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.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
While industry supply chain teams continue to work on achieving 2016 year-end strategic, tactical, operational line-of-business business and supply chain focused performance objectives, this is the opportunity for Supply Chain Matters to reflect on our prior 2016 Predictions for Industry and Global Supply Chains that we published just before the start of the year.
Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008. Our approach is to view predictions as an important resource for our clients and readers, thus we do not view them as a light, one-time exercise. Not only do we research and publish our annualized predictions, but every year in November, we look-back and score our predictions for the year.
As has been our custom, our 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. Admittedly, our self-rating is subjective and readers are welcomed to add their own assessment of our predictions concerning this year.
In our prior Part One posting, we looked backed on our prediction for overall economic climate and business planning and the outlook for sourcing and procurement.
In our Part Two posting, we revisited our prediction for continued turbulence and change surrounding global transportation, along with our prediction related to the widening of supply chain talent and skill gaps.
In our Part Three posting, we revisited and reported on our industry specific supply chain predictions for this year.
2016 Prediction Six: Certain Industry S&OP Processes Would Morph to Broader Forms of Integrated Business Planning and Product Management.
Self-Rating: 2.5 (Max Score 4.0)
The term integrated business planning is often depicted as a specific technology vendor term but in reality it is a desire that all functions of a firm be aligned at a single set of financial, business, supply chain operational and tactical business outcomes.
Multiple surveys of multi-industry Sales and Operations Planning (S&OP) processes consistently point to existing frustrations in setting the right key performance indicators, investing more time in collecting data than in analyzing implications of decisions and insuring expected business results. Some point to the need for the S&OP process to be able to more directly influence top-line revenue growth along with closing the product demand and supply gaps of existing plans.
A lot of these challenges remain driven by lack of integration among various financial, line-of-business and supply chain decision-support systems, not to mention integration to new product planning and portfolio management. All exist as islands of information that were not pre-designed to integrate into a singular decision-support process. The unfortunate reality is that the decision process supporting S&OP remains firmly rooted in spreadsheets linked to various disparate internal and structured applications and unstructured information.
For 2016, we anticipated that certain S&OP teams, those experiencing high levels of value-chain complexity and business change, would begin to morph S&OP process and decision-making with broader information and contextual decision-making components and begin to identify and address obstacles for incorporating key information integration from product management and financial systems. We predicted that S&OP teams have new options and paths towards their need for more integrated business planning and that the attractiveness for such movements will increase in 2016 and beyond.
The latter part of our prediction has indeed become far more evident in that there are today, far more defined business process and supporting information technology paths directed at IBP. For the former prediction, our sensing of such efforts lead us to believe that such morphing has generally not occurred.
While certain very large enterprises may have had the dedicated financial, IT and people process support e resources to augment their S&OP processes into broader forms of IBP, the clear majority did not have the bandwidth, senior management support or resources to undertake such efforts. Organizational barriers and cultures remain to be overcome, as is the compelling business case.
Our sensing of systems integrators and consultants specializing in S&OP augmentation indicate that multi-industry teams were far more concentrated in understanding what Cloud computing options meant to their various processes, and what various technology vendors were offering for IBP support. Some of the larger ERP platform providers such as SAP remain in the process of trying to integrate the various dimensions. Integrators and consultants found more engagements related to establishing S&OP or overall business planning groundwork initiatives.
For these reasons, we have scored this prediction in a lower quadrant. However, we still believe that IBP efforts will drive substantial business benefits. The question now reflects a reasonable timeframe.+
2016 Prediction Seven: Internet of Things (IoT) Initiatives Would Continue to Dive into Realities of Line of Business Strategy and Deployment
Self-Rating: 3.5 (Max Score 4.0)
Our 2015 prediction was that cross-industry interest levels surrounding products and services leveraging IoT would continue to attract wide multi-industry interest. Indeed, that high level of interest and initial investment continued.
