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Added Information Leaks from Apple’s Supply Chain Clarify New iPhone Production Plans

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This week, there is an indication that rumors about a potential product introduction delay for the speculated Apple “iPhone8” model may be unfounded. Then again, we have seen this movie before.  Apple Logo Added Information Leaks from Apples Supply Chain Clarify New iPhone Production Plans

The statement emanates from KGI Securities analyst Ming-Chi Kuo, and amplified by a posting appearing on Apple Insider. Kuo’s supply chain monitoring has been frequently cited by Apple followers, and he is noted as being insightful in predicting Apple’s product and supply chain plans.

According to the analyst’s latest report, three iPhone models are to be announced simultaneously in September. However, the so-termed 50th Anniversary Model “iPhone8”, rumored to be priced in excess of $1000, will reportedly be in short supply at time of announcement.

According to Kuo’s estimates, the supply chain is expected to support the production of between 2 to 4 million units in the September-ending quarter, ramping-up to an estimated 45-50 million units by the end of this year. That is obviously a significant production ramp-up in a matter of three months, implying that multiple production lines will be operating around the clock pumping out these smartphones.

That notion is supported by a separate Korean media report, and cited by 9 to 5 Mac, that indicates that OLED LCD producer Samsung Electronics Samsung has been building the world’s largest OLED production plant as it chases further Apple orders. That report indicates that Samsung will by the end of this month, operationalize seven simultaneous production lines to increase capacity output to a reported 700 percent in order to support the model’s ramp-up requirements.

Earlier reports indicate that Apple is reportedly paying LG Electronics, another current LCD supplier, $2.7B for OLED production lines exclusively dedicated to iPhone screens.

Apple is one of few global manufacturers that can support the funding of such an extreme supply chain and manufacturing response.

According to the latest Apple Insider report, the other two models planned for announcement and unveiling in September, the termed “iPhone 7s” and “iPhone 7s Plus” are noted as already in volume production with three color options. The KGI Securities analyst is forecasting that planning for the 4.7 inch “iPhone7s” supports production of between 35-38 million units, and 18-20 million units for the 5.5 inch “iPhone 7s Plus” phones.

Given all of these current production forecasts, Apple product management along with Sales and Operations Planning teams are placing a special emphasis on more anticipating far higher channel and consumer demand for the higher priced “50th Anniversary” model. Recall that during last year’s holiday fulfillment quarter, Apple reported that the supply chain was supply-constrained in meeting consumer holiday orders for the iPhone 7 Plus model, which later recovered in the first-half of this year.

Again, we have seen this movie before. Apple’s marketing and PR teams are masters at creating market hype prior to new releases of iPhones. But 2017 provides a significant added challenge, promoting and managing the correct demand mix among three simultaneously released models, in addition to demand for any existing or phase-out models. Competition among other global-wide smartphone manufacturers such as China local smartphone manufacturers Oppo, Vivo, and Xiomi, along with global manufacturer Samsung which has already released its newest Galaxy 8 model that includes new OLED screen technology.

In the next several months, we all get to observe Apple’s supply chain response and agility in-action.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


More Information Disclosed Relative to Tesla’s Model 3 Ramp-Up

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This Supply Chain Matters blog is a supplemental update which adds additional information to our prior blog commentary- Tesla Conducts Model 3 Customer Handover Event.

It concerns this week’s formal briefing of Q2 2017 financial performance by Tesla’s senior management team, where more information was shared regarding the planned ramp-up of the company’s new and innovative Model 3 sedan.  Tesla model 3 side profile Sized 300x118 More Information Disclosed Relative to Teslas Model 3 Ramp Up

In our prior posting, we stated that we know less about how Tesla will manage the huge planned production and supply chain ramp-up of the Model 3. That question resonated among Wall Street equity analysts to the extent that CEO Elon Musk fielded a lot of questions related to ongoing Model 3 supply chain and manufacturing strategy.

In the briefing, Musk reiterated that when he indicated the term “manufacturing hell,” he really meant it. He further provided an explanation of the manufacturing S curve, a trend quite familiar to our manufacturing and supply chain readers, a curve that essentially depicts the series of plateau constraints that can occur with any product ramp-up. Situations such as supplier shortfalls or production machinery that does not support ramp-up volumes, for example. His message to Wall Street analysts and investors was to not fixate on individual snafu’s but on the target milestone for full production volume levels in 2018.

Nice try- Elon!  Tesla is way-too visible a company to not have multiple eyeballs focused on any snafu.

