsive to the future needs of corporations with needs for experienced professionals along with individual members who find themselves with needs to constantly hone and refine their overall skills and competencies. These competencies are quickly moving beyond operational and tactical, to include more aspects of bigger picture and critical thinking skills. One of the most impactful statements communicated by Eshkenazi is that supply chain management itself has an awareness problem for what contribution the discipline provides for businesses. According to Eshkenazi: “Today’s supply chain management professional needs the ability to understand every aspect of the company. With the exception of perhaps Finance, no other function has such a broad sphere of impact. “
We could not agree more, which is why our blog banner was titled Supply Chain Matters back in 2008, and why we continue to provide readers reference points for how professionals who have cut their teeth in operations and supply chain management have risen to C-level and senior leadership roles in multiple industry settings.
Our interview touched upon the three new strategic pillars for APICS:
- Being more strategic in the understanding of how supply chain management impacts business outcomes and has become a competitive differentiator for various industry settings. Being more strategic further relates to helping individual members to acquire the required skill level competencies to provide such differentiation and leadership for their organizations. Acknowledgement of one of the most frequently expressed challenge among supply chain executives, that being supply chain talent management on a global basis was expressed as a part of this pillar. An area that APICS continues to focus on is providing analysis and articulation of well-defined supply chain management career paths that can be utilized for talent management initiatives. Career-path analysis includes collaboration with universities and other professional organizations related to supply chain management to insure that training programs are adequately addressing such needs.
- Being a more responsive professional organization to the needs of firms to recruit, retain and constantly re-skill supply chain professionals for today’s supply chain challenges. The CEO noted that the organization has taken great pains to insure that the content and supply chain body of knowledge is relevant to current and future skill needs. Stressed in the interview is that the organization takes special efforts to insure that certification testing is applications based vs. memorization. Programs directed at job task analysis are focused on what supply chain organizations desire and need. Such analysis is transferred to programs that can prepare supply chain and operations management professionals more successful in current and indeed, future roles, whether they are just starting out, in mid-career or later stages of development. APICS’s goal is to be relevant to members throughout all stages of their careers and as an organization, building a body of knowledge not only on current needs, but cutting-edge supply chain topics. The latter includes the rebranding of the organization’s research arm to the APICS Foundation, which according to Eshkenazi is focusing on more forward-looking topics related to supply chain needs of the future.
- The final pillar described was being a globally-driven organization, extending both educational and certification programs across broader geographic regions across the globe. Today’s supply chains extend to Asia, Latin America and other countries and the need for skilled supply chain talent is just as important. “APICS certifications need to be relevant across the globe” according to the CEO.
Our interview dived into many other efforts underway, enough to convince this author that APICS is indeed, a re-energized professional organization that is laser focused in operations and supply chain management education initiatives and continued programs that provide value to members.
A final note to our interview was that this CEO wanted to express the organization’s sincere appreciation to all of the existing APICS membership for their continued volunteerism and active interest in contributing to the organization’s mission and programs.
Today’s Wall Street Journal reports (paid subscription or free metered view) what many commodity shippers spanning the Western portions of the United States are already experiencing first-hand, an erosion of rail service levels that are beginning to noticeably impact industry and services supply chains. The surge in bulk tank car shipments from the Bakken region of North Dakota, coupled with the severe winter conditions that have been experienced throughout this region have led to what is reported to be a major snarl in rail traffic that is now cascading itself among various supply chains. Once more, this situation may extend itself much further into 2014, which is not good news for supply chains that are often anchored in just-in-time inbound materials flows.
The WSJ indicates that many of the problems stem from pileups at the BNSF Railway, which has been one of other railroads heavily burdened by surging demand for crude oil transport. The problem is a classic capacity-constrained network, as winter conditions have taken a toll on equipment and schedules.
