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The Implications of the Announced Apple and IBM Alliance

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Business and social media is abuzz with today’s announcement that two long-time rivals, Apple and IBM, are teaming-up in an alliance to create simple business apps on Apple’s iPhone and iPad devices.  As pictured in the Times Square featured announcement, both CEO’s are pictured in a casual and friendly stroll.

Apple and IBM Alliance Announced

The obvious question is which of the vendor’s benefit the most from the proposed alliance.  Another question is the potential impact on supply chain and B2B business network technology deployment. In this Supply Chain Matters initial viewpoint commentary; we briefly dwell on both questions.

Under the alliance, IBM will create what is termed as “simple” business apps leveraging the respective Apple mobile devices.  IBM employees will further provide on-site services and support for Apple mobile devices. Of more interest is the report that IBM is planning to make 100,000 employees available to the Apple imitative, which is rather significant. Both alliance CEO’s made themselves available for a joint media interview. IBM CEO Virginia Rometty indicated: “This is just the beginning” and Apple CEO Tim Cook indicated: “This is really a landmark deal”. The apps themselves are reported to draw on IBM’s computing services including security, device management and big-data analytics. Apple and IBM engineers will jointly be developing more than 100 new business applications tailored for specific industry needs. The apps will begin arriving in the fall and IBM will resell iPhones/iPads containing the apps to its business enterprise customers.

The initial online consensus is that both vendors will benefit from this alliance and this analyst shares that opinion.  Apple has struggled to penetrate the coupling of its mobile devices with business enterprise applications since the market continues to perceive the company as just a consumer electronics provider, albeit with elegant offerings. Security of mobile based information remains a big concern for both supply chain and IT teams. IBM with its deep ties to C-Suite and IT teams has been struggling with the need for more positive revenue momentum. A late entry and lack of momentum in supporting cloud-based and mobile computing needs has not helped. Thus, benefits and rewards loom large for both vendors under this alliance.  They just need to collaborate and execute.

As for the potential impact for supply chain and B2B business network technology support, it’s too early to tell.  As we have noted to our readers, IBM has amassed a broad suite of end-to-end supply chain, B2B, customer fulfillment network, service and business analytics capabilities that can all benefit from further leveraging of mobile-based applications.  The open question remains on IBM’s track record of delivering on broader supply chain process integration in a much more time-to-market manner.  We anticipate there will be opportunities to enhance mobile-based apps in Emptoris Supply Management Suite, Sterling B2B and online fulfillment network as well as end-to-end supply chain focused analytics. Customers will just have to wait and see what develops in the coming months.

A further implication of this alliance announcement will be how other business enterprise vendors such as SAP, Oracle, Google and Microsoft eventually respond. Each has positioned the leveraging of mobile devices within business applications from a multi-vendor perspective in an effort to support multiple brands. This week’s announcement may prompt a re-visit of these strategies, and consumer electronics providers Samsung, Lenovo or perhaps HP, could benefit with enterprise software vendors again seeking deeper development alliances.

Bottom-line, our community can well anticipate some benefits of the Apple-IBM alliance along with the competitive response from other competitors in the market.  IT teams will be able to rest more easy knowing that burden of integrating application with mobile device will be assumed by alliance partners.

The open question however is how mission critical supply chain and B2B mobile computing needs will be viewed in the light of implementing other more simplified apps that meet alliance objectives for total apps availability.

We all need to stay tuned.

Bob Ferrari


Supply Chain Matters News Capsule July 11: Google Shopping Express, Typhoon Neoguri, Accellos and High Jump Software Merger

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It’s the end of the calendar work week and we continue with our news update series related to previous Supply Chain Matters posted commentaries or news developments. In this capsule commentary, we include the following topics: Google Shopping Express, Typhoon Impacts Japan, Accellos and High Jump Software Merge.

Google Shopping Express

While there is lots of attention being directed at Amazon, Wal-Mart and other online retailer same-day delivery capabilities, Google is about to invest serious money to provide its own capabilities.

A posting on ReCode.net: Inside Google’s Big Plan to Race Amazon to Your Door, Jason Del Ray writes that the Google Shopping Express service has been piloting in select cities and is about to receive some serious investment money from Google. He writes that the search provider who has been displaying local shopping results is now coupling a same-day delivery capability.

