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The Day of the Big Apple Product Announcements- Will the Supply Chain Deliver on High Expectations?

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In a few short hours, Apple will once again announce a new set of innovative products to the global community amid a flurry of social and business media posts, streaming commentary and headlines. Announcements are expected on the new iPhone 6 models that will include more elegant physical design, innovative materials such as sapphire-based screens, as well as new functionality. Pundits further expect the long-awaited announcement of the wearable iWatch along with a new iPad model that features a super large screen version.

As we have noted in prior Supply Chain Matters commentary, the one certain thing at the end of today is that Apple’s supply chain ecosystem remains under the gun to deliver on the collection of high expectations. There are continued reports of big bets on expected shipments to be supported for the upcoming holiday period, production yield challenges associated with last-minute design change involving the larger screen displays of the iPhone 6, as well as reports of a simultaneous and the unpredicted Q1 introduction of the rumored 12.9 inch iPad in conjunction with the announced Apple-IBM alliance focused on business applications enablement.

TechCrunch recently posted a commentary citing sources indicating that Apple is already tying up air freight capacity out of China for the forthcoming months as it floods channels with last-minute shipments, which is reportedly causing some delays for other manufacturers. Whether that’s true or not, it reflects a certain state. The scramble is in high gear and all hands are expected to be on-deck on a global-wide basis in the coming weeks awaiting input from Apple’s Sales and Operations Planning (S&OP) process.

Every year at this point, we have noted that Apple’s supply chain is about to be put to the ultimate test. Every year, the stakes seem to get higher and more complex.  Like all of our readers, we await the forthcoming chapter in this saga. Can the number one rated supply chain ecosystem repeat in meeting the high expectations and business outcomes of its demanding business partners? Will other high tech and consumer electronics supply chains feel additional impacts?

We will all know the results and the implications in Q1.

Bob Ferrari

 


Demoulas and Market Basket: An Extrordinary Retail Drama and Case Study

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With an office in the suburbs of Boston, Supply Chain Matters has observed and experienced an extraordinary event, the power of a workforce that has no real hierarchy and loyalty. Our readers residing in the United States may have already heard or read of the developments concerning Demoulas and Market Basket supermarkets within the New England region. The story has become viral. It is a chain of supermarkets with no equal.  Workers decided to express loyalty to a CEO by refusing to work until that CEO was re-instated, which turned out to be a five week long standoff. The Boston Globe described the situation (paid subscription required) as “truly a breakthrough for middle-class workers” and provides a detailed account of the event.   Demoulas

In a capsule, this was about a private company that has an ample share of family focused dysfunction that spilled over in business relationships.  It is a story of cousins, Arthur T. Demoulas (Arty T.) and Arthur S. (Arty S.) Demoulas at odds, and years of power struggles for control of the supermarket chain. Arty S. with a philosophy of seeking maximum return of profits and equity, assumed control of the Board of Directors earlier this year. Arty T., the operational CEO, who led with a philosophy that workers should be treated as true equals and share in the benefits of success with paid health benefits and profit-sharing, was removed in June.  He was admired by the employees.

Employees, not belonging to any organized labor union, with many having multiple years, some decades, of employment history began figuring what was at stake.  They surmised potential moves toward sale may have been in the works and elected to support their fired CEO by refusing to work.  Arty S. hired two new co-CEOs who asserted themselves early in the game by dismissing eight organizers of the protests. The move galvanized workers and hardened opposition. Solidarity among both workers and customers was astonishing and again, there was no organized union. The next five weeks bore witness to an extraordinary meltdown of business with revenues reported to be down nearly 90 percent. Many believed, including this author, that the situation would end badly. It was a standoff that ultimately prevailed in favor of Artie T. and his management philosophy.

We often shopped at the local Market Basket store. The prices were far below any other outlets.  We were by no means, alone. The shopper loyalty was extraordinary and became a key factor in the past five weeks of standoff. Market Basket employees often demonstrated commitment and caring for what they were hired to do.  If you did not find an item, store clerks were more than willing to search the store or seek out a manager. Store managers listened and accommodated requests; including stocking a new item if there was local demand.

From this author’s supply chain management lens, this local chain was extraordinary.  Highly competitive pricing fueled remarkable volume inventory turnover per store which translated to buying power directed at food suppliers.  At certain times, the physical volume of shoppers in the store made navigation in the aisles a challenge. It often seemed that navigating within the store was of equal peril to navigating through the parking lot. Yet, in spite of this volume, a stock-out of an individual item was not as bad as one would think.  Even more extraordinary for today’s retail culture, if you asked the store manager when an item would be back in-stock, he or she had an immediate answer.  Managers demonstrated intimate knowledge of their individual stores and were not bashful to lend a hand in bagging or at checkout aisles.

