Supply Chain Matters has provided previous commentaries citing next generation technology involving smart item-level labeling technology that can be applicable to either supply chain business intelligence, demand sensing or tracking needs. Evolving next-generation labeling utilizes printed electronics and near-field communications (NFC-enabled) smart labels to track products and their various states. This new evolution is the dawning of a new era for item-level tracking, one that will harness the potential of the Internet of Things (IoT) as well as the abilities to bring together the physical and digital aspects of supply chain management the added ability to enhance the brand experience.
A technology provider we have profiled in this area has been Norwegian based Thin Film Electronics ASA. Our last commentary focused on Thinfilm’s joint announcement involving Diageo in the development of a prototype connected smart label for the Johnnie Walker Blue® brand.
This smart-label technology provider has now announced that it has received an additional $22 million in funding in a private placement involving several U.S. funds. According to the announcement, these funds will facilitate expansion of printed logic production needs to meet expected market demand from current and prospective customers, including Diageo.
The latest funding round is described as a significant opportunity to scale operations as well as to attract an additional investor base in the U.S. We would add that it is yet another reflection of investor interest in emerging new IoT based technologies focused on supply chain business process and intelligence needs.
Commercial aircraft industry eyeballs were focused on this week’s Paris Air Show, a biannual event with enormous significance to major aircraft manufacturers and their respective supply chain partners. Each event is a competition as to which manufacturer walks away with bragging rights to the most landed customer orders or most buzz regarding a new aircraft model. Beyond the headline buzz as to whether Airbus or Boeing landed the most orders, the global supply chain takeaway is an additional $100 billion plus in customer orders and another obvious extension of multi-year backlogs. The overall pressures on aerospace focused supply chain have clearly and unquestionably turned toward fulfillment execution.
Reports indicate that Airbus booked $57 billion for 421 new aircraft orders at list prices while Boeing landed $50 billion worth of orders representing 331 new aircraft. Combined, it represents nearly another 6 to 9 months of customer order backlog at current monthly production volumes.
Aircraft engine providers also shared in the order bonanza with consortium based CFM International reporting a combined $19 billion in orders related to its LEAP family of engines, and other models, while General Electric Aerospace reported orders valued at $5.4 billion for its new GE9X engine. Interesting enough, as a literal follow-up to our previous Supply Chain Matters commentary related to CFM International, the CEO of that engine supplier publically warned the two major OEM’s not to request additional production volume beyond aircraft currently scheduled for delivery through 2020, and that the consortium is currently stretched to capacity in fulfilling what has already been booked in orders. Likewise, the President of Rolls Royce’s aircraft engine business indicated that supplier was booked out to 2021 and the current industry message is about production and supply chain ramp-up.
On the topic of engines, Airbus had previously planned to feature its new A320neo aircraft at this week’s show but a component problem within the new model Pratt and Whitney engine grounded the aircraft.
A further industry implication is that more and more of added industry orders are originating from new and up and coming discount based carriers. Indonesia based Garuda was reported to be one of the most active buyers this week, placing orders for both Airbus and Boeing aircraft. Many are opting for termed “power by the hour” or included service management contracts where manufacturers guarantee a specified level of operational up-time and assume annualized aircraft maintenance costs. The longer the industry backlog continues, the less likely that OEM’s and engine suppliers can take advantage and leverage these incremental recurring revenue streams.
On the product design front, the reported buzz centered on a potential new Boeing model termed “Mom”, billed as a likely replacement of current discontinued Boeing 757 fleets. The aircraft does not exist and is more in the pitching stage, but talk of the new model was enough to reportedly generate a lot of interest and a lot of differing views. Postings by Business Insider and Bloomberg provided added color to Boeing’s potential new model. Industry participants are quoted as indicating that Boeing has no choice but to pitch such an aircraft because of current functional advantages offered by arch rival Airbus with its new A320neo aircraft. According to these postings, Boeing is indicating a “clean sheet” design. However, the current realities of the current highly capacity constrained industry are already adding to the discussion as to the time-to-market timetable for such a new model. Once more, the current operational 757 fleet is noted as more than two decades old and will need replacement rather soon. This author alone is rather frustrated in having to fly coast-to-coast across the United States in aging and dull United Airlines 757’s. It is akin to driving a station wagon with 200,000 miles on the odometer with seats and upholstery worn out. The notion of “Mom” will undoubtedly place enormous pressure on Boeing’s design engineering and program management teams at a crucial time when other new aircraft need to meet delivery and volume milestones.
