Wall Street financial analysts and commentators were quick to pounce on Amazon’s recent quarterly earnings announcement.  In the latest quarter (Q4-2011) that included the 2011 holiday buying season, Amazon revenues grew 35 percent, but income was down 57 percent.  Wall Street was very disappointed. Not only were Street analysts anticipating more revenue growth, they have been savage in questioning Amazon’s increased spending and margin erosion.  During the recent quarter, operating expenses were up 38 percent which surpassed quarterly revenue growth.

The other continual topic of speculation revolves around how many Kindle tablets did Amazon really sell during the holiday season.  Supply Chain Matters is just as guilty as others in speculating on the fulfillment wars of Kindle vs. the Barnes and Noble Nook reader, and of course, the largest shadow, Apple’s iPad.  For its part, Amazon remains rather coy in providing very general statements regarding Kindle sales.  The online retailer was quick to point out that Kindle was, by far, the best-selling Amazon holiday product in both the U.S. and Europe. Then again, Amazon visitors were bombarded with constant reminders about Kindle.  While some industry observers and influencers speculate that Kindle sales may have topped six million, the final authority will be Amazon itself.

We all know that Wall Street’s lens on strategy to results centers on the next 90 days vs. a longer-term perspective of market influence.  If all the doom and gloom were taken literally, a short-term investor would have the impression that Amazon executives are spending for the sake of spending.  History, however, provides a far more long term strategy being deployed.

Like the Cheshire Cat, Amazon has a far broader strategy at play and retailers and other online providers had better be paying attention since Amazon is often characterized as the most competitive company ever built.  According to Morgan Stanley: “Amazon is the Wal-Mart of our era but it’s better, in our view — Amazon.com is the combination of technology + logistics company, allowing it to participate in a transition of physical to digital retail supported by store-less (in Seattle) business model that leads to higher long-term economic returns.”

What should concern all is where Amazon is investing.  The latest earnings briefings indicate that Amazon continues to invest heavily in global based sales fulfillment centers.  The online provider has plans to deploy an additional 17 centers on top of the over 40 global fulfillment centers already in-place.  Headcount has increased 67 percent from a year earlier, and Amazon reports that the majority of people investment is in operations and customer support areas. Add physical distribution and logistics to a virtual network of incredible online IT, cloud and customer intelligence data infrastructure, and the evolving business model becomes clear.

While some retailers and online providers elect to outsource physical fulfillment, technology and services under a strategy of lowest-cost provider, Amazon blends strategies and technological capabilities together as an unstoppable force in physical and digital based fulfillment of customer needs.  While some retailers such as Target are becoming more aggressive in product and price differentiation, Amazon can have the ability to leverage each of its tools and capabilities to always be the lowest-cost alternative.

Supply chain senior managers and strategists should heed the long-term game plan of Amazon rather than Wall Street’s convenient short-term outlook.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and Supply Chain Matters, All rights reserved.

We provide our first update to our early November commentary reflecting on the holiday fueled fulfillment battle of Amazon’s Kindle Fire vs. the Barnes and Noble Nook Color.  Both e-readers were expected to be one of the hottest selling gift items for the 2011 holiday season, and indeed they were. While both providers appeared to rise to the challenge of supporting consumer fulfillment needs, each ran into some difficulties. Overall, it appears that Amazon has initially risen to the challenge.

Visibility to these two e-reader offerings stems from the acceptance by consumers of an alternative to Apple’s highly popular, but more expensive iPad E-reader. The battle of e-reader market presence is a high stakes one and includes the broader implication of a mass of installed devices that become conduits for very profitable content sales for years to come.  Thus, the supply chain strategy is one of supporting volume, and as pointed out in our initial commentary, sacrificing some margin on hardware for the broader implication of future recurring sales of electronic content.

