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New Acquisitions Occurring Involving Integrated Supply Chain Planning and Execution Technology

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Acquisition interest focused on integrated supply chain planning and execution technology has indeed re-energized during this Q3 period. We previously alerted our Supply Chain Matters readership to last week’s published report indicating that Honeywell was in talks to acquire JDA Software. Also last week, mid-market ERP technology provider Plex Systems announced that it had acquired supply chain planning technology provider DemandCaster.

Last week’s blockbuster news regarding the potential acquisition of JDA Software came from an exclusive report published by Reuters which cited unnamed sources familiar with the negotiations. Today, The Wall Street Journal, further citing its own sources, reports that a deal is near among the two parties. The report further highlights JDA’s former strategy for integrating planning and execution including its prior acquisition of RedPrairie. The WSJ confirms that the deal values JDA at around $3 billion and could be announced rather shortly.  The acquisition would reportedly boost Honeywell’s efforts to enter the software area with an integrated supply chain planning and execution provider.

Our Supply Chain Matters view of this latest report leads us to believe that Honeywell may be making a play to penetrate the Internet-of-Things (IoT) segment with a concentration on supply chain management and execution focused processes, We will know more once a deal is announced and consummated. Keep in-mind that another suitor could surface by the revelation of the very significant $2 billion debt burden of JDA places a high hurdle, one that only a large enterprise software vendor would undertake.

Plex’s Acquisition of DemandCaster

Plex’s acquisition, on the other hand, is focused on further enhancing its Cloud-based ERP platform with broader capabilities in supply chain and sales and operations planning support for its traditional manufacturing based customers. Since both firms are privately-held, no financial terms were disclosed.

For those unfamiliar, Plex has its original roots in support for the Automotive industry supply chain, specially multi-tier suppliers that constantly respond to changing component demand and replenishment signals from various OEM’s. The firm’s technology has had an end-to-end focus that includes a strong concentration and linkage of ERP to manufacturing execution systems (MES). The mid-market ERP provider has since branched out to other manufacturing industry verticals including after-market services and support.

DemandCaster was founded in 2004 principally by a former manufacturing operations executive who had a vision for a more user-friendly approach in supply chain and manufacturing support needs. Many former supply chain planning providers were founded by entrepreneurs with operations research or academic resumes. Its approach to the market is somewhat novel in that DemandCaster offers all of its customers the option to cancel their subscription at any time if the service is not providing expected value.  The firm and its founders pride themselves in their intuitive end-user interfaces included within applications. The firm’s technology is native Microsoft Cloud multi-tenant based, providing a familiar MS Office and Microsoft Azure based look and feel. The founders additionally have shunned external financial investment partners electing a pure organic growth strategy.

Supply chain focused technology applications include support for basic forecasting and inventory planning, inventory optimization, distribution requirements planning (DRP) and capacity planning. A sales and operations application includes support for demand and supply planning. DemandCaster actually partnered with Plex about a year ago in an OEM arrangement. Earlier, the firm also partnered with Cloud-based ERP provider NetSuite as a supply chain planning focused extension application in a referral arrangement.

This author had the opportunity to directly speak with Jim Shepherd, Plex’s Vice-President of Strategy who confirmed that Plex had initiated its interest in DemandCaster prior to the recent announcement by Oracle of its intent to acquire NetSuite.  Most all of Plex’s customers have global based supply chains that require more responsive capabilities to constantly changing product demand and supply needs. Plex was further attracted to the user-friendliness of various supply chain planning modules, the native Cloud based technology as well as the built-in integration to other ERP or best-of-breed SCM focused platforms. Plex having the established one-year relationship provided further awareness to the attractiveness of DemandCaster’s approach to supply chain planning and execution capabilities.

We would quickly add that from our lens, DeamndCaster has more appeal to line-of-business buyer teams who often weigh user-friendliness and time-to-technology value higher in the ultimate buying decision. Shepherd further confirmed that DemandCaster will remain an independent brand, as well as an inherent part of Plex’s future ERP capabilities. This is a similar strategy that ERP providers such as Oracle and QAD have employed in acquisitions specifically related to supply chain management focused technology. Such a strategy opens the door for cross-selling into other ERP or best-of-breed supply chain dominant environments.