Obviously, the industry question centers on whether both Airbus and Boeing have learned from past supply chain snafu’s with prior models and can effectively instill added agility, cadence and responsiveness to global-based supply chains. Supplier resiliency and contingency planning will be crucial as will supply chain risk mitigation. Advanced technology is already playing a crucial role in areas of additive manufacturing, RFID, IoT and more extensive end-to-end supply chain visibility. Both OEM’s, along with key suppliers, would be wise to increase their investments in more predictive planning and supply chain wide business and operational intelligence.
As Supply Chain Matters has noted often, an industry with engineering based culture having upwards of a current ten year order fulfillment backlog while enviable, has unprecedented challenges and requires more innovative approaches by all its players. The focus is now flawless and synchronized execution.
In our prior Supply Chain Matters posting we called attention to the evolving attraction for leveraging predictive analytics in supply chain decision-making practices which has added to the continued pent-up demand for data scientists. We highlighted a guest contribution indicating that big data and more predictive analytics capabilities can be non-effective if not preceded by a rigorous review in determining if current key performance indicators (KPI’s) and business metrics are actually capturing the true drivers of business outcomes.
During SAP’s recent 2015 Sapphire and ASUG conference, SAP co-founder and Supervisory Board Chairmen Hasso Plattner’s conference keynote touched upon this very aspect, which warrants repeating. He touched upon the notion of the boardroom of the future, not being occupied by reviewing historically based KPI’s but rather “fact-based management.” Hasso described this as a “massive change on how companies manage information” and further, “we cannot hide data anymore”.
That last statement may well resonate with our readers since too often, KPI’s are selected to measure can-do performance areas tied to individual organizational, team and personal bonuses that do not necessarily link to an overall business outcome required for products, processes, margins and/or risks. They are too- often, anchored in past performance coupled to a consensus of what can be comfortably accomplished vs. what should be expected given the industry and business environment. Concerning or bad news can be hidden until it is too late for the business to overcome the effects.
In his keynote, Hasso addressed such a change as “moving from dashboards to active boards.” That is an important and far different metaphor.
It implies continuous and changing analysis grounded in overall outcomes and assumes that business events will indeed be constantly changing and that performance metrics should set both a target and a constant moving analysis of potential outcomes based on various business and product scenarios. Such a moving analysis assumes that organizations and teams can be fluid and flexible, responding to market opportunities, threats or risks in a more proactive and collective manner and in the context of best desired outcomes. It further implies that management is very actively engaged in understanding how the end-to-end supply chain is contributing or detracting from desired and/or expected outcomes. Bonuses and performance are tied to best enterprise outcomes vs. individual outcomes.
Such a change does not occur overnight and will take time to evolve. As noted in a previous commentary, executives need to be granted the broadest end-to-end supply chain leadership and accountability with certain mandates to address existing value-chain challenges and to improve business outcomes. Supporting staff with data science skills, while critical, are not the primary skill need. Knowledge of the business, the end-to-end supply chain, and organizational change management needs to be coupled to data science skills.
In the meantime, we advise supply chain leaders to indeed recruit talent with data science skills, and then rotate these new superstars among various supply chain functional and geographic assignments. Challenge them with local problems and with introducing positive overall change. Insure active mentorship and sponsorship with the end goal being a select group of business analysts that can take on the most difficult challenges while garnering the respect of others.
The synchronization and management of the Omni-channel customer fulfillment experience has fast become a complex problem for retail industry business management and supply chain teams. The added dimensions of taking orders online or from physical stores and fulfilling from multiple channels adds complexity and needs for smarter and more-informed decision-making. Cost to serve and determining impact to profitability become ever more a challenge.
