This posting is an update to our previous Supply Chain Matters commentary regarding Ariba, an SAP Company and its announced availability of a new application targeted for supply chain risk management.  As we indicated in that original posting, Supply Chain Matters does not elect to echo technology vendor announcements unless we believe it should capture the attention of our readers, and we get the opportunity to drill down on the specifics and functionality. Ariba teamed up with SAP Supplier InfoNet, an internal incubation business unit to provide availability of this cloud-based application. We have since received a detailed briefing on the functionality of this application, and candidly, we were impressed, for a number of reasons.

First, the application itself is not solely targeted to just a sourcing and procurement user base, but other cross-functional users that have responsibility related to broad-based supply chain disruption and risk mitigation. Supply Chain Matters has always advocated that supply chain risk mitigation cannot solely be owned by an individual function such as procurement, but rather cross-functional or cross-business leadership and accountability. SAP Senior Vice president David Charpie who provided our briefing, indicated that this application’s focus includes Director and C-level as well as cross-functional supply chain and operations management users. Bravo for that decision.

Charpie’s prior background was with supply intelligence vendor Open Ratings, and SAP Supplier InfoNet takes that application to much broader and deeper capabilities. After its internal development within SAP, the decision was made to re-cast Supplier InfoNet on the Ariba B2B platform, powered by the SAP HANA database. While this transition is still a work-in-progress, by our lens, there is powerful potential for the ability to gather early-warning and insights on pending and actual supply chain disruption.

What especially stood out for us was:

• A stated ability to provide multi-tier value-chain information visibility and insights. When fully married to the Ariba B2B network, that could prove powerful. When integrated with supply chain response management and planning information, it could provide even more noteworthy potential to manage and respond to major supply disruption.
• Support to allow users to capture many forms of structured and unstructured information to develop a risk profiles among key suppliers. It includes language processing, text analysis as well as social and community-based intelligence capabilities.
• A user-friendly interface that appeared to be rather intuitive with abundant visualization, data summation and heat mapping techniques.
• The ability to currently capture upwards of 160,000 external data sources including industry, government, third-party and other sources.  Data can be time and/or supplier weighted.  The application supports pre-screening of data and the ability to gather a lot of hidden supplier intelligence, more than a single individual could capture in a normal work week. We even joked that in order to maintain this blog for our readers, this application would quadruple our productivity. Supplier InfoNet can even tap postings of Supply Chain Matters related to risk events.
• A Facebook like data model with the ability of firms to control what data actually gets displaced, along with community management of this data, which could prove beneficial when a major supply disruption is occurring.
• A broader definition of cross-functional performance metrics tied to financial objectives and context.
• The ability to conduct what-if analysis. Supplier InfoNet’s leveraged use of the SAP HANA platform provides for additional capabilities for predictive analytics to be layered across these combined information streams, allowing for a form of machine learning relative to patterns of information that would correlate with expected outcomes
• Configuration for industry-specific requirements with eight industry sectors already configured or in-process and SAP Supplier InfoNet is initially targeted to industries with a complex manufacturing and value-chain profiles.

The issue of pricing of the application is not as clear, and as we suspected, customers will have to sign-up for a separate subscription to utilize SAP Supplier InfoNet. We were not provided pricing specifics other than the subscription model may be predicated on the size of the network. We are certainly interested in hearing from SAP and Ariba customers on their impressions of pricing. We will continue to seek out that information since that may be the Achilles heel to wide-scale adoption.

An open question is obviously how timely all of the functionality of SAP Supplier InfoNet can be eventually incorporated within and on the Ariba Network along with a critical mass of industry-specific supply and value-chain intelligence that firms are willing to share.

Bottom-line- SAP Supplier InfoNet on the Ariba B2B Network has tremendous potential for customers and prospects in the ability to provide early-warning to major supply disruption, to manage all pertinent information when that disruption occurs and to provide more predictive capabilities in supply chain risk mitigation. Let us hope that the SAP bureaucracy does not stymie that attractiveness with elongated milestones and unattractive pricing.

Bob Ferrari

© 2014, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog, All Rights Reserved

General and business media has provided much amplification of the latest product recall troubles involving General Motors. In the past few weeks GM has recalled upwards of 6.3 million vehicles globally for quality issues related to faulty ignition switches, a sudden loss of electric power-steering assistance and other issues. The incidents have once again raised issues as to why certain automotive manufacturers allow quality conformance issues regarding products to fester until consumers experience the results of such non-conformance, or in some cases suffer personal injury or death. The GM crisis has been billed as the first test of the leadership of newly appointed CEO Mary Barra, who just happens to have a supply chain, product and operations management career background prior to assuming her new top leadership role.  Indeed this latest crisis might have been the legacy handed over from previous GM CEO’s. Given Ms. Barra’s background, Supply Chain Matters has confidence that this CEO will eventually insure that GM identifies the root causes that have led to these issues, including product design flaws, organizational culture, supplier related quality conformance, conflicting performance metrics or just plain bureaucracy and overhead.

