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Potential West Coast Port Disruption Raises Questions on Impacts to Upcoming Peak Shipping Period

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A commentary posted on Logistics Management makes the observation that the threat U.S. West Coast port disruptions as a result of current ongoing labor union contract negotiations raises an open question as to “peak shipping season” this year. News Editor Jeff Berman makes note that inbound container shipments destined for the ports of Los Angeles and Long Beach, which together account for upwards of 40 percent of incoming U.S. container traffic,  increased 16.5 percent and 8.8 percent respectively during June.  The premise presented is that buyers scrambled to move cargoes earlier to avoid the potential of goods being caught-up in a port stoppage.

Logistics Management further conducted a reader poll of 103 buyers of freight transportation and logistics services. That survey indicated 68.1 percent of respondents expecting a more active peak shipping season this year. Some respondents are reported to be concerned about potential transportation lane disruptions in the fall.

Meanwhile, as we approach the end of one month since contract expiration, no real news has come forward regarding the ongoing labor talks between the Pacific Maritime Association and the International Longshore Warehouse Union. That provides continued uncertainty and concern among industry supply chains.

Supply Chain Matters proposes to conduct its own reader poll. For those readers managing inventory, procurement, transportation and logistics services, here’s the question:

What are your organization’s current plans or strategies regarding a potential disruption or work stoppage among U.S. West Coast plants? 

Provide your responses in our interactive poll at the bottom of our right-hand panel. We will open this poll for two weeks and will announce the final results.

Bob Ferrari


Supply Chain Matters News Capsule for July 17; UPS, Foxconn, Mondelez, Typhoon Rammasun

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It’s the end of the calendar work and this commentary is our running news capsule of developments related to previous Supply Chain Matters posted commentaries or news.

In this capsule commentary, we include the following topics:

  • UPS Memphis Facility Expansion
  • Foxconn Plans for New Plant in China’s Guizhou Province
  • Mondelez Continued Re-Structuring,
  • A New SCRM Standard,
  • Typhoon Impacts the Philippines

 

UPS Kicks Off Expansion of Memphis Facility

Global transportation and parcel giant UPS indicated this week that the services provider has kicked off construction related to the expansion of its Memphis Tennessee package distribution facility. According to the announcement, the expansion will add an additional 140,000 square-feet of building space with an estimated cost of $70 million. The UPS Memphis facility controls processing of air and ground gateway hub operations processing and reports further indicate that UPS is leasing upwards of 27 acres from the Memphis Airport Authority to support an 80 percent expansion in package processing. Early improvements are expected to be operational by November, to accommodate expected holiday peak shipment volumes.

Readers will recall that on the day before last year’s Christmas holiday, UPS was thrown under the bus for its admission that its network was overwhelmed and unable to deliver all of parcels in time for the holiday.  While the Worldport facility was the prime focus at the time, the announced expansion in Memphis is an obvious response to have more capacity in place for the upcoming peak holiday shipping period.

 

Foxconn to Build New Environmentally Friendly Production Facility in Interior China

Global contract manufacturer Foxconn Technology has disclosed plans to build a new environmentally friendly production complex in one of China’s most rural and pristine provinces. According to a published Bloomberg BusinessWeek report, a 500 acre park will be built in the province of Guizhou, on the outskirts of the provincial capital, Guiyang.

Plans call for an environmentally focused facility to produce smartphones, large-screen televisions and other products that will employ upwards of 12,000 workers. Production processes within this new plant will include new methods for mold based painting, carbon nanotube film for touchscreens and other innovations. The facility will also include a 2160 square-meter state-of-the-art data center that will be cooled by prevailing natural winds. Bloomberg makes no mention of advanced robotics for assembly but we suspect that may also be included.

This facility will also be constructed from 100 percent recycled steel and include patent protected heat-reflective glass that was designed by Foxconn. The plant is scheduled to be operational by March of 2015.

 

Mondelez to Separate European Cheese and Grocery Unit

In late January, we noted in a commentary that an activist investor was granted a board seat a global snacks and foods provider Mondelez.  The Wall Street Journal reported at that time that Mondelez management agreed to this move to quell public criticism of the company as well as avoid a public proxy fight. Having a board seat, activist investor Nelson Peltz could escalate his calls for added profit margins.

