This week, supply chain management professional association APICS and China’s E-commerce company JD.com announced a strategic agreement to establish nationwide standards for the Omni-channel supply chain capability within China and to advance supply chain performance of the e-commerce industry in the region.
Supply Chain Matters views this announcement as rather significant.
It represents an important outreach from APICS providing China’s business leaders, academia, and global enterprises with valuable insights, information, and actionable data necessary to succeed in supply chain management.
As our international Supply Chain Matters readers are acutely aware, China’s very large and fast-growing e-commerce sector surpasses that of the United States. At the same time, because of the inherent logistics and other customer fulfillment challenges unique to China with its high-density cities and large urban landscapes, the E-commerce providers within China often directly control the elements and logistics related to customer fulfillment. Likewise, suppliers of online merchandise come from a variety of supply chain management skill and business process experience dimensions.
JD.com describes itself as an online provider of high quality Chinese goods sourced in China, and delivered to customer’s location in a speedy manner. The company currently operates 7 fulfillment centers and 256 warehouses and a total of upwards of 6900 customer delivery and pickup stations across China, all staffed with its own employees. The firms stated corporate values include a customer-first perspective supported by continuous learning.
APICS Supply Chain Council has had active relationships with Chinese companies which culminated in the re-launch of a China Regional Advisory Council in August of last year which established initial educational priorities for this region. A source indicates that an executive forum held at the time drew upwards of 150 attendees including JD.com. These initial efforts led up to this week’s announcement.
APICS further announced the formation of a Chinese Corporate Advisory Board (CCAB), which will be designed to facilitate discussion between APICS and leading Chinese companies like JD.com. The CCAB will serve as a corporate sounding board on APICS products and how best to leverage these resources in China. The significance applies to joint efforts to prepare the next generation of Chinese supply chain talent more effectively. APICS has committed to providing China’s business leaders, academia, and global enterprises with valuable insights, information, and actionable data necessary to succeed in supply chain management.
This professional organization will additionally help establish the JD Supply Chain Academy within JD University, a nationwide supply chain talent development center and e-commerce supply chain research center. Efforts will be directed toward developing course curriculum and research topics focused on the e-commerce industry in China. Initial activity will focus on educational needs for JD.com’s key supplier base as well as the online firm’s internal IT teams who continue to develop more advanced technology aides to support current processes such as drones, big data analytics and other systems applications. The goal for the supply chain academy is to provide teams with broader end-to-end supply chain knowledge and the interrelationships of supply chain processes with key performance indicators.
The announcement indicates that both organizations will also cross-reference the Supply Chain Operations Reference (SCOR) model with the JD.com database to develop a specific SCORmark Omni Channel Benchmark for China. Plans call for the performance improvement tool to eventually be made available to the major suppliers of JD.com and other stakeholders within the APICS corporate community worldwide.
APICS Executive Vice President for Corporate Development, Peter Bolstorff indicated to Supply Chain Matters that pilot deliverables among target groups could come as early as later this year.
This week’s announcement comes on the 3rd year anniversary of the merger of prior Supply Chain Council with APICS.
Bottom-line, this collaboration provides APICS with an important partner and advocate for broader supply chain management skills development in both supply chain business process mapping and individual skills development, including the growing dimensions of online E-commerce fulfillment.
© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Earlier this week, Sears Holdings, operator of Sears and Kmart branded retail stores in issuing what is termed a “going-concern” warning to the company’s investors, evoked special, and added concerns among its supply chain partners. In its annual report, the retailer indicated “substantial doubt exists related to the company’s ability to continue as a going concern.”
That message alone precipitated a 12 percent selloff in the company’s stock on the news of this statement.
The retailer’s CFO moved to calm the waters in a blog post that indicated that such a disclosure was in line with new FASB regulatory reporting requirements and did not reflect management’s expectations for the near-term health of its business operations. Declared was that “We (Sears Holdings) are a viable business that can meet its financial and other obligations for the forseseeable future.”
Unfortunately, this week’s required statement will cause other reactions and added concerns.
After several years of cumulative billion dollar operating losses coupled with selling off valued real estate and associated branded businesses such as Lands End, Sears Hardware Stores and the Craftman’s tool brand itself to compensate for operating losses and maintain working capital needs, landlords, suppliers, services provider and indeed, consumers, will make individual judgements.