Shepherd reiterated that a long list of planned additional investments is planned for DemandCaster, investments that could not be achieved without an external investor. Mentioned were building-out comprehensive analytics capabilities directly related to S&OP focused processes, and that DemandCaster would part of future supply chain focused analytics down the road.

What it Means

While both of these new developments come from somewhat different strategic motivations, they point to renewed and building market interest in integrated supply chain planning and execution capabilities that can be tied to future needs in enhanced analytics driven decision-making, more integrated business planning and abilities to support future IoT based business models that provide enhanced decision-making based on connecting physical and digital processes. By our lens, it will place additional pressures on existing best-of-breed supply chain technology players to further enhance their integration to physical supply chain execution.

Bob Ferrari

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

 


Breaking Tech News- Report Indicating that Honeywell and JDA Software are in Acquisition Talks

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Reuters is reporting that Honeywell International is in talks to acquire supply chain management planning and execution software provider JDA Software for a reported sum of $3 billion. This report has since been picked-up by other media outlets including Yahoo Finance.

The report cites sources that asked not to be identified because the ongoing negotiations are confidential.  That alone would seem to imply that someone wanted such information to be leaked to media.

Neither Honeywell nor New Mountain Capital, the current owners of JDA declined to comment to Reuters regarding its report.

The report also indicates that JDA has been struggling with more than $2 billion in debt and that credit agency Moody’s Investors has warned that the software providers debt load might be unsustainable without a sizeable equity infusion or reduction in debt. Further indicated is that New Mountain Capital has explored a sale to private equity firms as well.

Honeywell has reportedly been looking to beef-up its sensing and productivity and automation solutions division adding to its prior acquisition of Intelligrated Inc for $1.5 billion.

Supply Chain Matters will continue to monitor this reported development, but we caution readers that this report should be considered as not definitive and that talks could not come to fruition. If JDA is acquired, it would be rather significant news regarding the supply chain technology landscape.

 

Disclosure: JDA Software, while a prior sponsor of this blog, has no current client or sponsor relationship with The Ferrari Consulting and Research Group or the Supply Chain Matters© blog.


First-Half 2016 Delivery Performance for Airbus and Boeing Reflect Continued Supply Chain Challenges

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As the commercial aircraft industry moves into the second-half of 2016, it is time for our usual Supply Chain Matters six month industry review of performance. Reflecting on delivery performance thus far, there are continued signs of industry supply chain supply challenges.  Airbus Mobile Alabama Manufacturing Facility

Let’s begin with Airbus which reported the booking of a total of 227 confirmed orders in the first six months of the year. That number may be somewhat understated since at the industry’s recently completed Farnborough Air Show, Airbus achieved bragging rights for announcing orders and commitments for 279 commercial aircraft, more than half originating from a single airline customer, that being AirAsia who ordered 100 A320neos.

 

Airbus recorded the delivery of a total of 298 aircraft in the first-half, which consisted of the following:

  • 160- Single aisle aircraft (Variants of A319, A320, A321)
  • 38- A330’s
  • 27- A350’s
  • 2- A380’s

 

In the above, tell –tale signs of supply disruption are reflected in two key aircraft. There were only 8 completed deliveries of the brand new A320neo, no doubt reflecting the ongoing catch-up in delivery of the brand new Pratt & Whitney geared turbofan engines.  Airbus had delivered just 5 A320neos in Q1 meaning that just 3 were delivered in Q2. As noted in our prior commentary, nearly a dozen of completed A320neos have been reported as lined-up on factory adjacent runways and parking areas awaiting Pratt to deliver completed engines. The exiting delay is associated with fixing the engine’s cooling design through a combination of software and component modifications.  Pratt engine deliveries were not expected to catch-up until after June and there are continued reports that Pratt’s supply chain remains strained.  The other new engine offering, the new LEAP model from CFM International is expected to be available in the second-half of this year as-well. With a stated target to have a production level of 50 A320neo’s per month by 2017, there is a lot more planning and execution remaining.

A further problematic area acknowledged by Airbus has been supply and bottleneck challenges associated with newest model A350 production, and first-half completion of 27 reflects that ongoing challenge. Supply challenges have been noted as interior seating and structures and Airbus senior management has expressed public frustration regarding ongoing supply glitches.