The ripple effect extends to other bulk agricultural and commodity shipment needs across the U.S. Midwest and Great Plains regions, where rail car deliveries are reported to be running two to three weeks late. Specific notations are made for shipments of bulk sugar to various consumer product goods companies, coal shipment to various utilities and grain and other agricultural products to ports or food processors. Impacted suppliers cited in the article are American Crystal Sugar Co., a supplier to General Mills, Kraft Foods and Kellogg, potato producer Black Gold Farms and fertilizer producer Mosiac Co. Hershey, on behalf of the Sweetener Users Association, has written a letter to regulators stressing the need for an urgent fix. These backlogs have the potential to cost shippers hundreds of millions of dollars in unplanned costs and the longer this service situation continues, the more upstream companies within supply chains will be impacted. The BNSF itself is reported to be scrambling to secure additional locomotives and train crews while shippers are turning to the more expensive option of shipping by truck.
As our U.S. reader community is already aware, there has been an ongoing capacity shortage among U.S. trucking companies, thus the problem cascades itself even more as trucking resources continue to fill-in for rail. Commodity procurement and logistics teams will obviously continue to deal with this situation, including coming up with alternative scenarios to keep material flows moving to upstream customer expectations. Those residing upstream should be exercising their own scenario planning options to manage through this ongoing operational disruption.
In our Supply Chain Matters 2014 Predictions Research Report (full research report available for complimentary downloading in our Research Center) we specifically addressed consumer product goods supply chains where combinations of external forces are providing unique challenges. These forces include, among others, contraction of global growth rates and margins from previously expanding emerging markets, a certain group of activist investors demanding more cash value, and now, increases in key commodity costs.
While we have already provided a previous specific CPG supply chain commentary, an event held last week provided stronger evidence for additional thoughts.
One of the premiere events for consumer product goods companies is the Consumer Analyst Group of New York (CAGNY) Annual Conference, traditionally held in February. For those unfamiliar with CAGNY, it represents an organization of Wall Street analysts, investment bankers and others whose focus is specifically on CPG industry investment and performance. The conference which was held last week, is where a number of CPG senior executives provide a detailed business overview of their companies’ strategic goals.
Since 2008, Supply Chain Matters has utilized the content presented at this conference as reliable indicators for the upcoming challenges for CPG supply chains, and this year was no exception.
Thus far, we have reviewed presentations from Campbell Soup, Mondelez International, The Hershey Company and PepsiCo. We elected this initial grouping because these firms are exercising product growth strategies predicated on higher growth and margin businesses such as snacks, and because this grouping represents differences of corporate size, culture, as well as different perspectives, positive or otherwise, on supply chain challenges, capabilities or accomplishments.
Our initial analysis was to screen for common messaging regarding industry challenges and required business outcomes. That was not difficult, at all.
Mondelez, which has its sole business focus on a global snacks business, addressed the potential of a $1.2 trillion global snacks market, yet has experienced some realities of declining growth rates among snack categories in 2013. Hershey, a company that traditionally has been grounded in North American markets addressed a growth plank indicating that geographic expansion will be the key to growth and become Hershey’s #2 market by 2017. Campbell Soup, a company demonstrating positive results of late, stated its goals as growing faster in snacks and healthy beverages and expanding international presence.
As each CFO addressed his or her company’s segment it was clear that current signs of slowing growth among emerging markets has placed a pointed emphasis on improved operating margin and cost savings. Once more, such savings are to be re-purposed into product innovation, acquisition and/or increased sales and marketing initiatives to accelerate consumer demand. A clear common message was increasing stockholder value and operating cash flow, the obvious response to activist investors circling the industry. As examples: Mondelez expects to deliver an additional $3 billion in gross productivity savings, $1.5 billion in net productivity, and $1 billion in incremental cash; Campbell Soup stated its restructuring programs have yielded $160 million in annualized savings.
That leads to the stated priorities for each company’s supply chain.
Mondelez addressed four current supply chain priorities:
- Step change in leadership talent and capabilities, articulated as changing 40 of 115 key leadership roles;
- Transform global manufacturing platforms with an emphasis on new biscuit, chocolate and gum platforms across a global presence;
- Redesign the supply chain network- with 30 plants already “streamlined”, closed or sold and 3000 FTE’s reduced; and
- Drive additional productivity and margin improvement programs to fuel growth.
