It’s the end of the calendar work and this commentary is our running news capsule of developments related to previous Supply Chain Matters posted commentaries or news developments.
In this capsule commentary, we include the following topics: Zara Implementing RFID Tagging System; Hershey and Other Candy Providers Raise Prices to Compensate for Higher Commodity and Production Costs; Pratt and Whitney and IBM Embark on Predictive Analytics Initiative; U.S. Government Announces New Rules Pertaining to Rail Shipments of Crude Oil
Zara Implementing RFID Tagging System
Reports indicate that Zara, a known icon in world class logistics and supply chain management, is implementing a microprocessor-based RFID tagging system to facilitate item-level tracking from factory to point-of-sale. This initiative was revealed at Zara’s parent company, Inditex SA, annual stockholder meeting earlier this month.
The tracking system embeds chips inside of the plastic alarms attached to various garments and supports real-time inventory tracking. The retailer indicated that the system is already installed in 700 of its retail stores with a further rollout expected to be 500 stores per year. That would imply that a full rollout to all 6300 Inditex controlled stores would entail a ten year rollout plan. No financial figures have been shared regarding the cost aspects of this plan.
Hershey and Other Candy Providers Raise Prices to Compensate for Higher Commodity and Production Costs
One of our predictions for 2014 (available for complimentary download from Research Center above) called for stable commodity and supplier prices with certain exceptions. One of those exceptions is turning out to be both the cost of cocoa and transportation.
Citing current and expected higher commodity, packaging, utility and transportation costs, Hershey announced last week an increase in wholesale prices by a weighted average of 8 percent, which is rather significant. That was followed by an announcement from Mars Chocolate North America this week that it will institute price hikes amounting to seven percent. A Mars statement issued to the Wall Street Journal indicated that it has been three years since the last announced price hike and that Mars have experienced a dramatic increase in the costs of doing business.
According to the WSJ, cocoa grindings, a key gauge for chocolate product demand, has surged over 5 percent across Asia and 4.5 percent in North America.
By our lens, the next move will more than likely come from Mondalez International.
For consumers, indulging in Hershey Kisses, M&M’s and Snickers will be more expensive.
Pratt and Whitney and IBM Embark on Predictive Analytics Initiative
Another of our 2014 predictions called for increased technology investments in predictive analytics. One indication of that trend was an announcement indicating that aircraft engine provider Pratt & Whitney is partnering with IBM to compile and analyze data from upwards of 4000 commercial aircraft engines currently in service. This effort is directed at developing more predictive indications of potential engine maintenance needs. According to the announcement, each aircraft engine can generate up to a half terabyte of operational performance data per flight. According to an IBM statement: “By applying real time analytics to structured and unstructured data streams generated by aircraft engines, we can find insights and enable proactive communication and guidance to Pratt & Whitney’s services network and customers.”
Previously, Accenture announced a partner effort with General Electric’s Aviation business to apply predictive analytics in areas of fuel-efficient flight paths.
U.S. Government Announces New Rules Pertaining to Rail Shipments of Crude Oil
As a response to heightened calls for increased safety of trains carrying crude oil across the United States, the U.S. Department of Transportation announced this week a set of comprehensive new rules for the transportation of crude oil and other flammable materials such as ethanol. The move follows similar efforts announced by a Canadian transportation regulatory agency.
The new rules call for enhanced tank car standards along with new operational requirements for defined high hazard flammable trains that include braking controls and speed restrictions. The new rule proposes the phase-out of the thousands of older and deemed unsafe DOT 111 tank cars within two years. Rail carriers would be required to conduct a rail routing risk assessment that considers 27 safety and security factors and trains containing one million gallons of Bakken crude oil must notify individual U.S. state entities about the operation of such trains. Trains that haul tank cars not meeting enhanced tank car standards are restricted to 40 miles-per-hour while trains carrying enhanced tank cars would be limited to a 50 miles-per-hour speed restriction. Further under the proposed new rules, the ethanol industry will have up to 2018 to improve or replace tank cars that carry that fuel.