Turning to Boeing, the aircraft producer reported the booking of a total of 321 orders in the first-half. At the completion of the Farnborough event in July, Boeing was able to announce orders and commitments for 182 aircraft but just 20 actual new firm orders.

Boeing further recorded the delivery of a total of 298 aircraft reflecting its previously announced scaled-down expectations for delivery cadence this year. The breakdown was:

  • 248-737’s
  • 3-    747’s
  • 5- 767’s
  • 51- 777’s
  • 68- 787 Dreamliners

 

In the above, a challenged area remains completed deliveries of Dreamliners although the cadence has improved slightly beyond 10 per month. There is still a long way to go in ramp-up and lots of internal pressures remain since the program remains cash negative until delivery performance dramatically improves.  Both Boeing’s Seattle and South Carolina assembly facilities are now producing completed Dreamliners.

With current order backlogs of nearly ten years for Airbus and over seven years for Boeing at current production cadence levels, both manufacturers have been concentrating on increased production automation and longer-term strategic supplier agreements. In June, key suppliers urged both manufacturers to move cautiously on demand noting that there are definitive restrictions on the ability to ramp-up the industry supply chain to expected volume output cadence.  Another growing concern is the ability of aircraft engine producers to be able to support higher output volumes given the increased technical sophistication of the new generation engines.  Pratt alone is in the midst of managing five different new engine models and with both commercial aircraft dominant manufacturers continuing to book further orders and explore newer model introduction, the pressure builds.

Again, only time will prescribe the course of events in an industry that is clearly reflecting supply chain distress.

Bob Ferrari

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

 


The State of U.S. Logistics in 2015- An Acknowledgement of an Industry In-Transition

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This week, The Council of Supply Chain Management Professionals (CSCMP) with the collaboration of A.T. Kearney, published its 27th Annual State of Logistics Report©. As has been our annual custom, Supply Chain Matters provides our initial impressions of this year’s report.

Before we begin, let’s take a step back.  MSC_Ship_2

For the past several years, we have raised a number of concerns and added perspectives regarding the state and overall costs of logistics across the United States. Our chosen editorial commentaries reflecting on the 2012 thru 2014 reports expressed concerns towards a continued trend for increased logistics, transportation and inventory costs and in 2014, we again cited our growing concerns regarding cost and service trends.  Regarding the 2015 report, our headline takeaway moved toward action, indicating that industry supply chain teams required to take attentiveness to the implications of what was occurring in various logistics and transportation channels.

We quote one of our Supply Chain Matters key takeaways from last year’s report:

With the latest (2015) report, we believe that industry supply chain teams to move beyond industry media spin. Pay close attention to the concerning industry trends and their implications, and act proactively to continuing logistics challenges that could prove costly.”

Similarly in our annual predictions for industry supply chains published prior to the beginning of every New Year, we have continually raised awareness to increasing forms of ongoing disruption occurring in various logistics and transportation sectors.

This year’s report was compiled by a different research partner, AT Kearney. Thankfully, the current report authors are finally acknowledging that change is occurring, with the main theme being- Logistics is in Transition. Other sub-headlines and takeaways in this year’s report include:

  • The logistics industry is entering a new era of disruptive forces that involve technology investments and operational constraints that will fundamentally change the rules of the game.
  • Growth in the parcel and express segment continues to be fueled by the ongoing explosion in online B2C E-commence and Omni-channel retail growth.
  • Overcapacity and buyer’s market state conditions continuing in the ocean container, air freight and now the U.S. rail segments.
  • Technology continuing to play a key role in the future transformation of the 3PL industry.

Regarding that latter headline, the CSCMP sponsored report indicates:

“The pace and breakthrough nature of technological innovation- and the rate of which it is adopted- will heavily impact supply chain assets, processes and people.”

A further perspective we urge are multi-industry supply chain readers to dwell upon is that according to this latest report, while business inventory growth flattened in 2015, it was countered by a 42 basis point increase in the weighted cost of capital resulting in a 5.1 percent overall increase in inventory carrying costs in 2015. Part of the explanation can be found in the Appendix section of the current report. The new authors elected to modify the calculation of inventory carrying costs because prior reports multiplied the total value of business inventories by a fixed percentage- 19 percent in prior years. The new authors elected to calculate the value by utilizing other matrices more reflecting actual values of weighted cost of capital.

