Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide our series of predictions for the coming year. These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, as well as helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the upcoming New Year.
In Part One of this series, we unveiled the methodology and complete listing of our 2014 predictions.
Part Two of this series summarized Prediction One related on what to expect in the global economy and Prediction Two, what to expect in procurement costs.
Part Three of this series summarized Predictions Three, continued momentum associated with the resurgence in U.S. and North America production, and Prediction Four, talent recruitment and retention as a continued challenge.
In this Part Four posting we address industry specific supply chain challenges in 2014. We need to alert readers that this particular posting in somewhat longer in content but we felt we needed to provide the entire spectrum of the more unique industry specific 2014 predictions.
Prediction Five: Noted Industry Specific Supply Chain Turmoil and Challenges
In 2013, we predicted that B2C and Aerospace focused supply chains will experience significant challenges and increased turmoil. That turned out to be the case in many dimensions. For 2014, we continue to predict added challenges for this sector, and are adding consumer product goods (CPG) focused supply chains to our 2014 predictions list.
B2C and Retail Focused Supply Chain Challenges
As was the case in 2013, B2C and Retail focused supply chain will face challenges for both consumer demand and supply aspects. The “Amazon effect” remains a real threat for both traditional brick and mortar and online retailing fulfillment strategies in 2014.
On the consumer demand front, the majority of consumers continue to be economically stressed and cautious given a world of many uncertainties. These consumers have shifted their research, buying and goods replenishment preferences towards channels offering the lowest price and highest value, and the effects of omni-channel retailing continued to reverberate throughout B2C segments in 2013 and will continue throughout 2014.
According to online fulfillment intelligence firm ComScore, in 2012 online E-commerce sales rose by 14 percent and there were 12 days of greater than $1 billion in online sales activity. The firm’s preliminary projects for 2013 call for a 14-17 percent increase in online sales with consumers utilizing mobile devices reaching the highest percentage of digital commerce with nearly $10 billion in spending. With a shorter 26 day buying period between the Thanksgiving and Christmas holidays, predictions call for intense promotional programs to attract consumer sales and ComScore predicts that nearly 25 percent of holiday buying will occur December 15th or later. In 2013, some notable brick and mortar retailers such as Best Buy have developed new strategies to overcome the effects of “showrooming” where consumers visit a store to inspect product features and then elect to buy online. The crux of the new offsetting strategy is price-match any online offer and to provide added services for consumers. However, as we pen this prediction, retail sales associated with the all-important 2013 Thanksgiving and Black Friday holiday weekend lagged behind 2012 levels for brick and mortar retailers, causing concerns for high inventory management visibility in the remaining days leading up to end of December.
Emerging market areas such as China and Russia are now experiencing explosive growth in online buying and although overall logistics are not as sophisticated, volume growth is being supported. Published research data indicates that consumer facing industry supply chains are continuing to invest more in direct, consumer-facing activities.
The above amount of activity will stress an already taxed set of capabilities across B2C focused supply chains and the spillover effects and consequences will extend into 2014.
On the supply end, global retailers have garnered considerable visibility to social responsibility practices and in particular, factory safety and labor conditions across garment factories in Bangladesh. The tragic Rana Plaza factory collapse that killed in excess of 1000 workers was the watershed event that has now led to the formation of three regionally based retailer consortiums addressing the state of factory conditions across that country along with financial mechanisms to assist factory owners in making required upgrades in facilities and compensating garment workers a living wage. Prediction Six will provide additional detail on these types of challenges, which are sure to garner increased visibility and developments in 2014.
More than ever, for B2C facing supply chains, advanced capabilities in more predictive planning, inventory management and responsive replenishment will separate leaders from laggards. The ability to have real-time visibility and the ability to plan and pool multi-tiered supply chain inventory needed to support the breadth of omni-channel fulfillment needs is part of that differentiation. In 2014, B2C facing supply chains will come to understand the critical linkages among supply chain network design and predictive planning capabilities.
In 2013 we learned how Amazon is expanding its breath of online product selections, its added investments in distribution and same-day delivery capabilities. We learned of distribution co-location fulfillment program among Amazon and Procter and Gamble, where certain consumer products are moved across the aisle to trigger Amazon’s online distribution network. More announcements will come in 2014.
