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Pending Transportation Industry Disruption Will Require Industry Supply Chain Management Attention

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Looking back at the 2015 holiday fulfillment period, there were two significant supply chain and Omni-channel fulfillment trends that made their presence. These trends will continue to unfold in 2016 and beyond with significant implications for industry supply chains.

The first was Amazon, and from a number of dimensions. As noted in our Supply Chain Matters commentary earlier this month reflecting on the online retailer’s latest financial performance, Amazon will increasingly play an industry disruptor role in 2016 and beyond.  Certain sectors of B2C / B2B online fulfillment, parcel logistics and transportation are ripe for process innovation facilitated by more innovative Cloud-based technology. We believe that Amazon is showing all of the tendencies to be that disruptor and existing industry players should be prepared. Just like Amazon Web Services (AWS) provided a new model for utility based information technology services, Fulfilled by Amazon will continue to be the next disruption. Yesterday, a report published by Bloomberg reinforced this disruptor trend in its headline: Amazon Building Global Delivery Business to Take On Alibaba. The article discloses a far bolder plan originally conceived in 2013 that outlines an aggressive global expansion of Fulfillment By Amazon services that includes a global delivery network capability that controls the flow of goods from factories in China and India to customer doorsteps throughout the world. A profound statement included in the report was: “The ambitious strategy promises to turn FedEx and UPS into Amazon rivals, but also pit the Seattle giant against Chinese counterpart Alibaba Group Holding Ltd.” The report goes on to describe a strategy that places Amazon at the center of a logistics capability that today controls legions of middlemen who handle transnational world trade, and is ripe for a new model. Through its control of large amounts of online volumes, the online retailer can acquire transportation and logistics capability at lower wholesale rates while transforming Fulfilled by Amazon into a virtual online fulfillment and delivery services platform.

The second compelling trend reinforces the first in some respects. This week, the United States Postal Service (USPS) reported its financial performance for the holiday quarter and recorded its first quarterly profit since 2011, earning $307 million  Included in this reporting was a compelling statistic. During the 2015 holiday period, the USPS surpassed UPS in total delivered packages.  Letter carriers delivered about 660 million packages, up from an initial anticipated volume of 600 million packages. In contrast, UPS reportedly delivered 612 million packages as compared to its initial forecast of 630 million. The postal agency offered the equivalent of as many as 25,000 Sunday delivery routes, up from a normal 4000 pattern.  In essence, the USPS became a go-to carrier for Amazon’s needs for Sunday deliveries.

Just before the start of the 2015 holiday fulfillment period, Supply Chain Matters railed on both FedEx and UPS regarding their announced added rate hikes for both 2015 and 2016. Our commentary reflected on whether both global parcel logistics and delivery carriers were inching closer toward upsetting the “golden goose” of their current growth strategies, that being their participation in the boom in online B2B/B2C fulfillment. We opined that these pricing scenarios threatened Free Shipping options for online consumers and opened the door for new industry disruptors, either larger online retailers, or other transportation and parcel services providers to serve as an alternative parcel delivery mechanism in 2016 and beyond. Our belief was that retailers would have to find alternative methods to leverage localized inventory. If readers had not guessed at the time, we had Fulfilled by Amazon in-mind.

Earlier this month, UPS reported its financial performance and the Wall Street headline was a near tripling of reported profits. Deliveries to consumers accounted for roughly 60 percent of all U.S. deliveries, up from 45 percent in the prior quarter. Why, because 35 percent of Sure Post packages were transferred back into the UPS network. UPS executives set upbeat expectations for 2016 including a potential 5 to 9 percent increase in earnings per share.

As B2B customers and B2C consumers are now aware, during the 2015 holiday quarter it was a lot more expensive to ship parcels via the traditional parcel carriers, and ground delivery times were extended to compensate for lower overall amounts of temporary workers. Fuel surcharges remained in-effect despite unprecedented reductions in the current cost of gasoline, diesel and jet fuel. The USPS in-essence became the go-to carrier for shipping options while UPS and, to some extent, FedEx networks struggled to manage peak volumes.

We now believe that both outlined trends are indeed the prelude to pending disruption. Established parcel delivery firms have elected a strategy that will preserve profitability. Amazon is moving aggressively forward with its far reaching Fulfilled (and Shipped) by Amazon strategic plan. Alibaba will not sit idle and indeed is working on broader elements of global logistics and fulfillment capabilities that stretch beyond China. The third-party logistics sector is already undergoing merger and acquisition activity and, as Amazon’s plans continue to unfold, international freight and small package brokerage will be under attack.

Online fulfillment events are changing rapidly and there are definitive signs of pending industry disruption.

