A report published on the front page in the Companies section of yesterday’s edition of The Financial Times (paid subscription required or free metered view) indicates that there is a link between the current alarming rise in cybercrime and the adoption of outsourcing.  The article concludes that according to corporate security officials, outsourcing companies that provide low-cost IT focused services are becoming the “weakest link” in the battle against rising cybercrime.

The article cites sloppy security practices and lax controls for handling of sensitive data.   Noted is that the consumer protection bureau of the U.S. Federal Trade Commission “has brought around 40 data security cases against businesses and at least six involved a failure to properly oversee a service provider.”  The article cites a recent survey conducted by the Ponemon Insititute that found that there was a continued lack of agreement as to who’s responsibility it was to maintain good security. A partner of consulting firm PwC indicates that that while outsourcing contracts generally contain clauses requiring service providers to notify clients if data is compromised, monitoring of security standards has not taken hold.

Prediction Ten of our Annual 2013 Supply Chain Matters Predictions for Global Supply Chains pointed out that cloud computing and managed services options would continue to gain traction, provided that vendors and service providers resolve current lingering customer concerns. Those concerns are often noted as data and information security.  Up to now, cloud computing options directed at point applications may have caused procurement, supply chain and IT teams to overlook such provisions but with the current alarming rise in cyber security and data breach threats, these issues are becoming much more troublesome.

In its article, FT points out that the weakest link in the security chain may be an outsourced business process or cloud based application.  This threat is becoming very real and teams are well advised to insure that data and information security provisions related to outsourced processes meet rigorous standards.  Vendors and service providers of outsourced and cloud service offerings are further advised to insure that security of data and information meets the most rigorous standards, especially with reliance on a third party IT infrastructure provider.

As a reminder, readers can download the full version of our Predictions research report with our compliments by accessing our Research Center and providing some basic registration information.

Bob Ferrari

This has been a week that business media has featured two high profiled supplier related snafu’s, or at least, that has been the business media slant.  Each is yet another important reinforcement for a more constructive and collaborative relationship with a key supplier.

This is the second of two separate Supply Chain Matters commentaries related to these high profile snafus. Commentary One related to chic sportswear retailer Lululemon Athetica.  We now turn attention to smartphone manufacturer HTC.

Earlier this week, this Taiwan based smartphone designer and manufacturer indicated that it was pushing back the rollout of its newest and most important flagship smartphone, the HTC One. The company’s sales of smartphones declined 41 percent in its latest quarter and this new model is strategically important toward regaining prior market share. This announcement was further significant because rival Samsung, with much fanfare, had just unveiled its new Galaxy S model smartphone to the market. As readers are aware, this market segment is highly competitive where a new product becomes ever more critical to sustain innovation and consumer buying interest.  That is why an Apple or Samsung product launch literally moves equity markets. Availability in the market is doubly important. HTC initially unveiled the HTC One to the market in February, indicating consumers could get one in late March.

According to business and social media reports, HTC executives attributed the delay in planned March sales to shortages of components including casings and camera parts. An HTC executive is quoted in a Wall Street Journal report as acknowledging that the company “has changed its order forecasts drastically and frequently following last year’s unexpected slump in shipments.” This executive addedthat “HTC has had difficulty in securing camera components as it is no longer a tier-one customer.” The WSJ further notes that CEO Peter Chou informed senior executives that he would step down if this new smartphone model does not succeed in the market. As our readers are well aware, that statement alone would intimate that a lot of management roles are at-stake with an unsuccessful product launch not to mention lots of tendencies for “saving-face”.

Is it any surprise that the hottest consumer electronics segment supply chains is experiencing component supply problems? Not really.  The sheer volume numbers and overall pace of Apple and Samsung have produced many commentaries related to various select component shortages these past months. Apple admitted it was supply constrained in its latest quarter.

