It’s the end of the calendar work and this commentary is our running news capsule of developments related to previous Supply Chain Matters posted commentaries or news developments.
In this capsule commentary, we include the following topics: Zara Implementing RFID Tagging System; Hershey and Other Candy Providers Raise Prices to Compensate for Higher Commodity and Production Costs; Pratt and Whitney and IBM Embark on Predictive Analytics Initiative; U.S. Government Announces New Rules Pertaining to Rail Shipments of Crude Oil
Zara Implementing RFID Tagging System
Reports indicate that Zara, a known icon in world class logistics and supply chain management, is implementing a microprocessor-based RFID tagging system to facilitate item-level tracking from factory to point-of-sale. This initiative was revealed at Zara’s parent company, Inditex SA, annual stockholder meeting earlier this month.
The tracking system embeds chips inside of the plastic alarms attached to various garments and supports real-time inventory tracking. The retailer indicated that the system is already installed in 700 of its retail stores with a further rollout expected to be 500 stores per year. That would imply that a full rollout to all 6300 Inditex controlled stores would entail a ten year rollout plan. No financial figures have been shared regarding the cost aspects of this plan.
Hershey and Other Candy Providers Raise Prices to Compensate for Higher Commodity and Production Costs
One of our predictions for 2014 (available for complimentary download from Research Center above) called for stable commodity and supplier prices with certain exceptions. One of those exceptions is turning out to be both the cost of cocoa and transportation.
Citing current and expected higher commodity, packaging, utility and transportation costs, Hershey announced last week an increase in wholesale prices by a weighted average of 8 percent, which is rather significant. That was followed by an announcement from Mars Chocolate North America this week that it will institute price hikes amounting to seven percent. A Mars statement issued to the Wall Street Journal indicated that it has been three years since the last announced price hike and that Mars have experienced a dramatic increase in the costs of doing business.
According to the WSJ, cocoa grindings, a key gauge for chocolate product demand, has surged over 5 percent across Asia and 4.5 percent in North America.
By our lens, the next move will more than likely come from Mondalez International.
For consumers, indulging in Hershey Kisses, M&M’s and Snickers will be more expensive.
Pratt and Whitney and IBM Embark on Predictive Analytics Initiative
Another of our 2014 predictions called for increased technology investments in predictive analytics. One indication of that trend was an announcement indicating that aircraft engine provider Pratt & Whitney is partnering with IBM to compile and analyze data from upwards of 4000 commercial aircraft engines currently in service. This effort is directed at developing more predictive indications of potential engine maintenance needs. According to the announcement, each aircraft engine can generate up to a half terabyte of operational performance data per flight. According to an IBM statement: “By applying real time analytics to structured and unstructured data streams generated by aircraft engines, we can find insights and enable proactive communication and guidance to Pratt & Whitney’s services network and customers.”
Previously, Accenture announced a partner effort with General Electric’s Aviation business to apply predictive analytics in areas of fuel-efficient flight paths.
U.S. Government Announces New Rules Pertaining to Rail Shipments of Crude Oil
As a response to heightened calls for increased safety of trains carrying crude oil across the United States, the U.S. Department of Transportation announced this week a set of comprehensive new rules for the transportation of crude oil and other flammable materials such as ethanol. The move follows similar efforts announced by a Canadian transportation regulatory agency.
The new rules call for enhanced tank car standards along with new operational requirements for defined high hazard flammable trains that include braking controls and speed restrictions. The new rule proposes the phase-out of the thousands of older and deemed unsafe DOT 111 tank cars within two years. Rail carriers would be required to conduct a rail routing risk assessment that considers 27 safety and security factors and trains containing one million gallons of Bakken crude oil must notify individual U.S. state entities about the operation of such trains. Trains that haul tank cars not meeting enhanced tank car standards are restricted to 40 miles-per-hour while trains carrying enhanced tank cars would be limited to a 50 miles-per-hour speed restriction. Further under the proposed new rules, the ethanol industry will have up to 2018 to improve or replace tank cars that carry that fuel.
The proposed new rules are now open for industry and public comment over the next 60 days and are expected to go into effect early in 2015. According to various business media reports, there are upwards of 80,000 DOT-111 rail cars currently transporting crude and ethanol shipments. When the new U.S. and Canadian rules take effect, there is likely to be a boon period for railcar producers and retro-fitters.
