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Holiday Retail Sales and the Impact of the Lower Cost of Oil

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In conjunction with last week’s Annual National Retail Federation (NRF) Conference held in New York, retail sales figures were released for the previous November-December 2014 holiday sales period. With the price of gasoline plummeting in the last two months of 2014, there were a lot of pent-up expectations that holiday retail sales would exceed the NRF’s original forecast of a 4.1 percent increase in 2014. The actual NRF figures came in at $616.1 billion, a 4 percent increase which shook Wall Street investor confidence for about a day before economists and forecasters eased speculation that consumers held back spending more than expected. According to NRF, the November-December sales data marked the first time since 2011 that sales has reached this level.

A separate ShopperTrak report, which tracks primarily brick and mortar sales at malls and retail outlets reported growth of holiday sales at 4.6 percent, higher than that firm’s initial forecast of a 3.8 percent increase and representing the largest increase since 2005.

From a supply chain lens, 4 percent retail sales growth was very good, given the challenges of retail inventory either arriving earlier or far later than expected because of the backlogged slowdown conditions among U.S. west coast ports. Online and brick and mortar focused retailers were influenced to run product promotions earlier rather than later, with some retailers kicking off holiday promotions in October. Other reports indicate that retailers were conservative on their overall holiday inventory investments, not wanting to end-up with overly excessive unsold inventory by the end of December. Considering another short holiday shopping interval between the Thanksgiving and Christmas holidays, coupled with all the logistical challenges that occurred, B2C supply chain teams deserve a pat on the back.

Of course, the real benchmark comes in the coming weeks when retailers begin to formally report their financial performance spanning the critical holiday period.  The question is whether logistical challenges led to higher unexpected costs and lower margins.

Obviously, the most sensitive metric affecting global supply chain planning and budgeting activity is the cost of energy.  The economics related to the cost of energy drive global product sourcing, transportation and forecasts of retail sales spending on consumer goods. What about all of the fuel surcharges currently tacked on existing transportation rates?

The most significant question for supply chain leaders, planners and sales and operations planning forums in 2015 is how long will the extraordinary lower cost of oil last? Will it be the rest of 2015?  How will it impact product demand and product margins?

Beyond retail and online B2C supply chain product demand planning, assumptions on the cost of energy are going to be fundamental aspects of this year’s business plans.

Bob Ferrari


NeoGrid: An Up and Coming Industry Specific B2B Supply Chain Business Network Technology Provider

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In December, this author had the opportunity to speak with NeoGrid, a cloud-based global provider of B2B network based supply chain applications.  Many of our readers might not be familiar with this provider and I must confess that I was one of them.  That has obviously changed. The origins of NeoGrid stem from Latin America.  However, after receiving an initial briefing, I believe our community, especially North American based, will continue to become more familiar with this provider in the months to come.

This B2B provider began operations within Brazil in 1999, focusing on the needs of retailers requiring broader supply chain information visibility. Since that time, the firm has grown through a series of acquisitions of other technology and services firms, including xPlan, Mercador and Agentrics. Today, the provider has a growing global presence including North America.  Our briefing was with Paulo Viola, NeoGrid’s CEO of North America, struck this author as being very much aware of current supply chain technology challenges.

B2B business processes supported include electronic transactions based exchange via EDI services, distribution planning and replenishment, supply chain wide inventory and other visibility. NeoGrid’s branded applications include:

NeoGrid Planning and Replenishment

NeoGrid Logistics and Financial Services

NeoGrid Retail and Distribution Intelligence

NeoGrid Strategic Sourcing

 

The cloud-based provider boasts that’s its network currently supports over 350,000 customers and includes the 10 largest retailers across Brazil along with 9 of the 10 most recognizable worldwide retail brands. We actually viewed an extensive listing of existing customer names and can attest to some very prominent and well recognized branded consumer goods manufacturers, retailers and logistics providers. It also includes prominent high tech and pharmaceutical manufacturers. The technology supporting the NeoGrid multi-tenant platform includes elements of SQL Server and Java.

