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Supply Chain Matters Highlights of Connected Things 2017 Conference

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This supply chain management industry analyst recently had the opportunity to attend the Connected Things 2017- Accelerating the Adoption & impact of IoT for People, Places & Things conference, sponsored by the MIT Enterprise Forum of Cambridge.  This Supply Chain Matters posting shares key highlights, observations, and insights this author gained from the various sessions.

This was a one-day conference designed to exchange the latest thought leadership and information exchange regarding the current state of Internet of Things (IoT) technology strategy and deployment. The conference, as noted in the dedicated conference web page, included a format of keynote presentations from senior technology executives and market influencers along with seven different panel discussions directed at key IoT challenges and topics. MIT Connect Things 2017_2

From this author’s lens, the content was outstanding and very timely, and brought forward consistent themes related to this growing area of technology interest. Judging from the overflow crowd of conference attendees traveling from different regions and just before a forecasted major snowstorm across the New England region, IoT is obviously a top-of-mind topic within many an industry setting, including industry supply chains.

The opening keynote delivered by Harel Kodesh, Vice President, Predix and CTO, GE Digital provided a very timely context for how a manufacturing company such as General Electric is aggressively moving toward a journey to be an Industrial Internet and digital transformation company. This blog has provided several prior commentaries related to GE Digital and its development and rollout of the Predix operating system, and Kadesh’s keynote brought this all together. As an example, GE declares that it will have upwards of 68,000 of its jet engines and 10,000 turbines connected by Predix in three years. Another GE Digital initiative looks to railway locomotives serving as a “data center on wheels” in areas of data sharing not only on equipment and train operation but on the sensing and reporting of rail right of way data, such as the condition of agricultural farms and fields. An important key message reinforced by GE is that upwards of up to 40 percent of operational performance data generated by equipment is spurious, subject to cleansing or deletion. That reinforces the need for the Edge level, or as GE refers to the Digital Twin system, to serve as an actual data rationalization compute mode. We view this as a very important consideration for any form of supply chain or service management focused IoT digital transformation initiative.

The keynote from David Friend, CEO of BlueArchive, and former founder of Cloud storage provider Carbonite, provided clear reinforcement that Cloud based data storage will indeed transform to a utility model in the not too distance future. The current impediment is a generally accepted standard data exchange API for IoT driven processes to integrate with.  Friend’s remarks further reinforced the need for operational data cleansing at the Edge layer, along with today’s overriding concerns for increased data security standards as well as increased data speeds across all the levels involved in an IoT deployment. As an example, Carbonite today manages 500 million storage requests daily.

SAP executive Alan Southall, Vice President and Head of SAP IoT Predictive Maintenance, reinforced that engineers currently do not trust raw data emanating from an asset, and that SAP recently launched SAP Leonardo to be an IoT platform data management system to manage and mitigate semantic data flows from the physical asset to actual business applications. (This analyst recently received an SAP briefing regarding SAP Leonardo design and capabilities) SAP is further working with pilot customers on areas such as machine learning, as well as automated analytics. Southhall also reinforced the message that Edge systems require military grade data security.

We managed to sit-in on three separate panel discussions including one focused on IoT Analytics, Industry 4.0 impacts on legacy industries and the all-important, physical, and cyber security viewpoints.

Regarding an IoT analytics framework, we sensed a consensus viewpoint outlining a tiered analytics strategy, with smart assets and connected devices managing local processing and Cloud-based platforms serving as additional data aggregators and insights engine at high levels of more predictive event context. Regarding the long-term impact of analytics, panelists concurred that industry transitions are already underway but additional challenges need to be addressed in how to better automate data consolidation and aggregation, and yes, the need for more comprehensive network-wide data security practices and standards. Noted was that a lot of industry development right now is focused on Edge systems, namely decisions needing to be made at the machine or manufacturing layer, an initial step in helping organizations to be prepared for later enterprise-wide, IoT digital transformation efforts. A reality remains that most machine-level data resides in industrial environments primarily protected behind-the-firewall.

We were very pleased to hear one panelist declare: “Don’t give me more data- give me smarter data.”