Further communicated was that Tesla has turned to its major suppliers to assist in achieving both required cash flow and product margin goals. This strategy has a way too familiar ring. However, Musk was quick to praise what he described as the “A-level” collaborative effort and expertise extended by suppliers to prepare for the ongoing production ramp-up.

Tesla has negotiated what the automaker considers better payment terms with suppliers, extending payments out to an average of 60 days. Since the Model 3 consists of less component parts, and can supposedly be manufactured faster than other prior Tesla models, such a goal is the strategy initially adapted by Dell Computer, namely to get paid by the customer before paying all suppliers for the components. Musk’s statement to analysts was on-average, the industry average combined time of production, distribution, and actual sale to end-customer averages 70-90 days. (In today’s sales environment- much higher) Since Tesla owns and controls its own distribution and customer delivery processes, the goal for the Model 3 is an order-to-cash strategy of under 60 days.

From our lens, it’s a great strategy, but as we all know, there are many moving parts to such a strategy, especially in automotive manufacturing that presents a steep production ramp-up phase. This is an area worth monitoring.

Supply Chain Scale-up

CEO Musk acknowledged that Tesla would eventually need to invest in added battery production capacity, particularly for other geographic regions. Acknowledged was the added expense for shipping batteries and completed cars across oceans to fulfill international demand. We believe that this represents a public acknowledgement that Tesla must eventually consider added manufacturing and supply chain presence beyond just the U.S. Musk communicated to equity analysts to expect some further announcements before the end of this year.

Sales Strategy

In our prior blog, we estimated the Model 3 outstanding order reservations to be in the range of 400,000 – 500,000 vehicles, which was candidly an educated guess on our part. In this week’s briefing, Musk clarified the real numbers after queering the automaker’s sales teams. Noted was 518,000 gross reservations and 450,000 existing net reservations for the Model 3 after factoring ongoing customer cancellations. Consider that number for a moment, nearly a half-million customers lined-up with money deposited to secure a Model 3. That is clearly an incredible and enviable position for any automotive or other manufacturer to be in from a customer demand perspective. In fact, Musk noted that his teams can easily drive the current Model 3 customer demand higher with little effort, but cautioned that there would be little point if actual delivery times extend for many additional months. The analogy was waiting an hour-and-a-half for a hamburger to be served. So much for quoting a 2018 delivery date on the Tesla website for new Model 3 orders.

We cannot close without highlighting what we believe was a very positive depiction of cross organizational alignment and collaborative strategy among the extended supply chain management team and senior Tesla management. It concerns the termed Model X, which is the internal depiction of the planned compact SUV iteration of the Model 3.

Musk indicated that his prior communicated goal was to unveil a totally-new architecture for this planned model. The CEO than received council from the executive team (and no doubt product engineering and supply chain focused executives) that incorporating substantial carryover platform features of the Model 3 would facilitate a lower technical and production risk with a faster time-to-market, allowing Tesla to tap a larger existing small SUV market much faster than with a complete new platform.

Musk publicly thanked his team “who reeled me back from the cliffs of insanity

 

We highlight all the above for readers to reinforce the notions that supply chain and manufacturing strategy does indeed matter in achieving desired business outcomes. In the specific case of Tesla’s Q2 briefing of financial performance, it was the essence of a briefing on detailed manufacturing and supply chain strategies. We observe much more of this occurring in financial performance briefings with every passing quarter.

Supply Chains indeed matter.

 

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


Announced Availability of Oracle SCM Cloud Release 13

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This week, Oracle announced the introduction and availability of Oracle Cloud Applications Release 13, a further effort to extend broad functionality in a public or private based Cloud platform.  Oracle logo sized 300x38 Announced Availability of Oracle SCM Cloud Release 13

As outlined in prior Supply Chain Matters blog commentaries, Oracle’s supply chain management focused development teams have established design goals to eventually provide availability of all existing on-premise SCM support application to Cloud-based offerings. The new Cloud-based offerings now being released include an emphasis on exceptional user experiences, more seamless upgrading for future Cloud application releases, and are being designed to include far more leverage of analytics, business rules orchestration and workflow management.

Within this new release are further enhancements to Oracle SCM Cloud and Oracle ERP Cloud, many of which were premiered at the Oracle Open World Conference held last fall.

Release 13 of Oracle SCM Cloud provides more than 200 added features and six added applications that now include Demand Management, Sales and Operations Planning, Supply Planning, Quality Management, and Maintenance.

