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

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Once again, both Airbus and Boeing declared that they each exceeded operational performance targets in 2016 but the numbers would indicate an industry inflection point is at-hand, one that has implications for the collective industry supply chain ecosystem for the next several years.  Boeing 737 Max Production Line

Airbus

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

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

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

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

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

Boeing

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

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

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

 

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

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

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

Bob Ferrari

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


Supply Chain Matters Unveils Ten 2017 Predictions for Industry and Global Supply Chains

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At the start of the New Year, our parent, the Ferrari Consulting and Research Group along with our Supply Chain Matters blog as a broadcast medium, traditionally provide a series of predictions for the coming year. These predictions are provided in the spirit of assisting industry specific and global supply chain cross-functional teams in helping to set management objectives for the year ahead. Our further goal is helping our readers and clients to prepare supply chain management and line-of-business teams in establishing impactful programs, initiatives, and educational agendas.

The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and customer service management. crystal_ball

We are admittedly and purposefully late in our usual unveiling of these 2017 predictions. We made a conscious decision in mid-November to delay after the sudden and widely unexpected results of the 2016 U.S. Presidential election coupled with the similarly unanticipated results of the Brexit referendum across the United Kingdom.

To reiterate once again, our predictions process includes a re-look at all that occurred in the current year, a reflection of future implications, and soliciting input from clients and other various industry supply chain participants and observers. Unlike others, we incorporate a lot of thought and perspective into our annual predictions and take the time to scorecard our annual predictions at the end of the year.

Readers are welcomed to review our scorecard series of our 2016 predictions that occurred in November. We are further planning to make available the scoring evaluation of all of our prior 2016 predictions in a report to be made available in our Research Center later this month.

In this initial blog, we will unveil our complete listing of our ten predictions for the coming year along with some introductory takeaways. In subsequent postings spanning the month of January we will dive further into each of our predictions.

In late- January or early February, we anticipate publishing the complete Ferrari Consulting and Research Group research report, 2017 Predictions for Industry and Global Supply Chains that will incorporate all our predictions along with even more details and supporting data related to each prediction. This report will be made available to all our consulting clients and blog sponsors and will additionally be made available for no-cost complimentary downloading in the Research Center of Supply Chain Matters, also in February.

Let’s therefore begin the process with the unveiling of our ten 2017 predictions.

Drum-roll please……

 

2017 Prediction One- A Subdued World Economic Outlook and Heightened Political Uncertainty Will Test Industry Supply Chain Agility

 There is little doubt that the year 2017 will present even more uncertainty and increased volatility for many industry supply chains. Organizations will once again need to be prepared.

 

2017 Prediction Two- A Challenging Year in Procurement with Renewed Emphasis on Strategic and Technical Skill Needs

Unlike 2016, what is becoming near certain is that in 2017, multi-industry supply chains will be managing a period of rising inbound component and service costs. The role of the CPO will further have to evolve in 2017 to one of strategic business advisor along with a continuing agenda of tactical procurement challenges, most notable a potential global volatile global sourcing environment peppered by continuous anti global trade forces. One of the most significant challenges in the coming year will be in skills development and filling-in skills and talent gaps.

 

2017 Prediction Three- A Supply Chain Talent Perfect Storm

 For all functions that make up the umbrella of today’s supply chain management capabilities, we predict a supply chain talent perfect storm, one that is sure to occupy more of the management attention of supply chain and business senior leadership. The perfect storm is increased skills demand meeting limited available skilled talent supply. As Bloomberg BusinessWeek declared in late December 2016: “Right now the problem isn’t too many workers who can’t find jobs. It’s too many jobs that can’t find workers.” The coming year may well provide a period where lack of skills and talent will take on a discernable and visible impact on required competences.

 

2017 Prediction Four- Increased Anti-Trade Geopolitical Forces Will Provide Added Sourcing Challenges for Industry Supply Chains

Major developments surrounding global trade policies will occupy the attention of many industry supply chain organizations during the year, but now from an opposite perspective. With heightened global tensions now turning toward more anti-trade and possibly more protectionist rhetoric among developed nations, industry supply chains must now be prepared to deal with potential near and longer term implications that such policies will bring about.  We anticipate that industry supply chain network models will undergo continuous analysis and scrutiny in the coming year as individual supply chain teams assess various changing landed cost factors among product management models. Global trade issues will once again percolate in the coming year and they will likely be complex and confusing to sort out in terms of which will ultimately come to fruition.