Any of our readers who have experienced similar types of financially strained environments can well relate to how quickly the supply chain begins to respond to financially concerning news regarding a key customer’s ability to pay debts. They do so because in retail, suppliers take on a considerable burden in inventory ownership and elongated payments for such inventory. Recent actual bankruptcy declarations from other retailers such as Sports Authority in 2016, had certain suppliers scrambling to recover existing consigned inventory located in actual stores. The controlling private equity owners of that retail chain filed lawsuits with more than 160 suppliers challenging supplier claims to consigned inventories. According to reports at the time, upwards of $85 million in shoes and other gear that were on the shelves in retail stores were contested. The supplier lawsuits were a means to challenge who gets the bulk of compensation when consigned goods are sold in store closings or in discounted sales. Courts subsequently ruled in favor of some supplier claims.
In an October 2016 blog posting, we called Supply Chain Matters reader attention to Jakks Pacific, the fifth largest designer and marketer of toys and consumer products featuring a wide range of popular branded products and children’s toy licenses, announcing the suspension of supplying products to retailer Kmart. The stated reason was concerns related to the financial health of the retail chain and to minimize risks of not being paid for inventory. Yesterday, a published report by Reuters indicates that suppliers are doubling down on defensive measures including reducing unit shipments, asking for better, or up-front payment terms or refusing to accept expanded volume orders. In one example cited, a Bangladesh apparel firm, working on production needs for the 2017 holiday period later this year, has already scaled-back production lines working on Sears orders. Insurance companies that once provided policies to Sears vendors to protect for nonpayment are no longer doing so.
Suppliers become very concerned and word spreads to transportation and logistics providers supporting a financially distressed retailer. Inventory, and inventory movement becomes static or disrupted. If readers have had the opportunity to visit a Sears store recently, as we have, you may have noticed that holiday merchandise such as jewelry and shoes from the past holiday season remains in stores, yet to move off the shelves, despite markdowns.
And so, it goes in a cascading sequence of events.
Sears Holdings may indeed have a viable plan to mitigate and resolve its latest warning, but that plan needs to address managing the effects among its retail supply chain.
In the end, consumers and shoppers will serve as the ultimate judge and make their own judgements regarding Sears and Kmart. Obviously, the financial numbers would indicate that some consumers have turned elsewhere.
Suppliers and trading partners should not be faulted for protecting their own financial interests, especially in light of today’s retail industry environment of consumer’s permanent shifts towards online buying. Bankruptcy declarations among retailers have taken yet another toll since the 2016 holiday period.
Once or twice burned, the new word for suppliers vigilant and protective to self-needs.
© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
In a prior Supply Chain Matters blog posting earlier this week, A Persistent Team- Be Prepared for a Year of Continual Analysis, we again urged readers and clients to be prepared for a year of continual analysis of the potential supply chain impacts of what could well be significant changing tax and trade policies involving the United States. We cautioned teams against do-nothing tendencies under a notion that political debates need to run their course.
Since we published our commentary, we have come across more reinforcing information.
On Tuesday, global strategy and consulting firm KPMG invited us to view an online seminar from the corporate and policy advisory unit titled: Will New Policies from Washington Disrupt Your Strategy? The session featured a Principal in C-Suite/Board level strategy, a Partner in Tax strategies and a Principal in procurement and operations value management. Also included to represent a manufacturing focused client perspective was the head of financial supply chain design for global contract manufacturing services provider Flex.
The primary message delivered by KPMG presenters was that given the current scope of pending U.S. changes in corporate tax and trade policies, it is imperative that companies reevaluate existing global footprints, supply chain, and business strategies. The dimensions of potential change were contexed as involving geopolitical, regulatory, and company-specific dimensions. There is also opportunity, in the ability to capitalize early on new policies to gain first-mover advantage.
The presenters presented sample scenarios of the potential net income impacts could be for a U.S. based manufacturer whose supply chain is externally sourced under potential tax reform scenarios, some of which were rather significant in bottom-line impact. What also caught this author’s eye was the potential impact of corporate strategies under current debt vs. equity allocation under a revised policy of potentially non-deductible interest expense. In essence, the weighted cost of capital could tip a lot higher for firms with current high debt loads.
The KPMG team provided some guidance on impacts and timing which, depending on specific area, could be as soon as now, or a year from now in cases of changed trade agreements or U.S. corporate tax policies. Online seminar participants were urged to not silo strategy discussions in finance alone, since the implications involve a revisit of existing and future business operating models. The primary message delivered: “Be agile enough to be able to adapt to changes.”
As we noted in our prior blog commentary, the KPMG presenters posed also the question of being cognizant of industry competitors, especially if new sources of qualified supply are required from U.S. based sources, where existing product value chain capabilities may be limited. The process of search and qualification should be underway.