The release of Oracle Demand Management Cloud builds on the capability of Oracle Demantra. In addition to the ability to Sense, Forecast, Manage and Predict supply chain product demand, Release 13 provides the availability of pre-built integration between Demand Management and other Oracle SCM Cloud applications including data related to customers, sales orders, or other master data needs. There is added support for integration of external data sources as-well.

Newly released is Oracle Sales and Operations Planning Cloud, described as a complete S&OP planning application to align organizations to an integrated operating plan and to meet strategic business goals. Oracle designed this new Cloud-based S&OP application to support the full process spectrum from detailed analysis to high-level Executive- level S&OP reporting, avoiding the need to constantly generate augmented summary reports for S&OP review meetings. What impressed this author in prior software demos was the ability and flexibility for users to configure analytics and planning dimensions in a variety of screen-based modes including planning dimensions and hierarchies, or tables for multidimensional data analysis.  Users can run quick product demand or supply simulations or compare various operating plans. This application further supports the ability to not only integrate data from internal Oracle applications but external data and application sources such as multiple ERP systems including SAP, by way of flat-files. This represents Oracle’s newest response to existing ERP and best-of-breed software providers offering dedicated S&OP support applications.

For Release 13, Oracle product management provides for the transition for Oracle Planning Central Cloud to the combination of Oracle Supply Planning Cloud and Oracle Demand Management Cloud. Existing Planning Central plans are automatically available for viewing, editing and supply planning, along with a comprehensive listing of supply planning functionality including the ability to plan for multiple customer fulfillment strategies.

Oracle Quality and Maintenance Cloud is described as supporting an end-to-end quality management system, something that Oracle has not offered previously.

Cloud ERP

Oracle ERP Cloud, is essentially a financial support platform, but further includes baseline supply chain management support capabilities including those involved in Order-to Cash and Procure-to-Pay process flows. Cloud ERP includes Oracle’s support for sourcing and procurement business process and analytics needs. As-such, ERP Cloud can be viewed as an entry-level application toward total Cloud adoption, with migration to SCM Cloud as a consequent next step. Release 13 builds on Public Cloud functionality particularly in procurement process support, adding enhanced user experience and functionality capabilities for strategic sourcing support, supplier management Coverage for manufacturing based industry is enhanced in this latest release. Supply Chain Matters will feature additional blog commentary related to the procurement support needs at a later date.

Summary Takeaway

In prior commentaries, this analyst has expressed the view that Oracle SCM Cloud represents one of the broadest, end-to-end supply chain business process and full-featured Cloud-based offerings.  Release 13 significantly adds to this dimension.

Earlier this year, Oracle indicated that over 1000 customers have already embarked on SCM Cloud adoption. We suspect that by the end of this year, and now with the availability of the assortment of new applications and added functionality in many different areas, that adoption numbers will likely be somewhat higher.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


U.S. Border Adjustment Tax Seems Off the Table But Remain Vigilant

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As we entered 2017, Prediction Four of our 2017 Predictions for Industry and Global Supply Chains was that major developments surrounding global trade policies and corporate tax reform would occupy the attention of many industry supply chain teams during the year. Our premise was that a climate of uncertain or volatile geo-political developments coupled with an aggressive political and trade agenda of the incoming Trump Administration in the United States would potentially have near or longer-term effects.

One specific element of that prediction were Trump Administration and U.S. Congressional proposals being discussed that would impose forms of border adjustment taxes as part of a major corporate tax reform proposal. Essentially the proposals amounted to taxing corporate revenues and profits based on location of product consumption, essentially resulting in the taxing of imports with a form of a border adjustment tax, while businesses would have their export revenues exempted from corporate tax consideration. Needless to state, businesses whose supply chains had high dependency on importing higher-value finished goods and components would incur significant supply chain cost impacts. We were specifically addressing significant impacts to retail, consumer electronics, apparel and shoe, toys, and other industry supply chains.

This week, Congressional Republicans and the Trump Administration essentially abandoned the border adjustment tax approach amid a heavy amount of lobbying by various impacted industries. According to published reports, political leaders agreed to take the border tax off the table in name of party unity in formulating a workable U.S. corporate tax reform package.

On Thursday, news of this compromise approach sent retail stocks into growth numbers.

Potentially impacted industry supply chains can take a deep breath regarding this latest news.

But, we continue to advise caution for industry supply chain and procurement sourcing teams, including the need to remain diligent in continual analysis and scrutiny of global sourcing strategies in relation to changing sourcing and/or landed cost scenarios.