But alas, GM is not the only automotive OEM that will be skewered by general and social media. Today, Toyota announced that it was recalling upwards of 6.4 million vehicles consisting of five different product recalls. The recalls involve 27 globally based vehicle models and are reportedly prompted by defects involving seat rails, air bag cable connections, engine starters, steering column brackets and windshield wiper motors. Did we mention a repair parts crisis as well?

The latest recalls appear just a few weeks after Toyota agreed to pony-up a $1.2 billion criminal penalty settlement with the United States Justice Department after acknowledging that it misled consumers regarding unintended acceleration problems (SUA) that occurred from 2009 through 2011. In 2012, Toyota had to take a $1.1 billion charge after reaching agreements with customers over liability lawsuits related to the prior SUA incidents.

But the track record of Toyota product recalls continued after the SUA debacle. In October of 2012 Toyota announced the global recall of 7.43 million vehicles, the equivalent number involved in the SUA incidents, this time related to a master power window switch defect. At the time, The Washington Post was quick to note that this flaw “raises questions about whether Toyota Motor Corp. has solved quality and safety issues that embarrassed the company in 2009 and 2010.” Also at the time, The Financial Times indicated in its reporting that Toyota was aware of the master window switch problem as far back as four years prior. It further indicated that Toyota did not respond sooner because it was unable to replicate the root cause. Somewhat of a familiar theme to the current GM ignition switch saga.

Supply Chain Matters readers will further recall that Toyota announced a series of major organizational changes to insure that accountability for quality among its vehicles was more transparent, including the empowerment of geographic based Chief Quality Officers that had the power to investigate and correct any quality issues. Our Supply Chain Matters commentary in January 2013 called into question the cost of Toyota’s anointment as global automotive industry leader. In a Financial Times interview in 2013, Toyota Motor USA CEO Jim Lentz indicated that the company had strengthened its customer care functions and had much greater ability to analyze data related to emerging quality problems. Lentz noted Toyota CEO Akio Toyoda as urging: “Make sure that we still are built on a solid foundation of quality, reliability and value because that is the hallmark of the company.” In essence, that was the declaration of the core business value of the company.

Which of these two different OEM incidents is the more significant indicator of a systemic process issue?

From our lens, a comparison of GM’s current quality crisis pales in comparison to that of Toyota, since the global industry leader has had more time and singular senior management attention to correct systemic process issues involving product quality, whether they involved the supply chain, or Toyota’s own product design or quality conformance.

Since both of these OEM’s remain in the race for global volume leadership, the price to the brand and of consumer brand loyalty we posed in 2013 is again an open question. Each of their supply chain ecosystems will again be forced to rally and respond to crisis and disruption to insure new and revised parts are made available to dealers, distributors and assembly lines.

The race to the top invariably comes with a price, and at least two automotive supply chain ecosystems  will continue to feel the effects of the vortex.

Time for our readers to weigh in: by your view, which of these two ongoing automotive OEM quality crisis developments are the most troublesome for the industry? Share your view in either the Comments area associated to this posting, or if you prefer, email them to info <at> supply-chain-matters <dot> com.

Bob Ferrari

Today’s Wall Street Journal reports (paid subscription or free metered view) what many commodity shippers spanning the Western portions of the United States are already experiencing first-hand, an erosion of rail service levels that are beginning to noticeably impact industry and services supply chains.  The surge in bulk tank car shipments from the Bakken region of North Dakota, coupled with the severe winter conditions that have been experienced throughout this region have led to what is reported to be a major snarl in rail traffic that is now cascading itself among various supply chains.  Once more, this situation may extend itself much further into 2014, which is not good news for supply chains that are often anchored in just-in-time inbound materials flows.

The WSJ indicates that many of the problems stem from pileups at the BNSF Railway, which has been one of other railroads heavily burdened by surging demand for crude oil transport.  The problem is a classic capacity-constrained network, as winter conditions have taken a toll on equipment and schedules.