For its part, Amazon was not shy in hyping the success of the Kindle during the holidays. While not disclosing a specific number, Amazon did disclose that customers purchased well over one million Kindle devices per week with all three members of the Kindle e-reader family holding the top three slots on the Amazon.com best seller list. The Kindle Fire was noted as the number one best-selling, most gifted and most wished product on Amazon, since its introduction just before the holidays.  You gotta just love the power of web analytics!  As to the strategy of leveraged content sales, Amazon reports that Christmas Day was the biggest day ever for Kindle book downloads.

All is not completely rosy and as is the case with new products that may have been rushed to market, there are reports of some quality problems among early Kindle Fire users. A New York Times article published in mid-December(paid subscription or free metered view) notes customer complaints related to lack of external controls, other than the on-off button, web pages that are slow to populate along with concerns for overall security and parental  controls.  A similar mid-December commentary published in the International Business Times notes the top ten problems concerning the Fire, again reinforcing these same issues.  The Mobile Gadgeteer featured on ZD Net recently notes a more troubling problem related to random freeze-ups of the device with the need for a hard re-boot that can cause the loss of some existing content.

For its part, Amazon is demonstrating a proactive response to customer feedback and concerns offering lots of helpful hints or advice for remediation.  There is also speculation that Amazon will provide some form of an upgrade in the early spring.

Today, Barnes and Noble announced that Nook sales surged 70 percent during the holiday season with better than expected sales of the Nook Tablet as well as associated electronic content. However,  a breaking news article published by the Wall Street Journal (paid subscription or free metered view) quotes B&N as noting that it had “overanticipated the growth in consumer demand for single purpose black and white reading devices this holiday” and incurred significant expenses in advertising and promotional support. In our minds, that translates to significant missed forecast of anticipated demand. Once more, B&N disclosed that it is exploring options to separate its Nook business with strategic partners.

There will certainly be more detailed information over the coming weeks including news from Apple on holiday sales related to holiday sales of the iPad.  In its quest to provide a lower cost, reasonably featured e-reader, Amazon may well encounter more consumer feedback in the coming weeks.

From the information thus far, it would appear that the fulfillment battle of Kindle vs. Nook is leaning more toward the former in terms of order volume penetration and supply chain responsiveness during this past holiday season. Supply Chain Matters will feature more follow-up commentary in the coming weeks.

Bob Ferrari

© 2012 The Ferrari Consulting and Research Group LLC and Supply Chain Matters.  All rights reserved.

In late November this author penned a guest commentary on the Infosys Supply Chain Management blog that outlined our belief that retailers should anticipate different supply chain fulfillment capabilities for the upcoming 2011 holiday buying season.

Because of the reality of a rather challenging year of supply chain disruptions in 2011, we warned on the possibility of retailers not having the most popular and desired products the consumer wanted because suppliers would fall short of meeting holiday demand spikes.  We just posted an updated guest commentary, The Real Headline for the 2011 Holiday Buying Season- Need for Balancing Retailer Online and Fulfillment Process Investments, noting that initial evidence thus far, particularly what occurred at Best Buy again drive home the premise that investments in multi-channel operations (MCO )and responsive supply chain inventory management are often the best complement to effective multi-channel and online commerce plans.

Please share your own comments and observations on the Infosys Supply Chain Management blog..

Bob Ferrari

Disclosure: Infosys Limited is one of other named sponsors of this blog.

This continues our series of commentaries outlining our 2012 Predictions for Global Supply Chains. These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, and in helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the New Year.

Readers are welcomed to review our previous series of postings.  These include:

The full listing of 2012 predictions

Predictions One and Two.

Prediction Three

Prediction Four

Predictions Five and Six

Prediction Seven: Expect additional M&A and strategic partnership activity among supply chain technology, consulting services and ERP providers as vendors shore-up application areas with the best prospects for sustained future growth.

This is the natural follow-on to predictions five and six.  As concepts of supply chain control tower, more leveraged deployment of predictive analytics, multi-channel supply chain operations management and cloud computing options gain more traction and interest among technology buyers, the vendor community will make additional market moves either in acquisition or strategic partnerships to shore-up overall product offerings for buyers.

