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Supply Chain Matters News Capsule: August 15; Google, Airbus, Boeing, HP

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It’s the end of the calendar work and this commentary is our running news capsule of developments related to previous Supply Chain Matters posted commentaries or news developments.

In this capsule commentary, we include the following updates:

Google and Barnes and Noble Partner to Take on Amazon

Airbus Completes Test Trials of the A350

Boeing to Make Additional Cost Cuts from Defense Focused Supply Chain

Hewlett Packard Announces Smaller, Less Costly Cloud Platform

U.S. Job Openings at a Thirteen Year High

 

Google and Barnes and Noble Partner to Take on Amazon

Earlier in the week, the New York Times reported (tiered subscription) that Google and Barnes and Noble are joining forces on for fast, cheap delivery of books. According to the report, buyers in Manhattan, West Los Angeles and San Francisco Bay locales will be able to get same-day delivery of books from local Barnes and Noble retail stores via Google Shopping Express, beginning this week. The effort is billed as a competitive response to Amazon’s same-day delivery services.

Google Shopping Express already allows online shoppers to order products from 19 retailers including Costco, Walgreens, Staples and Target and secure same-day delivery. As noted in a previous Supply Chain Matters News Capsule, the Google Shopping Express strategy is to become an ally and complement a retailer’s local brick and mortar presence, relying on inventory from local retail outlets rather than the deployment of a larger network of fulfillment centers.

Airbus Completes Test Trials of the A350

Airbus completed the route-proving certification phase for operational testing of its new A350-900 model commercial; aircraft, approximately two months after completing the maiden flight of this aircraft. During this completed phase, engineers had to demonstrate to safety and regulatory agencies that the aircraft is ready for commercial service. A Vice president in charge of flight testing for Airbus declared; “The airplane is perfectly fit to go into service tomorrow.” The A350 was designed to compete against the current operational  787 Dreamliner and the 777 aircraft. Bookings for the A350 have surpassed more than 700 aircraft.

It has been noted that 7000 engineers worked on the development of the A350, with roughly half of these engineers stemming from key suppliers.  Important learnings have included the need for a singular Product Lifecycle Management (PLM) software system, creating a single electronic rendering of an aircraft that every program engineer can reference or modify when needed.

Administrative reporting to various agencies remains a milestone before this aircraft can be officially certified for commercial use.  Meanwhile, the Airbus supply chain ecosystem continues preparations and scaling to support planned production levels of 10 A350’s per month by 2018.

Boeing to Make Additional Cost Cuts from Defense Focused Supply Chain

Supply Chain Matters has posted numerous commentaries related to Boeing’s commercial aircraft focused supply chain ecosystem, faced with a dual challenge of having upwards of 8-10 years of customer order backlogs while continually being challenged to reduce costs.

Boeing’s defense businesses have a far different problem. Cutbacks in military and government spending programs have led to declining business, and a supply chain oriented to engineer-to-order specialized aircraft and spare parts. Early this week the head of Boeing’s defense, space and security business unit called for an additional $2 billion in cost cutting, two-thirds of which is being targeted among suppliers. Boeing has already cut $4 billion in spending related to its defense businesses. The unit chief called on suppliers to note efficiencies that have been gained in Boeing’s commercial aircraft programs.

 

Hewlett Packard Announces Smaller, Less Costly Cloud Platform

Hewlett Packard announced what it is communicating as a less costly cloud based IT platform under the Helion brand name.

Helion Managed Virtual Private Cloud Lean is being targeted for use by small and medium sized businesses looking to move applications development, software testing and workplace collaboration onto a Infrastructure as a Service platform. According to HP’s announcement, the new service offering can further provide services around SAP’s HANA in-memory systems.

With the new service offering, HP’s goal is to provide the same level of large enterprise services but at a lower-priced alternative. Pricing for this announced service is noted as $168 per month for a small virtual service configuration. A pilot trial service also is available for customers who want to certify an application to run in the cloud with the full support of the HP team.

