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Bob Ferrari’s Guest Posting- Supply Chain Transformation and the Importance of Information Strategy

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As a broad based supply chain community, we often context and plan supply chain transformation initiatives under the three-pronged perspectives of People, Process and Technology enablers. I would urge transformation teams to seriously consider a fourth component, that being Information, including the velocity, context and clarity of information. While some may be of the mistaken belief that the element of Information is solely the perspective of IT, it is rather a jointly-owned, cross-functional element of transformation.

On the Kinaxis 21st Century Supply Chain blog, Executive Editor Bob Ferrari has penned a guest posting, Supply Chain Transformation-The Important Element of Information Strategy.

Enjoy and comment.


IBM Makes Major Commitment to Internet of Things and Analytics Enablement

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IBM today announced that it will invest $3 billion over the next four years to establish a new Internet of Things (IoT) business unit to help customers analyze data from sensor-equipped devices. The enterprise technology provider further plans to deploy a cloud-based platform to assist customers in building IoT business applications.

Within the announcement is the creation of three service support components:

  • A cloud-based open platform for providing analytics services for vertical industry IoT applications
  • A termed platform-as-a-service Bluemix IoT Zone to assist developers to integrate sensor data into cloud-based applications, by infusing more real-time sensor data into applications.
  • An expansion of IoT focused partner ecosystem ranging from silicon and device manufacturers to industry-focused applications providers such as AT&T, ARM, Semtech and others.

In conjunction with today’s announcement, IBM further announced a new strategic partnership with The Weather Company through WSI, its global B2B and analytics arm. WSI collects data from thousands of weather sensors resulting in upwards of 2.2 billion unique forecast points. Such weather data can be correlated with business applications where weather plays an influencing factor. Think of the how the consumption of beer, certain snacks, bottled water or cosmetics are influenced by weather or climatic conditions. Think about how weather impacts business operations.

The announcement calls for The Weather Company, including WSI, to shift its massive weather data services platform to the IBM Cloud and integrate its data with IBM analytics and cloud services. The analytics aspects call for the use of Watson Analytics for Weather to leverage applications within industries such as insurance, energy and utilities, retail and logistics and other areas.

What makes these announcements ever more interesting is that weather can influence many supply chain related business and operational processes. Whether it is specific product demand patterns requiring unique customer fulfillment trends and needs, or weather impacting both product and services focused supply chains themselves, there is certainly lots of opportunities for innovation.

Today’s IBM announcement adds more stakes to the technology competitive landscape as providers such as Amazon, Cisco Systems, General Electric, Microsoft, PTC and Qualcomm continue to jockey and position their technology ecosystems in order to be a preferred provider of IoT enabled applications and supporting infrastructure in either B2C or B2B dimensions. There remain many ongoing pitfalls and challenges surrounding full-scale IoT deployment, not the least of which is information and data security. The consortiums and influence of larger vendors along with their building ecosystems are the determinants as to how quickly these challenges are overcome.

In the meantime, today’s IBM announcement provides the real opportunity for bringing together weather sensors and trending data, prescriptive and predictive analytics tools, and business process support applications for more responsive industry supply chains.

Bob Ferrari


More on the Heinz-Kraft Mega-Merger

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Since the announcement earlier this week, business and other media has generated a lot more background regarding the mega-merger of HJ Heinz and Kraft, and specifically the prime players behind this merger.

Reports indicate that the talks began in January when 3G Capital approached Kraft.  This reports indicated that Kraft management was quite receptive to a potential merger or takeover, and the mutual talks moved swiftly leading to a Kraft board discussion in late February leading to the decision to sell the company.  As occurred when 3G acquired HJ Heinz, Warren Buffet’s Berkshire Hathaway was brought in for financial backing.

The merger’s ramifications are already stark. The Wall Street Journal indicated that this merger promises to reshape the food industry and “could send rivals scrambling to shore themselves up with tie-up of their own.” In our Supply Chain Matters initial commentary, we pointed to additional tremors for consumer goods supply chains.