While we predicted high activity in 2011 which do not come to pass, we believe that 2012 will provide more motivation, namely because overall spending on software is predicted to decrease in 2012. This makes any path to growth dependent on a keen focus on near-term customer buying needs, quickly filling gaps in technology offerings or gaining market growth by outright acquisition.

Supply Chain Matters believes that two smaller vendors in the planning area, and perhaps one or two vendors in the B2B procurement area are likely targets in 2012 from multiple larger acquirers and we will anticipate, as our readers, on what actually transpires.

We expect more acquisition efforts by the major ERP, B2B cloud services and procurement technology providers, and do not be surprised if some leading vendors in these new adoption areas get acquired by larger players. Some targets will be acquired with high multiples to prevent competitors from scooping them up.

B2B commerce and collaborative planning and execution networks will most likely be the hottest area for deals and shifting of players and anticipate more announcements as big players IBM, Salesforce, Amazon, Google and  possibly Microsoft square-off and bankroll for control of online commerce infrastructure and business process control.  Similarly, SAP and Oracle will continue to fill-in advanced supply chain technology software gaps, particularly in cloud and control tower areas.

Prediction Eight: The challenges related to higher incidents of counterfeit products, cargo theft and other unscrupulous activities within and across global supply chains will finally motivate government and industry to step-up process standards and corrective mitigation efforts.

This collective area has been percolating for many years and we anticipate that 2012 will be the year when government and industry finally become motivated to take action to address the growing incidents of non-conforming materials that have penetrated multi-industry global supply chains.

In the U.S., legislative leaders and industry groups have become much more alarmed with the existence of counterfeit electronic parts penetrating defense and industry oriented supply chains, much of which is alleged to be originating from China and other countries.   The U.S. government has already discovered 1800 cases of suspect counterfeit electronics being sold to the U.S. Defense Department from commercial and military suppliers.  The Semiconductor Industry Association testified that U.S. semiconductor companies face more than $7.5 billion in costs related to counterfeit parts each year as non-conforming electronic microelectronics are being embedded in automotive, aerospace, communications, medical device, and other industry supply chains.

In our industry-related prediction pertaining to Pharmaceutical and Healthcare, we noted that increased shortages of drugs has led to more unscrupulous and criminal behavior relative to grey market supply, cargo theft and prescription drug abuse.  Increased outsourcing of production to global contract manufacturers and API providers adds to the problem.

Regarding cargo theft, brazen criminals have stepped up their sophistication of methods in stealing whole cargo shipments, by utilizing active surveillance of driving patterns, GPS global tracking and other means to circumvent existing security measures.   A challenged economic environment often leads to increased criminal behavior, and in 2012, the criminals can leverage more sophisticated means and methods. Stolen cargo adds to the problem of non-conforming products.

Look for governments to increase the pressure on industry players to accelerate initiatives in authentication, tracking and genealogy of components, parts and raw materials. In the U.S., state wide initiatives and efforts were enacted to overcome lack of any concerted action by the federal government. In Pharmaceutical and healthcare, the looming deadline is the California anti-counterfeiting and diversion legislation which requires pedigree tracking.  After numerous industry lobbying efforts to postpone the implementation, the program remains target for implementation in 2015.  Serialization and authentication program mandates continue to evolve across the Eurozone countries and Brazil has called for implementation of serialization and track and trace requirements in 2012.

As the deadlines come closer, and the costs in terms of revenue, liability and implementation costs loom ever larger, we believe that industry teams will become much more actively involved in influencing some forms of global-wide process standards and inter-industry cooperation in sharing product movement information across global supply chains. We may finally have the opportunity to observe industry teams stepup efforts to actively influence global standards and enhanced mitigation initiatives in prevention as well the tracking and interception.

This concludes Part Six of our Supply Chain Matters 2012 Predictions.  In Part Seven, we will explore our Prediction Nine, our continued belief in wider-scale adoption of and leverage of in-memory computing technologies harnessed into predictive analytics and decision-making process needs.

