In what we would characterize as a significant development, a posting on the Wall Street Journal Digits Technology blog quotes informed sources as indicating that global-wide contract manufacturer Foxconn, also known as Hon Hai Precision Industry, has been quietly working with Andy Rubin of Google on developing advanced robotics that can be deployed within Foxconn factories. The posting further indicates that Foxconn has dispatch engineers to the campus of the Massachusetts Institute of Technology (MIT) to learn the latest in manufacturing automation technology.
Google has acquired eight robotics companies in the last year and has established a robotics development group. The WSJ posting makes note of the recent acquisition of Boston Dynamics, a company that has designed mobile research robots for the U.S. Defense Department. Speculation is that Google’s interests are in building a new robotics operating system for manufacturers, similar to its Android mobile operating system.
What makes this revelation more interesting is that Foxconn is the major contract manufacturing services provider to Apple and other high tech and consumer electronics providers. In essence, Google may be assisting these OEM’s in assuring a considerable manufacturing presence in China and other lower-cost manufacturing regions.
A number of major players are vying for control of the next iteration of automation and/or operating systems associated with the “Internet of Things”. In addition to Google, Amazon, General Electric, Siemens, Qualcomm and others are investing large amounts to be on the forefront of the next iteration technologies that leverage combinations of robotics, additive manufacturing and predictive analytics techniques.
Supply Chain Matters has previously brought attention to Foxconn’s aggressive goals to automate its factories with a million robots to counter increasing direct labor costs in China. This revelation comes after other announcements that Foxconn had established a joint engineering development effort with Carnegie Mellon University in the U.S.
This revelation comes in the throes of a recent revelation that Google’s Chairmen Eric Schmidt was the recent recipient of a $100 million compensation package, and the release of a former Yahoo senior executive with an exit package in excess of $100 million. There have been public protests in the San Francisco area concerning the growing wealth disparity among Silicon Valley companies, which gets continually reinforced by these revelations.
One can trust that Google will share intellect and collaborate with other manufacturers located across global regions including the Eurozone, North America and other regions. It would indeed be unfortunate that a future headline declares that other manufacturing regions are placed within a strategic competitive disadvantage because of the actions of a Silicon Valley giant with a singular goal.
In the Business Technology section of Wednesday’s edition of the Wall Street Journal, an article appeared that is often the nightmare of any provider of enterprise software. The article, Avon to Halt Rollout of New Order Management System (paid subscription or free metered view) reports that Avon Products has elected to pull the plug on a $125 million SAP software implementation. That is no small amount.
It is further a fresh reminder for supply chain leaders and technology selection teams of two very fundamental shifts occurring in software evaluation deployment and acceptance.
Readers familiar with Avon Products will recall that they practice a unique business model. Independent (non-employee) salespeople of all walks of life represent and sell Avon products to friends, colleagues and acquaintances, with sales assistance tools provided by Avon. The personal relationships among the independent Avon representatives sustain continuous sales cycles involving varieties of product offerings. Orders are continuously inputted by the independent sales representatives and order status is in-turn provided on a continuous basis.
The WSJ reports that Avon began its implementation of an SAP order management system in Canada in the second quarter of this year, and while the system was described as working as planned, it apparently was disruptive for Canadian Avon representatives. Plans called for a broader worldwide rollout over the next four years. The WSJ further reported that this was not the first broad system implementation problem encountered by Avon. Two years ago, the Brazil operation attempted to move from manually intensive operations to a deployment of enterprise software from Oracle, without acceptance.
According to a filing with regulators this week, Avon elected to halt the company-wide rollout and expects to incur anywhere from a $100 million to $125 million write down of the cost of the software. The company will continue using the software in Canada. In the earnings conference call, the CEO of Avon acknowledged the issue in Canada but indicated the system was working as designed. Further acknowledged was the degree of disruption that occurred in daily processes associated with independent representatives that resulted in steep fallout of sales resources.
In the article, a spokesperson for SAP is quoted as indicating the order management system “is working as designed, despite any issues with the implementation of this project.” A further statement indicated a “solid and productive relationship.”
Solid and productive, but at a significant cost write-off and another lesson learned.
While we may not have added testimony to what did or did not occur at Avon, Supply Chain Matters has two observations to share with our community of broad supply chain management followers.
