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ThinFilm Electronics and Diageo- A Noteworthy and Cool Joint Prototyping of Smart Label Technology

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Today marks yet another milestone announcement concerning the development and application of next generation smart item-level labeling technology that can be applicable for either supply chain business process or product branding and marketing needs.

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Thinfilm Electronics ASA and global alcohol beverages producer Diageo jointly announced the intent to unveil a prototype smart label that has the potential to completely change both the role of a bottle along with the consumer experience.

Supply Chain Matters readers may recall our previous commentaries related to Thinfilm’s ongoing development efforts in the next generation of smart item-level labeling.  Specifically we call reader attention to our May 2014 commentary that noted demonstration of a printed NFC-enabled smart label that demonstrated a label that combines printed electronics technology with real-time sensing and near-field communications (NFC) technology.  We were informed by Thinfilm that this new joint announcement involves a modified passive-tag application of this technology.Johnnie Walker Blue Label Smart Tag Enabled

This concept of “the connected smart bottle” will be prototyped in conjunction with Diageo’s Johnnie Walker Blue Label® brand.  The Thinfilm developed smart label will be printed with an object identifier during the bottling and labeling process. The label itself has a rather unique physical appearance that includes a narrow tail (note the photo). This tail provides the ability for the label to sense whether the individual bottle is in a sealed or opened state after the label is affixed. The breaking of the tail does not impair the label’s capability to be read or transmit information. Once encoded at the point of manufacturing, the label cannot be copied or electronically modified.

In its sealed state, the label can transmit via NFC its object identifier for supply chain physical tracking or tracing purposes. Once more, the label can provide added protection to combat counterfeiting or rouge product. When the label is triggered to an unsealed state, it provides the opportunity for the consumer to gather via individual smartphone, added information regarding the product experience.  Such information could include recommendations for further enjoyment of the product, added offers or promotions or other brand loyalty efforts.

Thus, this singular smart label opens-up the possibilities of multiple supply chain related business process and/or brand marketing loyalty use cases. Once more, the reading or sensing of the label can be accomplished with NFC enabled devices, such as smartphones or other mobile devices, which opens up further opportunities to be able to leverage such capabilities without the addition of more expensive infrastructure or proprietary networking or reading technologies as was the case with the initial phases of RFID labels.

In conjunction with joint announcement with Diageo, ThinFilm further announced the launching of its line of Open Sense ® sensor tag technology that has applicability not only within food and beverage but pharmaceutical, cosmetics, health and beauty and automotive industry areas.  As noted in the release, the interest levels and the potential use cases of such advanced smart item-level labeling technologies is rapidly increasing.

As noted in our prior Supply Chain Matters commentaries, the current evolution of smart labeling is indeed the dawning of a new era for item-level tracking, one that will harness the potential of the Internet of Things as well as the abilities to bring together the physical and digital aspects of supply chain management, and now, the added ability to enhance the brand experience.

Consider the possibilities. While some of these developments are prototype in nature they have the strong potential to be game changers in specific industry settings.

In the meantime, consumers and loyalists of Johnnie Walker Blue Label® can anticipate a really cool experience in the not too distant future.

Bob Ferrari

© 2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.


The U.S. West Coast Port Crisis and Increased Supply Chain Risk

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Last week, we were reading a recent report produced by the Chartered Institute for Procurement and Supply (CIPS) in the U.K. indicating that its risk index reversed in Q4-2014 and reached a nine month high. According to this report:

The world opened up for procurement managers in Q4 2014 with an abundance of cheap oil and gas making suppliers in far flung corners of the world instantly more competitive. Combined with low commodity prices in everything from gold in Ghana to soy beans in Brazil, manufacturers at the top of the global supply chain have grown the complexity and length of their supply chains whilst reducing their input costs.”

That was in Q4, before the crisis involving U.S. west coast ports has made its cumulative impacts on industry supply chains.  Gantry_Load_4

Now, there are multiple business and general media reports of the severe toll that is cascading from the continuing backlog of ships destined to U.S. west coast ports that cannot be unloaded and reloaded on a timely basis. The latest news this weekend is that President Obama has dispatched the U.S. Secretary of Labor, Tom Perez, to California in an attempt to broker an agreement.

Today, a Reuters syndicated report featured on Business Insider provides ample evidence of the rippling effects beyond retail focused supply chains.  Honda Motor now indicates that it is slowing production at certain North America auto assembly plants because component parts in the replenishment pipeline are now impacting the production of this OEM’s Civic, CR-V and Accord models. Similarly, Fuji Heavy Industries, producers of Subaru cars indicates that it is already air freighting parts to U.S. factories through at least the end of this month.

An AP syndicated report featured on business network CNBC indicates that in addition to car parts, imported furniture, medical equipment, bathroom tiles, shoes and other goods are all impacted.  On the export side, meat, produce and other agricultural foods are not moving to Asia destined markets and are in danger of spoilage.

No doubt, the cumulative impact across industry supply chains will be in the billions of dollars if the current labor dispute is not resolved quickly.

Further reported is that the port crisis is impacting available capacity and shipping rates for both sea and air freight, making it even more expensive to implement contingency shipping and logistics plans. Air freight capacity originating from China and the Asia-Pacific region was reduced in 2013-14 due to declining demand and increased costs. Thus, the current surge in contingency shipping demand is chasing limited supply, and no doubt, bigger more influential shippers will be garnered preferential services.

As is often the case with these types of multi-industry supply chain crisis, small and medium businesses will bear the bulk of the economic burden.

Within the U.S. itself, a current period of severe winter weather featuring unprecedented snowstorms and extreme cold weather have paralyzed the U.S. northeastern and Midwest regions and its economies, adding more economic burden.

Tomorrow (Tuesday), west coast dockworkers are supposed to return to work.  All industry eyes are affixed on a speedy and final resolution of the current crisis. Amen to that!

Industry supply chain teams do not need to concern themselves with supply chain risk indices for this quarter and beyond. They will be off the charts and indeed, the perception of global supply chain risk will be at an all-time high.

Today, sensing and real-time awareness across the end-to-end global supply chain network as to where inventory resides and the daily condition of global transportation networks and contingency plans is far more important.  The current crisis will continue to worsen before it gets better.

Longer-term, once the current U.S. west coast port labor contract is resolved, shipping industry interests had better get their acts together and figure out solutions to a number of current industry choke-points and structural deficiencies.  Larger mega container ships will not address the needs of shippers for reliable and efficient logistics and transportation.

The notion of the flexibility and/or cost effectiveness of global supply chains has reached a critical crossroad.

Bob Ferrari

 


Another Strategic Milestone for Smart Labeling Technology

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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 Thin Film Electronics Printed Memory labeltechnology 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.

Bob Ferrari

© 2015, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.


Target Pulls the Plug on Canadian Retail Operations- An Expensive Learning

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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.

Bob Ferrari

 


An Enhanced Looking Glass on Pharmaceutical and Drug Supply Chains in 2015

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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.

Bob Ferrari

 


Peak Holiday Season Supply Chain Customer Fulfillment Surge- The Initial Results

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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.

November 2014 Online Sales Source: IBM

 

 Dec_14 Online Sales IBM_475_108

 

 

 

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.

 December 2014 Average Order Value Source: IBM

 

 

 

 

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.

Bob Ferrari


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