Report Card for Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains- Part Four
While industry supply chain teams wrap-up their various 2015 strategic, tactical, and operational line-of-business and supply chain focused performance objectives, we continue with our series of Supply Chain Matters postings looking back on our 2015 Predictions for Industry and Global Supply Chains that we published in December of 2014.
Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008. Our approach is to view predictions as an important resource for our clients and readers, thus we do not view them as a light, one-time exercise. Thus, not only do we publish our annualized predictions, but every year in November, look-back and score the predictions that we published for the year. After we conclude the self-rating process, we will then unveil our 2016 predictions for the upcoming year.
As has been our custom, our scoring process will be based on a four point scale. Four will be the highest score, an indicator that we totally nailed the prediction. One is the lowest score, an indicator of, what on earth were we thinking? Ratings in the 2-3 range reflect that we probably had the right intent but events turned out different. Admittedly, our self-rating is subjective and readers are welcomed to add their own assessment of our predictions concerning this year.
In the initial posting of this Predictions Score Card series, we looked back at both Prediction One– global supply chain activity during the year, and Prediction Two– trends in overall commodity and supply chain inbound costs.
In our Part Two posting, we revisited Prediction Three– the momentum in U.S. and North America based production and supply chain activity, as well as Prediction Four– wide multi-industry interest in Internet of Things.
In Part Three, we revisited our supply chain industry-specific predictions.
We focus this commentary on predictions six through eight.
2015 Prediction Six: A Stalling of Big Data and Predictive Analytics in Favor of Alternative Application Focused Strategies
Self-Rating: 2.5 (Max Score 4.0)
We predicted that the promise of Big Data and Predictive Analytics technology in enabling more insightful and predictive decision-making at the enterprise level would stall in 2015, mainly because of certain technology and organizational constraints. The promises in capabilities to analyze terabyte streams of enterprise structured and unstructured data related to customers, products, suppliers and equipment are dependent on software and database capabilities that can accommodate large data streams and simultaneous user inquiries. We felt that the term Big Data itself was a symptom of a far more perplexing problem, namely that enterprises, organizations and industry supply chains are currently overwhelmed by collecting too much extraneous data. The challenge at-hand was collecting and harvesting “smarter data”.
We are actually pleased that from the technology side, vendors provided special attention towards helping customers to narrow the scope of analytics initiatives, helping organizations to initially pilot both the technology as well as the organizational skills and change management perspectives. Thus, this proactive attention muted our prediction.
A further concern we raised was the organizational challenges in addressing security and governance of mission critical data. Here again, our polling of both vendors and end-users across multiple industry settings indicates that a lot more attention was focused in this area. While legitimate concerns remain, especially in the light of even more cyber-security and hacker information attacks, IT and line-of-business teams seem to taking proactive and balanced approaches. The need to be more predictive and be far more agile to business change seems too prominent.
We further predicted that more supply chain, procurement and S&OP focused applications would be augmented with embedded predictive analytics and machine learning capabilities. We felt that supply chain planning applications that include predictive analytics and/or augmented simulation will continue to lead in this effort. For the most part, supply chain planning vendors such as JDA Software, Kinaxis, Oracle and others are indeed developing and releasing more predictive analytics capabilities. Specialized supply chain operational and financial intelligence vendors such as River Logic and Every Angle are concentrating specifically in the need for more predictive and prescriptive capabilities across cross-functional and enterprise environments.
Interest levels in enabling more predictive capabilities remains high among industry supply chains, and organizations are taking a balanced and risk-aware approach. Thus our self-rating reflects a lower score relative to our original prediction.
2015 Prediction Seven: A Turbulent Year in Global Transportation
Self-Rating: 3.5 (Max Score 4.0)
We obviously for the most part, nailed this prediction, but then again, as we entered 2015, the signs were obvious. Our one misreading of turbulence was that of the U.S. rail industry.
We predicted a continuing shake-out of excess capacity among ocean container shipping lines leading the re-sizing of global transportation fleets. That trend continues in earnest, with more ocean container ships being idled. For the most part, shipping rates collapsed for most of 2015 leading to a buyer’s market, despite multiple attempts among carriers to influence higher rates. By October, industry watcher Drewry predicted upwards of another three years of industry overcapacity while the CEO of industry leader Maersk Lines, openly called for further industry consolidation. In November, China’s two ocean container lines announced their intention to merge while speculation continued that Neptune Orient Line was seeking a buyer.