 

2017 Prediction Five- Continued Global Transportation Industry Turbulence

For the past three years, we have predicted industry turbulence among global and certain domestic transportation networks.  Our predictions turned out to be fairly accurate but then again, the industry signs were obvious. In 2017, firms should plan for further industry turbulence and change occurring on many modal fronts. As the Washington Post, has recently observed: “industry change is indeed sweeping from all directions.”

 

2017 Prediction Six- A Renewed Renaissance in Business and Technology Investment

As industry supply chains enter 2017, there are distinct signs of a renewed renaissance in business and technology investment that will surely include the need for supporting augmented supply chain related business process and decision-making needs. An initial pro-business environment fostered by the election of Donald Trump and a Republican Party dominated U.S. Congress looks to lead to lower corporation business taxes and repatriation of overseas profits. There are now signs that after multiple years of plowing excess cash into stock buybacks or increased stockholder dividends, businesses may be ready to shore-up needed investments in critical areas such as increased productivity, manufacturing, and broader supply chain automation along with needs for more informed, analytical-driven decision making anchored in predictive decision-making methods. At the same time, a renaissance in multi-industry business process and technology investment activity will surely lead to further merger and acquisition activity involving either the enterprise software, supply chain, IoT, and management decision support technology vendor community.

 

2017 Prediction Seven- Enhanced Decision Support Capabilities Among B2B Network and Managed Services Providers Will Pay Added Dividends for Customers

 There will exist increased industry specific needs for deeper and wider levels of customer, product, physical object, and supply network focused information visibility, capture and analysis.  This need is coupled to building multi-industry supply chain requirements for more predictive, analytics data-driven decision making competencies that involve outside-in insights. The objective is a literal 360-degree view of supply chain wide data and information, horizontally spanning the end-to-end supply and vertically coupling high level enterprise to shop-floor decision-support needs.  A means to achieve such a capability are analytics and business intelligence engines that are now being embedded across supply chain focused B2B network platforms, edge systems and production shop floor transactional and information transfer flows. B2B business networks and edge platforms are today the prime opportunity for digitizing the horizontal and vertical flow of information and analytics across end-to-end supply chains.

 

2017 Prediction Eight- Amazon and Alibaba Position for Global Online Platform Dominance

Similar to 2016, Amazon and Alibaba will continue to position for being the dominant global online retail platform.  This competition has been civil with each respecting the other entities capabilities and strengths. Each has certain weaknesses or vulnerabilities. The head-to-head competitive battle ground in 2017 will likely be India, the next big online retail market opportunity that will test both provider’s capabilities to adapt to local requirements.

 

2017 Prediction Nine- Business Self-Interest Will Fuel Continued Efforts in Supply Chain Sustainability Actions and Initiatives

Despite the declarations by U.S. President Donald Trump that climate change is a hoax, business and supply chain self-interest needs, requirements and benefits to date will fuel continued sustainability initiatives and momentum. The goal is beyond supply chain sustainability, and remains sustainability of the business itself.

 

2017 Prediction Ten- Unique Industry-Specific Supply Chain Challenges in 2017

Each year we call out industry-specific supply chain challenges that are unique and dominant challenges. In 2017, we are including the following industry sectors for mention:

Automotive Supply Chains Existing Across North America

B2C and Online Retail

Commercial Aerospace

Consumer Packaged Food and Beverage

Global Based Pharmaceutical Supply Chains

 

Keep your browser pointed to Supply Chain Matters as we dive into each of the above 2016 predictions in more detail. Our next Predictions posting will provide added detail for our first two predictions. Subsequent posting will dive into the remaining eight predictions.

Our series will also feature some invited guest commentaries reflecting more on the topic area.

If readers or clients require further clarity, or wish to contribute additional thoughts related to what to anticipate in the coming year, you can contact us via email: feedback <at> supply-chain-matters <dot> com. Our final blog commentary of the series will include a summation of additional contributed thoughts for what to expect.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.  Content appearing on Supply Chain Matters® may not be used by any third party without written permission of the author and our parent, The Ferrari Consulting and Research Group.

 


What Should Industry and Global Supply Chain Teams Anticipate in 2017

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As we approach the New Year holiday which marks the beginning of 2017, we are heads-down in the preparation of our 2017 Predictions for Industry and Global Supply Chains. Supply Chain Matters blog readers should anticipate the full unveiling of our 2017 predictions over the first two weeks in January.