The proposed new rules are now open for industry and public comment over the next 60 days and are expected to go into effect early in 2015. According to various business media reports, there are upwards of 80,000 DOT-111 rail cars currently transporting crude and ethanol shipments. When the new U.S. and Canadian rules take effect, there is likely to be a boon period for railcar producers and retro-fitters.
Dassault’s Acquisition of Quintiq- Broader Simulation and Decision Support in Product Lifecycle Management
Today Dassault Systemes announced the signing of a definitive share purchase agreement to acquire supply chain and operations planning software provider Quintiq for approximately €250 million ($338 million). Supply Chain Matters was somewhat surprised with this announcement, not with the fact that Quintiq was an attractive candidate for acquisition, but rather why other enterprise and ERP vendors had not pulled the trigger. Then again, the premium paid may account for this move.
Netherlands based Quintiq has dramatically increased its brand profile globally and specifically in the U.S. market. The company’s on premise and cloud-based software offerings include highly customized applications supporting operations, scheduling and supply chain planning, optimization and decision support. This provider boasts of over 500 implementations across 80 countries with many involving rather complex operations and supply chain planning needs. Many of its applications have been highly customized to support rather unique business, operations and optimization needs. It is one of very few planning support vendors having an installed base profile in areas such as air traffic control, airline and fleet scheduling, complex process and discrete industry scheduling needs. Co-Founder and CEO Dr. Victor Alles, an experienced computer scientist prides his company in solving planning puzzles that no one else can solve, hence Quitiq’s vertical industry coverage is extraordinary. Supply Chain Matters can attest to that passion after speaking directly with Dr. Allis in November.
With the tag line of the 3D Experience Company, France based Dassault Systemes provides technology to support product design, engineering, CAD modeling, simulation, data and process management process areas. The current product portfolio is extensive and includes over 190,000 customers within 140 countries. Support for manufacturing industries includes aerospace and defense, engineering and construction, complex manufacturing, medical equipment and other areas. The firms most high profile customer is Airbus but also includes names such as Medtronic, NASA, Rolls Royce and others.
According to the announcement, Quintiq is being positioned to expand Dassault’s DELMIA suite of offerings which is the product area focused on PLM Digital Manufacturing. This suite includes simulation software capabilities supporting product design, design creation, planning, monitoring and controlling of production processes. Thus, this is one of Dassault’s prime product focus area in supporting new areas of what The Economist coined as the “Third Industrial Revolution, which includes manufacturers leverage of the Internet of Things and Digitally Enabled Manufacturing. Dassault further provides a large services complement in areas of consulting, technology delivery, engineering and other services. Thus it would appear that this acquisitions positions Quintiq as being strategically positioned to support customized planning and decision-support needs across the broad spectrum of product design production ramp-up, services and product end-of-life.
Of further interest is that this acquisition announcement comes a day after arch rival PTC announced another one of its IoT related acquisitions. Thus, by our view, both announcements are indicators that the PLM technology segment has aggressive intentions to be a player in the new wave of Digitally Enabled Manufacturing. While each is taking different strategic approaches, the goal seems rather apparent, namely beat other enterprise and ERP focused vendors in depth of support in this new area of product centric decision-support that integrates physical and digital information elements.
For Dassault specifically, the challenge will be to allow Quintiq to integrate with broader simulation and decision-support needs without being swallowed by complex corporate overhead and complexity.
The takeaway is an emerging new dawning of capabilities that allow manufacturers to integrate and simulate information and make more informed decisions that span the entire product lifecycle.
© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.
Breaking Technology News: PTC and Dassault Systemes Make Significant Acquisition Announcements of Axeda and Quintiq
This week is turning out to be rather significant within the area of product lifecycle management (PLM), manufacturing and service management technology. Two major technology providers, PTC and Dassault Systemes have announced noteworthy acquisitions in conjunction with the formal reporting of quarterly financial results.