Hershey, which has demonstrated positive supply chain successes to-date, addressed its supply chain goals as:
- End-to-end supplier integration focused on increased on-shelf availability, improved freshness, and localized regional production;
- Strategic procurement partnerships for product innovation, sustainability and cost control;
- Insights-driven supply and value-chain stressing deeper analytics; and
- Global shared-services
Campbell Soup and Pepsico similarly articulate expansion of on-shelf availability, innovative direct-store delivery programs, leveraging direct online commerce and expansion in faster growing markets as supply chain priorities.
We highlight CPG industry challenges because our industry readers need to quickly internalize the implications, both for their organizations and for their careers.
CPG supply chains have always been driven by sales and marketing, along with efficiency and responsiveness. That is not, obviously, going to change. What is changing is the need for bolder leadership skills which is now articulated by talent management being ranked as a top goal. There are many implications to talent management, too many to articulate in this singular commentary. Suffice to state, it implies a far broader set of management skills that span international business markets, translating required business outcomes for margin improvement into prioritized strategies, and in-depth understanding of what is required to be both market and business outcomes driven.
Emerging CPG supply chain leaders will require more depth in the tradeoffs of incremental business process improvement with cost-conscious information technology investments that enable the best end-to-end network response capabilities grounded in more predictive insights as to what to expect. They will now have to manage with less fixed capital and resources, with no choice but to have more reliance on partners and suppliers, including third-party logistics providers. That unfortunately, will lead to the dynamic of passing more cost and risk burden lower into the supply chain. We maintain that this will require total visibility to what’s occurring across the global supply chain, and that implies an end-to-end B2B platform integrating suppliers, contractors, trading partners and other key value-chain participants.
The notions of striving for product forecasting accuracy, driving incremental improvements in business performance based on historic metrics, or elongating timetables for achieving certain levels of supply chain maturity no longer make the cut, and are a relic of the past.
We, as thought leaders and/or consultants, need to stop feeding these fallacies and deliver more straight talk on what skills and competencies supply chain leaders, and their teams, need to be more successful in their efforts, keep teams motivated as well as enjoy coming to work every day. Technology vendors need to stop the endless re-purposing of supply chain visibility or competency acronyms and get to the essence of supporting CPG supply chains with more cost-effective and responsive solutions to immediate needs.
Finally, CPG firms themselves in need to quickly come to the realization that the supply chain leaders and individuals they require, today and in the future are indeed scarce, and be willing to recognize such leadership and technology savvy skills in compensation, incentives and management development and mentoring opportunities.
Throughout 2014, Supply Chain Matters will do our part in hard-hitting straight-talk commentary.
© 2014, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog, All rights reserved.
There is yet another supply shortage occurring in pharmaceutical supply chains.
A combination of factors including a heightened flu season and supply imbalances have precipitated an apparent severe shortage of intravenous saline solution commonly used to hydrate patients being treated for dehydration and other symptoms. Reports indicate that hospitals and healthcare providers are managing short supplies by administering these fluids to only the most seriously ill patients. The U.S. Federal Food and Drug Administration (FDA) is involved in helping to alleviate the current shortage.
Producers Baxter International, Hospira and B. Braun Medical are stepping up production volumes to respond to the current shortage. According to an FDA spokesperson, manufacturers first notified the FDA late last year that they expected delays in filling orders, but an increase in hospitalizations two weeks ago partly due to rising numbers of flu cases has exacerbated the problem.
To cope with the shortage, healthcare providers are using substitute oral hydration products.
According to a Reuters syndicated report, a quote from a registered nurse with Novation, a supply chain company that works with hospitals and other healthcare providers indicates that it could be another two months before the current shortage is resolved. The FDA is also looking into alternative international supply sources to resolve the current shortage.
Bob Ferrari, noted supply chain thought leader and Executive Editor of Supply Chain Matters continues with a current series of guest postings on the Chainalytics blog. The latest guest posting, The Implications of Omnichannel Commerce Have Become Profound, cites recent business media and executive viewpoints that now conclude that there has been a permanent shift in consumer buying habits with profound implications.
The important takeaway for retail, CPG and other consumer-facing industry supply chain leaders is to internalize the reality that permanent changes in shopping behavior are underway and to proactively educate the rest of the business to the supply chain strategy and potential re-alignment implications.