In the fall of 2013 Supply Chain Matters called reader attention to new technology advances in smart labeling technology that could be applied to item-level tracking and monitoring. Specifically we highlighted the announcement by Norway based Thin Film Electronics ASA that this technology developer had successfully demonstrated a fully functional, stand-alone, integrated printed electronic temperature tracking Smart Sensor Label. This proof-of-concept smart label was described as being built from printed and organic electronics with low power demands with potential applications to item-level tracking where certain broader state or product condition information would be required.
In April of last year, we updated Supply Chain Matters readers with the news from Thin Film that it had entered into alliances with two strategic partners. One was with Temptime Corporation, a significant provider of cold-chain related, time-temperature indicators to the healthcare and pharmaceutical industry. focused supply chains. That partnership was directed at both companies collaborating to develop the health care industry’s first temperature indicators featuring that would alert people through digital display if medical products have been exposed to potentially damaging temperatures. Another partnership alliance was with PakSense, Inc. a developer of intelligent sensing products specifically designed to monitor perishable goods. PakSense provides numerous major food retailers and suppliers with solutions to help monitor the condition of perishable goods. Terms of that agreement authorized PakSense to distribute Thinfilm Smart Labels™ to food suppliers and retailers of produce, meat and seafood in North and South America.
In December of 2014, Thinfilm announced a strategic partnership with CymMetrik, described as the largest professional packaging and label converter in Greater China. Through that agreement, CymMetrik was empowered to promote and extend sales of Thinfilm products, including Thinfilm Memory, throughout China, Taiwan, Hong Kong, Macau, and ASEAN – collectively, Greater China and ASEAN.
Last week, Thinfilm announced yet another strategic milestone directed at more wide-scale deployment of its proprietary smart labeling technology that being a strategic partnership with global business services and digital printing provider Xerox. This agreement calls for Xerox to license Thinfilm’s technology for the manufacturing of printed, rewritable smart labels in volume. According to the announcement, Xerox will modify an existing production line in Webster New York to produce the memory labels.
This author took the opportunity of the latest announcement concerning Xerox to check-in with Thinfilm executives. We learned that the Xerox agreement involves proprietary memory label technology developed in 2013 that supports the ability of labels to include information about the products that are affixed to, through re-writable memory technology embedded within the label itself. Applications for such information include brand protection of a replacement part, namely whether the replacement part was produced by the original equipment manufacturer. Consider replacement parts installations where the label communicates information about where and when it was produced or how many interim information states it has encountered. This opens the door for smarter consumables. Other application of smart memory labels can relate to the object itself, for instance how many times it was been moved, how-long the product has been utilized, electronic-based handshakes and other applications. Once more the label can be addressed by a business application and the memory requirements can be re-written along the value-chain process.
Of greater significance is that the Xerox agreement allows label production volumes that are described as extremely high, thus implying that high volume production of smarter item-label labeling is now within reach.
The leveraging of Internet-of-Things (IoT) technologies has the potential bring industry supply chains closer to abilities for real-time integration of physical items and digital aspects of information. Smarter labels will play a fundamental enabling role in such capabilities. Readers can anticipate further announcements of emerging technologies related to IoT in the coming months.
The good news is the above evidence that advanced technology is getting closer to providing the means and the economics for both product-focused and services-focused supply chains to be able to leverage this technology.
© 2015, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.
We strive to bring learning for our Supply Chain Matters readers that supply chains, and flawless execution of customer fulfillment do matter in business strategy.
Last week, the retail industry took special notice of the news that Target, after less than two years of making its presence in Canada, made a painful decision to close all 133 of its retail outlets in Canada. According to business media reports, Target is now expected to report a pre-tax write-down of $5.4 billion in its fiscal fourth quarter and release over 17,000 retail workers as a result of its decision, a rather expensive lesson on the importance of supply chain strategy and execution. Target’s Canadian operations reportedly incurred upwards of $2 billion in losses.
To be balanced, not all of Targets challenges related to Canada rested solely to supply chain strategy and execution, but Canadian consumers witnessed the most visible aspects, namely large stores that consistently lacked inventory and products that were not competitively priced.
A New York Times published article (paid subscription or metered complimentary view) observed that while Target stores in the United States were long popular over the border destinations for Canadian consumers, it struggled to translate that formula directly within Canadian stores. Differences in suppliers and what was described as a poorly executed distribution network made goods in Canadian stores far more expensive than U.S. outlets. Consistently empty shelves caused added consumer impressions “giving the appearance of the end of a going-out-of-business sale.” Consumers then avoided Target stores because of limited selection and an unproductive shopping experience. Further noted by the Times was that Target failed to distinguish its brand from other existing Canadian retailers such as The Loblaw Companies, Canadian Tire and others. Also noted is that Target was not the only large or even smaller specialty retailer to stumble in Canada because of in-depth experience in merchandising and distribution in international markets.
