These past few weeks have featured an explosion of business, general media and technology vendor recognition concerning the new era of digital manufacturing that is underway and its profound impacts of how we think about this area.  The notions of additive manufacturing, smart devices and predictive analytics applied to products and services are now becoming more top-of-mind for multiple industry executives.

We are moving from an era of predominantly physical to that of digitized and software concentrated aspects of products and services.  The sooner your company and organizational teams understand the implications of these trends, the better.

This week, the Wall Street Journal featured a special dedicated insert with the lead article, A Revolution in the Making. The series highlighted the profound impacts that additive manufacturing will have on global supply chains in the not too distant future.  Two articles highlight efforts underway at Ford Motor, General Electric, Nike and Mattel in their current applied use of additive manufacturing techniques applied to customized manufacturing. In late May, the Financial Times published an article concluding that the digital based transformation of manufacturing is the key for European based firms to lead in a sustainable recovery from the current economic malaise, but questions if the broader aspects of manufacturing firms fare committed toward change.

Product (PLM) and service lifecycle management (SLM) technology provider PTC is conducting its PTC Live Global customer event this week.  Besides reinforcing the themes noted above, this vendor also co-sponsored a research study with Oxford Economics which is titled Manufacturing Transformation. (No-cost sign-up required to download) This report surveyed over 300 manufacturing executives across six industry sectors. By our view, one of the more significant takeaways from the findings was that 68 percent of those surveyed expect to undergo a significant business process transformation over the next three years. Geographically, European based manufacturers expect more of this transformation, no doubt another reinforcement of the FT article noted above.

The survey results further uncovered that customer fragmentation is a current major concern for manufacturers which is being translated to a heightened attention to coordination of strategy and planning among engineering, manufacturing and service functions.  However, nearly 70 percent of manufacturing C-level executives view talent shortages and labor costs as a critical worry.

When we developed our Supply Chain Matters 2013 Predictions for Global Supply Chains late last year, we considered a prediction on the impact of additive manufacturing but instead noted the trend in our honorable mention predictions. Our thought was that 2013 may well be the year where the momentum of adoption of additive manufacturing techniques across multi-industry supply chains would accelerate. More transformational work remains, but the momentum is clearly accelerating.

In our ten listed 2013 predictions, we identified in Prediction Four that supply chain talent retention, management and development will remain a significant problem across global supply chains.  That challenge continues to manifest itself in executive and other surveys, the latest being the Oxford Economics study.  Prediction Eight portended that the digitization and the building momentum toward bundled hardware, software and services would facilitate further teardown of functional walls. We believe that it will drive product development, customer fulfillment and service under a common leadership umbrella.

Yes, the keys toward industry competitiveness are quickly moving into dimensions of virtual and additive manufacturing where customer needs are individualized, where time-to-market dimensions are even faster, and where design, build and service anywhere have true meaning.  The evidence is quickly building, and the needs for your organization to be prepared to take advantage of these forces are becoming far more compelling. Readiness includes not just technology but ever more important areas of organization, skills development and other enterprise transformational needs.

In the remainder of 2013, Supply Chain Matters will provide added depth to the implications of manufacturing transformation and its implications in organizational and supply chain dimensions. For the time being, we pose two questions for your thoughts:

Are you delivering these manufacturing transformational messages and their implications to your supply chain wide organizational teams?

Are plans and initiatives addressing transformational needs being identified, particularly to help people transform their skills?

Bob Ferrari

Prior to this week’s IBM Smarter Commerce Summit, Supply Chain Matters posed the question as to whether IBM has upped its game in B2B and supply chain technology solutions.  After two days of sessions, we found evidence that many of the end-to-end pieces of supply chain and Omni-commerce vision are beginning to fall into place but the roadmap to customer availability needs further acceleration. For that matter, clearer roadmaps would greatly assist.

To refresh our reader’s awareness, IBM has invested upwards of $3 billion in strategic external acquisitions to build out the various components of the Buy-Sell-Service and Market capabilities that make-up the IBM Smarter Commerce portfolio. The effort began three years ago, while the first public market presence for customers was two years ago in the first of the series of summits.  Major acquisitions for the supply chain and Omni-Commerce aspect were Emptoris for the Buy segment, Sterling Commerce for the Sell and network messaging segment, ILOG for enhancing Buy, Sell and Service needs, DemandTec for pricing optimization and a whole host of specialized vendors for predictive analytics to name a few. This year’s summit introduced a major new element, the unleashing of IBM’s corporate research and development efforts in coming up with potentially breakthrough approaches for the online Sell and Service aspects.

