Two Contrasting Events: Brexit and the Expanded Panama Canal Add New Dimensions for More Active Planning – Part Two
It’s the last Monday in June and as we pen this part two Supply Chain Matters advisory commentary two major developments over these past few days are going to have a definitive long-term impact on various industry supply chains. One is the unexpected results of the referendum by voters in the United Kingdom endorsing an exit from the European Union. Our part one posting of this series addressed our initial perspectives and recommendations regarding Brexit. In this part two advisory, we will address yesterday’s formal opening of an expanded Panama Canal.
Yesterday, after nine years and in excess of $5 billion in investment, the Panama Canal Authority formally opened new locks on both the Pacific and Atlantic Ocean facing entries to accommodate the transit of far larger ships. The first ocean container ship to transit the expanded canal, the renamed Cosco Shipping Panama, operated by Costco Shipping Lines traversed an expanded canal from the Atlantic to the Pacific side.
The opening of this well-known expanded waterway was completed after nearly two years of delay, and considerable cost overruns. At one point in 2014, a stalemate raised doubts as to whether this huge infrastructure project would ever be completed. Container vessels with capacity in excess of 12,000 TEU’s are now expected to be able to take advantage of the widened canal with promised faster direct transit times from Asia based ports directly to eastern United States ports, thus avoiding inter-modal movements across the United States. The other opportunity is for east coast based regional shippers to now have a direct transit route to East Asia.
There has been much anticipation as well as speculation regarding the benefits of an expanded Panama Canal. About a year ago, The Boston Consulting Group (BSC) and C.H. Robinson released a joint study-How the Panama Canal Expansion is Redrawing the Logistics Map, and predicted that by 2020, up to ten percent of container traffic bound for the United States from East Asia could shift their destination to U.S. East Coast ports. According to the authors, that shifting volume is equivalent to building a port double the size of the existing Ports of Savannah and Charleston. The study concluded that this container routing shift will permanently alter the competitive balance among U.S. East and West Coast ports as well as the battleground region for determining the most cost efficient or service-sensitive assumptions in logistics and transportation routing. The BSC study concluded that time-sensitive cargo may continue to route through U.S. west coast while cost sensitive or high density cargos may have economic advantages in east coast port routings.
Since then, other studies have pointed to new opportunities in logistics and transportation related to direct Asia to U.S. and converse goods transit, including the operation of new inland ports.
However, the one current gating factor is that many of the key U.S. East Coast ports are still working on infrastructure projects that would allow larger vessels to call on such ports. The ports currently best prepared to handle these larger vessels are the Ports of Miami and Savannah. Both the Ports of Baltimore and Charleston have active dredging projects underway while the combined Ports of New York and New Jersey still have significant infrastructure requirements yet to be overcome including a bridge near Bayonne New Jersey.
As we noted in a previous Supply Chain Matters commentary, a current boom in distribution and warehouse development includes large investments in east coast regions. The State of South Carolina is aggressively positioning its logistics and distribution infrastructure to be an economic beneficiary of the new routing. Over six million square feet of warehouse space is under construction in the Greenville- Spartanburg region mostly being attributed to the ability to support direct ocean container movements from Asia to the U.S. An inland port at nearby Greer South Carolina is connected by rail to the Port of Charleston. From the Greenville- Spartanburg area, trucks can transit goods to the rest of major eastern U.S. cities or to U.S. Midwest manufacturing regions within a day’s drive. Thus, an alternative option opens up for direct transit and distribution of goods.
A lot will depend on active analysis and modeling by logistics and transportation as well as S&OP teams on the various cost and service options related to ocean movements to U.S. West Coast ports with intermodal truck and mail inland vs. direct ocean transit to U.S. East Coast ports with adjacent inland distribution and transit. A factor in modeling will be assumptions on port and infrastructure readiness as well as direct labor environment. Another uncertain factor is the all-important long-term cost of fuel, which is currently still hovering at unprecedented low levels.