Last Friday, the company announced that it would separate its European cheese and grocery products groups into separate business units as it prepares to jettison its coffee business into a new company. Rumors among the Wall Street community reflected on eventual sale of the European grocery and cheese businesses as well. According to reports, both European groups represented 3.9 percent of total sales.

 

ASIS Releases New Supply Chain Risk Management Standard

ASIS International, a society of global security professionals released a new supply chain risk management standard to assist organizations to address operational risks within their supply chains. This standard was developed by a global cross-disciplinary team in partnership with the Supply Chain Security Council. An Executive Summary of this new standard can be viewed at this web link.

 

Typhoon Strikes the Philippines

Typhoon Rammasun barreled across the Philippines this week, killing at least 38 people and leaving the capital city of Manila without power most of Thursday.  The eye of the storm passed just south of Manila after impacting the island of Luzon.  The storm was reported to have destroyed about 7,000 houses and damaged 19,000, with more than 530,000 being evacuated. Offices and commerce were expected to reopen by late week.

Meanwhile, southern China and Northern Vietnam are bracing for the arrival of the Typhoon on Friday, with wind gusts expected to surpass 140 kilometres per hour.


Supply Chain Matters Highlights of the Gartner Supply Chain Executive Conference- Part One

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Supply Chain Matters had the opportunity to attend the Gartner Supply Chain Executive conference held in mid-May.  As an AMR Research alumni analyst who specialized in research coverage of supply chain software and network technology, I am fully aware that the roots of this particular conference are deep, extending to the late nineties.  The conference featured many well-known and respected research analysts and its reputation was often that of “must attend” among any who either practiced supply chain leadership or provided technology and services to the supply chain community. While we have admittedly not attended this conference for the past several years, we decided at the last minute to attend this year’s conference.  Overall, the conference provided some highlights and disappointments. We walked away with impression that the conference is not what is used to be in terms of research depth, insights, and analyst personalities, although it still draws a very influential audience.

The opening keynote was a highlight since it reflected on a look back of supply chain management for the prior ten years, and Gartner’s perspective of supply chain requirements and needs for the next ten years. Acknowledged was that the span of control among industry supply chains are indeed wider and that 40 percent of senior supply chain leaders now report to their respective CEO. As we at Supply Chain Matters can certainly attest, Gartner further noted that articles about supply chains have tripled in the Wall Street Journal. That is somewhat of good news, and not so good news aspect since what happens in the supply chain more directly affects business results and overall performance.  Further noted was that the adoption of cloud-based technology within industry supply chain IT environments has increased 40 percent, which is a rather significant development when one considers that supply chain systems are often viewed as mission critical in nature and scope.

Reflecting on the next decade for supply chain management, Gartner’s viewpoint is that industry supply chains will continue to lead in the next decade. However, spaghetti-like networks with silos of conflicting goals, not aligned to singular, over-arching goal remain as an obstacle that needs to be overcome. According to Gartner, too many people are bogged down in trivial tasks. Analysts pointed to talent management as a continuing challenge and top priority for the next three years. Further noted was that universities are not keeping up with changing skill needs.  We are not completely convinced about that conclusion, but colleges and universities that specialize in supply chain management need to do a better job at overcoming cross-curriculum barriers to insure that students are prepared with broader exposures to other required skills. For technology adoption needs, Gartner cited social, mobile, cloud, advanced information analytics and the Internet of everything as the only feasible way to manage supply chains more profitably.