Industry supply chain teams need to pay closer attention to these evolving trends, especially those residing in small or up and coming businesses or in organizations that ship a large amount of packages.  If your business has a growing online presence, you know how compelling a Free Shipping option is to online consumer’s motivation to buy.

Up to now, it was more attractive from an overall cost and resources perspective to outsource customer fulfillment to an established logistics provider. There is now a cost vice underway that is setting the stage for change and it is important to understand the short and longer-term implications and be able to inform and navigate the business through pending changes.

Now, more than ever, industry supply chain teams need to have the tools and capabilities to be able to quantify and model total customer fulfillment costs under various channel options. It is no longer an option to assume that an online presence is the sole key to growth. Rather, online is a compelling opportunity that comes with its own set of unique profitability challenges. Supply chain teams must be prepared to avoid being the scapegoat for not educating lines of business on cost vulnerabilities or cost saving opportunities.

For our part, Supply Chain Matters will continue with our market education and advisory efforts since there are, by our lens,  few independent and objective voices concerning logistics and transportation.

Bob Ferrari

© 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


IBM Closes its Most Important and Far Reaching Acquisition- The Weather Company

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If you have had the opportunity to view this author’s prior conference presentations on future technology trends in supply chain management you might have recalled my references to the technology-enabled data analytics services related to The Weather Company and its implications as to how industry supply chains can literally predict future product demand needs by region.

Last October, IBM announced its intention to acquire most of this data analytics provider.  While IBM would not disclose financial terms, The Wall Street Journal speculated the value was over $2 billion. Many in the tech world wondered what this was all about, and why did it fetch such value.

Last week, IBM announced that it has closed its acquisition of The Weather Company’s B2B mobile and Cloud-based properties including weather.com, Weather Underground, The Weather Company brand and WSI, the global B2B brand. According to IBM, the combination of these platforms will serve as a foundation to the evolving cognitive computing IBM Watson IoT Cloud which begins to reveal the why- becoming a far deeper business related data analytics company.

The Weather Company was spawned from what we all easily identify as The Weather Channel. Executives of this weather sciences broadcaster understood the future relationships of weather to consumer buying patterns.  For instance, in the summer months, beer consumption in Chicago incrementally increases after three consecutive days of below-average temperatures. In Atlanta, during the months of fall, beer sales rise after during periods of above-average temperatures and below-average rainfall. During the winter months in Boston, sales of healthy snacks increase after three consecutive days of below-average temperatures and above-average precipitation such as winter snow storms.

Having amassed enormous amounts of weather data from literally thousands of micro-climate geographic locations, weather scientists began to explore the direct correlation of weather to sales of consumer goods. Having found many direct correlations, The Weather Company was spawned as a big-data analytics provider that could aide various consumer goods producers to better predict or promote product sales by specific region. At the same time, industry customers subscribed to weather data to better manage their services and equipment. In a published 2013 article, The Wall Street Journal reported that the new analytics and data science company had the potential to be far more lucrative than the broadcasting arm.

IBM’s plans for The Weather Company now take on a more Internet of Things (IoT) strategy focus. According to its latest announcement, IBM plans to collect a larger variety and higher velocity of data sets from billions of IoT sensors around the world while providing real-time information and insights to tens of millions of users worldwide. As part of the acquisition, IBM inherits The Weather Company’s customers in the aviation, energy, and insurance industries, as well as others. IBM is dedicating more than 2500 developers to help clients and partners collect, analyze and act upon entirely new forms of IoT data resulting from the proliferation of automobile and airplane telematics, building and environmental sensors, wearable devices, medical implants, weather stations, smartphones, social media, manufacturing lines and supply chains, among others.

IBM indicates that its customers will now be able to link all of their business and sensor data from their connected devices with weather data using IBM Watson. Controlling what is described as 2.2 billion weather forecast locations and marrying other physical sensors originating from supply chain activities can literally open up far broader dimensions of predictive analytics and decision-making beyond consumer product demand. How products are planned, how transportation is routed and controlled and how risk is managed across the physical supply chain are all possibilities.

Industry supply chains should keep their eye on efforts in this area.  While IBM has exhibited a prior track record of rather elongated execution on the potential benefits of its acquisitions, Watson and its renewed focus on industrial IoT tied to predictive analytics is an area that will be, from our lens, crucial to long-term growth and future IBM revenue streams.

At the same time, the dimensions of data analytics that literally marry physical, environmental and digital applications information to decisions in product management, supply chain planning, manufacturing and service lifecycle management focused processes are capabilities with enormous benefits.

The open question moves from not in my career but rather to perhaps within the not too distant future.