In yet another reinforcement of the market potential and increased interest in the echnology support of the Internet of Things (IoT), product and service lifecycle management technology provider PTC made another strategic investment to expand its product portfolio.
The company announced a definitive agreement to acquire privately held Axeda, an IoT cloud-based technology provider offering technology that connects machines and sensors to the cloud, for a reported $170 million in cash. According to an SEC filing, the merger agreement has been approved by the boards of both PTC and Axeda, and upon closing, Axeda will become a wholly-owned subsidiary of PTC. To finance this acquisition, PTC expects to borrow the full acquisition price.
The announcement follows the prior acquisition of IoT applications provider ThingWorx in December, which was the other strategic move into this new area of IoT and its relationships with both product and service lifecycle management.
Foxboro Massachusetts based Axeda is a privately-held company with majority ownership from JMI Equity which dominates its Board. The core of Axeda technology is the ability to establish secure cloud-based connectivity and management across a wide range of machines, sensors and devices. The Axeda IoT platform is described as a “complete M2M and IoT data integration and applications development platform” that includes connectivity, data management, and device and asset management support services. Axeda Connected Machine Management Applications provide support in the monitoring, remote access, content distribution, configuration and dashboard reporting of various M2M applications.
Support of business needs include technicians remotely diagnosing and servicing ATM’s, medical devices and industrial equipment. The company’s web site cites installed base customers in Industrial manufacturing such as Sealed Air and Tyco, high tech manufacturers such as EMC and NetApp, among others, and a fairly long listing of medical device manufacturers that include Medtronic, Phillips, Siemens and Waters. Strategic partners are AT&T, Microsoft, SAP, and WiPro, among others. In June of last year, WiPro invested an undisclosed amount in the company to secure premium partner access to technology resources along with the ability to test further and deploy M2M technology applications from the WiPro M2MCenter of Excellence in Bangalore.
Of further interest, Axeda CEO Todd DeSisto’s background is cited as “service as a senior executive for multiple venture and private equity companies with successful exits.”
According to PTC, the prime motivation for this acquisition was to complement the ThingWorx rapid application development environment by addressing customer needs for connectivity and security. In the briefing with equity analysts, PTC management boasted about the current strong growth already encountered in ThinWorx related bookings which were described as the equivalent of $4 million in equivalent license revenues during the past quarter. President and CEO James Heppelmann described the Axeda acquisition as “the best deal we’ve done in a long time”. He further noted that much of the current IoT interest for embarking on IoT initiatives is coming directly from C-level executives who are pondering the potential to reconfigure existing product value-chains.
Supply Chain Matters attended the recent PTC Live Global customer conference in June where many customer presentations addressed the IoT scenarios for connecting product and service management business process needs directly with information on physical devices. Our sense was that these new forms of applications are clearly in early stages of development yet attendees were drawn to some of the sessions, including those that addressed the linkage of machine sensing with service management processes.
PTC has made yet another bold move to lock-up a promising technology platform. Supply Chain Matters reiterates our impressions communicated with the prior ThingWorx acquisition. namely that this move adds another arrow in PTC’s ongoing efforts to compete with far larger enterprise software vendors in supporting a rather broad and extensive product and service management product suite that has the potential to leverage the new era of digital based manufacturing.
© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.
In our previous published commentary, we reflected on the recently held Farnborough Air Show and the new order activity generated for aerospace industry supply chains by this trade show.
One other report from this trade show caught our attention. Boeing indicated that the reliability to-date of the more than 160 787 Dreamliners that are operating among global carriers is averaging about 98 percent. The OEM’s chief 787 test pilot flatly indicated: “that number is not where we would like it to be, we were expecting it to increase.” The industry sets reliability benchmarks for aircraft, particularly newly introduce models that must meet higher customer expectations. According to reporting from the Wall Street Journal, Boeing pegs reliability of new aircraft to that of the previous generation 777 fleet at comparable times of product rollout and fleet operating time. The “triple seven” has been widely recognized as one of the most reliable.