That led us to probe on current expressed customer pain points and business challenges that retailers and CPG manufacturers are addressing. The indicators communicated were the need for having a single end-to-end platform for sharing supply chain planning and execution information as well as the desire to have accelerated time-to-value for technology investment.  In some of the customer cases communicated, firms became frustrated with existing supply chain applications in terms of cost to scale to broader aspects of the end-to-end supply chain.  In another communicated customer profile, a rather prominent pharmaceutical manufacturer elected to support a global-wide S&OP process leveraging the NeoGrid cloud-based platform.

We have heard similar updates from other cloud-based B2B providers and that led us to include in our Supply Chain Matters 2015 Predictions for Industry Supply Chains that certain industry S&OP processes we seek to initiate broader scope information, planning and execution connectivity and synchronization through utilization of cloud-based B2B platforms. The other clear trend is that supply chain technology decision-makers are clearly focused on more affordable technology options that will deliver more timely benefits.

The firm admittedly had not done a good job for investing in marketing and brand identity, but that effort is on the rise of late. We were certainly pleased to be contacted and made aware of capabilities.

We anticipate hearing more about NeoGrid in the months to come.

Bob Ferrari

© 2015, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.


Supply Chain Planning Provider Kinaxis Completes Closing of Secondary Offering

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In June of this year, supply chain planning technology provider Kinaxis announced a public offering of its stock.  This IPO garnered little visibility in the U.S. because news of the IPO offering was restricted to Canada and the Canadian equity community.  Supply Chain Matters readers were made aware of both the pending IPO and in a Friday news round-up, completion of the initial offering.

According to a Kinaxis press release published in June, the IPO consisted of 5 million common shares with an aggregate of 2.7 common shares being sold by certain selling shareholders at a price of Cdn$13.00 per share. The initial public offering and secondary offering was priced at Cdn $15 per common share and resulted in aggregate gross proceeds of Cdn$65.0 million to Kinaxis and Cdn$35.6 million to the selling shareholders, for total aggregate gross proceeds of Cdn$100.6 million.

At the time, Canadian business media reports identified the selling shareholders as Boston based HarbourVest Partners and Alberta Trust of Montreal, both of which retained a 30 percent ownership stake.  Kinaxis CEO Doug Colbeth further indicated to media that proceeds from the IPO were to be utilized to pay down $30 million in debt and strengthen the company’s balance sheet. He did not rule out acquisition of other companies if that made sense for Kinaxis’s business.

Supply Chain Matters reviewed statements prepared for the initial IPO. They indicated that the supply chain planning provider had total revenues of Cdn $38 million in 2011, $46.6 million in 2012, and $60.8 million in 2013. Kinaxis reported a net loss of Cdn $9.7 million in 2013. In the first quarter of 2014, the company reported revenues of Cdn $15.6 million and a net income of Cdn $2 million.

This week provides additional, somewhat unexpected news of another secondary offering. Kinaxis announced that selling shareholders HarbourVest International Private Equity Partners III- Direct Fund L.P. and TechnoCap I, L.P. completed the sale of an aggregate 2.5 million of Kinaxis common shares at a price of Cdn $18.35 per common share with gross proceeds of Cdn $45.8 million. According to the press release, Kinaxis did not receive proceeds from this offering.

Following the closing of the Offering, TechnoCap now holds 3.2 million common shares representing approximately 13.7% of the issued and outstanding common shares of the Company, and HarbourVest holds a little over 2 million common shares representing approximately 8.7% of the issued and outstanding common shares of the Company. Individual executives from HarborVest and TechnoCap are current members of the Board of Directors of Kinaxis.

Technology providers often get involved in private equity relationships to fund growth and innovation.  Private equity invests for a return. These relationships bring their own set of dynamics.

Bob Ferrari


Report Card on Supply Chain Matters 2014 Industry and Global Supply Chain Predictions- Part Five

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We continue with our series of Supply Chain Matters postings reflecting on our 2014 Predictions for Global Supply Chains that we published in December of last year.

Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008.  We not only publish our annualized ten predictions, but scorecard theses predictions as this point every year.  After we conclude the scorecard process, we will then unveil our 2015 annual projections for industry supply chains.

