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SAP Supplier InfoNet- An Impressive Application with Lots of Potential to Mitigate Supply Chain Risk

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This posting is an update to our previous Supply Chain Matters commentary regarding Ariba, an SAP Company and its announced availability of a new application targeted for supply chain risk management.  As we indicated in that original posting, Supply Chain Matters does not elect to echo technology vendor announcements unless we believe it should capture the attention of our readers, and we get the opportunity to drill down on the specifics and functionality. Ariba teamed up with SAP Supplier InfoNet, an internal incubation business unit to provide availability of this cloud-based application. We have since received a detailed briefing on the functionality of this application, and candidly, we were impressed, for a number of reasons.

First, the application itself is not solely targeted to just a sourcing and procurement user base, but other cross-functional users that have responsibility related to broad-based supply chain disruption and risk mitigation. Supply Chain Matters has always advocated that supply chain risk mitigation cannot solely be owned by an individual function such as procurement, but rather cross-functional or cross-business leadership and accountability. SAP Senior Vice president David Charpie who provided our briefing, indicated that this application’s focus includes Director and C-level as well as cross-functional supply chain and operations management users. Bravo for that decision.

Charpie’s prior background was with supply intelligence vendor Open Ratings, and SAP Supplier InfoNet takes that application to much broader and deeper capabilities. After its internal development within SAP, the decision was made to re-cast Supplier InfoNet on the Ariba B2B platform, powered by the SAP HANA database. While this transition is still a work-in-progress, by our lens, there is powerful potential for the ability to gather early-warning and insights on pending and actual supply chain disruption.

What especially stood out for us was:

  • A stated ability to provide multi-tier value-chain information visibility and insights. When fully married to the Ariba B2B network, that could prove powerful. When integrated with supply chain response management and planning information, it could provide even more noteworthy potential to manage and respond to major supply disruption.
  • Support to allow users to capture many forms of structured and unstructured information to develop a risk profiles among key suppliers. It includes language processing, text analysis as well as social and community-based intelligence capabilities.
  • A user-friendly interface that appeared to be rather intuitive with abundant visualization, data summation and heat mapping techniques.
  • The ability to currently capture upwards of 160,000 external data sources including industry, government, third-party and other sources.  Data can be time and/or supplier weighted.  The application supports pre-screening of data and the ability to gather a lot of hidden supplier intelligence, more than a single individual could capture in a normal work week. We even joked that in order to maintain this blog for our readers, this application would quadruple our productivity. Supplier InfoNet can even tap postings of Supply Chain Matters related to risk events.
  • A Facebook like data model with the ability of firms to control what data actually gets displaced, along with community management of this data, which could prove beneficial when a major supply disruption is occurring.
  • A broader definition of cross-functional performance metrics tied to financial objectives and context.
  • The ability to conduct what-if analysis. Supplier InfoNet’s leveraged use of the SAP HANA platform provides for additional capabilities for predictive analytics to be layered across these combined information streams, allowing for a form of machine learning relative to patterns of information that would correlate with expected outcomes
  • Configuration for industry-specific requirements with eight industry sectors already configured or in-process and SAP Supplier InfoNet is initially targeted to industries with a complex manufacturing and value-chain profiles.

The issue of pricing of the application is not as clear, and as we suspected, customers will have to sign-up for a separate subscription to utilize SAP Supplier InfoNet. We were not provided pricing specifics other than the subscription model may be predicated on the size of the network. We are certainly interested in hearing from SAP and Ariba customers on their impressions of pricing. We will continue to seek out that information since that may be the Achilles heel to wide-scale adoption.

An open question is obviously how timely all of the functionality of SAP Supplier InfoNet can be eventually incorporated within and on the Ariba Network along with a critical mass of industry-specific supply and value-chain intelligence that firms are willing to share.

Bottom-line- SAP Supplier InfoNet on the Ariba B2B Network has tremendous potential for customers and prospects in the ability to provide early-warning to major supply disruption, to manage all pertinent information when that disruption occurs and to provide more predictive capabilities in supply chain risk mitigation. Let us hope that the SAP bureaucracy does not stymie that attractiveness with elongated milestones and unattractive pricing.

