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Oracle Reports Fiscal Q4 and Full Year 2016 Financial Performance- It’s All About Cloud Momentum

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Oracle reported both fiscal 2016 fourth quarter and full year financial performance with executives indicating they were thrilled by the results as well as the current momentum of this enterprise technology provider. Oracle CEO Safra Katz indicated her optimism that the company is working to position Oracle as a customer strategic partner for the Cloud.

In its fiscal fourth quarter, Oracle reported $10.6 billion in total revenues, down 1 percent in U.S. dollars and flat in constant currency. Of that total number, Cloud based revenue in the quarter was $859 million, up 51 percent from last year. Total on premise software revenues were $7.6 billion with software updates and product support revenues at $4.8 billion, up 4 percent from last year. Operating income for the fourth quarter was $4 billion and net income was reported as $2.8 million. Operating margin in the fiscal fourth quarter was 37 percent.

For the full fiscal year, total software and cloud revenues for Oracle totaled $37 billion, representing a growth rate of 2 percent in constant currency. Cloud, SaaS and PaaS segment revenues were reported as $2.2 billion, growing 52 percent. Cloud infrastructure as a service was $646 million, growing 11 percent. On-premise software grew slightly in constant currency to $26.1 billion, as continued growth in software support offset could-related declines in new software licenses.

Co-CEO Mark Hurd indicated that Oracle currently has nearly 2600 Fusion ERP customers operating on the Oracle Public Cloud, with more than 2000 new PaaS added in Q4 alone.

Oracle further raised its financial guidance for the current Q1-FY17 quarter

From an overall strategic growth perspective, Oracle Founder, Executive Chairmen and CTO Larry Ellison outlined two specific longer-term strategies. The first is to continue to accelerate the enterprise technology provider’s SaaS and PaaS ongoing growth rates with a goal to at least double the growth rate of the company’s closest competitors. He indicated to analysts that Oracle has a fighting chance to be the first SaaS company to make it to $10 billion in revenue and to dominate this market segment. He felt Oracle was a major player in ERP, HCM and CRM, along with Service Management and almost the only player in supply chain and manufacturing.

That latter observation is one that Supply Chain Matters shared in our coverage of Oracle Open World last fall, our belief that Oracle is currently the only enterprise technology provider offering a full suite of supply chain and manufacturing applications available on a public or private cloud platform. Once more, Oracle can provide added options for infrastructure and database hosting needs, either private or public. This can be especially attractive to up and coming industry disruptors or mid-marker manufacturers and services providers looking to gain advanced technology at lower cost.

The second major point of focus outlined by Ellison is that of infrastructure as a service (IaaS) data centers that are now being converted to next generation technology providing broader compute power and efficiencies at lower cost. Ellison observed that a huge amount of interest and demand related to IaaS stems from existing and new SaaS customers and even larger amounts of customer interest and demand originating from Oracle database customers looking for opportunities for decreased operating costs and higher efficiencies. In the financial performance briefing he noted:

Our database customers want to move their application into our cloud putting their database on to our platform as a service and then their applications, so a lot of custom applications on to our infrastructure as a service, these two things go together.

For supply chain functional and line-of-business teams, this is indication that IT teams continue to seek broader cost reduction and service enhancement opportunities in managing data management and reporting needs. With Oracle databases so prevalent across supply chain and product management applications areas, this is an important trend to monitor.  From our lens, Oracle’s efforts are now clearly focused on moving existing and future customers to Cloud based applications and computing, a core strength of this enterprise technology provider.

It further represents an indication that Oracle will counter SAP’s HANA efforts with additional options to allow Oracle database platforms the ability to support applications and analytics needs in Cloud based environments.

No doubt, during Oracle’s upcoming annual Open World customer conference being held in September, there will be more information regarding Oracle’s efforts to accelerate its march to the Cloud.