The ripple effect extends to other bulk agricultural and commodity shipment needs across the U.S. Midwest and Great Plains regions, where rail car deliveries are reported to be running two to three weeks late.  Specific notations are made for shipments of bulk sugar to various consumer product goods companies, coal shipment to various utilities and grain and other agricultural products to ports or food processors. Impacted suppliers cited in the article are American Crystal Sugar Co., a supplier to General Mills, Kraft Foods and Kellogg, potato producer Black Gold Farms and fertilizer producer Mosiac Co. Hershey, on behalf of the Sweetener Users Association, has written a letter to regulators stressing the need for an urgent fix. These backlogs have the potential to cost shippers hundreds of millions of dollars in unplanned costs and the longer this service situation continues, the more upstream companies within supply chains will be impacted. The BNSF itself is reported to be scrambling to secure additional locomotives and train crews while shippers are turning to the more expensive option of shipping by truck.

As our U.S. reader community is already aware, there has been an ongoing capacity shortage among U.S. trucking companies, thus the problem cascades itself even more as trucking resources continue to fill-in for rail. Commodity procurement and logistics teams will obviously continue to deal with this situation, including coming up with alternative scenarios to keep material flows moving to upstream customer expectations. Those residing upstream should be exercising their own scenario planning options to manage through this ongoing operational disruption.

We call Supply Chain Matters reader attention to a recent posting on Insurance Networking News regarding the Top 10 U.S. Business Risks for 2014.  The report highlights findings from insurance provider Allianz and its Allianz Risk Barometer report, a survey among 400 corporate insurance experts from 33 countries.

Readers will recall that in Prediction Seven of our 2014 Predictions for Global Supply Chains, we stated that increased dimensions of supply chain risk and major disruption will further impact product sourcing strategies. This latest Allianz survey provides added evidence of both the increased dimensions of risk as well as the interdependencies of a disruption on the other important aspects of business including the value of the brand. It specifically calls attention to the increasing complexity and interdependence of business risks adding broader systemic threats for businesses. While the report highlights is a ranking business risks from a U.S. perspective, it further notes that notes that globally, business interruption and supply chain losses provide the greatest risks to businesses. That finding should be of little surprise to readers of Supply Chain Matters.

In its top ten rankings of U.S. business risks, business interruption caused in the supply chain was ranked as the number one risk by 61 percent of respondents. Rounding out the top five risks were natural catastrophe as number 2, fire/explosion at number three, and cyber-crime and IT failure as number five.  Loss of brand reputation joined this list for the first time, and was ranked as the number four risk.  That ranking, by our view is long overdue. While 2013 losses associated with natural catastrophe were considerably down from the levels of 2012, they were more costly in terms of business interruption.

Strategic sourcing and procurement teams need to continue to calibrate with their insurance and corporate risk colleagues as to the implications of these ongoing trends and the increased exposures that major supply chain disruption can present to any business. This is an area that can no longer be viewed as a passing trend.

Supply Chain Matters features an additional update to the devastating typhoon that struck portions of the Philippines this past weekend.  In the aftermath, the world’s leading disaster relief agencies have swung into action in a bid to once again implement a globally-coordinated humanitarian response as quickly as possible. Tragically, the official death toll continues to rise while global media outlets give us all a visual sense of the overall destruction.

The UK’s Guardian has recently questioned whether an outside-in approach to disaster relief can succeed in saving lives. The newspaper editorial rightfully questions that the success of the aid mission will depend to a large extent on the capacity of local authorities and teams in the Philippines to respond to the disaster, while drawing on much-needed international aid resources. The Philippine government and its associated military forces are leading relief logistics on the ground in order to assess the extent of the devastation, restore vital infrastructure and ensure life-supporting aid reaches people in the worst-affected areas on the islands of Leyte, Samar and Cebu. The government has declared that the devastated areas are in a “state of calamity”, which should not come as a shock to those of us on the outside.

In its editorial, the Guardian questions whether the shifting the center of humanitarian action away from the western world to local and national control is the key to improving the efficiency of aid programs and ultimately, saving lives.  The argument is that first responders have a critical role to play in any major humanitarian response. “As on the ground coordinators of a multilateral response, they need to be as agile as possible – taking account of the type of disaster that the population is facing, capacity issues in terms of response and taking appropriate action to save lives as quickly as possible. Time is the enemy in this initial response phase, as this is what ends up costing lives.”

The flaw in that argument is that in the wake of devastating disasters of the magnitude that are occurring of late, the affected governments have massive challenges to overcome, and that regardless of size and resources, the security, infrastructure and other challenges are often beyond comprehension. Teams need to have permission of national of local governments in order to conduct any local efforts and that is unfortunately the reality of sovereign, politically based governments.

Looking back on our Supply Chain Matters commentaries regarding these significant disasters we note similar concerns. Past events included hurricanes Katrina and Rita that impacted the U.S. Gulf Coast, the massive earthquake that devastated Haiti, the earthquake and tsunami that impacted Northern Japan, and Hurricane Sandy that impacted the Northeastern U.S. coastal regions. Each event called for more immediate response, yet global agencies coordinated all in their power to transport and coordinate aide.  In the case of Haiti, a massive international effort managed to open up the island’s single airport, which was completely destroyed, in a manner of days utilizing coordinated international military resources.