Needless to state, global supply chain logistics and distribution routing has no changed. Active global supply chain network modeling and assessment has become an all-important necessity followed by capability elements for ensuring broader supply chain wide visibility. The expanded Panama Canal now opens a long anticipated new opportunity but comes with differing and changing assumptions.
Be prepared with people, technology and more informed decision-making capabilities.
© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.
Regular readers of our Supply Chain Matters Quarterly Newsletter are probably aware that we pay particular attention to the J.B. Morgan Global Manufacturing Purchasing Manager’s Index (PMI) as a key indicator of global supply chain activity. We do so because by our lens, it is the best indicator of such broad global activity.
For the month of April, the index was reported as a value of 50, which now reflects what many multi-industry supply chain planners and procurement professionals probably suspect, the culmination of a broad stagnation in global supply chain activity and a continued period of uncertainty and ongoing challenges in forecasting and planning product demand and supply needs.
Recall that Prediction One of our 2016 Predictions for Industry and Global Supply Chains anticipated another year on uncertainty in planning product demand and supply needs on an individual geographic region or country basis, and as we reach the mid-point of the year, that prediction continues to manifest across multiple industries.
Commenting on the May J.P. Morgan PMI report, the Director of Global Economic Coordination at J.P. Morgan indicated:
“The May PMI data suggest that the global manufacturing sector remains in low gear. Indices for output, new orders and the headline PMI were all at, or barely above, the stagnation mark. The move up in the finished goods inventory index suggests manufacturers are still working to realign stocks with demand.”
Adding to overall concerns is that the two largest Asian manufacturing economies, China and Japan, both contracted in May, while contractions were reported for Taiwan and Malaysia. The decline in Japan was attributed to the effects of the severe earthquakes that struck southern Japan in April. The rate of production deterioration in Taiwan was reported as fastest since October 2015 while manufacturers in Malaysia cut back on purchasing activity for the twelfth month running.
The Eurozone sector PMI also recorded tepid activity for May, dropping to a three month low and adding continued concerns for any meaningful growth in 2016.
Last week The Organization for Economic Co-operation and Development (OECD) issued a statement:
“The world economy will meander along at its slowest pace since the financial crisis for a second year in a row in 2016 as it is ensnared in a “low-growth trap.”
However, the PMI indices for India, Mexico and Vietnam came in with higher levels of expansion indices in May which may be another indication that industry supply chains are changing their product sourcing strategies and current supply buying activities towards other lower-cost manufacturing regions.
Thus, the need for lots of contingency and various business outcome scenario planning activities continue to reverberate across many industry settings as well as the quest for new sources of lower-cost or near-shoring supply of direct materials.
Sales and Operations Planning (S&OP) teams are squarely at the focal point of managing such business uncertainty and resultant implications and will remain likely engaged throughout the remainder of this year as broad-based global supply chain activity potentially moves into more contractive activity while certain select regions show some signs of market growth.
Now more than ever, S&OP teams require higher levels of business intelligence and advanced analytics based decision-making support tools.
© Copyright 2016, the Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Supply Chain Matters recently had the opportunity to speak with contract manufacturing services (CMS) firm Jabil’s, specifically Vice President of Supply Chain Solutions and Global Logistics, Fred Hartung. If readers had any perceptions that certain CMS firms were laggards in advanced technology adoption, our interview led to quite the contrary perception.
Jabil has been featured in supply chain industry headlines these past two weeks. At the recent Gartner SCM Executive Conference, Jabil’s intelligent supply chain capabilities in real-time visualization and advanced analytics resulted in receiving an award as a “Supply Chaininnovator.” Hewlett Packard unveiled what it termed as the first production-ready commercial 3D printing system and Jabil participated in the press conference. At last week’s SAP Sapphire customer conference, SAP and UPS announced a partnership for services related to an on-demand 3D printing network which involves this CMS as well.