Bob Ferrari

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


Pending Transportation Industry Disruption Will Require Industry Supply Chain Management Attention

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Looking back at the 2015 holiday fulfillment period, there were two significant supply chain and Omni-channel fulfillment trends that made their presence. These trends will continue to unfold in 2016 and beyond with significant implications for industry supply chains.

The first was Amazon, and from a number of dimensions. As noted in our Supply Chain Matters commentary earlier this month reflecting on the online retailer’s latest financial performance, Amazon will increasingly play an industry disruptor role in 2016 and beyond.  Certain sectors of B2C / B2B online fulfillment, parcel logistics and transportation are ripe for process innovation facilitated by more innovative Cloud-based technology. We believe that Amazon is showing all of the tendencies to be that disruptor and existing industry players should be prepared. Just like Amazon Web Services (AWS) provided a new model for utility based information technology services, Fulfilled by Amazon will continue to be the next disruption. Yesterday, a report published by Bloomberg reinforced this disruptor trend in its headline: Amazon Building Global Delivery Business to Take On Alibaba. The article discloses a far bolder plan originally conceived in 2013 that outlines an aggressive global expansion of Fulfillment By Amazon services that includes a global delivery network capability that controls the flow of goods from factories in China and India to customer doorsteps throughout the world. A profound statement included in the report was: “The ambitious strategy promises to turn FedEx and UPS into Amazon rivals, but also pit the Seattle giant against Chinese counterpart Alibaba Group Holding Ltd.” The report goes on to describe a strategy that places Amazon at the center of a logistics capability that today controls legions of middlemen who handle transnational world trade, and is ripe for a new model. Through its control of large amounts of online volumes, the online retailer can acquire transportation and logistics capability at lower wholesale rates while transforming Fulfilled by Amazon into a virtual online fulfillment and delivery services platform.

The second compelling trend reinforces the first in some respects. This week, the United States Postal Service (USPS) reported its financial performance for the holiday quarter and recorded its first quarterly profit since 2011, earning $307 million  Included in this reporting was a compelling statistic. During the 2015 holiday period, the USPS surpassed UPS in total delivered packages.  Letter carriers delivered about 660 million packages, up from an initial anticipated volume of 600 million packages. In contrast, UPS reportedly delivered 612 million packages as compared to its initial forecast of 630 million. The postal agency offered the equivalent of as many as 25,000 Sunday delivery routes, up from a normal 4000 pattern.  In essence, the USPS became a go-to carrier for Amazon’s needs for Sunday deliveries.

Just before the start of the 2015 holiday fulfillment period, Supply Chain Matters railed on both FedEx and UPS regarding their announced added rate hikes for both 2015 and 2016. Our commentary reflected on whether both global parcel logistics and delivery carriers were inching closer toward upsetting the “golden goose” of their current growth strategies, that being their participation in the boom in online B2B/B2C fulfillment. We opined that these pricing scenarios threatened Free Shipping options for online consumers and opened the door for new industry disruptors, either larger online retailers, or other transportation and parcel services providers to serve as an alternative parcel delivery mechanism in 2016 and beyond. Our belief was that retailers would have to find alternative methods to leverage localized inventory. If readers had not guessed at the time, we had Fulfilled by Amazon in-mind.

Earlier this month, UPS reported its financial performance and the Wall Street headline was a near tripling of reported profits. Deliveries to consumers accounted for roughly 60 percent of all U.S. deliveries, up from 45 percent in the prior quarter. Why, because 35 percent of Sure Post packages were transferred back into the UPS network. UPS executives set upbeat expectations for 2016 including a potential 5 to 9 percent increase in earnings per share.

As B2B customers and B2C consumers are now aware, during the 2015 holiday quarter it was a lot more expensive to ship parcels via the traditional parcel carriers, and ground delivery times were extended to compensate for lower overall amounts of temporary workers. Fuel surcharges remained in-effect despite unprecedented reductions in the current cost of gasoline, diesel and jet fuel. The USPS in-essence became the go-to carrier for shipping options while UPS and, to some extent, FedEx networks struggled to manage peak volumes.