Rather than operating a network of physical fulfillment centers, Google will rely on inventory from local retail outlets. Rather than compete directly with retailers, Google’s thrust is to become an ally and complement a retailer’s local brick and mortar presence. Shoppers in select cities visit a dedicated web site and select the goods such as groceries, clothing or consumer staples, that they desire to purchase.  A network of local couriers is then marshalled to pick-up the goods at local retailers and delivers them. Del Rey indicates initial retail partners are Costco, Target, Toys ‘R” Us and Whole Foods.  For its efforts Google charges retailers a transaction fee while consumers pay a $4.99 delivery charge. Eventually, Google plans to charge shoppers a flat membership fee, similar to Amazon Prime. Retailers themselves are reported to be taking a cautious approach to the service for fear that that Google may assume more of the direct consumer connection including the mining of valuable shopping trends.

The posting cites a source familiar with the company’s plans indicating that Google executives have set aside upwards of $500 million to expand the service nationwide.  That obviously, is some serious money when one considers that the model does not require inventory or warehouse investments. This will be an important area to watch for B2C online fulfillment.

 

Typhoon Neoguri Continues to Impact Japan

After slamming the southern islands island of Okinawa, Typhoon Neoguri has continued on a path across the main island areas of Japan and is being classified as the most severe storm to have impacted the country in the past 15 years.  While the storm was recently downgraded to a tropical storm, there remains a concern for very heavy rains and subsequent flooding. According to the latest media reports, this storm is likely to reach areas near the tsunami-crippled Fukushima nuclear power plant sometime today.

Neoguri impacted the mainland yesterday near Akune City on the southern main island of Kyushu, which is home to 13 million people. Kyushi lies next to the country’s biggest island of Honshu where major cities including Tokyo and Osaka are located which could also be impacted by the storm.  The storm’s strength weakened somewhat overnight, packing gusts of up to 126 kilometres (80 miles) per hour as it moved east. Latest reports indicate that the storm passed just to the southeast of Tokyo but concerns remain for torrential rains and landslides across the country.

Although the storm does not represent the massive supply chain impacts that occurred from the 2011 earthquake and subsequent tsunami that impacted the country, there could be some impacts depending on the amount of flooding, landslides or other damage to factories or transportation infrastructure.

The next few months represent the monsoon season across eastern and coastal Asia and this may just be the beginning of other super storms.

 

High Jump Software Acquired by Accellos

Warehouse and logistics management software providers Accellos Software and  High Jump Software have announced a merger, but that appears very much like an acquisition.  According to the announcement, “the combination of the two companies creates a product portfolio that is uniquely positioned to meet the advancing needs of retailers, distributors, manufacturers, and logistics service providers to manage complex order fulfillment cycles and collaborate with supply chain partners.” The merged company will operate under the name HighJump and continue to use the Accellos brand for midmarket supply chain execution technology.  Accellos founder and CEO Michael Cornell was appointed CEO of the merged company. Terms of this merger have not been disclosed.

A posting on the Minnesota based StarTribune news site headlines the merger as an acquisition. It notes that the merger is driven in large part by the need among retailers for added online fulfillment process flexibilities including the ability to deliver goods quickly from a warehouse, as an online-only retailer would, if such goods are not available in a store. Both High Jump and Accellos have backing from respective private equity partners which implies that this was an engineered marriage.


Wal-Mart’s Efforts to Strategically Refocus its Business Models Surface in Business Media

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Among consumer goods and services focused supply chains, Wal-Mart clearly warrants special attention. The global based retailer continues to provide clout and sheer scale of operations that any producer, manufacturer, direct competitor or supply chain cannot ignore.   Wal Mart

This week, and for the first time ever, this retailer is hosting more than 500 manufacturers to spur more “Made in the USA” products that can be offered across Wal-Mart’s outlets.  The retailer has committed upwards of $250 billion over the next ten years to support more domestic sourcing of products, and is one of very few companies with the clout and influence to make something happen in this area.  Supply Chain Matters has previously complimented Wal-Mart on this initiative and we trust others will as-well. More on this topic in a later commentary.

Business media and indeed Supply Chain Matters have also called attention to troubling signs involving lagging sales growth in the U.S. along with other more visible issues. The retailer recently reported its fifth straight quarter of negative U.S. sales and reduced traffic.