Hartung oversees multiple roles including responsibility for advanced supply chain technology, digital supply chain, advanced planning and trade compliance. He additionally heads a team overseeing Jabil’s supply chain global network.
Our discussion touched on a number of business and technology areas.
Regarding the current CMS industry landscape, Hartung described changing global transportation costs, foreign exchange rate volatility and changes in the “value density” of products as all dynamic industry forces.
More manufacturing focused OEM’s now see themselves as incorporating more and more software and technology as major parts of product design and functionality features and that impact spills over to contract manufacturers. OEM customers were further described as increasingly practicing near-shoring manufacturing sourcing practices aligned to major geographic product demand regions with Mexico and Vietnam really taking off along with resurgence towards manufacturing in Malaysia. Hartung indicated Jabil’s belief that 3-D printing will make a big difference in localized manufacturing tied to customer fulfillment. OEM’s are still experimenting with incorporating 3D printing concepts into product strategy and Jabil is assisting by maintaining various labs across Silicon Valley.
We discussed what is often described as the number one multi-industry supply chain decision-support challenge, that being gaining and enabling end-to-end planning and customer fulfillment visibility. Hartung described this challenge in the context of “actionable visibility”, a focus on the most pertinent information supporting business processes along with “in-control” digitized streaming information flow that is anchored in analytics-driven decision-making capabilities. Another Jabil consideration in its use of advanced analytics is directed at managing and mitigating supply chain risk. Nine separate categories of risk are continually tracked ranging from low to higher supply chain disruption and risk factors.
In the area of addressing Internet of Things, machine learning and cognitive computing opportunities, Hartung acknowledged that information security has got to be an area to be taken very seriously, and prominent in the early design process. Jabil views IoT as an enabler of new business models for customers and for Jabil, and here again, leveraging analytics, either prescriptive or predictive, is the important area of concentration. Responding to the question of whether customers ready for these types of initiatives, Hartung indicated that while Jabil is way ahead on the learning curve, customers indicate that they want to hear more.
Besides incorporating advanced supply chain technology and multi-tenancy practices across Jabil’s own extended supply chain, the CMS is increasingly being called upon to assist OEM customers themselves in deployment of such technologies across their extended supply chains as-well. This has been a new area of technology services for some CMS providers.
As a key supply chain partner in many more multi-industry settings, a contract manufacturer must be knowledgeable of the business process and enabling technology competences that make a difference in meeting both customer and internal business and supply chain outcomes. This is an industry that moves in lock-step with its customers, and is constantly challenged with narrow margins to work with.
As a recognized supply chain industry analyst, this author has had the opportunity to view a number of Jabil industry presentations over past years as well as to speak with the firm’s executives. This CMS has consistently demonstrated a willingness to leverage and collaborate with customers on advanced technology use cases across its supply chain management processes. After my recent interview, I am further impressed with the firm’s understanding and practice of leveraging areas where technology enablement can indeed be a facilitator of a more adaptive and resilient supply chain.
© Copyright 2016. The Ferrari Consulting and Research Group LLC and Supply Chain Matters® blog. All rights reserved.
River Logic Launches Cloud-Based Supply Chain Decision Support Capability Based on New Prescriptive Planning Platform
Last week, River Logic, a technology firm with a mission to establish prescriptive analytics and optimization capabilities in business planning and decision support needs announced a new Cloud based platform, Prescriptive Planning and Performance Management. In addition to the platform, a flagship application built on the platform was also released to help support decision making for S&OP/Integrated Business Planning. Supply Chain Matters had the opportunity to participate in a pre-briefing related to this application and this author was somewhat impressed with the functionality and potential business benefits for customers.