As a reminder, our self-scoring process is based on a four point scale.  Four will be the highest score, an indicator that we totally nailed the prediction.  One is the lowest score, an indicator of, what on earth were we thinking? Ratings in the 2-3 range reflect that we probably had the right intent but events turned out different.

In our Part One posting, we revisited 2014 Predictions One and Two related to economic forces to expect in 2014.

 In our Part Two posting, we revisited Prediction Three, related to continued U.S. and North America based manufacturing momentum, and Prediction Four, ongoing challenges in supply chain talent management.

In our Part Three posting, we rated Prediction Five, our specific call out of extraordinary supply chain challenges among three specific industries.

In the Part Four posting of this series, we revisited Predictions Six and Seven.

In this Part Five posting, we conclude with a look at the final three predictions declared for this year.

 

2014 Prediction Eight: Industry Re-Structuring of Global Transportation Surface and Air Networks Increase Momentum as Carriers Adjust to Realities

Self-Rating: 3.8

Our prediction in this area was predicated on a continued uncertain global economy, along with the after-effects of severe recession in the Eurozone motivating industry supply chains to rely on more economical and cost effective surface transportation modes. However, multiple years of excess shipping capacity across global ocean container fleets continue to be exacerbated by the ongoing delivery of massive new mega-ships designed to carry far more containers at a lower overall cost. The result was a relative no-brainer prediction- namely that industry consolidation was inevitable.

In March of 2014, industry watchdog Fitch Ratings once again declared that consolidation in the container shipping segment via alliances or mergers was likely to accelerate due to persistent overcapacity and freight rates pressures. The CEO of industry leader Maersk Lines also predicted that excess ocean container capacity would extend through 2016.

As a consequence, number of industry alliance or consolation announcements permeated 2014. There was an attempt among the top three global ocean container carriers to form the P3 Network which was thwarted in the end by Chinese maritime regulators. That was followed in July with the announcement of the 2M Alliance as industry leader A.P. Moller-Maersk announced a ten year vessel sharing cooperation agreement with Mediterranean Shipping Company (MSC) for designated Asia-Europe, Transatlantic and Transpacific routings. In August, global maritime regulators gave the go-ahead to the merger German based Hapag-Lloyd and Chile based CSAV which was expected to create the fourth-largest global shipping company in terms of capacity. In September, the Ocean Three Sharing Alliance was announced as French container shipping group CMA CGM entered into a service alliance with China Shipping Container Lines (CSCL) and United Arab Shipping (UASC).

As 2014 came to a close, a perfect storm crisis crippled U.S. west coast ports as the compounding issues of ongoing labor contract negotiations, larger ocean container vessels requiring more time to unload and load, an overall shortage of container transport carriages and labor disputes among trucking companies and independent drivers all intersected to form a bottleneck for crucial holiday fulfillment supply plans.

In June, the 25rd Annual State of Logistics Report prepared for the Council of Supply Chain Management Professionals (CSCMP) reported cost of the U.S. business logistics rose by another $31 billion in 2013. The report further confirmed that both U.S. trucking and rail networks were running at near 100 percent capacity, leading to spot shortages of specialized trucks and/or railcars. The boom of rail car shipments of crude oil from the North Dakota Bakken region fueled such shortages along with more incidents of railcar accidents and explosions. The last months of 2014 featured the first overture of a major railway, Canadian Pacific, calling for network consolidation within North America rail networks.

More use of surface transportation motivated international air freight carriers to further cutback on overall capacity in an effort to uphold rate structures and profitability goals.

The sum total of this 2014 prediction is that industry supply chains experienced longer transit times, increased costs and further heartburn as to the overall reliability of transit times.  Industry consolidation and constrained logistics networks thus far has been for the benefit of asset owners or carriers vs. shippers.

 

2014 Prediction Nine: Internet of Things Picks Up Considerable Momentum

Self-Rating: 4.0

The Internet of Things (IoT) provides a new era of interconnected and intelligent physical devices and/or machines that will revolutionize supply chain processes related to production, transportation, logistics and service management. Our 2014 prediction was that IoT interest and development efforts would expand globally and would feature more announcements from well noted global based players in manufacturing, services and technology circles. That turned out to be exactly the case, and as we approach the end of 2014, IoT has become the buzz of industry and global supply chain news.

