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

We all know that globally extended supply chains business processes add more complexity and added challenges to management processes.  More demanding customers and constant changes across business areas cause Sales and Operations (S&OP) teams to get involved in much deeper business scenario and project planning needs.  There are more frequent new product introduction cycles, constant fluctuations in customer product demand that is now focused for specific geographic markets and business processes need to be focused on supporting more supply chain responsiveness. At the same time, global operations imply a multitude of information sources spanning multiple software applications and systems spread across the value-chain. Supply chain and S&OP professionals are also much more mobile, finding themselves to be loyal members of airline frequent flyer programs as they visit multitudes of suppliers and trading partners.

Often, when senior executives poll their S&OP teams for options and timetables related to many of these challenges, there are often lag times as teams query multiple information sources and analyze all various options to make the most appropriate recommendation.  While the goals of the S&OP process and indeed the overall end-to-end supply chain are often focused on enabling more predictive capabilities to stay in-front of constantly changing business needs, challenges in finding and analyzing insightful information become bogged down in elongated information analysis and search for insights. If there was ever a business process capability that can best benefit from advanced analytical capabilities, it is managing the end-to-end supply chain.

The good news for manufacturers, service providers and retailers is that leading-edge software vendors who understand these supply chain decision support needs now “get-it”.  Newer, more analytically driven decision support and business intelligence tools are making their way to you, business end users.

Here are some examples of capabilities now coming to market just within the last few days.

S&OP process support provider Steelwedge announced this week the enhancement of process support capabilities adding a Steelwedge S&OP Insight module, powered by a separate analytics engine, that combines online analytics and planning to deliver contextual planning to analyze decisions related analysis of product demand segmentation, inventory segmentation or service level planning for key customers. We found, after witnessing a demo, a neat provision for customers to be able to add other analytical “apps” to these capabilities, and then incorporating them into the S&OP process. This is indeed a new opportunity area for S&OP teams to add more responsive analysis and decision support tools to their process framework.

Collaborative B2B execution provider E2open has this week announced the addition of E2 Rapid Resolutions, extending the E2open Business Network with cross-network prescriptive analytics for decision support.  This added capability leverages next-generation integrated data, process, and analysis across the end-to-end network for continuous monitoring, earlier detection, and faster resolution of supply chain disruptions. Supply Chain Matters will feature an additional commentary regarding this capability in a separate forthcoming commentary.

Response management and adaptive planning provider Kinaxis has added deeper analytical planning capabilities including the ability to present analytical planning and decision support information on mobile devices.

Here at the IBM Smarter Commerce Summit, Emptoris, an IBM Company has outlined its roadmap to build the one-stop information repository for procurement, adding broader analytical and decision support capabilities leveraging Cognos analytics capabilities.  IBM also announced that its Watson based analysis capabilities made famous in the Jeopardy game challenge, is now going to be directly provided in areas of customer service and support for manufacturers, services providers and retailers. IMB further announced support to leverage SAP HANA capabilities, particularly related to SAP APO, for those organizations utilizing IBM DB2 database technology.

The takeaway for our readers is that the community of technology providers focused on supporting supply chain and B2B support needs are now quickly responding with deeper business intelligence and predictive analytics support options.  Deployment options include cloud-based, hosted and behind-the-firewall.  Now is the time for your supply chain organization to have a strategy on how to best leverage the benefits of these tools. Your options are getting far broader.

Bob Ferrari

Disclosure: Both Kinaxis and E2open are named sponsors of Supply Chain Matters and clients of the Ferrari Consulting and Research Group.

This morning, business media is lamenting the caving of Apple’s stock.  The stock plunged nearly 5.5 percent yesterday alone and has lost nearly $200 billion in market capitalization off its previous highs. Academics who concentrate on supply chain can often correlate bad news with sudden impacts in stock value.  Yesterday, media was quick to correlate an earnings miss from Apple supplier Cirrus Logic along with leaks concerning product volume cutbacks among various other of Apple’s suppliers, and relate that information to beliefs that consumer demand for current Apple products is waning.

This author has set-up a number of Internet-driven alerts concerning news related to Apple and we are constantly amazed at how many equity analysts who have opinions regarding this company’s direction, both pro and con. More disturbing, at least from our lens, is that a lot of their intelligence seems to stem from information leaks scattered across Apple’s supply chain partners.

Put aside, for a moment, that financial headlines increasingly include senior Wall Street and financial executives dealing in “insider information”.  The latest was a senior audit partner at KMPG being indicted, not to mention a number of private equity senior executives that have been either indicted or convicted. That alone is disturbing on its own merit, how perceived wealthy individuals demonstrate the greed to gain inside information, illegally. Increasingly, at least concerning the tracking of the globe’s most followed stock, insider information involves leaks in the supply chain.