The true scope of Market Basket’s supply chain prowess actually came to be appreciated during the work stoppage.  As thousands of shoppers sought alternative competitive chains, it became apparent that many of these chains were ill-equipped and ill-staffed to accommodate shopper volume surges. Check-out lines were slow.  Stock-outs were plentiful and replenishment was painfully slow. We speculate that the reason was that other chains were regionally based retailers serviced by distribution centers located in other states. In contrast, the main distribution center for Market Basket was located in the town of Tewksbury, about a 40 minute drive north of Boston, close enough to accommodate same-day deliveries.

Centralized planners and buyers of competitive chains initially seemed not to be aware of a local condition. We speculate that replenishments were pegged to normal shopping volumes, not to the extraordinary opportunity unfolding for competitive chains.  As replenished inventory arrived, it was quickly consumed. By our observation it was near the fourth week of the Demoulas shutdown before competitors were able to muster an adequate supply response.

Now that the Market Basket crisis has been resolved, the test will be how many former loyal shoppers return.  We visited our local Market Basket on day two of the resolution.  While the store lacked a full complement of inventory, a good amount of shoppers were buying and the store was fully staffed. Once more we received multiple personal greeting from store employees, management and clerk alike: “Thanks for supporting our cause and thanks for being a loyal shopper.

How many times have you experienced that greeting in this era of online mass retailing?

Bob Ferrari

 


Contract Labor Practices Under the U.S. Regulatory Looking Glass

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Business media has been reporting on recent rulings from the U.S. National Labor Relations Board (NLRB) that has implications for hiring and labor negotiations practices related to contract workers.  Supply Chain Matters advises operations and customer fulfillment teams to stay abreast of these developments since certain rulings can have noteworthy implications for existing supply chain work practices and cost structures.

Essentially, the NLRB is re-visiting long-standing practices as to when contractual business arrangements, such as the use of supplemental contract workers render the contracting business a joint-employer of workers that are employed by the contract worker firm. An initial ruling involved global restaurant firm McDonalds and its franchisee restaurant operators, when the NLRB reviewed complaints alleging that the restaurant chain and its franchisees had violated the rights of employees who were involved in protest activities. After finding what it believed to be merit in the complaint of unfair labor practices, the NLRB ruled that McDonalds should be considered a joint employer.

A second potential ruling involves Browning-Ferris Industries of California and Leadpoint Business Services, a supplier of contract workers, which concerns a factory located in Milpitas California.  A local Teamsters labor union is arguing that as a labor union, it cannot adequately bargain over labor practices unless Browning Ferris is at the bargaining table as a joint employer. The argument is that since Browning dictates labor practices, scheduling and work duties of both permanent and temporary workers as a single unit, it is a de-factor joint employer. How the NLRB rules in this case has far broader implications for various industry supply chains and partner service firms.

With the dynamic ebb and flow of business operations today, supply chains often have to manage spikes in operational and customer fulfillment, especially in seasonal or holiday-related time periods.  A keen focus on costs has caused many production, fulfillment and logistics firms to utilize significant numbers of on-call temporary contract workers to supplement a leaner full-time, permanent workforce in such periods of work surges. Such practices have drawn protests directed at well-known brands, with protests involving two-tiered labor rates, avoidance in hiring full-time staff, or too much dependence on temporary contract labor in supporting supply chain operational needs. Supply Chain Matters has previously called attention to protest actions involving Amazon, Wal-Mart and certain third party logistics providers, to name but a few, to be placed in the public spotlight.

If the NLRB begins to consistently rule that brand owners who dictate work schedules and practices are to be considered joint-employers, the implications for supply chain flexibilities and costs can well be significant. Readers need to stay abreast of these developments and we at Supply Chain Matters will continue to provide updates as to implications.


More Straight Talk and Action Related to Developing Needed Talent

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There is no question that talent management and a shortage of critical needed skills is a fundamental challenge for manufacturing, supply chain, product management and procurement disciplines. Industry environments are changing constantly and change brings new and different needs. This challenge is consistently identified or amplified in industry forums, industry analyst quantitative surveys or roundtables. 

However, by our view, what seems to be missing from the ongoing dialogue is some straight talk regarding how to best address this challenge, especially in the light of an economy that has ample numbers of people seeking challenging and rewarding careers.