Smartphone supply chains have plenty of supply commitments and demanding customers.  Thus, inconsistent and constantly changing forecasts of product demand are not going to place a customer on the most favored listing, especially if other customers exercise synchronized planning and execution of supply needs. Large contract buys also place bigger players in higher service and supply categories.  Any small of medium sized manufacturer is acutely aware of this condition.

The HTC One has had other issues. The WSJ reports issues with employee turnover as rivals poach engineers from the company.  For the first time, HTC suspended its year-end bonus for employees supposedly to fund added marketing programs. The queuing of various telecom operators and major retailers to support a March product launch, only to inform these same partners during the execution window that the product is delayed by a month, has not helped on that end as well.

HTC has experienced a 50 percent decline in market share for its products and desperately needs to have a winning product. Instead of pointing the finger at component suppliers, the company would be better served by admitting that there have been some product launch issues and that it is diligently working with both suppliers and channel partners to insure adequate supply of new product.

To dis your key suppliers, especially when you hold some of the blame, is a no-win situation. Positive supplier relationships are built on openness, candor and team collaboration behind the scenes. Even if your company does not hold the highest priority with a supplier, consistency in planning and candidness as to fulfillment needs are certainly more constructive.

Winning in the marketplace is a team sport that involves positive supplier and partner relationships.

Bob Ferrari

From time to time, Supply Chain Matters will call attention to reports or articles which we feel should definitely be included in your reading list, especially when it concerns small to mid-sized supplier businesses.  This commentary references an article worthy of both a good read and reflection on how component suppliers can demonstrate industry diversification in supply chain support strategies.

Today’s edition of The Wall Street Journal features the article: Meet the Smartphone Arms Dealers. (paid subscription or free metered view) This article describes the efforts of two Japan based suppliers, Murata and TDK, both of which have managed to successfully leverage continuous product innovation and industry targeted support toward business excellence. While Japan’s major electronics OEM’s have fallen on difficult business times, these two suppliers are performing very well. In terms of overall business and financial performance, the WSJ reports that both of these suppliers posted profits for the first nine months of their fiscal year’s, fueled by healthy demand for products.

Murata is one of the largest providers of ceramic capacitors and wireless communications modules. TDK is a leading global supplier of electronic inductors.  The WSJ points out that both suppliers have been able to maintain dominance in the electronic circuits’ area by keeping R&D and leading-edge production in-house. Each further designs and builds the manufacturing equipment used at their factories, maintaining a manufacturing process edge. A Murata senior executive is quoted as indicating that one always needs to be one or two steps ahead of the competition.

In the 80’s and 90’s when Japanese electronics OEM’s dominated the global market, the customers of Murata and TDK were domestic. According to the WSJ, today Japanese customers amount to little more than 20 percent. Both suppliers have reached out to supply components to major smartphone and electronic tablet OEM’s including the lucrative supply chains of both Apple and Samsung. Both suppliers are working on longer-term efforts towards expanding their diversified industry presence. TDK is focusing on components utilized in electric and hybrid automobiles along with energy distribution systems for buildings. With a trend for more and more electronic circuits used within cars and trucks, Murata is building a presence in that industry.

Upon reading this article, we thought of the past history of U.S. automotive supply chains in terms of Tier 1 and other component suppliers.  At one time, the big three OEM’s owned their own Tier 1 component suppliers, and later under severe financial stress, were forced to spin them off as independent companies owned by various outside investors. During the severe recession of 2008-2009, when the market tanked, the ripple effect impacted U.S. automotive suppliers quite heavily.  Some diversified in supplying adjacent industries or non U.S. OEM brands such as Toyota or Honda. Others were unfortunately forced to be acquired, some by non-U.S. interests also seeking product innovation or market diversification.  That was the initial entry of China based suppliers into U.S. automotive supply chains. Some smaller suppliers unfortunately perished, running out of options.

In 2008-2009 we were publishing commentaries highlighting successful product innovation and diversification strategies as a means to share learning. We therefore remain much attuned toward highlighting successful efforts of component suppliers in practicing sound business and diversification in supply chain support strategies.