In 2012, we advised retailers large and small to tear down the functional walls between traditional and online supply chain organizations and reduce overall complexity. In 2014, we again predict that teams will experience how important that becomes. The traditional concepts of physical distribution are now being re-aligned toward the ability to support individual order and higher flow-through volume. The ability to manage the tendency toward stock-keeping unit (SKU) proliferation brought about by multiple channel fulfillment will become another important differentiation for customer-facing supply chains.
Some noted retailers have already struggled with the effects of a digitally empowered consumer. Our prediction is that at a minimum, 2-3 and perhaps other highly recognized global or regional retailers may not survive this new world of omnichannel retailing in 2014. Amazon will continue to dominate but will remain under challenge from online efforts from Wal-Mart and other web-based fulfillment properties.
Consumer Product Goods (CPG) Sector Challenges
The CPG industry is traditionally an industry of high volume and low margins. Profitability growth stems from a continuing stream of innovative products that consumers desire to buy, high sales volumes, overall efficiency and cost management. Stockholder interests lie in consistent dividend payouts and increasing market-share dominance.
Global scale is an important strategic differentiator. Smaller or less profitable brands and firms have been acquired by larger industry players, and continued growth and profitability stems from the ability to tap new consumer markets in developing parts of the world. Economic recessions brought about a more cost-sensitive consumer, and the emergence of the attraction of private brands among consumer buying patterns has taken hold across the industry. Globally focused firms with large product portfolios and brands are able to leverage needed investments in innovation in laggard brands to differentiate their products over private brands, but the competition for the bulk of the consumer wallet continues. The current momentum of online fulfillment and the “Amazon effect” (noted above) has added additional pressures for business process and fulfillment investment. Profits generated from the most popular products or brands help to fund new investments in laggard products. Industry supply chain capabilities focus on responsive demand and supply planning, the ability to plan and anticipate consumer demand patterns and to control commodity and overall procurement costs.
What is changing is the heightened appearance of activist investors who apply dimensions of financial engineering to one or more CPG companies. Their goal is stated as extracting more hidden value for shareholders and the tactics can shake-up, disrupt or cause certain unforeseen effects to individual supply chains. Time Magazine recently cited a Citigroup report indicating that there were 138 activist actions by the end of August 2013 and further noted that activists are less likely to buy firms outright and more likely to pursue share buybacks allowing greater control of corporate strategy and tapping the vast amounts of trillions of dollars in cash on corporate balance sheets. “Their sites are on bigger, richer companies.”
The Supply Chain Matters blog has featured past examples of CPG supply chains response to activist actions. The most notably was the split of CPG icon Kraft into two separate companies, Kraft Foods and Mondelez International. That event was preceded by Kraft itself acquiring global confectioner and snack food company Cadbury. The cumulative effect was multi-year initiatives designed to extract cost savings primarily from global supply chain operations including capacity consolidation and facility closings. Savings garnered from supply chain cost reduction where channeled to fund both new sales and marketing promotions or to fund stock buyback needs. The newest announced 2013 initiative for Mondelez includes the goal of a 5 percentage point improvement in income margin by 2016, which accounts for upwards of $3 billion in savings. Sibling firm Kraft Foods is in the process of re-investing in its overall capabilities to secure added operational improvements. Some of the same industry activists now hint of pairing up Mondelez and the Frito Lay snack foods division of Pepsico as a new and more formidable global snack and convenience foods provider.
In early 2013, another significant announcement was the acquisition of HJ Heinz by 3G Capital and Berkshire Hathaway with again the motivation to extract added value from a consumer icon. That motivated the Wall Street Journal to headline that merger activity is on a comeback in CPG. Several weeks ago, Heinz announced a re-structuring of its global wide facilities that included plant closings and reductions in corporate administrative staff.
With investment money remaining cheap, activist or M&A activity will obviously continue into 2014, and that threat alone places more pressure on CPG focused supply chains to harvest more cost savings. A look across the remainder of the industry finds that Procter & Gamble has been under enormous pressure these past months to produce additional growth and revenues, after its efforts to consolidate certain supply chain related activities. Nestle has been reviewing its entire global portfolio of brands. Kellogg’s announced a multi-year billion dollar efficiency and effectiveness initiative across its global supply chain. Both Coca Cola and Pepsico have experienced a slowdown in overall revenues and profits from traditional beverage lines causing additional speculation for re-structuring.