Yesterday, in conjunction with the Focus Connect 2014 event being held in Barcelona, JDA Software and IBM made a joint announcement that Supply Chain Matters believes demonstrates the ongoing importance and continued evolution of Supply Chain Control Tower (SCCT) support capabilities in the supply chain technology market. This announcement could also portray a possible broader relationship among these two technology providers in the months to come.
The specific announcement involves a joint collaboration among JDA and IBM development teams to address the need to process and fulfill retail industry Omni-channel orders in a more efficient and more intelligent manner. The approach calls for combining the elements of JDA’s warehouse management, demand planning and workforce planning business support capabilities (JDA Intelligent Fulfillment and Labor Productivity) with IBM’s Sterling Distributed Order Management network platform capabilities. In essence, this approach marries elements of supply chain planning and execution with an end-to-end order management and fulfillment platform that connects all channel participants. The combined capability is expected to be offered in either an on premise or cloud deployment option, the latter being supported by IBM’s SoftLayer business arm. The joint development effort is currently underway and according to the announcement, is expected to be available in late spring of 2015.
This author had the opportunity to speak with IBM regarding the joint announcement. Discussions among these two technology providers began in January of this year at the National Retail Federation (NRF) conference. Both companies have a rather strong market presence among global retailers and each was hearing customers speak to the increasingly complex challenges currently manifested in Omni-channel customer fulfillment, including the dynamic aspects of having to manage the tradeoffs of inventory, appropriate fulfillment location, transportation and labor requirement needs. In May of this year, our Supply Chain Matters commentary associated with attendance at IBM’s Smarter Commerce Summit highlighted the evolving dimensions of Omni-channel and the needs to provide more predictive and prescriptive decision-making capabilities into the process.
The joint press release includes a quote from joint customer Lowe’s Home Improvement, and we were informed that both firms have identified interest from other unnamed retailers as well. Apparently, the original timetable called for announcement of joint product integrating JDA and IBM elements later in 2015, but it was obviously pushed-up to coincide with this week’s JDA customer event.
Our supply chain and B2B business community education series regarding SCCT has articulated that the concepts of control towers involve efforts to bring together supply chain planning and execution business process elements with enhanced intelligence and more predictive decision-making that can be provided in near real-time dimensions. There have been a number of strategic movements underway among multiple supply chain, enterprise and ERP technology vendors to build, broaden or position SCCT capabilities. We view this JDA-IBM joint announcement as yet another dimension of such efforts. JDA has the potential to leverage a broader more feature-rich distributed order network platform that supports more dynamic process parameters while IBM garners access to deeper retail-specific supply chain planning and execution support functionality. We have been informed that JDA is building and architectural framework that supports plug-in capabilities from other vendors, similar to what we have heard from supply chain planning providers such as Steelwedge and its connection to the Salesforce.com platform. Similarly, supply chain business network provider E2open augmented supply chain planning and product management support capabilities with the acquisition of Icon-SCM and Serus Corporation respectively.
As noted in our previous commentaries, IBM has been integrating elements of Sterling order management and B2B messaging capabilities with its IBM Emptoris sourcing and procurement business suite, and has communicated efforts to bring the predictive elements of Watson decision-making to online fulfillment and supply chain synchronization challenges. Thus, the SCCT business process support elements continue to broaden from many dimensions and are a sign of what will transpire from SCCT support technology down the road.
In the meantime, readers and joint JDA and IBM customers should watch the ongoing joint efforts among both providers for further signs of what is to come. Just like the prior announcement of the partnership among IBM and Apple, both parties provide the potential to remove the information integration burden for today’s highly complex supply chains.
Disclosure: IBM, E2open and Steelwedge have current or prior business relationships with the Ferrari Consulting and Research Group, parent of the Supply Chain Matters blog.