We do however want to share some of the overall highlights as to what to expect in the coming year. crystal_ball

There seems to be little doubt that the year 2017 will present even more uncertainty and increased volatility for many industry supply chains. Organizations and respective supply chain teams will once again need to be prepared.

By the end of 2016, political winds of change were blowing a strong gust across the global economy. Economies are entering 2017 in a year of heightened uncertainty in markets, brought about by more volatile, populist focused political environments among major developed nations including Eurozone countries and the United States.

The unexpected election of Donald Trump as the new President of the United States is indeed sending out shockwaves around the world. The Eurozone, which was already attempting to deal with the unexpected results of Britain’s referendum vote to exit the EU (Brexit) faces yet another concern with Italy’s December vote to reject constitutional reforms, which prompted the resignation of Prime Minister Matteo Renzi. This could lead to a potential general election in 2017 that could have strong populist overtones including potential EU exit.

By late-December, the value of Euro was moving ever closer to parity with the U.S. Dollar, its lowest level since January 2003. Many analysts are predicting that in 2017, the Euro will indeed reach parity and could even drop below the value of the dollar at some point. That will add to the challenges of U.S. based companies to export products and services globally.

Industry and global supply chains should anticipate yet another challenging year with resiliency, adaptability, and risk mitigation as important competencies. Industry supply chains will again be called upon to help contribute to top-line revenue growth. We anticipate added pressures for cost controls and cost reductions, which will place additional pressures on capabilities. Supply chain risk factors will significantly rise across many industries and within many global regions, along with needs for educating line of business and senior executives on the supply chain implications of such risks. More informed and deeper analytical capabilities to ascertain various impacts to global component and finished goods manufacturing and supply chain sourcing will likely be an ongoing requirement and supply chain organizations who have not invested in such analysis and decision-making capabilities will be tested.

We anticipate another challenging year in procurement and strategic sourcing with a renewed emphasis on strategic and technical skill needs. The role of the CPO will continue to evolve into one of strategic business advisor, requiring enhanced cross-organizational influence skills.

One of the most significant challenges for 2017 will be reflected in a supply chain talent perfect storm, one that is sure to occupy more of the management attention of supply chain and business senior leadership. The perfect storm is increased skills demand meeting limited available skilled talent supply. As Bloomberg BusinessWeek declared in late December 2016: “Right now the problem isn’t too many workers who can’t find jobs. It’s too many jobs that can’t find workers.” With the prospects of 2017 providing even more overall pressures to reduce supply chain costs, supply chain, procurement and product management related executives will be faced with difficult choices regarding the existing workforce. Executives who previously established multi-year plans to broaden skills and talent will face the reality that talent needs are more immediate.  With upwards of 10,000 baby boomers turning 65 each day, the skills and experience flight becomes ever more challenging.

We further predict continued turbulence surrounding global transportation sectors with renewed interest in managed services and B2B network information integration. Industry supply chain teams can no longer view the outsourcing of supply chain logistics and transportation services to be an annual renewal but rather a revisit of required augmented capabilities in services.

We anticipate a new renaissance of supply chain focused technology investment during the 2017 in areas such as integrated business planning, supply chain risk mitigation and advanced analytical decision-making support. We predict increased momentum and interest in Internet of Things enabled industrial and supply chain networks. The new renaissance in supply chain focused tech adoption will lead to further tech vendor acquisitions, some involving well- known names.

We expect existing supply chain sustainability and social responsibility initiatives to continue momentum effort during 2017 despite anticipated Trump Administration efforts to dilute the notions of the effects of global warming. Such initiatives continue to provide economic and brand value benefits and further contribute to the strategic need for an overall sustainable business.

We predict a renewed global battleground for online B2C and B2B platform dominance among Alibaba and Amazon in 2017 with regions such as India being the key areas to watch for influence and added investment. WalMart.com remains a wildcard in the global B2C sector.

Finally, there will be the unique usual industry-specific supply chain focused challenges that are sure to include consumer product goods, commercial aerospace, pharmaceutical and healthcare and other industries.

The above will all be detailed in our upcoming 2017 predictions series. This year we will further augment our predictions series by contributed guest contributions and added podcasts or webinars featuring industry participants. If industry leaders desire to add their voice in our content stream as to what to anticipate, and how to be prepared, please let us know.

