As individuals progress in either a supply chain or product marketing career, they tend to learn the importance of understanding the various nuances of corporate business culture and for being astute in reading into executive level communications. Those of us who have acquired many years of practical business experience have sometimes learned this lesson the hard way, but, once learned, always retained. Regardless of your experience level, when the CEO provides a direct, unfiltered message, than all had better pay close attention to that message.

A couple of weeks ago, enterprise technology provider IBM reported a very uncharacteristic and unanticipated fiscal earnings and profitability surprise. Revenues were down 5 percent and profitability slipped 1 percent. The next day, investors punished IBM stock in an 8 percent decline, eroding $19 billion in market value.  As we have observed in the recent case of Oracle’s reported fiscal performance, management blamed this poor performance on the company’s sales teams, indicating it failed to close a number of pending hardware and software deals.  One of the company’s most senior executives was immediately re-assigned. As we noted in our Oracle related commentary, in the area of technology, poor sales performance is often a symptom of other problems.

IBM CEO Virginia Rometty has since delivered what business media has characterized as a rare event in IBM culture, a company wide reprimand.

Ms. Rometty recorded a five minute internal video message to all of IBM’s employees which the Wall Street Journal characterized as “salting praise with blunt comments about speeding-up the shift to new computing models and getting back on track.” The WSJ reported that it reviewed this video and that the CEO message indicated: “Where we haven’t transformed rapidly enough, we struggled.  We have to step up with that and deal with that, and that is on all levels”

In essence, this CEO’s message is that IBM is not moving fast enough to take advantage of dynamic market and customer needs.  When that message comes unfiltered, direct from the CEO, it had better be perceived as a call to action and accountability to achieve stated milestones, and that there are perhaps too many layers of management to achieve program and customer deliverables.

Since 2011, Supply Chain Matters has been commenting on the various acquisitions that IBM has made for the purpose of building broader and deeper capabilities concerning its Smarter Commerce suite offerings.  We have been impressed with the thinking concerning the strategic purposes of these acquisitions, but candidly disappointed at the overall timetables of progress in overall application to application and cloud based integration directed at solving customer business challenges. The various pieces of a broad B2B and supply chain management support capability are all present but the cohesion appears slower. This very week, SAP is conducting its combined ASUG-Sapphire customer conference and has already announced SAP HANA Enterprise Cloud. Oracle continues moving in the direction of applications deployed on both public and private clouds.

Next week, IBM will be hosting its Smarter Commerce Global Summit 2013 in Nashville, and Supply Chain Matters will be in attendance. The Summit is billed for “attendees to hear smarter ways to put customers at the center, including ways to synchronize the supply chain, optimize inventory, personalize promotions, micro-target marketing, increase relevance and exceed customer expectations at every touch point.” That in a nutshell, is a tall order of expectations and implied deliverables.

Thus, in the spirit of CEO Rometty’s charge, we will spend a lot of our time quizzing and evaluating how quickly IBM is progressing in its broad Smarter Commerce tactical rollout plans concerning the Sell, Buy, Service and other faces of B2B and supply chain technology offerings available for customers.Today, in advance of next week, IBM announced a major agreement with L’Oréal USA for expert procurement services using an advanced cloud analytics application to transform the way L’Oréal USA buys from its network of North American suppliers. The effort is characterized as a unique combination of IBM research, services and software delivery. 

Our goal during the Summit will be to provide our readers our assessment of overall cohesion and integration of various applications, and how they will make a difference for customers. We do not portend to be a blog solely for the IT community and thus our bias will be a perception from the broad functional audience of supply chain management.

If you happen to be attending this Summit as an IBM customer or partner, please seek us out and share your impressions.

Stay tuned.

Bob Ferrari

A report published on the front page in the Companies section of yesterday’s edition of The Financial Times (paid subscription required or free metered view) indicates that there is a link between the current alarming rise in cybercrime and the adoption of outsourcing.  The article concludes that according to corporate security officials, outsourcing companies that provide low-cost IT focused services are becoming the “weakest link” in the battle against rising cybercrime.

The article cites sloppy security practices and lax controls for handling of sensitive data.   Noted is that the consumer protection bureau of the U.S. Federal Trade Commission “has brought around 40 data security cases against businesses and at least six involved a failure to properly oversee a service provider.”  The article cites a recent survey conducted by the Ponemon Insititute that found that there was a continued lack of agreement as to who’s responsibility it was to maintain good security. A partner of consulting firm PwC indicates that that while outsourcing contracts generally contain clauses requiring service providers to notify clients if data is compromised, monitoring of security standards has not taken hold.