The first and most obvious is the critical importance and weighting of user acceptance in any evaluation and systems implementation. The most advanced and sophisticated technology is of little use if those that interact with the system on a frequent basis have no confidence in the system’s value in helping with completion of their work or providing deep insights to decisions. Avon’s unique requirements concerning daily use from thousands of independent representatives had to have been a key concern. With today’s increased availability of cloud-based software alternatives, end-user acceptance and uptake takes on even more meaning.
The second involves the groups that are involved in selection and accountability for the results from investments in advanced technology. Last week, Supply Chain Matters called attention to IDC’s validation that the information technology buyer influence continues to shift to the business side. The industry analyst firm predicts that 61 percent of technology focused projects will be business rather than IT funded. The implication is that business and supporting supply chain functional teams now hold far more influence on specification of required business process and associated technology investments. With that comes more direct accountability for successful implementation and timely business benefits.
While some may view the Avon story as another knock on the complexity and cost risks of complex ERP systems, it is rather important to focus on how important user input, change management, comprehensive training and acceptance make for successful systems implementations.
The business is clearly gaining more influence in technology specification, selection and deployment. Gaining timely business benefits and expected outcomes is ever more dependent on insuring the commitment of those end-users accountable for getting the work done is incorporated into planning and deployment. Too often, teams dwell on specifications and cool functionality without allocating adequate time for user acceptance.
The Kellogg Company, a consumer goods icon with brands such as Kellogg cereals, Cheez-Itc rackers, Keebler cookies and Eggo waffles, earlier this week announced a billion dollar cost cutting plan that would extend over the next four years.
This effort is reported by business media to be motivated by increased competition in the breakfast and snack food industry segments along with softer demand from economically distressed consumers. Business media reports that these cutbacks would result in the estimated loss of 2000 jobs, however, with the four year window, Kellogg management aims to achieve headcount reductions through normal attrition. From our Supply Chain Matters lens, the new Project K efficiency program looks more like an effort to drive global supply chain wide efficiencies and create more integrated supply chain business processes and services across global product lines.
In its most recent fiscal third-quarter financial results, Kellogg reported essentially flat revenues and decreased operating profits. While global net sales are increasing, North America based sales declined by 1.3 percent. The company has been forecasting sales growth of between 4-5 percent for the current fiscal year.
According to a report published in the Wall Street Journal, the new Project K initiative involves a complete re-tooling of the company’s supply chains that includes spending $1.4 billion by the end of 2017 to relocate production lines and globally integrate business process services. Kellogg is targeting upwards of $475 million in annual cost savings as of 2018, as an outcome from this latest announced initiative.
Supply Chain Matters calls reader attention to our June 2012 commentary regarding the acquisition by Kellogg of the Pringles snacks business from Procter and Gamble. In 2012, Kellogg was handed a fortunate opportunity to acquire the Pringles business after the deal to sell that line to Diamond Foods was undone because of certain revelations. Kellogg quickly agreed to a $2.7 billion all-cash deal to acquire a global, well-run brand and become a top player in the global savory snacks industry segment. However, Kellogg had to bring on a high debt load in order to pull off the financing of this deal, reported to be upwards of $2 billion. In the latest fiscal quarter that ended in September, the Kellogg balance sheet reported $6.3 billion in long-term debt.
At the time of our 2012 commentary, the combined synergies of the existing Kellogg and Pringles snack businesses were reported to be $10 million in 2012 and a range of $50-$75 million after 2013. In 2012, Kellogg has been in the process of re-implementing SAP within its U.S. operations, and the addition of the Pringles business presented an added opportunity to integrate within the SAP environment. P&G itself has committed ongoing service arrangements to transition Pringles and was a very sophisticated user of SAP applications. We speculated that Kellogg teams would gain valuable learning and insights particularly regarding deployment and use of SAP advanced supply chain related applications.
Prior to 2012, Kellogg had some previous supply chain related quality setbacks related to past product recalls involving its Eggo product line prompting its CEO to declare that the company had to restore investor confidence in Kellogg supply chain capabilities. The Pringles integration again offered opportunities to revisit needs in this area.