Two years ago in the first summit, the overall messaging was clearly slanted towards a CIO and IT audience.  This year’s summit left no doubt in our mind that the IBM marketing machine can right itself to today’s changed market needs. The messaging and audience was targeted for line-of-business and solutions selling addressing business problems. IBM executives and product marketing now speak in the language of end-to-end supply chain. More subdued however was overt messaging related to public and private clouds buying options.

In our attendance at both general and executive briefings, coupled with some general sessions, IBM is on the way towards embracing the integration of the front-end selling to the back-end value-chain response.  The most premiere enterprise technology provider has also become more pragmatic regarding the reality that not all customers will be total IBM shops, and that there are the clear realities of prior investments in legacy ERP or best-of-breed software that needs to be enhanced. Keynotes during day one were broad and visionary while day two included more of the required end-to-end accounting of how each of the Smarter Commerce components can interact.

Our one on one sessions uncovered the internal IBM discovery of the key linchpin that enables tomorrow’s more responsive and adaptable supply chain, that being the information network the spans the entire supply chain.  In the specific case of Smarter Commerce, that discovery was that the many roads surround the capabilities of the Sterling Commerce messaging and information integration network.  What we assessed as Sterling Commerce capabilities three years ago have clearly changed, bearing the mark of additional IBM development resources. The voices of existing high profile and influential Sterling customers have added to these efforts.  We extend a shout out to that community for your openness and perseverance.

In the all-important area of supporting both direct and indirect sourcing and indirect procurement process and predictive analytics capabilities, our perception is that Emptoris is leading the charge up the value-chain to all important integration to Fulfill, Sell and Service. Our current perception is that Emptoris is further into this journey than perhaps SAP and Ariba. Emptoris is also reaching out to the broader elements of ILOG business rules, predictive analytics and other areas.  We secured a commitment from IBM executives to keep us updated on this roadmap journey and we look forward to a subsequent update in the fall.

The other area we would like to mention is IBM’s introduction of cognitive based computing, namely Watson and other components, into the Smarter Commerce portfolio. We witnessed some extraordinary demonstrations of a Watson learning system supporting customer service processes.  An application which IBM has named Augmented Shopping Advisor, developed by its research labs in Haifa Israel monitors consumer movements within a retail store via the presence of a mobile device, and actually assists consumers (with their permission) in making a smarter product selection.  IBM executives disclosed that the application was actually running in the vendor showcase area and monitored the various movements of attendees as to which patterns and which kiosks were visited.  The possibilities to integrate this capability for supply chain sensing of product demand and replenishment are exciting.  In perhaps the same context, if you believe that sales and marketing teams drive you crazy in product forecasting and integrating to a single product demand plan, wait to they get their hands on augmented shopping and online experience capabilities.

We have many more detailed notes to absorb and thus we close out this initial impressions commentary with our key takeaway.  You, the supply chain and Omni-commerce professional will have many more enhanced technology tools in your arsenal in the not too distant future.  The all important question, however, are which partners will you decide to invest in.

There are a slew of product announcements and studies that were spawned by this year’s summit and most can be viewed on the IBM Smarter Commerce Blog site.

Stay tuned for further Supply Chain Matters impressions from this year’s Smarter Commerce Summit.

In the meantime, if you have specific questions, send us an email or call.  Contact information can be found on our main web site.

Bob Ferrari

An Infoys Limited Guest Contribution

The electrical utility industry is characterized by huge and geographically widespread organizational structures. Moreover, the processes followed by industry players across their several business functions are cumbersome and complex. Today’s utilities face numerous challenges like high operational efficiency, stringent safety levels, high reliability and proactive customer service. Also, being asset intensive, emphasis on critically tracking assets availability and performance has become an  important  priority. With these ever growing demands, the work and asset management in the utility is changing and striving for excellence.

Enterprise packages populated  by  best-of-breed applications have been supporting utility work and asset management processes effectively for a long time. However, a futuristic outlook and ever growing demands of utilities has forced them to look beyond the boundaries of these work and asset management applications.  Greater emphasis is now being given to the functions which are more relevant to business, and address their long standing pain points. A typical example would be managing capital projects, spanning multiple years and sometimes multiple geographies. The inherent nature of such work, the financial reporting involved, budgeting requirements, and statutory & regulatory needs, demand more than what a standard asset management package could offer. Furthermore, smart and efficient data entry for field force, having limited interactions with complex software applications, remains an unattended and sought after area.

Efficient and quick customer service has been a challenge in the light of an aging workforce, leading to less knowledge about customers and their problems. Traditionally work management and customer management has been working independently and in silos.  Though, efforts were spent to optimize business processes, the benefits of such optimization programs were limited due to absence of mechanisms to ensure adherence and accountability.