We predicted that the “perfect storm” of dysfunction among U.S. west coast ports in the latter half of 2014 would have implications in how shippers, exporters and retailers route future shipments destined for the United States and global markets. That trend indeed manifested itself with ongoing reports indicating that this year’s traditional holiday seasonal surge in shipping really never occurred. Retail and other industry supply chains suffered a sizable inventory overhang as 2014 holiday inventories arrived in the early part of 2015. While 2015 data relative to a volume shift among U.S. West Coast, Gulf and East Coast port activity is still to be determined, current trending numbers to-date point to supply chain teams indeed exercising a more balanced inbound routing. We pointed to the issues uncovered in 2014 labor contract negotiations, and work stoppages involving independent trucking’s driver contracts, the leasing and 3rd party deployment of tractor-trailer carriages to transport containers as needing to be addressed by transportation industry and labor union players to avoid a repeat of what occurred in 2014. Those issues remain at-odds, especially among independent truckers without full-time labor agreements that account for idle and delay time.
One of the most prominent turbulence areas was increased merger and acquisition activity in the third-party logistics sector. We predicted that the added complexities and service needs related to Omni-channel and industry-specific logistics would continue to spur more service and technology requirements by customers on third-party logistics providers (3PL’s), forcing them to invest in broader technological and systems capabilities along with broader scale, or risk losing business to larger more versatile providers. The acquisition announcement by FedEx of GENCO at the end of 2014 portended this dynamic in 2015. Indeed that came to pass with continuous announcements of M&A activity involving both larger and smaller industry players. Among the most prominent, in April, FedEx announced its intent to acquire TNT Express for $4.8 billion. That announcement came in the wake of UPS’s previous failed attempt to acquire TNT after encountering stiff regulatory resistance. In September, XPO Logistics announced its intent to acquire Con-Way for an estimated $3 billion raising the specter of further industry consolidation. In October, Denmark based DSV announced its intent to acquire U.S. based UTi Worldwide.
We predicted that the plunging cost of crude oil prices would further add to turbulence involving existing fuel surcharges affixed to transport rate structures. Carriers and parcel shipment firms will likely attempt to drag out the suspension of fuel surcharges to protect or sustain ongoing margins. That turned out to be the case and the most visible attempts were from FedEx and UPS who each announced added fuel surcharges for both 2015 and 2016.
Turning to railroads, we predicted that Canadian and U.S. based railroads would encounter turbulence in accommodating higher volumes of crude oil shipments as well as increased regulatory pressures for upgrading sub-standard tank cars to new safety standards. The opposite occurred. The continuous decline of world crude oil prices triggered a noteworthy reduction in U.S. domestic crude production leading to lower oil train volumes. With lower volume, regulatory pressures for tank car upgrading seemed to have eased but there was a crisis involving the December 2015 deadline for railroads to have implemented positive train control technology. That deadline was extended over an additional three year horizon.
2015 Prediction Eight: Sales and Operations Planning Transitions to Broader Scope Information Management Augmented by What-If and Simulation Activities.
Self-Rating: 3.5 (Max Score 4.0)
We have long advocated that today’s more globally based supply chains require end-to-end business network technology support in supply chain execution, customer fulfillment and more integrated business planning dimensions. With that perspective, we predicted that select industry sales and operations planning (S&OP) processes will begin efforts to transition toward inclusion of broader aspects of internal and external business planning, response management and predictive decision-making capabilities. We believed that this would most likely include deeper, cross-application information connections to product demand pipelines, augmented with traditional and social media based demand sensing. We further anticipated more-timely information connections with external or outsourced suppliers along with key customers, leveraging cloud-based planning and fulfillment synchronization networks.
Because of these needs, we expected B2B supply chain business network providers, including ERP players, to deepen their support for broader integrated business planning needs by leveraging cloud-based platforms or networks.
Our polling of technology vendors including where specific market interest occurred in 2015 reinforced that industry supply chain and line-of-business teams indeed expressed desires for integrating broader information streams and more contextual-based decision-making capabilities. Also on the vendor side, briefings on product strategy pointed to consistent themes for augmenting S&OP process support with broader aspects of network-wide information and with more prescriptive and predictive decision-making capabilities.
When we made our prediction, we had in-mind that certain existing B2B business network technology providers would become more attractive in M&A activity. In February, private equity firm Insight Venture Partners announced its intent to take E2open Inc. private. In June, best-of-breed supply chain planning provider JDA Software announced a strategic partnership with Google directed at deployment of a supply chain wide public cloud capability. In August, ERP provider Infor announced its acquisition of GT Nexus declaring the advent of the “first global commerce cloud” for small and large enterprises. Infor’s stated objectives are to implement broader supply chain business network support capabilities including S&OP processes. And at its annual customer conference in late October, Oracle announced its public SCM Cloud offering with the ability to integrate a broader B2B business network. Meanwhile, SAP continued with its efforts to broaden its Ariba B2B platform for broader support of direct materials procurement and integrated business planning.
In our next and final posting, we will look back on our final two predictions for 2015.
In the meantime, feel free to add to our dialogue by sharing your own impressions and insights regarding these specific industry challenges in 2015.
©2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.
