The following posting can also be viewed and commented upon on the Supply Chain Expert Community web site.

Business media is now sensing product demand trends that many supply chain demand planning teams have already sensed- that demand across various tiers of global supply chains is slumping further.  An ongoing lack of confidence and uncertainty that has been resonating across consumer-facing businesses is cascading into various tiers of industry value-chains.  Many large global manufacturers have invested on a large scale in the growth of emerging markets, in many cases having well over half of total revenues emulating from these regions. The open question is the now whether demand from the emerging market economies is now shifting more toward the negative magnitude and whether the manufacturing economies of the U.S. and Europe have already slid into recession.

Last week, the Financial Times noted that two of the largest manufacturers, Cummins and 3M have cut their full-year outlooks, warning of declining demand in both the developed world and emerging markets.  Cummins cited a sharp drop in product demand from emerging markets, and speculated that the U.S. and much of Europe may already be at recessionary levels.

This weekend, the Wall Street Journal featured a headline article noting that global appliance sales have tumbled, with both U.S. based Whirlpool and European based Electrolux feeling the effects of continued eroding of consumer confidence with reluctance to spend on big ticket items. Buying activity has been limited to pure replacement of broken, non-repairable appliances.  Whirlpool is moving ahead with a major restructuring plan that involves consolidation of existing U.S. and North American production facilities and reductions in staffing.

In the chemicals and basic materials sector, BASF recently reported continued revenue and earnings growth, but also indicated that its customers are planning more cautiously, are reducing inventories, and have partially delayed orders in expectation of falling prices.  Dow Chemical reported robust revenues and earnings driven by a record 20 percent sales growth from emerging economies but once again pointed to soft demand in the U.S. and Europe. Dow chairmen/CEO Andrew Liveris noted: “The new reality is that the world is operating as a two-speed global economy…with the developing world strong, and the developed regions showing slow-to-no growth.”

The largest global semiconductor foundry provider TSMC reported a 4.5 percent decline in Q3 revenues over the previous quarter, and noted that the outlook for global economic conditions continues to weaken and is reflected in the lack of strength in Q4 wafer demand. The only exception was continued robust growth in communication related chips destined for smartphone markets.

Another, perhaps more troubling aspect of weakening demand stems from two ongoing events.  The first is the continued financial sovereign debt crisis, which despite last week’s more optimistic announcements, could permeate the economic climate for many more months to come.  The U>S. politic climate has also turned more pessimistic with no defined policy to address widespread unemployment and lack of substantial growth.

The other is the continued shocks and supply chain disruptions to important growth-oriented value-chains such as automotive, high tech, alternative energy and consumer electronics.  The latest and ongoing shocks are the consequences of the devastating floods impacting Thailand, which will cascade across other supply chain segments, and the likely continuance of severe weather and natural disaster events over the coming winter months.

For supply chain management professionals, the orientation must continue to be focused on agility and responsiveness to whatever changes may occur in the coming months, while insuring the strategic agility is maintained in upside/downside capacity, and critical inventory investments are maintained for components of high business disruption risk. Demand planning cannot stem just from past history or casual forecasting, but rather a sensing of current and planned product across all tiers of the industry value-chain. Scenario based planning is again the best prescription for assessing impacts to resources and capacity.

Finally, the incidents of Japan and Thailand have once again brought home the reality that surgical, risk-focused inventory planning and management trump across the board inventory cuts.

How is your supply chain organization navigating in the current environment?

Bob Ferrari

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

The following posting posting can also be viewed and commented upon on the Supply Chain Expert Community web site.

This is our fifth and final posting concerning the Kinaxis Kinexions 2011 conference held last week in Phoenix.  Readers can review previous commentaries by clicking on the following links:

Dispatch One

Dispatch Two

Dispatch Three

Dispatch Four

The persona of Kinaxis events frequently includes three consistent themes, Learn-Laugh-Share, and Kinexions 2011 did not disappoint in terms of an enjoyable experience.  We genuinely like to attend Kinaxis events. Attendees once again were treated to the humor of Bill Dubois and the Late, Late, Show format of speaker interaction. The presentations and conference content were all very informative and the customer appreciation event was a lot of fun. Congratulations to Kirsten Watson and to all of the Kinaxis conference planning team for conducting a great conference.

