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Breaking Tech News- Kinaxis Reports Significant Deal as Part of Fiscal Q4 and Full Year 2014 Results

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Supply chain planning and response management technology provider Kinaxis today formally reported fiscal Q4 and full year 2014 financial results.  Beyond the rather positive growth and financial performance results, the most significant news was the landing of a $20 million five-year supply chain planning deal.

On the financial side, full fiscal year 2014 revenues were reported as $70.1 million, up 15 percent from the year earlier.  Gross profit was $49.3 million, also up 15 percent and adjusted earnings before interest and taxes (EBITDA) totaled $16.1 million, up 7 percent. Kinaxis reported nearly $57 million in its end of December cash balance, mainly from the proceeds of its recent IPO activity.

For its fiscal fourth quarter, Kinaxis reported total revenues of $18.8 million including $13.9 million of subscription revenues. Gross profit was $13.4 million while adjusted EBITDA totaled $3.8 million.

However on the Kinaxis earnings briefing call, many equity analysts wanted to hone-in on the reported $20 million “mega-deal” booked in Q4.

Kinaxis executives were very careful to respect customer confidentiality and hence had measured responses to analyst queries. However, Supply Chain Matters was able to garner from the Q&A back and forth that this was a five-year, cloud-based deal involving a new customer described as a large global enterprise.  The customer elected to pre-pay the $20 million up-front, and that number will be reflected in Kinaxis fiscal Q1-2015 performance. The deal was brought to Kinaxis from an unnamed large systems integrator.  We suspect the deal involves one of the existing vertical industries that Kinaxis currently supports.

Upon further probing, it was disclosed that the customer had an existing backbone systems footprint involving a combination of Oracle and SAP systems, and apparently elected to pursue a Kinaxis strategy for various supply chain planning technology needs. Kinaxis executives hinted that the customer had “given-up” on both the timetable and future promises of the incumbent vendors.

Supply Chain Matters highlights the reporting of this “mega-deal” because, by this author’s recollection, it represents one of the largest deals involving supply chain planning, and further, it appears to be totally cloud-based.

A trend that we continue to pick-up from other supply chain planning vendors is that their pipelines increasingly include both large and emerging enterprises that are becoming more and more impatient with the overall commitment of larger ERP and enterprise vendors to support today’s line-of-business and supply chain needs for added predictability, responsiveness and more informed decision-making.  Time-to-benefit, quicker implementation and industry track record have become very important criteria. With the option of cloud applications, such enterprises are exploring methods to surround existing ERP based supply chain systems with more advanced, outside-in facing technology. From our lens, such a deal is an endorsement for needs and desires for fusing supply chain planning, execution and customer fulfillment processes as much as possible toward a single data model approach.

While it is not likely that the broader market will garner more specifics regarding this significant deal until later within its implementation phases, it will serve as an important milestone of continued market shifting favoring more nimble, cloud-based technology approaches.

In full disclosure, we share with readers that Kinaxis has been a prior sponsor of this blog, and we are in the final stages for having Kinaxis as a Named sponsor for 2015. That aside, this is a significant watershed development for the supply chain planning market, and should be referenced as such.

Congratulations to all involved.

Bob Ferrari

 


Crisis Among CPG Producers and Their Associated Supply Chains Continue: Three Important Strategies

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Supply Chain Matters continues in our efforts to update readers on the extraordinary market challenges and headwinds impacting large consumer goods packaged food producers. In August of 2014, we called attention to a profound week of statements and blunt reality impacting this industry and specifically, blunt statements from the CEO’s of prominent packaged foods producers. In our predictions for this year, we again cited this sector for continued industry supply chain turbulence.

Unfortunately, the challenges and the implications have once again become rather visible.

Today’s published edition of The Wall Street Journal again reports (paid subscription or free metered view) that several top U.S. based food producers served up grim financial and operating news this week. Once again, all is attributed to the industry’s abilities to adapt to fundamental shifts in consumer tastes.  However, there is far more at-play.

The wave of bad news has battered the stock of Kellogg and Kraft Foods but the news was not all that optimistic from Campbell Soup, ConAgra Foods and Mondelez International.

Kraft, which recently replaced its CEO, indicated that its CFO and a senior R&D development manager were leaving the company. The new CEO of Kraft indicated that his company was not moving fast enough to shift its business to cater to consumer needs for healthier, less processed foods. It was reported that Kraft lost market share in 40 percent of its food businesses in 2014.