For all of the above reasons, CPG focused supply chains will be additionally challenged in 2014 as they are called upon to deliver further cost savings. Since multiple years of prior cutbacks in capacity, spending and resources have taken a toll, additional cutbacks will have far deeper implications. The spillover of financial activist actions may impact additional supply chains. As we penned this prediction, activist Carl Icahn was in dialogue with Apple regarding more increased value and dividends for stockholders.
China’s new shift to more a consumption driven economy will drive new opportunities for a growing middle class and CPG market, and will indeed present a competition among global, local or private brands. The leaders will be those supply chain teams that can influence senior management on cuts in areas that will not cripple the ability to maintain market agility and maintain capabilities for more timely response to market opportunities or major disruption.
CPG companies must invest in new business process capabilities to meet the challenges of diverse global markets, varying channels of distribution and the threats of omni-channel commerce. The year 2014 will prove critical as to which CPG supply chains rise to balancing activist industry pressures for cost savings or consolidation with the needs for the supply chain to be more responsive to individual market needs. Resiliency is the key strategy for CPG focused supply chain in 2014.
Aerospace Industry Supply Chain Challenges
Aerospace supply chain challenges stem from a rather enviable position, namely unprecedented demand for newer technology-laden aircraft and aircraft components while volume capacity limits are stretched into multi-year windows.
The literal duopoly of Airbus and Boeing continued to dominate industry news in 2013 as both global OEM’s continued to balance unprecedented increases in new orders for aircraft while challenged to dramatically increase the production volumes for finished aircraft. Other smaller industry OEM’s such as Bombardier, Embraer and COMAC compete for niche aircraft segment needs, and each of these players faced critical milestones in 2013.
Both Airbus and Boeing focused supply chains continue with efforts to increase overall aircraft delivery volumes by an unprecedented 40 percent by 2015. At the recent Dubai Air Show held in November, new aircraft orders amounting to excess of $150 billion were booked with delivery slots beginning in 2020. That is the indication that aerospace supply chains will be extraordinarily challenged for at least the next 10 years if not longer. The dual challenges of ramping-up volume production of released and certified aircraft, coupled with additional product design, development programs and component sourcing efforts for newly announced aircraft will continue to tax supply chain, sourcing and product management teams.
In 2014, existing released aircraft such as Boeing’s 787 Dreamliner must meet delinquent ramp-up delivery requirements in spite of continued component glitches. Suppliers to the 787 have already incurred financial hardships related to constantly delayed or changing delivery schedules. Amid the flurry of multi-billions of orders associated with the launch of 777x aircraft, Boeing’s engineering and production labor union in Seattle has rejected the company’s offer for a long-term labor agreement. In 2014, Boeing must deal with both of these challenges as key partners demand more of their share of financial benefits to unprecedented backlog order and customer delivery needs.
Airbus has plans to begin production and delivery of its new A350 aircraft in 2014. Production ramps of 40 percent increase for the existing A320 backlog, while continuing plans for development and first maiden flight of the anticipated A320 neo version of aircraft will accelerate in 2014.
Bombardier’s new C-Series aircraft first customer ship is expected in late 2014, after completion of certification by global regulators. Barring any major unexpected issues, that milestone will be crucial to convince prospective airline and leasing customers that another alternative exists for fuel efficient single aisle aircraft with possibly quicker delivery times than Airbus or Boeing.
COMAC also faces critical challenges in 2014-2015, those that determine whether it will be a viable market competitor. That OEM’s C919, which Fortune magazine recently declared as a direct look-alike to the Airbus A320, is scheduled for maiden flight in either late 2014 or 2015 and so industry watchers question the effectiveness or viability of the design.
Aircraft engine suppliers General Electric, Safran and Rolls Royce are also beneficiaries of unprecedented new aircraft orders. GE Aviation must fulfill a delivery rate of more than 4,000 engines per year for the next two years amid increasing customer orders for its new GE90, GEnx and CFM56 engine models. The company has a backlog of orders for 15,000 new generation aircraft engines between now and 2020. In 2013, GE Aviation provided indications for movement towards a more vertically-integrated supply chain strategy to both protect intellectual property and better control production ramp-up requirements.