Bob Ferrari

© 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


SAP ERP Backbone Environments- Opportunity for One Complimentary Supply Chain Health Check

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For the past several months, Supply Chain Matters has featured a series of market education blog commentaries addressing the needs to garner more effective and simplified operational analytics and business intelligence with SAP ERP environments. Our latest posting, focused on self-service business analytics in SAP environments was published last week.  These commentaries focus on the technology capabilities of one of our sponsors, Every Angle Software.

With this posting we want to alert our supply chain functional, IT and line-of-business focused readers who reside in SAP environments of an attractive limited-time offer, the opportunity to win a complimentary supply chain health checkup.

Every Angle Software is offering one lucky organization the chance to win this supply chain health check, valued at over $8,000. The Health Check is aligned to your specific business and supply chain operational processes. All specific SAP configuration settings are referenced allowing for understanding of your organizational detail (company codes, plants, sales orders etc.) and master data (material type, customers, vendors etc.) that other tools simply cannot do.

What happens during this health check?

  • Every Angle’s software is installed and connected to your SAP ECC system(s) under your IT team’s supervision.
  • Technical and functional verification checks are executed to ensure all is well
  • Every Angle expert consultants perform the Supply Chain Health Check analysis
  • The results are collected and validated, insights are shared and results presented. Every Angle has produced a customized web page that provides additional detail on the supply chain business process areas analyzed in this health check.  You made be amazed on what is discovered.

To be eligible for the one complimentary health check, an entry must be submitted by this Friday, February 5th on the sign-up form at the bottom of the Every Angle customized web page .

Good Luck

 


Empowering Self-Service Business Intelligence and Analytics for SAP Environments

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In a previous September 2015 commentary, Supply Chain Matters observed that with today’s ever increasing clock-speed and rate of change within businesses, there should be little question that the overall planning, execution and synchronization of supply chain operational processes has become far more complex and demanding. Industry changes are constant, customers are more demanding and risk or disruption within the supply chain is a consistant   threat.

Timely decision-making is more than ever predicated on the most up-to-date information, and most importantly, informed insights as to what is occurring and what will likely occur across the supply chain. The latter implies decision-making supported by analytics.

In many industry settings, particularly those with SAP backbones, supply chain teams must turn to their IT support teams to harvest timely business intelligence and/or analytics related to the pulse of the supply chain. Operational professionals have to define what they believe they need in terms of operational insights, explain the requirement to their IT partners, wait for themto actually get around to creating these custom inquiries and reports, only to then discover that this process of information mining contains multiple iterative passes. This can consume  significant periods of time, not only for the operational teams themselves, but also IT.  This is time that can be better invested in strategic and tactical needs.

The bottom line is that many industry supply chain teams strive to obtain “self-service” insights as well as analytics, but the path is confusing with its own set of obstacles.

Business transformation expert Sean Culey has penned an eBook for Every Angle Software.  This author had the opportunity to read this document and I can recommend its reading, especially for operational and supply chain teams dealing with SAP ERP backbones.

This paper addresses 6 ways that self-service analytics can help empower a more agile enterprise. Benefits explained in the book include the ability to save time, allowing the business user to become more empowered, close gaps between strategy and execution and boost employee engagement and organizational innovation.

Some of the insights that resonated with this Editor were the need to know not only about what has happened, but also to understand how and why it happened. Further was the ability to break down organizational silos and develop small, integrated teams that foster increased trust and more informed decision-making. Another insight that Supply Chain Matters recognizes is that different customers require different levels of value and thus supply chain segmentation supported by more agile decision-making is an ever more important capability for companies to acquire.

Our readers can download this complimentary white paper at this web link

Bob Ferrari

Disclosure: Every Angle Software is one of other sponsors of the Supply Chain Matters blog.

[SC1]Word ‘constant’ used twice in same sentence


Top Ten Most Read 2015 Supply Chain Matters Content

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This Editor had the opportunity to view our Supply Chain Matters readership analytics (thanks to Google Analytics) for all of 2015 and can now share our ten most popular 2015 commentaries during the year.  Supply Chain Matters Blog

In reverse order:

Number 10

Highlights of the APICS Annual 2015 Conference held in Las Vegas in October, and specifically ex-GE CEO Jack Welch’s keynote interview. Welch expressed a number of insights on the topic of leadership, and more specifically, supply chain management, and the professionals who manage today’s supply chains. We are very pleased that this commentary made our top ten.