Of late, CPG companies continue to feel the Wall Street based reverberations of the previously announced $23 billion acquisition of HJ Heinz by Berkshire Hathaway and 3G Capital. Heinz, a stalwart of global brand identity was acquired to harvest the cost savings synergies of its global operations, and that tremor seems to haunt existing CPG manufacturers since activist investors continue to want to play-out the next cash generating opportunity. We have opined that In the light of challenging revenue headwinds, company senior executives have launched aggressive stock buy-back programs with available cash to ward off hostile takeovers. Alternatively, Wall Street analysts conclude that previous efforts at cost cutting and headcount reductions have run their course and the new path to growth lies in more industry consolidation and financial engineering. Thus another era of mega acquisition activity seems at the ready, and the psychology of CPG senior executives’ shifts. These pressures naturally flow to supply chain leaders who must deliver more cost savings to fund other business investment needs. Some supply chain analysts chastise supply chain teams for not delivering industry leading metrics of performance. We believe that the realities of current or future business outcomes have more to do with performance goal setting.
The new Project K multi-year cost saving effort presents opportunities to rationalize global production capacity, consolidate category product management to a regional focus and provide common supply chain related business processes across multiple regions. It is probably another response to ward-off mega acquisition industry pressures. This effort probably should have pre-ceded efforts to adopt a standardized systems platform. None the less, Kellogg is now a global CPG branded company and must demonstrate market and supply chain response capabilities that exhibit responsiveness to changing consumer needs across global markets.
The Kellogg corporate mission statement includes the following: “We are a company of promise and possibilities.”
From this author’s perspective, the success of Project K needs to be firmly grounded in the above principle.
In August of 2011, consumer product goods producer Kraft Foods made a surprising announcement that included significant global supply chain implications. The company announced that it would split into two independent public companies, one to be focused on a global snacks business with the other being the company’s core North American grocery business. The snacks business unit, which was subsequently named Mondelez International has responsibility for $32 billion in global revenues while Kraft Foods Group is responsible for more than half that amount, namely $18 billion in revenues. The former Kraft North American grocery business umbrellas 9 major brands including names such Kraft Cheese, Cracker Barrel, Philadelphia Cream Cheese, Maxwell House coffee, and Oscar Mayer hot dogs and meats. Supply Chain Matters posted a recent commentary regarding supply chain challenges at Mondelez, and in this posting, we reflect on Kraft Food Group.
In January of 2012, Supply Chain Matters posted a commentary concerning the implications of the corporate split on each company’s supply chain and supporting systems. An important indication of the critical contribution of supply chain management led to the decision to have leadership for both of the split integrated supply chain organizations to have direct reporting relationship to respective company CEO’s. At the time, the Chief Supply Chain Officer of the former singular Kraft was recruited to lead the integrated supply chain of Mondelez, and leadership for Kraft Food was initially classified as open.
As is often the case with large mergers or acquisitions, our commentary wondered aloud what the impact of having to split out shared business processes and systems would be for both companies. We also pointed to specific differences in business strategy and outcomes that each of the supply chain organizations had to overcome.
Last week, while attending the S&OP Innovation Summit held in Boston, we were able to peek into the new chapter for the Kraft Food integrated supply chain team and to state the least, we were tremendously impressed. Specifically, we witnessed Robert (Bob) Gorski, Executive Vice President of Integrated Supply Chain for Kraft Foods articulate the supply chain transformation that is underway. Gorski landed at Kraft in March of this year after initially retiring from a 32 year supply chain related career at Procter& Gamble. As Gorski describes, that retirement lasted a mere 3 weeks. He apparently wasted no time in concluding that in spite of internal beliefs, a holistic transformation was needed across the Kraft North America supply chain.
Processes needed to be simplified, streamlined and integrated. Gorski and his current leadership team have outlined a transformation which is termed “Symphony”, one sheet of music for all. The powerful analogy used was a marathon, not a sprint, in the ways work gets done and how businesses are run. Gorski leans heavily on Vice President, Process Transformation, Rajan Nagarajan who came to Kraft with a track record in driving process change.
The presentation described product demand and supply processes touched literally 60 different times with little effect on forecast accuracy. Supply chain wide metrics were at odds with individual plant and functional metrics, some in direct conflict. There was a lack of a fixed execution planning window with 60 percent of plan changes occurring in the execution window. Production lines, on average, were forced to shutdown every 4 minutes because of various maintenance or setup issues due to inconsistent process specifications. Gorski articulately described the new goal as moving from metrics in isolation to metrics as part of a performance culture.