The year 2017 will no doubt test the competencies and skills of many across industry supply chains. At the same time, they will provide opportunities for leadership and added innovation to make a difference in achieving line-of-business and overall corporate objectives. The value of the supply chain and the notions that supply chain capabilities do matter have never been more recognized as they are as we approach the coming year.

It will be an interesting year to state the least so stay tuned as we navigate the ongoing developments throughout 2017.

Bob Ferrari

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


New APICS Supply Chain STEM Educational Outreach Program- Consider Getting Involved

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Within our independent research, annual predictions and Supply Chain Matters blog commentaries, we have identified the ongoing challenge for attracting new talent to the various functional needs that umbrella supply chain management.  The need is substantial and extends across all major functions to include procurement, strategy, planning, operations management and dedicated IT support.

There are many multi-industry efforts underway to address the challenge of augmenting mid and senior level leaders and managers, many of which are being led by various supply chain management focused professional organizations along with colleges, universities, and state training programs. However, one of the more gnawing challenges has been in introducing primary and secondary education students to what can be rewarding and affirming supply chain focused careers.

We recently had the distinct opportunity to speak with Cheryl Dalsin, the new Director, Academic Outreach for APICS.  Cheryl’s academic and professional background in one of engineering and material sciences, and her recent career contributions have been with global semiconductor designer and manufacturer Intel.  Her assignments involved technical and engineering program management across Intel’s broad supply chain management initiatives and as she states, where she developed her passion for all activities that umbrella supply chain management today.

Cheryl had volunteered some of her time in helping to attract grade, middle and high school students to consider careers in engineering and sciences. As she states, it all started with devising ways to interest and motivate her own children in sciences at an early age. The volunteer effort included coming up with role play games and activities appropriate for early or later grade students. Noting success with students, Cheryl approached Intel management in 2011 with broader outreach program ideas leading to a joint collaboration among Intel and several universities to create interest for science in K-12 students.

While working in Intel’s supply chain organization, she recognized the same issue, students did not know what supply chain management was and what careers were available across the various functions. That is when she had the idea to brainstorm and collaborate with supply chain focused academic leaders in coming up with similar role play programs that would emphasize the science, technology, engineering, and mathematics (STEM) aspects within supply chain management roles.  Our readers might well recall the MIT Beer Game, which was often used as an interactive role play mechanism to help internal organizations understand the concepts of supply chain planning and forecasting.STEM role plays are based on a similar principle of learning by involvement and role play.

Cheryl subsequently reached out to David Closs and Judy Whipple of Michigan State, James Kellso and John Fowler of Arizona State and Jim Rice of MIT, and together, seven supply chain STEM activities were developed. This team continued to grow this Supply Chain STEM program, with the financial assistance of Intel, eventually reaching upwards of 15,000 U.S. and international students.

The Supply Chain STEM program that was developed provides three activities addressing various grade levels with each introducing students to the supply chain while teaching concepts of science, technology, engineering, and mathematics:

The Lemonade Game (Grades K-5)

The Paper Airplane Game (Middle School)

The Cell Phone Game (High School)

The APICS board of directors became aware of this K-12 outreach program, and in June of this year, Cheryl was recruited by APICS to lead academic outreach.

At this year’s APICS Annual Conference held in September, the Supply Chain STEM Educational Outreach Program was formally introduced.

A goal has been established to reach more than 100,000 students by 2020. APICS provides the tools and resources for program delivery and volunteers are needed to foster interest.  To support that goal, the professional organization is seeking volunteers willing to visit local and regional high school STEM Curriculum Coordinators to introduce them to the APICS STEM program materials along with how these teaching tools can be incorporated into the STEM classrooms. Volunteers are also needed to be on-site instructors for organizations, clubs and community programs that serve youth.

APICS indicates that The Cell Phone Game is available now, with materials and information available for downloading from a specific APICS STEM web page.     

From my lens, this new outreach program is an excellent opportunity for any supply chain management professional to share knowledge and help attract the next generation of talent.  APICS is an excellent choice as an educational delivery conduit, and it would seem to this author that local APICS and Supply Chain Council Chapters should strive to learn more about the program and facilitate local volunteer efforts.

I can state that this author will be reaching out to my local APICS Chapter, as well as spreading the word to local high school STEM Coordinators.  Join me!

Again, further information can be garnered from the APICS STEM Educational Outreach web page.