One other theme expressed on this blog in multiple prior commentaries, is the belief that, like other data-focused technology automation transformations of the past such as RFID adoption, ultimate ownership of data remains a big challenge yet to be sorted out. For instance, original equipment manufacturers or digital services providers are positioning strategies based on aggregation and ownership of equipment data for business process management or digital transformation business model needs, while data generators of the equipment declare that actual customers already own such data.  One example mentioned by a panelist is within agriculture settings, where seed providers have been collecting vast amounts of data to provide managed services related to crop yields, while not making such data available to the same specific farms without a bundled service.  In our blog commentaries, we have portended similar conflicts yet to play out in industries such as commercial aircraft, where airlines will claim ownership of their own operational performance data.  Obviously, a period of transition and sorting out must evolve.

Again, this was a beneficial and informative conference addressing a transformative but still young technology with more iterations to come.  Conferences such as these helps in cutting through some of the hype, focusing on key challenges and needs, while providing learning from those in multiple roles of moving such transformation forward.

Bob Ferrari

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


What’s Behind Intel’s Intent to Acquire Automotive Technology Provider Mobileye?

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In November of 2016, Supply Chain Matters called attention to the building trend of high profile technology and semiconductor firms beginning to position themselves in automotive supply chains mostly via market acquisitions. This week provided further evidence of this strategy with the headline that semiconductor giant Intel will acquire advanced vision and driver assistance technology provider Mobileye for an estimated $15.3 billion.

As noted in our prior commentary, the strategic stakes involve which company and which advanced technologies will ultimately control and benefit from the movement of more advanced technology being embedded into automobiles, trucks, and other vehicles. Last year, fabless semiconductor and cellular tech provider Qualcomm announced its intent to acquire NXP Semiconductors, a major supplier of semiconductor chips and microprocessors that control more sophisticated automobile functions in power management, security access, media, and audio functions. Qualcomm was willing to pay a hefty sum, upwards of $39 billion, a 34 percent premium in existing NXP stock value, to gain entry into automotive technology value-chain needs. Samsung recently closed on its deal, the largest deal in the company’s history, on the acquisition of electronic components supplier Harmon International in an $8 billion all-cash deal. The deal again had the intent to gain deeper access to the automotive product value-chain, marrying Samsung’s technology based capabilities in mobile communications, electronic displays, memory chip and microprocessors with Harmon’s evolving capabilities to support connected vehicle and lifestyle audio product innovation.

In Intel’s case, the semiconductor and microprocessor provider was willing to pay a 34 percent premium over Mobileye’s closing share price at the time on the announcement. This Israeli-based technology firm, founded 20 years ago, at the Hebrew University of Jerusalem, develops the sensors and artificial intelligence that allow a vehicle’s on-board computer to know the context of where the vehicle is in relation to other vehicles and surroundings. Mobileye recently reported revenues of just over $358 million with net income of $108.4 million.

Our readers may recall that in July of last year, Mobileye elected to drop Tesla as a customer, and according to news reports at the time, the cause was attributed to “disagreements about how the technology was deployed.” Earlier in May, a fatal crash involving a Model S operating on semiautonomous mode autopilot control had reportedly motivated the decision to drop Tesla at contract renewal time because this supplier wanted more control as to how its camera technology would be operationally deployed. Tesla has since indicated that its autopilot system will rely more on its radar sensors and advanced software to detect obstacles, rather than the forward-facing camera. That decision impacted Tesla’s production cadence in Q4, requiring a huge spike of production in December to make customer delivery commitments.

According to Mobileye, the company’s technology is installed in more than 15.7 million vehicles globally, and includes relationships with 21 automotive brands including General Motors, Honda, and Volkswagen AG.

In statements regarding the acquisition, Intel CEO Brain Krzanich indicated to investors; “You can think of the car as a server on wheels.” In an internal note to employees, regarding the acquisition, the CEO indicated: “The saying ‘what’s under the hood’ will increasingly refer to computing, not horsepower.”

Indeed, that is how tech companies now view automotive value-chains, providing intelligent transportation services with lots and lots of on-board technology and autonomous decision-making.

According to reports, after the completion of the acquisition, Mobileye’s development and operations will remain headquartered in Israel and led by the company’s co-founder, chairmen and CTO, Amon Shashua.