Hewlett Packard Now Operating as Two Separate Companies: Supply Chain Test Comes in the Coming Weeks
Today marks the official first day of high-tech firm Hewlett Packard operating as two separate and distinct companies. One company, Hewlett Packard Enterprise Company will oversee operations of the former HP Enterprise division, a $55 billion dollar entity. The other, HP Inc., will oversee operations of the former HP Printer and PC divisions, of equivalent revenue size. Supply Chain Matters commented on this proposed split, along with supply chain implications in a July commentary, as we envisioned a very busy summer across the company.
The massive HP split involved separating balance sheets, facilities, IT systems and applications, including those related directly to the support of HP’s end-to-end supply chain. Purchase agreements among various suppliers would have to be recast foe each new company along with various special agreements.
A published article from the San Jose Mercury Times provides perspective on the scope and efforts that went into this split, which overall involved 300,000 employees among 651 global locations. Formal planning began last February and initially involved a flow chart that consumed a 40 foot length, 10 foot high wall. Approximately 60,000 employees had to be moved to separate locations, along with a reported 2700 bank accounts and IT systems.
An interesting perspective brought out in the article was the planning could not be a consensus-driven decision-making process. Instead, a small group of executive decision-makers were supported by a separation project team that grew to about 400 people.
The real-test of this separation comes over the coming weeks as the spilt processes and systems begin efforts as two separate enterprises. From a supply chain and product management perspective, key sensitivities will be seamless uninterrupted operation of both order fulfillment, supply chain planning and execution systems. A further perspective will be how inbound direct material and indirect materials contracts are structured, implemented and managed under the split. The Mercury Times report indicates that HP Labs will remain as a separate research and development center shared by both companies.
Obviously, the good news here was that the November 1st separation milestone was completed as required. The systems shakeout period will hopefully occur without major snafus.
Supply Chain Matters at Oracle Open World 2015- Reflection on the Importance of Accurate Information
We continue with our series of Supply Chain Matters commentaries concerning this week’s Oracle Open World Conference being held in San Francisco. Our previous commentaries can be viewed here and here.
While attending enterprise vendor related conferences, I make it a point to attend sessions that provide updates on new functionality and inputs from customer advisory councils. Attending two such sessions at this year’s Open World provide some consistent evidence that technology consumers are becoming far more concerned with ongoing data management, discovery and maintenance. That is clearly good.
While attending a session related to the latest 12.2.5 release of Oracle E-Business Suite Order Management (OM) application, a reflected theme was customer advocating for information discovery tools. A product manager described Oracle’s prior acquisition of Endeca as the “greatest acquisition that Oracle has made” regarding the ability to leverage its information discovery capabilities across order management capabilities. With its latest release, OM includes the ability to perform 360 degree customer views of information related to orders from various channels including online. There is added application in quoting, where users can explore which quotes were the most successful along with product pricing attraction trending.
One of Oracle’s more popular applications in the area of supply chain management is Oracle OTM (transportation management), the result of the prior acquisition of G-Log. The session related to the latest version of Cloud OTM reportedly responded to customer council input related to more simplified, automated tools to update freight rate changes. Rate simplification maintenance includes the ability to easily download rates to a spreadsheet for easier user update. Also included were needs for improved dashboards, data visualization and adoption of Oracle’s standard ADK web user interface that can accommodate a wider variety of computing platforms including tablets and smartphones.
The session related to the current release of Oracle Value Chain Planning (VCP) outlined four development themes in the 12.2.5 release which all touched upon easier data management, update and discovery. VCP has now adopted the Oracle ATK web user interface, while the look and feel among the Oracle Demantra and VCP has been unified. There are now new, user-configurable, Oracle ASCP workbenches including the ability for planners to view key information they need to review on a daily basis. VCP now includes simplified export to spreadsheet capabilities, another customer advisory input. Users further requested workflow enhancements that help enable group workflow collaborations and quickly recover data from a stalled workflow.
With the current clock-speed of business across multiple industries, supply chain teams are managing the realities that planning and execution information synchronization are new table stakes for more responsive Sales and Operations Planning (S&OP). Applied use of more predictive analytics to anticipate events and better respond to events is only effective as the accuracy of the data and information fueling applications. A emphasis on easier and more automated means to insure data is accurate and timely is arguably a wise and prudent investment, and technology vendors such as Oracle are responding to such needs.
Insure that all of your on-premise and Cloud based applications software vendors are similarly sensitized to the reality that the velocity, clarity and accuracy of data and information are now rather important in insuring more contextual, relevant and timely decision-making. Tools that automate-simplify-enhance-alert to information management, discovery and maintenance will pay dividends.
Last week, Material Handling and Logistics called attention to the Stifel Logistics Confidence Index indicating that the first eight months of 2015 have not been positive indicators to the logistics and transportation universe. The report indicates: “Fierce competition, volatility and overcapacity have all taken their toll and driven the Index to its lowest point since September 2013.”