As noted in a Supply Chain Matters market education commentary published in January, while the term integrated business planning is sometimes depicted as a specific technology or application, it is really about the need for enterprise functions of a firm to be aligned towards a single set of financial, line-of-business, product and operational outcomes. The Sales and Operations Planning (S&OP) process is often the most likely mechanism for consideration of enterprise-wide integrated business planning because it consist of multi-functional representation and supports executive-level decision-support. Where the S&OP processes can often stumble, especially with today’s faster cycles of business decisions is when a lack of enterprise level information integration such as financial and product planning data occurs or when support teams constantly struggle to gather, classify and continually align such information.
River Logic’s corporate roots stem from building holistic optimization models including supply, demand and financial capabilities supporting cash management for banks as well as price, procurement and trade promotion optimization. The key implementers of such tools were corporate strategy consultants with deep financial knowledge who helped drive the connectivity between operational and financial data models needed to perform forward looking prescriptive analytics.
River Logic teams recognized that many supply chain organizations often encounter difficulties with the ability to implement full optimization based planning capabilities. Instead, most, especially those in complex ERP support environments such as SAP, opt on a less-complex, heuristics based approach which limits the benefits of end-to-end supply chain analytics that can address detailed order line-item demand, splitting of resource requirements or identifying or optimizing total supply chain throughput constraints. A natural evolution for River Logic has been to augment its financial modeling and operations knowledge into abilities for S&OP teams to optimize on cross-functionally defined operational, tactical or financial constraint criteria such as cash balances, gross margin, service level, inventory or net income, to name a few.
The architecture of this application consists of two components. The first is the River Logic platform developed on components of Microsoft Azure platform-as-a-service technology, designed to support end-to-end prescriptive analytics focused planning and performance management via a three-part planning technique consisting of Plan, Optimize and Track. The second component is configurable and scalable applications that are built either by River Logic, its partners or customers. The platform and applications are built from OLAP data cubes supported by in-memory based technology.
River Logic Plan supports the ability of the S&OP process to create and support a product demand and supply plan, the ability to organize and update master data related to business profiles, and support for overall end-to-end planning workflow management. Key capabilities consist of a relatively user-friendly executive dashboard, product demand analytics including a full-blown product demand planning capability, scenario comparison, factory analytics and a self-service report generator. The tool further allows support for workflow management.
River Logic Optimize supports the ability to model required decisions that relate to strategic objectives of the organization, policies associated to the end-to-end supply chain such as inventory, service-levels or cost, the financial costs and key assumptions associated with individual business processes and end-to-end supply chain.
Once the base scenario supply chain plan information is created for the S&OP process, an organization can assess the plan generation in the context of performance, profitability, added opportunities or risk considerations. Base scenario results can be routed to other functions within the organization. The application design assumes that the financial organization is a key participant in this process thus supporting a more inclusionary and collaborative scenario or what-if management process that involves financial and sales management.
What impressed this supply chain industry analyst were the River Logic visual modeling capabilities that allow for a singular, integrated model of the enterprise business that includes physical/logical processes and financial flows. The constraints that are present within the model are referred to as levers.
The River Logic Optimize tool allows the key levers associated with the models to be exposed to business users through a compelling user experience driven tool that is built on Microsoft Azure PaaS.
Once the plan has been published to existing systems of record such as a backbone ERP system, River Logic Track provides ongoing performance management and monitoring support to assist the S&OP organization in taking any corrective actions needed to meet integrated business planning objectives. River Logic’s stated Go-to-Market is through both direct as well as partner channels. Overall this is an impressive technology, but at the same time, Implementation and adoption of this technology will require some assistance from a qualified partner to assure ultimate benefits can be garnered by the application. That is a positive message because organizations need to avoid the traps encountered by previous attempts to implement sophisticated optimization technology. To that end, River Logic has indicated plans to augment its internal training and partner focused community with the capabilities and skills required to assure successful phased implementations of respective components.
The benefits of prescriptive analytics are now closer at-hand and River Logic is one of a select few packaged software vendors that supports augmenting S&OP processes with integrated business planning capabilities.
