The Eurozone composite PMI, which includes manufacturing and services related output, fell to 48.7 in March, from 49.3 in February.  This is the largest drop in the index in the last two years.  Once more, economists are expecting Eurozone output to decline an overall .2 percent this quarter, compared to a .3 percent decline in the fourth quarter of last year, which is the technical indicator of recession. Unemployment among the Eurozone 17 nations now averages above 10.5 percent. Many economic forecasters indicate that consumer spending in the region is unlikely to improve anytime soon.

Of more concern, the latest numbers indicated further weakness in France and Germany, the two principle engines of manufacturing growth.  The composite PMI for France dropped to 49.0 in March, from 50.2 the previous month.  Germany’s composite PMI fell to 51.4 in March from 53.2. The implications of these latest economic indicators is that the region has more than likely entered a recessionary phase and the real question is how long and severe it will ultimately end up to be.

For Eurozone manufacturers the implications are both a contraction in spending with continued concentration in other geographic regions to support growth and profitability needs.

As an example, French based food producer Danone recently reported that more than 60 percent of current sales growth and 75 percent of operating profit growth came from 6 countries, Brazil, China, Indonesia, Mexico and Russia). Similarly, other Eurozone based manufacturers are concentrating on emerging market regions and the U.S. for growth and profitability needs.  These trends make the issue of the value of the Euro and the overall long-term stability of Eurozone ever more important. Similarly, European firms such as Nestle, Siemens and Unilever have concentrated growth and output strategies outside the Eurozone.

Meanwhile, the manufacturing-led resurgence in the U.S. continues. The ISM PMI for March increased one full percentage point to a reading of 53.4 in March.  While the employment indices increased, new orders declined slightly, indicating some caution for sustained momentum.

Supply chain planning teams need to continue to have a keen eye on individual regional economic indices to spot sudden trends as 2012, as was 2011, will turn out to be a challenging year for predicting output needs by region.

Bob Ferrari

This coming Sunday will mark one year after the tragic disaster that impacted northern Japan and that provided such vivid images for all of us. There is little question that this incident, followed by the effects of the monsoon-driven floods that struck Thailand, have without doubt provided the wake-up call to the vulnerabilities of today’s global supply chains.

The Wall Street Journal’s Drivers Seat Blog penned a brief but rather insightful commentary related to the lessons being learned by major Japan based automotive manufacturers after the devastating earthquake and tsunami that impacted that country almost a year ago this week. We wanted to call attention to our Supply Chain Matters readers to this important evolving learning, but also add broader considerations for firms to  consider.

One year after the Japan disaster both Toyota and Nissan have taken initiatives to probe deeper into their respective supply chains to ascertain vulnerabilities.  Toyota itself has established a rather aggressive goal aimed at the ability to restore any of its manufacturing operations within Japan in just two weeks after the occurrence of a major disaster. The WSJ blog commentary goes on to note: “After the earthquake, Japan’s biggest car maker by volume asked about 500 suppliers to its domestic factories to disclose details of their supply chain. About half revealed sourcing network information, and Toyota found that some 300 production locations could be at risk.”

That statement alone is an important reflection of what occurred in the initial days after the disaster.  Supply Chain Matters has heard first-hand accounts from a number of senior supply chain executives indicating that while initial assessments may have given an indication of minimal or minor impact. It was the later assessments from lower tier suppliers that provided the real magnitude of potential disruption to supply.

The WSJ commentary also notes that Nissan’s COO recently asked its suppliers to take similar steps in disclosing details of the component supply network.  Supply Chain Matters readers of both our ongoing blog and newsletter commentaries will recall that in the case of Nissan, it was far more equipped to respond to the crisis and bounced back the earliest.  The latest financial performance results from all of the Japan based auto manufacturers now indicate how Nissan has been able to buffer any major sales decline and actually exhibit sales growth due of the flexibilities of its supply chain capabilities.

Over and above supplier assessments, there is a need to have singular organizational focus and accountability for risk identification and mitigation.  There are two fundamental components to risk namely, identification or mitigation as well as adequate response when major disruption occurs.  In our view, both must also fall under the same organizational umbrella.