The implication going forward is that pressures to add additional inventory to mitigate risk or respond to customer needs for same-day delivery will come with a stiffer financial cost beyond zero interest rate conditions.

Thus, if you chose not to consider what we have been pointing out in the last 18 months, you now have a renewed industry perspective. Therefore, we need not dwell in broader or different perspectives,, rather we urge our readers and followers to just read and absorb the report for yourself.

The latest report is available for download on the CSCMP web site.  Existing CSCMP members can download the report at no-cost, while non-members must pay a publication fee.

A few added comments related to the changes in this year’s report. We applaud CSCMP and AT Kearney for the changed methodology and added internal logistics industry and external multi-industry perspectives and insights brought forward in the new format. We encourage both organizations to continue that effort in future annual reports. Previous reports featured more added color and current data points in the current year and we trust the authors will take that into effect in future reports as well.

We re-iterate our ongoing key Supply Chain Matters takeaways:

The “new normal” of logistics and transportation is reflected in strategies directed at assuring consistency of service, deeper levels of business process collaboration delivered at a competitive cost. The renewed message in the light of continuing data is to insure that the cost, service and inventory benefits derived by contracting or outsourcing logistics and transportation services outweighs the continuing pattern of increasing services costs. As supply chain processes and risk profiles continue to become more complex, especially in light of the demands of online and Omni-channel fulfillment, 3PL’s and total logistics providers will have to invest more in technology and services, adding more motivation to increase fees or institute risk sharing methodologies.

If you require another proof-point- reflect on the actions that Amazon has been taking to take more control of its logistics and transportation capabilities for premium fulfillment services. If your organization spent billions on transportation and logistics, you would probably be just as motivated.

A final note:

At this year’s annual CSCMP conference being held in late September, this author will be collaborating with The Washington Post in moderating a specific panel discussion related to ongoing logistics and transportation industry trends and how specific industry supply chain organizations are responding to these changes. Stay tuned for further details.

Bob Ferrari

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


Tesla Motors Model 3 Unveil- Product Marketing Meets Supply Chain Realities

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Today marks a product milestone for Tesla Motors, namely the public debut and availability of the new Model 3 SUV targeted for a broader customer base. In shades of Apple product availability events, Tesla’s PR team insures that photos of prospective customers camped out overnight at Tesla outlets are spread throughout media channels.  Tesla Model X

The hype cycle is on but the real test will be Tesla’s supply chain and product management flawless execution in the coming months.

In a prior Tesla commentary published in January, Supply Chain Matters noted that while Tesla met its internal goal to deliver more than 50,000 total vehicles in 2015, customers who made deposits as far back as three years ago to secure the new Model 3 remained disappointed. The model, which was supposedly designed to be built for a lower price point and with higher output volumes, has undergone a series of repeated delays making the overall program almost two years later than originally planned for market availability. Of course, such a delay has provided industry competitors such as General Motors ad Toyota the opportunity to bring to market electric powered models that can compete with the Model 3.

Tesla’s founder Elon Musk has characterized the Model 3 as “The hardest car to build in the world.” We interpreted that statement to mean the most sophisticated engineered vehicle but not necessarily one designed for higher volume manufacturing. Its falcon wing doors and air filtering system are examples of noteworthy engineering accomplishments but call into question needs related to design for higher volume manufacturing. Luxury seat manufacturing was recently moved from a supplier, in-house to Tesla’s production facilities because of quality and volume needs. Another ongoing open question is whether the planned Gigafactory designed to produce lithium-ion batteries in-volume will be ready to meet production ramp-up needs.

According to the latest update on the Tesla web site, general reservations begin today on a worldwide basis with a different order queue planned for each geographic region. Existing Tesla customers will also get a priority in the queue, which at first blush, somewhat defeats the objective of a car produced for new customers. Volume production of the new model is noted as beginning in late 2017 with deliveries initially targeted for North America. While those expectations might change during tonight’s scheduled Model 3 unveil, it does set muted expectations as to when large numbers of global consumers can expect to be driving the new Model 3.

It would appear that this is another classic case of product marketing meets the hard realities of supply chain ramp-up execution of a product in high demand. As in the case of Apple, be careful as to marketing hype when supply chain is the real determinant of customer fulfillment.

Bob Ferrari

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

 


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