Further amplified has been 3G Capital’s current track record for aggressive cost-cutting, which sends further tremors among industry players.  Since assuming operations management of HJ Heinz, upwards of 7000 jobs were eliminated in a 20 month span. New CEO Bernando Hees ultimately cut a third of the staff at Heinz’s headquarters including 11 of the company’s top 12 executives. Obviously, under 3G, there is little need for cross-functional collaboration.  Readers can garner one descriptor of the 3G cost cutting methodology but viewing a Reuters / Chicago Tribune article, Pack up the peanuts: Kraft’s party is ending.  Other CPG players will likely be broadening discussions with other private equity or activist firms for M&A opportunities that can match the industry shadow and bottom-line returns of 3G.

Beyond the current ebullient lens of Wall Street are the longer-term realities for both addressing the market challenges of Kraft as well as the fusing the synergies of two very large consumer goods entities.

From a supply chain perspective, Heinz garners nearly 60 percent of current revenues from international markets.  Thus its supply chain capabilities are grounded in global customer fulfillment nuances. Heinz further has a keen focus on food and restaurant channels and services, especially in the light of 3G Capital’s other investments. Kraft on the other hand has been completed focused on North American customers.  That strategy was cemented with the prior split-off in 2012 that created Mondelez International, which was created and resourced to be the global growth entity. An area to keep an eye on is the how the merged company focuses on core channels and customers, whether they are supermarket, food services or convenience store. As noted in our prior commentary, how suppliers are treated under the merged entity will be another area to watch, particularly concerning efforts directed at product and process innovation.

Today, Mondelez holds product licensing agreements to distribute certain Kraft brands globally, which promises to be very interesting in the months to come when 3G begins its consolidation and global growth efforts for Kraft. The Heinz and Kraft supply chain resources are likely to be brought together very quickly with additional consolidation and collapsing of organizations.

To be balanced, some Wall Street influencers praise 3G for its willingness to sustain its investments and management of the companies it has acquired, far more than other private equity firms.  However, the difference with Kraft is that it is a far larger and far more complex entity with lots of moving parts. If 3G proves successful in its efforts over the long term, then so be it.

One thing is certain, throw away all of the prior notions of consumer product goods historic industry indices, managed transformation or continuous improvement.  This week marks a considerable change and a new playbook for CPG focused supply chain teams. What appears today and what the industry ends up to be in two or three years can well be dramatically changed.

Bob Ferrari

© 2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.

 


Andrew Liveris Shares Winning Formula for Manufacturers

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Supply Chain Matters has in the past cited Andrew Liveris, Chairmen and CEO of Dow Chemical Company for his understanding and appreciation for the value and contribution of manufacturing and supply chain capability to business outcomes. Besides his current leadership of Dow, Mr. Liveris is an author and U.S. Presidential advisor on manufacturing competitiveness. In a September 2013 commentary, we highlighted his keynote delivered to the MIT Production in the Innovation Economy (PIE) Conference which unveiled results of MIT’s study on U.S. manufacturing competiveness.

Thus we were pleased to be alerted to a commentary appearing in the online version of Chief Executive Magazine where  Mr. Liveris shares his winning formula for manufacturing success with other chief executives. His prime messages was for manufacturers to rethink the role in evolving global supply chains and actively address workforce training and development needs for today and the future.

One of the more powerful statements brought out in this interview article deserves highlighting:

Entrepreneurial action and its ability to pivot, according to the world we face, is one of America’s greatest attributes. Manufacturers, for far too long, did not really display agility when global competition disrupted supply chains. We are in a different world. We’re traveling at the speed of flight. We are so connected to the information age without realizing that we’re still at the dawn of it. The smarter companies have figured out their place in the global supply chain and have adjusted their service and product models accordingly.”

Those statements are rather powerful when considering that they come from a CEO.  They reflect the new awareness to supply chain’s contribution.  Within his own industry, Mr. Liveris points out that of the top 20 global chemical manufacturers in 1990, 17 disappeared by 2010. Dow prevailed because of its ability to pivot to dramatic market changes.

A further pearl of wisdom:

Manufacturing today means you’ve got to innovate faster than they commoditize you.