Fortune and CFO.com published articles noted that Target’s strategy was to take over existing retail stores operated by discount chain Zellers, which were located in predominately economically distressed Canadian neighborhoods. That turned out to be a conflict with Target’s upscale sheik retail branding in the U.S.
That theme was brought forward in an article published by Canadian Broadcasting, CBC, Target Canada’s Failed Launch Offers Lessons for Retailers. By our lens, it provides insightful perspectives on the unique retail challenges within Canada and that Target is one of many other retailers who have struggled. According to CBC, price matters: “The major sticking point is price.” It points out that if retailers are not providing a compelling experience and flawless execution, than price becomes the default decision criteria. Further noted is that many U.S. retailers turned their sights toward Canada after the severe economic recession of 2008-2009, since Canada was mostly spared from the economic effects. Target opened 124 of the former Zeller stores in less than a year: “a pace far too fast to execute the experience properly.”
In the end, Target’s Chairman and CEO Brain Cornell had to make and communicate the tough decision that enough was enough. It was time to pull the plug on the Canadian effort.
In contrast, U.S. based retailers such as Costco, Wal-Mart and Zara continue to exhibit successful retail execution strategies within Canada.
We amplify this Target experience because of the important learning it provides to retail and B2C focused supply chains with international presence. Know your market, understand its unique nuances and strive to have the voice of supply chain strategy and customer execution at the decision table. That may not always be easy, when marketing and merchandising teams have broad influence on senior management decision-making, but history provides constant learning that supply chain does matter. It is not just a cost center for conducting business.
As we enter 2015, all signs point to an enhanced looking glass across pharmaceutical and drug industry supply chains. The most prominent issues fueling industry supply chain scrutiny right now are media-driven headlines focused on price inflation related to the increasing cost of generic drugs. However, other issues related to electronic tracking and tracing of drug items will also come to light.
In the latter part of 2014, business and social media headlines buzzed with stories related to the exploding costs of generic drugs, which were supposed to be the more cost-affordable alternative to branded, proprietary drugs. Governmental driven health initiates such as the Affordable Health Care Act were legislated to control the spiraling cost of drugs and healthcare.
Price inflation among generic drugs was not a new phenomenon in 2014. This author reviewed a BloombergBusinessWeek article published in December 2013 that had already outlined the problem with certain drug prices skyrocketing overnight even then. That article cited one industry observer as indicating that prices for more than a dozen generics had sourced ten-fold in 2013, and included generic drugs for treating breast cancer, heart and other diseases. A likely culprit reported by Bloomberg was a frenzy of merger and acquisition activities that led to three companies controlling 44 percent of global generics revenues. That was in 2013, and the trend continued throughout 2014.
The largest processor of prescriptions in the United States is Express Scripts Holdings. Last week, this provider published an advisory: The Reality Behind Generic Drug Inflation. The advisory indicates that: “… since 2008, the average price of brand drugs has almost doubled while the average price of generic drugs has been cut roughly in half.”
It further states: “Just four medications have accounted for the most significant generic price increases in 2014: digoxin for congestive hear failure, ursodiol for gallstones, hydrocortisone acetate for inflammation and clobetasol propionate for eczema and psoriasis. Digoxin had the largest 2014 price increase- 1127%- because for a while only, two manufacturers were producing this widely used medication.”
While all the above statements attempt to provide clarity, they are not going to appease the hundreds and thousands of patients who are enduring such price steep increases, beyond the capabilities of reimbursement from health plans. Once more, legislators are once again being compelled to get involved through a series of Congressional hearings. Again, all eyes will turn towards the supply and demand dynamics of lack thereof across individual drug supply chains.
Supply Chain Wide Track and Trace
The other important issue involves new supply-chain-wide track and trace capabilities that go into effect within the United States during 2015 as a result of the Drug Supply Chain Security Act. As of January 1, manufacturers, repackagers and wholesale distributors of pharmaceutical drugs must provide lot-level product tracing information, and by July 1, pharmacies themselves, both community and hospital focused, must be able to provide lot-level transactional tracing and history for 6 years. Also on January 1, pharmacies must have established processes and systems for verification and handling of any suspect fraudulent products. These are to include quarantine and investigative procedures of suspected fraudulent drugs with notification to the U.S. FDA and primary trading partner if a suspected fraudulent drug is found. A recent posting on PharmacyToday outlines these requirements and their potential impact for pharmacy operators. It notes that conformance to these new requirements has a strong dependence on electronic information transfer and that smaller, independent pharmacies may find themselves at a disadvantage because of the need to move current paper based transactions to electronic record keeping and portal access.