We now believe that both outlined trends are indeed the prelude to pending disruption. Established parcel delivery firms have elected a strategy that will preserve profitability. Amazon is moving aggressively forward with its far reaching Fulfilled (and Shipped) by Amazon strategic plan. Alibaba will not sit idle and indeed is working on broader elements of global logistics and fulfillment capabilities that stretch beyond China. The third-party logistics sector is already undergoing merger and acquisition activity and, as Amazon’s plans continue to unfold, international freight and small package brokerage will be under attack.

Online fulfillment events are changing rapidly and there are definitive signs of pending industry disruption.

Industry supply chain teams need to pay closer attention to these evolving trends, especially those residing in small or up and coming businesses or in organizations that ship a large amount of packages.  If your business has a growing online presence, you know how compelling a Free Shipping option is to online consumer’s motivation to buy.

Up to now, it was more attractive from an overall cost and resources perspective to outsource customer fulfillment to an established logistics provider. There is now a cost vice underway that is setting the stage for change and it is important to understand the short and longer-term implications and be able to inform and navigate the business through pending changes.

Now, more than ever, industry supply chain teams need to have the tools and capabilities to be able to quantify and model total customer fulfillment costs under various channel options. It is no longer an option to assume that an online presence is the sole key to growth. Rather, online is a compelling opportunity that comes with its own set of unique profitability challenges. Supply chain teams must be prepared to avoid being the scapegoat for not educating lines of business on cost vulnerabilities or cost saving opportunities.

For our part, Supply Chain Matters will continue with our market education and advisory efforts since there are, by our lens,  few independent and objective voices concerning logistics and transportation.

Bob Ferrari

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


Higher Parcel Shipping Rates Especially Impact Smaller Online Businesses

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In prior Supply Chain Matters commentary as well as 2016 predictions, we have raised awareness relative to the impact of increased parcel transportation rates on B2B and B2C online commerce. At the beginning of 2016, major parcel carriers FedEx and UPS initiated new 2016 rates and added surcharges, and the United States Postal Service (USPS) has now initiated its own 2016 rate hikes averaging 10 percent.

While our commentaries have focused on multi-industry impacts, there is certainly a small and medium business impact, one perhaps more acute relative to business impact.

Thus, we highlight perhaps one of growing representative evidence of such impacts.  A published article originating from Maine’s Portland Press Herald, brings forward such impacts. (Metered free view).  The article profiles two small but up and coming Maine based businesses, Dresden based Maine Medicinals and Winslow based Johnny’s Selected Seeds. The latter business is one that this author has been a fan of for many years.

Both businesses bring forward the realities of today’s online world, that consumers and customers incorporate shipping charges in their buying decisions. In the case of B2C online fulfillment, Free Shipping has become the norm as a result of the track record of Amazon Prime. Yet, more and more, retail executives have come to understand the new realities of increased costs associated with online fulfillment. Thus, as indicated by executives in the featured online businesses of the Press Herald report, the costs of shipping must now be adsorbed or offset by other cost efficiencies.

The other reality brought forward in the report is how the USPS was looked upon as the contingency strategy to avoid the higher transportation costs of the large parcel providers. Now, that option is off the table since the USPS needs to deal with its own needs for agency profitability on costs. More succinctly, the message brought forward is that in many cases, increased transportation costs stand to now directly impact the bottom line of many SMB businesses anchored in online commerce. Shipping fees can no longer cover the full cost of transportation and handling, and something has to give.

We suspect that among many SMB businesses, there is a hope that other viable, less costly transportation and handling options will become available.  Within these building needs, online giants such as Alibaba, Amazon, Ebay and perhaps Walmart remain continued disruptors, offering hosted fulfillment services.

Unless and until more disruptors come forward, the market swath and influence of a few online commerce dominants may well continue and SMB’s will be among those most impacted.

