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Another Sobering Warning for Retail Industry- This Time from a Major Industry Supply Chain Influencer

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In a 2013 article, the New York Times had described Li & Fung as follows:

Li& Fung– the most important company that most American shoppers have never heard of- has long been on the forefront of globalization, chasing cheap labor to garment factories first in China, then elsewhere in Asia including Bangladesh.”

A lot has changed in four years but indeed, Supply Chain Matters has often referenced Li & Fung as the most influential player among global-based apparel supply chains and in supporting many major branded retailers in their apparel and other goods sourcing, merchandise selection and inventory procurement needs.

This week, the Asian based company reported a 47 percent decline in 2016 net profits, coupled with an 11 percent decline in annual total revenues. Further communicated was an indication that ongoing challenging conditions across the global retail industry would place additional challenges on its own business operations.

What caught our eye was these statements from the firm’s CEO as reported by Reuters:

I expect an unprecedented number of bankruptcies and store closures in the years to come. I remain cautious as (the) operating environment is deteriorating.

Li & Fung, being the largest influencer of apparel sourcing offering retailers access to tens of thousands of global suppliers in over 60 countries implies a large purview of business intelligence as to retailer buying practices, supplier payments and order volumes.

This is what makes the above Li & Fung statement so significant and rather sobering.

Our specific 2017 predictions and other research advisories specifically focused on the global retail industry continues to echo the unprecedented business challenges confronting retailers, driven from the implications of permanent consumer shifts to online shopping practices. These permanent forces will continue to present ongoing challenges, and retailers, and their respective supply chains, must adapt or suffer the consequences.

The casualties of retailers that have succumbed is building and so are the reports of bankruptcies and significant reorganizations in this year alone. Wal-Mart, one of the largest global retailers recently enacted job cuts and executive realignment directed at integrated online and physical store customer fulfillment. Last week, a sobering warning from Sears Holdings evoked added concerns and actions among retail suppliers and partners.

Now, one of the most influential players in merchandise and supply chain sourcing is communicating a similar sobering message.

The industry is already experiencing higher turnover and shorter tenures of CEO’s and C-suite executives, all trying to sort out different strategies to compete in an online and Omni-channel driven retail industry environment. The changes impacting retail continue to be described as unprecedented.

Supply chain leaders must get on board with fostering integrated online and physical store planning and customer fulfillment. Once again, the retail supply chain is not a collection of cost center activities to essentially support inventory procurement, warehousing and store replenishment. In today’s online fulfillment-driven retail model, the supply chain is a collection of capabilities directed at Omni-channel customer fulfillment and customer services capabilities. In 2017 and beyond, the alternatives are in-house, outsourced or hybrid supply chains.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Additional Update on B2B Supply Chain Business Network Provider E2open Merger with Steelwedge

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This Supply Chain Matters blog posting serves as an update to our prior mid-February posting regarding supply chain B2B platform provider E2open’s announced merger with sales and operations planning (S&OP) and supply chain planning technology support provider Steelwedge.  This latest deal follows prior acquisitions of icon-scm for supply chain planning simulation technology, Terra Technology for deeper levels of business intelligence and data management, and Orchestro for product demand sensing support.

This week, we had the opportunity to view an online webcast, anchored by E2open CEO Michael Farlekis, which was directed at both customer communities to serve as an update on strategic direction.  e2open 150p Additional Update on B2B Supply Chain Business Network Provider E2open Merger with Steelwedge

Both tech providers come together to serve a combined installed base of 160 customers with some stellar nameplates sw logo e1401973532206 Additional Update on B2B Supply Chain Business Network Provider E2open Merger with Steelwedgeand diverse industry supply chain settings. The E2open side includes Cisco, Dell, HP, Kimberly Clark, Mondelez International, P&G, Unilever, Kraft-Heinz, among others. With the merger of Steelwedge, added industry vertical presence includes Nissan and Land Rover in automotive as well as some common customer among high-tech supply chains.