Besides the usual complement of enthusiastic customers, the headline for Kinexions 2011 was the announcement that the company’s core product will be renamed Kinaxis RapidResponse Control Tower. The implication of this announcement is that the existing RapidResponse functionality of supply chain planning and response management along with S&OP process support will be expanded into areas of sales force optimization, profitability analysis, workforce and sales force optimization.  The concept of supply chain control towers coupled to more predictive analytics is gaining lots of interest in complex, highly outsourced supply chains such as the high tech and consumer electronics industry, and no doubt, Kinaxis management wanted to steer the functionality of RapidResponse toward supporting these needs.  One of the thoughts we “tweeted” during the conference is our belief that customer needs and technology developments are aligning toward a new era of supply chain predictive analytics.

No doubt, Kinaxis wanted to gain an upper-hand in being identified with offering supply chain control tower process support, but more importantly, to be recognized as the single supply chain decision platform that can best assimilate all supply chain related decision-support information. Kinaxis is currently working with four other development customers on various aspects of deployment, and it will important to monitor how these deployments impact business results over time.

It will be interesting to also watch one other provider of control tower functionality that Supply Chain Matters has noted. Business process management (BPM) provider Progress Software has developed a control tower type application to support supply chain process execution and visibility.

An obvious open question remains as to whether prospects and customers will embrace a “cloud” deployment of this functionality, given the mission critical and security sensitive nature of global supply chain related information.  While not a lot of cloud deployment information was openly shared during the conference, we suspect that Kinaxis management will continue to provide flexibility in customer deployment options. Our hallway conversations with some select Kinaxis customers noted some concerns in gaining access to non-core supply chain information sources such as financial planning, product management and CRM.  The implication is that Kinaxis sales teams will have to target more education to the IT audiences of prospects.

Supply Chain Matters often looks forward to hearing the customer presentations delivered at Kinexions, as well as the hallway conversations.  The primary reason is that the Kinaxis customer base represents many tiers of global supply chains, from the most innovative OEM’s and product innovators such as Amgen, Cisco, and others, to large-scale contract manufacturers and mid-market companies.  What you often find is that the mid and lower tier supply chain players, that have to manage single digit gross margins are often the most innovative in finding methods to innovate planning, response and customer service process needs.  These players are often tasked by larger, more dominant supply chain partners to provide broader visibility and more responsive response to changing business needs, and as Jabil astutely pointed out, they must also be able to out maneuver large OEM’s in terms of periods of short supply or supply chain disruptive events.

Make no mistake, innovation occurs at all levels of global supply chains.

As we noted in our detailed commentary, the Kinaxis team also decided to invite a broader group of well recognized industry analysts, systems integrators and bloggers to this year’s conference in order to broaden the visibility of the company.  Kinaxis is a privately owned company and this overt step to broaden the company’s visibility in the market may be a prelude to other options down the road, perhaps taking the company public.

The influencer track provided a great opportunity for invited guests to gain a broader understanding of RapidResponse capabilities, including its current scalability among customer deployments.  Some scalability numbers shared were 20 million plus input records processed per second and 20,000 planned orders or 300,000 dependent demands processed per second in MRP calculations.  We have noted in past commentaries that this application is unique in that it spans well beyond just supply chain planning utilization support and includes aspects of supply-chain wide visibility, S&OP process support, and other uses.  It is not uncommon to hear that some RapidResponse customers have end-user counts in the hundreds and thousands. A persistent layer of broad-based supply chain planning information, business scenario related data modeling, and most importantly, the business rules surrounding the data are all housed within the RapidResponse engine. This lends itself to a viable interactive decision-support platform for planning and managing the supply chain. It is no surprise that many of Kinaxis’s newest customers have been attracted by support for their respective S&OP and other broad based decision oriented processes.

It was also rather important for Kinaxis management to clarify that RapidResponse does not exist without the existence of current backbone ERP or legacy systems.  Rather, it enhances the need for supply chain and business planning decision-making without having to rip-out existing ERP systems or endure disruptive upgrading of applications and ERP vendor technology stacks.

In summary, we believe that Kinaxis remains as a technology provider with lots of momentum in the market, with the potential to provide further innovation in predictive analytics and supply-chain decision support.  We believe that next year’s Kinexions may well provide more customer evidence of these evolving capabilities.