To meet growing gaps, utilities either customize their software packages or bind their systems with external applications using complex integrations, only to realize the associated downstream challenges later.

Infosys with its extensive domain expertise in utilities and client interactions, identified these critical pain areas which utilities are facing and addressed them in the development of the Maximo Utilities Amplifier. This application leverages the inherent capabilities of IBM Maximo and combines utilities best practices.  Built on a robust framework of IBM’s Enterprise Asset Management for Utilities, it equips the business users with enhanced functionalities and supporting tools required for managing the ever-growing needs in this area.

The application  has been designed to build on the core utility Maximo feature to address extended work management needs. With a modified work order application, the application captures specific capitals works information like Tax,  customer and service information, overhead reporting, project and task linkages etc. A dedicated project budgeting application allows work planners and schedulers to define, manage and control project budget and its performance vis-à-vis work execution. Smart reporting  identifies critical functions for field crews by  consolidating information in a single portal. The application further  enables a user friendly and efficient data entry process, channelizing the effort in the right direction and optimizing the work hours. Standardized and repetitive process is automated using workflows, ensuring close process adherence and accountability.

Readers can learn more about this utilities industry application at: http://www.infosys.com/industries/utilities/Documents/IBM-maximo-utilities-amplifier.pdf

Know more about Infosys Supply Chain capabilities at: http://www.infosys.com/supply-chain/pages/index.aspx

About the Authors

Praveen Agrawal –Industry Principal, Consulting & System Integration, Infosys

Praveen is a subject matter expert in Asset Management – especially in Maximo – with knowledge levels spanning across functions and industries. Praveen has global experience of executing various EAM and ERP projects for Energy, Utilities, Manufacturing and telecommunication clients in various capacities. Praveen anchors Maximo Center of Excellence for Infosys which is responsible for developing solutions, tools, accelerates, processes and methods. He also manages IBM relationship for all advanced technologies for Infosys’ Energy, Utility, Communication and Services vertical.

Rejeesh Gopalan –Consultant, Consulting & System Integration, Infosys

Rejeesh Gopalan has worked extensively in package consulting around the Maximo Asset Management Software, with a clear focus on energy companies and utilities. As a Consultant, Rejeesh is responsible for providing leadership in multiple projects based on Maximo Asset Management Software, involving end-to-end implementation, upgrades and application support.

Disclosure: Infosys Limited is one of other named sponsors of the Supply Chain Matters Blog.

Supply Chain Matters has commented on several occasions regarding Delta Airlines and its strategies to understand and more efficiently manage the major cost drivers of the airline supply chain.  That included the bold move to actually acquire its own oil refinery to control the largest determinant of Delta’s operating costs.

We call reader attention to a detailed profile article, Delta Flies New Route to Profits: Older Jets, published in today’s Wall Street Journal (paid subscription required or free metered view).

After reading this article, this author has a strong sense that Delta management understands how leveraging integrated capabilities in deep operations and supply chain expertise can influence business outcomes.  It is also a great study in bucking accepted industry practices and thinking outside the norm.

Case in point, the WSJ points out that while emerging discount carriers pursue a strategy of standardized aircraft and are in a rush to acquire the latest in more fuel efficient and technology sophisticated aircraft, the Delta aircraft fleet is both old and complex, with an average fleet age at over 16 years. That compares to Jet Blue’s average fleet age of 6 years, or Southwest Airlines average of 11 years.  According to the WSJ, among Delta’s total of 725 aircraft, there are over 10 different models, including 19 DC-9’s with an average age of 34.4 years. Delta just acquired and is refurbishing 49 used McDonnell Douglas MD-90 aircraft to add to its feet, along with 88 Boeing 717’s formerly flown by Air-Tran Airways, now acquired by Southwest, whose fleet is  standardized on the Boeing 737 aircraft. Thus far this year, the airline has run 86.3 percent of its domestic flights on-time, fourth among the top 15 U.S. air carriers, and according to the WSJ, the largest fleet profile airline to be most punctual. Delta is eschewing the much higher capital costs of new aircraft acquisition with a belief that older aircraft, while older and more expensive to operate, can be more reliable if supported by a robust maintenance and inspection program.  While the majority of the industry favors a fleet lease strategy, Delta has a belief that owned aircraft provides greater flexibilities in supporting flight needs in good times, or not so good times.  Leased aircraft need to be operated at full capacity, regardless of customer demand, in order to compensate for total leasing costs. While some of Delta’s competitors pursue a strategy of outsourcing smaller flight segments to regional carriers operating smaller sized aircraft, Delta’s current aircraft acquisition strategy allows the airline the flexibility to operate its own regional flights, with its existing pilot workforce.