Thus far, 787’s have logged more than 490,000 hours of service, but a series of various ongoing snafu’s or malfunctions have caused some setbacks with both production volumes of new aircraft as well as operation of existing aircraft. However, Boeing officials report that the situation is improving. With its latest new “dash nine” variant of the 787, Boeing has further taken on more design management to insure overall reliability of system components.
The report itself provides yet another reminder of the very high overall reliability standards that today’s more advanced and technology laden aircraft must meet. It is also a reinforcement to the overall criticality of integration of product design with physical and software performance. Not many industries with such a complex hardware, software and bill-of-materials complexity can meet the standards of 98 percent reliability let alone even higher levels.
Business and social media is abuzz with today’s announcement that two long-time rivals, Apple and IBM, are teaming-up in an alliance to create simple business apps on Apple’s iPhone and iPad devices. As pictured in the Times Square featured announcement, both CEO’s are pictured in a casual and friendly stroll.
The obvious question is which of the vendor’s benefit the most from the proposed alliance. Another question is the potential impact on supply chain and B2B business network technology deployment. In this Supply Chain Matters initial viewpoint commentary; we briefly dwell on both questions.
Under the alliance, IBM will create what is termed as “simple” business apps leveraging the respective Apple mobile devices. IBM employees will further provide on-site services and support for Apple mobile devices. Of more interest is the report that IBM is planning to make 100,000 employees available to the Apple imitative, which is rather significant. Both alliance CEO’s made themselves available for a joint media interview. IBM CEO Virginia Rometty indicated: “This is just the beginning” and Apple CEO Tim Cook indicated: “This is really a landmark deal”. The apps themselves are reported to draw on IBM’s computing services including security, device management and big-data analytics. Apple and IBM engineers will jointly be developing more than 100 new business applications tailored for specific industry needs. The apps will begin arriving in the fall and IBM will resell iPhones/iPads containing the apps to its business enterprise customers.
The initial online consensus is that both vendors will benefit from this alliance and this analyst shares that opinion. Apple has struggled to penetrate the coupling of its mobile devices with business enterprise applications since the market continues to perceive the company as just a consumer electronics provider, albeit with elegant offerings. Security of mobile based information remains a big concern for both supply chain and IT teams. IBM with its deep ties to C-Suite and IT teams has been struggling with the need for more positive revenue momentum. A late entry and lack of momentum in supporting cloud-based and mobile computing needs has not helped. Thus, benefits and rewards loom large for both vendors under this alliance. They just need to collaborate and execute.
As for the potential impact for supply chain and B2B business network technology support, it’s too early to tell. As we have noted to our readers, IBM has amassed a broad suite of end-to-end supply chain, B2B, customer fulfillment network, service and business analytics capabilities that can all benefit from further leveraging of mobile-based applications. The open question remains on IBM’s track record of delivering on broader supply chain process integration in a much more time-to-market manner. We anticipate there will be opportunities to enhance mobile-based apps in Emptoris Supply Management Suite, Sterling B2B and online fulfillment network as well as end-to-end supply chain focused analytics. Customers will just have to wait and see what develops in the coming months.
A further implication of this alliance announcement will be how other business enterprise vendors such as SAP, Oracle, Google and Microsoft eventually respond. Each has positioned the leveraging of mobile devices within business applications from a multi-vendor perspective in an effort to support multiple brands. This week’s announcement may prompt a re-visit of these strategies, and consumer electronics providers Samsung, Lenovo or perhaps HP, could benefit with enterprise software vendors again seeking deeper development alliances.
Bottom-line, our community can well anticipate some benefits of the Apple-IBM alliance along with the competitive response from other competitors in the market. IT teams will be able to rest more easy knowing that burden of integrating application with mobile device will be assumed by alliance partners.
The open question however is how mission critical supply chain and B2B mobile computing needs will be viewed in the light of implementing other more simplified apps that meet alliance objectives for total apps availability.
We all need to stay tuned.
Across the United States, besides the U.S. team’s accomplishments in the World Cup competition, another dominant traditional and social media based news headline reflects of the incredible number of automobiles and trucks being subject to product recall.
The primary story focuses on General Motors, which after intense scrutiny from U.S. regulators and legislators regarding faulty ignition switches among multiple models, is recalling all sorts of models that are believed to have been exposed to a component design problem, faulty ignition or otherwise. Thus far in 2014, GM has announced 44 product recalls involving nearly 18 million previously sold vehicles. Today’s social and business media buzz blares that the vehicles been recalled thus far is more than the total number sold in the U.S. in 2013.