Kellogg reported a 7.7 percent drop in comparable U.S. breakfast related sales while its U.S. snacks segment fell by 3.1 percent. Kellogg has subsequently reduced its long-term revenue growth by two percentage points, which is significant for this sector.

Campbell’s has now indicated that it may have to once again reshape its brand portfolio in favor of more organic choices. ConAgra recently indicated to Wall Street that increased market competition, lower prices and customer service issues with its prior acquisition of private-label food producer Ralcorp has motivated that company to lower expectations for the current year.

Supply Chain Matters has further provided reader attention to business challenges at industry stalwarts Procter & Gamble and General Mills, each of which has had cascading impacts related to each of their supply chains.

As noted in our earlier commentary, foreign currency headwinds and specifically the strong U.S. dollar have become an added challenge for U.S. based companies. One of the most stark aspects of this challenge came from Mondelez which reported this week that foreign currency headwinds delivered a $149 million hit to its operating income in it prior quarter, in spite of recently rising prices across the board.  Operating income dropped 42 percent. The WSJ reported that Mondelez currently garners 80 percent of its revenues in currencies not pegged to the dollar, and has further attributed its challenges to increasing commodity costs. Mondelez’s supply chain production and manufacturing resources are much more globally-focused which raises additional concerns. The global convenience foods producer continues with efforts directed at reducing operating costs by $1.5 billion by 2018, incremental to previous wide-spread cost savings including those directly related to its global supply chain. From our lens, Mondelez may well be another candidate for a subsequent CEO change.

The CEO’s of CPG as well as other industry manufacturers are currently caught in an incredible vice. On the one hand, dramatic changes in consumer tastes and a collection of smaller, emerging industry disruptors leveraging advanced technology and more efficient cost structures are rapidly impacting the industry landscape. Activist investors have surrounded industries such consumer packaged goods extracting demands for more short-term stockholder financial benefits, vis-à-vis aggressive stock buyback, higher dividend or increased merger and acquisition efforts. An earnings crisis brings on more activist or short-term oriented investors looking for market opportunities.

Obviously, the ongoing implication to associated supply chain organizations is immense and often painful. On the one-hand strategies to spur revenue and profitability growth in untapped global markets extracts a toll of shuddering U.S. based production or distribution facilities and staff.  The new strength of the U.S. dollar and other currency movements dilutes revenues from overseas operations causing additional pressures for increased profitability and reduced costs. The cycle can often become disabling.

While every company certainly has its own unique challenges, the takeaway for CPG supply chain teams is three-fold.  Rapidly shifting industry markets and consumer preferences imply a critical need for increased product innovation and quicker introduction of new products. These capabilities need to be obviously enhanced, in spite of continued pressures to reduce costs.

Volatile and rapidly changing global markets requires that Sales and Operations Planning (S&OP) teams be more responsive and anticipate such changes.  The focus clearly turns toward an outside-in perspective, allowing the supply chain to respond as quickly as possible to market opportunities or threats.

Finally, supply chain segmentation strategies, those that orient supply chain resources to the most influential customers, most profitable market segments or highest customer growth opportunities are now ever more essential.

Supply chain leaders should insure they educate senior management to these important priorities including the current new wave of CEO’s.

We provide a final editorial note. Our observation is that on many current occasions within today’s CPG industry landscape, new or changed leadership stems from leaders coming from consumer goods financial or sales and marketing backgrounds.  That stands to reason given that in times of business crisis, corporate boards favor such leadership skills. However, as the adage often goes, crisis can present opportunity for new thinking and fresh perspectives brought by those with other backgrounds. By our lens, that would include those with an operational, supply chain and advanced technology backgrounds who understand customer, business and technology investments, tradeoffs and/or rewards.

Bob Ferrari

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


Announcing JDA Software as a Lead Sponsor of the Supply Chain Matters Blog

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I am thrilled to announce to our Supply Chain Matters readers that JDA Software is our new Lead level sponsor of this blog in 2015.  JDA_250_124

We are pleased that this innovative technology provider has chosen to associate itself to the ongoing global supply chain focused thought leadership being provided by Supply Chain Matters to our global-based supply chain and IT focused community of readers.

JDA Software is a well-recognized best-of-breed provider of end-to-end, integrated supply chain planning and execution applications for more than 4,000 customers worldwide. Since its founding nearly 30 years ago, JDA’s unique applications have empowered various industry supply chain customers to achieve more by optimizing costs, increasing revenue and enhancing time to value.