On the all-important skills challenge:

The biggest issue we have is training a new skilled workforce to deploy against that value add, and for me, that is the key topic in manufacturing today. We need technically trained people at the German skill level, in automation, robotics and fine-precision manufacturing. This is the world that we’re in today and we’ve got to adjust to it, and frankly that’s what I spend my time on.”

From our lens, there needs to be many more global manufacturing firm CEO’s possessing the wisdom of Andrew Liveris, one’s that understand that supply chains and manufacturing capabilities do matter.

Bob Ferrari


Johnson & Johnson Moves to Close a Chapter in Multiple Branded Product Recalls

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In the period between 2008-2010, pharmaceutical and healthcare products provider Johnson & Johnson, and in particular, its McNeil Consumer Products operating unit, faced a building crisis involving multiple branded OTC healthcare remedies such as Tylenol, because of quality and process issues focused on  a specific production facility in Fort Washington Pennsylvania. After numerous product recalls, that plant was subsequently shutdown for remedial actions and has yet to re-open.

This week, McNeil announced an agreement with the U.S. Attorney’s Office for the Eastern District of Pennsylvania and the U.S. Department of Justice to resolve the previously disclosed government investigation relating to the manufacturing of certain over-the-counter products at its Fort Washington facility. The company agreed to pay a $20 million criminal fine and forfeit $5 million. Under this agreement, McNeil reportedly pleaded guilty to a misdemeanor violation and accepted responsibility for the inadequate filing of required documentation during the manufacturing process. In its announcement, McNeil states in-part:

McNeil has been implementing enhanced quality and oversight standards across its entire business to ensure we are best able to meet our commitment to consumers, patients and doctors who rely on our products.”

In a July 2013 Supply Chain Matters commentary, we highlighted all of the efforts that were underway to transform all of Johnson & Johnson’s supply chain processes. Senior executive changes were part of that transformation effort along with a declaration of five strategic priorities:

  1. Deliver on FDA consent decree milestones
  2. Ensure reliable supply of OTC products to retailers and consumers
  3. Achieve brand leadership
  4. Rebuild customer trust including top retail customers
  5. Execute a return to market plan for core U.S. brands and SKU’

J&J subsequently centralized its supply chain efforts under a singular leadership model, along with a singular quality and compliance model. In the systems area, a four year program was outlined to consolidate an overall systems landscape that was described as 60 different ERP systems supporting 275 operating companies

The McNeil statement indicates: “this plea agreement fully and finally resolves the federal government’s investigation, and closes a chapter on actions that led the company to review and significantly improve its procedures.”

In its reporting, The Wall Street Journal cited the U.S. Justice Department as indicating that McNeil continues working to bring the Fort Washington facility into regulatory compliance and plans to re-open the facility once it gains approval from the U.S. Food and Drug Administration. McNeill’s other production facilities are reportedly running under a 2011 permanent injunction and Consent Decree. McNeil indicates that a third party cGMP expert has now submitted written certification to the FDA after determining all sites are conforming with applicable laws and regulations.

Seven years and a considerable financial sum later, J&J continues in its organizational wide efforts to address consistency in good manufacturing practices.

No doubt, this has been an expensive lesson for Johnson & Johnson, as well as a rather important learning for the remainder of the industry regarding the critical importance of consistent product quality and supply chain wide standards in avoiding negative business outcomes.

Bob Ferrari

 


Crisis Among CPG Producers and Their Associated Supply Chains Continue: Three Important Strategies

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Supply Chain Matters continues in our efforts to update readers on the extraordinary market challenges and headwinds impacting large consumer goods packaged food producers. In August of 2014, we called attention to a profound week of statements and blunt reality impacting this industry and specifically, blunt statements from the CEO’s of prominent packaged foods producers. In our predictions for this year, we again cited this sector for continued industry supply chain turbulence.

Unfortunately, the challenges and the implications have once again become rather visible.

Today’s published edition of The Wall Street Journal again reports (paid subscription or free metered view) that several top U.S. based food producers served up grim financial and operating news this week. Once again, all is attributed to the industry’s abilities to adapt to fundamental shifts in consumer tastes.  However, there is far more at-play.

The wave of bad news has battered the stock of Kellogg and Kraft Foods but the news was not all that optimistic from Campbell Soup, ConAgra Foods and Mondelez International.