Bob Ferrari


Initial Supply Chain Focused Impressions of the Trans-Pacific Partnership- Part Two

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In this two-part commentary Supply Chain Matters shares some initial impressions of the Trans-Pacific Partnership (TPP) which has reached the stage of preliminary agreement pending the ratification by member nations. In early October, ministers of the 12 TPP countries announced conclusion of their negotiations regarding trade among what is estimated to represent 40 percent of current global GDP, which is rather significant, especially from a global supply chain context.

In our Part One posting, we shared perspectives on the defining features and summary descriptions of Sections 2, 3 and 4 of TPP.

We continue with pointing out some other important sections for the education of our cross-industry supply chain reading audience.

Section 14- Electronic Commerce

This chapter prohibits the imposition of customs duties on electronic transmissions and prevents TPP parties from favoring national producers of suppliers.  TPP members agree to adopt and maintain consumer protection laws related to fraudulent and deceptive online related commercial activities and ensure that consumer protections can be enforced in TPP electronic messaging. To promote more online focused trading network activity, the agreement calls for promoting paperless trading between businesses and governments including electronic customs forms, electronic authentication and signatures for commercial transactions. The parties agree not to require that TPP companies build separate data centers in store data as a condition for operating in a member country, and that source code of software is not required to be transferred or accessed.

This area will surely aide in measures to streamline B2C/B2B business process and customer fulfillment networks. We also view this as potentially removing barriers to facilitating electronic supply chain control tower capabilities spanning both planning and execution visibility and decision-making needs.

Section 18- Intellectual Property Protections

Consistently, one of the more important concerns for firms and their respective value-chains is IP protection. This chapter of TPP is described as making it easier for businesses to search, register and protect IP rights in new markets. It establishes standards based on WTO’s TRIPS Agreement and international best practices. For trademarks, it provides protections of brand names and other signs that businesses and individuals use to distinguish their products in the market.

This section further contains pharmaceutical-related IP provisions that address both innovative medicines and availability of generic medicines.

Section 19- Labor

All TPP parties are noted as International Labor Organization (ILO) members and thus recognize the importance of promoting internationally recognized labor rights.  Rights are noted as the right to collective bargaining, elimination of forced labor, abolition of child labor and elimination of discrimination in employment, among other tenets.

There are further acknowledgements to have common laws related to governing minimum wages, hours of work and occupational safety and health.  This section will have special meaning to high tech and consumer electronics, high direct labor focused, and general lower-cost focused contract manufacturing focused value-chains.

Section 20- Environment

TPP parties are to share a strong commitment to protecting and conserving the environment and to effectively enforce their environmental protection laws. There is specific language related to the protection of fisheries, endangered species, water and wetlands and marine environment.  The parties are to commit to cooperate to address matters of joint or common interest, including areas of conservation and sustainable use of biodiversity along with transition to lower emissions and resilient economies.

Section 24- Small and Medium-Sized Businesses

A special chapter promoting a shared interest for small-and-medium-sized businesses sharing in the benefits of TPP. It includes commitments from TPP members to create user-friendly business practices, provide assistance in accessing new markets and in overall training.

Section 26- Transparency and Anti-Corruption

A rather important section for strengthening good governance and addressing the effects of bribery and corruption practices. It calls for laws, regulations and administrative rulings be publicly available along with consistent enforcement of anticorruption laws and regulations. The section covers areas for both corporate and public officials.

Obviously there is much more to TPP, more than we can cover in a couple of blog posts. Ratification is expected to occur in 2016 as legislators of individual member countries vote approval. We can’t help to speculate that this effort may take-up most of 2016, given the far reaching aspects of TPP.

As we noted in our initial commentary, certain influential nations such as China are not a current member of TPP. That country, instead, is now actively promoting the Free Trade Area of Asia Pacific (FTAAP) as a further alternative. This week, Chinese President Xi Jinping stated: “With various new regional free-trade arrangements cropping-up, there have been worries about the potential of fragmentation. We therefore need to accelerate the realization of FTAAP and take regional integration forward.”