Prediction Ten of our Annual 2013 Supply Chain Matters Predictions for Global Supply Chains pointed out that cloud computing and managed services options would continue to gain traction, provided that vendors and service providers resolve current lingering customer concerns. Those concerns are often noted as data and information security.  Up to now, cloud computing options directed at point applications may have caused procurement, supply chain and IT teams to overlook such provisions but with the current alarming rise in cyber security and data breach threats, these issues are becoming much more troublesome.

In its article, FT points out that the weakest link in the security chain may be an outsourced business process or cloud based application.  This threat is becoming very real and teams are well advised to insure that data and information security provisions related to outsourced processes meet rigorous standards.  Vendors and service providers of outsourced and cloud service offerings are further advised to insure that security of data and information meets the most rigorous standards, especially with reliance on a third party IT infrastructure provider.

As a reminder, readers can download the full version of our Predictions research report with our compliments by accessing our Research Center and providing some basic registration information.

Bob Ferrari

In Part One of this commentary stream, I reflected on some conversations related to the history of online B2B adoption.  I made reference to a research report written in June 2000 that outlined the positive benefits of electronic B2B processes, but even back then, raised some cautions and practical watch outs.  So much has changed in this online B2B technology wave since that time.

In the June 2000 AMR Research report, this author outlined important business and technology change management considerations that warrant some important reflection.  The report concluded:

“Trading exchanges have the potential to provide the mechanisms for impacting how companies interconnect, streamline, and reinvent their interaction with customers, suppliers, service providers and channel partners.  However, they need to be considered in the context of broader comprehensive strategy that addresses a company’s overall strategic business goals and how e-business and supply chain strategy will enable those goals”.

The above statements addressed the all-important internal and external organizational change management factors that needed to occur within many industries and their supply chains.  From an internal perspective, procurement teams discovered that e-procurement practices layered on former methods of bludgeoning suppliers for the lowest material cost would not yield mutual benefit. While adoption of e-procurement practices yielded benefits in indirect procurement, many lacked the energy or resources to broaden initiatives to direct materials and complex services, without additional change management assistance. Companies needed to build trust and collaboration in their trading communities.

Sales, marketing and supply chain fulfillment teams discovered and overcame issues in cross-functional business process and organizational reward alignment. There were obstacles in channel conflict and consistent pricing that still exist today. Some readers may recall battles of the B2B platforms which placed suppliers in precarious positions of which platform to support. Adoption of standardized processes, terms and taxonomy, along with information integration capabilities that span the enterprise also had to align. On-boarding a new supplier in the early days of exchanges was fairly painful and often requited direct IT assistance, and days to complete.

In the external sense, a number of severe global economic recessions provided the mandate to reduce overall supply chain costs, leading toward a wave of global outsourcing and extended supply chains as a mechanism reduce material and labor costs.  Many companies accepted the vision of the Internet as the facilitating mechanism of online commerce at their own pace, after observing the success of others, or after internalizing the compelling differentiators for their businesses. Consumers and businesses become far more comfortable in leveraging online commerce tools to secure goods and services. There were few visible innovators, at least those who were willing to openly share strategic intent.

On the technology side, the eventual development of more mature software-as-a- service (SaaS) platforms coupled with improved online integration tools  linked with cloud computing platforms have moved the online B2B maturity curve forward.  While some issues remain, manufacturers and service providers can now understand the important value propositions that were missing before, namely more extended reach across the extended supply chain, quicker time to overall deployment, and reduced IT infrastructure costs.

In the year 2000, companies like Apple, Amazon and Samsung never appeared in the listing of the top ten most valuable companies. At the end of 2012, both Apple and Samsung appear on that while Amazon is not that far behind.  Each has a business model that leverages a world class supply chain that surrounds E-commerce and online business processes. They are supply chain intensive companies designed to leverage required business outcomes. There were no examples of Linked-In, Facebook and Salesforce.com to help teams understand the notion of the network is indeed the system, and that systems of engagement are the other enabler of deeper collaboration and quicker decision-making.

According to a report published by the Boston Consulting Group, in three years, the Internet economy will reach $4.2 trillion among the G-20 economies, a size surpassing some countries. During this past holiday buying season, consumers clearly stepped-up their preferences towards online channels as their  preferred buying option. According to comScore, the growth rate of online retail commerce is outpacing the growth of brick and mortar retail by a 4X factor.  In the U.S. alone, total retail and travel-related E-Commerce sales reached $289 billion in 2012, 13 percent higher than the previous year.

It may have taken over a decade for all the business, technology and change management factors to align, but those companies and technology providers who embraced change, stayed the course and adjusted to the lessons of the market are now reaping the benefits. We can unfortunately speculate as to more industry casualties to come from those companies and service providers who were not as adept at catching the online B2B wave.