In a previous Supply Chain Matters commentary, we called attention to product recalls involving airbags supplied by Japan based Takata Corp. that were expected to expand and involve millions of affected vehicles. Today, both Honda and Nissan recalled close to an additional 3 million vehicles worldwide to repair the subject airbag problem, bringing the total number involved with the airbag defect to roughly 5 million vehicles.
An article syndicated by the Washington Post News Service features the headline: More than 1 in every 10 vehicles on the road has been recalled since January. That articles notes that the defects range from rather serious (faulty ignition switches, overheating exhaust parts, power steering problems) to other problems where automakers are now highly sensitized to any potential liability problem. This article goes on to note that in the spirit of crisis bringing opportunity, that there may be an upside of this extraordinary situation: “ … meaning that dealers get to have their old customers back in the showroom. There, they can show off the new models and, at minimum, be in a position to sell drivers on some repairs they previously were not considering.”
This author, for one, was completely floored by the above statement. Are you kidding me! One in every ten vehicle owners being inconvenienced to have to make a service appointment and bring their vehicles for service, and dealers have the “blank” to try an upsell these consumers?
Beyond the lunacy of such statements, there is a parallel and very critical challenge about to happen.
Automotive service focused supply chains are going to be exercised to their biggest stress test, ever. All of the subject recalled vehicles will require some form of a repair part, one that has hopefully, been correctly modified to remediate a suspected problem. The sheer numbers imply that some inventory will have to be re-allocated from those destined to support ongoing production schedules for newer vehicles. In some cases, necessary repair parts will not be able to meet overall demand, and dealers will have to be very careful in scheduling service appointments and setting customer expectations. During Toyota’s past product recall crisis process involving unattended sudden acceleration, Toyota worked directly with its dealer network to coordinate extended service hours for consumers, including nights and weekends. Coordinated round-the-clock efforts among certain component suppliers and respective dealers were directed at insuring repair parts were adequately distributed and vehicles were scheduled for repair based on availability of necessary parts.
In short, the folks that do necessarily receive all the hero badges, those directly supporting service focused supply chains will be called upon in the coming weeks to literally save brand focused reputations.
Last week, Supply Chain Matters was invited to attend the PTC Live Global 2014 customer conference held in Boston. One of PTC’s product suites is technology focused on Service Lifecycle Management (SLM) which has been amassed from previous acquisitions of vendors such as Servigistics, MCA, Kaidera, Xelus and others. In one of the sessions, PTC executives noted that expectations have never been higher on the customer and business side of service management. Yet, service management tends to suffer from immature business processes, not from a lack of dedication and effort, but rather a lack of broader understanding to the importance of service management. Mingling in the hallways and networking sessions, we once again had an immediate sense of how dedicated these people are, and also how unappreciated and frustrating their efforts can sometimes be.
Across automotive, the service focused supply chain will be put to its largest and most expansive stress test from the scope of sheer numbers of vehicles and information required to coordinate service scheduling needs. Some will rise to the task at hand. Some will not.
One fact is very clear- auto dealers are advised to take-off their sales hats and concentrate on service and customer satisfaction efforts, in all dimensions. That includes a very close, almost intimate relationship with those dedicated professionals who plan, manage and fulfill service parts planning and order fulfillment. Forget for the time being, the algorithms and calculations related to mean time between part failures. It is going to be “all hands on-deck” augmented by information coordination and supply chain intelligence that separates the best in class performers.
Supply Chain Matters was invited to attend the IBM Smarter Commerce Global Summit this week which was held in Tampa Florida. This was our third annual attendance at this venue and by each of our encounters, we have gathered a stronger sense of IBM’s continued direction in supporting the Buy, Sell, Service and analytics needs for industry supply chains. As noted in our prelude posting last week, IBM has been following a broad strategy, primarily through strategic acquisitions to assemble a portfolio of end-to-end commerce applications and solutions that extend from online marketing and selling through customer fulfillment. In early March, IBM’s CEO, Virginia Rometty, outlined in her open letter to stockholders and customers, a crisper set of strategic priorities that now include a heavy emphasis on cloud and services based solution offerings. The open question in our mind as we traveled to Tampa remained with the timetables, urgency and overall integration progress.