The largest wholesale distributors of pharmaceuticals will obviously play a very large role in helping to track and disseminate such information. Meanwhile, the National Community Pharmacists Association is calling for various supply chain industry partners to work together in coming up with cohesive electronic information gathering strategies.
For our part, throughout the coming weeks, Supply Chain Matters will provide added focus and commentary related to both the supply and demand dynamics affecting inflated pricing of generic drugs as well as implementation of the new track and trace requirements.
The looking glass up and down the pharmaceutical supply chain is indeed becoming an important headline and motivation for learning in the coming year.
As we approach the start of the New Year, B2C and Omni-channel focused supply chains teams can begin to take a much needed breather. While reverse supply chain activities continue to ramp over the remaining days of the calendar year, it’s a good time to reflect on the initial learning from the 2014 holiday surge.
From all the sources Supply Chain Matters has tapped thus far, it would appear that the many weeks of pre-planning have yielded a rather smooth fulfillment period. If there is to a single headline related to the supply chain Grinch of the 2014 season, it remains the very ill-timed west coast port disruption and its impact on multiple other supply chain and logistics fulfillment teams.
A National Retail Federation (NRF) sponsored Holiday Consumer Spending survey released in mid-December indicates that the average holiday shopper had completed nearly 53 percent of shopping activity by mid-month, up from nearly 50 percent reported during this same time period in 2013. The survey pointed to two profiles of shoppers, those who were compelled to act on early, hard to pass up in-store and online promotions, and others waiting to the last minute to wrap-up their shopping. That data is generally what was reported as shopper profiles in 2013. Regarding last-minute shopping, the NRF survey indicated that nearly 34 percent of those last-minute shoppers were planning to buy the last holiday gift before December 18. For us, that is an indicator that consumers helped in avoiding a last-minute crunch.
Today’s Wall Street Journal cites data from online tracking software developer Shipmatrix indicating that 98 percent of express packages reached their destinations on time by December 24th. Shipmatrix calculated its reliability metrics from data on the millions of packages tracked for retailers and customers. The 2013 data reflected 90 percent on-time reliability for FedEx and 83 percent for UPS. At this point, we all know how UPS was thrown under the bus in 2013. The added infrastructure investments by both FedEx and UPS in surge capacity and added seasonal workers coupled with a lot of up-front pre-planning with retailers paid off this year. Heavy volume prompted FedEx to continue delivery activities on Christmas day but UPS curtailed on the 24th. Fewer retailers risked last-minute shipping promotions because they faced caps from both package carriers that limited last-minute shipping capacity, and because they headed the warnings. We suspect the shortage or late arrival of certain inventories had some play in the final on-time results but we will all have to wait for those results to come forward.
We rechecked online sales analytical data tracked by IBM’s Digital Analytics Benchmarking service and it further reinforces that order surges in both November and December were generally in-line with Black Friday, Cyber Monday and pre-holiday surge order volume periods. (See below extracts) The final peak of online activity in December was between December 15 and 17.
Rather interesting is the chart reflecting average order values among the various weeks. It reflects average order values of $115-$125 per order with mobile-based ordering reflecting a lower average.
Winter weather across the U.S. cooperated as well, with some minor exceptions. Our own Supply Chain Matters smaller-scale experiments in last-minute online ordering all turned out in on-time delivery. Amazon released a post-holiday summary of its holiday season activity which indicated that nearly 60 percent of its customers shopped using a mobile device and that trend accelerated later into the shopping season. That is a significant development.
Further, 10 million additional members joined Amazon Prime (free shipping) for the first time. That is yet another indicator of the power of free shipping in hitting the online Place Order button. Among other important supply chain and online fulfillment highlights:
- Amazon shipped to 185 countries and this holiday, Amazon customers ordered more than 10 times as many items with same-day delivery than in 2013. The last Prime one-day shipping order was placed on December 23 at 2:55pm EST and shipped to Philadelphia PA. The last Prime Now (same day) order was placed on December 24 at 10:24pm and delivered at 11:06pm. We won’t attempt to comment on the listed contents of that order.
- Sunday delivery expanded this year. As noted in our previous commentary, the U.S. Postal Service was the prime recipient.