In consumer dimensions, Google kicked off the year by announcing its acquisition of home monitoring provider Nest Labs for $3.2 billion. Automobile manufacturers continued with strategic efforts focused on connected automobiles, while General Electric became the leadership icon for connected industrial equipment. The industrial conglomerate recently disclosed that it has already garnered over $1 billion in revenues related to its connected industrial products and services.

Increased market momentum naturally fueled vendor interest in positioning or jockeying interoperability standards. That led Supply Chain Matters to speculate whether the market was positioning for a replay of the RFID standards mess. In March, AT&T, Cisco, GE, IBM, and Intel officially formed the Industrial Internet Consortium (IIC) to accelerate work on areas such as interoperability standards for IoT in industrial markets. In July, a handful of tech heavyweights, namely Intel, Broadcom, Dell and Samsung Electronics unveiled a new non-profit termed Open Interconnect Consortium (OIC) with a mission to come-up with certification standards for devices operating in IoT environments. That announcement came after a December 2013 announcement from nonprofit Linux Foundation in conjunction with names such as Microsoft, Panasonic, Qualcomm and others that calls for the AllSeen Alliance to come up with a similar goal.

Technology vendor moves included product lifecycle management (PLM) and service lifecycle management (SLM) technology provider PTC initiating two strategic acquisitions to position the company to be able to leverage IoT platforms. In December as we published our prediction, PTC announced its $112 million acquisition of ThingWorx, a provider of platform that allows firms to build and run applications that leverage machine to machine information exchange.  In July the provider announced the acquisition of Axeda, an IoT cloud-based technology provider offering technology that connects machines and sensors to the cloud, for a reported $170 million in cash. SAP recently announced a series of supply chain, service management and manufacturing applications enhancements that can leverage IoT platforms, along with an intent to develop applications support in this area over the next two years.

In 2014, strategy consulting firm McKinsey included the IoT as one of the ten truly disruptive technologies for the next decade that will be adding several tens of trillions of dollars to the global economy by 2025. Increased momentum and interest in IoT and its potential business benefits was a prediction that indeed played out throughout 2014.

 

2014 Prediction Ten: Continued Technology Investments in Cloud Computing, Predictive Analytics and Select Supply Chain Services.

Self-Rating: 3.5

Our assumption for 2014 was that a more optimistic global economy would motivate industry supply chain and line-of-business teams to increase levels of investment in specific areas of supply chain business process needs. Areas we highlighted were enhanced sensing of product and geographic demand , deeper lower-tier visibility to supply risk areas, more emphasis on leveraging B2B network platforms and added investments in more predictive or prescriptive supply chain intelligence capabilities. We further predicted that the attraction of cloud-based applications technology would continue to gain market adoption, primarily due to the needs for quicker time-to-value.

Our monitoring of both technology vendor and end-user communities throughout 2014 indicated for us that this prediction area generally played out with a couple of exceptions. Buying activity focused on cloud-based options for supply chain related business processes is indeed on the increase, validated at double-digit growth rates among various by many of the quantitative market research firms.

In the area of enhanced sensing of product demand, in 2014 we discerned a movement on the part of a select number of supply chain planning vendors to enhance their connectivity and support of demand sensing processes.  In March, SCP vendor ToolsGroup announced the application of “machine learning” applied to product demand forecasting. In the case of Steelwedge, it was manifested by release of initial supply chain and S&OP focused “apps” released on the Salesforce.com platform.

Increased interest in leveraging B2B business networks for broader end-to-end visibility captured the interest of many industry supply chains and we observed vendors in this area branching out beyond their core vertical industries.  SAP communicated a strategy focused on “Integrated Business Planning Network” eventually leveraging elements of the AribaB2B platform with elements of supply chain planning, execution and S&OP support. The year 2014 brought added emphasis for including new product introduction (NPI) and PLM focused information within B2B networks and motivated E2open to acquire Serus Corporation, a provider of network-enabled NPI information.