CEO Farlekis described the combined value proposition as universal cloud connectivity of the extended supply chain supported by a broad offering of applications. He reiterated that scale matters citing a host of numbers related to platform users, countries supported and volumes of transactions and item categories now supported.

With Steelwedge’s S&OP and baseline continuous planning support capabilities, E2open goal is for customers to be able to extend this process to include the inclusion of supply chain partners including key customers, suppliers, and trading partners.

SVP of Product Management and Strategy, Pawan Joshi, outlined the full application and user-centric capabilities of E2net platform and confirmed our prior belief that Steelwedge will provide augmented S&OP support capability, and that the existing technology will be fully integrated into E2open’s technology and platform stack over time, including the E2open Harmony Dashboard.

Plans call for integrating the Steelwedge data model and functionality into that of E2open’s, supported by the current singular platform sign-on and user interfaces. Regarding anticipated integration timelines communicated, initial data interface and user interface integration is expected to occur during 90-day release timelines this year, with full integration and rationalizing of planning functionality expected by early 2018. CEO Farlekis indicated there will be no change in existing support contracts with Steelwedge customers.

Given the above, the presenters declared that all existing Steelwedge customers will have access to the combined product portfolio and that E2open account managers will now serve Steelwedge accounts in their broader end-to-end platform support needs. We have learned that E2open plans to sell Steelwedge as a stand-alone offering until the integration process is completed, but that may present somewhat of a challenge given that prospective customers will want to understand the broader product integration.

There are subsequent individual briefings being planned with existing Steelwedge accounts and it would behoove these customers to seek more specifics regarding access to E2open’s platform capabilities, expected changes in functionality as well as the full integration timeline. Long-time pricing is another consideration, along with E2open’s ongoing efforts to improve its balance sheet.

Our prior observation that Steelwedge clearly needed an infusion of new capital and thought leadership coupled with more savvy marketing and sales execution resources was obviously reinforced by this customer update. Privately-held E2open seems to communicating the flexibility to be able to undertake this effort and hopefully, in an aggressive timeline. With its expanding B2B Business Network platform capabilities supporting procurement replenishment, continuous planning, execution, and collaboration, E2open will likely gain added market attention.

Before closing this commentary, this supply chain industry analyst would like to share an additional thought or two. We have long advocated that an S&OP process should be able to include and support the participation of key external partners in the overall process and in shared decision-making. That stated, such a capability does require some maturity in accurate master data and information management, scenario and what-if planning methods, collaborative based practices, and joint decision-making. With E2open’s platform, the opportunity exists to extend S&OP to extended supply chain partners, but change management and process readiness are important considerations to not overlook.

Supply Chain Matters will feature additional updates on E2open as developments warrant.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Quantification of 2016 Holiday Related Customer Fulfillment Adds Compelling Evidence to Inescapable Trends

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The market performance numbers surrounding the holiday fulfillment period that spanned November and December of 2016 are in and the headline takeaways are twofold. The first is that U.S. retail shoppers were very optimistic in spending and very shrewd in their shopping habits. Second, the tide towards online and Omni-channel customer fulfillment is once again profound, and implications are even more impactful and inescapable for some traditional retailers. FBA sized 300x145 Quantification of 2016 Holiday Related Customer Fulfillment Adds Compelling Evidence to Inescapable Trends

A More Optimistic Retail Consumer in the Final Quarter

The National Retail Federation (NRF) released its final tally of holiday focused retail sales in the November thru December time-period, declaring a 4 percent increase over the previous period in 2015.  According to the NRF, holiday retail sales, not including autos, gasoline, and restaurants, amounted to $658.3 billion, exceeding the organization’s prior forecast of $655.8 billion reflecting a 3.6 percent increase. U.S. Commerce Department data similarly reflected an overall 4 percent increase in retail sales for the three months ending in December. And a 3.6 percent increase for all of 2016. On the plus side, online retail sales increased 12.6 percent while retail sales at health and personal care retailers increased 6.7 percent. Retail sales at department stores decreased significantly at a 7 percent rate, while sales at clothing and accessories and electronics and appliances retailers decreased 2.5 percent and 2.3 percent respectively.

