Prediction Four of our Supply Chain Matters 2014 Predictions for Industry and Global Supply Chains predicts that the current momentum surrounding Internet of Things (IoT) could be side railed if vendors do not step-up and address certain challenges. Such challenges include sensitivity to data security and information privacy.
This week, the Financial Times provided a specific B2C focused example of the meaning of data security challenges. The article, BMW sounds the alarm over tech companies seeking connected car data (paid subscription or metered complimentary view) indicates that indeed technology companies and advertisers are putting pressure on carmakers to share the data collected by more connected cars. German automaker BMW has sounded the alarm over such demands emanating from Silicon Valley tech companies and advertising interests and is reportedly indicating a firm “no thank you” to such demands.
We say, thank you, BMW.
The German luxury automaker indicated to FT that “it had a firewall in place to protect crucial data about the internal running of the car. But any transmission of data raises concerns about who might access that information- and what they might do with it” Apparently, BMW is not alone among automakers in taking such a stance.
Of course, the more significant benefits of connected machines communicating their operating status or needs for servicing or replacement parts is thwarted by these other more questionable or controversial approaches to mine data for other purposes.
This week, this author had the opportunity to speak with Mark O’Neill, Vice President of Innovation at B2B integration technology provider Axway. We talked about IoT’s current honeymoon period and the various issues of data and information security. We discussed parallels to prior RFID, item bar code, point-of-sale and other data collection initiatives that raised similar concerns about data security and data use. The notions of the value of such data tended to take on added revenue considerations and spawned the growth of information brokers.
O’Neill articulated that the biggest challenge being raised for IoT among various B2C and B2B environments is exactly, who owns all of this potential data? Information integration and broker providers are caught in the middle of such dynamics and currently work with customers to insure data is protected, encrypted or reside within architectures that provide adequate protections.
According to O’Neill, initiatives and subsequent benefits of IoT initiatives will prove more successful when established industry best practices addressing information security and privacy are brought forward to IoT business initiatives.
In the coming weeks and months, we will feature more commentaries concerning IoT benefits along with the challenges that may affect current interest and momentum.
Prediction Ten of our 2015 Predictions for Industry and Global Supply Chains declares that service focused supply chains will garner increased attention and new investment interest. We noted two prime motivations, protecting the brand especially in the light of continuing massive amounts of product recall activity as well as taking advantage of the new opportunities brought forward with connected devices.
This week, in conjunction with the annual North American International Auto Show being held in Detroit, The Wall Street Journal featured an article, Massive Recalls Force Part Makers to Track Defects (Paid subscription of free metered view). The article observes that auto parts makers such as air bag inflator supplier Daicel are investing millions of dollars to improve tracing and lot identifiers of component parts. There are mentions of parts suppliers Aisin Selkl, and Jtekt Corp. significantly investing in parts traceability. Observed is while automotive OEM’s and their associated brands take the bulk of the consumer and regulatory heat around product recalls, quality defects more often reside within parts suppliers. OEM’s are now influencing parts suppliers to amp-up quality measures including easier means to identify production lots and trace parts history. The CEO of NHK Spring, who is also the chairmen of Japan Auto Parts Industries Association is quoted: “Now that supplier names are being mentioned widely, the range of responsibilities that we face is expanding. Not only do we need to face auto makers but also consumers.” In other words, brand risk has taken on new dimensions in the lower tier of automotive supply chains.
It struck us that such efforts focused on supply practices need to be further complimented by increased capabilities by OEM’s to analyze such quality tracking and tracing data at a far more timely pace. Providing more prescriptive tagging to such data is a further consideration.
The takeaway is that indeed, service supply chains are indeed ripe for investment, but require coordinated efforts to leverage input, output and prescriptive information insights that insure more timely identification and response to parts quality or design defects.
Throughout 2014, Supply Chain Matters featured commentaries related to the North America railroad industry, specifically capacity, safety and specialty car backhaul operational challenges that impacted multiple industry supply chains. General business and supply chain media noted incidents of severe congestion, marginal service and other operational issues effecting rail traffic last year.
To no surprise, The Association of American Railroads (AAR), an industry policy, research and technology organization, reported increased freight rate traffic for 2014. As is always the case in this new world of rapidly changing business dynamics, 2015 may present a different set of industry challenges and circumstances.
According to the AAR, total combined freight traffic for U.S. railroads in 2014 increased 4.5 percent to over 28.6 million carloads, containers and trailers, the highest annual total since 2007. To no surprise, shipments of petroleum and petroleum products increased 12.7 percent. Other reported shipment highlights included intermodal shipments up 5.2 percent to nearly 13.5 million containers and trailers while grain shipments were reported up by 13.5 percent.
AAR predicts that 2015 will be another challenging year which is echoed by a report in today’s edition of The Wall Street Journal which reports that Wall Street expects most railroads to continue to demonstrate double-digit earnings increases this year.