Bob Ferrari

Added Note: Kinaxis is one of other named sponsors of the Supply Chain Matters blog and the author provides services to this vendor.

The following posting can also be read and commented upon on the Supply Chain Expert Community web site.

We have provided multiple Supply Chain Matters and Supply Chain Expert Community commentaries as to whether confidentiality and safeguarding of corporate information has generally eroded for personal or individual gain.

Specifically, the issue is whether unscrupulous individuals cannot resist the temptation for personal monetary or other gain from selling certain supply chain information, especially regarding the leaking of information concerning Apple’s value-chain. It seems that any leaked information along Apple’s value-chain which can either place a supplier in a more advantageous position or uncover Apple’s strategies and intents regarding new or existing products, is worth money. Information regarding the number one supply chain and one of the world’s most valuable companies has become extremely valuable, or so it seems. More importantly, the implications to businesses and supply chain teams is far-reaching and not in the best interests of where supply chain business processes need to be.

Late last summer, an ex- global supply manager at Apple was charged with 23 counts of wire fraud, money laundering and unlawful transactions involving a kickback scheme. That individual pleaded guilty earlier this year and admitted to receiving kickbacks from six different Asia based suppliers in exchange for Apple confidential information. In June, a Chinese court sentenced three people, including a former employee of Hon Hai Precision Industry, to prison terms for collaborating to steal information from a supplier to Apple’s iPad2 products in order to get a jump on producing accessory products. The latest visible incident involves an ex-Samsung Electronics manager who leaked information to a Wall Street hedge fund manager in December 2009. Bloomberg BusinessWeek reported last week that during testimony at an insider-trading trial involving an executive at Primary Global Research LLC , this same ex-Samsung employee disclosed confidential shipping information for Apple’s iPad components, potentially causing Samsung to lose a supply contract.

There exist enough visible incidents and probably enough insider knowledge among those in the industry to know that this type of behavior continues.  For what personal gain?  Is a relatively small amount of extra money worth the ultimate ruin of your professional reputation and your family’s well-being?

The implications of these continued incidents to business costs are also wide ranging.  If you believe in any way that confidentiality has become too rigid, or something to take lighly, as the expression goes, “you ain’t seen nothing yet”.  Anyone in any role that has visibility to supply volumes will be subject to increased scrutiny and control.  Efforts to increase collaboration among suppliers will be stymied by more stringent controls around privacy and security of information. This can lead to harder work for supply chain teams and that would be a shame since so much can be gained from open sharing of important supply and value-chain information and increased business intelligence to product demand trends.

Supply managers will be the most impacted since they are the closest to the information.  Doing business with Apple already involves secrecy and strict controls, and these incidents will only make the work of dedicated supply chain professionals even harder to accomplish not only with Apple, but other companies and trading partners as well.

The message to our community is therefore to take note of the importance of confidentiality, since abuse will not, in the end, favor anyone or any organization. We believe that this is a critical issue, and community and broader awareness and commentary needs to continue.

Share your views and let’s start a constructive dialogue on preserving the best aspects of information sharing while respecting the legal confidentiality of certain information.

Bob Ferrari

The following posting can also be viewed and commented upon on the Supply Chain Expert Community web site, which is now approaching 5000 registered members.

Yesterday’s announcement from American Airlines indicating a split order for new aircraft to be supplied by Airbus and Boeing has a tremendous amount of significance from many business dimensions, not the least of which are supply chain strategy related.  For those unfamiliar as yet with the announcement, currently noted as the largest aircraft purchase in history,  American, which was a former loyal customer of Boeing, announced that it would purchase 260 Airbus A320neo, along with 200 Boeing 737 aircraft. Deliveries of both aircraft are slated to be in the 2017-2018 time period.

In a few short months, airlines have voted with their wallets, with a driven need to bring more fuel efficient and lower operating cost aircraft into their fleets.  Since announcing the A320neo in December, which promises 15 percent better fuel efficiency, Airbus has managed to capture more unit backlog than what currently exists for Boeing’s 787 Dreamliner, an aircraft three years overdue and targeted at lower operating costs. Backlog for the new A320 is approaching 1000 while the Dreamliner stands at 880. With continued new orders now pushing deliveries out seven years, other airlines will be compelled to make their own fleet decisions or risk having a disadvantage over competitors in operating costs.  A buyer herd mentality is occurring. As an example, discount carrier Southwest Airlines has yet to announce a replacement plan for its single aisle aircraft.