While some may be frustrated by how long it is taking to get relief supplies to the affected people in the Philippines, the challenges of a destroyed infrastructure and a government that is taxing all of its available resources to coordinate the “last mile” of delivery are all compounding themselves. We noted in our January 2010 commentary that we often take the notion of “get it to me overnight” for granted, when global carriers and logistics networks make challenges so invisible to us.  Disaster relief is a specialized type of logistics problem. It is very heartening to observe how many different countries, and how many logistics teams are once again rising to the challenge of providing basic aid in the time of most need.

In his Guardian editorial, Michael Minall argues: “Delivering effective and efficient direct action in the face of Haiyan demands more than just disaster relief, it needs a well-organised, multilateral logistical response that is led locally and nationally, rather than internationally. Such direct action works best when those overseeing logistical delivery of the disaster response are equipped and trained to respond in an agile way.”  While Supply Chain Matters can acknowledge that argument, there are unfortunately certain realities to the magnitude of devastation and to the state of the national and local governments that deal with aftermath and attempt to return to whatever forms of normalcy that can be obtained.

Vast sums of monies were donated by international citizens to help in the aftermath of the quake in Haiti.  Similar aid and donations assisted the other impacted regions.  But the reality is that these events involve multi-year efforts of recovery.  Japan continues to deal with the challenges of the Fukishima nuclear meltdown. Haiti has yet to return many citizens to their original homes. In some regions, there may never be the same condition as before the disaster.

Global aide communities and we as global citizens must continue to try to help when such events occur. Supply chain, logistics and transportation professionals will always rise to the challenge, but, the effects of Mother Nature’s power cannot be immediately overcome.

The definition of “Black Swan” events continues to be re-defined in this new era of extraordinary climatic events.

Super Typhoon Haiyan, which is being described as the most intense typhoon ever recorded, plowed across the central Philippines today, leaving widespread devastation. The typhoon roared onto the country’s eastern island of Samar at 4:30 a.m. local time, flooding streets and knocking out power and communications in many areas of the region, and then continued barreling into five other Philippine islands. Various media reports indicate that this massive storm hit with maximum sustained winds of 315 kilometers per hour (195 mph), with gusts up to 379 kilometers per hour (235 mph). This equates to the high end of a Category 5 hurricane in North America, one that can bring massive destruction and human casualties.

The reports we have monitored indicate the government agencies across the Philippines have taken extraordinary measures to evacuate people from vulnerable and high impact areas, and hopefully that may limit the extent of such casualties. The implications for destruction to basic residential, industry, and transportation infrastructure are an obvious concern.

A published report from The Washington Post (paid subscription or metered free viewing) quotes a weather expert indicating that “there will be catastrophic damage” in the wake of this storm. The typhoon was not expected to directly hit the Manila area, but with the breadth and size of this storm, there is bound to be some storm related impacts. If there is any good news, The Post article indicates that because this typhoon is fast moving, the full impact of flooding and heavy rain may not be as bad.

As we pen this commentary, reports indicate that most all communications have been severed within the impacted areas and thus little is known at this point regarding the state of damage and destruction. This massive storm is expected to move westward and impact the countries of Vietnam and Laos sometime this weekend.

We have alerted our readers to previous natural disasters occurring in the Philippines because of the global supply chain and services that are sourced in this region. Within the greater Manila area are many major semiconductor test and assembly facilities including those of Amkor, Maxim and On Semiconductor, to name a few.  The area also hosts a number of major IT, corporate services and customer support outsourcing operations.Vietnam has also raised its profile in sourcing within industry supply chains, notably apparel and high tech industry sourcing.

This massive and historic typhoon comes in the wake of extraordinary climatic events that have impacted the Asian coastal and central regions in the past few months.  We recently alerted our readers to the flooding impacts within Thailand, a massive cyclone that struck coastal regions of India, among other events.  It seems that not a week goes by without another alert to an earthquake incident occurring in Japan, and there was yet another reminder earlier this month for the fragility of the Taiwan region to earthquake events. It is indeed a new era of historic climatic changes and it concerns major hubs of industry value-chains. 

Obviously, procurement, customer service, supply chain risk management and other teams need to continue to monitor reports regarding conditions in the impacted areas, including any implications to industry and transportation infrastructure.  It may be a few days before normal communications can be restored and assessments can be garnered. In the 2011 devastating earthquake and tsunami that impacted Northern Japan, it was several weeks before the full extent of destruction and impacts were brought to light.