A separate development to add reinforcement to the above message was today’s published report by The Wall Street Journal indicating that Samsung is now exploring the feasibility of expanded investment in U.S. manufacturing related to its home appliance product lines. Initially being planned is the shifting of oven range production from Mexico to the U.S., with potentially added capabilities for refrigerators, washers, dryers, and other home appliances. Samsung directly indicated to the WSJ: “However, this is a complex process that, like all strategic business decisions, will not be made final until it is determined through proper due diligence and planning, that is the best option for Samsung.”
Getting back to the webinar, Brant Miller of Flex indicated that many of their customers are already posing the question of what should our supply chain look like in the U.S., and what level of industry supply chain capabilities currently exist. An emphasis for increased investment in U.S. manufacturing comes with a strong emphasis on manufacturing automation to offset expected increased costs, and reinforcing perceptions for being a brand-conscious company. Miller reinforced the latter to include a brand that is vested both in sustainable business practices and in U.S. manufacturing to support domestic market needs.
Certainly, not all companies are suited to change major supply chain sourcing strategy. There are factors of product margins, cost of goods sold (COGS), overall product lifecycles, capital intensity, along with avoidance of higher transportation and inventory investment costs. The one clear message delivered by Miller was that planning is essential.
We urge readers, if they can, view the replay of the referenced KPMG online webcast. While we do not have a web link at this time, we will post one well available in the Comments section below.
© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Supply Chain Matters has highlighted some percolating supplier weak links among commercial aerospace supply chains from either financial, operational or product quality perspectives. Certain key suppliers such as Pratt and Whitney have provided signs of such industry concern. Now, broader industry visibility to engine producer Rolls Royce is likely added.
This week, Rolls Royce reported financial and operational performance for the December-ending quarter and the headline was a $5 billion annual loss driven by a corruption scandal and negative currency factors, along with signs of premature engine component failures.
Recall that this manufacturer is a prime supplier of aircraft engines for the newest models of wide body, longer distance aircraft such as the Airbus A350 XWB and A330 aircraft and Boeing’s 787 Dreamliner.
The reported annualized loss in the latest year reflects a large, noncash accounting charge from the revaluation of U.S. currency hedges after the British pound slumped. It further includes a £671 million one-time charge for bribery settlements with U.S., British and Brazilian authorities after the company admitted to illegal business practices spanning decades. Operating pre-tax profitability fell for a third year to £813 million from £1.43 billion a year earlier. Total revenues declined 2 percent to £13.4 billion. Chief Executive Warren East indicated to shareholders and analysts that 2017 will provide another challenging year. Shareholders responded with a reported 5 percent decline in the company’s stock value.
The UK based company has now undertaken a corporate-wide restructuring that unfortunately includes the shedding of positions. A reported 600 manager positions are being eliminated along with upwards of 2,600 job losses in the aerospace division. About 1,800 jobs are further reported as being eliminated in the ship-engine group. The company is forecasting annual savings starting at the end of this year of around £200 million as a result of such efforts.
Further, according to business media reporting, the company is preparing for the introduction of new accounting standards that will impact the reporting of near-term profitability. Rolls-Royce typically sells aircraft engines at a loss and makes up revenues during the operating phase through various pay by the hour servicing contracts with airline operators. The company buffers the early losses by booking some of the assured services revenue early. Under new accounting rules, such losses reportedly will need to be reflected immediately, while services revenue should be accounted for as-delivered.
According to reporting by The Wall Street Journal, costs associated with the Trent 1000 engines used to power Boeing Dreamliner’s have also risen as a result of turbine components degrading prematurely. Other problems include weakness in its business in equipping engines for the regional and business jet sectors where Rolls-Royce is losing ground to rivals.
Thus, as the commercial aerospace industry now enters its next industry inflection point, with overall airline order demand for larger, wide-body aircraft is now showing signs of contraction, a potential supplier weak link is likely added. An added irony is that Rolls can likely benefit from added automation of manufacturing and supply chain business processes along with the more leveraged use of advanced technology in areas such as improved sensing of key component operating performance parameters in its engines. Such investments can be difficult when shareholder eyes are focused on near-term profitability.
As we approach the New Year holiday which marks the beginning of 2017, we are heads-down in the preparation of our 2017 Predictions for Industry and Global Supply Chains. Supply Chain Matters blog readers should anticipate the full unveiling of our 2017 predictions over the first two weeks in January.
We do however want to share some of the overall highlights as to what to expect in the coming year.