Tom Peters, noted author of the iconic book, In Search of Excellence provided the second day keynote, and candidly, could have well been the opening keynote because of Tom’s unique, direct communication style. He opened with the statement that “there is no more sexier profession than that of supply chain management.” He pointed to the management conundrum of “damned if you do, damned if you don’t” as especially pertinent to supply chain professionals and made reference to the “huge, huge, huge issue of supply chain network vulnerability.” Peter’s viewpoint was that supply chains are the focal point of all operations and should be more responsible for sales and marketing goal fulfillment as opposed to reducing costs. His belief is that a supply chain must have formal research and development or center of excellence group, or go home. One quote that especially caught this author’s attention related to the critical importance of managing supply chain risk: “You (the supply chain), can destroy an 80-year-old brand in a matter of a week.” Dwell on that statement the next time Finance questions the overall supply chain budget. Peter’s final words of wisdom were to de-emphasize items, trucks and planes and concentrate on big “S”, services.

Two other sessions we found to be insightful were one titled: The New Realities of Digital Manufacturing delivered by analysts Simon Jacobson and Mike Burkett, and the session: Key Findings from Gartner’s Chief Supply Chain Officer (CSCO) study also delivered by research vice-president Mike Burkett. Both sessions stressed the needs for industry supply chains to think more about product management and its integration to the new era of digital manufacturing technologies. Both the digital and physical worlds of supply chain processes are indeed on the verge of coming together. Among the key highlights of Gartner’s latest CSCO study was data reflecting that new product introduction and sustainability capabilities have been the most often added in the last three years by either direct or dotted-line reporting responsibility. According to the Gartner CSCO study, the top priorities for supply chain centers of excellence are:

  • Standardize and improve processes
  • Performance management and analytics
  • Supply chain strategy
  • Supply chain technology enablement

Yet, talent and change management appears to be lower in priority and Gartner raised the concern of why so low, since both of these competencies are required for the above to succeed. 

Another rather important takeaway from Gartner’s latest CSCO study was the survey reflecting expected levels of investment and expected benefits over the next two years. Without taking thunder away from Gartner, the important takeaway for us was that product launch and portfolio management along with supplier collaboration and flexibility are highlighted as emerging medium and top priorities for investment in the next two years.  That correlates with what we have been hearing and picking-up with our conversations with clients and readers.

In our Part Two posting, we will provide additional comments of some other highlights of the recent Gartner supply chain conference including the annual Top 25 Supply Chains announcements, along with some interesting and noteworthy presence among supply chain technology providers.

Bob Ferrari

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

 


Factory Destruction Across Vietnam: Supply Chain Sourcing Flexibility and Resiliency Has Never Been as Important

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In the quest to seek alternative global low-cost manufacturing sourcing across multi-industry supply chains, countries such as Thailand and Vietnam were high on the list.  Both offered relatively attractive direct labor wage rates while offering a highly educated and motivated workforce. Up to this point, that has resulted in a steady flow of foreign investment in these countries including internal supply chain ecosystem capabilities.

All of this is now subject to current re-evaluation because of new political and social unrest that is occurring in these countries.  The most visible has been Vietnam where this week, anti-China related violence has caused widespread rioting across the country, targeting factories and industrial parks that rioters believe are owned by Chinese interests. This rioting began earlier this week and according to various global media reports has resulted in arson and vandalism involving multitudes of factories and businesses owned by Japanese, Malaysian, South Korean and Taiwanese ownership since rioters have not been precise in targeting.

The protests were apparently prompted by Vietnamese citizen outrage over an oil rig that China placed in a disputed part of the South China Sea. We have read reports of some speculation that the core anger may be more broadly directed at accumulated anger against foreign-based exploitation within the country. The government of China is holding the Vietnamese government responsible for not taking more definitive actions to curb the rioting and damage.  A report published by the Wall Street Journal today indicates that upwards of 3000 Taiwanese and 600 Chinese citizens were fleeing the country amid fear of further violence. 

While foreign based business people flee Vietnam for fear of personal safety, a large number of factories have halted production because of either damage or lack of workers. Thus, the potential for significant industry supply chain disruption in the automotive, footwear, high tech, consumer goods and other areas is growing each day. It would appear that many brand owners and foreign interests are looking to the government of Vietnam to curb the current building wave of violence and factory destruction and avoid the current situation from quickly moving from the current bad to a far worse situation.

Meanwhile, continued political unrest across Thailand continues to provide an uneasy environment as violent protests continue sporadically across that country.  Yesterday, there were reports that at least three anti-government protestors were killed and 22 were injured as government authorities fired guns and lobbed grenades at antigovernment protestors.