Reading the Wall Street Journal this morning, this author read the article: Just Whose Job Is It to Train Workers? (Paid subscription required or free metered view) By far, it was one of the more insightful articles that traditional business media has produced thus far concerning some root causes of current worker shortages.  This is the takeaway quote within the article: “Companies complain that they can’t find skilled hires, but they aren’t doing much to impart those skills, economists and workforce experts say. That is straight talk.

The article cites sources that indicate that today’s hiring processes take the form of a transaction matching exercise where employers expect highly skilled people to walk through the door. They are unwilling to evaluate candidates based on skill potential or invest in on-the-job training efforts.  Instead, there is a high reliance on colleges and universities, trade schools and government programs to be able to train people for desired skills. To add further credence, the WSJ cites studies including one from MIT labor economist Paul Osterman which concluded that manufacturer’s spending on training has essentially been flat for the last five years. A Deloitte research study is further cited as indicating that from 2006 to 2013, the percentage of staffers dedicated to training and development has fallen by about a half.

While Supply Chain Matters acknowledges that there are leading-edge organizations that are willing to truly invest in development of people for unique skill requirements, they are being outnumbered by those that are not so inclined. The WSJ profiles dental instruments provider Hu-Friedly which is investing in skills development. Small and mid-sized firms may not necessarily have the complete financial resources to develop people but that is where industry and government subsidized training programs can pay benefits. In April, Supply Chain Matters highlighted summary conclusions from the landmark MIT Study on Manufacturing Competitiveness that also concluded that skill shortages have more to do with training and development.

The prevailing attitude seems to be that of inventory fulfillment- there are lots of people seeking employment and we should be able to snag someone. That is not a formula for building and sustaining world-class supply chain teams. Global competitiveness not only hinges on product and service innovation, but on the collective skills and problem-solving abilities of the workforce.

The purpose of this rant is to motivate more straight talk concerning skills development. Invest in the potential of people able to perform required responsibilities. Evaluate candidates on both hard and soft skills, stop filtering on age or other criteria, and compensate people for the skills that they demonstrate as opposed to managing a cost center expense.

The time is way overdue for straight talk on skills shortages and the notion of investing in talent.  Let us all commit to stop looking at hiring statistics and more to meaningful talent development planning.

Bob Ferrari

 


A Challenging Upcoming Period in Global Transportation

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Our prior Supply Chain Matters commentary noted today’s stunning development regarding the suspension of the P3 Network among the top three global ocean container shipping lines. Procurement, logistics and transportation teams have to now place serious weight to the implications and potential scenarios of a shipping industry running out of capacity rationalization options and ripe for more consolidation.  Any additional shipping industry moves can well impact shipping assumptions related to tariffs, service levels and routes.

An additional short-term concern relates to a more near-term threat, that of a labor disruption involving 29 U.S. west coast ports over the coming weeks. Negotiations concerning nearly 20,000 dockworkers located among various West Coast ports are approaching expiration of current contract in less than two weeks and the latest reports indicate little progress being made.

While many industry observers are not expecting a prolonged disruption in port activity, these events usually reflect hard ball positioning that usually brings the parties to the brink of contract expiration and beyond.  In the past, U.S. regulatory authorities have been quick to exercise a cooling-off period, when the economic conditions warrant such actions, as is the current case.

The implication is that industry supply chains with a strong reliance on west coast ports will face a July or August period of high uncertainty as additional labor actions or potential work slowdowns continue to occur. As industry teams are fully aware, this same period represents the initial surge of container shipment movements from China and other Asian posts destined for U.S. west coast ports to fill the logistics and inventory pipeline for the upcoming seasonal U.S. holiday period occurring towards the end of the year. Transportation industry players are well aware of the implications and rest assured contingency planning is already underway.

Disruptions or slowdowns will equate to more pipeline and safety stock inventories which will all have to be adjusted and rationalized in the coming months.

While U.S. consumers are looking forward to upcoming summer vacations, picnics and celebrations, be mindful that logisticians, procurement and supply chain planning teams will be hard at work in responding to a host of challenges in global transportation movements, both short, and longer-term in scope.