Market quantitative analysis firm comScore reported final 2016 holiday sales originating from desktop computers climbed 12 percent from the year-earlier period to reach $63.1 billion. While the firm’s quantification of mobile-based online sales is still in-process, the latest update based on initial mobile data indicates that online holiday sales will likely come within comScore’s original forecast range of a 16-19 percent increase overall. Further reported was that for the seventh consecutive year, Cyber Monday (November 28), and November 29, the day after ranked as the busiest online shopping days with $2.7 billion and $2.2 billion in daily online spending. In total, there were 10 $1 billion plus shopping days in the 2016 holiday period based on desktop sales. When the mobile-based numbers are finally tallied, the numbers will be even larger.

Such activity levels are a testament to the responsiveness of B2C and B2B-to-B2C supply chain customer fulfillment teams. And then there is the elephant in the room, the continued dominance of the Amazon online buying platform. Preliminary data would indicate another stellar year of Amazon performance in many online sales and customer fulfillment dimensions.

Automobile and truck sales further contributed to holiday spending as U.S. consumers took advantage of rather attractive promotional discounts offered by automakers.

More Compelling Impacts for Brick and Mortar

As we have noted in prior Supply Chain Matters postings, the compelling impacts surrounding 2016 online shopping trends became ever more compelling for traditional department stores and brick and mortar retailers. Macy’s, Kohls, Sears, JC Penny and Target, among others, have each announced declining physical retail store revenues, with many indicating additional store closings. Regarding Target, Business Network CNBC host commentator Jim Cramer observed that while that retailer’s online sales grew a healthy 40 percent during the holiday period, it most likely cannibalized physical retail store sales which declined 3 percent in this same period.  Cramer characterizes Target’s performance as the best indicator of the existing fundamental problem of Omni-channel retail and the consequent destruction of prior retail business strategy models predicated on physical foot traffic. We concur.

Wal-Mart itself has announced further organizational restructuring and a headcount reduction involving corporate level staffing to add additional leadership focus to the global retailer’s online growth strategies. Wal-Mart’s strategy direction is now one of predominate online with physical stores serving as an adjunct supporting strategy for pickup and pay or physical shopping needs.

As noted in earlier commentary, the physical store is now the virtual store, merchandising is now about intimate knowledge of customer needs and buying tendencies, and inventory management that is anchored in more sophisticated item-level planning and pooling algorithms.

From the supply chain customer fulfillment lens, today’s online world demands analytics-driven planning, agile marketing, and multi-channel customer fulfillment capabilities, supported by advanced inventory management with flexible and adaptable logistics.

The industry implications and trends are compelling as well as inescapable.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


Point of View Commentary: Techies vs. Brokers in Global Transportation and What Will Likely Change

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The following is a Supply Chain Matters blog guest commentary contributed by Cory Margand, Co-Founder and CEO of SimpliShip.com, an online marketplace connecting international shippers directly with qualified, dedicated NVOCC’s and freight forwarders. We feature this point-of-view guest commentary as a sidebar to our 2017 Prediction of continued global transportation industry turbulence.

 

The title of my commentary seems to be a very hot topic in today’s transportation industry both domestic and international. I felt I needed to share my point of view (as well as SimpliShip‘s) with the global logistics and Supply Chain Matters community.

Let’s first discuss how transportation pricing actually works. Below, I’m only specifically discussing those brokers and forwarders/NVO‘s (non-vessel operating common carriers) who negotiate contracts with carriers. For the sake of simplicity, I will refer to both international and domestic as brokers.  MSC Ship 2 300x199 Point of View Commentary: Techies vs. Brokers in Global Transportation and What Will Likely Change

Each broker negotiates rates with their carriers whether it be air, domestic, parcel etc and then resells to their customers at a higher price. This is how they make money. Sure, there’s a lot more that goes into it but that’s the basic concept. The reason this takes place is that carriers get the benefit of large volume from one customer and they don’t have to worry about the small customers that they simply are not set up to do business with from both an operating and pricing stand point.

