Supply Chain Matters has been attending the Oracle Modern Supply Chain Experience conference being held in San Jose California and drawing over 2800 attendees.
In our Part One posting, we provided some highlights from the first’s day’s keynotes.
In this particular posting, we wanted to highlight for readers, Oracle’s evolving efforts to develop a Cloud-based application dedicated to supporting a firm’s Sales and Operations Planning (S&OP) and Integrated Business Planning (IBP) processes which remain challenging areas for many companies, particularly in the current highly uncertain multi-industry business environments.
Candidly, Oracle itself has been somewhat of a laggard in developing a fully Cloud-based application to support these processes. Multiple best-of-breed supply chain planning technology providers have come to market with dedicated S&OP/IBP applications that are either behind-the-firewall or Cloud based. Similarly, other ERP providers such as SAP have announced such dedicated applications, but in the context of multi-year roadmaps of broader IBP based functionality.
After attending a particular conference session: Sales and Operations Planning Cloud: An In-Depth Look, this analyst walked away with the perception that perhaps being a laggard, can provide advantages as to what technology really needs to do to support today’s challenging needs in these process areas.
Co-presenter’s Kevin Elder and Michael Liebson stressed to attendees that Oracle’s development to this new application was a built from the ground-up effort, designed to leverage the best of Cloud-platform technology, along with the technology best practices garnered from Oracle’s existing ASCP and Demantra software technology offerings. The primary difference stressed was that development had a clean slate in its business process architectural and functionality approach.
Included was the perspective that S&OP should be a forward-looking process (outside-in perspective) focused on execution of strategy. The process should be scenario or simulation driven, grounded with the best available analytics and market insights, with a need to support enterprise-wide, cross-functional alignment to include financial business plans and objectives.
The presenter’s stressed Oracle’s S&OP Cloud application is anchored in a collection of Align-Analyze-Act process capabilities with the goal of providing businesses “out-of-the-box” best practice capabilities in managing their alignment processes. That would include built-in support for the five broad process stages of S&OP that can be supported by advanced planning and simulation technology along with the ability to leverage enterprise-level social collaboration tools to provide a genealogy of decision-making steps among all process participants.
A demo of the application featured the various best-practice dashboards, KPI’s and reports available for each S&OP stage. Planning capabilities include the ability to plan at different product levels but the process itself is anchored in high-level product plans, with drill-downs to more detailed levels as needed by the process. Rapid, on-the-fly scenario and simulation planning capabilities are featured to support the ability to run alternative demand and/or supply plans, along with the ability to iterate needed decisions among process participants to make any given scenario plan the ability to be the new supply chain resource plan.
This author was further impressed with the interoperability capabilities of this application. That was described as tight integration with existing Oracle Planning Central, Demand Management and Supply Planning applications. In the audience Q&A, the obvious question of interoperability with non-Oracle systems was asked. The response was yes; that the application can be architected with Oracle’s other Cloud platform capabilities that integrate various existing non-Oracle enterprise applications.
The Oracle S&OP Cloud application is currently scheduled for release to customers this summer. We venture an opinion that there will be a lot of customer and market-wide interest in this particular application.
© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Today, supply chain focused B2B business network tech provider E2open formally announced that it has merged with supply chain planning and S&OP technology support provider Steelwedge. From our lens, the announcement is of little surprise and provides some interesting new dynamics in the market.
We note that the announcement is to be expected since two of our specific published 2017 Predictions for Industry and Global Supply Chains (available for complimentary downloading in our Research Center) called for either increased M&A activity or increased business intelligence investment in the B2B business network platform areas in the supply chain tech area.
Today’s announcement is of little surprise since of late, Steelwedge has by our observations and sources, been struggling to gain further market momentum in the supply chain planning area. The company clearly needed an infusion of new capital and thought leadership as well as more savvy marketing and sales execution resources. Privately-held E2open continues its track record for augmenting its B2B network capabilities for synchronizing supply chain execution with augmented advanced supply chain planning, business intelligence and simulation capabilities. Since being taken private, prior planning and business intelligence acquisitions included Icon-SCM, and Terra Technology, both smaller providers providing augmented technology to add to the E2open platform, along with broader capabilities for E2open to offer in the market particularly those related to augmented sales and operations planning (S&OP) business process support. Both providers have been prior sponsors of this blog.
There is little information in the announcement regarding how the two organizations will come together in terms of organizational teams and strategy moving forward. We expect that will change and that E2open management will reach out to the existing Steelwedge user base with some added information. Obviously, this latest acquisition is part of a broader strategy to move E2open into a more augmented capability. However, this provider has its own set of challenges in marketing and sales execution. The open question still remains as to the effectivity of current messaging to the market.