PTC announced a definitive agreement to acquire privately held Axeda, an Internet of Things (IoT) and cloud-based technology provider offering technology that connects machines and sensors to the cloud, for a reported $170 million in cash. The announcement follows the acquisition of IoT applications provider ThingWorx in December.
Dassault Systemes announced the signing of a definitive share purchase agreement to acquire supply chain and operations planning software provider Quintiq for approximately €250 million ($338 million). This acquisition is noted as extending Dassault’s 3DEXPERIENCE platform, specifically expanding the DELMIA brand into business operations planning
In the view of Supply Chain Matters, both announcements indicate that the PLM technology segment has aggressive intentions to extend and integrate product and service management software applications with advanced technology related to connecting physical devices with business operations planning. However, each of these acquiring vendors is taking somewhat different approaches.
Given the significance of both of these important announcements, Supply Chain Matters will feature subsequent dedicated commentaries focused on each.
Business and social media is abuzz with today’s announcement that two long-time rivals, Apple and IBM, are teaming-up in an alliance to create simple business apps on Apple’s iPhone and iPad devices. As pictured in the Times Square featured announcement, both CEO’s are pictured in a casual and friendly stroll.
The obvious question is which of the vendor’s benefit the most from the proposed alliance. Another question is the potential impact on supply chain and B2B business network technology deployment. In this Supply Chain Matters initial viewpoint commentary; we briefly dwell on both questions.
Under the alliance, IBM will create what is termed as “simple” business apps leveraging the respective Apple mobile devices. IBM employees will further provide on-site services and support for Apple mobile devices. Of more interest is the report that IBM is planning to make 100,000 employees available to the Apple imitative, which is rather significant. Both alliance CEO’s made themselves available for a joint media interview. IBM CEO Virginia Rometty indicated: “This is just the beginning” and Apple CEO Tim Cook indicated: “This is really a landmark deal”. The apps themselves are reported to draw on IBM’s computing services including security, device management and big-data analytics. Apple and IBM engineers will jointly be developing more than 100 new business applications tailored for specific industry needs. The apps will begin arriving in the fall and IBM will resell iPhones/iPads containing the apps to its business enterprise customers.
The initial online consensus is that both vendors will benefit from this alliance and this analyst shares that opinion. Apple has struggled to penetrate the coupling of its mobile devices with business enterprise applications since the market continues to perceive the company as just a consumer electronics provider, albeit with elegant offerings. Security of mobile based information remains a big concern for both supply chain and IT teams. IBM with its deep ties to C-Suite and IT teams has been struggling with the need for more positive revenue momentum. A late entry and lack of momentum in supporting cloud-based and mobile computing needs has not helped. Thus, benefits and rewards loom large for both vendors under this alliance. They just need to collaborate and execute.
As for the potential impact for supply chain and B2B business network technology support, it’s too early to tell. As we have noted to our readers, IBM has amassed a broad suite of end-to-end supply chain, B2B, customer fulfillment network, service and business analytics capabilities that can all benefit from further leveraging of mobile-based applications. The open question remains on IBM’s track record of delivering on broader supply chain process integration in a much more time-to-market manner. We anticipate there will be opportunities to enhance mobile-based apps in Emptoris Supply Management Suite, Sterling B2B and online fulfillment network as well as end-to-end supply chain focused analytics. Customers will just have to wait and see what develops in the coming months.
A further implication of this alliance announcement will be how other business enterprise vendors such as SAP, Oracle, Google and Microsoft eventually respond. Each has positioned the leveraging of mobile devices within business applications from a multi-vendor perspective in an effort to support multiple brands. This week’s announcement may prompt a re-visit of these strategies, and consumer electronics providers Samsung, Lenovo or perhaps HP, could benefit with enterprise software vendors again seeking deeper development alliances.
Bottom-line, our community can well anticipate some benefits of the Apple-IBM alliance along with the competitive response from other competitors in the market. IT teams will be able to rest more easy knowing that burden of integrating application with mobile device will be assumed by alliance partners.