Ironically, the Summit theme this year was: Moments Matter, and just about every keynote amplified the reality that the speed of change and innovation determines today’s business environments. After a packed two day agenda of activity, our overall impression of this conference was that IBM has indeed stepped-up its internal development pace, and the initial signs of cross-application integration capabilities are beginning to come to market. However, the overall timetable is one that IBM customers will need to consider in their technology planning.
There were two significant product announcements made in conjunction with this year’s summit. Big Blue introduced IBM ExperienceOne, a new integrated portfolio of cloud-based and on premise offerings directed at helping customers to deliver deeper customer engagements by bringing marketing, sales and services business practices together in a singular information utility capability. This capability is essential an IBM consulting services service offering that leverages the company’s WebSphere Commerce, Customer Digital Experience and Enterprise Marketing Management software. That software includes elements of Sterling Commerce, Coremetrics, DemandTec and Silverpop, among others, all of which were prior acquisitions.
What should be of keen interest to our Supply Chain Matters readership was the announced launching of IBM Multi-Enterprise Relationship Management (MRM) platform that features cloud-based or on premise supplier and partner engagement capabilities directed at enabling a more adaptive end-to-end value chain. As can be noted in the IBM announcement, MRM leverages functionality from Emptoris for quicker on-boarding of suppliers and trading partners, supplier lifecycle and contract lifecycle management. MRM leverages the IBM Sterling B2B Collaboration Network for reporting and monitoring of transactions and IBM Aspera eXtreme File Transfer and Enterprise File Sync and Share, for sending very large amounts of information across a network including use of desktop and mobile devices.
In our previous conversations with IBM executives, we often probed on the opportunities for assembling an end-end supply chain support capabilities across a contiguous business network, while integrating all of the various IBM vendor acquisition products within such a network.
At last year’s summit, we noted that Emptoris’s senior development director Terrence (TC) Curley, was assuming a lead role in the initial integration of Emptoris suite components with those of Sterling Commerce and other IBM technology components. The current MRM announcement is the first phase of that effort and admittedly, an initial release. We had the opportunity to review the 12 month product roadmap for MRM and noted that beyond baseline an Enterprise Partner Engagement Foundation, the roadmap includes further adapters that integrate not only IBM Sterling B2B Collaboration Network, but also IBM B2Bi and SFG applications which can provide capabilities for quicker on-boarding of financial services, third-party logistics, business services or product management partners. The interesting aspect for MRM are the design principles that stress deeper levels of visibility, end-to-end network scale and collaboration along offering capabilities for supporting cognitive based commerce. If readers have not yet figured out what all of this implies, it means that IBM is gunning to be a viable player in offering an end-to-end business network platform. Again, more work and time is required, but the component assembly and roadmap milestones are now underway.
We do want to mention one other vivid impression from this year’s summit. We had the opportunity to sit in on a keynote session that outlined IBM’s vision for Cognitive Commerce as well a follow-on session that outlined the vision and roadmap for IBM Commerce Solutions. Make no mistake, IBM is indeed committed to huge investments in customer engagement, predictive analytics and machine learning capabilities tied to online commerce. One example of cognitive commerce service outlined was the ability to analyze peak selling periods and be able to predict the depth and breadth of product peaks and optimize inventory allocation to those peaks. Sales and Operations Planning teams should reflect on that type of capability.
There are plans for both enhanced B2C as well as B2B online and multi-channel stores, field sales applications that enhance mobility based applications and planned ecosystems of pre-integrated customer fulfillment partner solutions, including same-day delivery. Finally, there was an example of quickly IBM is responding to current day brick and mortar retailer needs. There are plans to be able to process an online order, by inventory checks of both fulfillment and store-level inventories. To the surprise of some in the audience, IBM described a “dark store” which is one that can serve as a localized fulfillment entity for limited volumes, or be able to convert to a broader based customer shipment fulfillment entity after retail closing hours. In essence, IBM is prepared to support a rather innovative capability for a multi-purpose use store.
Supply Chain Matters will feature additional observations and thought commentaries gathered from this year’s Smarter Commerce Summit in the days to come.
© 2014, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog, all rights reserved.