Interestingly, Maersk recently announced that they will be integrating Damco’s (their freight forwarding arm) product range into their own to sell in certain add on items like customs brokerage and cargo insurance. The question is whether this is a step towards carriers servicing the SMB’s which have largely previously been serviced by brokers. Or, is it simply to sell in Damco’s products to their current target customers. Maersk also announced that they are integrating with Alibaba. However, it’s unclear as to whether Maersk is simply making their rates available online (most likely at a premium) or they are truly going to be managing the relationship directly with the customer.

Now, to the point that really “grinds my gears”.

This topic of Techies vs Brokers is simply coming from two points of view that do not, from my view, understand each side of the business. Technology solutions aren’t always meant to disrupt- some are built to enable. In other words, we view the SaaS (Software-as-a-Service) and marketplace opportunities as a way for both the customer and the broker to create more efficient solutions.

Our team at SimpliShip is experienced at procuring freight spanning both large and small to medium size businesses. On the other side of things, we have moved freight both as a 3PL and carrier all around the world and domestically. We are now laser focused on the technology side of the industry.

Historically, carriers and brokers have a more than outdated tech infrastructure especially from the customer’s perspective with heavy reliance on static databases, EDI, or email/phone calls. This isn’t a surprise as most large carriers and brokers are putting resources into improving the user experience. This is where tech startups can really create value if they can successfully bridge the gap between tech and the industry. At this point and until carriers change the way they do business there is no threat to brokers.  A technology solution that is executed correctly will create a more efficient process for all parties involved.

As a challenge to both sides, with an understanding of the above, is to think critically about your current process and ask yourself is this the best way for my organization or business to procure rates and sell to my customers especially in a transportation marketplace that is highly volatile? If not, it’s time to look at tech solutions critically as a way to enable your business.

It really is as simple as that.

In reference to global logistics, a true SaaS platform should be completely carrier/broker neutral. These platforms will become smarter and smarter but initially will offer a simple way for shippers to make decisions based on their ability to get rates and other information faster and from a larger network.  A lot of the “techies” that are being discussed in industry publications or other outlets are not true SaaS platforms. These are in fact brokers. So, it’s misleading, at best, to say they are trying to eliminate brokers.

Technology will prevail when it’s created to solve specific challenges in the industry. It will enable both buyers and sellers of freight to work more efficiently and move towards a superior customer experience. Given that, our point of view is that there is no question the supply chain is going to be digitized. Those companies that embrace technology will survive and those that do not will not.

Have any insight, comments on feedback on this topic?

Please drop me a line, I’d love to hear from you.

Cory Margand, Co-Founder & CEO, SimpliShip


Airbus and Boeing Report 2016 Year-End Operational Performance Amid an Industry Inflection Point

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Once again, both Airbus and Boeing declared that they each exceeded operational performance targets in 2016 but the numbers would indicate an industry inflection point is at-hand, one that has implications for the collective industry supply chain ecosystem for the next several years.  %name Airbus and Boeing Report 2016 Year End Operational Performance Amid an Industry Inflection Point

Airbus

Airbus announced the delivery of 688 completed commercial airliners among 82 customers in 2016 representing an 8 percent increase over 2015 delivery performance. Of the total, upwards of 79 percent of total deliveries originated in the A320 aircraft line-up, including 68 of the new, more fuel-efficient model A320neo (new engine option).

During 2016, Supply Chain Matters highlighted some significant challenges related to delayed deliveries of the innovative new Pratt & Whitney geared turbofan engine featured on the neo model. Pratt had to cut back its original delivery commitment of 200 to 150 because of several supply and production challenges. With announcement of the final delivery number, we can now estimate that customer deliveries of 71 percent of the A320 family aircraft came in the second-half of the year. In the month of December alone, 66 A320 model aircraft were delivered, 45 in the new engine option. That would seem to imply that Pratt made the bulk of its revised engine delivery commitments promised for the end of the year. In its year-end announcement, Airbus indicated that it has now commenced deliveries on both engine variants of A320neo, to include the CFM International LEAP 1A as well as the Pratt PW1100G model engines.