We initially advise existing Steelwedge users to take a wait and see perspective since the upsides far outweigh the downsides in terms of new capabilities. One area to really focus upon is any future impacts regarding pricing strategies along with global support. We expect some eventual fallout in staffing.
In 2017 Prediction Six, we predicted a renaissance in supply chain focused business services and technology investments, That prediction called for one or two acquisitions involving high-profile supply chain best-of-breed vendors along with a continuation of acquisitions surrounding IoT focused technologies involving existing enterprise class providers. In Prediction Seven, we called for the existence of enhanced supply chain intelligence capabilities among B2B network platform vendors paying dividends for industry supply chains. That prediction called for supply chain B2B platform providers such as E2open moving in the direction of blending supply chain wide planning and execution related transactional data with analytics, cognitive and business intelligence capture across both horizontal and vertical extended supply chain networks. Such analytics and predictive trending information would then be moved to and from various existing business application systems related to planning and customer fulfillment.
We view this latest announcement a clear reinforcement as to both predictions.
Supply Chain Matters will provide further analysis on this development once further information is available. We view this to be one of other announcements to come in the supply chain focused tech area in the months to come.
© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters© blog. All rights reserved.
Supply Chain Matters provides added insights to recent financial and operational performance reports from major companies. We reflect on Apple’s latest report of December-ending (Fiscal 2017 Q1) financial and operating results which acknowledged supply constraints as limiting even more sales growth.
Wall Street headlines were generally positive as the iconic consumer electronics provider reversed three straight quarters of declining iPhone sales. Total revenues grew 3 percent to a record $78.4 billion while net income was reported as $17.9 billion, $400 million lower than the year-earlier period. International sales accounted for 63 percent of total revenues. Total inventories grew by $580 million in the latest quarter.
Overall iPhone shipment volumes reportedly increased by 5 percent. The irony is that sales could have been higher but uncharacteristic supply chain challenges were encountered.
During the company’s management briefing, CEO Tim Cook, whose background DNA includes prior leadership of global supply chain operations acknowledged some planning and operational missteps that could have impacted additional sales. Insufficient supply impacted several product lines, including the newly announced Air Pods wireless earbuds, the iPhone 7 Plus model, and the Apple Watch. The former garnered a lot of visibility early in the quarter, delaying the actual product launch. We venture a guess that many of our readers had first-hand visibility to some of these supply issues. Cook indicated demand for the larger iPhone 7 Plus was:
“the most we’ve ever seen by far and we under-called it. We clearly missed some sales because of that”
In other words, Apple’s sales and operations planning process likely planned for higher product demand for the baseline iPhone 7. As early as October, customers placing an iPhone 7 Plus order on Apple’s website were being informed of a wait time of up to eight weeks for the device to arrive, especially for its new “Jet Black” finish. This was also the period of the spillover from Samsung’s Galaxy Note7 product recall due to battery fires, and consumers were trying to substitute their product choice for the iPhone 7 Plus model.
Further, supply chain information leaks leading up to product launch had indicated that Apple had initially planned for three model variants, the largest being a “Pro” model that would include more features and a 5.5-inch screen, offered at a higher price point to compete with Samsung’s now ill-famed and suspended Galaxy Note 7 smartphone. That was later scrapped for the two-model product strategy. and during volume build further pointed to usual volume ramp-up challenges related to new components.
Readers may also recall that a major earthquake struck Taiwan a year ago, in an area that includes major suppliers such as semiconductor fab supplier TSMC and other lower-tiered consumer electronics component providers. Throughout 2016, apple placed additional pressures on component suppliers to reduce prices to boost margins on the company’s iPhone revenues.
Upon reviewing Apple’s performance in the all-important holiday fulfillment quarter, readers can take solace in the takeaway is that even the world’s most admired, most visible, and influential supply chain is not immune to S&OP product forecasting and planning mix challenges, supply disruption and capacity constraints. Even when the CEO has first-hand supply chain leadership experience.
Apple performed well in spite of many challenges but it could have performed better.
Sales and operations planning is a continuous process of product demand and supply balance supported by the most contextual and timely decision-making. That applies to all industry supply chains including the most admired and most visible.
© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Thus far, we have posted deep-dives on the first nine of our 2017 Predictions for Industry and Global Supply Chains. We trust that our Supply Chain Matters readers are garnering insights from these prediction sand they have been helpful for setting objectives and work agendas in the coming year.