As noted in our prior November commentary, when a major new technology trend emerges, innovators can try to capitalize on the trend by creating and fostering a consumer product or service, or by creating the tools and technologies (the product supply and value-chain) that both enables and controls the intellectual property of the consumer product or service.  Like the California gold rush analogy, you can either make money in providing the service to multitudes of consumers or in supplying all the pick axes and supplies needed to mine for gold. This is the analogy now emerging among today’s global automotive supply chains and there continues to be big money and large technology stakes at-play.

Who knows what the names of key automotive suppliers and brands will be over the next five years. Your shiny new auto or SUV made have an “Intel Inside” emblem on its dashboard. An automobile, a truck or a municipal bus could morph to an on-call or on-demand transportation services business controlled by a lots of embedded dat and technology.

One thing is certain, the march of technology continues to impact all forms of traditional industries and their supply relationships.

Bob Ferrari

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


Updated Research Advisory- The New Phase of Online and Omni-Channel Customer Fulfillment

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From time-to-time as developments warrant throughout the year, we have published various succinct but brief research advisories to clients and blog readers focused on specific industry, line-of-business, functional or technology trending that warrant specific attention for both management teams and supply chain management professionals.  hands-typing-4

There have been several phases related to the ongoing explosion of online commerce and its impact on traditional retail and B2C focused industry supply chains. In August of 2016, we published the research advisory: The Beginning of a New Phase of Online and Omni-Channel Fulfillment for B2C and Retail Supply Chains, where we cited the beginning of the newest phase, namely impacting the long-term presence of brick and mortar retail and the accelerated need for more agility from supporting supply chains.

Our August 2016 Advisory outlined the tenets and impacts for the beginning of a new phase of an omni-channel driven retail business model. With the increasing results and implications from traditional retailers throughout 2016, we have now updated our advisory to reflect evidence that indeed, a new phase is underway and comes with many implications for the industry’s supply chains.

Consumer preferences and desires have permanently changed in retail, and online platforms and consumer loyalty programs such as that of Amazon are rapidly garnering consumer loyalty and dependence.

Supply Chain Matters and Ferrari Consulting and Research Group clients can now download our updated March 2017 advisory: The New Phase of Online and Omni-channel Fulfillment for B2C and Retail Supply Chains. This report is now available for complimentary downloading in our Research Center by providing basic user registration information.

We reiterate that all research download information is utilized solely for our internal tracking needs and will not be sold or made available to third parties.

Bob Ferrari

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


2017 Predictions for Supply Chain Management- Guest Contributions

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We just completed our unveiling and deep-dives on our 2017 Predictions for Industry and Global Supply Chains and the complete 44-page Research Advisory report is now available for complimentary downloading in our Research Center.

We now feature compilations of the many external guest contributions that were received from our readers.  holding-the-future

A Thailand and Southeast Asia Perspective

In mid-January, this author noted a published report from Thailand’s Bangkok Post, The state of supply chain management in 2017.   This article was penned by two supply chain consultants with extensive experience in Thailand and the rest of Southeast Asia and observed: “that most supply chains still struggle with the basics and are not in any position to realise benefits from new tools and technologies.” We reached out by email to authors Barry Elliott and Chris Catto-Smith, (acknowledged  readers of Supply Chain Matters) and received very insightful additional feedback comments. Each has been practicing supply chain management consultants in this region for the best part of 20 years. Responding to our specific question as to whether their observations vary from one industry or another, or in upper or lower tiers of the supply chain, the response was no, it does not. “Little advantage is taken of the SCM body of knowledge, partly due to not knowing what they (SCM teams) don’t know and partly due to NIH (not invented here).” Clarified was that there are certainly shiny exceptions but interest levels to learn and implement the basics are somewhat challenging.

We share this input because it provided us a grounding to the realization that not all geographic regions feature the same capabilities and tendencies toward transformation, and that should remain an important context towards planning of 2017 initiatives and skills development.

 

Supply Chain Skills and Talent Management

Employee reference check provider AllisonTaylor shared Noteworthy Trends to Watch in the Career and Work Balance area to share with Supply Chain Matters readers.