We predicted that in 2016, the realities in the lack of consistent global-wide standards addressing data security concerns would provide visible challenges for broader industry deployments, and that challenge will remain. On Supply Chain Matters, we highlighted one expert’s observation indicating a territorial battle among operations technology focused teams and those responsible for the security of company networks that centers squarely on information security concerns. We joined others in predicting that information hacking will provide additional headline visibility in 2016, increasing the pressure on technology providers and device producers to focus more on information security remediation techniques. Hacking incidents indeed dominated both business media as well as the U.S. Presidential election news with many high-profile incidents of information cyber-attacks. In October, we posted a Supply Chain Matters commentary noting that more powerful and widespread cyber-attacks were the wake-up call for IoT. In the late October incident that struck DNS provider Dyn, Inc., the hackers created a malware program that was carried out, in part, by calling into service unsuspecting devices connected to the Internet, and said devices included digital video recorders and webcams in people’s homes that were taken over by malware and used to help execute the massive cyberattack. Once more, hundreds of thousands of existing devices were believed to have been infected with the malware. The reality of information security did occur and the IoT community is compelled to address this ongoing challenge.
It is rather important to not get caught-up in the multiple predictions of billions of devices connected to the Internet. Rather it is very important to differentiate B2C consumer focused and consumer market use cases from those of broader B2B needs, often referred to as the Industrial Internet. The consumer device sector may well be quagmire in conflicting standards, protocols and security vulnerabilities.
In 2016, we anticipated that B2B focused manufacturers and services providers will broaden their perspectives on connected devices and services, especially in the notions of the realities for being a software-driven vs. a hardware-driven enterprise. That included leveraging intellectual property and software knowledge into more innovative products and services that result in new revenue streams. Enhancing customer engagements and value-added services is the obvious priority. The value of products will increasingly be defined by the embedded sensors, software and consequent added services that products provide for customers. Innovators such as Flex, Cardinal Health, General Electric, John Deere, Siemens, Tesla and others, where senior management embraced the potential of connected devices we believed would continue to lead in these development and deployment efforts. Indeed, the above has occurred and by our lens, the most visible and active player is turning out to be GE and its Digital Business unit. (See subsequent posting related to GE Digital)
We expected some IoT initiatives to stumble in the year because of conflicts in approach and stakeholder interests. We believed that efforts championed and funded by line-of-business groups directed at customer value would have more success than those championed by internal functional groups and focused solely on the “Things.” It was rather important for supply chain and product development teams to align efforts with LOB needs and sponsorship and avoid data silo approaches, particularly with over emphasis on singular software applications. We believed that successful IoT initiatives would stem from data streaming architecture that can feed many different software applications. We anticipated most IoT initiatives in 2016 to be elementary in scope with plans for more peer-to-peer device interaction to come in later years when standards matured.
The above stated, this was a prediction area that was difficult to gage and score. Feedback from our network of contacts among system integrators indicated that many clients did not initially express needs related to IoT initiatives, but with further probing and investigation, integrators and consultants were able to educate prospects on taking initial pilot steps toward connected device applications or business pilots. While attending PTC’s LiveWorks’s IoT technology conference in June, we reported on a panel of systems integrators indicating most customers are not seeking out a specific IoT initiative per-se. Instead, they were seeking technology to assist in resolving use cases involving ongoing business challenges in manufacturing or supply chain or tapping new business opportunities and revenue streams. One panelist indicated that the current hype surrounding IoT has many teams “scratching their heads” in terms of selecting start points or understanding what business problems IoT will solve. From our lens, that feedback reflected needs for broader market education. Where projects lean toward IoT, the sales and approval cycle tends to be elongated, cited in the range of 6-12 months, with indications that discussions representing different business functions such as IT, manufacturing, service management and other functions are involved.
As for technology vendors, we predicted that AT&T, Cisco Systems, Google, Microsoft, PTC, Symantec to be high profile market participants. We anticipated that the battle of IoT platforms will rage again in 2016, which will become very confusing for businesses and selection teams to follow. This was about vendor market positioning and jockeying for being the adopted standard. Regarding our listing of high profile vendors, we actually observed GE and Microsoft, and to a lesser extent Cisco and PTC, to be the higher profile participants. Major ERP providers Oracle and SAP upped their game in strategic alliances and initiatives directed at capturing streaming information produced by edge devices into various manufacturing or supply chain management support applications.