Over on the Spend Matters blog, fellow blogger Jason Busch offers a recommendation that this accountability should reside in either finance, procurement or both.  Our view is that it should have even broader supply chain accountability, including a direct relationship to the company’s senior supply chain or operations executive. Notice that in the case of both Toyota and Nissan, the spokespersons are senior operational executives.

Like many other of today’s more demanding capabilities there is an all-important skills aspect to the identification and management of risk and firms need to assess the required skill levels to support these needed competencies.

Risk identification and mitigation requires advanced analytical and business intelligence capabilities as noted not only in the scope of Toyota’s effort, but in current benchmarks from companies such as Cisco, Procter & Gamble, FedEx and others.  There are needs to to quantify which components, regardless of individual cost, have the most risk to end-product revenue support needs.  Risks themselves need to be categorized as to frequency of occurrence. It also requires the existence of supplier early warning capabilities as well as the broadest visibility of what may be occurring throughout all layers of the supply chain at any given time.   Much of these capabilities require some investment in advanced technology, and we believe this will lead to broader perspectives for investments in a new class of supply chain control tower like applications.

Organizations cannot adequately address nor implement any technology investment without first gaining alignment in formulating a comprehensive organizational plan for addressing supply chain risk management. Such a plan has people, process, technology and change management components.

Technology providers in turn need to educate firms in understanding the building blocks or roadmaps for building adequate skills, organizational capabilities and safeguards in order to leverage these technologies.

One year after the tragic events impacting Japan, we as a supply chain community need to take a broader and more aware perspective towards existing risk to industry supply chains including the need to educate the highest levels of senior management as to the required building blocks and investments.

Has your organization gained a new awareness and sensitivity to supply chain risk?

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.

We were catching-up on reading this week and reviewed an article published in CSCMP’s Supply Chain Quarterly printed magazine. (paid subscription or CSCMP professional membership required).  The article was titled, Tap into the power of analytics, and was jointly authored by Thomas H. Davenport, distinguished professor of IT and management at Babson College, and Jerry O’Dwyer, a principle and leader of analytics strategy for the strategy and operations practice at Deloitte Consulting LLP.

I remain a strong fan of professor Davenport’s research in the area of supply chain and business analytics.

The article itself explored new ways of applying supply chain analytics to business performance needs and where to find the best opportunities.  One of the most important insights brought out in this article reflected on the need for improving analytical “literacy” across supply chain teams.  We have heard and read of this same need coming-up more frequently among senior supply chain management teams and wanted to enhance this challenge through this commentary.

In their article, the authors make the observation that several companies have had to considerably upgrade their analytical capabilities of both their IT applications and in the skills of business planning teams.  A quote from one supply chain manager observes that people have to be twice as smart in order to make best leverage of today’s more sophisticated technologies in analytics. Further noted is that individuals need to be either retrained or perhaps moved to other opportunities.  Some companies are providing for in-house sponsored training while outside universities or training organizations are offering new opportunities for deeper analytical skills.

One other concept brought out by the authors to facilitate the understanding of supply chain analytical skills was simpler software applications with narrow functionality. The analogy brought forward is that of a “smartphone-like app” that would support a single decision, and further noted is that some software providers are now beginning to introduce such narrow applications. Examples mentioned are supplier evaluation, inventory performance analysis or transportation analytics.  The authors point out that the way to guarantee the use of analytics in supply chain management is to embed them into supply chain-oriented processes and systems.

Supply Chain Matters would not necessarily agree with the first approach, namely because it places analytics and business intelligence data back into functional stovepipes, rather than into a supply-chain wide information and intelligence repository.  These narrow scope analytics applications may also be the means of some software providers to hang on to customers while not necessarily supporting the broader and more extensive need.  The latter, in our view, reflects the emerging concepts of supply chain control tower like applications or platforms, which we addressed in prediction five of our Supply Chain Matters 2012 Predictions for Global Supply Chains.

Regardless of the systems and technology approach, the reality remains that both supply chain management and planning teams need to consider realistic methods for  deepening individual skills and literacy into leveraging advanced analytics within supply chain business decisions.