Understand and learn from others.

Bob Ferrari

Microsoft continues to make big news in technology, the latest being an announced agreement to acquire corporate social-networking provider Yammer, Inc. for $1.2 billion.  This comes on the heels of last week’s announcement indicating that Microsoft will introduce its own tablet computer later this year.  Think of Yammer as a private, behind-the-firewall version of Facebook. Microsoft’s willingness to invest over a billion dollars in a social-media based software technology is yet another indication that systems of engagement will continue to play a far more important role in functional and cross business collaboration.

The importance of these two announcements for supply chain and internal IT teams are many.  As noted in the Bloomberg article, the company plans to add Yammer’s social networking tools to Microsoft Office applications along with its SharePoint collaboration tools for businesses.  Plans call for Yammer to continue to be run as an independent entity, but with tighter integration to Microsoft’s various business and enterprise software applications. If Microsoft is savvy, it will recognize that augmenting supplier and customer collaboration processes with private, social-media based collaboration tools will provide enormous benefits for supply chain teams, especially mid-market manufacturers and service providers who often exist in far larger eco-system of OEM and larger customer networks.

On a broader note, these two recent announcements are indications that Microsoft has finally “upped its game” and come to the obvious realization that if it does not aggressively move into newer, more attractive areas of technology adoption, it may be too late.  We make reference to a well written commentary penned by Charles Cooper on CNET, which observes that as Microsoft retools to enter both the tablet and mobile computing domain, CEO Steve Ballmer has the opportunity to rewrite a lackluster company in terms of previously leading on innovation in these areas.  Cooper states: “This month’s show-and-tell could turn out to be a pivotal moment for Microsoft and (CEO) Ballmer’s career.” More interesting was a direct quote from Salesforce.com CEO Marc Benioff, who has a long history of scoffing Microsoft: “Our world has become mobile, social, cloud and local—not led by Microsoft – but by an exciting new breed of entrepreneurs who are rewriting the playing rules for the industry away from Windows – there has never been a more exciting time in our industry.”

The takeaway for supply chain and their associated supporting IT teams is to note that Microsoft’s aggressive new entries in both introducing its own line of tablet computers, and offerings to support systems of engagement are that neither Apple, IBM, Oracle, Salesforce or SAP will continue to leverage and penetrate these new areas of information technology engagement without the presence, and money, of Microsoft.  Already there is speculation that Microsoft elected to shun multiple years of tight relationships with PC hardware vendors, in order to prove to the market that a viable tablet computing alternative can compete with Apple, especially in the business computing arena.  That speculation points to Microsoft’s hand-over of the new mobile operating systems developed for Surface to various hardware providers, once it is proven in the market. Microsoft’s deeper plunge into the wild and wooly world of integrated hardware and software consumer electronics will also bring a more refreshed perspective on the current day challenges of dynamic, global-based value-chains that must compete with the savvy of an Apple, as noted in a recent commentary related to tablet hard cases, published on the Sydney Morning Herald web site.

For the consumers of these new technologies, that implies more options.  For those companies that are married to Office applications as a foundation for individual productivity and user friendly applications, it implies a potential new path into areas of mobility and collaborative based applications. For IT teams with future plans to deploy more mobile-based options related to procurement, product management, collaborative supply chain planning as well as sales and operations planning support, a potentially new set of options may be on the horizon.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog.  All rights reserved.

The Small Business section of The Wall Street Journal published a concerning article this week, namely that Big Customers Are Taking Longer to Pay their suppliers. (paid subscription or free metered view)

As was the case during the 2008-2009 global recession, the extension of time to pay suppliers, especially small and medium-sized businesses, places them in ever more challenging needs to finance working capital.