Readers desiring further information regarding this innovative new prescriptive planning platform can visit this River Logic planning platform web site.
© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.
Disclosure: River Logic is one of other sponsors of the Supply Chain matters blog.
This week, this Editor attended and spoke at QAD Explore 2016, the annual customer conference for ERP technology provider QAD. Candidly, this was my first experience attending this conference and I was impressed from a number of perspectives. This posting is one of subsequent commentaries that will explore such impressions and insights.
From an ERP technology support perspective, QAD is primarily serving tier one and other mid-market manufacturers and services providers as well as divisions or lines-of-business needs of major global manufacturers. Regarding the latter, one positive impression were the names and affiliations of certain corporate attendees present and interactive at this conference, corporate names often associated with a very large global German based ERP provider.
Since 2012, QAD has been investing a hefty R&D budget directed at a major revamp of the firm’s ERP applications and technology deployment strategy. The effort is termed “Connected Enterprise” and it includes emphasis on enabling what this technology provider terms a more effective organization with more connected business processes. The emphasis is on providing more standardized solutions, a more flexible platform, suite-wide analytics with product enhancements supporting program/project management, manufacturing automation and customer engagement needs. Anther major emphasis is directed in enhancing the user experience and in providing both Cloud ERP and Cloud EDI deployment options. During the conference, executives announced that 30 percent of QAD’s existing customers are now utilizing the Cloud platform.
Regarding Cloud, since March of last year, the ERP technology provider has embarked on what it terms as its “Channel Islands” development strategy, a series of twice annual releases further enhancing Cloud ERP. The effort began with the Santa Cruz Release in March of 2015. Other releases are “Channel Island” planned for 2017 and “Santa Rosa”, planned for 2018. Each release, the result of joint-development efforts with existing customers among different industry sectors, addresses added Cloud based functionality needs.
What impressed this analyst was the flexibility of options that QAD is providing its customers. Instead of a forced march approach compelling customers to move to the Cloud, QAD has fostered options to both maintain existing behind-the-firewall applications and supplementally deploy Cloud based applications within an overall cohesive systems architecture framework. Cloud modules are provided in process areas termed Customer, Manufacturing, Supply Chain and Finance. Overall, QAD’s emphasis is in helping its customers overcome any major disruptions related to advanced technology deployment via a strategy of continuous, manageable extensions and/or release upgrades. That is quite refreshing from an ERP provider.
A final impression relates to two prior acquisitions that QAD made related to supply chain support needs which are now incorporated both as add-ons to QAD’s ERP support capabilities and as separate operating divisions.
In June of 2012, QAD acquired European based supply chain planning technology provider DynaSys S.A., a specialized planning vendor catering to specific mid-market industry players within France and Europe. Since that time, the supply chain planning capabilities of DynaSys have been incorporated in what is termed Demand and Supply Chain Planning (DynaSys Cloud DSCP) within QAD. As noted, also as an operating division of QAD with an independent branding, DynaSys provides supply chain planning support for non-QAD customers, including those with other ERP backbone systems. This has fostered experience that supports the demand and supply chain planning needs of broader industry verticals and integration experience with other ERP and legacy systems.
Another operating division is Precision, a Cloud based transportation management and international trade compliance technology provider that operates in a similar manner. QAD and non-QAD customers can adopt Precision’s trade management support capabilities.
I had the opportunity to conduct introductory briefings with executives from both of these operating divisions, and candidly, was very impressed with technology and support efforts undertaken by both. So much so that I will be conducting more in-depth briefings upon which highlights and insights will be shared in a later Supply Chain Matters posting.
In a subsequent postings related to QAD Explore, we will share more impressions and insights related to QAD customers and their needs, as well as discuss the session that this author served as a guest panelist. Our panel session addressed the ongoing challenges and root causes of skill and training gaps related to today’s manufacturing and supply chain industry environments.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.