We encourage readers to share their own views regarding the growing need for supply chain analytical skills by either adding a Comment to this posting, or responding to our interactive poll question appearing in the right-hand panel. Depending on the volume of responses, we will share the results in an updated commentary.

Bob Ferrari

This continues our series of commentaries outlining our 2012 Predictions for Global Supply Chains. These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, and in helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the New Year.

Readers are welcomed to review our previous series of postings.  These include:

The full listing of 2012 predictions

Predictions One and Two.

Prediction Three

Prediction Four

Prediction Five: The concept of “supply chain control tower” will come to the forefront, but in 2012, there will be a need for vendors and consultants to focus on further market education and early adoption support.

In our discussions, presentations and attendance at 2011 supply chain forums and events, we have discussed and heard from manufacturers on the need for a “supply chain control tower” technology enablement.  The term itself is not one that was primarily conceived by technology vendors, but rather industry visionaries who now acutely understand that there is need to have complete visibility and decision control of all that is occurring across the extended global supply chain.  The clock speeds of business change have increased dramatically, along with their subsequent impact on supply and demand planning and fulfillment execution needs. Sequential planning cycles predicated on historic data views and incorporation of the impacts of the latest real-time events are the new challenges for managing highly dynamic supply chains.

The control tower concept stems from OEM’s primarily in the high tech and consumer electronics industry that are deeply involved in supply chain planning and fulfillment execution in a highly extended and complex network.  They have come to understand that constant volatility in product demand, supply, and other unplanned events are exposing the vulnerabilities of cadence or process driven planning, execution or S&OP processes.

Supply chain teams require more-timely, and more forward looking decision making vs. just visibility to what has occurred. A control tower can become a single utility view for tracking information related to supply chain wide events, decisions and information flow. In essence, it can provide an information hub that supports two-way decision-making, interaction and extended collaboration for what is occurring and what needs to occur. Consultants and systems integrators have also honed-in on this new requirement, and some pilot process implementations will continue in 2012.

Technology vendors have greatly overhyped the terms “supply chain wide visibility” and we believe that users demand much more supply chain business process control specifics and capabilities with this new concept.  Our prediction is that in 2012, the supply chain control tower will come to the forefront of discussion, but this is still an early phase period of market adoption and early adoption. The notion of a supply chain control tower will benefit from more discussion among both functional and IT support teams and will require more market education of the various technology elements that can enable this concept. The payoff in industry competitiveness and financial benefits can be huge.

We anticipate that the technology vendors themselves will converge on this area from four separate perspectives: supply chain execution, supply chain planning and business process management (BPM)/ business intelligence (BI), and B2B trading network perspectives. This will place the burden on consultants, system integrators and end-user teams to sort out the best approach for specific needs.  Vendors and consultants will also need to provide more hand-holding support to early adopters in their deployments.

Prediction Six: Cloud computing and broader managed services options directed at enabling selective supply chain business processes will continue to gain more traction.

The momentum for cloud computing technology adoption continued during 2011 as manufacturers, retailers and service enterprises filled-in tactical holes within supply chain problem areas such as procurement efficiency, overall spend reduction, broader supply network collaboration and deeper insights into demand and supply patterns.

The prospective of a much more challenged global economy and added pressures to reduce cost and improve service levels directed at maintaining or acquiring key customers is a given in the coming year.  External clouds can provide more flexible options for supply chain networks to exchange information with key customers and partners and collaborate more effectively on planning and execution needs. We therefore believe that more organizations will turn to broader cloud computing adoption or managed outsourced service options for selective supply chain process areas during 2012.  Cloud deployments will continue to include both private and public cloud options, with private clouds continuing to be favored within supply chain mission critical management process areas.

The cloud computing option provides enterprises with a further means to limit large up-front costs for the acquisition of key technology, and further provides the flexibility for offsetting the traditionally high annual software maintenance fees associated with enterprise level behind the firewall software use. Cloud-based technology further provides a role in helping supply chain networks to foster “plug and play”  process support capabilities. A key sign of acknowledgement of cloud computing market adoption occurred in late 2011 as dominant ERP providers made acquisitions to shore-up their cloud computing options for customers.  In late October, Oracle agreed to acquire cloud customer service provider RightNow Technologies, and in early December SAP agreed to acquire HCM cloud provider SuccessFactors. The ERP providers will have to mask their desire to sell more “seat-based” revenue opportunities with the need for customers to have meaningful cloud options that do not require major upgrades of the existing ERP technology stack.