  • Workplace well-being and flexibility has risen dramatically in importance and becomes critical for attracting new talent.
  • As highly tech-savvy employees continue to enter the workplace, new internal communications tools such as text messaging, live chat and instant messaging will increasingly replace traditional email.
  • Blended workplaces, where freelance workers team up with full-time employees, become increasingly predominant.
  • The reference checking process takes an unconventional turn as employer’s are more likely to call job seeker’s former supervisors, rather than follow traditional routes of contacting HR.
  • References become a powerful extension of a job seeker’s resume.
  • Virtual reality tools begin to revolutionize recruiting and training.

 

Business and Supply Chain Technology

Fusion Worldwide Chief Operating Officer Paul Romano shares his predictions for 2017.

  • Memory will continue to be an issue. Memory manufacturers have finally gotten what they wanted- increases in ASP’s after years of drought and cuts. The good news for them is that the end does not seem to be in sight. A convergence of factors will continue to    drive issues in memory. We may see things let up there and there but expect problems to exist for much of the year.
  • The pace of mergers and acquisitions will not let After a year that saw some blockbuster M&A’s, many are hoping to take a ‘wait and see’ attitude. Not so fast. With business picking up in many sectors, companies are looking for ways to expand as well as round out portfolios and offerings. Expect the M&A activity to continue     unabated into 2017.
  • The sharing economy comes to the supply Companies such as Uber and Airbnb ushered in the      sharing economy. Next up, the supply chain. Most efforts have been directed towards the consumer. However, as interconnectivity and the concept of the digital supply chain gain traction, expect to see attempts to create efficiencies and opportunities around the supply chain. Uber is already in the package delivery business; could we see an Airbnb app for  short-term use of unused factory, warehouse, or line space, perhaps?
  • 3D Printing becomes the disruptive technology many predicted two years ago.
  • The outcome of the Brexit negotiations is already affecting trade flows between the UK and the EU and leaves a big question mark on how big or small the impact will be.    This can potentially devaluate the Euro even more against the dollar which will impact European OEM’s trading in USD.

 

2017 Predictions Related to the Food Industry

We spoke with Bill Michalski, Chief Solution Officer at ArrowStream, A SaaS technology provider for food service supply chains, concerning his predictions for the food industry. His input was that the number one priority for 2017 is making food safety and traceability a top priority and would remain the largest area of focus in the near future as-well. In our discussion, Michalski emphasized that the year ahead will reflect the notions of when urgency meets the reality of food safety in terms of full product traceability for any given restaurant chain. A further challenge remains off-contract purchasing and non-vetted suppliers among larger food chains. Michalski concurs that traceability and supply chain sustainability initiatives can be linked for broader business benefits.

 

Service Parts Inventory Management

Synchron’s CMO Gary Brooks’s 2017 Technology Supply Chain Predictions calls for service parts inventory management and pricing optimization to grow in interest because of the increasing realization that both capabilities are key revenue levers for the aftersales supply chain. Brooks further predicts that Cloud-based technology has become critical for the supply chain and that adoption rates will rise further. “Supply chain players will need to embrace the full potential of cloud technology or risk falling even further behind in 2017.” Other predictions are that predictive analytics will finally be mainstream in the supply chain and aftersales market, and that driverless vehicles and drones play a bigger role in supply chain.

 

If there are any other 2017 Predictions that readers would like to share, please send them along and we will compile them for sharing.

 

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


New Developments and Potential Added Risks for Chinese Branded Subway Cars in the U.S.

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In October of 2014 we alerted Supply Chain Matters readers to a noteworthy milestone development, namely Chinese designed and branded railway cars appearing in a U.S. subway system. Since that time, much as occurred, and this week, there is yet another development, one that perhaps has implications for the upcoming administration of President- Elect Donald Trump.

The headline back in 2014 was that the State of Massachusetts Department of Transportation selected China’s state-owned CNR Corp. for the replacement and delivery of 284 modern subway cars for the Massachusetts Bay Transportation Authority (MBTA), also locally known as the “T’.