The open question however is how mission critical supply chain and B2B mobile computing needs will be viewed in the light of implementing other more simplified apps that meet alliance objectives for total apps availability.
We all need to stay tuned.
Both Airbus and Boeing announced their commercial aircraft deliveries for the first-half of 2014, which are indicators of each OEM’s current supply chain support activity. These announcements come as a prelude to this month’s Farnborough International Airshow in Great Britain, a premiere event for announcing newly booked orders.
Airbus indicated that it delivered 303 aircraft through the end of June, an increase of 2.7 percent from the year earlier period. The aerospace OEM indicated that its plans call for total 2014 aircraft deliveries to match the 2013 number of 626 aircraft. On the inbound order front, Airbus booked 290 net commercial aircraft orders in the first-half although cancellations surged after global carrier Emirates cancelled its outstanding order for 70 A350 aircraft.
Boeing indicated that it delivered 342 aircraft in the first six months including 48 of the 787 Dreamliner’s. That 787 number is slightly below Boeing’s initial estimates for monthly 787 production volumes in 2014. The numbers include the delivery of 239 new 737 Next Generation aircraft which equate to an average production run-rate of 40 per month which is a considerable production pace. The current pace of commercial aircraft deliveries would position Boeing’s supply chain in a position to exceed the total 648 total commercial aircraft delivered in 2013.
While both Airbus and Boeing supply chain teams should be applauded for first-half performance, the fact remains that multi-year order backlogs remain rather large that the jet buying frenzy among Asian based carriers may give way to a more sober approach that reflects the current global airline challenges of intense competition, pilot shortages and inadequate infrastructure. As Supply Chain Matters and now traditional business media has opined in previous commentaries, multi-year backlogs can give way to more changing market dynamics. The recent Emirates announced cancellation of its hefty A350 order could be considered another indicator of changing industry dynamics.
We again echo our prior advisory, namely that an enviable industry position awash with order backlog does not condone a business-as-usual focus on product lifecycle and supply chain management. Rather, dynamic and responsive capacity management, end-to-end value chain intelligence, enhanced supplier collaboration and goal-sharing will all come into play as aerospace supply chains continue to adjust to extraordinary and constantly changing industry dynamics.
Wall Street insiders and the financial press are hard at work extracting tidbits of information from elements of Apple’s supply chain. The buzz and interest centers squarely on what can be anticipated for Apple’s Fall new product introduction (NPI) pipeline. Obviously there is a lot at-stake.
We at Supply Chain Matters have featured prior commentaries related to information leaks from the Apple supply chain ecosystem. But we put that aside in this commentary. Rather, let’s focus on Apple’s new product ramp-up, overall planning and supplier management strategies that are evolving in this current phase.
The current two areas of focus are on the rumored introduction of Apple’s next iteration of the iPhone along with the so termed, iWatch, a smartwatch that is rumored to have rather mind blowing functionality and characteristics.
Earlier this week, the Wall Street Journal published an article, Can Apple Crack the Smartphone Code? (paid subscription required) The article indicates that Apple will join other consumer electronics firms, namely Samsung, Sony, Intel and a host of start-ups who have already released versions of a smartwatch into the market. We recently called Supply Chain Matters reader attention to reports that Google was ramping-up volume production for a smartwatch product as well. According to the WSJ article authors, thus far the market has been lukewarm in sales volumes. Thus, Apple does not have its usual first-mover advantage, and is compelled to provide more attractive product innovation to differentiate from existing competitors. The publication cites one market research firm as indicating that shipments of so-termed wearable devices amounted to roughly 3 million units in the first quarter of 2014, not a lot in the context of previous Apple product releases.
Regarding supply chain related insights, the WSJ cites a source indicating that Apple’s past ability to integrate both hardware and software design concurrently give it a leg-up in the market. Another source from a component supplier is quoted as indicating that Apple is planning for 2014 shipments ranging from 10-15 million production units this year.