Smaller, specialized cloud oriented supply chain technology vendors will continue to gain more market visibility.  Selection however should consider that some vendors may be targets of acquisition from bigger players in 2012 (see Prediction Seven).  Insure that your service-level agreements include provisions for carryover, in the case of acquisition or merger.

Managed Services

We also continue to hear reports from vendors and consultants that more managed services options directed at select supply chain process areas are gaining interest.  A big help in this area has been a broader understanding and education of the concepts of Vested Outsourcing, as advocated by the University of Tennessee. Vested Outsourcing calls for a outcome-based partnership among the outsourcer and the managed service provider for establishing goals for defined outcomes, joint oversight, and win-win incentives.

Look for more uptake in 3PL / 4PL partnerships in logistics and order fulfillment process needs, procurement of indirect services, and some areas of supply chain planning related to steady-state product offerings. In the U.S., 3PL’s are mindful of the likllihood of a truck capacity shortage if overall manufacturing activity increases, and are continuing to take advantage of cloud delivered technology, intermodal modes, optimized shipment structures and a heightened focus on collaborative capacity utilization.

Managed service options will continue to provide an attractive option for small and mid-sized businesses, but cost competitive, develop or buy factors will remain a part of the process.

This concludes Part Five of our Supply Chain Matters 2012 Predictions.  In Part Six, we will explore our Prediction Seven, reflecting on added M&A And strategic partnership activities among technology providers, and Prediction Eight, a move toward stepped-up standards and mitigation efforts on the part of industry and governments to combat the growing problem of counterfeit parts and supply chain theft.

In the meantime, readers are encouraged to share observations and added predictions from your industry and functional lenses.

Bob Ferrari

© 2011 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters, All rights reserved.

As we transition into the final month of 2011, we are revisiting the Supply Chain Matters 2011 Annual Predictions for Global Supply Chains which were outlined a year ago.  Our annual process is to first re-visit past projections made for the current year, in this case 2011, and declare some projections for the upcoming 2012 year, which will come in a later series of postings before the end of the year. In this Part Three posting, we will revisit predictions five through seven. Our earlier scorecards can be accessed by clicking on the following links:

Part One- Predictions One and Two

Part Two-Predictions Three and Four

Prediction Five: The year will bring a new wave of turmoil, acquisition and market consolidation in certain supply chain and enterprise technology areas.

The year 2010 brought a wave of consolidation and acquisition in the supply chain technology area and we predicted that this trend would continue in 2011. Although there was some activity in 2011, it was not a new wave, as we predicted.

We anticipated consolidation acquisition and consolidation fueled by needs to tap growth potential in emerging markets, adjust strategic focus, fill-in solution areas or take advantage of opportunities.  In essence it was a somewhat quiet year with the exception of perhaps the procurement, sourcing and 3PL areas  Worth noting was:

Sourcing, Supply and Contract Management

Emptoris acquired both telecommunications expense management vendor Rivermine, and later, provider of supplier lifecycle management support vendor Xcitec.

B2B E-Commerce and Supplier Networks

GXS acquired supplier information and community management provider Rollstream

ERP

Oracle acquired information search and intelligence provider Endeca.

3PL

Transplace acquisitions of both Celtic International and SCO Logistics.

There were no major supply chain related acquisition plays concerning major players (IBM, Google, Microsoft, Oracle, SAP) in 2011, and no major acquisition announcements concerning SAP itself. It was perhaps a year of digesting previous acquisitions of 2010 and a keen concentration on mining business from existing applications.

Manufacturers and retailers continued to have heartburn regarding annual maintenance fee burdens  placed on them by the major ERP vendors but that did not impact the revenue streams of the major players in 2011. Make no mistake, the heartburn issue of high recurring maintenance fees for enterprise software will remain an issue among both IT and supply chain functional teams for some time to come, and will lead to different alternatives in the market.