After the former single company invested what was described as $700 million in a global SAP ERP rollout, much of the systems were customized or augmented globally. The corporate split has caused the awareness for the need for more streamlined SAP standardization. Plans are underway to integrate 25 major platforms to integrated demand and supply planning, order management, procurement, and manufacturing control.
This author has been involved in various aspects of supply chain management for over 30 years. Thus, I have witnessed many a supply chain or operations leader. After witnessing Bob Gorski articulate a supply chain transformation plan, there is no doubt in my mind that Kraft Foods and its associated supply chain team will be the beneficiaries. You can sense a leader in his or her’s presence, style and charisma.
Readers can expect to read of positive transformation and business outcomes emanating from the Kraft integrated supply chain team in the months to come. At the beginning of this year, Supply Chain Matters began a new series of calling out distinguished supply chain management professionals. We were impressed enough to now include Bob Gorski in this category.
Last week, Supply Chain Matters attended the annual two-day Sales and Operations Planning (S&OP) Innovation Summit sponsored by IE Group, which was held in Boston. This commentary serves to summarize our impressions and takeaways from this year’s event.
First and foremost, we extend congratulations to all of the presenters on making this conference meaningful for all attendees.
Many manufacturers and service providers are well into their S&OP journeys. We were very pleased to observe many of the Summit presenters describing the planning window of their S&OP processes as far more strategic, many indicating a 24 month planning window. We observed from the various speakers that S&OP teams are no longer fixated on a rigid “one number” process output plan that is not likely to happen but rather adopting the context that many businesses are under constant change. A consensus of likely scenarios for the business to consider was described as a more meaningful approach for today’s S&OP sponsor and process participants.
For some of the presenters, various and ongoing merger, acquisition or organizational restructuring events tended to cause an interruption in S&OP momentum. Presenters representing Abbot Laboratories, Blackberry and Kraft Foods, among others, addressed how they addressed and overcame such challenges. Many cited S&OP as providing the constant for getting cross-functional teams focused on common business operating objectives as well as securing common leadership from new team participants. Other presenters described the S&OP process as uncovering other organizational or business planning challenges, which is to be expected. A number of presenter’s, such as Enterasys, described the objective of the S&OP process as one of continuous improvement.
Other cited common lessons learned included:
- Clarification of the roles and expectations of the various team members, establishing communication and trust, and an overall rhythm for the process. This was mentioned by Novartis, Blackberry and others.
- Spending appropriate time to clearly define hierarchy of tops-down and bottom-up data required to make the process meaningful mentioned by Bemis and Energizer, among others.
- Gathering and analyzing required demand, supply, inventory and capacity information into each sequential step of the process was often cited.
- Not becoming a prisoner to best practices, maintaining flexibility in the process, as well as focusing on management’s top pain points, and how the S&OP process can help address these pain points were cited by Solo Cup and others.
- Demonstrating consistent performance, establishing a win-win for all participating functions and securing active sponsorship of senior management through process changes were mentioned by nearly all of the presenters.
S&OP teams have now come to recognize the important role that advanced technology support can contribute to the process, especially in more timely gathering and analysis of supply chain wide data and information, along with their implications. While it is evident that many S&OP team members still cling to the use of spreadsheets as their preferred analysis and cross-team communication tool, we sensed a building acceptance to more advanced tools that can support more predictive capabilities but still offer user friendliness in their use. Software providers and Summit sponsors Infor and Steelwedge addressed some of the new areas of technology support being directed at S&OP processes.
At the conclusion of the Summit attendees certainly had their favored list of presentations. For this author, those from Kraft Foods, Solo Cup and Abbot Laboratories were top of mind, and we will feature additional separate commentary regarding each.
This author enjoyed the opportunity to meet, network and chat with many of this year’s Summit participants and speakers, and thanks to all for collectively making this an enjoyable and meaningful event.
On July 30th, Supply Chain Matters attended the Infosys 2013 Global Analyst Summit meeting held in Boston. This is an annual event held each year with invited industry analysts representing multiple coverage areas. It was a great briefing event, held at a scenic facility overlooking Boston Harbor and filled with insightful information.