There seems to be little doubt that the year 2017 will present even more uncertainty and increased volatility for many industry supply chains. Organizations and respective supply chain teams will once again need to be prepared.
By the end of 2016, political winds of change were blowing a strong gust across the global economy. Economies are entering 2017 in a year of heightened uncertainty in markets, brought about by more volatile, populist focused political environments among major developed nations including Eurozone countries and the United States.
The unexpected election of Donald Trump as the new President of the United States is indeed sending out shockwaves around the world. The Eurozone, which was already attempting to deal with the unexpected results of Britain’s referendum vote to exit the EU (Brexit) faces yet another concern with Italy’s December vote to reject constitutional reforms, which prompted the resignation of Prime Minister Matteo Renzi. This could lead to a potential general election in 2017 that could have strong populist overtones including potential EU exit.
By late-December, the value of Euro was moving ever closer to parity with the U.S. Dollar, its lowest level since January 2003. Many analysts are predicting that in 2017, the Euro will indeed reach parity and could even drop below the value of the dollar at some point. That will add to the challenges of U.S. based companies to export products and services globally.
Industry and global supply chains should anticipate yet another challenging year with resiliency, adaptability, and risk mitigation as important competencies. Industry supply chains will again be called upon to help contribute to top-line revenue growth. We anticipate added pressures for cost controls and cost reductions, which will place additional pressures on capabilities. Supply chain risk factors will significantly rise across many industries and within many global regions, along with needs for educating line of business and senior executives on the supply chain implications of such risks. More informed and deeper analytical capabilities to ascertain various impacts to global component and finished goods manufacturing and supply chain sourcing will likely be an ongoing requirement and supply chain organizations who have not invested in such analysis and decision-making capabilities will be tested.
We anticipate another challenging year in procurement and strategic sourcing with a renewed emphasis on strategic and technical skill needs. The role of the CPO will continue to evolve into one of strategic business advisor, requiring enhanced cross-organizational influence skills.
One of the most significant challenges for 2017 will be reflected in a supply chain talent perfect storm, one that is sure to occupy more of the management attention of supply chain and business senior leadership. The perfect storm is increased skills demand meeting limited available skilled talent supply. As Bloomberg BusinessWeek declared in late December 2016: “Right now the problem isn’t too many workers who can’t find jobs. It’s too many jobs that can’t find workers.” With the prospects of 2017 providing even more overall pressures to reduce supply chain costs, supply chain, procurement and product management related executives will be faced with difficult choices regarding the existing workforce. Executives who previously established multi-year plans to broaden skills and talent will face the reality that talent needs are more immediate. With upwards of 10,000 baby boomers turning 65 each day, the skills and experience flight becomes ever more challenging.
We further predict continued turbulence surrounding global transportation sectors with renewed interest in managed services and B2B network information integration. Industry supply chain teams can no longer view the outsourcing of supply chain logistics and transportation services to be an annual renewal but rather a revisit of required augmented capabilities in services.
We anticipate a new renaissance of supply chain focused technology investment during the 2017 in areas such as integrated business planning, supply chain risk mitigation and advanced analytical decision-making support. We predict increased momentum and interest in Internet of Things enabled industrial and supply chain networks. The new renaissance in supply chain focused tech adoption will lead to further tech vendor acquisitions, some involving well- known names.
We expect existing supply chain sustainability and social responsibility initiatives to continue momentum effort during 2017 despite anticipated Trump Administration efforts to dilute the notions of the effects of global warming. Such initiatives continue to provide economic and brand value benefits and further contribute to the strategic need for an overall sustainable business.
We predict a renewed global battleground for online B2C and B2B platform dominance among Alibaba and Amazon in 2017 with regions such as India being the key areas to watch for influence and added investment. WalMart.com remains a wildcard in the global B2C sector.
Finally, there will be the unique usual industry-specific supply chain focused challenges that are sure to include consumer product goods, commercial aerospace, pharmaceutical and healthcare and other industries.
The above will all be detailed in our upcoming 2017 predictions series. This year we will further augment our predictions series by contributed guest contributions and added podcasts or webinars featuring industry participants. If industry leaders desire to add their voice in our content stream as to what to anticipate, and how to be prepared, please let us know.
The year 2017 will no doubt test the competencies and skills of many across industry supply chains. At the same time, they will provide opportunities for leadership and added innovation to make a difference in achieving line-of-business and overall corporate objectives. The value of the supply chain and the notions that supply chain capabilities do matter have never been more recognized as they are as we approach the coming year.
It will be an interesting year to state the least so stay tuned as we navigate the ongoing developments throughout 2017.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.