We alerted our readers and clients to expect a high amount of M&A activity in 2016 associated with the IoT segment, as various providers jockey for market dominance or broad and deep expertise. This was an obvious no-brainer prediction and 2016 featured a litany of billion dollar M&A deals that had deep-pocketed technology vendors making strategic moves for entry into various industry specific segments and applications, not to mention additional efforts of strategic alliances. Some highlights included:
- PTC’s acquisition of software developer Kepware
- SAP’s alliance efforts tapping PTC’s IoT technology stack
- To some degree, IBM’s acquisition of The Weather Company
- Cisco’s acquisition of Jasper Technologies for $1.4 billion
- Announced strategic alliances involving Microsoft with both GE Digital and SAP
- Rockwell Collins acquisition of B/E Aerospace
- Numerous acquisitions by GE Digital that included ServiceMax, Bit Stew Systems, io, among others
- Samsung’s acquisition of Harmon International for $8 billion
- Qualcomm’s acquisition of NXP Semiconductor for $39 billion.
Overall, our 2016 IoT prediction missed on implementation momentum but was spot-on related to technology and software vendor M&A and alliance efforts to gain footholds in the market.
We come to the end of Part Four in our scoring series of this year’s predictions. In Part Five, we wrap-up with our final two predictions, those being geopolitical events such as TPP impacting global supply chain strategies, and our final prediction that Amazon and Alibaba would broaden their investments in last-mile fulfillment.
Now that we have revisited 8 of our original predictions related to this year, we welcome reader comments and observations related to any of our predictions and consequent events. As always, you can add your voice in the Comments section appearing at the end of any of our postings.
© Copyright 2016. The Ferrari Consulting and Research Group LLC and the Supply Chain Matters® blog. All rights reserved
We wanted to alert or Supply Chain Matters readers that Executive Editor and Independent Supply Chain and B2B Industry Analyst Bob Ferrari will be attending the Kinaxis sponsored Kinexions 2016 customer conference being conducted this week in Nashville. Festivities begin Tuesday evening.
This is the annual gathering of supply chain planning and response management technology provider Kinaxis’s customers and prospects.
If readers are planning on attending this week’s event, please say hello during any of the networking or educational sessions.
Supply Chain Matters will feature upcoming commentary regarding impressions and insights shared at this year’s conference.
Remain Cautious of Overly Optimistic Retail Sales Forecasts Regarding the Coming Holiday Fulfillment Quarter
Last week the National Retail Federation (NRF) issued its annual forecast concerning holiday related spending which painted a very optimistic picture regarding the upcoming holiday sales period. We advise B2C and B2B retail planning teams to be very cautious and diligent regarding the applicability of such data. Actual retail sales activity pegged to each channel, coupled with end-to-end supply chain visibility and agility as to sudden shifts in demand will be far more important to planning and execution.
The NRF forecast indicates that it expects this year’s holiday sales, excluding automobiles, fuel and restaurant sales will increase 3.6 percent above last year’s levels. That amounts to approximately $656 billion in physical store and online retail sales. Keep in-mind that the NRF is a trade organization made up of retailers, and thus has a track record for being fairly optimistic. Last year, the organization predicted holiday related retail sales to grow by 3.5 percent, but the actual number was closer to 3 percent. Once more, the organization literally missed on gauging the increased dependence of consumers towards online holiday sales, which grew dramatically last year. From the period of November 26 thru December 20 2015, one forecasting firm had indicated that online sales grew nearly 12 percent in just that period.