Number Nine

Our September commentary related to Tesla Motors contracting of strategic supply of lithium for its new gigafactory. Our commentary addressed the  broader strategy unfolding, one that extends beyond automotive supply chain needs, including the power storage needs of homes and businesses. The site was chosen because of its close proximity to supplies of the all-important raw material of lithium as well as to the Tesla factory in California.

It seems that our readers were quite interested in all news related to Tesla  since the auto manufacturer appears twice in our Top Ten.

Number Eight

Our July commentary addressing the needs of supply chain business intelligence for SAP environments, specifically that as supply chain business processes become ever more complex, teams try to fill the gaps with downloads of static reports and ancillary spreadsheets to provide more meaningful operational analysis. We felt and sense that this is indeed representative of the broader SAP community, and brought awareness to other options. Our commentary brought wider attention to Supply Chain Matters Named sponsor Every Angle Software who’s self-service operationally focused business intelligence tool includes an extensive list of European installed base customers with SAP backbones.

Number Seven

Our January commentary, “Extended supply chain” is the new supply chain, a guest contribution by Prashant Mendki, Director Alliances and Business Development for supply chain systems integrator Bristlecone. The commentary called for a holistic “integrated extended supply chain” rather than independent business processes where the entire ecosystem would be treated as part of the supply chain, and where suppliers would have complete visibility into key customer demand and have their response plan ready.

Number Six

Our September market education commentary bringing visibility to Xerox’s new more cost affordable smart labeling technology and the availability of two printed electronic labels that can collect and store information about either the authenticity or condition of products flowing across the supply chain. From our lens, the availability of such advanced labeling technology will foster new, more affordable dimensions of item level tracking, security and authenticity specifically related to products. This author characterized the development as the dawning of item-level tracking technology that industry supply chain teams have versioned for quite some time.

Number Five

The highlights of our Supply Chain Matters interview with Irfan Khan, CEO of Bristlecone while attending the Gartner Supply Chain Executive conference. Our interview touched upon a number of areas including predictive analytics applied to supply chain decision-making needs. Irfan opined that mainstream acceptance of the full spectrum of smarter analytics (Descriptive, Prescriptive and Cognitive) applied to supply chain and manufacturing capabilities will take additional time for most organizations to be fully prepared to leverage. He confirmed organizational change management readiness and client skill impacts that take time to work through

Number Four

Oracle’s July announcement of expansion of public cloud capabilities applied to order fulfillment, specifically Oracle Order Management Cloud and Oracle Global Order Promising Cloud. Out takeaway for readers was that Oracle remained committed toward a broader development and release plan surrounding SCM applications in the public cloud platform than perhaps other competitors such as SAP.

Later in 2015, in conjunction with Oracle Open World, the full Oracle SCM Cloud suite was announced by Larry Ellison in his opening keynote. From our lens, Oracle had developed one of the broadest cross-functional supply chain management, public cloud based applications currently available in the marketplace. That stated, there are qualifiers in that this public cloud suite provides standard functionality as opposed to the ability to support customized customer business needs. Its strength resides in faster time-to-value and potentially lower IT infrastructure deployment costs.

Number Three

Our highlights and impressions regarding the FedEx acquisition of both Genco and Bongo International. Genco was one of the largest 3PL’s in North America and Bongo International provides an e-commerce platform that facilitates international customers purchasing items from domestic websites.  We were intrigued by the low price paid for Genco which as less than current earnings.

Number Two

Our February commentary reflecting on Tesla’s operating results reflecting some supply chain strainsOur observation was that while showing some supply chain strains at the end of 2014, even more challenges remained for Tesla’s supply chain in 2015. Tesla has often demonstrated the effective use of advanced technology applied to manufacturing and supply chain business processes, and that 2015 will be no exception to that trend.

We just published a follow-on commentary reflecting on Tesla’s 2015 delivery performance leaving some Model X customers rather frustrated.

 

Finally, our Number One most read 2015 content was:

Our unveiling of the full listing of 2016 Predictions for Industry and Global Supply Chains published on December 15th.  We interpret that to mean that our readers are keenly focused on what lies ahead in the New Year, and that’s OK with us.

 

We trust that all of our line-of-business, IT and cross-functional supply chain readers have gained value and insight from our independent lens on supply chain focused business developments, business process and technology challenges among various industry and global perspectives. We believe we have accumulated a truly in-depth library of industry-specific and functional content.

Once again, as we enter our ninth year and remaining as a top ten or top twenty-five presence among supply chain blogs, we again thank our loyal global based readers and our sponsors for their continuing support.

Bob Ferrari, Founder and Executive Editor

© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog.

Content appearing on Supply Chain Matters® may not be used by any third party without written permission of the author and/or our parent, The Ferrari Consulting and Research Group LLC.


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