This Editor and supply chain industry analyst has been following JDA and its collection of technology applications since the late 1990’s from the early notions of dot.com online commerce, to the market explosion of Omni-channel online and brick-and-mortar retail. With the past acquisitions of the former i2 Technologies, E3, Manugistics, RedPrairie and other supply chain planning, execution and technology providers, JDA has consistently increased is multi-industry capabilities in supply chain planning, execution, multi-channel customer fulfillment, collaboration and more predictive planning capabilities.

A timeline depicting the history, profile and capabilities of JDA today can be viewed at this JDA web link.

In conjunction with JDA’s 2015 sponsorship, we are further pleased to announce an upcoming series of blog commentaries hosted by both the Supply Chain Matters and JDA’s Supply Chain Nation blogs that will focus deeper into industry-specific supply chain planning, execution and customer fulfillment challenges, a market education series introducing new supply chain advanced technology and predictive analytics concepts including the opportunities for integrating planning and execution processes for more timely decision-making. We have additional plans to feature an interview series where this Editor will speak with supply chain industry as well as technology focused executives on how technology is delivering value within different industry settings.

We extend sincere appreciation to JDA for recognizing Supply Chain Matters as a destination of independent thought leadership in supply chain management, manufacturing and product lifecycle management focused business process and information technology.

Bob Ferrari, Founder and Executive Editor

 



Guest Posting: The Challenges and Obstacles of Big Data and Analytics Applied in Supply Chain and Commerce Decision-Making

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The following market education posting is a Supply Chain Matters guest commentary.

Joannes Vermorel, based in France, is the Founder and Chief Software Architect at Lokad SAS, a technology provider specializing in quantitative optimization of decision-making needs for supply chain and commerce leveraging Big Data and cloud computing concepts.  His company was the winner of the first Windows Azure Partner award, chosen by Microsoft out of over 3000 applicants worldwide.

 

Few domains are as data-driven as supply chain. Supply chain is all about sourcing, producing or stocking the right product at the right time and the right place; and in order to do that, it takes a lot of data. Thanks to the considerable Big Data buzz and interest, many companies are now hiring data consultants and data scientists in the hope of unlocking their next level of performance. My personal prediction for 2015 is that the vast majority of those initiatives will fail.

The following is why.

I usually describe Big Data as the “mechanization of the work of the mind”: if a type of decision is repetitive and if there are a lot of historical data available to assess the quality of the past decisions, then decisions can be mechanized with a semi-clever appliance colloquially referred as a Big Data system. The optimization of purchase orders typically fall into this category; and for better results, it’s possible to leverage a data from both clients and suppliers.

However, those seeking to leverage and take maximum advantage of such Big Data appliances  still have to address two limitations.

First, Dig Data or predictive analytics  only succeeds with heavy support from top management . In the past, only blue collar jobs suffered from mechanization; Big Data is changing this, and mechanization now impacts some white collar jobs as well (very tedious jobs, they won’t be regretted). Yet, most companies naively expect employee support for Big Data, because innovation is put forward as  a key corporate value. My personal experience has been uniformly the opposite: about every single employee below the top level supply chain executive will passively (sometimes actively) reject Big Data, predictive analytics, decisions systems, etc. Amazon has tremendous success with Big Data, but Amazon is led by  Jeff Bezos who wrote: “Anyone who doesn’t do this will be fired.” in a memo sent to his employees back in 2002 when he started to push for what would become a key ingredient for Big Data at Amazon.

Second, most appliances  are “dumb” in the sense that they exactly optimize the very metrics that are given to them. Yet, from my observations, most Big Data initiatives suffer from “Naïve Rationalism”, that is, the usage of metrics that look scientific from afar, because they involve a very convincing amount of variables and Greek letters, but that actually fail at truly capturing the drivers of the business. When this happen, no matter how “accurate” the answers brought by the Big Data system, they simply don’t answer the correct questions. For example, in supply chain, the cost of non-service is frequently very poorly estimated, and consequently leads to a very poor tradeoff between cost of stock and cost of stock-outs.

Most of the Big Data initiatives that I see in supply chain fail short on both points: companies are trying to introducing such innovations without committing themselves to the drastic organizational changes involved; and companies are letting their data scientists, who are mostly clueless about the business, overlook too many critical business drivers because management is not sufficiently involved in what appears to be a very technical undertaking.