For an in-depth perspective on what is really occurring behind the scenes, along with a renewed sense of urgency, we call reader attention to this week’s Wall Street Journal front-page article: Wal-Mart Looks to Grow By Getting Smaller. (paid subscription required)  

This article specifically profiles the retailer’s new CEO, Doug McMillon, described as a “Wal-Mart lifer” and his uncharacteristically new efforts directed at altering prior Wal-Mart business models in favor of more innovative approaches. In essence, the WSJ concludes that McMillon is looking beyond a traditional short-term focus in a concerted two-fold effort to bring the retailer into the next century of retailing.  These efforts have considerable supply chain and B2B business network implications in the months and years to come.

Described is a new sense of urgency instilled across the entire executive leadership team which includes increased piloting of new ideas. “For the first time in its history, Wal-Mart will open more smaller grocery and convenience-type stores than supercenters.” The WSJ cites internal sources as indicating that the retailer is evaluating plans to open free-standing liquor stores and adding more gasoline service stations in certain states. A test store near Denver allows shoppers to order groceries online and pick-up that order in a drive-thru. The notion of “everyday low prices” is giving way to “dynamic pricing” based on competitive market data.

In its latest fiscal year, the retailer plowed $500 million into its new online E-commerce business, including the addition of three new online fulfillment centers, and has plans to invest an additional $150 million in the current fiscal year. Last year, the retailer was cited as having the highest online sales growth, 30 percent compared to Amazon’s 20 percent gain. Wal-Mart now has upwards of $10 billion of total revenues coming from its online channels.

McMillon’s focus further remains on day-to-day operations of stores including smarter merchandising and in-stock inventory management along with cleaner stores.  The article notes that at a recent annual meeting of store managers, an executive admonished store managers to take more active ownership of stores and clean-up their operations.  If you have, as this author has, visited a Wal-Mart store of-late, you may have observed that stores are more disheveled with associates that exhibit a lack of caring about shoppers needs. Wal-Mart also has to come to grip with its ongoing labor management practices.  The WSJ makes note that earlier in the year, the National Labor Relations Board accused the retailer of unlawful retaliation against workers who took part in protests over working conditions.

Our community can well relate to the fact that keeping shelves adequately stocked was the primary emphasis of Wal-Mart’s prior RFID item-tracking initiatives, which yielded minimal impact and continual resets.

Whether Wal-Mart will succeed in all tenets of its current two-fold business strategy is certainly fodder for added speculation and water cooler debate. However, the continued clout and influence of the retailer on the ultimate success of supply chain and demand fulfillment initiatives is unmistakable, and thus, cannot be ignored. As a participant in Wal-Mart’s supply chain, your organization will again be tasked with many short and longer-term initiatives in support of these parallel efforts.

Keep in mind what is going on behind the scenes as a giant retailer attempts to change its culture and business models to meet the realities of the new era of retailing and customer fulfillment.

Bob Ferrari

© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.


Impressions from the OpenText Industry Analyst Briefing

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In our Supply Chain Matters coverage of the B2B and supply chain technology space, we had previously provided commentary related to GXS, Inc. The roots of GXS stem back to the late sixties with its initial founding as General Electric Information Services (GEIS) providing computer time-sharing to general users, migrating to support value-added network (VAN) services such as EDI for both GE and external clients. By 1998, GEIS’s global electronic trading community exceeded 100,000 trading partners, and in 2002, the renamed GXS was spun out as an independent technology services provider purchased by venture capital firms Francisco Partners and Norwest Venture Partners.

In June of 2012, Supply Chain Matters declared that GXS was a hidden gem in the B2B information services and application support arena. In November of 2013, GXS was acquired by OpenText Corporation, Canada’s largest software technology provider. The purchase price at the time was reported to be approximately $1.2 billion, roughly 2.4 times GXS Fiscal 2012 revenues. T

The crown jewels of GXS is the GXS Trading Grid a global platform to support e-business and supply chain information integration that supported upwards of 550,000 trading partners and included some big-name and rather influential industry supply chains. The question was what Open Text’s strategic intent would end to be regarding the acquisition.

Earlier this month, this author was invited to attend a one-day industry analyst briefing hosted by members of the senior management team of OpenText. By the end of the day, I had acquired a broader understanding of OpenText’s business strategy, particularly as it concerned the leveraging of the newly acquired B2B transactional support network.  However, we walked away with some remaining open questions regarding the broad scope of the strategy.