The airline’s insourced 2.7 million square foot Delta TechOps operation plays an important role, providing maintenance and spare parts services not only for Delta, but other airlines, and even the U.S. military. Last year, TechOps had over $600 million in revenues and is a profitable operation. The WSJ points out that mechanics average 19 years of experience and understand that DC-9’s and MD-90’s are “workhorses”, as well as fairly reliable.

Since emerging from bankruptcy in 2005, Delta has been re-making itself, bucking industry norms and practices. The company is in its third year of profitability and cutting long-term debt, which stands apart in the current airline industry.

The airline consumes nearly $12 billion annually in aircraft fuel. The acquisition of the Trainor Pennsylvania refinery was motivated by the management sponsored study of the aircraft fuel supply chain, which uncovered that refiners were benefiting from increased margins on fuel sales. Delta’s goals are save at least $300 million annually as well as insure a reliable fuel supply for 80 percent of its domestic flight needs. The refinery, which re-stated in September, has been reconfigured to produce maximum jet fuel output.  The WSJ also reports that Delta is now exploring purchasing more inbound crude from more U.S. domestic sources such as the Bakken formation in the Dakotas, vs. importing crude from Europe and the Middle East.

If you can, read this article, since it provides an argument that understanding your supply chain, bucking standard industry thinking with bold thinking, and aligning the supply chain to support required business outcomes can yield measurable benefits that can set a company apart from its competitors.  That applies not only to manufacturing but to service focused firms as well.

Bob Ferrari

Readers are all too aware that supply chain risks stem from many broad dimensions of internal and external events.  One that is too often not mentioned is that of external risks as a result of political or inter-governmental events.  A significant reminder of this dimension of risk surrounds current political and economic tensions concerning China and Japan, which has a spillover impact to Japanese OEM supply chains.

Both countries have been wrangling over ownership of a group of uninhabited, fishing centric Islands located in the East Chain Sea, which has escalated to a rallying of overt nationalistic based actions. Both Japan and China lay claim to these disputed islands known as the Sankaku Islands in Japan and the Diaoyu Islands in China. Both have increased their military and fishing presence in waters surrounding the disputed islands and China’s senior Finance and Banking officials have gone so far as to recently snub the annual meeting of the Internal Monetary Fund and World Bank because the meetings were being held in Tokyo.  Chinese citizens have participated in active demonstrations condemning Japan for its actions, and also transferring their nationalistic based rage to shun the purchase of Japanese branded products.

The implications of these incidents are now manifesting themselves in the supply chains of Japan’s automotive, consumer electronics and other services focused supply chains. In mid-September, many factories with Japanese brand interests were forced to close their China factories for several days as anti-Japanese protests caused a concern for production worker safety. Tensions among the two countries, as well as perceptions of Japanese branded products, have been inflamed and amplified by the consequent effects of social media.

Earlier this month, Toyota announced that it will reduce output by up to 50 percent in its China based factories, and temporaily suspend exports of its Lexus brand autos to China’s market because of falling sales. News reports indicate that Toyota’s sales in China were down by as much as 40 percent in the month of September. Toyota had plans to sell more than one million vehicles in China during 2012. Similarly, Honda sales declined 41 percent.  Nissan sales fell 35 percent, and Mazda sales fell 35 percent. These are all significant reductions which bring with them a concern for longer-term impact. In its reporting, The Wall Street Journal quoted a Credit Suisse equity analyst as indicating that a risk of 50 percent capacity utilization continuing for the next twelve months is not out of the question and has been discounted in share prices. Further noted were concerns of prolonged production cuts among Japanese focused factories posing a problem for ever further declining output in China’s current economy.

In the services sector, the WSJ reported that Japan Airlines had passenger cancellations amounting to 19,500 seats on Japan-China routes for the months of September through November. All Nippon Airways experienced 43,000 seat cancellations as of the first part of October and has elected to switch to smaller aircraft for some Japan-Beijing flights in the coming weeks.

Various Japan based industry executives are quoted as being somewhat puzzled or taken-back by the effects of the escalating tensions between the two countries. The collective hope is that tensions will eventually subside and supply chains can return to normal activity levels. There is obviously no doubt of the critical importance of China’s consumer market. Meanwhile, diplomats remain concerned that the steady stream of tensions and ongoing maritime surveillance activity surrounding the disputed islands does not result in an accidental sinking incident that could lead to a breakout of open hostilities between these two important nations.

The reminders of external supply chain risk come in many dimensions and now there is a concrete example of political tension between countries as evidence, not to mention, the increased risk of foreign based firms doing business within China when tensions rise.