Rolls Royce has plans to double its production output of wide body aircraft engines in next five years. Aircraft engine manufacturers continue to foster and support recurring revenue flows from airline customer “pay by the hour” operating uptime leasing programs. “Power by the hour” airline customers expect to pay for engine up-time and long-term reliability, which in reality shifts more of the operating and uptime risk burden to the OEM manufacturer. The gold rush analogy that the makers of shovels benefitted more than the miners applies when it comes to aircraft engine providers. Each of these manufacturers and their associated supply chain partners are dealing with unprecedented order backlog volumes and production ramp-up needs, while insuring that newer, more fuel-efficient materials and components can meet the strict quality and operating time standards of aircraft power plant needs.
The year 2014 will indeed be a continuation for unique supply chain challenges across the civilian aerospace industry with little margin for setbacks or glitches. Both product development and operations focused coupled with service management focused challenges are in-store for 2014.
This concludes Part Four of our 2014 Predictions series.
Keep your browser focused on Supply Chain Matters as we highlight Prediction Six and Prediction Seven, both of which will address new dimensions of supply chain risk, in our next posting.
As always, readers are encouraged to add individual or their own organizational perspectives to these predictions in the Comments section associated to each of the postings in this series
© 2013 The Ferrari Consulting and Research Group LLC, and the Supply Chain Matters Blog. All rights reserved
While Supply Chain Matters is certainly not a social and political focused blog, one cannot ignore the immediate or longer-term industry supply chain impacts related to the current U.S. government shutdown that began earlier this week.
There are, of course, discernible direct and indirect consequences, and the longer this shutdown continues, the more impactful they will become. While larger, globally extended firms can adsorb short-term or unplanned impacts, small and medium sized firms are more impacted, and so are their supply chain teams.
Product and service-centered supply chains supporting various U.S. governmental agencies and their procurement needs are certainly impacted. Those focused on military and defense related products and services that were already impacted by the effects of the earlier U.S. sequestration budget cutbacks are now ever more impacted. Today’s edition of both the printed and online edition of the Wall Street Journal featured an article profiling a number of military related suppliers and contractors, both large and small, that are now encountering troubling impacts such as delayed or absence of orders. Some threaten layoffs if the shutdown continues.
There are also the indirect but other meaningful impacts. Boeing has warned that ongoing deliveries of its 787 Dreamliner aircraft built at its assembly facility in South Carolina could be delayed because FAA inspectors servicing that facility have been furloughed. Food and pharmaceutical supply chain contamination risk governance are now potentially impacted because of temporary elimination of early-warning inspectional resources.
In transportation areas, U.S. port operations that process import and export shipments could be impacted by the lack of governmental customs clearance or cargo inspection staff. In the coming weeks, goods ordered for the upcoming holiday buying surge period are inbound to ocean container facilities. Similar thoughts could be appropriate for compliance aspects related to global air cargo movements. Congestion or glitches in one aspect of global movement invariably impacts all other inter-modal segments. If a major natural disaster or transportation related accident were to occur in the U.S., how quickly could supply chains recover without federal agency response?
While on the topic of the upcoming holiday buying season, consumers either directly impacted by furloughs or salary cutbacks, as well as other consumers concerned about long-term impacts to the U.S. economy may be compelled to cut-back on holiday buying and service-related plans. According to the President of the National Retail Federation (NRF), similar actions occurred last year with the “fiscal-cliff” crisis spooking holiday purchases during the last few weeks of the year. The mood of the consumer has far broader retail and other industry supply chain implications.
We have called attention to building momentum and the resurgence of U.S. Manufacturing, yet a small faction of legislators practicing radical brinkmanship and narrow ideological politics can well temporarily or permanently derail such momentum.
Advanced planning technology provides opportunities for supply chain planning and operations teams to practice what-if scenario planning and more predictive analysis of expected product demand. Unfortunately, advanced technology cannot accurately predict the probabilities of outcomes associated with a dysfunctional political process.
As B2C supply chains gear-up for the upcoming holiday buying season surge, it was fascinating to read three different articles in today’s Marketplace Section of the Wall Street Journal report on preparations, opportunities and potential challenges. Whether running the three was by design or by chance could be speculated but none-the-less they each present different perspectives for operational planning.
One article notes that Amazon plans to hire 70,000 temporary workers to augment its existing 20,000 distribution center workers, 40 percent more than last year. The online fulfillment provider obviously has optimistic plans for volume activity in the next three months which represents roughly 35 percent of revenues. This year will also be another test of same-day or next-day delivery fulfillment and the leveraged use of additional fulfillment centers brought on-line. What is more interesting is that Amazon’s PR teams have not elected to share what distribution center productivity enhancements that have garnered as a result of the acquisition of distribution robotics provider Kiva Systems in March of 2012. There is much speculation on whether Amazon would leverage Kiva for a productivity advantage in online fulfillment.