In the meantime, readers are encouraged to share observations and added predictions from your industry and functional lenses.

Bob Ferrari

© 2011 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters, All rights reserved.

On the eve of Cyber Monday we have provided a guest blog commentary on the Infosys Supply Chain Management blog on updating how retailer multi-channel operations (MCO) capabilities will be challenged in the current 2011 holiday buying season.

We had noted previously that while overall holiday shopping sales will not increase significantly overall, the real story will be reflected on how both online and physical retailers capture the interests and buying motivations of far more tech-savvy and mobile empowered consumers. The initial indicators of retail and online activity are indeed reflecting a more empowered consumer and are testing back-end supply chain fulfillment capabilities.

Readers can view the full commentary at this link.

We at Supply Chain Matters really enjoy commenting on situations where one supply chain squares off with another in an industry competition for customer fulfillment and revenue growth.

One of the pending battles shaping up and worth a watch in the upcoming 2011 holiday buying season features the e-readers of Amazon vs. Barnes and Noble (B&N). Computer tablets and e-readers are expected to be one of the hottest selling gift items for the upcoming holidays.   A posting on Venture Beat calls attention to how the newly announced Kindle Fire will square-off with the nook color for customer mindshare and wallets in the coming weeks and how each company has timed its marketing and promotional thrusts.

High tech and consumer electronics industry observers have been noting that the Kindle Fire, which has scheduled availability for November 15^th, and the nook color, which is accepting orders today, each have the best shot at turning the war of Apple iPad vs. all-other also-ran tablet devices. The Fire is List priced at $199 USD, while the nook color lists at $249 USD. Both can provide a compelling option for consumers who desire an e-reader with some, but not all features of an iPad, but at less than half the cost. In the current challenging economic environment, that may be compelling for some consumers who want the latest cool gadget, but need to stretch the family budget for the holidays.

The open question is whether consumer demand will swamp either Amazon or B&N, and each’s supply fulfillment chain capabilities to respond to this demand.  Interesting enough however, each has chosen a different go-to-market fulfillment strategy.

In a very detailed Bloomberg Businessweek article reflecting on Amazon and the Kindle Fire, CEO Jeff Bezos readily acknowledges that $199 is an admitted price below production costs of the Fire, but the opportunity for leveraging further content revenues is much more compelling. As Businessweek notes: “The tablet (Fire) funnels users into Amazon’s meticulously constructed world of content, commerce, and cloud computing.”  A shopping app is pre-installed and sits at the bottom of the Fire’s main screen, and Amazon has built customized shopping pages specifically for the tablet.  Initially for the upcoming holiday season, consumers will only be able to acquire a Fire on Amazon, since that is where Amazon wants Fire customers to experience the complete buying experience.  Amazon has also invested significant monies in expanding its distribution center capabilities but has taken some criticism around working conditions and salary levels of distribution center workers.

B&N on the other hand is planning for a far wider channel deployment plan for the nook color. Consumers will be able to purchase a nook from multiple retail outlets. At the recent technology conference, the audience got to view some of the details of that strategy. B&N plans are to have 13,000 point-of-sale outlets, along with the B&N site, this holiday season. The company is just going live with technology that will help monitor and respond to various POS demand patterns and will leverage a sales and operations planning (S&OP) process that will likewise respond to market changes that span inbound materials through individual POS.  This initiative is bold in that not many organizations have the stomach for implementing new software technology just before the largest spike in customer fulfillment. B&N’s goals are the capability to route nook inventory to the channels experiencing the most customer volume, as well as the most up-sell.

Time will certainly tell the complete story as to which company planned for the right inventory and customer volume, and can overcome any shortages in component or finished good supply.  We certainly hope that both are successful since Apple needs some healthy competition in this area.

In the meantime, join us in observing how both companies’ supply chain teams respond to upcoming holiday demand.

Readers are also encouraged to provide feedback in the Comments section on their individual buying and delivery fulfillment experience regarding either of these new e-readers.

Bob Ferrari