The current plunging price levels for crude oil however can potentially change the cost dynamics for “crude by rail” shipments as well as overall industry directives to upgrade crude carrying tank cars to new safety standards. New technology mandates outlined in the Rail Safety Improvement of 2008 calls for the full implementation of Positive Train Control (PTC) by 2015. While progress is described as substantial, the industry is already on-record as declaring this objective “an unprecedented technical and operational challenge. “
For their part, individual railroads indicate that they have made the necessary investments in new equipment, personnel and infrastructure to address prior service issues. Last week, U.S. Secretary of Agriculture Tom Vilsack spoke at farmers conference and indicated that U.S. transportation systems were not prepared as they should have for the spike in crude by rail shipments and their impacts to other rail network service levels.
Consequent reductions in diesel fuel prices now make trucking freight a more economical alternative for bulk shippers if trucking capacity is available, which is another separate challenge. Lower oil prices are further expected to change the dynamics of demand for the coal industry.
In the coming months, Supply Chain Matters will continue to feature commentaries related to railroad industry dynamics. We are in the process of planning interviews with academic and industry spokespersons to provide perspectives from both transportation operator and shipper.
Stay tuned for our first interview in the coming weeks.
The role and contribution by procurement to the business is changing rather rapidly. The reasons are many and the change has accelerated because of evolving mega-trend convergence that surrounds various industry and services focused supply chains. Such trends include more rapid advances in the technology and software applications supporting sourcing and procurement business processes.
Once more, retail food and beverage and other service industries are undergoing extraordinary challenges brought about by global expansion of supply networks. Recent headlines surrounding brands such as McDonalds and KFC and their challenges with China based food suppliers are just two examples.
On March 8-10, e-Sourcing technology provider Intesource will be hosting its 2015 InnovationBest Practices in Sourcing customer conference in Las Vegas. We are pleased to announce that Bob Ferrari, Supply Chain Matters Founder and Executive Editor will be a featured guest speaker. This week on the Intesource E-Sourcing Society blog, Bob is featured in a guest commentary describing his upcoming talk, Converging Mega-Trends Impacting the Supply Chain.
Customers of Intesource and Supply Chain Matters readers who may be in Las Vegas during this period are welcomed to attend this insightful presentation.
Join Bob Ferrari in Las Vegas in March.
Prediction Ten of our Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains calls for increased attention and new investment interest for service focused supply chains in the coming year. This includes after-market business process services, service parts and service delivery supply and demand business processes.
The obvious reasons are the unprecedented increases in occurrence of product recalls that add large amounts of consumer negativity towards a brand, especially in the U.S. automotive sector. Too often, there has been a “throw it over the wall” mentality involving service beyond product sale and thus the after-market service supply chain has lagged in process modernization and investment.
Yesterday, the New York Times published an article, Auto Industry Galvanized After Record Recall Year (paid subscription but complimentary metered view with sign-up). This article reminds readers that about 700 individual recall announcements involving more than 60 million motor vehicles occurred in 2014 across the United States, double the previous record logged in 2004. The rate of recalls was the equivalent of one in five vehicles currently in the road. Many of our readers can probably attest to the current situation.
Auto manufacturers have been forced to clean-up years of defects that were either undetected or ignored amidst heightened regulatory scrutiny.
The result is obvious, service supply chains swamped with requirements for numerous replacement parts and service networks buffeted by consumer rage as to why their perceived unsafe vehicles cannot be immediately repaired. In the care of the massive recalls involving airbag inflators sourced from supplier Takata, product recalls are prioritized for warm region sensitivity along with broader U.S. wide needs.
The Times article observes that sending out notification letters does not suffice, requiring more direct interaction with consumers. That, by our lens, implies more timely information and visibility as to the prioritization of repair campaigns and availability of required repair parts for specific regions. The article further hints to underreporting of potential product defects or failures.
OEM’s such as Toyota are overhauling safety and product recall practices as well as processes incorporated within its service networks. Supply Chain Matters has previously highlighted General Motors new brand survival emphasis on up-front product quality and more responsive tracking and detection of potential product problems. Social media will play a very important role in these new methods including the transmission of product recall information directly to consumers and their individual vehicles. Legislators continue utilizing the big-stick of criminal prosecution of executives and a means to motivate automotive OEM’s to be more responsive to product quality and overall vehicle safety.
Crisis often brings opportunity, and in the case of service networks, the opportunity is the ability to leverage today’s more advanced technologies related to vehicle sensors, predictive analytics, advanced simulation and scheduling, demand sensing and item-level B2B business network wide visibility among service focused supply chains.
The forces are indeed in motion for greater attention to service supply chain capabilities in the New Year.
As we approach the start of the New Year, B2C and Omni-channel focused supply chains teams can begin to take a much needed breather. While reverse supply chain activities continue to ramp over the remaining days of the calendar year, it’s a good time to reflect on the initial learning from the 2014 holiday surge.
From all the sources Supply Chain Matters has tapped thus far, it would appear that the many weeks of pre-planning have yielded a rather smooth fulfillment period. If there is to a single headline related to the supply chain Grinch of the 2014 season, it remains the very ill-timed west coast port disruption and its impact on multiple other supply chain and logistics fulfillment teams.