Another related article reports that Wal-Mart Stores just opened a new dedicated online fulfillment distribution center near Fort Worth Texas, with a second dedicated distribution center scheduled to open early next year near Bethlehem Pennsylvania, as it prepares to ramp-up its online efforts. Wal-Mart deploys a different strategy that leverages the presence of its brick and mortar stores. There are actually two distribution center networks at Wal-Mart, one dedicated to physical store supply and replenishment and an emerging network dedicated solely to online needs. As we have noted in earlier commentaries, roughly half of Wal-Mart’s online orders are actually picked-up by consumers at local stores, thus direct to store delivery is an important delivery method. The retailer currently plans to hire an additional 55,000 seasonal workers to support the upcoming holiday surge and how they are deployed to support online vs. physical store volume requirements will be rather interesting. Wal-Mart’s roughly $8 billion in online revenues pales with Amazon’s $61 billion, yet both deploy far different fulfillment and strategies. The WSJ reports that the extra layer of costs results in Wal-Mart costs of $5 to $7 per online order shipment, while Amazon currently leverages $3 to $4 per in parcel fulfillment cost. Retail industry observers and we we have also observed that Wal-Mart has cut back in its permanent staffing of its U.S. stores, and if any of our U.S. readers have visited a Wal-Mart store in the past few weeks will observe the results of that strategy, stores that are messy and unorganized.
Finally, there is a report that a labor union rift occurring at the Louisville Kentucky union local poses an upcoming threat for UPS. While “brown” settled and signed a national labor agreement with the International Brotherhood of Teamsters in June of this year, some member unions such as Local 89 have not settled local contracts. Louisville is the home of UPS Worldport, the center of the UPS U.S. distribution network. Retail shippers thus have some anxiety as the critical B2C holiday surge period approaches where consumer shipment fulfillment volumes surge dramatically and expectations are high. In its reporting, the WSJ reported that in a filing with the Securities and Exchange Commission, UPS cited labor negotiations with the Teamsters Union for “hindered volume growth” in the second quarter. Thus a potential rank and file rebellion could continue to add more uncertainty in the upcoming months. For its part, UPS continues to state that indefinite contract extensions with local unions should alleviate any concerns.
Thus, three different reports with one common theme, B2C supply chains preparing for even more diverse opportunities and challenges for the upcoming holiday surge. It will be interesting for all of us to watch and observe how all of these developments interplay in the coming three months.
The challenges for Boeing and its 787 Dreamliner program apparently continue, this time with newer twists involving implications for both Boeing’s services and product focused supply chains.
In today’s edition of the Wall Street Journal, aviation industry reporter Jon Ostrower pens that Boeing continues to encounter headwinds in managing the operational reliability of the 787 . (paid subscription or free metered view)
Noted is that low cost airline Norwegian Air Shuttle has emerged as a prominent trouble spot for Boeing after problems with its two 787’s have caused numerous delays or cancelled flights, resulting in only 49 percent of its fleet of 787 flights operating according to schedule. This development is noteworthy because the airline was the first carrier to sign-up for Boeing’s service management program where the manufacturer assumes responsibilities for operational uptime performance. The report indicates technical problems with the aircraft’s power supply along with indicators of issues with the aircraft’s brake systems have impacted on-time performance. The situation prompted the CEO of the Norwegian airline to publically declare that the situation was “unacceptable” and further prompted Ray Conner, Boeing CEO for commercial aircraft to recently visit and meet with airline management as well as dispatch a team of Boeing technical experts to Norway to resolve these ongoing glitches. Boeing has been further requested to move augmented spare parts inventories to the airline’s schedule destinations while it continues to work on longer-term fixes.
The article notes that on-board aircraft sensors have detected other aircraft glitches. LOT Polish Airlines was forced to halt flights last week after three engines on two separate jets were noted as missing oil filters.
While some readers might conclude that any new aircraft has an expected trial of working out expected glitches, the advanced technology and overall visibility attached to this particular aircraft and its ongoing history magnifies each development. However, now that it has been revealed that it involves a Boeing managed maintenance program for a particular airline, it takes on more significance for Wall Street and consequently for Boeing’s product management and service supply chain teams.
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?
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.