Supply chain focused cloud technology also captured renewed interest from the venture capital community. In February Elementum, which describes itself as the first mobile platform for end-to-end supply chain management, formally announced its market launch after securing $44 million in Series B funding from Lightspeed Ventures. In late May we called reader attention to a CB Insights blog posting titled: Software Eats the Supply Chain which provided succinct quantification of the renewed interest and that further indicated that over the prior four quarters, investors poured $359M into 63 deals in the logistics & supply chain software industry segment. Early stage investments in mobility, same-day delivery and cloud based end-to-end platform investments were of the most interest. Oracle made added strides toward availability of its public cloud version of supply chain applications support.

On the services side, more industry supply chains opted to outsource supply chain logistics and fulfillment processes to external third part logistics (3PL), transportation or BPO services firms. The increased pressures for cost reduction coupled with needs to serve Omni-channel market and fulfillment segments motivated these moves. However, firms may well discover in the coming months the hidden costs of such moves. As noted in our scorecard related to Prediction Eight above, the costs related to business logistics and 3PL services continues to rise with little relief in sight.

 

This concludes our series of looking back on 2014 to assess how our Supply Chain Matters Predictions fared.  We trust our readers were able to gain benefits from following our series.  Again, feel free to share your own observations regarding the key supply chain, procurement and B2B developments in 2014.

As we move toward the latter stages of December, we will shift our attention to what to expect in 2015.

Bob Ferrari

©2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.


Announced JDA and IBM Collaboration for Retail Omni-Channel Support Has Broader Implications

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The synchronization and management of the Omni-channel customer fulfillment experience has fast become a complex problem for retail industry business management and supply chain teams. The added dimensions of taking orders online or from physical stores and fulfilling from multiple channels adds complexity and needs for smarter and more-informed decision-making.  Cost to serve and determining impact to profitability become ever more a challenge.

Yesterday, in conjunction with the Focus Connect 2014 event being held in Barcelona, JDA Software and IBM made a joint announcement that Supply Chain Matters believes demonstrates the ongoing importance and continued evolution of Supply Chain Control Tower (SCCT) support capabilities in the supply chain technology market. This announcement could also portray a possible broader relationship among these two technology providers in the months to come.

The specific announcement involves a joint collaboration among JDA and IBM development teams to address the need to process and fulfill retail industry Omni-channel orders in a more efficient and more intelligent manner. The approach calls for combining the elements of JDA’s warehouse management, demand planning and workforce planning business support capabilities (JDA Intelligent Fulfillment and Labor Productivity) with IBM’s Sterling Distributed Order Management network platform capabilities. In essence, this approach marries elements of supply chain planning and execution with an end-to-end order management and fulfillment platform that connects all channel participants. The combined capability is expected to be offered in either an on premise or cloud deployment option, the latter being supported by IBM’s SoftLayer business arm. The joint development effort is currently underway and according to the announcement, is expected to be available in late spring of 2015.

This author had the opportunity to speak with IBM regarding the joint announcement. Discussions among these two technology providers began in January of this year at the National Retail Federation (NRF) conference. Both companies have a rather strong market presence among global retailers and each was hearing customers speak to the increasingly complex challenges currently manifested in Omni-channel customer fulfillment, including the dynamic aspects of having to manage the tradeoffs of inventory, appropriate fulfillment location, transportation and labor requirement needs.  In May of this year, our Supply Chain Matters commentary associated with attendance at IBM’s Smarter Commerce Summit highlighted the evolving dimensions of Omni-channel and the needs to provide more predictive and prescriptive decision-making capabilities into the process.

The joint press release includes a quote from joint customer Lowe’s Home Improvement, and we were informed that both firms have identified interest from other unnamed retailers as well. Apparently, the original timetable called for announcement of joint product integrating JDA and IBM elements later in 2015, but it was obviously pushed-up to coincide with this week’s JDA customer event.

Our supply chain and B2B business community education series regarding SCCT has articulated that the concepts of control towers involve efforts to bring together supply chain planning and execution business process elements with enhanced intelligence and more predictive decision-making that can be provided in near real-time dimensions.  There have been a number of strategic movements underway among multiple supply chain, enterprise and ERP technology vendors to build, broaden or position SCCT capabilities.  We view this JDA-IBM joint announcement as yet another dimension of such efforts.  JDA has the potential to leverage a broader more feature-rich distributed order network platform that supports more dynamic process parameters while IBM garners access to deeper retail-specific supply chain planning and execution support functionality. We have been informed that JDA is building and architectural framework that supports plug-in capabilities from other vendors, similar to what we have heard from supply chain planning providers such as Steelwedge and its connection to the Salesforce.com platform. Similarly, supply chain business network provider E2open augmented supply chain planning and product management support capabilities with the acquisition of Icon-SCM and Serus Corporation respectively.