The Amazon release further includes an extensive listing of holiday best-selling items which is in itself rather interesting. To no surprise, Disney’s Frozen Sparkle Elsa Doll topped the toys category while Disney Kids’ Frozen Anna and Elsa Digital Watches topped that category. What we do for our children and grandchildren! Chromebooks topped the computer category.
While we have not heard from Wal-Mart.com as yet, we anticipate that they had a very good holiday season as well.
For combination brick and mortar and online retailers, 2014 featured more cross-channel fulfillment experimentation including more direct ship from nearest retail store. We anticipate that challenges in distributed order management, inventory pooling and supply chain segmentation may come forth from 2014. Some readers may have noticed some not so flattering packaging, a sure sign of immaturity in pick and pack operations. It will be interesting to note the results of those efforts in the weeks to come when retailers report on their financial and operational results for the quarter. The open question is whether these efforts add or take-away from profitability.
The learning of the 2014 holiday surge is finally not complete without the ongoing byline of the west coast port disruption and ongoing contract labor talks. A previous Supply Chain Matters commentary highlighted the impacts among inbound and outbound container activity as well as how carriers like FedEx and UPS rallied to assist in added air capacity and multi-modal re-routing efforts. Even at this point at we close out calendar 2014, the two parties cannot agree as to how much progress is being made in resolving both contract and port productivity issues. The NRF’s latest news release continues to add scathing comments regarding the ongoing situation. We repeat our view that at this point, industry supply chains care less about the full resolution of labor contract renewal talks and more about the implications and learning associated with this series of events. There will be less tolerance for this magnitude of disruption and one of our 2015 Predictions is to anticipate alternative inbound and outbound container port inter-modal routings in 2015. The difference in financial bottom-lines may well be those supply chain teams that anticipated this disruption ahead of time to be able to initiate alternative planning.
More will go regarding the 2014 peak holiday season and like every other year, the learning will help in planning for the coming years.
Throughout the summer months, Supply Chain Matters as well as other supply chain management focused media have been monitoring the ongoing threat of potential west coast port disruptions. The primary threat resulted from the expiration of the labor contract among the Pacific Maritime Association, representing 29 U.S. west coast ports, and the International Longshore and Warehouse Union (ILWU).
During July, a Supply Chain Matters commentary cited a published report in Logistics Management made the observation that the threat of U.S. West Coast port disruptions raised an open question as to “peak shipping season” this year. Logistics Management further conducted a reader poll of 103 buyers of freight transportation and logistics services. That survey indicated 68.1 percent of respondents expecting a more active peak shipping season this year. Some respondents were reported to be concerned about potential transportation lane disruptions in the fall. Perhaps, in retrospect, that was insightful thinking by some.
In September, there were reports of significant progress in labor talks with a tentative deal reached on the critical knotty issue of healthcare benefits. The other remaining issues involving compensation, job security and workplace safety implied that contract negotiations would continue for several additional weeks.
As we pen this latest Supply Chain Matters, reports indicate that congestion within the critical Ports ofLos Angeles and Long Beach has reached levels not seen since 2004. A report published on Friday by the Los Angeles Times (paid online subscription or free metered view) describe a logistical nightmare that could undermine the best laid plans for supporting the all-important holiday fulfillment surge. As on Friday afternoon, there were a reported seven container ships anchored and queued off the coast awaiting to be unloaded at both ports.
In a situation which one trucking firm executive describes as “a meltdown on the harbor”, and what LA’s Port Director describes as “a perfect storm”, the unloading and throughput of goods from both ports is now taking 7 to 10 days, and perhaps longer. Four of the seven container terminals in Los Angeles are reported to be currently operating above 90 percent capacity.
Concerns are raising that apparel, toys, electronics and other holiday merchandise may not arrive in time to meet holiday promotional windows. While retailers are initially optimistic that consumers will open their wallets in the coming weeks, this threat for inbound supply delays adds more challenges for retail focused sales and operations planning teams. Already, manufacturers and retailers are being forced to ship critically needed goods via alternative but far more expensive air cargo methods.
The current severe port bottlenecks are being attributed to a combination of factors. They include the increased use of mega-container ships which take longer to unload, a shortage or misbalancing of trailer chassis required for unloading and transporting loaded containers to destinations. Shipping lines have for the most part excited the ownership of trailer chassis to third-party leasing companies. While the operators of the two ports have offered the use of extended free storage time and overflow storage yards, there are little takers due to confusing work rules. Accusations of work slowdowns as a result of a lack of a signed labor contract have reportedly added to the current congestion and calls for acceleration towards a final labor agreement. It is indeed the “perfect storm” scenario that is unfolding.