Bob Ferrari

Our readers are more than aware of the ongoing unique challenges facing the global supply chains involving the aerospace industry.  Airline and aircraft leasing customers demanding more cost-efficient and innovative aircraft, coupled with breakthroughs in the development of lighter composite materials have resulted in the current unprecedented backlog of customer orders for OEM’s such as Airbus and Boeing. These respective OEM’s continue to be challenged with large scale multi-year production ramp-up needs while continuing to deal with engineering and production challenges.

Supply chain teams within aerospace are also fully aware that long-term maintenance and the service supply chain can be far more profitable and provide more opportunities for sustaining revenues than the product focused supply chain.  Today’s more technology laden aircraft represent far larger potential capital expenditures for airlines and over the past few years, aerospace OEM’s and component providers have come-up with creative leasing, financing and ongoing maintenance plans that reduce up-front capital and long term operating cost burdens.

This especially concerns the far more fuel efficient engines that will power the next generation of aircraft.  Airbus was able to seize first mover market advantage and book over 800 aircraft orders in months because of its collaborative co-development efforts with Pratt & Whitney in the development of the geared turbofan Pure Power engine offered on the A3320neo aircraft. Consider the fact that each plane comes with at least two engines, and aircraft engine manufacturers are bursting with order backlogs.  Pratt has secured orders for upwards of 2900 engines while CFM International, the joint venture among General Electric and Snecma, whose Leap engine is offered as an option for the Boeing 787 Dreamliner, has amassed over 4100 orders.  Engine manufacturers are keen to provide customers with long-term leasing and “power by the hour” maintenance programs where both airline customers and engine providers have incentives to insure that their engines provide reliable, continuous service at a lower overall cost.

The long-term profitability stakes are so high that Rolls-Royce, the sole engine provider for Airbus’s A380 superliner and the upcoming A350 has been involved in a high visibility public dispute with Air France-KLM over that airline’s independence in providing long-term maintenance for itself and other airlines. The airline was keen to continue its in-house maintenance program, so much so, that it was willing to hold hostage for months, a pending $6 billion order for 25 new Airbus A350 passenger jets until its demands for in-house maintenance were met. A Financial Times article in late August noted that the Rolls “Total Care” maintenance activities had already yielded Rolls over €1.5 billion in revenues for the first half of 2012.

While the long-term rewards for a robust service supply chain are lucrative, the product lifecycle management, information and supply chain challenges for engine providers are complex and require innovative approaches.  Rolls Royce has already experienced initial learning with its Trent family of engines powering the massive A380.  A catastrophic engine failure in 2010 involving a Qantas Airlines A380 was ultimately traced to a manufacturing flaw involving the assembly of engine oil tubes that initiated oil leaks resulting in the in-air failure of the engine. Since that time, Rolls has responded to a number of safety and maintenance inspection mandates involving the oil distribution systems of the Trent.

The General Electric GEnx engine is a powered option for the 787 Dreamliner. This new engine utilizes the latest generation materials and design processes to reduce weight, improve performance and lower maintenance. The rear turbine blades section is described by GE as featuring: “unique powdered metal rotors, specialized coatings, enhancing cooling techniques and new blade materials.” In late July, a brand new 787 scheduled for delivery to Air India experienced an inflight engine failure during final testing and the engine had to be returned for teardown analysis. During the same period, ANA (All Nippon Airways) had to temporarily ground part of its operating 787 fleet after unusual corrosion was found in the gearbox components of a Rolls Royce Trent 1000 engine. ANA, the original launch customer for the 787, indicated that the action stemmed from a flawed process that could leave a certain parts of the Trent 1000 engines vulnerable to early corrosion.

The sophisticated engines being introduced by aircraft engine manufacturers are breaking new ground in technological capability. They are akin to the breakthrough introduction of direct fuel injection systems over carburetors in automobiles so many years ago. Over time, engine manufacturers will eventually reach stated goals for performance, long-term reliability and uptime.  But as this occurs, the paradigm of the service supply chain shifts towards early warning predictability maximized uptime and needs for precise synchronization of service events. This includes on-board and self-communicating diagnostics providing early warning to operating issues, more responsive networks of service parts and service depot suppliers as well as highly networked maintenance facilities.

In our view, aerospace manufacturers need to consider increased investments in their service supply chain capabilities including deeper product lifecycle management integration and supply chain intelligence, collaborative execution and supply chain control tower concepts.

The service supply chain will no longer take a back seat to the product-driven supply chain, and for aerospace specifically, it will be instrumental in fulfilling long-term revenue and profitability business objectives.

Bob Ferrari