A separate published report by Reuters , citing a source familiar with the matter, indicates Taiwan’s Quanta Computer will begin mass smartwatch production in July, with the planned product launch coming as early as October. Thus, we can surmise that in 3 months, Apple is planning to ship three to four times the market volumes that occurred in Q1. That’s Apple’s big bet on more attractive production innovation. The cited source further indicates that Apple expects to ship 50 million units within the first year of the product’s release, although these types of initial estimates can be subject to change or later adjustment. Further noted is that LG Display Co is the exclusive supplier of the screen for the gadget’s initial batch of production. LG Display has become Apple’s preferred go-to supplier for next generation display technology, that which requires difficult challenges in overcoming initial production yields. Two other sources of Reuters indicated that the subject smartwatch is rumored to also contain a sensor that monitors the user’s pulse. Singapore-based imaging and sensor maker Heptagon is cited as being on the supplier list for that feature, a rather new player in the Apple ecosystem.
Now let’s turn attention to the rumored new iPhone6.
A published advisory on Seeking Alpha cites Taiwan’s Economic Daily News report indicating that global contract manufacturer Foxconn is being tapped to be the prime contract manufacturer and is in the midst of hiring 100,000 workers to help ramp up iPhone 6 production. Fellow ODMPegatron is also said to be ramping iPhone-related hiring. Further noted is the rumor that Apple is targeting a price hike for carriers regarding the new phone model, which perhaps implies a bigger margin. Yesterday, a published report from Bloomberg indicates that production for the new model iPhone will begin in July and include two different models. One model will have a 4.7-inch display, compared to the 4-inch screen of the current iPhone 5s and may be available to ship to retailers around September. A 5.5-inch version is also being prepared for manufacturing and may be available at the same time according to the Bloomberg sources. The new iPhones will also be rounder and thinner than previous models, and include curved glass. Production of the 5.5-inch model is more complicated than the smaller version, resulting in lower production efficiency that must be overcome before manufacturing volume can be increased.
That news concerning Foxconn is incredibly interesting because the CMS was previously transitioning away from Apple’s volume business. Foxconn actually declared in February 2013 that it would freeze all hiring in China. Supply Chain Matters featured a past commentary related to Foxconn’s annual meeting of shareholders that communicated that having Apple as one of your prime customers is probably both a blessing and a curse, because the Apple way requires maximum flexibility with a magnification of the principle that the customer is always right, even when that customer abuses planning norms. In that stockholder event just about one year ago, Foxconn management indicated the intent to lighten its high exposure to Apple related production contracts in favor of both moving downstream in the consumer electronics supply chain and developing its own line of devices and software. At the time we opined that we would not be at all surprised that one day, there will be a number of consumer electronics devices branded by Foxconn, probably in the China market. If the rumors that Foxconn will be the prime manufacturer for the upcoming iPhone 6 turn out to be accurate, that would place a new or different perspective, namely that Apple is leaning on its most trusted and experienced contract manufacturer to insure that innovative design can meet high volume production requirements in a more-timely manner.
Apple is obviously deep into two major new production introduction ramp-ups with entirely new product designs, over the next several months. Notice that the windows are shorter, production start in July with possible global product launches in September or October. Usually, these NPI ramp-up phases start earlier in the year, perhaps May or June.
A brand new product area, namely a wearable device, far different iPhone design functionality (bendable glass, touch fingerprint sensor, wireless charging to name but a few rumors) blended among dynamic connections among product design, management and contract manufacturing partners. No doubt, this is an intense effort, with high stakes. Apple’s information connections from product management to the manufacturing shop floor, its inventory positioning and overall S&OP coordination are all dynamically at-play. We would not be all that surprised to hear that product designers are still making changes. That is the Apple way.
Yet, if any supply chain is up to the task, it certainly will be that of Apple.
We all await the results that come over the coming months.
© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.