For readers unfamiliar with OpenText, this vendor classifies itself as a broad-based Enterprise Information Management support provider.  Product support areas are rather broad and include:

  • Enterprise Content Management (ECM) – areas such as content management, secure email and electronic content, data and cloud integration.
  • Business Process Management (BPM) – classic business process workflow tools suite.
  • Customer Experience Management (CEM) - areas such web based content management, customer communities, and digital assets management.
  • Information Exchange and Discovery- areas such as B2B communication and transactional integration, secure messaging and information discovery.

Because of this rather broad technology support footprint, the OpenText vertical industry targeting strategy is broad ranging from manufacturing and retail to financial services, government, public utilities and other industries. Open Text’s prime targeted customers are CIO’s and internal IT, but with this broadened strategy and the acquisition of GXS, customer constituencies will have to include cross-functional supply and value chain groupings.

It was rather obvious to this analyst that OpenText acquired GXS for the value of its B2B supplier and trading partner network.  However, the evolving strategy is more about leveraging the Trading Grid in the context of EIM, document exchange, quicker on-boarding of supplier and trading partners and managed services support.  The current OpenText strategy assumes the existence of other business applications that touch or interact across the network and that business value is derived from the ability to leverage content among various business applications within and across the network.

The provider has placed a rather large emphasis on its partnership with SAP, which it classifies as its most strategic partner. The vendors’ EIM technology is positioned to support needs for SAP Business Suite, Ariba, and Microsoft Sharepoint content access, information management and electronic document exchange needs. The current most attractive interest among SAP installed based customers was described as a supplier electronic invoice solution where OpenText sits aside the Ariba Network. Briefing presentations emphasize that the firm was one of the first SAP ISV’s to run Archive Server on HANA for customers needing to manage combinations of both structured and unstructured data. Having achieved recognition as an SAP Solution Extension, 14 OpenText product offerings are currently sold jointly by SAP and OpenText sales teams. That implies that the SAP salesperson is directly compensated for selling OpenText technology in a deal. Asked by this analyst as to which other vendor in the current market is viewed as a prime competitor, the answer turned out to be IBM and its Sterling based B2B network. I would disagree, but that is subject matter for an additional commentary.

From our lens, it would appear that SAP is positioning OpenText for near-term customer requirements in EIM, B2B transactional and content integration needs.  A very open question is how SAP will position such partner support once Ariba and its Ariba Network platform become more integrated with broader SAP Business Suite, SAP Supply Chain Management, SAP SRM and SAP HANA enabled information and business intelligence needs over the longer-term window. Joint customers will need to continue to monitor the evolution of the partnership. Another open question would be the overall cost of layering these various technologies vs. the market appearance of a more holistic business network platform that marries infrastructure, content, application and business intelligence.

As for OpenText and its continued support for B2B and end-to-end supply chain business network and BPM support, a lot will depend on whether the OpenText management team can place more concentrated emphasis on manufacturing industry, retail and online commerce business process support needs.  The vendor further needs to alter its current product marketing messaging to be more in-tune with today’s industry specific business process challenges and desired business outcomes for supply, services and value chain networks. The entire day of briefings included very little mention of vertical industry focus and approach.

If readers require more specific intelligence and insights, give us a call.

Bob Ferrari

© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.


A Candid Expose of Target Stores CEO Leadership: A Rebellion from Within?

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We call reader attention to a rather provocative but revealing expose published by the Wall Street Journal this week regarding U.S. based retailer Target Stores. The article: Retailer Target Lost Its Way under Ousted CEO Gregg Steinhafel (paid subscription required) outlines a story that portrays a sequence of events, even prior to last November’s massive credit card security breach, leading-up to several of the retailer’s executive team delivering a message to Target’s board. “If Mr. Steinhafel didn’t leave immediately, others would.”

The article observes that Target’s core hip image of creativity in merchandising, affectionately dubbed “Tar-zhay” took a back seat to rigid performance metrics under the leadership of CEO Steinhafel.  The premise outlined was that Target’s retail selections became more commonplace, similar to arch competitor Wal-Mart. Under the tenure of Steinhafel more retail store space was allocated to produce and grocery items as a sales growth tool.

For Target’s supply chain and online B2C strategies, suppliers, including smaller-sized ones, describe added pressures from Target’s buyers to wring-out additional costs. Target’s buyers stressed a placement system that awarded prime shelf space to highest and most cost attractive bidders. The retailer reportedly was slow to embrace online fulfillment and in 2001, outsourced its online web fulfillment operations to Amazon.com, only to bring it back in-house in 2011 after a two year internal development effort. Shortly after taking online B2C fulfillment in-house, the retailer suffered a series of highly public failures among highly marketed and promoted merchandise programs.