This was the first Chinese manufacturer to win a U.S. based major transit system equipment replacement contract. The further significance was twofold. First, the awarded contract cost, namely $566 million, was a rather affordable sum for this amount of modern rail equipment, far underbidding other railcar manufacturers. According to local news reports, CNR aggressively courted the Massachusetts transit system to gain a foothold in the U.S. rail equipment market. A further significance was that the contract called for the railcars to be assembled at a new final assembly manufacturing facility at a former closed Westinghouse factory site located in Springfield, a central city in Massachusetts. Assembly operations would therefore be U.S. based, with the expectation that other U.S. equipment supply contracts could follow. Major components however, would be produced in China and transported to the U.S. for final assembly of railcars.

Since that time, there have been other developments.

China’s government facilitated the merger of China’s two major state-owned rail manufacturers which included CNR. The combined China Railroad Rolling Stock Corp. then created a local U.S. subsidiary to administer contract delivery needs involving the U.S. including the MBTA contract.

The state-owned China U.S. subsidiary has since landed a major equipment replacement deal with the Chicago Transit Authority, described as a monumental overhaul of the transit authority rail car equipment, amounting to a $1.3 billion contract to replace 846 rail cars, about half of the existing subway car fleet — the biggest car purchase in that agency’s history. The described new generation of railcars also called for localized final assembly to be performed at a new final assembly manufacturing facility to be located on the Southeast Side of Chicago. This assembly facility is expected to be in operation for a total of 10 years with railcar prototypes coming out in 2019, and initial cars being delivered into operational service  in 2020. The CSR Sifang America bid came in $226 million lower than that of Bombardier Railcar Equipment, the most recent manufacturer of Chicago’s railcar fleet. Since that time, competing bidder Bombardier filed a protest with the agency, saying that the bidding process was rigged in favor of a Chinese firm that promised to bring manufacturing jobs to Chicago.

This week, the Massachusetts based MBTA control board voted to authorize as much as $277 million to acquire an additional 134 Red Line railcars as an extension of the existing contract with the China based railcar producer. This amended change to the existing contract bypassed standard bidding procedures because the agency indicated that it was seeking to standardize its entire network-wide fleet of both Orange and Red Line cars. The MBTA considered rebuilding the 184 existing Red Line cars not scheduled to be replaced in the initial contract, but a financial analysis had indicated that brand new cars would cost as much as $310,000 less than overhauling the existing ones. The added Red Line cars are expected to replace the entire existing fleet by the end of 2023.

Specifics of the amended agreement were reportedly revealed publicly for the first time on Monday of this week.  Board members were asked to approve the deal that same day, to supposedly avoid a price increase and to secure local manufacturing capacity.

Supply Chain Matters brought initial attention to China’s state-owned railway efforts to make a more sustained equipment presence within the U.S. because it included both global and domestic supply chain implications.  The plans calling for many of the major train components to be produced in China and shipped to the U.S. for final assembly within local U.S. final facilities insured some local jobs, which was an obvious big deal for local governments. That theme has more current resonance with the discourse that came out of the recently completed U.S. Presidential election. Voters opted for the candidate they perceived to have a more aggressive protectionist stance on jobs and who would take on China as a perceived currency manipulator and in the consequent outsourcing of jobs to that country.

However, from our lens, the real question will come as the new Trump administration begins to unfold its trade protectionist policies.

Current speculation is that the incoming administration will not be shy in slapping increased tariffs on Chinese parts and components imported into the United States. Some plans call for a revised tax code that would feature a form of a value-added-tax or tariff on imported goods. If that comes to fruition, then the economics related to the existing U.S. subway equipment replacement contracts could well be impacted. The question is how much and whether local final assembly turns into something quite different, or whether new subway cars can indeed be delivered at such attractive pricing.

This is an area worthy of observation over the coming months. On the one hand, U.S. taxpayers are saving money and supposedly gaining use of very modern, technology-laden passenger railcars for urban transportation needs. They also gain some local manufacturing jobs.

On the other hand, China’s existing lower direct labor costs, overcapacity situation in steel production, and needs to insure continuous employment among state-owned manufacturers make the landed cost more attractive for local transportation agencies. It is a delicate balance that may well be subject to change, especially if the expected costs of landed components increase substantially.

Stay tuned.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


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