We have one prediction remaining which for this year is our final Prediction Ten, which for each year, dives into what we foresee as unique industry-specific supply chain challenges or environments for the coming year. This year’s industry-specific challenges were especially challenging in that we contemplated adding a lot of industries, more so than prior years. In the end, we will hone in on those industries that merit additional monitoring and updates in the coming months.
As Editor, I has also decided for the purposes of brevity and reader interest, to present each industry in a separate Supply Chain Matters blog posting. We will be posting these industry-specific predictions in a faster cadence.
We begin, to perhaps no one’s surprise, with the North America based Automotive sector.
Automotive Supply Chains Residing Across North America
We cite unique challenges for automotive supply chains residing across North America for two specific reasons. One relates to the ongoing industry dynamics related to accommodating product demand mix with inventory and capacity levels. The other with the potential impact of the new Trump Administration policies related to both North America and global trade that has certain automakers in the cross-hairs of direct Presidential criticism, and of U.S. Congressional efforts directed at U.S. corporate tax reform policies.
Record low gasoline prices in the first-half of the year boosted U.S. light vehicle auto sales to hit a record high of 17.6 million vehicles in 2016. That number was only slightly larger than the 17.5 million vehicles sold in 2015. Strong sales momentum in December reflecting 1.7 million vehicles sold during the last month had pushed the seasonally adjusted annual selling pace momentum to 18.4 million vehicles.
Of the total vehicles sold in the U.S. during 2016, 60 percent were classified as higher-margin light trucks. Promotional discounts heavily influenced sales of sedans and compacts, with the growth in demand for pricier pick-up trucks and SUV’s generally boosting auto maker profit margins. That helped to fund innovation efforts directed at autonomous vehicle technologies and efforts to meet stricter emission standards in future years. At the end of the year, the industry-wide average of new vehicle unsold inventories was the equivalent of three months, while the average of U.S. big-three automakers averaged upwards of 100 days of unsold inventories.
Looking to 2017, some auto dealers were uncertain if the sales momentum would last, given the current length post-recession sales cycle and the growing credit burden of U.S. and North American consumers in outstanding auto loans. Finished goods inventory levels for certain auto and truck models trended higher in the final quarter and some U.S. based OEM’s elected to curtail factory output levels and lower inventories in late December and January. Factory headcount cutbacks were further being exercised.
The challenge for automotive product management, supply chain management, sales and operations planning teams in 2017 will therefore be effectively managing model and volume mix sales and production output and overall inventory levels while maintaining or exceeding line-of-business goals related to product margins and profitability. To cite just one-example, the traditionally largest selling sedan in the U.S. market has been the Toyota Camry. As we publish this prediction in early February, Toyota reported a 25 percent decline in Camry demand while the smaller RAV 4 SUV outsold the Camry in January.
A singular planning framework can sometimes be a daunting challenge for automotive producers with independent product business groups. The problem can come-down to unaligned business processes and a lack of consistent data and information standards. In October, we featured a Supply Chain Matters commentary reporting on how Ford Motor was addressing such challenges in an effort towards a singular, global S&OP planning framework.
From the longer-term perspective, consumer affinity towards ride-sharing services, higher tech electronics and autonomous vehicle capabilities and IoT enabled vehicle services weighs heavy on future model product planning. The open question is how long will most North American consumers favor trucks and all forms of SUV’s vs more fuel-efficient smaller cars and traditional sedans. It usually comes down to the average cost of gasoline and on the continuation of promotional buying incentives. It’s a constant back and forth among product management and supply chain teams shepherded by longer-term goal setting from sales and operations planning teams.
Tesla the Disruptor
There remains the presence of industry disruptor Tesla Motors, which has successfully captured consumer brand loyalty through leveraged advanced technology in alternative energy powered vehicle models. Tesla has broken the mold in the notions of a vertically integrated supply chain, and is now, with the acquisition of Solar City, rebranding the company to be one of alternative energy. Thus, far has the bulk of its supply chain strategy anchored in the U.S. but that may have to change to accommodate two evident challenges. In order to support required broader annual global sales growth and especially for the over 300,000 booked orders for the Model 3, production volumes need to expand significantly the strategy to source and construct the huge lithium-ion gigafactory in the U.S. may well turn out to be a brilliant decision in the light of increased U.S. protectionism forces. If the U.S. Congress adopts corporate tax reform that exempts exports and taxes imports, Tesla may well find itself in a strategic advantage with other alternative energy powered vehicles who sell in the United States and globally.