Readers who currently support the aerospace industry are obviously feeling lots of optimism since the current backlog of orders among Airbus and Boeing combined is now seven years and rising.  While elation is in order, we would advise that the time for celebration be brief, since aerospace related supply chains will have many challenges to overcome in the coming months. These challenges will also require different supply chain competencies.

This week, the Financial Times provided a pre-cursor introduction to this new era in a published article (paid subscription or metered view required) that noted that swollen aerospace supply chains, already showing signs of stress, have been increasingly concerned as to whether suppliers will be able to meet surging demand.  Aerospace is an engineering-driven environment where specifications and conformance to quality are strict, and qualified raw materials and suppliers are limited.  The latest wave of innovation in components has been breakthrough, but has added many new challenges. Capacity has been and will remain a significant challenge, but other capabilities will also be required. A snafu or failure from one supplier can stop an entire OEM final production line, and with this level of growing combined order backlog, a stoppage will be ever more expensive in dollars and reputation.

The aerospace supply chain dominants, Airbus and Boeing, remain intensively competitive and reputations are at stake. Other OEM players like Bombardier, Embraer and Comac want their share of orders for their aircraft offerings. Snafus and delays surrounding outsourced supply chain of programs such as the Boeing 787 Dreamliner or Airbus A380 programs speak for themselves and Supply Chain Matters has provided multiple commentaries regarding the lessons learned. Candidly, the industry has not presented a stellar record around sourcing criteria, program management, operational consistency two-way communication and predictability.

The FT article noted through select interviews with suppliers that that was the past, and this new era will be different.  Some suppliers have been proactive in leveraging delay time to enhance capacity and their own value-chain capabilities. We certainly hope so for everyone’s sake, since as FT indicated, the stakes are now ever higher. To echo the words of Jim Albaugh, head of Boeing’s commercial aircraft business, the supply chain needs to be ready and able to deal with the implications of this amount of business, the pressure is now on, not only Airbus and Boeing, but the other OEM players as well. Airline and carrier customers remain under pressure to find all means to reduce operating costs and cannot afford any future delays in aircraft deliveries. In short, the stakes are higher and growing.

Supply Chain Matters offers some recommendations to aerospace industry participants, and encourages readers to add their own as well.

For the OEM’s:

Continue to extend supplier collaboration efforts and practice win-win vs. other strategies. Much learning has hopefully occurred from previous supply chain outsourcing efforts and that learning needs to be quickly translated toward insuring suppliers are ready People, processes, and tools are indeed the criteria, but also consider two-way program management, communication and timely visibility to schedule or engineering changes. In our view, Airbus has demonstrated that it has learned from past setbacks, and the introduction of the A320neo is a demonstration of active supplier collaboration and involvement.

S&OP processes for OEM’s should consider including more key supplier participation and involvement.  Contrary to traditional S&OP methodology, it would wise for OEM’s to also extend the planning windows of the S&OP process, both deeper into the value-chain, and broader in time windows. Some form of an executive level S&OP in our view, is mandatory to insure no surprises. Automation of S&OP processes should garner serious consideration if has not done so.

For value-chain suppliers and trading partners the challenges are more acute:

Total upstream and downstream supply chain visibility is essential in an environment that has coordinated or synchronized scheduling.  That includes visibility among all suppliers to OEM production schedules and early warning to any planned or unplanned supply disruptions.

More emphasis will be required in response management and business intelligence capabilities.  Utilizing standard MRP or lean six sigma methods coupled with static logic can fall short in the forthcoming highly dynamic backlog environment.  OEM schedules will surely change, orders will be shifted in priority and supply disruptions are inevitable.  Airlines who desire earlier delivery of new aircraft may opt to select an OEM other than Airbus or Boeing, and those OEM’s may come knocking for your capacity. Suppliers who have current business supporting other industry or service parts needs will have to make intelligent decisions on smart allocation of existing capacity, balancing different customer needs. Having agile business processes that incorporate more real-time planning and execution information coupled with supply chain intelligence helps suppliers to proactively respond to additional business opportunities as well as changing day-to-day operating priorities from existing OEM’s.