Bottom-line, we were surprisingly impressed at the consulting efforts that Infosys’s manufacturing and supply chain teams have made in the past twelve months.
Infosys itself has undergone some turbulent changes in terms of lagging growth, culminating with bringing back its founder N.R. Narayana Murthy as executive chairmen. During the opening session, Co-founder, Board Member, Managing Director and CEO S. D. Shibulal reviewed the accomplishments of the Infosys 3.0 re-alignment that has been executed over the past 18 months. He acknowledged that last year provided some challenges for the firm with growth below industry average. Since that time the firm has re-aligned both its industry and geographic organizational focus and has assembled 14 offerings around products and platforms. Last year, a significant percent of the firm’s new deals around business outcomes came as a result of the new platforms strategy with the Process and Platforms business unit reaching $725 million in Total Customer Value last quarter alone. The re-alignment and re-focus has begun to demonstrate other improved performance. Shibulal re-iterated that Infosys maintains a 98 percent customer retention rate among nearly 600 core clients. The CEO also highlighted some key client accomplishments across multiple industries and it was rather clear that he was personally involved in overseeing some of these engagements. Also made clear was the firm’s renewed focus on assisting clients in major business process transformation that extends beyond just information technology, with broader measures of engagement performance. Infosys is in the process of transforming to both a services and platform consultancy.
The remaining morning briefing sessions featured a combination of Infosys senior executives and select customers discussing areas termed Insights-Driven and Agile Enterprise, along with Cloud and IT Outsourcing implementation efforts. What we found most interesting was how these clients described their business objectives, which included:
Building a smarter organization
Digitizing the enterprise for growth
Fail fast and win faster- iterated by more than one client presentation
Harnessing the power of real-time decisions
Managing disparate global operations effectively
Enabling guest experiences
Re-architecting the entire data environment
These are terms that connote broad cross-functional and enterprise initiatives. The other common theme we picked-up on was a sense of urgency for industry change in either maintaining or up-ending industry leadership in business capabilities, or seizing business opportunities in new markets.
Our afternoon time centered on a series of dedicated briefings from various Infosys executives within the Manufacturing Industry practice business unit, chaired by Sanjay Jalona, Infosys Senior Vice President for Hi-Tech and Manufacturing, along with his associated manufacturing industry leaders. This business unit stated that it works with more than 100 global 2000 clients and that 40 percent of engagements are led from a business process consulting framework. While we are restricted from the mention of client names, we can relate that the names are impressive. Once more, the described engagements are far reaching, many with multiple-year timetables for innovation.
More importantly, Infosys has shifted to a shared-risk outcomes-based client engagement model where end results are predicated on specific client specified business outcomes. Infosys has now discovered that its core capabilities lie in combined services that span engineering, business process outsourcing and IT transformation. The firm’s broad global presence across multiple countries is further leveraged to assist manufacturers and retailers in implementing capabilities on a global scale, including needs in higher-growth emerging markets.
Five areas of investment capability and client transformation focus were described that include: Information, Digital, Infrastructure, Business and Supply Chain. Beyond IT and business consulting, the manufacturing practices have also focused on the delivery of specific services including product engineering and industry specific customer services. The firm is also developing impressive capabilities in the area of leveraging predictive analytics applied to supply chain and online fulfillment needs.
Our briefing emphasized the increasing importance that manufacturers currently place on transforming to more services focused business areas particularly in discrete manufacturing and aerospace settings. In some specific engagements, Infosys has assumed the ongoing management of a client’s legacy products that frees-up client resources to work on more innovative product offerings. Client names were again impressive, many of which Supply Chain Matters has featured in specific supply chain, B2B, and online fulfillment capabilities.
As outlined above, we were obviously impressed, and we were not the only analyst firm with that impression. The firm has clearly shifted toward delivering strategic capabilities for its clients, a theme that was candidly not the top-of-mind impression for India based firms.
One of the current shortfalls of Infosys is its ability to effectively market its broader array of capabilities for global based manufacturers and retailers and that conclusion was openly echoed by other attending analysts as well. We were informed that this will be addressed.
The takeaway for our readers is that we were impressed by the renewed focus of Infosys, particularly its Manufacturing practice area.
Disclosure: Infosys is a former sponsor and client of the Supply Chain Matters blog