Retailers are betting that current levels of low inflation and dramatically lower costs of gasoline and heating oil will drive more optimistic holiday buying. That was relatively the same assumption as last year. However, we continue with our stated belief late last year that consumers have already fundamentally shifted their retail buying habits in favor of online purchases. Even the NRF acknowledges that consumer spending patterns are shifting, favoring more personal based experiences such as travel and customized unique experiences. Unless online buyers are provided an incentive for visiting a brick and mortar store, there will be little incentive for impulse buying. In August, we issued our Research Advisory, The Beginning of a New Phase of Online and Omni-Channel Fulfillment for B2C and Retail Supply Chains, that in essence questions the long-term presence of existing brick and mortar storefronts.
Operationally, the retail industry as a whole is struggling with high levels of inventory. Muted U.S. economic growth and consumers’ increased desire for immediate availability and delivery on online goods have driven such trends to-date. If you have recently visited a physical retail store of late, you will see a visual manifestation of that challenge with lots of merchandise on the shelves but little of it moving. Our recent mall visit provided such evidence as to markdown sales or sales promotional activities especially concerning clothing and accessory items.
Retail focused sales and operations planning, along with respective supply chain planning teams therefore need to constantly be diligent in their context of current optimistic retail sales forecasts for the upcoming holiday fulfillment holiday surge period. Evidence continues to indicate that costs of online fulfillment continue to rise and thus planning resources by means of sales forecasting expectations could well lead to more margin erosion and lost profits.
Transportation and logistics challenges will be yet another concern since major parcel carriers FedEx and UPS continue to experience some of the flaws of major hub and spoke networks during periods of high volume, as was experienced gain last year. Similarly, Amazon continues to build out its own transportation and logistics fulfillment capabilities to support massive holiday surge volumes, placing more pressure on the major parcel carriers to make their profit goals as the expense of shippers.
In all cases, being product demand driven vs. forecast-driven is fast becoming table-stakes. Advanced inventory management pegged to Omni-channel product demand levels and broader visibility to supply chain wide inventory exposure applies. Once again, when multi-echelon inventory optimization is supported by higher and deeper levels of supply chain wide inventory visibility, better informed planning and supply chain wide decision-making can help in determining the various impacts on financial line-of-business business outcomes such as margins and profitability.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
This Editor once again attended the Oracle Open World conference in San Francisco this week and Supply Chain Matters has been publishing impressions throughout the week. As a reference, our prior blog commentaries included:
Our Supply Chain Matters Commentary Two posting addressed reported uptake of Oracle SCM Cloud from last year’s announcement.
Our Supply Chain Matters Commentary Three posting explored the interrelationships among Oracle ERP Cloud and Oracle SCM Cloud, as well as highlighted announced future pipeline releases planned for SCM Cloud.
Our Supply Chain Matters Commentary Four posting highlighted the key messages from Larry Ellison’s second keynote, specifically implication of the release of Oracle Database Cloud.
In this our final on-site commentary, we share summary impressions, insights and takeaways for our readers and clients.
This Editor and analyst has been attending Oracle’s annual OpenWorld customer conferences on an off and on basis for well over a decade. During that time span, I have observed lots of changes concerning Oracle from organizational, technical and customer applications perspectives. Some to the good, some not so. That has been the context of our coverage of this and past annual OpenWorld events.
During this year’s as well as last year’s conferences, Oracle senior executives reminded attendees that it has taken this company ten years to reach its vision of Cloud based IT technologies and software-as-a-service (SaaS) applications. The results of that ten-year effort are now manifesting themselves in the blizzard of new Cloud based product and platform announcements that continue to unfold every year. It is now difficult for customer’s to be able to keep-up.
I can well remember when the Oracle Fusion initiative was first introduced, and there were no initial indications of the length of the journey, only the breadth of the vision and the scope of the endeavor. Indeed, the vision was bold, and to Oracle’s credit, it was not watered down when the challenges grew deeper. The effort took on a holistic approach to include infrastructure, database as well as applications dimensions. Few enterprise technology companies have been able to execute such a breadth of technology.