Supply chain risk identification and mitigation will be a significant competency.  The Japan earthquake and tsunami was our wake-up call to the reality that any single-sourced component, compound or material can affect the entire value-chain.  Boeing and other OEM’s are initiating supplier risk assessments and suppliers should be doing the same for their value-chains. Supply chain disruption due to political, governmental or natural disaster events is a new reality for more occurrences, and all suppliers need to have a plan to identify risk areas and insure business continuity.

The aerospace industry is in a very enviable position with lots of business and robust demand.  Unfortunately, business processes of the past will not cut the mustard in this more dynamic and looking-glass environment.  Consistent execution, end-to-end visibility, constant collaboration and timely response are the new business stakes for participants.

Bob Ferrari

© 2011 The Ferrari Consulting and Research Group. All rights reserved

Day one of the Supply Chain World North America Conference featured a variety of interesting and insightful presentation as well as the opportunity to renew old and make new acquaintances.

This morning’s keynote delivered by Tom Davenport, Professor of Information Technology and Management at Babson College was titled Competing on Supply Chain Analytics.  This was a very timely presentation given the messages we heard at last week’s SAP Sapphire conference regarding an upcoming era of in-memory computing and broader, faster analytical computing capabilities.  Key takeaways from Professor Davenport talk included messages that good data and executive leadership are the most important pre-requisites for meaningful analytics, insuring that all supply chain analytics are tied to specific decisions and desired outcomes.  Also emphasized was that organizations often tend to dwell more on descriptive analytics (what is occurring or has occurred) vs. prescriptive analytics (what’s the best set of probable outcomes).

Throughout the day we had the opportunity to attend different sessions that included Dow Chemical’s strategies and commitment toward driving social and environmental values across the supply chain, Lenovo’s efforts to segment its supply chain design and fulfillment outcomes, along with Motorola Mobility Division’s ongoing supply chain transformation.

This afternoon featured an executive panel discussing current challenges of the post-recessionary supply chain. Panel participants identified supply chain security and risk management, increased regulatory compliance, a growing gap in supply chain talent and transformation to the “new normal’ of business as common cross-industry challenges.  Dave Malenfant, Vice President, Global Supply Chain for Alcon Laboratories made a very astute statement.  Dave observed that after supply chains were ripped apart during the recession, many may believe that returning to previous structures and organizational norms are the path forward.  Dave emphatically declared that this is not going to work since this new era requires a far different set of organizational capabilities and supply chain process responsiveness.  All of the panelists also reinforced the growing gap in management skills in end-to-end supply chain management, particularly in the growing emerging market regions.

Day one concluded with the announcement of the 2011 Supply Chain Council North America Awards for Excellence.  Supply Chain Matters echoes congratulations to the 2011 award recipients:

For Operations Excellence: Celestica and their Project FireFox initiatives in dramatically improving inventory turns and ROIC.

For Academic Achievement: The University of Tennessee and performance based procurement initiative developed for the U.S. Air Force

For Technology Advancement: SAP and its efforts with Coca Cola to implement SAP Business Objects Supply Chain Performance Management for supply chain wide analytics.

For Defense Sector Operational Excellence: U.S. Air Force Global Logistics Support Center for its initiatives in supporting combat operations.

A very busy day indeed at Supply Chain World North America.

Bob Ferrari

As this rather busy week draws to a close, SAP has concluded yet another annual Sapphire Now and ASUG conference. Supply Chain Matters has provided four separate commentaries direct from the conference and readers can reference each at the following links;

Commentary One

Commentary Two

Commentary Three

Commentary Four

In this final posting, we share our summary thoughts and impressions regarding 2011 Sapphire Now.