One rather big surprise in the services area was the announced acquisition by PwC of supply chain benchmarking firm PRTM.  We note surprise since the announcement seemed to be rather low-key and even missed our keen eye. The long-terms implications of this acquisition on benchmarking services are somewhat unclear.

Prediction Six: Cloud computing options directed at supply chain business process enhancement will explode in popularity and adoption.

We believed that the adoption wave of cloud computing alternatives would likely accelerate in 2011 and the largest benefactors would be small and medium sized businesses. The momentum and reality of adoption continued in 2011, however is was not as originally hyped by vendors. Buying trends were motivated by larger companies that needed to either springboard overall IT adoption or required specific tactical fixes to supply chain problem areas such as procurement spend or broader supplier integration, visibility and collaboration.

Adoption favored larger vs. smaller or mid-range companies because on the whole, price points remain at higher enterprise software levels. Smaller organizations still remain interested because their larger key customers require more electronic integration. More importantly, in our view, the mid-market continues to experience confusion as to what processes lend themselves to cloud computing alternatives. As Jim Cantrell of Hubspan noted to us in a recent briefing: “not all clouds are created equal.” Having a comfort level with software vendors hosting supply chain mission critical applications on a multi-tenant cloud, and persistent concerns regarding data security remain barriers to further adoption.

A significant announcement in this area in 2011 was the market launch of Kenandy, a new vendor conceived from the stewardship of salesforce.com founder Marc Benioff, Perkins Caulfield & Byers partner and former Oracle executive, Ray Lane, and former Ask Computer founder Sandra Kurtzig.  Kanandy presents itself as a social based manufacturing management cloud-based application that embraces a new paradigm of networked manufacturers, suppliers and partners. Also announced was salesforce.com financial investment in privately held ERP provider Infor, with the specific purpose in jointly developing a global marketing and order management system that will reside on the Force.com platform. The goal here is to make cloud computing more attractive for smaller companies.

We also predicted mixed buying signals relative to options for deploying private vs. public clouds.  Private clouds, where sufficient controls and security measures are monitored, continued to be favored by larger companies.

Prediction Seven: Wider scale leverage and adoption of in-memory computing, coupled with broader application of information discovery platforms could be game changing influences on supply chain wide business analytics.

When we framed this prediction, there were two important technology developments that had the potential to have significant impact on predictive analytical capabilities in 2011.  The first was incorporation of integrated in-memory technology among software and hardware appliances. The second was the wider adoption of Google-like information discovery tools that can mine hidden data, especially unstructured data and information.  If technology providers were agile enough in 2011 to incorporate these technologies not as tool sets, but rather incorporated into turnkey supply chain planning and analysis application appliances, we could have seen some dramatic uptake in customer interest levels in the second half of the year.

More importantly, converging forces of a more rapid clock speed of business, along with senior management imperatives for quicker, more-timely decision making have been motivating companies to re-look at sequential supply chain planning and execution in favor of merged planning and execution, and augmenting planning with more predictive analytical tools to support predictive vs. more reactive decision-making.

The reality was that many vendors got ensnarled in hyped product development initiatives that were too broad and multi process focused.  The biggest player with the highest game-changing impact in this space was SAP and its HANA development efforts. SAP’s efforts in 2011 became too broad and ran into the reality of scope and impact to existing application landscapes. SAP’s supply chain related applications therefore received little benefit in 2011.  Information discovery vendor Endeca lost its dedicated focus to manufacturing and supply chain process needs earlier in the year, and was recently acquired by Oracle.

The closest vendors to supply chain predictive analytics are JDA Software, Agistix and Kinaxis, with the latter having more of a focus on response management and a new initiative of supply chain control tower applied to overall supply chain planning and key decision processes. Progress Software is another vendor attacking predictive analytics and supply chain control tower from the business process management platform perspective, with an initial offering in supply chain execution control.

The bottom-line is that while game-changing in potential, predictive analytics capabilities will need more market education and more concentrated supply chain focus. Stay tuned for our 2012 predictions for more in this area.