Bob Ferrari

© 2014, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog, All Rights Reserved


Reports of Suitors for IBM’s Semiconductor Operations

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The Wall Street Journal is citing familiar sources (paid subscription)  as indicating that Globalfoundaries Inc. has emerged as the leading candidate to potentially acquire IBM’s semiconductor production operations unit. The WSJ reports that other interested candidates were Intel and TSMC, but the latter has apparently dropped out of ongoing talks because its primary interest was in IBM’s semiconductor R&D capabilities. The publication further reports that a deal is not imminent because it involves thorny issues including total asking price as well as intellectual property (IP) protection and long-term supply agreements with IBM for future semiconductor needs.

For the supply chain and B2B community, this move, if consummated, obviously represents a significant  strategic  shift for IBM. After the now pending sale of its low-end x86 server based operations to Lenovo, a sale of the semiconductor operations would position IBM in essentially a totally outsourced supply chain footprint while retaining  product design. That may afford IBM greater flexibilities in sourcing of supply agreements or in accelerating product innovation across global market segments. Then again, it may springboard IBM’s ongoing shift into broader information technology , cloud computing and services segments.

This will be an interesting ongoing development worthy of community observation.


Boeing Announces Q1 Delivery Performance for Commercial Aircraft: The Good and Not So Good News

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Boeing has announced the results of new commercial aircraft delivered in the first quarter, declaring the deliveries rose 18 percent from year earlier results. That headline seems to be somewhat of a misnomer.

First quarter 2014 deliveries included 161 commercial aircraft compared with 137 in Q1 of 2013.  The misnomer is that all operational and in production 787 aircraft were in a grounded condition a year ago pending FAA investigation of suspected lithium ion battery fires, thus a comparison to last year’s Q1 has little meaning. Boeing re-started 787 deliveries in early May of last year. 

Boeing delivered 18 new 787’s in Q1, a shortfall of the company’s planned 10 aircraft per month goal. That compares to 25 new 787’s delivered in Q4 and a continued sign of production and other supply-chain problems associated with the Dreamliner. On the positive side, Boeing delivered an incredible 115 new Next Generation 737 aircraft in Q1.

Supply chain glitches or issues involving the 787 have been ongoing. In early March, there were reports that inspections were being conducted for suspected hairline cracks on 43 yet to be delivered Dreamliner’s because of potential flaws in a manufacturing process concerning supplier Mitsubishi Heavy Industries. In late March, the FAA issued its fourth airworthiness directive involving the 787-8 model, ordering an immediate fix to aircraft containing certain General Electric power plants where a suspected software glitch could cause the engine to lose thrust when close to landing. There have been other reports indicating that Boeing has experienced some difficulties in ramping-up overall production volumes at its Charleston South Carolina final assembly facility, prompting a hiring surge to augment the existing workforce there.

Currently operational 787’s with GE engines are cautioned not to fly through severe thunderstorms after reports of some ice build-up incidents. In early February there was a report that Boeing was continuing to pressure suppliers for cost concessions and one major supplier, Sprit Aero Systems reported significant pretax charges for the final three months of 2013, including $385 million directly related to work performed on the 787.

Boeing’s stated goal for 2014 is to deliver 110 long overdue Dreamliner’s to airline and leasing companies, roughly 27-28 per quarter. Q1 was obviously not what the 787 supply chain ecosystem wanted in performance and bar has risen for Q2 and the remainder of the year.

In an era of high customer expectations and pay for operational performance, Boeing needs to quickly shift its 787 supply chain objectives from cost control to achieving and maintaining reliable delivery and operational performance for airline customers.


Further Announcements in Item-Level Printed Sensor Technology

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In October of 2013 Supply Chain Matters introduced our readers to the first signs of advances in item-tracking technology that being a stand-alone sensor in printed electronics.  We called attention to  Thin-Film-Electronics-ASA-Temperature-Sensor-Printed-Electronics-Display-Transistor-Memory-200x140Norwegian based Thinfilm Electronics ASA which announced that it had successfully demonstrated a fully functional stand-alone, Smart Sensor label built from printed and organic electronics with low power. We further noted that the announcement pointed to the ability to track and monitor temperature and environment for logistical needs in pharmaceutical supply chains as well as the ability of retailers to have insight on both the temperature, shelf-life and food safety of perishable products.