U.S. Job Openings at a Thirteen Year High

Talent management, retention and skills development has been a constant theme among supply chain management forums and indeed many Supply Chain Matters commentaries. Executives and team leaders constantly lament on how difficult it is to find people with the right level of skills. Current forces of supply and demand in the U.S. labor market are not going to help in overcoming this challenge.

The number of job openings across the U.S. reached a 13-year high in June with U.S. employers announcing 4.7 million job openings. Reports indicate that employers additionally hired 4.8 million workers in June; an indication that the U.S. labor market is showing new momentum. With this increased level of hiring activity, existing workers have showed increasing willingness to seek other opportunities, given the level of new opportunities. A reported 2.53 million U.S. workers quit their jobs in June, up from 2.49 million in May.

 


Amazon Taking a Long View on India Online Market Penetration

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The Asian editions of the Wall Street Journal report (paid subscription or free metered view) that Amazon is taking a long view on the growth opportunities for online commerce in India. 

The online juggernaut is reported to be prepared to invest $2 billion in India for developing a nationwide delivery system along with technologies tailored to serve India’s consumers, most of which don’t have computers but do have mobile phones. Amazon reportedly obtains 35 percent of its current India business via mobile phones. Thousands of merchants must be trained to utilize Amazon’s web site and logistics services.

In its reporting, the WSJ notes that analysts were surprised by the large investment. India’s e-commerce market is likely to grow to more than $30 billion in next six years, much smaller than prospects in China. Once more, Amazon will have to compete with existing India based, or other foreign-based e-commerce providers.


Permanent Shifts in Consumer Shopping Trends Have Supply Chain Implications

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This author has penned a number of prior Supply Chain Matters commentaries offering evidence that fundamental structural changes related to consumer shopping habits are occurring in multiple retail sectors. Yesterday, the Wall Street Journal published a report: Shoppers Flee Physical Stores. The most important and compelling takeaway from the article was a citation of Shopper-Trak data indicating that: “physical shopper visits have fallen by 5 percent or more in every month, for the past two years.”  Further noted: “Online sales have grown more than 15% every quarter for the past two years and are having a big impact on the way many companies are looking at their brick-and-mortar stores.”

These are compelling trends that provides a ton of implications. I recently read a commentary that noted that in retail, the supply chain has moved from the back office to the online front office.

As noted by the WSJ, shoppers would rather research online than wander the aisles making impulse purchases.  Rather than physical merchandising and goods placement strategies the new emphasis is on online merchandising and social-media enabled product promotion.  Rather than networks of distribution centers and fleets supporting individual physical stores, the new emphasis will be on high-volume online fulfillment supported by combinations of fulfillment centers and multi-purpose retail outlets.

This author has argued that there are two leadership competencies that will differentiate tomorrow’s executive leaders in retail.  They are a deep understanding of social-media fueled marketing and Internet focused retailing, and a deep awareness, understanding and appreciation of end-to-end supply chain inventory deployment and fulfillment capabilities.  From our lens, recruiting for retail C-level executives has been too focused on classic merchandising, finance or traditional brand marketing. Tons of money and effort are invested in online presence and consumer intelligence without consideration for the impact on supply chain response needs.

After many months of searching, Target has announced Brain Cornell as its new CEO. The retailer elected to select an external executive candidate with experience in consumer goods supply chains including Pepsico and Tropicana, along with retail experience acquired in a stint at Wal-Mart. According to reporting by the Wall Street Journal, Cornell was an outside contender to succeed current PepsiCo CEO Indra Nooyi. Target was willing to compensate its new CEO with over $19 million in equity grants to convince him to join the retailer.

Of more interest is that Mr. Cornell should obviously understand the important contribution that supply chain will have in the new era of retailing.  Time and events will tell the next chapter for Target.

There are many other executive recruiting efforts underway among retailers including JC Penny. The time clock continues to tick and the retailers and leadership teams that internalize the permanent changes in shopping and customer fulfillment will outshine those that do not.

Bob Ferrari


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.


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