Granted, Apple’s current challenges go beyond information leaks throughout its supply chain.  Supply Chain Matters has opined on the high prices of Apple’s products which drive significantly large margins.  In its most recent quarter, a reported gross margin of 38.6 percent seemed to disappoint, given Apple’s margins of 44.7 percent a year earlier. The recent market introduction of the iPad Mini with a $399 starting price was yet another example of leveraging margin. Investors are now quick to respond to leaks involving cutbacks in the Mini’s output plans. Rumors continue to speculate on the introduction of a smaller, cheaper iPhone targeting penetration of emerging markets, as well as contract manufacturer Foxconn now adding more workers to support an impending new product ramp-up schedule. Add to that information related to the pending introduction of new products such as an iWatch or Apple TV.

The purpose of this rant is yet another observation that too many individuals across Apple’s and other high profile supply chains are trading insider information. The leaking of pending production forecast information motivates OEM’s to restrict information sharing or not share at all until the last minute.  It defeats the goals of information security and deeper supplier collaboration.  It further defeats the benefits of advanced technology in demand sensing and supply planning across the extended supply chain.

If you are reading this commentary and feeling guilty about sharing too much information with probing outsiders, you should.  Selling information for individual gain is a fool’s endeavor, since invariably the risks of finding the sources of information leaks is high. Candidly, social media has not helped in this area, spreading speculative information too quickly without corroboration, or for other eyeball gains.

The basis of effective and responsive supply chain planning and collaboration is the sharing of information related to product output plans. Compromising that information for individual gain can cost you your job and your career.

Bob Ferrari

This has been a week that business media has featured two high profiled supplier related snafu’s, or at least, that has been the business media slant.  Each is yet another important reinforcement for a more constructive and collaborative relationship with a key supplier.

This is the second of two separate Supply Chain Matters commentaries related to these high profile snafus. Commentary One related to chic sportswear retailer Lululemon Athetica.  We now turn attention to smartphone manufacturer HTC.

Earlier this week, this Taiwan based smartphone designer and manufacturer indicated that it was pushing back the rollout of its newest and most important flagship smartphone, the HTC One. The company’s sales of smartphones declined 41 percent in its latest quarter and this new model is strategically important toward regaining prior market share. This announcement was further significant because rival Samsung, with much fanfare, had just unveiled its new Galaxy S model smartphone to the market. As readers are aware, this market segment is highly competitive where a new product becomes ever more critical to sustain innovation and consumer buying interest.  That is why an Apple or Samsung product launch literally moves equity markets. Availability in the market is doubly important. HTC initially unveiled the HTC One to the market in February, indicating consumers could get one in late March.

According to business and social media reports, HTC executives attributed the delay in planned March sales to shortages of components including casings and camera parts. An HTC executive is quoted in a Wall Street Journal report as acknowledging that the company “has changed its order forecasts drastically and frequently following last year’s unexpected slump in shipments.” This executive addedthat “HTC has had difficulty in securing camera components as it is no longer a tier-one customer.” The WSJ further notes that CEO Peter Chou informed senior executives that he would step down if this new smartphone model does not succeed in the market. As our readers are well aware, that statement alone would intimate that a lot of management roles are at-stake with an unsuccessful product launch not to mention lots of tendencies for “saving-face”.

Is it any surprise that the hottest consumer electronics segment supply chains is experiencing component supply problems? Not really.  The sheer volume numbers and overall pace of Apple and Samsung have produced many commentaries related to various select component shortages these past months. Apple admitted it was supply constrained in its latest quarter.

Smartphone supply chains have plenty of supply commitments and demanding customers.  Thus, inconsistent and constantly changing forecasts of product demand are not going to place a customer on the most favored listing, especially if other customers exercise synchronized planning and execution of supply needs. Large contract buys also place bigger players in higher service and supply categories.  Any small of medium sized manufacturer is acutely aware of this condition.

The HTC One has had other issues. The WSJ reports issues with employee turnover as rivals poach engineers from the company.  For the first time, HTC suspended its year-end bonus for employees supposedly to fund added marketing programs. The queuing of various telecom operators and major retailers to support a March product launch, only to inform these same partners during the execution window that the product is delayed by a month, has not helped on that end as well.

HTC has experienced a 50 percent decline in market share for its products and desperately needs to have a winning product. Instead of pointing the finger at component suppliers, the company would be better served by admitting that there have been some product launch issues and that it is diligently working with both suppliers and channel partners to insure adequate supply of new product.

To dis your key suppliers, especially when you hold some of the blame, is a no-win situation. Positive supplier relationships are built on openness, candor and team collaboration behind the scenes. Even if your company does not hold the highest priority with a supplier, consistency in planning and candidness as to fulfillment needs are certainly more constructive.

Winning in the marketplace is a team sport that involves positive supplier and partner relationships.

Bob Ferrari

This has been a week that business media has featured two high profiled supplier related snafu’s, or at least, that has been the business media slant  Each is yet another important reinforcement for a more constructive and collaborative relationship with key suppliers.

This is the first of two separate Supply Chain Matters commentaries related to these high profile snafus.