Another noteworthy data point related to deliveries was the 49 A350 XWB aircraft delivered in the year.  This model was dogged with component supply shortages related to interior seating, lavatory, and other interior components throughout the year. The fact that Airbus actually delivered just short of its 2016 goal of 50 A350’s in 2016 is a testament to detailed planning and collaboration with key suppliers.

The European aircraft producer further achieved a total of 731 net orders from 51 customers, eight of which were new. That included a mix of 604 single-aisle and 124 wide-body aircraft.

At the close of 2016, Airbus’s overall order backlog stood at 6874 aircraft valued at $1,018 billion at list prices.

Boeing

U.S. based Boeing announced the delivery of 748 completed commercial aircraft among 100 customers, taking the industry title of highest delivery number. Of that total, 65 percent of deliveries (490) originated in the 737 single-aisle model. The 2016 delivery performance of 748 represented a decrease of 762 aircraft delivered in 2015. Boeing made a management decision earlier in the year to throttle-back the production delivery rate for 2016 to control costs and boost profitability.

A continued challenged program remains that of the 787 Dreamliner, which recorded a total of 137 completed aircraft in 2016, two more than the 135 total delivered aircraft in 2015, despite achieving break-even profitability of this program. Keep in-mind that airline customers pay the bulk of an aircraft’s negotiated price at time of delivery.  The leading-edge designed 787 Dreamliner was first unveiled in 2007 representing the most fuel-efficient aircraft at the time, and a planned more innovative replacement for aging 777 operational aircraft. The aircraft was originally planned to enter service in 2008, but first flight did not occur until late 2009. After a series of highly visible snafu’s related to explosions with its lithium-ion batteries resulting in a several month FAA grounding, the Dreamliner did not enter full operational service until 2011, and today, two separate production facilities produce finished aircraft. Boeing has now elected to shelve plans to increase monthly delivery rates from 12 to 14 monthly.

Chicago based Boeing reported a total of 668 net orders in 2016 worth $94.1 billion at list prices, well below the 768 net orders booked in 2015. This represented the company’s weakest year for new order growth, a sign taken by Wall Street that the prolonged boom in aircraft sales may be waning. Boeing actually secured gross orders for 848 new jetliners but experienced cancellations of 180, the majority of which were from customers switching from wide to narrow aisle aircraft. The company’s new order rate considerably lagged in the second-half of the year, and ultimately led to sudden senior management leadership change for the Commercial Aircraft business arm.

 

Our stream of Supply Chain Matters commentaries related to commercial aircraft supply chains have painted a picture of an industry that is designing and manufacturing new generations of more technology laden, far more fuel efficient new aircraft. This led to the enviable position of having order backlogs of upwards of $1.5 trillion that extend outwards of ten years. At the same time, an industry with a track record of prior challenges in its ability to more rapidly scale-up overall aircraft production levels is clashing with the industry dynamics of both Airbus and Boeing in their desire to deliver higher margins, profitability and more timely shareholder returns.  Smack in the middle of these dynamics are relationships among suppliers, who need to continue to invest in higher capacity and capability, but of-late have had to respond to key customer requirements for larger cost and productivity savings.

All of this is about to change and a declared industry inflection point is at-hand. We will dive deeper into this inflection point when we drill down on 2017 Prediction TenIndustry-Specific Predictions coming at the end of this month.

For the industry’s respective multi-tier supply chain, the implications of this inflection point are sobering in terms of planning windows through the year 2020. The decline of new order flows for higher margin wide aisle aircraft place the major emphasis on narrower margin single-aisle aircraft that must produce higher volumes to meet financial business objectives.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


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