With a significant global and supply chain influencer such as China, representing the other significant portion of global growth, promoting yet another or alternative trans-Pacific focused trade pact, TPP can either be ratified, compelling other nations to join in its tenets, or could be fragmented by conflicting standards.

Industry supply chains are obviously important stakeholders in these major trade pacts and it will be important to keep up to date on these trade developments along with their implications on easier access to new markets, more leveraged use of technology and impacts to existing business practices.

Supply Chain Matters will do our part to keep readers informed of important developments.

Bob Ferrari

 


The U.S. West Coast Port Crisis and Increased Supply Chain Risk

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Last week, we were reading a recent report produced by the Chartered Institute for Procurement and Supply (CIPS) in the U.K. indicating that its risk index reversed in Q4-2014 and reached a nine month high. According to this report:

The world opened up for procurement managers in Q4 2014 with an abundance of cheap oil and gas making suppliers in far flung corners of the world instantly more competitive. Combined with low commodity prices in everything from gold in Ghana to soy beans in Brazil, manufacturers at the top of the global supply chain have grown the complexity and length of their supply chains whilst reducing their input costs.”

That was in Q4, before the crisis involving U.S. west coast ports has made its cumulative impacts on industry supply chains.  Gantry_Load_4

Now, there are multiple business and general media reports of the severe toll that is cascading from the continuing backlog of ships destined to U.S. west coast ports that cannot be unloaded and reloaded on a timely basis. The latest news this weekend is that President Obama has dispatched the U.S. Secretary of Labor, Tom Perez, to California in an attempt to broker an agreement.

Today, a Reuters syndicated report featured on Business Insider provides ample evidence of the rippling effects beyond retail focused supply chains.  Honda Motor now indicates that it is slowing production at certain North America auto assembly plants because component parts in the replenishment pipeline are now impacting the production of this OEM’s Civic, CR-V and Accord models. Similarly, Fuji Heavy Industries, producers of Subaru cars indicates that it is already air freighting parts to U.S. factories through at least the end of this month.

An AP syndicated report featured on business network CNBC indicates that in addition to car parts, imported furniture, medical equipment, bathroom tiles, shoes and other goods are all impacted.  On the export side, meat, produce and other agricultural foods are not moving to Asia destined markets and are in danger of spoilage.

No doubt, the cumulative impact across industry supply chains will be in the billions of dollars if the current labor dispute is not resolved quickly.

Further reported is that the port crisis is impacting available capacity and shipping rates for both sea and air freight, making it even more expensive to implement contingency shipping and logistics plans. Air freight capacity originating from China and the Asia-Pacific region was reduced in 2013-14 due to declining demand and increased costs. Thus, the current surge in contingency shipping demand is chasing limited supply, and no doubt, bigger more influential shippers will be garnered preferential services.

As is often the case with these types of multi-industry supply chain crisis, small and medium businesses will bear the bulk of the economic burden.

Within the U.S. itself, a current period of severe winter weather featuring unprecedented snowstorms and extreme cold weather have paralyzed the U.S. northeastern and Midwest regions and its economies, adding more economic burden.

Tomorrow (Tuesday), west coast dockworkers are supposed to return to work.  All industry eyes are affixed on a speedy and final resolution of the current crisis. Amen to that!

Industry supply chain teams do not need to concern themselves with supply chain risk indices for this quarter and beyond. They will be off the charts and indeed, the perception of global supply chain risk will be at an all-time high.

Today, sensing and real-time awareness across the end-to-end global supply chain network as to where inventory resides and the daily condition of global transportation networks and contingency plans is far more important.  The current crisis will continue to worsen before it gets better.

Longer-term, once the current U.S. west coast port labor contract is resolved, shipping industry interests had better get their acts together and figure out solutions to a number of current industry choke-points and structural deficiencies.  Larger mega container ships will not address the needs of shippers for reliable and efficient logistics and transportation.

The notion of the flexibility and/or cost effectiveness of global supply chains has reached a critical crossroad.

Bob Ferrari

 


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