The current political environment in the U.S. reflects that of constant policy turmoil and continued uncertainty. While approaches to global trade and tax policy show more positive signs toward more rational approaches, anything can happen in this environment of confrontational politics in many dimensions. While the global business front remains optimistic, the geo-political environment is far different and subject to added shocks in the coming weeks and months. In seems that rational thinking has been replaced by the President’s mood of the day and public declarations and that is a clear indication that assumptions related to business as usual remain unwise.

We therefore continue to advise teams to remain vigilant in a detailed understanding all the elements that make up the supply chain network and remain prepared to be able to assess any geo-political or global trade impacts. This remains a time of continual scenario-based planning and what-if analysis, and insure that resources remain allocated for active planning.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Breaking: Amazon to Acquire Whole Foods- An Obvious Industry Inflection Point

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In the history of any industry, along with its associated supporting supply chains, there comes a seminal series of events that ultimately point to a major inflection point, one that clearly indicates that business-as-usual is no longer an option. For the food and grocery industry, and all of its supply chain stakeholders, the year 2017, in the second week of June, two thunderbolt events ignited a seminal industry change.

As we pen this Supply Chain Matters posting, business and general media are broadcasting the headline announcement that Amazon intends to acquire Whole Foods Market for $42 per share, or more than $13 billion, a clear and obvious effort to directly penetrate the retail grocery landscape. This is Amazon’s largest acquisition to-date, and no doubt, there were likely multiple choices. In the press release announcing the acquisition, Amazon CEO Jeff Bezos indicated that the attraction to Whole Foods was the wide offering of natural organic foods.   FBA sized Breaking: Amazon to Acquire Whole Foods  An Obvious Industry Inflection Point

By our lens, healthy margins, a loyal brand, and future methods to leverage online and in-store shopping were an obvious consideration, Whole Foods has also been under intense pressure from private-equity firm Jana Partners. Whole Foods CEO John Mackey has been quoted as characterizing Jana as greedy. (Actually, he utilized a more direct term)

According to the release, Whole Foods will continue to operate under its current branding, and CEO Jim Mackey will stay-on as CEO.

News and social media reports further indicate that if the grocer receives a better acquisition offer, Whole Foods would be obligated to pay a $400 million termination fee to Amazon.

The other industry shockwave this week came from Kroger Company, one of the largest retail supermarket chains in the U.S., who issued unexpected lowered earnings forecast for the year. The aftermath of this news caused the chain’s stock to drop by 19 percent, the steepest one-day drop for the company’s stock in more than 17 years.

Kroger CEO Rodney McMullen is noted as sting the following in an interview:

The change right now in what the customer wants has never been faster.”

Business and general media reports are citing Nielsen and other retail sales data all indicating that consumers are both more price conscious in their food shopping, continue to seek out healthier food and beverage choices, and are increasingly turning to online channels for food and grocery needs. Nielsen data indicates that online grocery orders have risen 6.8 percent while visits to deep-discount chains are up 2.9 percent.

Other grocery retail chains are also feeling the effects of quickly changing  grocery shopping trends and the words, industry consolidation, are now coming to the forefront.

At the same time, discount grocery chains Aldi and Lidl are making a major expansion within the U.S. to take advantage of the current shopping trends, which will add to increased industry competition at the retail level.

What is now occurring in the retail channel will continue to cascade across consumer product goods, food and beverage supply chains in the form of tougher price negotiations and demands for increased product innovation addressing healthier food choices. The industry has already experienced the pressures from both Amazon and Wal-Mart as to which will receive the most attractive supply pricing deals.

As noted in our Supply Chain Matters industry commentary published in May, the industry winners are supply chain leaders who educate senior management on the differences of supply chain as a cost center vs. a business innovation enabler. They will also be those that can keep a laser focus on the end-goal, meeting and accommodating far different consumer preferences with changed thinking and distribution methods. By our lens, industry supply chains that invest in talent that can bring forward new creativity, collaboration and thinking for a supply chain model that leverages both online and in-store buying needs will likely benefit.

CPG suppliers are also subject to the influences of private equity, specifically 3G Capital, and no doubt, there will likely continue to be influences for additional M&A among major suppliers and food producers.

Consumer packed foods and associated industry supply chain teams need to pay very close attention to industry developments and associated implications. The notions of single-channel product demand forecasting or other business-as-usual supply chain planning and distribution methods no longer apply during now permanent industry shift. Agility, resilience, and a predictive understanding of consumer needs in food and food buying preferences are table stakes.

Be it noted that in June 2017, two industry shockwave developments became the catalyst for structural packaged and fresh food industry change.

Supply Chain Matters will continue to monitor industry supply chain developments and share insights. We predicted significant industry changes at the start of the year, and the clock speed has accelerated.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


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