A National Retail Federation (NRF) sponsored Holiday Consumer Spending survey released in mid-December indicates that the average holiday shopper had completed nearly 53 percent of shopping activity by mid-month, up from nearly 50 percent reported during this same time period in 2013. The survey pointed to two profiles of shoppers, those who were compelled to act on early, hard to pass up in-store and online promotions, and others waiting to the last minute to wrap-up their shopping. That data is generally what was reported as shopper profiles in 2013. Regarding last-minute shopping, the NRF survey indicated that nearly 34 percent of those last-minute shoppers were planning to buy the last holiday gift before December 18. For us, that is an indicator that consumers helped in avoiding a last-minute crunch.
Today’s Wall Street Journal cites data from online tracking software developer Shipmatrix indicating that 98 percent of express packages reached their destinations on time by December 24th. Shipmatrix calculated its reliability metrics from data on the millions of packages tracked for retailers and customers. The 2013 data reflected 90 percent on-time reliability for FedEx and 83 percent for UPS. At this point, we all know how UPS was thrown under the bus in 2013. The added infrastructure investments by both FedEx and UPS in surge capacity and added seasonal workers coupled with a lot of up-front pre-planning with retailers paid off this year. Heavy volume prompted FedEx to continue delivery activities on Christmas day but UPS curtailed on the 24th. Fewer retailers risked last-minute shipping promotions because they faced caps from both package carriers that limited last-minute shipping capacity, and because they headed the warnings. We suspect the shortage or late arrival of certain inventories had some play in the final on-time results but we will all have to wait for those results to come forward.
We rechecked online sales analytical data tracked by IBM’s Digital Analytics Benchmarking service and it further reinforces that order surges in both November and December were generally in-line with Black Friday, Cyber Monday and pre-holiday surge order volume periods. (See below extracts) The final peak of online activity in December was between December 15 and 17.
Rather interesting is the chart reflecting average order values among the various weeks. It reflects average order values of $115-$125 per order with mobile-based ordering reflecting a lower average.
Winter weather across the U.S. cooperated as well, with some minor exceptions. Our own Supply Chain Matters smaller-scale experiments in last-minute online ordering all turned out in on-time delivery. Amazon released a post-holiday summary of its holiday season activity which indicated that nearly 60 percent of its customers shopped using a mobile device and that trend accelerated later into the shopping season. That is a significant development.
Further, 10 million additional members joined Amazon Prime (free shipping) for the first time. That is yet another indicator of the power of free shipping in hitting the online Place Order button. Among other important supply chain and online fulfillment highlights:
- Amazon shipped to 185 countries and this holiday, Amazon customers ordered more than 10 times as many items with same-day delivery than in 2013. The last Prime one-day shipping order was placed on December 23 at 2:55pm EST and shipped to Philadelphia PA. The last Prime Now (same day) order was placed on December 24 at 10:24pm and delivered at 11:06pm. We won’t attempt to comment on the listed contents of that order.
- Sunday delivery expanded this year. As noted in our previous commentary, the U.S. Postal Service was the prime recipient.
The Amazon release further includes an extensive listing of holiday best-selling items which is in itself rather interesting. To no surprise, Disney’s Frozen Sparkle Elsa Doll topped the toys category while Disney Kids’ Frozen Anna and Elsa Digital Watches topped that category. What we do for our children and grandchildren! Chromebooks topped the computer category.
While we have not heard from Wal-Mart.com as yet, we anticipate that they had a very good holiday season as well.
For combination brick and mortar and online retailers, 2014 featured more cross-channel fulfillment experimentation including more direct ship from nearest retail store. We anticipate that challenges in distributed order management, inventory pooling and supply chain segmentation may come forth from 2014. Some readers may have noticed some not so flattering packaging, a sure sign of immaturity in pick and pack operations. It will be interesting to note the results of those efforts in the weeks to come when retailers report on their financial and operational results for the quarter. The open question is whether these efforts add or take-away from profitability.
The learning of the 2014 holiday surge is finally not complete without the ongoing byline of the west coast port disruption and ongoing contract labor talks. A previous Supply Chain Matters commentary highlighted the impacts among inbound and outbound container activity as well as how carriers like FedEx and UPS rallied to assist in added air capacity and multi-modal re-routing efforts. Even at this point at we close out calendar 2014, the two parties cannot agree as to how much progress is being made in resolving both contract and port productivity issues. The NRF’s latest news release continues to add scathing comments regarding the ongoing situation. We repeat our view that at this point, industry supply chains care less about the full resolution of labor contract renewal talks and more about the implications and learning associated with this series of events. There will be less tolerance for this magnitude of disruption and one of our 2015 Predictions is to anticipate alternative inbound and outbound container port inter-modal routings in 2015. The difference in financial bottom-lines may well be those supply chain teams that anticipated this disruption ahead of time to be able to initiate alternative planning.
More will go regarding the 2014 peak holiday season and like every other year, the learning will help in planning for the coming years.