This author has been writing and speaking on the significant impacts that the Internet of Things (IoT) will have on industry supply chains in the next five years. Physical devices such as sensors, production equipment, transport vehicles and other supply chain focused devices connected to the Internet, transmitting valuable data and insights, literally bring the notions of connecting the physical and digital supply chain closer to reality.
More and more industry supply chains have opted to outsource logistics, transportation and customer fulfillment to outsourced logistics and transportation partners and thus leveraging the potential benefits of IoT becomes a de-facto capability requirement. They also require broader vision among supply chain service providers for incorporating such strategies in their strategic planning.
Industry supply chain teams have gained significant learning from previously vendor hyped, single focused initiatives such as RFID, which ultimately had to overcome initial unplanned and unforeseen cost and technical infrastructure hurdles to reach compelling cost and operational benefits. The broader vision of cost-effective item tracking and data management was a missing element. Similarly, the context for the benefits of IoT itself need to include leveraging the convergence that is now occurring in data analytics, in-memory, mobile and software engineered systems technologies that are providing deeper capabilities at less cost than a mere few years ago.
Last week I had the opportunity to speak with Chris Power, Director of Product Management for Airclic. For those readers unfamiliar, Airclic supports the critical last-mile of the supply chain, providing a cloud-based proof-of-delivery and routing service for food service, retail, healthcare, third-party logistics (3PL) and transportation industries.
In our discussion, Power observed that B2C/B2B Omni-channel fulfillment requirements are presently driving profound impacts on logistics and customer fulfillment needs. More and more B2C focused supply chains are moving their focus toward increased requirements for cross-dock, sorting and service center capabilities. Goods are becoming more in-motion vs. traditional aspects of transport, store and ship. From Power’s observations, teams initially tend to seek more and more data regarding different logistical touch points, but “their eyes more often become bigger than their stomachs” when all that data overwhelms systems and people resources. That is often when Airclic gets the call. The need then shifts toward the broader need for making more effective use of data and avoiding data overload.
We discussed the notion that the term “big-data’’ may be disserving, and that a better term may well be what we at the Ferrari Research Group advocate, which is “smarter data”. Smarter objects that report on exceptions or abnormalities beyond a threshold provide a huge opportunity for managing the critical last mile of the supply chain.
Airclic advocates a three-stage maturity model. First is harnessing capabilities to gain more automated visibility. A second phase addresses managing exceptions, “tell me when there is a problem” vs. a hose line of streaming, overwhelming data. The third phase, one that Powers observes that few supply chain have achieved to-date, is predicting what is going to occur, especially in peak or seasonal demand periods when all resources are stretched. One example we discussed was last winter’s situation when horrible weather conditions caused noteworthy transportation and logistics delays, especially during the critical holiday buying period. Supply chain teams were often reacting to bottleneck disruption vs. anticipating such disruptions and executing alternate strategies that buffer or overcome disruption quicker.
However it is quite important to point out that the true benefits of harnessing IoT, smarter sensors and more predictive analytics within the physical aspects of products in movement is highly dependent on the ability of key upstream supply chain participants to have vision and commitment to invest in IoT, coupled with smarter data capabilities. As a community, 3PL’s, with the exception of FedEx, UPS or other visionary players, have not had a track record for investing in leading-edge technologies unless prompted and compensated by specific customers. In this author’s view, the time is long overdue for the broader logistics and 3PL community to broaden their vision and invest in such capabilities without solely passing the tin cup of customer donation. Leveraging the physical and digital capabilities is a service that will attract customers, and the economics for such investments will change for the better.
The time is now for bold vision and broader technology perspective across supply chain execution partner ecosystems.
Supply Chain Matters invites other supply chain logistics and transportation industry players to share their views on the business benefits of harnessing IoT, enhanced mobile, smarter data and decision-making capabilities for industry supply chains.
It’s the end of the calendar work and this commentary is our running news capsule of developments related to previous Supply Chain Matters posted commentaries or news developments.