This concludes our Part Three scorecard update of our Supply Chain Matters 2011 Predictions for Global Supply Chains.  In our Part Four update, we will revisit or other predictions.

Bob Ferrari

©2011, The Ferrari Consulting and Research Group LLC and Supply Chain Matters, all rights reserved.

From our lens, certain technology vendors and bloggers have been confusing manufacturers and supply chain teams by communicating alarming messages on the growth of so-termed, “big-data” supply chains.  Some messages relate to organizations drowning in data while others offer a panacea of remedies to get data under control.

Supply Chain Matters recommends that our readers take the opportunity to review a recently published McKinsey Quarterly article, Are you ready for the era of ‘big-data’?  This advisory article is insightful and well written and provides a proactive context as to how organizations can leverage the harvesting of data for competitive advantage. While McKinsey acknowledges that these are still early days for big data, the authors state that their research indicates that organizations that leverage data and business analytics to guide decision making can gain an edge in strategically engaging customers and suppliers. We would add that the recent major supply chain disruptions precipitated by the tragedies in northern Japan and now Thailand, have also provided real-time reminders on the importance of having the right information.

The article also makes a very important conclusion. Some industries will realize benefits sooner, namely because they have strong incentives to do so, along with their overall readiness to capitalize on data management strategies.

The report features five well posed questions that senior executives should be asking themselves.

One question reflects on breaking down the barriers of accessibility to industry and supply chain wide data when organizations feel threatened or gain strategic benefit from sharing their perceived proprietary or confidential data.  These barriers exist externally as well as internally. As an example, some big retailers continue to harvest financial gains from selling point-of-sales data. Industry data aggregators or intermediaries benefit by selling such data to industry suppliers.  The good news however as that supply chain organizations are finding innovative and collaborative means to gain broader access to data.  At a recent industry conference, we heard one presenter representing a consumer goods company state that a revolution is underway in opening up access to direct sales data, even among industry competitors.

Another insightful question posed was the following: “If you could test all of your decisions, how would that change the way you compete?”   The notion here is that access and leverage of key information and insights facilitates a fundamentally different type of decision- making process, one based on reducing the variability of outcomes by testing or predicting possible decision scenarios ahead of time. A supply chain specific example of this analytical or predictive decision making context has been the popular adoption of multi-echelon inventory optimization technology.  This software leverages key data related to supply chain footprint, products, inventory cost, transportation and cycle time to analyze various inventory tradeoffs and deployment strategies that can achieve a specific customer service level. Thus, a decision related to servicing a key customer, can be analyzed ahead of time for quantification of impacts in overall costs and service levels. Other and more recent examples are the Kinaxis and Progress Software announcements of the availability supply chain control tower applications that leverage either scenario management or business process management outcome features.

Other questions posed relate to how the business would change, if big data were channeled, how these methods would augment management decision-making, and the opportunities for certain companies to create entirely new information-driven business models .

A final McKinsey observation concerns a pending shortage of skilled resources, one that this author has communicated in prior talks on predictive analytics.  McKinsey research quantifies that in the U.S. alone, “demand for skilled analytical people can outstrip supply by 50 to 60 percent.”  McKinsey notes: ”By 2018, as many as 140,000 to 190,000 additional specialists many be required.”  This message is rather important to dwell upon.  Supply chain professionals at all levels need to proactively upgrade their skills to include these new areas of leveraging analytical data and predictive decision-making.  Companies need to provide more incentives and opportunities for training in these areas, and universities and training organizations need to broaden their curriculum to embrace advanced analytical and predictive decision-making methods.

A final note reflects on the current landscape of supply chain focused professional certification programs, such as those offered by APICS, CSCMP and ISM.  By our point-of-view, there needs to be more exam content devoted to candidate understanding of these evolving data-driven and predictive decision-making processes vs. those that sufficed in the prior times of sequential based planning such as MPS and MRP.

The times are changing along with the potential and  means for more predictive supply chain decision-making.  And so are the skills and readiness qualifications.

Bob Ferrari

© 2011, The Ferrari Consulting and Research Group LLC and Supply Chain Matters, All Rights Reserved