From our Supply Chain Matters lens, this report should not be a surprise to transportation and procurement teams and is a reflection of further industry turbulence ahead.
The report touches upon the airfreight sector and notes that the Logistics Situation Index for airfreight fell 4.1 points, its lowest point of the year because of lackluster volume. Likewise, the Logistics Expectation Index for airfreight was reported as troubling despite the upcoming holiday shipping period. It is yet another indication that capacity cutbacks from carriers will continue.
The Logistics Situation Index for sea freight was noted as slightly positive, as three of the four major lanes examined recorded some growth. The Europe to U.S. lane reportedly declined sharply, and puzzling indication of the effects a far stronger U.S. dollar which would make European imports more attractive. However, exports from North Europe to North America were reported growing by 8.4 percent over the first five months of 2015, but considerable capacity increases on the lane are threatening to outstrip shipping demand.
For Supply Chain Matters, this latest index related report reflects further evidence of the significant overcapacity situation for both seaborne and airfreight that is currently driving industry spot pricing and other dynamics. We recently called attention to announcements of ocean container consortium cutbacks on Asia to Europe ratings that take effect in September.
While we were away on a two-week summer break, there was a significant acquisition announcement related to cloud-based supply chain technology, one that warrants a Supply Chain Matters perspective.
Last Tuesday, ERP provider Infor announced that he had entered into an agreement to acquire supply chain logistics and commerce network provider GT Nexus for $675 million. GT Nexus technology supports the ability of buyers to transmit order information across a connected supply chain business network, linking various suppliers, logistics providers and financial institutions.
According to the announcement, this deal is expected to close within 45 days, pending regulatory approval. GT Nexus is expected to operate as an independent division of Infor.
This author was not at all surprised at this announcement concerning GT Nexus. It was just a matter of time, and which ERP or enterprise software provider would pull the trigger.
In early January, The Wall Street Journal had reported that two supply chain business support providers, one being E2open, the other GT Nexus, were being pitched as potential acquisitions. Readers might recall that E2open, a publically traded firm at the time, was subsequently acquired by private equity firm Insight Venture Partners and has since been taken private. That transaction was valued at $273 million, approximately three times current revenues. The GT Nexus transaction value of $675 million however, is a surprise, in terms of overall amount paid.
The core of GT Nexus has always been its end-to-end supply chain execution connectivity with ten of the largest third-party logistics (3PL) services providers along with the largest ocean transportation providers as part of its supply chain execution network. Its customer base that includes names such as Adidas Group, Caterpillar, Columbia Sportswear, Pfizer and Procter and Gamble were motivated by needs for deeper supply chain wide execution synchronization.
In January of 2013, GT Nexus merged with cloud-based sourcing provider TradeCard in a strategy focused on adding financial services connectivity to supply chain networks. That included pre and post export financing and payment protection services. At the time of the merger, TradeCard had deep relationships among retail, apparel and consumer soft goods industry players who require such needs in financial supply chain services.
In the view of Supply Chain Matters, that merger moved GT Nexus further towards financial services business support opportunities as opposed to opportunities for broader supply chain planning and execution control synchronization. TradeCard CEO Sean Feeney assumed leadership of the combined companies after the merger.
For many years, GT Nexus had an on again, off again partnership with supply chain planning provider Kinaxis, in an attempt to add deeper planning and control capabilities. That relationship brought little in joint customer deployments and was broken off several weeks ago.
According to the announcement, Infor plans to leverage GT Nexus for its cloud-based capabilities in integrating direct procurement processes. Infor additionally has an existing ERP customer base anchored in fashion and retail customers which focuses this acquisition as an industry concentration strategy facilitating the integration of merchandising, marketing and online Omni-channel fulfillment needs across an extended supply chain business network. The ERP provider further hints of the ability to utilize the GT Nexus cloud-based network in the support a two-tier ERP strategy that utilizes the combination of Infor and GT Nexus capabilities in support of extended supply chain business process, S&OP and other decision-support needs. Once more, Infor is no stranger in M&A activity, and has demonstrated a track record of aggressive technology platform and application integration of its prior acquisitions.
Supply Chain Matters has long advocated the importance for industry supply chains to leverage an end-to-end business network to synchronize supply chain planning, execution and customer fulfillment needs on a global basis. The fact that two of the more visible, independent cloud-based extended supply chain network providers have now been involved in acquisition activity involving nearly $950 million is testimony to the attraction and importance of this cloud-based technology area.
For existing customers of either GT Nexus or E2open, the open question remains how each of these providers will evolve under new leadership and differing perspectives.
For our part, Supply Chain Matters will continue to provide insights and recommendations regarding this important technology area, and how both of these network providers evolve under new management.