As noted in Part One, we are now entering the third platform wave of online business, the fusing of transactional, advanced analytical and social engagement information where line of business, B2B and supply chain teams will be able to harvest incredible capabilities.  The takeaway is accepting the learning of the past as the passport to the future.  The spheres of Technology, Process, People and Business will need to again align. The winners will be those who provide the leadership and mentoring toward achievement of the vision, and execution of the components in manageable and organizational readiness phases.

I would be interested in your views on the evolution of online B2B, especially those readers who have first-hand navigated their organizations through this era.  You can contact me via email at: info <at> supply-chain-matters <dot> com.

Bob Ferrari

Within the last couple weeks, I have had some engaging conversations with technology professionals who have participated in the young history of B2B networks. The conversations included Sean Rollins, Vice President of Product Marketing, E2open, Greg Johnson, Senior Vice President of Marketing and Greg Kefer, Vice President of Corporate marketing, GT Nexus.  The gist of our conversations centered on the history and current day adoption rates of electronic B2B commerce and how certain actions and events 10 years ago would change what we see today in the B2B technology landscape.

Over ten years ago, there was lots of market interest in the vision of electronic B2B processes, but lots of doubt also existed. There was confusion in the definitions of private, public consortium or industry trading exchanges. There were enormous claims relative to both the customer and supplier facing online commerce potential of online processes, fueled from both the industry analyst and the vendor community. These were the times that featured trading exchange names such as Chemmatch, Chemconnect, Logistics.com, TradeMatrix.com, Hightechmatrix.com, Covisint, Myaircaft.com, Exostar, and others. Some succeeded and continue to exist today, while others did not.  In 2013, we have a far different picture of mainstream adoption, with analyst firms such as IDC predicting a ten-fold explosion of industry focused platform-as-a-service (PaaS) offerings in the next three years.

These recent conversations motivated me to search back to some research reports that I personally authored for AMR Research (now subsumed by Gartner) almost 13 years ago, in the year 2000. The title of a specific report was: Get Your Supply Chain Ready for Trading Exchanges. I doubt that not all Supply Chain Matters or Supply Chain Expert Community readers will recall the report, since so much has transpired since then, but bear with me in this two-part look-back commentary as I point to some important takeaways.

The conclusions of that 2000 research report were that while the (new) concepts of electronic B2B trading exchanges had the potential to fundamentally alter supply chain management processes, companies needed to address whether utilizing online processes would give them a competitive model for supply chain best practices, and whether online processes should be incorporated in the overall adopted supply chain strategy.

In the year 2000, there were many skeptics to these models, believing that the technology vendor community was over hyping the fact that online business processes would become the new fabric of business.  At the time, while many of us at AMR Research believed in the potential of online B2B, we raised cautions as to market overhype.  That 2000 report noted:

“AMR Research predicts that most current electronic trading exchanges will fail because of errors in revenue strategy, technology choices, functionality integration, or marketplace liquidity.  Integrating multi-billion trading communities will involve considerable complexity and heavy lifting. This will take time, commitment, and patience.”

For the most part, these statements turned out to be true.  Needless to state, AMR Research was not on the favored list of some of the leading vendors because of its stated caution to clients. Certain of its readers can possibly recall claims from vendors such as i2 Technologies, CommerceOne, Manugistics, Oracle and others regarding the new coming of E-commerce.  Alumni of i2 Technologies will certainly recall an atmosphere of market leadership in B2B and supply chain vision. Unfortunately, some of the PowerPoints sometimes got ahead of the actual existence of released software. Doubt and fear were reflected on prospects in compelling messages of “new” vs. “old” economy companies and who would eventually survive in the industry.  Technology vendors were riding the Y2K and E-business wave, with lots of third-party venture and investor funding.  The visions were spot on, but the execution in overall scale and depth of the technology was a bit premature. That was then.

At the time, companies were very invested in their four-walls oriented backbone ERP systems and were concerned that best-of breed e-commerce vendors lacked maturity and scale for companies to place their trust.  Even during those early times, manufacturers, retailers and service providers raised concerns over the security of the Internet, and specifically, the security of their data.  The price tags for early entry were not cheap, since software sales reps wanted to extract the same seven figure values of existing ERP implementations. There was an inside joke within the original AMR Research supply chain management practice that customers would not get the attention of any visionary B2B vendor sales rep without willing to open-up the purse strings, big-time.  On client calls, I would actually queery clients as to how much they had budgeted for their B2B investments and have to break the news.