We have now received word of two other strategic partnership announcements involving Thinfilm’ s product development plans. One announcement outlines a partnership with Temptime, a significant provider of cold-chain related, time-temperature indicators to the healthcare and pharmaceutical industry. Currently, Temptime claims to produce the only temperature sensor for item-level vaccine monitoring that is approved by the World Health Organization (WHO) and the United Nations Children’s Fund (UNICEF). According to the announcement, both companies will collaborate to develop indicators featuring electronic technology that will alert people through digital display if medical or pharmaceutical products have been exposed to potentially damaging temperatures. Terms of this deal include a development-related investment from Temptime and commercial pre-orders for samples that can be shared with customers. While the press release notes that the timing is still to be determined, we believe that samples may well be developed in months.

Another announcement calls for a distribution agreement with PakSense, Inc. in the development of intelligent sensing products specifically designed to monitor perishable goods. PakSense currently provides numerous major food retailers and suppliers with solutions to help monitor the condition of perishable goods. Terms of this agreement authorize PakSense to distribute Thinfilm Smart Labels™ to food suppliers and retailers of produce, meat and seafood in North and South America. In addition, PakSense has submitted pre-orders for the labels, which are targeted for delivery to lead customers in early 2015. The Thinfilm printed electronic labels will indicate if certain temperature ranges have been exceeded, allowing added visibility into temperature variations that may exist within a shipment and will complement PakSense time and temperature monitors. Further indicated is that the ultra-low cost associated with the printed electronics process will now make it possible for PakSense customers to use multiple Thinfilm labels in a shipment at the “item” and “pallet” level. In addition to ThinFilm technology, key components of these smart labels will be provided by several other partners including PST and Acreo.

One of our predictions for 2014 was that the “Internet of Things” will accelerate in momentum, particularly in applications related to broader supply chain visibility. Smart, item-level labels that alert to environmental and other real-time conditions certainly falls under this category and the above announcements point to some exciting potentials in the not too distant future.

Bob Ferrari


Two Contrasts in Contract Manufacturing Direction for Apple Suppliers

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Supply Chain Matters has featured a number of commentaries regarding the challenges for being selected as a key component or contract manufacturing supplier to Apple.  On the one hand, the designation for being a key supplier in the Apple value chain can lead to enormous revenue potential and scale along with providing much cache for landing additional industry business.  On the other hand, Apple aggressive product margin   Apple Logogoals   coupled with steep and constantly changing production volume ramp-up or ramp-down requirements can challenge any supplier organization.  Apple sets high expectations and expects total responsiveness and virtual flexibility from its key suppliers, especially those residing in lower-cost manufacturing regions such as China.

The past two weeks have provided two interesting contrasts in terms of strategy and financial results among two of Apple’s key contract manufacturers. 

In May of 2013, Supply Chain Matters reinforced and amplified the observation that Apple had begun to actively pursue its own supply chain risk mitigation and supply chain segmentation plan by electing to dual source some of its contract manufacturing needs with the use of Pegatron, one of Taiwan’s largest contract and original equipment manufacturers, in addition to longstanding CMS provider, Foxconn. We cited a Wall Street Journal report indicating that Pegatron was willing to accept thinner profit margins in courting Apple’s massive business.

However, Pegatron was put to the test with last year’s massive pre-holiday production ramp-ups and ramp-downs to support the changing volume production requirements of the new iPhone 5c and iPhone Mini.  The market reception for iPhone 5c was not as originally planned, prompting Apple to cut-back on original pre-holiday production forecasts. The iPad Mini however, experienced high consumer acceptance. Pegatron had other challenges and there were reports indicating the alleged use of underage workers in some of this company’s factories in China, along with allegations from China Labor Watch related to excessive working hours and challenging working conditions. At the time, China Labor Watch alleged that worker conditions at Pegatron factories were worse than those of previous Foxconn conditions.

Last week Pegatron reported fiscal fourth quarter results and posted a 22 percent jump in net profits even though its overall revenues fell slightly from year ago results.  Revenues derived from the manufacturing of communications products, gaming consoles, smartphones and tablet computers rose 20 percent while those associated with PC’s and consumer products including televisions, declined.  In its latest reporting regarding Pegatron’s earnings, the WSJ cites a KGI Securities analyst as indicating that Apple now represents upwards of 40 percent of this company’s revenues, which is significant considering the brief history of relationship.  Further cited was that initially low yield rates in producing Apple’s products have now improved.  Operating margin improved to 1.9 percent from a previous 1.6 percent, but how many firms can sustain at such a low margin?  Once more, without any planned launches of new Apple products in the first-half of 2014, Pegatron is forecasting that shipments of smartphones, tablets and game consoles will likely decline in a range between 15 and 20 percent in the current first quarter.