Global Sourcing Dynamics
Automotive executives, both global and domestic, with U.S. and North America production and supply chain presence had their primary attention focused on incoming U.S. President Trump and his vow to stop job losses at U.S. automotive factories in favor of job gains within other countries. In January, The Wall Street Journal observed: “Few industries have spent as much time in Mr. trump’s crosshairs as the U.S. auto sector.” Trump stunningly defeated his rival by winning key U.S. Midwest states whose populations have a high dependency on automotive industry and services focused employment.
Mr. Trump’s statements on trade, border or import taxes have rattled auto executives. The President has signaled intent to re-negotiate trade policies within the existing North America Free Trade Agreement (NAFTA) and to impose added tariffs or a border tax on automotive imports from Canada, China, Mexico, and other countries. Mr. Trump specifically targeted Ford, General Motors, and Toyota for prior decisions to source new auto production manufacturing in Mexico. Auto executives have been packaging strategy announcements to invest more in U.S. based manufacturing.
The strategic stakes are high in that the entire industry has become globally integrated in production and supply chain component and finished goods flow. Mexico was especially being positioned as a North American product hub for lower margin vehicles and as a lower cost manufacturing hub for thousands of automotive component parts.
The larger concerns rest with the imposition of a border or import tax in conjunction with overall corporate tax reform. Such added costs may well tip the balance in landed costs significantly impacting existing margins and overall profitability. Imposing anywhere from a 20 percent to as much as a 40 percent tax on imports to the U.S. could force consumers to pay thousands more for new vehicles and similarly double-digit increases for auto component and aftermarket parts. Each could have a profound impact on future product demand and as we all know, it is quite difficult to predict the outcome of a political process.
As we pen our industry-specific predictions, such proposals remain a matter of speculation and a focus on intense lobbying efforts directed at the U.S. Congress. Where such efforts lead to will ebb and flow during the year, but a certainty is that automotive supply chains will have their teams quite involved in all levels of supply chain sourcing analysis and in supplier contingency planning. Supply chains that have a high product value-added profile dependency for importing component and finished goods parts into the U.S. will especially be challenged.
Further, there is the reality that automotive supply chains must continue to be globally focused to remain competitive and thus countries such as Mexico will continue to play a pivotal role in supply chain strategy. Bottom-line, the environment will be dynamic, and automotive supply chain teams will have little option but to serve as strategic advisors and counselors to line-of-business and product management teams.
This concludes our 2017 prediction related specially to automotive. In our next posting, related to Prediction Ten, we will dive into Commercial Aerospace manufacturers and respective supply chains.
Readers are reminded to review all our prior 2017 predictions postings. And a final reminder, all ten of our 2017 predictions will be available in a full research report which we expect to be available for downloading by February 10th.
© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Deep Dives on 2017 Predictions for Industry and Global Supply Chains- Prediction One: Global Economic Activity
The following Supply Chain Matters blog begins our series of deep dives into each of our previously unveiled ten 2017 Predictions for Industry and Global Supply Chains.
At the start of the New Year, our parent, the Ferrari Consulting and Research Group along with our Supply Chain Matters blog as a broadcast medium, provides a series of predictions for the coming year. These predictions are provided in the spirit of assisting industry specific and global supply chain cross-functional teams in helping to set management objectives for the year ahead. Our further goal is helping our readers and clients to prepare supply chain management and line-of-business teams in establishing impactful programs, initiatives, and educational agendas.
The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and customer service management.
In this initial drill down posting, we dive deeper into our first prediction.
2017 Prediction One- A Subdued World Economic Outlook and Heightened Political Uncertainty Will Test Industry Supply Chain Agility
There is little doubt that the year 2017 will present even more uncertainty and increased volatility for many industry supply chains. Organizations will once again need to be prepared.
Entering the new year, the picture of various indices and benchmarks at the end of 2016, shown in the accompanying chart indicate some problematic areas that include double-digit growth in general commodity and fuel costs, and continued strength of the U.S. Dollar.
By the end of 2016, political winds of change were blowing a strong gust across the global economy. Economies are entering 2017 in a year of heightened uncertainty in markets, brought about by more volatile, populist focused political environments among major developed nations including Eurozone countries and the United States. At the same time, select global-wide PMI and supply chain indices were all reflecting various signs of positive growth. The open question is whether existing global chain activity gets side railed in the coming year due to geopolitical and other economic events.
The widely unexpected election of Donald Trump as the new President of the United States is indeed sending out shockwaves around the world. The Eurozone, which was already attempting to deal with the unexpected results of Britain’s referendum vote to exit the EU (Brexit) faces yet another concern with Italy’s December vote to reject constitutional reforms, which prompted the resignation of Prime Minister Matteo Renzi. This could lead to a potential general election in 2017 that could have strong populist overtones including potential EU exit.