As noted in our previous commentaries, IBM has been integrating elements of Sterling order management and B2B messaging capabilities with its IBM Emptoris sourcing and procurement business suite, and has communicated efforts to bring the predictive elements of Watson decision-making to online fulfillment and supply chain synchronization challenges. Thus, the SCCT business process support elements continue to broaden from many dimensions and are a sign of what will transpire from SCCT support technology down the road.

In the meantime, readers and joint JDA and IBM customers should watch the ongoing joint efforts among both providers for further signs of what is to come.  Just like the prior announcement of the partnership among IBM and Apple, both parties provide the potential to remove the information integration burden for today’s highly complex supply chains.

Bob Ferrari

Disclosure: IBM, E2open and Steelwedge have current or prior business relationships with the Ferrari Consulting and Research Group, parent of the Supply Chain Matters blog.

 


Supply Chain Matters Tech News Roundup- JDA Software; SAP; Arena Solutions

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There have been some noteworthy announcements related to both supply chain B2B network and PLM technology providers this week which Supply Chain Matters highlights in this news roundup commentary.

JDA Software Names Permanent CEO

JDA Software Group announced this week that Baljit Dail, who serves as Board Chairman, and has been serving as an interim CEO since May of this year, has now been named as permanent CEO.

In the press release, CEO Dail states: “The potential for JDA now, and into the future, is tremendous and I am excited about the opportunity to continue leading this innovative company.”

Since assuming interim CEO leadership, Dail has instituted a sorely needed Global Industries and Solutions Business unit responsible for product portfolio and industry support strategies, established an Innovation Lab to build transformational technology leveraging next-generation platforms, including cloud, and appointed a new leader for global sales.

JDA is also in the process of unveiling a new look and brand identity over the coming months and readers can anticipate broader industry focus and clearer messaging.

 

SAP Announces Expanded Cloud Relationship with IBM

This week, SAP announced that its SAP HANA Enterprise Cloud services will be made available through IBM’s global cloud infrastructure. The joint announcement came with enthusiastic statements issued by both tech CEO’s. The expanded partnership provides broader global hosted options for moving business applications from on premise to the cloud. According to published reports, this deal provides SAP with access to near 60 data centers between those SAP has deployed and the addition of IBM’s centers.

According to a specific report from IDG News Service, revelations over the past year about domestic surveillance by U.S. intelligence agencies has raised data sovereignty and data privacy sensitivities among several countries, and this arrangement with IBM provides SAP with a greater ability to accommodate such concerns by cloud services hosted in designated domestic countries.  It is therefore little surprise that the joint announcement emphasizes security for enterprise customers. Broader cloud infrastructure and open standards based approach inherent in the footprint of IBM Cloud additionally provides SAP more scalability options in growing HANA Enterprise Cloud.

 

Arena Solutions Announces PLM Collaboration Platform

Mid-market PLM technology support provider, Arena Solutions announced two new modules plus enhanced functionality incorporated in its fall product release.

Arena Scribe provides a collaboration platform that supports comment and collaboration in the context of each individual process or record within Arena PLM. Users or suppliers can follow comment streams and receive dashboard and email alerts to stay up-to-date with fast-moving information. Arena DataExtract supports the ability to extract process datato a standard, flat file format, which can be analyzed using a variety of analytic tools from the range of basic spreadsheetstosophisticated business intelligence and analytics applications. This type of functionality provides enhanced ability to identify trends and solve problems related to product development, trends in engineering change orders or cycle times.

The new fall release includes what is described as significant ease-of-use enhancements to Arena Quality, a module introduced earlier this year. This module supports broader visibility, cross-functional team collaboration and tracking of product quality resolution.

Readers can gather detailed information related to Arena’s fall release in the news announcement.

 


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