In this capsule commentary, we include the following topics: Zara Implementing RFID Tagging System; Hershey and Other Candy Providers Raise Prices to Compensate for Higher Commodity and Production Costs; Pratt and Whitney and IBM Embark on Predictive Analytics Initiative; U.S. Government Announces New Rules Pertaining to Rail Shipments of Crude Oil
Zara Implementing RFID Tagging System
Reports indicate that Zara, a known icon in world class logistics and supply chain management, is implementing a microprocessor-based RFID tagging system to facilitate item-level tracking from factory to point-of-sale. This initiative was revealed at Zara’s parent company, Inditex SA, annual stockholder meeting earlier this month.
The tracking system embeds chips inside of the plastic alarms attached to various garments and supports real-time inventory tracking. The retailer indicated that the system is already installed in 700 of its retail stores with a further rollout expected to be 500 stores per year. That would imply that a full rollout to all 6300 Inditex controlled stores would entail a ten year rollout plan. No financial figures have been shared regarding the cost aspects of this plan.
Hershey and Other Candy Providers Raise Prices to Compensate for Higher Commodity and Production Costs
One of our predictions for 2014 (available for complimentary download from Research Center above) called for stable commodity and supplier prices with certain exceptions. One of those exceptions is turning out to be both the cost of cocoa and transportation.
Citing current and expected higher commodity, packaging, utility and transportation costs, Hershey announced last week an increase in wholesale prices by a weighted average of 8 percent, which is rather significant. That was followed by an announcement from Mars Chocolate North America this week that it will institute price hikes amounting to seven percent. A Mars statement issued to the Wall Street Journal indicated that it has been three years since the last announced price hike and that Mars have experienced a dramatic increase in the costs of doing business.
According to the WSJ, cocoa grindings, a key gauge for chocolate product demand, has surged over 5 percent across Asia and 4.5 percent in North America.
By our lens, the next move will more than likely come from Mondalez International.
For consumers, indulging in Hershey Kisses, M&M’s and Snickers will be more expensive.
Pratt and Whitney and IBM Embark on Predictive Analytics Initiative
Another of our 2014 predictions called for increased technology investments in predictive analytics. One indication of that trend was an announcement indicating that aircraft engine provider Pratt & Whitney is partnering with IBM to compile and analyze data from upwards of 4000 commercial aircraft engines currently in service. This effort is directed at developing more predictive indications of potential engine maintenance needs. According to the announcement, each aircraft engine can generate up to a half terabyte of operational performance data per flight. According to an IBM statement: “By applying real time analytics to structured and unstructured data streams generated by aircraft engines, we can find insights and enable proactive communication and guidance to Pratt & Whitney’s services network and customers.”
Previously, Accenture announced a partner effort with General Electric’s Aviation business to apply predictive analytics in areas of fuel-efficient flight paths.
U.S. Government Announces New Rules Pertaining to Rail Shipments of Crude Oil
As a response to heightened calls for increased safety of trains carrying crude oil across the United States, the U.S. Department of Transportation announced this week a set of comprehensive new rules for the transportation of crude oil and other flammable materials such as ethanol. The move follows similar efforts announced by a Canadian transportation regulatory agency.
The new rules call for enhanced tank car standards along with new operational requirements for defined high hazard flammable trains that include braking controls and speed restrictions. The new rule proposes the phase-out of the thousands of older and deemed unsafe DOT 111 tank cars within two years. Rail carriers would be required to conduct a rail routing risk assessment that considers 27 safety and security factors and trains containing one million gallons of Bakken crude oil must notify individual U.S. state entities about the operation of such trains. Trains that haul tank cars not meeting enhanced tank car standards are restricted to 40 miles-per-hour while trains carrying enhanced tank cars would be limited to a 50 miles-per-hour speed restriction. Further under the proposed new rules, the ethanol industry will have up to 2018 to improve or replace tank cars that carry that fuel.
The proposed new rules are now open for industry and public comment over the next 60 days and are expected to go into effect early in 2015. According to various business media reports, there are upwards of 80,000 DOT-111 rail cars currently transporting crude and ethanol shipments. When the new U.S. and Canadian rules take effect, there is likely to be a boon period for railcar producers and retro-fitters.