By late-December, the value of Euro was moving ever closer to parity with the U.S. Dollar, its lowest level since January 2003. Many analysts are predicting that in 2017, the Euro will indeed reach parity and could even drop below the value of the dollar at some point. That will add to the challenges of U.S. based companies to export products and services globally.
Also in 2017, a presidential election will occur in France with parliamentary elections scheduled for Germany and the Netherlands. With Brexit and the election of Donald Trump, fringe political parties are gaining a renewed voice, and with that, a whole lot of uncertainty relates to change in existing immigration policies, protected borders and restricted free trade policies to protect domestic employment.
This will cause industry and global supply chains to be challenged with the need for higher levels of agility in 2017. Supply chain risk factors will significantly rise across many industries and within many global regions, along with needs for educating line of business and senior executives on the supply chain implications of such risks. More informed and deeper analytical capabilities to ascertain various impacts to global component and finished goods manufacturing and supply chain sourcing will likely be an ongoing requirement and supply chain organizations who have not invested in such analysis and decision-making capabilities will be tested.
In its World Economic Outlook published in October 2016, The International Monetary Fund (IMF) cited a subdued outlook in 2017, with political tensions and an elevated policy uncertainty prevalent in the global economy. A stated common theme was the weak and precarious nature of the global recovery and consequent threats it was facing. That was before the sudden unexpected election of Donald Trump.
The October WTO forecast called for an anticipated global growth rate of 3.4 percent in 2017. The October forecast last year had called for a 3.6 percent growth level in 2016, but that was subsequently revised downward during the year to a current 2016 projected growth of 3.1 percent. Because of the ongoing uncertainty, the WTO forecasters clearly indicate that again in 2017, the potential for output setbacks are high as underscored by repeated markdowns in recent years.
Prospects were noted as differing sharply across countries and regions, with Asia in general, and India showing robust growth prospects. The 2016 growth forecast among Emerging Market and Developing Economies was projected to grow 4.6 percent. 0.4 percentage points higher than projected 2016 levels. Growth for China is 2017 was reduced to 6.2 percent vs. a 6.6 percent expected growth rate in 2016.
Growth among Advanced Economies, which includes the Eurozone, Canada, Japan, United Kingdom and the United States is forecasted to grow 1.8 percent in 2017, 0.2 percentage points higher than projected 2016 levels. While the WTO projects output in the United States to grow at an annual rate of 1.6 percent in 2017, current forecasts from economists are more optimistic, indicating a 2.4 percent growth rate reflected in increased output due to corporate tax reductions and potential added infrastructure investments.
The J.P. Morgan Global Manufacturing PMI, a composite index and recognized benchmark of global supply chain and production activity registered a value of 52.6 by the end of 2016, reflecting a surprising 1.9 percentage point increase from where this index ended in 2015, at a value of 50.7. By the end of December, global PMI indices pointed to spurred Q4 growth among developed economies such as the United States, Eurozone countries, Japan, and Taiwan. However, supply chain activity indices were generally declining among developing and low cost manufacturing regions apart from Vietnam. Currency pressures and a rather strong U.S. dollar were again having a discernable impact on output levels.
With major future trade agreements such as the Trans Pacific Partnership garnering little domestic political support in the United States and now other nations, other Asia-centric global trade initiatives will come to the forefront with China as a major influence.
As we have stated on prior annual predictions, industry and global supply chains should anticipate yet another challenging year with resiliency, adaptability, and risk mitigation as important competencies. For 2017, industry supply chains will again be called upon to help contribute to top-line revenue growth. We anticipate added pressures for cost controls and cost reductions, which will place additional pressures on capabilities. The ability to share important information and educate the business on supply chain impacts and/or risk tradeoffs will be an important differentiator.
In seeking other viewpoints regarding 2017, we had the opportunity to speak with Paul Keel, Senior Vice President of Supply Chain for 3M. His input was: “The leaders of tomorrow will be organizations that can effectively manage a bimodal supply chain.”
According to Keel, bimodal equates to continuous improvement initiatives equating to added supply-chain wide efficiencies, coupled with activities that can have direct impact to the revenue growth lever, such as supply chain segmentation, applied use of disruptive technology and continued corporate sustainability efforts. Both are not mutually exclusive and each can complement the other.
We could not agree more.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved. Content appearing on Supply Chain Matters® may not be used by any third party without written permission of the author and our parent, The Ferrari Consulting and Research Group.