 

Bob Ferrari

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


Critical Holiday Fulfillment Period is About to Begin and its All Hands on Deck

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Next week officially kicks-off the holiday buying frenzy with the celebrations of the Thanksgiving Holiday in the United States as well as the Black Friday and Cyber Monday shopping events that extend out to the following week. In its recent update on the U.S. online retail economy, analytical firm ComScore predicted that based on prior year sales and order volume trends, both the Black Friday and Cyber Monday periods will represent this year’s expected highest peak in shopping volume, perhaps more so with Black Friday.

In previous Supply Chain Matters commentaries we have advised online and traditional as well as B2C focused supply chain planning and customer fulfillments team to take a cautious but diligent perspective to daily customer buying actions over the coming few weeks. This diligence includes paying close attention to overly optimistic forecasts of expected retail sales among various channels and especially diligent in working with brethren sales and marketing teams in managing what is turning out to be a lighter inventory positioning heading into the prime holiday period. Forms of product demand sensing capabilities are obviously essential.

As business media has pointed out, third-quarter financial reporting by major retailers indicates a consistent theme of reduced inventory levels with expectations for higher margins and lower costs for the all-important and most profitable Q4 holiday period.  The added costs of online fulfillment needs are a special consideration for managing costs. Lower inventory directives compel planning teams to determine the best consensus as to which merchandise will experience the highest sales volumes and when. Such bets were established weeks ago and hopefully monitored continuously. This upcoming period will be the time where tight collaboration with marketing and merchandising focused on the timing and seamless execution of targeted promotions will pay the most dividends.

For the first time, Amazon is charging sellers of the Fulfilled by Amazon program a hefty premium for storing inventory during the November and December timeframe, while offsetting some of these costs by lowering holiday focused fulfillment fees. All Black Friday and Cyber Monday focused inventory was due to Amazon warehouses last week. The cutoff for Christmas holiday focused inventory is December 2nd. That is another weighting for the stakes related to accurate inventory planning. Reports indicate that Wal-Mart has shifted more than half its inventory supporting Black Friday to its dedicated online fulfillment center warehouses. Once more, this retailer has made plans to have thousands of more items from its online catalog available for same-day in-store pickup.

The reality that many Sales and Operations (S&OP) teams often know is that over the next two-week period, there is little time to re-plan, especially with overall inventory levels being low. However, senior management expectations for higher margins and profitability are very high and thus many hopefully well informed decisions will need to be made in a very short time interval. Replenishing hot selling items runs the risk of insuring that this merchandise arrives in time or better, there are enough firm back orders from customers willing to wait. Electing not to replenish implies a plan to make-up any revenue shortfalls with all other existing inventory, thus the need for on-the-fly collaboration in merchandise promotions.

One other critical data point from ComScore’s latest update is that for online buying, the data concerning the correlation of Free Shipping to actual shopping cart completion is compelling.  During the full 2015 holiday period, Free Shipping accounted for 68 percent of all online transactions vs. 55 percent in 2014. Online retailers hoping to preserve margins by allocating more of the shipping expense to customers may experience a challenge. Thus, S&OP teams will be educating and influencing senior executives with data indicating the predictive buying tendencies related to Free Shipping along with the importance that timing has to optimized inventory management.

The other wild card and implied white knight for the next few weeks will be responsive suppliers, transportation carriers and logistics fulfillment networks. We surmise that best-in-class teams have already collaborated with key suppliers on responsive back-up contingency supply plans to be able to quickly replenish hottest selling inventory. The question is what may be sometimes defined as “key supplier.” Is the supplier domestic or internationally based in terms of transportation lead time?  Is the supplier one that we always pay on-time and has consistently made good on commitments? Does the supplier or distributor really have that on-hand inventory?

Regarding transportation networks, a learning that came out of last year’s holiday fulfillment surge was that there were bottleneck vulnerabilities to large carrier’s hub networks. Both FedEx and UPS labored during and after the peak periods to dig out of volume bottlenecks. Likewise, air freight carriers have removed a lot airlift capacity from their networks, and the fallback position appears to be more and more parcels flying in the bellies of commercial airlines. We all know that expedited shipping implies unplanned expensive freight costs and  throw-in any occurrence of severe winter storms and the expense line grows further.

The coming two weeks will be the most stressful among B2C retail teams and this will be the test where the previous investments in people, process and technology are proven.

For our part, Supply Chain Matters will be monitoring ongoing events and providing periodic insights as the surge period unfolds and as the results are tabulated. For those of you working long nights and weekends who need a respite as to the big picture, check us out.

Stay tuned.

Bob Ferrari

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

 


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