The parent of Apple’s other longstanding prime contract manufacturer Foxconn, which is Hon Hai Precision Industry, last week reported that its profits rose 13 percent, boosted by increases in iPhone and iPad sales. Total revenues increased slightly to 3.95 trillion new Taiwan dollars. It is estimated that Hon Hai garners more than 40 percent of its revenues from its various supply relationships with Apple. 

However, this company continues to exercise a broader diversification strategy as revenues and margins derived from contract manufacturing continue to decline.  In a Supply Chain Matters posting in July 2013, we observed that Foxconn continues in its process for diversifying by moving downstream and upstream in the consumer electronics value-stream, possibly resulting in some Foxconn branded consumer electronics devices.

Last week, Hon Hai announced investments  of $90 million in various strategic manufacturing related projects with a focus toward higher value chain activities along with advanced automation.  These investments include $42 million to establish a trading and manufacturing unit for China based components, $30 million in a new software development unit and $15 million in a robot manufacturing and sales unit. In early February, Supply Chain Matters commented on Foxconn’s current collaboration with Google in the area of advanced robotics.

Foxconn is once again shifting some of its manufacturing presence into lower-cost, more interior regions of China. According to a WSJ report, facilities will be built in the central and western provinces of Chengdu, Wuhan and Zhengzhou where direct labor rates are as much as two-thirds less than those in the coastal regions.

Wall Street and business media has increasingly been skeptical of Apple amid stronger competition in smartphones, tablets and other consumer electronics devices. Doubt has been raised as to whether Apple has lost its mojo in product innovation cycles.  In exercising a supply diversification and segmentation strategy among its contract manufacturing supply base, other dynamics are underway. While Pegatron has pinned its fortunes on Apple to offset other areas of declining business,  Hon Hai is exercising a broader diversification strategy that will likely lessen its dependence on Apple.  How both fare in these different strategies will be certainly worth observing in the coming months.

Bob Ferrari

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

 


BMW Announces Significant Investment in U.S. Manufacturing

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Two of the most strategic markets for global automotive supply chains are that of China and the United States. That is especially pertinent in the premium model segment.

Thus, it was rather noteworthy that last week, German premium auto maker BMW AG announced plans to invest a $1 billion dollars to expand its existing sports utility production facility located near Spartanburg South Carolina.  This plant currently produces all of BMW’s X3, X4, X5, and X6 sports utility models for global market needs and serves as the global competency center for BMW SUV’s.  BMW had previously invested upwards of $900 million in Spartanburg.

When completed by 2016, this additional investment will make the U.S. based Spartanburg facility, BMW’s only manufacturing presence in the United States, the largest manufacturing plant for BMW globally, a significant milestone for a German based OEM. The added investment calls for increasing the production capacity of this facility by 50 percent to 450,000 vehicles.  This expansion is further expected to add several hundred new jobs, making this facility one of the largest auto plants in the United States. The Wall Street Journal cites familiar sources as indicating that plans call for construction of a third body shop that would help produce the new X7 sport utility vehicle.

According to a published Bloomberg report, Audi, BMW and Mercedes-Benz are each planning at least a fourth consecutive record of volume deliveries in China and the U.S. as the European market continues to be weak. Demand for SUV’s continues to outpace other models.

Separately, Daimler AG, the parent of Mercedes-Benz announced plans to invest upwards of $1 billion to double capacity at its Beijing production facility, to increase capacity to 200,00 units by 2015. Mercedes currently produces SUV’s at its plant in Tuscaloosa, Alabama with plans to incorporate production of it C-Class sedan in June of this year. Mercedes CEO Dieter Zetsche further indicated that his company may set-up a new plant in North America to add more capacity.

Audi, a division of Volkswagen, is constructing a $1.3 billion factory in San Jose Chiapa, Mexico that includes plans to produce the Audi Q5 SUV in 2016.

One of our Predictions for 2014 (available for complimentary download in our Research Center), called for continued momentum in the resurgence of U.S. and North America based manufacturing. In the case of the premium automobile market, a favorable exchange rate, a lower-cost labor environment and a more productive workforce are all favorable trends that adding to these significant new investments.


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