Kraft, which recently replaced its CEO, indicated that its CFO and a senior R&D development manager were leaving the company. The new CEO of Kraft indicated that his company was not moving fast enough to shift its business to cater to consumer needs for healthier, less processed foods. It was reported that Kraft lost market share in 40 percent of its food businesses in 2014.

Kellogg reported a 7.7 percent drop in comparable U.S. breakfast related sales while its U.S. snacks segment fell by 3.1 percent. Kellogg has subsequently reduced its long-term revenue growth by two percentage points, which is significant for this sector.

Campbell’s has now indicated that it may have to once again reshape its brand portfolio in favor of more organic choices. ConAgra recently indicated to Wall Street that increased market competition, lower prices and customer service issues with its prior acquisition of private-label food producer Ralcorp has motivated that company to lower expectations for the current year.

Supply Chain Matters has further provided reader attention to business challenges at industry stalwarts Procter & Gamble and General Mills, each of which has had cascading impacts related to each of their supply chains.

As noted in our earlier commentary, foreign currency headwinds and specifically the strong U.S. dollar have become an added challenge for U.S. based companies. One of the most stark aspects of this challenge came from Mondelez which reported this week that foreign currency headwinds delivered a $149 million hit to its operating income in it prior quarter, in spite of recently rising prices across the board.  Operating income dropped 42 percent. The WSJ reported that Mondelez currently garners 80 percent of its revenues in currencies not pegged to the dollar, and has further attributed its challenges to increasing commodity costs. Mondelez’s supply chain production and manufacturing resources are much more globally-focused which raises additional concerns. The global convenience foods producer continues with efforts directed at reducing operating costs by $1.5 billion by 2018, incremental to previous wide-spread cost savings including those directly related to its global supply chain. From our lens, Mondelez may well be another candidate for a subsequent CEO change.

The CEO’s of CPG as well as other industry manufacturers are currently caught in an incredible vice. On the one hand, dramatic changes in consumer tastes and a collection of smaller, emerging industry disruptors leveraging advanced technology and more efficient cost structures are rapidly impacting the industry landscape. Activist investors have surrounded industries such consumer packaged goods extracting demands for more short-term stockholder financial benefits, vis-à-vis aggressive stock buyback, higher dividend or increased merger and acquisition efforts. An earnings crisis brings on more activist or short-term oriented investors looking for market opportunities.

Obviously, the ongoing implication to associated supply chain organizations is immense and often painful. On the one-hand strategies to spur revenue and profitability growth in untapped global markets extracts a toll of shuddering U.S. based production or distribution facilities and staff.  The new strength of the U.S. dollar and other currency movements dilutes revenues from overseas operations causing additional pressures for increased profitability and reduced costs. The cycle can often become disabling.

While every company certainly has its own unique challenges, the takeaway for CPG supply chain teams is three-fold.  Rapidly shifting industry markets and consumer preferences imply a critical need for increased product innovation and quicker introduction of new products. These capabilities need to be obviously enhanced, in spite of continued pressures to reduce costs.

Volatile and rapidly changing global markets requires that Sales and Operations Planning (S&OP) teams be more responsive and anticipate such changes.  The focus clearly turns toward an outside-in perspective, allowing the supply chain to respond as quickly as possible to market opportunities or threats.

Finally, supply chain segmentation strategies, those that orient supply chain resources to the most influential customers, most profitable market segments or highest customer growth opportunities are now ever more essential.

Supply chain leaders should insure they educate senior management to these important priorities including the current new wave of CEO’s.

We provide a final editorial note. Our observation is that on many current occasions within today’s CPG industry landscape, new or changed leadership stems from leaders coming from consumer goods financial or sales and marketing backgrounds.  That stands to reason given that in times of business crisis, corporate boards favor such leadership skills. However, as the adage often goes, crisis can present opportunity for new thinking and fresh perspectives brought by those with other backgrounds. By our lens, that would include those with an operational, supply chain and advanced technology backgrounds who understand customer, business and technology investments, tradeoffs and/or rewards.

Bob Ferrari

© 2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.


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