Perhaps the most visible and rather expensive snafu involves Canada based yoga apparel retailer Lululemon Athletica.  This retailer was forced on Monday to recall its most popular line of yoga pants after discovering that the “sheerness’ of the fabric allowed too much to be seen underneath.  The CEO had to publically apologize to Lululemon customers for the problem. The affected products account for nearly 17 percent of all women’s pants sold by the company. This glitch involved a proprietary signature fabric which is termed Luon which arrived in its stores earlier this month. While the composition of the fabric appears to be to specification, the sheerness factor came as a complete surprise. It was reported that this is the fourth quality-control issue that has occurred in the past year, which included bright colors that bled along with other transparency issues. Initial news reports had this retailer pointing the finger directly at a supplier for the cause of the glitch.

Company officials indicated that they sourced the same fabric supplier since 2004.  According to reporting from The Wall Street Journal, that supplier was identified as Taiwan based Eclat Textile Company. By Wednesday, the Taiwanese supplier went public and hit back, declaring that the clothing that it shipped was not “problematic””.  It issued a statement in part: “All shipments to Lululemon went through a certification process which Lululemon had approved.”  Obviously, it’s a difficult situation when you key supplier goes public and throw

The WSJ noted that in its recently published annual report, the company warned that it could be exposed to risks because of its heavy reliance on a limited number of suppliers. Its business practices have been described by the WSJ as intentionally keeping retail inventories low “in order to create scarcity and buzz” and insure that consumers pay full price.

Lululemon has been a high flyer as a well-respected yoga apparel supplier, with revenues of $1 billion and a market value of near $10 billion. Business media is today reporting that the retailer expects write-offs related to this latest product recall to reduce its revenue by an additional $45 to $50 million over the remainder of the year. That is in addition to a $12-$17 million write-up planned for the current quarter. Obviously these financial impacts are significant and painful lessons. The WSJ reports that the company is still testing the summer product but believes a full write-off is likely. Neither can this company now indicate when its product line-up would return to normal.

Today’s edition of The Financial Times reports “that the retailer has now acknowledged that it did not check how its products looked when wearers bent over before shipping millions of pairs that it has been forced to recall.” CEO Christine Day acknowledged that the product had passed initial testing but had not exercised extensive wear tests. She also ratcheted down the finger pointing indicating that many companies are involved in its supply chain.  CEO Day indicated that the company has added staff and is tightening controls to measure “subjective gaps” and prevent any recurrence. None the less, media reports indicate that equity analysts are now skewing this retailer about breakdowns in quality monitoring, visible supply chain weaknesses and difficulties in managing an international supply chain.

As the expression goes: the horse has left the barn, and it is not, at all, an attractive situation.

We often stress the critical importance of positive and constructive supplier relationships.  That tenet has even more meaning when a company has placed a strategic dependency on a supplier for innovation in products and consistency in execution. Constructive relationships allow candid give and take when early warning signs of process irregularities appear. The takeaway is obvious; do not publically throw each other under the bus, especially when crisis is at hand. These situations reflect on both parties and their collective management processes. Better to take the time to assess root cause and insure that corrective actions eliminate the problem.

Bob Ferrari

Supply Chain Matters has previously noted a series of strategic investments being made from Qualcomm Hon Hai Precision and Samsung in Japan based LCD provider Sharp Corporation. The company literally reached the precipice of imminent bankruptcy before a rescue came forward.  The company is expected to again report a sizeable operating loss for its fiscal year ending this month. Further, nearly 200 billion yen in outstanding debt is scheduled to mature at the end of September.

Sharp provides consumer electronics OEM’s an important asset, being a pioneer in advanced manufacturing capabilities to produce leading edge electronic display devices for television, tablet and mobile phone devices.  Sharp has pioneered in LCD screen based technology, the latest being the use of high resolution indium gallium zinc oxide screen technology (IGZO) that is thinner and less power consuming than conventional displays. The latest investment from Samsung was extremely significant since it was not too long ago that both of these companies were strong market rivals, and the deal was seen as an indication that Sharp needed to exercise desperate measures to insure infusion of needed cash.

This week comes word that Qualcomm will not proceed with the second progress payment due at the end of March, as originally planned. According to Bloomberg and other published reports, the previously planned $53 million installment is being held because Sharp could not develop production technology for its Micro Electro Mechanical System displays, a previous milestone established to occur by the end of March.  The same report indicates that both companies are now working toward a June 30 deadline.

Qualcomm, who produces communications microchips for Apple’s mobility products, had previously agreed to invest $120 million in Sharp, including ownership of up to 5 percent of Sharp stock.  Qualcomm made its initial $60 million investment in December.

This latest report of investment delay again casts doubts on Sharp’s ability to secure needed cash and supply commitments to satisfy its bankers for the scheduled debt refinancing by the end of September.

To add more confusion, DigiTimes commented this week that although Sharp president Takashi Okuda hinted at a press conference on March 14 that talks over investments from Foxconn Electronics (Hon Hai Precision Industry) are already in a status of being cancelled, Foxconn has emphasized that the two sides are still in negotiation for the long speculated longer term equity investment.

Qualcomm and other strategic investors in troubled Sharp will continue to hold that supplier’s feet to fire in terms of expected milestones and assurances.  Thus, Sharp will face additional tough challenges in the months to come as it continues to shed assets and resources, while still delivering on strategic milestones. The open question is how long will these white knights remain before Sharp’s ship takes on too much water.

Bob Ferrari