The article cites an Experian-Moody’s Q1-2012 benchmark report that indicates that businesses paid their suppliers an average of 7.6 days past due, a 14.1 percent increase from the same period last year. The National Federation of Independent Business surveyed 850 businesses, of which, 64 percent indicated having invoices unpaid for at least 60 days, and 20 percent indicating delinquencies are getting worse. The article provides some specific examples. Number one rated supply chain, Apple was reported as paying in 52 days, up from 43 days, while Wal-Mart pays on average at 29.5 days, up from a previous 27 days. Ford indicated that 80 percent of its annual purchases are paid within 40-45 days.

As smaller suppliers can well testify, increased time to be paid by very large customers implies financing working capital levels for longer periods.  It also implies added challenges in the flexibility to hire additional workers. The current trend is troublesome because smaller businesses cannot garner attractive borrowing rates from lenders.  The article notes that while large enterprises can borrow at an average of 3.35 percent, small-business loans are often in double-digits, and can range from 6 to more than 20 percent.

As the financial crisis involving the Eurozone continues to concern economic leaders, this trend of taking longer to pay suppliers is obviously disturbing.  We noted a recent example of a key Spainish based supplier to Boeing. Large customers continue to seek the best price for supplies but by extending payment cycles, place these same suppliers in ever more difficult positions. It seems that memories run short, given that just a few years ago, large numbers of smaller suppliers were forced into financial peril or bankruptcy because of these practices.

Supply Chain Matters reminds senior procurement leaders and their respective Chief Financial Officers that a comprehensive supply chain risk mitigation plan includes payment practices among direct material suppliers. If lean, demand-driven supply chain planning and operational practices are to be maintained, suppliers need to be assured that they can expect to be paid in a timely and consistent cycle. In times of high uncertainty, businesses large and small will obviously explore means to preserve or accumulate additional cash. When your business feels the pressure of working capital or cash management challenges, you bring on added risks with a one-dimensional perspective of my cash vs. that of a supplier. Remember what has occurred in the past, as well as the burden involved in re-qualifying or added sourcing of new suppliers.

A supplier partnership for direct materials is exactly that- a partnership! It is an extension of your value-chain.

In conjunction with Oracle’s JD Edwards Summit being held this week in Broomfield, Colorado, Oracle has announced a second phase of mobile access applications that are being made available for the specific JD Edwards EnterpriseOne applications suite.  These include:

• Mobile Requisition Self Service Approval – designed to provide real-time transaction processing access for the review, approval or rejection of requisitions.
• Order Approval Mobile Purchase – Helps enable mobile workers to review and approve purchase orders regardless of physical location.
• Mobile Sales Inquiry – Addresses the needs of sales representatives, service technicians and managers by providing access to sales orders, item availability and item base price on-demand.

Each of these applications will now support smartphone enablement to include the Apple, Android and Blackberry specific platforms.

Supply Chain Matters had the opportunity to speak with Oracle JD Edwards Group Vice-President and General Manager Lyle Ekdahl regarding this week’s announcement, and we were especially interested as to why Oracle elected to have its premiere mid-market ERP offering lead the charge for mobile computing enablement, particularly in supply chain related applications.  Ekdahl’s response was that mid-market companies are just as challenged with reduced staffing and doing more with less, forcing many supply chain functional teams to be much more mobile in their day-to-day business activities.  When the JDE customer councils prioritized areas for needed future enhancements, mobile support was at the top of the list. This week’s announcement is the second iteration from a prior announced support of Apple iPad enablement  made at Oracle Open World last Fall. Ekdahl also noted that there will be several waves of JDE mobile enablement over the next 18 months. He also clarified that each of Oracle’s ERP product lines will have separate rollout strategies relative to mobile enablement.

We still find it interesting that that the JDE suite is currently leading Enterprise Business Suite in this area. Meanwhile, SAP and Microsoft continue to be low-key on their respective supply chain applications mobility strategies and support for customers.

The needs for select mobility enablement among certain supply chain business processes is a growing need and it is interesting to observe how the major ERP providers select processes and applications for mobility support.  Security of information however, will continue to remain a rather important requirement for businesses deploying more mobility features.

Bob Ferrari