In a May 2014 Supply Chain Matters commentary, Recruiting the New Era of Retail and Online Fulfillment Leaders, this Editor made the following statement:
“In this era of online retailing and Omni-commerce, 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.”
Our commentary at that time reflected on business media reports indicating that major retailers such as JC Penny, Target and others were finding it difficult to recruit a qualified CEO.
Now, more than seven months later, it is important to reflect on what is occurring, namely that some retail industry CEO selection teams now weigh operations leadership experience over that of pure merchandizing.
In late- July, Target, for the first-time in its history, brought in former PepsiCo executive Brian Cornell as its CEO. Before accepting the Penny CEO role, Cornell had prior experience in leading PepsiCo’s Americas Food business unit and the Sam’s Club warehouse business for Wal-Mart stores. Cornell is now in the process of re-evaluating all of Target’s operations and supporting processes.
Also in late July, Tesco recruited Dave Lewis, a 28 year executive veteran of Unilever as its new CEO after first-half profit trailed the grocer’s expectations. Lewis previously led the expansion of one of Unilever’s fastest-growing businesses, and was the first outsider CEO hired by the UK retailer. Lewis’s leadership experience included the chairmanship of U.K. and Ireland business and president of the Americas operating units at Unilever. When the Chairmen of Tesco was asked why that retailer sought with Lewis, he stated:
“If you look at what Dave Lewis brings, David is absolutely the leader in brand management and brand identity, communication, customer development, customer management. Tesco is not short of retail skills.”
Last week, JC Penny finally selected its new CEO designate. In its reporting, The Wall Street Journal lead-in to the announcement noted that Penny elected to go with strength in nuts and bolts retailing rather than flashy merchandising. Former Home Depot and Target operations executive Marvin Ellison will ramp into the CEO position by August of 2015 after a several month transitional period as President. After the disastrous episode when former Apple retail executive Ron Johnson brought the retailer to near financial disaster with a $4 billion hit in revenues, Penny’s directors are opting for a longer ramp-in for its new CEO designee. Ellison will serve under the stewardship of Myron Ullman, who was brought back to save Penny in April of 2013.
Ellison’s accomplishments include 15 years at Target before joining Home Depot, where he held roles in global logistics and vice president of U.S. stores. Ellison was reported to have helped to integrate Home Depot’s e-commerce operations with brick-and-mortar stores, namely implementing the buy online and pick-up in store initiative.
Regarding the JC Penny CEO selection, the WSJ provided the following commentary:
“The appointment also reflects a broader shift in retail in which some big companies have favored detail-oriented operators over executives mainly lauded for brilliance in merchandising, as the industry faces giant new challenges in managing its supply chains and keeping customers from defecting to the web.”
Certainly, each retailer requires different leadership skills at a point in time, and operations experience may or may not be favored. However, the evidence from above indicates that for those retailers who have especially struggled with the impacts and ramifications of today’s Omni-channel retail environment and permanent structural shifts in retailing are opting for proven operations leadership.
Sales and operations, supply chain and customer fulfillment professionals in retail industry environments should take note that this now building evidence of value in operations leadership will hopefully continue for selecting next generation retail leaders.
Keep that in-mind as the next several weeks bring the usual doses of operational realities.
Supply Chain Matters has featured prior commentaries regarding the evolving digitization of manufacturing and the entry of advanced robotics to springboard the next wave of manufacturing productivity and labor cost savings, particularly in former low cost manufacturing regions. A recent perspective focused on the largest global contract manufacturer, Foxconn, collaborating with Google on advanced robotics applied to human assembly operations.
We alerted from a Twitter posting from Colin Masson of Microsoft to a report published by World Industrial Reporter regarding a recent disclosure from International Federation of Robots (IFR). That organization reports that industry investments in robotics have been on a sustained rise since 2010. While robot investments are slowing down in certain industries, others are increasing at hefty rates. IFR indicates that electrical/electronics industry investments are on the rise in applications related to retooling production processes. A more revealing statistic was that growth in the order of 21 percent is expected in China, Taiwan, South Korea and other Southeast Asia regions in 2014. Robots sales in the Americas are forecasted to grow 11 percent in that same period. Once more, IFR indicates that robot sales in the Asia/Australia region will grow 16 percent on average, per year, in the period from 2015-2017. Specifically for China, IFR predicts that 400,000 industrial robots will be installed among that country’s factories by 2017.
That is obviously a strong data point indicating that low-cost manufacturing regions are indeed looking to invest in advanced and more cost affordable robotics to leverage production operations. IFR points to the entry of new on-shore domestic suppliers to add to the competitive landscape. Readers will further note that later in the report, an auto industry robotics specialist indicates that the direct interaction between humans and robots remains in beginning stages.
Then again, with Google invested in this area, that perspective may quickly change in the coming months.