Joannes Vermorel


Supply Chain Matters Update on Analytics Services and Software Provider Lokad

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In late 2010, Supply Chain Matters introduced our readers to Paris based Lokad, a rather unique technology services provider which at the time we coined as mathematicians on-demand.  After our initial briefing with Founder Joannès Vermorel, we came away with an impression that industry supply chain teams had an interesting and somewhat cost affordable alternative in generating much more sophisticated timely and accurate forecasting techniques.

The company differentiated itself on the sophistication of its staff of highly trained mathematicians who take on challenges reflected in difficult forecasting problems. Customers are provided alternatives in loading product demand data “as it is” via the cloud, leveraging a Microsoft Azure platform, avoiding the need to perform tedious data formatting and pre-analysis. Vermorel and his team described themselves as rather pragmatic in the view that the goal is not to have the most accurate forecast, but rather a more automated means to determine the best response to fulfilling product demand under challenging constraints.

We checked-in with founder Vermorel in 2013 to learn about Lokad’s diversification efforts in quantile forecasting services and supporting software. As opposed to deterministic or mean-driven forecasts where respective forecast weighting are averaged, quantile forecasts introduce a purposeful bias in the forecasting algorithm and can be viewed as a stochastic method for forecasting. Our 2013 briefing notes reflected that Lokad continued to test its quantile methods on many industry verticals including the production of auto parts, electrical supplies, textile products, spare parts and packaging materials. Lokad consultants work with customers to fully understand their planning needs and develop a more sophisticated planning approach utilizing their cloud-based software platform.

A lot has occurred in advanced supply chain planning methods since 2010, most notably the notions of predictive and/or prescriptive analytics being applied to supply chain product demand and resource needs.  The demand for trained individuals in analytics and Big-Data analysis in-fact has become so intense, that we called our readers attention to a Wall Street Journal report in August of last year indicating that one of the hottest jobs in tech was that of a data scientist. The WSJ noted that in certain cases, data scientists were commanding $200,000 – $300,000 annual salaries due to the shortage of such skills. Many supply chain teams as well as business teams would view that full-time expense as expensive or burdensome.

Kicking off 2015, we were thus very eager to include a check-in again with Lokad.

To little surprise, we learned that the company has now positioning itself as “Quantification Optimization for Commerce” and has since moved into offices twice its original size.  The technology provider has now amassed hundreds of customers, has branched into a number of quantitative services and has developed its own next generation programming language specifically for supply chain planning and forecasting needs. We were informed of the firm’s first 7 figure engagement and its efforts to dive far deeper into challenging and industry-unique supply chain planning challenges.

What is rather unique and refreshing is that Lokad continues with its model of on-demand mathematicians providing ongoing analytical services for clients periodically during any given year. The Lokad cloud-based forecasting engine generates product forecasts predicated on probabilities and a range of predictions predicated on operational business metrics and/or operational risks. The explosion of Omni-channel commerce in retail sectors has especially fueled such needs and requirements as well as the unique needs of service focused supply chains related to highly sophisticated equipment.

We explored some current observations regarding the state of certain industry forecasting, specifically that Lokad has amassed over hundreds of engagements, The provider continues to observe fixed vs. fluid or more agile focused assumptions related to planning. For instance, top management at some firms has not taken the time to change inputted assumptions related to the cost of capital.   A forecasting model for a U.S. firm continued to run with the assumption of a 6 percent cost of capital when cash is available at a far lower rate. Such a rigid assumption can often derail the accuracy of more predictive decision-making methods.

Our briefing included an in-depth discussion on the current state of Big-Data and predictive analytics initiatives across various industry settings.  Vermorel apparently shares in our belief and prediction that many initiatives can well be de-railed in the coming months and years because of a lack of proper design. According to Vermorel, they include a “naïve rationalism” and actually fail at truly capturing the true drivers of the business and of the supply chain.

This author was so captivated by these observations that we extended an invitation for a Supply Chain Matters guest posting so that our readers can specifically learn from such observations.

Thus, what follows this updated commentary on Lokad is Founder Joannes Vermorel’s gracious guest posting, The Challenges and Obstacles of Big Data and Analytics Applied in Supply Chain and Commerce Decision Making.

We sincerely thank him for his contribution and insights.

Bob Ferrari

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


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


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