Supply Chain Matters recently re-visited the port container volumes for the Port of Los Angeles for the periods of July through September, which is the traditional high volume inbound period, contrasting TEU volumes in 2013, vs those this year. For the three months, 2014 TEU inbound load volumes this year were trending up roughly 6 percent from 2013 levels, thus, some retail S&OP teams were planning for a potential disruption scenario. However, it seems now that there were other bottlenecks and choke points beyond the threat of a work stoppage or slowdown.
Retail supply chains are deep into the holiday execution window and there is now little tolerance for finger-pointing or posturing. Even if labor contract talks were to come to a hasty final agreement, the ratification and sign-off process will do little to salvage the current port condition. This is a time for creative action.
The optimistic holiday retail sales forecast scenario can well be in jeopardy or compromised by late arrival of needed holiday inventories. Need we further mention the other doomsday scenario- that retailers now delay their most aggressive promotions under the very last days before the Christmas holiday when inventory is in-place.
We will all have to wait and observe as one disruption cascades through the remainder of retail fulfillment channels.
In a published Supply Chain Matters commentary in June, Service Supply Chains Put to the Ultimate Stress Test in the Automotive Industry, we focused on General Motors, which after intense scrutiny from U.S. regulators and legislators regarding faulty ignition switches among multiple models, had recalled thousands of vehicles. At that time, GM had announced a cumulative 44 product recalls involving nearly 18 million previously sold vehicles not only for faulty ignition switches but for various other lingering quality problems.
Other Automotive OEM’s have also found themselves under intense regulatory scrutiny, and many elected to err on the side of caution and declare product recalls if there were any concerns regarding vehicle or occupant safety. The result led to a Washington Post headline indicating that one out of every ten vehicles on the road had been subject to a recall notice. That amounts to a lot of motor vehicles.
Beyond the challenge of potential damage to brands and subsequent consumer brand loyalty, our primary concern in June was that automotive service and aftermarket supply chains were about to face their biggest stress test ever. The sheer numbers implied that required replacement part inventories were not going to be able to match expected demand and that inventory would have to be re-allocated or alternate suppliers would have to be sourced. Dealers and authorized repair facilities had to be very careful in scheduling service appointments and setting customer expectations regarding replacement part availability and concerns for vehicle safety.
Also included in our June commentary, was reference to reports that product recalls related to defective airbag inflators produced by supplier Takata Corp. were expected to increase after a series of investigations.
Flash forward to today, and now the sheer scope and impact of the unfolding product recalls involving defective Takata airbag inflators is approaching millions of additional vehicles and multiple other brands. U.S. regulatory agencies have raised alarms for the safety of occupants with calls for immediate attention. Web sites are swapped with consumers seeking the status of their vehicles. Business and general media have not taken the time to get the facts sorted out regarding the largest concern being potential defective airbag inflators operating in warm and humid climates. Instead, consumers from across the U.S. are forced to seek answers and demand attention as to whether their vehicle is safe to operate.
By our lens, automotive aftermarket service and parts networks have now been literally thrown under the proverbial bus.
It wasn’t their fault.
The events did not allow the planning for adequate replacement parts or analysis to the required capacity of service repair and replacement resources. The problem was thrown over the wall because quality monitoring mechanisms stalled and time had run out for planned response. Organizational interplays and CYA were probably at-play as well.
Already, OEM’s such as Toyota are trying to proactively respond to this defective air bag inflator crisis in the most realistic manner. Reports indicate that Toyota dealers are being requested to disable the potential defective airbag mechanisms of recalled vehicles and instruct vehicle owners to return when replacement parts are made available. They are doing so because of the reality of backlogged replacement parts which are substantial. In the meantime, temporary labels affixed on vehicles warn occupants of a safety hazard of not having operating airbags.
How comforting is that?
But, without adequate replacement part inventories, there are little options right now.
Service supply networks will invariably come-up with means to prioritize the most important and time sensitive parts requirements and then move on to the various other replacement part requirements to get through this crisis.
The takeaway from these ongoing unprecedented set of automotive industry product recall events is that if the business situation requires much more responsive, supply-chain wide quality monitoring mechanisms and more informed service and aftermarket spare parts networks, than provide the necessary tools and resources required to get the job done.
No doubt, there will be considerable repercussions and learning that come from these events. There will invariable be far more attention paid toward vehicle safety, regulatory safety and reporting and supply chain wide quality adherence.
In the meantime, as automotive consumers, we need to allow the time and patience for the dedicated professionals who plan and fulfill aftermarket parts and service event requirements to adequately respond to the crisis at-hand while more attention is directed toward more responsive quality management.
© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.