General observations and positive notes:

• As was last year, SAP obviously invested lots of production support money into Sapphire.  There was video coverage broadcasted live via the Internet, lavish production sets, live bands and talk show formats all expertly designed to present SAP as a world class, enterprise ready company.  That is an obvious positive since on the whole, there really was not a lot of hard news or product announcements generated by the 2011 Sapphire.
• As in the past, SAP’s blogger relations team (Mike Prosceno, Stacy Fish, Andrea Kaufmann, Craig Cmehil and others) performed admirably in providing each of us unfettered access to SAP executives and customers.  Most all of my requested interview requests were accommodated.  This is a world class team, setting the standard for all other technology providers.
• More than other years, supply chain messages, topics and implications were threaded in many of the talks, panels and keynotes.  We noted Hasso Plattner’s declaration that he believes that all of SAP’s business planning applications should be the primary target for rewrite on the HANA platform, and his specific mention of SAP APO as the number one priority. Steve Lucas addressed supply chain business intelligence requirements in his overview of SAP Business Analytics strategic direction.
• While on the subject of HANA, we continue to believe that if successful, conversion of SAP applications and software infrastructure to take maximum advantage of in-memory technology is game changing.  With this year’s Sapphire came a more detailed understanding of extensive and far-reaching this objective really is, as well as the difficult technical challenges that remain for SAP.  That for us is the real takeaway from 2011 Sapphire, what is going on behind the scenes. While SAP often declares itself as an innovative company, the true test of that statement really occurs in the coming months and years.
• Where 2010 was a focus on business reporting business intelligence, 2011-2012 has been characterized with a focus on operational focused business intelligence.  We trust that SAP will follow-through on that objective.
• The few supply chain related presentations seemed well attended indicating heightened interest by SAP customers.
• This year’s Sapphire included a novel micro-discussion format which we tended to like.  Attendees who are interested in the featured topic can attend, and the designated SAP facilitator can not use any PowerPoint or canned presentation.  The facilitator has to know his subject matter and be able to interact with attendees in responding to their questions.  These sessions were planned to accommodate 10-15 attendees, but those in the supply chain area were largely swamped. In one session, a hand count noted over 90 attendees.  We observed a session focused on the new RDS in SAP Procurement having a similar headcount, where two facilitators had their hands full.  The concept of a focus group discussion is great but perhaps the planning and execution will be improved for future Sapphires.
• It was good to note that the SAP SRM applications area has been granted a strategic priority by SAP senior management.  It seems that SAP will no longer tolerate penetration from various other best-of-breed providers in this space.  Expect more aggressive product initiatives as well as a potential acquisition in this area.

In the needs work or concern category:

• The technology gaps among where existing SAP customers are in their systems landscape and where SAP is headed is widening even more, and customers face difficult decisions as to strategic direction and budgets.  Keeping current with SAP NetWeaver, Business Objects and other technologies could be an expensive proposition and as noted, SAP has now put on-demand HANA on the table for long-term consideration. Now, more than ever, supply chain functional and IT teams within SAP shops need to insure close communication and collaboration with the office of the CIO.
• As noted, SAP’s move toward HANA has far-reaching implications particularly in the areas of supply chain planning, execution, response and business intelligence.  The big open question remains the overall timetable, which is, of course, multi-year in nature.  Also announced was SAP’s intention to move HANA to the cloud which has all forms of implications related to data security, response time, and the long-term presence of Business Warehouse (BW). SAP management acknowledges that more concise communication and timetable roadmaps are required to assist customers in their technology and applications upgrade timetables, and we trust that this area will be on particular focus for the remainder of 2011.
• We were disappointed in the continued lack of clarity regarding SAP’s efforts to develop an sales and operations planning (S&OP) support application that leverages HANA capabilities. In the interim, SAP customers are left with an existing sub-standard S&OP support application that requires far too many dependencies on other applications to manage an overall process.
• We remain concerned relative to ongoing synergies among SAP SCM, PLM, Manufacturing  and SRM solution development teams.  After being previously unified, SAP SRM is once again independent with its own set of priorities and strategic deliverables.
• We were somewhat disappointed in customer adoption numbers of SAP Business by Design, SAP’s thrust to support small and mid-market company needs. Accumulating just 500 customers to date, we would have anticipated that this application suite would have far more numbers of adoption.  This is another obvious area of emphasis for SAP in the coming months.

During their keynote presentation, SAP Co-CEO’s Bill McDermott and Jim Hagemann Snabe stressed that SAP continues with the belief that customers have the right to have trusted partners, and that SAP must constantly earn its seat at the table.  In the past, SAP had sometimes embarked on initiatives that were better for SAP’s bottom line. With the declared objective of in-memory computing and HANA, SAP is embarking on a massive objective with far reaching implications.  The open question remains whether customers and supply chains will discover compelling value in these efforts.

Bob Ferrari