The article also points to Target’s 2013 feud with long time loyal supplier Procter & Gamble after discovering that Amazon was collaborating in establishing its Vendor Flex online fulfillment for Pampers diapers directly within P&G warehouses. When learning of the Amazon arrangement with P&G, Steinhafel ordered that P&G products be given less than ideal placement in Target stores for a period of a few months. That sent a buzz across the industry.

The WSJ further describes an ambitious but poorly executed move into Canada, opening 127 stores over a one year timeframe that has led to continued operating losses. In its most recent quarter, Target’s profits fell 16 percent having to ramp-up discounts to recover from consumer abandonment as a result of the recent massive credit card security breach. Lagging sales across newly opened outlets in Canada racked up an additional $211 million in losses. Target has experienced over a year and a half of declining store traffic while its online presence remains troublesome.

And then there was the coup de grace, with the highly visible credit card security breach involving the personal data of upwards of 70 million shoppers, which other media reports conclude could have been avoided from early warning signals and the company’s own installed security software.

Like any of these types of situations, there is always two-sides regarding perception of events. Steinhafel himself had 30 year tenure at Target and likely had full knowledge of the retailer’s corporate culture and management practices.  After the massive and highly visible cred-card security incident, he might have been a convenient scapegoat for the retailer’s series of missteps. What astounded us was the action of Target’s board in accepting the direct feedback of many others of the existing senior management team in the midst of this crisis environment, in essence allowing for anarchy from the management ranks. Too often when this situation occurs, it takes a very long time for a new CEO to establish his or her’s leadership presence and overcome parallel lines of communication to board members.

We applaud the WSJ for its in-depth and candid perspectives on Target’s senior management missteps. However, it may not help this retailer in timely efforts for recruiting a strong CEO leader who can establish a new direction.

Bob Ferrari


UPS Joins the Movement to Dimensional Pricing for 2015

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In early May, global package delivery provider FedEx announced a series of dimensional weight pricing changes related to both its FedEx Ground and FedEx Freight service units that are scheduled to take effect at the beginning of 2015.  This week, UPS has also announced its intent to implement dimensional pricing as well. effective December 29, 2014. The UPS pricing will be applicable to all UPS Ground and UPS Standard to Canada package shipments.

In its announcement, UPS indicates that current e-commerce shipping trends have resulted in a decrease of package density, causing cargo space to be less efficiently utilized in its network.  However, UPS neglects to mention the further implication of this trend, namely increased package volumes that result in increased revenues.  Once more, both carriers have implemented advanced technology that can optimize cube volume on any transport asset. With the shift toward dimensional pricing, both FedEx and UPS stand to gain considerable boosts in product margins since no substantial changes are required to handle today’s day-to-day volumes.

As noted in our prior commentary, the price to ship a bulky, but relatively low-cost item could rise significantly under these proposed changes, tipping the balance of free shipping and potentially deterring an online buying decision. For manufacturers and retailers, the implications are significant. Such a change can have a major impact on online shopping habits and could well derail current B2C online buying momentum. Supply Chain Matters recently viewed E-commerce retail sales data from IHS which indicates that in 2011, the top category of online merchandise sales was clothing and accessories, followed by other merchandise and electronics. Clothing certainly can be a candidate for dimensional pricing.

The proposed dimensional pricing change further implies a major revisit of packaging and transportation practices for bulky items as well as policies related to free shipping. Those bulky items may well be collapsed as much as possible into components, that is, if they can be.  Online retailers would more than likely be compelled to consolidate items as much as possible into a single shipment. The concepts of online replenishment of household or other day-to-day consumption items could well take on a far different market dynamic. Brick and mortar discount retailers such as Wal-Mart and warehouse goods retailers such as Costco, in-turn, have been handed a new opportunity in the area of shopping for low-cost but high bulk goods.

Again, major online retailers have considerable negotiating clout and no doubt, negotiations for 2015 package shipping contracts will be lively.  However, smaller online and other B2B and B2C providers will bear the brunt of the implications of dimensional pricing. 

For our consumer focused readers, the implication is that online free shipping may well become a practice of the past.

Bob Ferrari


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