General Motors Attempts to Turn to a New Chapter of Growth, Customer Loyalty and Supply Chain Practices
The public relations teams supporting General Motors have been in high gear these past weeks for obvious reasons. Lapses in product design and quality management practices, and what has been billed by business and general mediaas the worst U.S. product safety crisis in recent memory has led to a series of product recalls among multiple GM brands involving upwards of 2.6 million vehicles.
GM desperately needs to move beyond its current state and restore confidence in its brands and in its business management model. Suppliers and partners associated with supporting this U.S. based OEM need to also move on to more collaborative and win-win relationships, but that requires a different GM perspective.
When Mary Barra was appointed CEO of General Motors, this author communicated our Supply Chain Matters elation for this announcement. Our enthusiasm came from the dual fact that not only was Barra the first senior female executive ever to lead a global automobile manufacturer, but more importantly, because her 35 year background included plant management, manufacturing, product design and development leadership experience. She is also an engineer by training. Barra likely understands the elements of producing high quality cars and trucks and the important contribution of the GM supply chain ecosystem in achieving that goal.
If readers want to gain a candid perspective on Mary Barra’s current challenges in transforming GM, we recommend the recently published Time article, Mary Barra’s Bumpy Ride at the Wheel of GM. Author Rana Foroohar pens an insightful perspective on Barra’s management style and her efforts to change a rather in-bred corporate culture built around functional fiefdoms and little accountability. She describes Barra as the consummate “outsider-insider” with a far different style from most of her CEO predecessors. She has been put in charge to become the change agent and apparently has the support of many of GM’s employees in that task. In our previous commentary in December 2013, we called attention to the Wall Street Journal characterizing Barra as “having a reputation for speaking her mind, a trait that hasn’t always been appreciated in GM’s executive suite.”
This week, business and general media are featuring reports of GM’s latest earnings announcement. The WSJ reported that after nine months, Barra wants to switch gears towards a multi-year strategy to deliver increased revenues and profits while restoring consumer trust. She explained to a group of GM’s top 300 executives that the company must do what it takes to be the “world’s most valued automotive company”. The going forward strategy leans heavily on reliance on planned new models expected to come to market, many of which were shepherded under the leadership of Barra when she previously led new product development. A goal is to have 47 percent of global sales to be fueled by these new models by 2019. It further includes market expansion and growth within China through investing in five additional auto assembly plants and he introduction of nine new Cadillac models in that country.
GM will further focus on the broader supply chain’s contribution to its renewed business goals.
According to a recent WSJ report, there is an internal belief that GM pays more than its competitors for materials and technology because the company bases parts purchases on unrealistically high forecasts that burden suppliers with high fixed costs when ultimate demand falls short. Our community is more blunt in such an explanation: it is lousy forecasting predicated on achieving functional stovepiped goals. The WSJ quotes some analysts as indicating that the automaker could save upwards of $1 billion a year with smarter purchasing practices, which as we know, is a typical Wall Street short-term perspective these days. Squeeze those suppliers!
GM’s existing product development chief, Mark Reuss, actually met with executives representing 700 suppliers indicating that the company is ready to share more financial risks if sales projections are high. At that same meeting, GM’s purchasing boss, Grace Lieblein indicated that the supplier base will likely need to add capacity to support growth plans. In a Detroit Free Press published report, she is quoted as stating: “we just have to be cautious and strategic about how we add that capacity and not move too fast.” Lieblein further communicated that an important strategy is convincing suppliers to locate closer to GM assembly plants to reduce transportation costs.
Obviously that’s a tall order for suppliers since transportation cost savings do not necessarily weight themselves to the benefit of the supplier. Adding production capacity to support additional volume and spreading that capacity further across the globe requires a significant financial investment. Add some history of throwing suppliers “under the bus” when quality plans go south because of component design flaws, well, you get the picture of legacy trust.
The new era of GM obviously requires what Barra has described as bold thinking and leadership. What this author was hoping to read is that goal of GM’s supply chain going forward is to support continued product innovation while controlling costs and accelerating productivity. Perhaps that will be articulated in the coming months.
It is this author’s view that such thinking can benefit by a broader and deeper perspective by GM’s executive leaders on how more modernized supply chain business practices, new product introduction (NPI) practices incorporated to supply chain impacts, more collaborative based inventory and supply chain planning practices have led to benefits among other industries as well as other automotive OEM’s. Today’s supply chain and B2B business network technology capabilities can further link the global end-to-end supply chain with more granular levels of planning and supply chain execution synchronization.
The business practices and enabling technology are available but it requires a good dose of change management infusion before real benefits can flow. We trust GM will hence forth nurture the leadership to set such perspectives.
© 2014 The Ferrari Consulting and Research Group LLC and Supply Chain Matters. All rights reserved.
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.
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.
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?
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.