At the time, some industry analyst firms were too vested in spouting the visions of B2B and certain vendors vs. the realities of business adoption. Sean Rollins and I reflected on whether a couple of changed strategic decisions, alliances or technology breakthroughs would have altered the eventual timetable and the listing of today’s vendor landscape.

In Part Two of this commentary stream, I’ll explore further in history and in what I believe are some specific takeaways for the B2B and supply chain community.

Bob Ferrari

We provide an update our mid-November Supply Chain Matters commentary, Nintendo Supply Chain Facing Big Challenges in the Coming Holiday Season.  Readers may recall that a late product introduction of the new Wii U gaming device was expected to provide supply challenges during the prime holiday buying season. Nintendo had to delay the availability of some online services and its Nintendo T Vii TV service until sometime in December. In our commentary we noted indications that the supply chain was pressured to make units available sooner. The company indicated at the time that it expected to sell upwards of 3.5 million new Wii units during the holiday season and a total of 5.5 million units by the end of March.  Much was at stake, including market presence and delivery of some level of respectable profitability for the fiscal year.

An update appearing on CIO and syndicated by IDG New Service now reports that the Wii U console had a tough holiday launch but managed to sell 3 million consoles worldwide through the end of the year. The console, as expected, initially sold-out but stocks have since recovered. Unfortunately, the company had to cut its fiscal year revenue target by 17.3 percent. Operating profit is expected to be negative but currency factors may yield some profits for the year. The goal of selling 5.5 million units by the end of March was reduced by one million units.

Supply chain teams often describe the dynamic discussions and back and forth that occur within the sales and operations planning (S&OP) process. Picture finance and sales teams charging the supply chain and product management teams to accelerate new product launch to take advantage of the prime buying period and to set plans in motion to insure supply of over 3 million units.  After the supply chain scrambles to make the plan, a corporate decision is made to cut overall output plans for the coming quarter by 27 percent.

Does this dynamic strike a chord within your organization?

Once again, another example of the dynamic factors related to today’s management of global supply chains and product demand planning.   The message is not one related to consternation over the accuracy or consistency of the plan but rather the realities of today’s dynamic aspects of business.

Bob Ferrari

It has long been the contention of Supply Chain Matters that companies whose senior management team has a solid grounding and understanding in principles of operations and supply chain management can often have their supply chain serve as a competitive differentiator for business outcomes.  There are many industry examples. We can turn to names like Apple, McCormack Foods, and global apparel retailer Zara,part of Spain’s Inditex Group.

We call reader attention to an article published in the January issue of FORTUNE and featured on CNNMoney, Amancio Ortega Gaona- the Third-Richest Man in the World.  The article traces the personal history of a man who is described as difficult to know, impossible to interview, very wealthy, and serves as the original founder and continued chairmen of Inditex Group.  It provides some context to a man we often did not know much about, one who came from the roots of poverty to surpass Warren Buffet as the third wealthiest individual on the planet. Mr. Ortega has built a fashion empire that spans more than 80 countries and consistently delivers growth and profitability in both good and challenging economic environments.  One profound article quote: “Beginning 40 years ago, Ortega ripped up the business model that had been refined over decades by Europe’s fashion houses and replaced it with one of the most brutally fast turnaround schedules the industry has ever attempted.  Decades later Zara is the world’s biggest fashion retailer.”

What is stunning is that Ortega built this business upon two fundamental and clear principles:

1. Give customers what they want.
2. Get goods to customers faster than anyone else.

The result is described as:  “ …  a global retailer that is more of an optimal supply chain than a traditional retailer.” Once more, few retailers have managed to challenge Zara’s industry success.  While Spain and other parts of Europe are suffering from severe economic stress, Zara reported a 17 percent increase in total revenues for the first three months of fiscal 2012. The retailer just opened its 6000^th store , with over 300 outlets now in China. The track record of growth consistency in revenues and profits is admirable.

What this author appreciated in reading Ortega’s background was his innate understanding of the industry and of the methods to control the supply chain. In the formative years of Zara, he organized thousands of local sewing cooperatives while providing opportunities for supplemental family incomes.  He insisted that speed and production agility be the driving force of the business model, and even today, Zara stores refresh their inventory within 48 hours. The essence of Zara remain its employees, a flat organizational structure, and its supply and logistics teams.  Chairmen Ortega prides himself and his management teams in their ability to connect with all levels of employees. Today, Ortega continues to live by modest means, living in the same Spanish community of his youth.

The legacy of Mr. Ortega and Zara will obviously remain as an important case study in agile and resilient supply chain management.  More importantly, the takeaway is having a leadership culture that understands that supply chain agility, responsive logistics and operations management and valued people do matter in successful business.

Bob Ferrari