More importantly, Oracle’s adopted a business and industry focused lens, one that could specifically respond to the overriding businesses challenges that enterprise, business and functional organizational focused technology needed to address and solve. This was an area where Co-CEO Mark Hurd plays a valuable role in his role-based articulating of the C-Suite challenges of business in so many industry settings and how IT must be able to respond to such challenges.
Such challenges include various multi-vendor based legacy ERP backbone customers who felt hobbled in their ability to ever be able to take advantage of the next generation of technologies because of the realities that upgrading was far too disruptive to existing business processes, would take far too much time and be far too expensive. Legacy ERP includes tendencies to have added too much business unique customization that provided more obstacles to overcome in adoption of newer technology.
As many technology authors and visionaries have pointed, in the prior era of ERP implementations, systems integrators were making the bulk of the initial money while ERP providers themselves gained sustaining revenue streams related to annual maintenance of systems that in essence, get the basic job done but add little to needs for more business agility, adaptability and revenue growth.
Oracle’s journey has been directed at developing a holistic Cloud based technology approach that can address IT as well as business cost control and margin challenges. It very much includes engineering based systems approach, as was often articulated by Larry Ellison himself. For our readers, that implies that Oracle’s target is to sell technology to senior leadership levels of businesses, as well as to IT or functional teams.
At the same time, the journey has led Oracle to bring along a host of other different traditional licensed application suites such as JD Edwards, E-Business Suite, Advanced APS, Siebel, Demantra, Agile, G-Log and many others. To its credit, Oracle did not stop ongoing development nor customer support programs in its own traditional suites, new acquisitions or long-time applications. That afforded customers the peace of mind to determine which technology paths they wanted to pursue, at their own timeframes, as opposed to ‘it is my path to the Cloud or on your own’ approaches that some technology vendors tend to influence.
In its most recent financial performance briefing for analysts and investors, Oracle executives indicated that while the bulk of its installed based software applications customers have yet to make their decisions to move to Cloud based adoption models, many have begun an overall assessment strategy. At this year’s event, some executives’ views indicate a ten-year window, some view it as far less. Oracle has rightfully provided multiple paths, while assuring that legacy behind-the-firewall applications will be supported.
Many of the new early adopter customers of Cloud based platforms and applications have done so for specific business motivations, many with common themes of shedding legacy IT infrastructure costs with the ability to make more manageable technology leaps. Some view the Cloud as another form of leasing technology, or a computing utility platform that flexes with the needs of business or supply chain. That has been the declared surprise to the current momentum. The upside has built-in momentum if Oracle continues to execute as it has done up to now, both in internal development and external acquisition.
Today there are some key new Oracle faces in senior leadership roles of development, sales and other areas while the company manages to continually balance new and seasoned experience and vision. While the bravado of the prior Oracle sometimes shows, it is now accompanied by a discernable shift toward being more customer and services focused. That includes adoption of practices directed at providing customers with what is described as zero-hassle buying, allowing more customers to try before they buy, and yes, less expensive pricing. Customer engagements are now assigned an executive sponsor for monitoring and customer feedback.
Over these past ten years, a lot has changed, most toward the better. Today’s Oracle is one of momentum, continuous innovation and perhaps a dose of fast follower. We continually observe this with every subsequent OpenWorld.
With the pending acquisition of NetSuite, and that of other acquisitions such as LogFire, Oracle is indeed increasing its momentum in offering a more business compelling and flexible path toward Cloud based ERP, data management, analytics and supply chain focused applications. Indeed, acquiring 2800 Oracle ERP Cloud customers might well be just the beginning of this momentum. Oracle SCM Cloud will continue to be the recipient of that momentum as will Oracle Procurement. This Editor previously cited Oracle’s SCM development team for its slow pace toward the Cloud, but as noted in our prior commentary, we now observe that the pace of innovation is now accelerating.
Last year and again this year, Mark Hurd’s classic prediction was that by 2025, there will be but two enterprise technology vendors controlling 80 percent of the SaaS technology market. Last year, we viewed that prediction as stick to the wall wishful. This year it is beginning to look more likely that Oracle will indeed one of the few enterprise technology vendors that got it right.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.