Bob Ferrari


Supply Chain Matters Highlights of the Gartner Supply Chain Executive Conference- Part One

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Supply Chain Matters had the opportunity to attend the Gartner Supply Chain Executive conference held in mid-May.  As an AMR Research alumni analyst who specialized in research coverage of supply chain software and network technology, I am fully aware that the roots of this particular conference are deep, extending to the late nineties.  The conference featured many well-known and respected research analysts and its reputation was often that of “must attend” among any who either practiced supply chain leadership or provided technology and services to the supply chain community. While we have admittedly not attended this conference for the past several years, we decided at the last minute to attend this year’s conference.  Overall, the conference provided some highlights and disappointments. We walked away with impression that the conference is not what is used to be in terms of research depth, insights, and analyst personalities, although it still draws a very influential audience.

The opening keynote was a highlight since it reflected on a look back of supply chain management for the prior ten years, and Gartner’s perspective of supply chain requirements and needs for the next ten years. Acknowledged was that the span of control among industry supply chains are indeed wider and that 40 percent of senior supply chain leaders now report to their respective CEO. As we at Supply Chain Matters can certainly attest, Gartner further noted that articles about supply chains have tripled in the Wall Street Journal. That is somewhat of good news, and not so good news aspect since what happens in the supply chain more directly affects business results and overall performance.  Further noted was that the adoption of cloud-based technology within industry supply chain IT environments has increased 40 percent, which is a rather significant development when one considers that supply chain systems are often viewed as mission critical in nature and scope.

Reflecting on the next decade for supply chain management, Gartner’s viewpoint is that industry supply chains will continue to lead in the next decade. However, spaghetti-like networks with silos of conflicting goals, not aligned to singular, over-arching goal remain as an obstacle that needs to be overcome. According to Gartner, too many people are bogged down in trivial tasks. Analysts pointed to talent management as a continuing challenge and top priority for the next three years. Further noted was that universities are not keeping up with changing skill needs.  We are not completely convinced about that conclusion, but colleges and universities that specialize in supply chain management need to do a better job at overcoming cross-curriculum barriers to insure that students are prepared with broader exposures to other required skills. For technology adoption needs, Gartner cited social, mobile, cloud, advanced information analytics and the Internet of everything as the only feasible way to manage supply chains more profitably.

Tom Peters, noted author of the iconic book, In Search of Excellence provided the second day keynote, and candidly, could have well been the opening keynote because of Tom’s unique, direct communication style. He opened with the statement that “there is no more sexier profession than that of supply chain management.” He pointed to the management conundrum of “damned if you do, damned if you don’t” as especially pertinent to supply chain professionals and made reference to the “huge, huge, huge issue of supply chain network vulnerability.” Peter’s viewpoint was that supply chains are the focal point of all operations and should be more responsible for sales and marketing goal fulfillment as opposed to reducing costs. His belief is that a supply chain must have formal research and development or center of excellence group, or go home. One quote that especially caught this author’s attention related to the critical importance of managing supply chain risk: “You (the supply chain), can destroy an 80-year-old brand in a matter of a week.” Dwell on that statement the next time Finance questions the overall supply chain budget. Peter’s final words of wisdom were to de-emphasize items, trucks and planes and concentrate on big “S”, services.

Two other sessions we found to be insightful were one titled: The New Realities of Digital Manufacturing delivered by analysts Simon Jacobson and Mike Burkett, and the session: Key Findings from Gartner’s Chief Supply Chain Officer (CSCO) study also delivered by research vice-president Mike Burkett. Both sessions stressed the needs for industry supply chains to think more about product management and its integration to the new era of digital manufacturing technologies. Both the digital and physical worlds of supply chain processes are indeed on the verge of coming together. Among the key highlights of Gartner’s latest CSCO study was data reflecting that new product introduction and sustainability capabilities have been the most often added in the last three years by either direct or dotted-line reporting responsibility. According to the Gartner CSCO study, the top priorities for supply chain centers of excellence are:

  • Standardize and improve processes
  • Performance management and analytics
  • Supply chain strategy
  • Supply chain technology enablement

Yet, talent and change management appears to be lower in priority and Gartner raised the concern of why so low, since both of these competencies are required for the above to succeed. 

Another rather important takeaway from Gartner’s latest CSCO study was the survey reflecting expected levels of investment and expected benefits over the next two years. Without taking thunder away from Gartner, the important takeaway for us was that product launch and portfolio management along with supplier collaboration and flexibility are highlighted as emerging medium and top priorities for investment in the next two years.  That correlates with what we have been hearing and picking-up with our conversations with clients and readers.

In our Part Two posting, we will provide additional comments of some other highlights of the recent Gartner supply chain conference including the annual Top 25 Supply Chains announcements, along with some interesting and noteworthy presence among supply chain technology providers.

Bob Ferrari

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

 


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