Supply Chain Matters has previously noted how significant incidents social unrest has led to a new wave of worker protests within China’s low-cost manufacturing sectors such as footwear. Political tensions involving China and Japan over disputed ownership of islands continue and have both supply and product demand impacts to certain Japan based firms.

From our lens, the notions of global sourcing are beginning to take on a new risk management perspective, that being social, national and political unrest along with the longer-term implications of that unrest.  The notions that industry supply chains can continually follow a singular strategy that is solely directed at sourcing in low-cost countries is being challenged, and increasingly requires a re-evaluation. Global sourcing now includes far more considerations beyond the cost of direct labor, and as we have continually noted, are now taking on social, political and employer of choice perception aspects.  The ramifications apply not only to product brand owners, but to industry supply ecosystems. 

We believe that these incidents are not isolated and business and supply chain teams need to focus on much broader trends and their implications in access to foreign markets and supply chain ecosystems. The need for supply chain sourcing flexibility and resiliency has never been as important as it is now becoming. Insure that your firm and its supply chain strategies are prepared to manage among these new challenges and needs.

Bob Ferrari

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


SAP Supplier InfoNet- An Impressive Application with Lots of Potential to Mitigate Supply Chain Risk

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This posting is an update to our previous Supply Chain Matters commentary regarding Ariba, an SAP Company and its announced availability of a new application targeted for supply chain risk management.  As we indicated in that original posting, Supply Chain Matters does not elect to echo technology vendor announcements unless we believe it should capture the attention of our readers, and we get the opportunity to drill down on the specifics and functionality. Ariba teamed up with SAP Supplier InfoNet, an internal incubation business unit to provide availability of this cloud-based application. We have since received a detailed briefing on the functionality of this application, and candidly, we were impressed, for a number of reasons.

First, the application itself is not solely targeted to just a sourcing and procurement user base, but other cross-functional users that have responsibility related to broad-based supply chain disruption and risk mitigation. Supply Chain Matters has always advocated that supply chain risk mitigation cannot solely be owned by an individual function such as procurement, but rather cross-functional or cross-business leadership and accountability. SAP Senior Vice president David Charpie who provided our briefing, indicated that this application’s focus includes Director and C-level as well as cross-functional supply chain and operations management users. Bravo for that decision.

Charpie’s prior background was with supply intelligence vendor Open Ratings, and SAP Supplier InfoNet takes that application to much broader and deeper capabilities. After its internal development within SAP, the decision was made to re-cast Supplier InfoNet on the Ariba B2B platform, powered by the SAP HANA database. While this transition is still a work-in-progress, by our lens, there is powerful potential for the ability to gather early-warning and insights on pending and actual supply chain disruption.

What especially stood out for us was:

  • A stated ability to provide multi-tier value-chain information visibility and insights. When fully married to the Ariba B2B network, that could prove powerful. When integrated with supply chain response management and planning information, it could provide even more noteworthy potential to manage and respond to major supply disruption.
  • Support to allow users to capture many forms of structured and unstructured information to develop a risk profiles among key suppliers. It includes language processing, text analysis as well as social and community-based intelligence capabilities.
  • A user-friendly interface that appeared to be rather intuitive with abundant visualization, data summation and heat mapping techniques.
  • The ability to currently capture upwards of 160,000 external data sources including industry, government, third-party and other sources.  Data can be time and/or supplier weighted.  The application supports pre-screening of data and the ability to gather a lot of hidden supplier intelligence, more than a single individual could capture in a normal work week. We even joked that in order to maintain this blog for our readers, this application would quadruple our productivity. Supplier InfoNet can even tap postings of Supply Chain Matters related to risk events.
  • A Facebook like data model with the ability of firms to control what data actually gets displaced, along with community management of this data, which could prove beneficial when a major supply disruption is occurring.
  • A broader definition of cross-functional performance metrics tied to financial objectives and context.
  • The ability to conduct what-if analysis. Supplier InfoNet’s leveraged use of the SAP HANA platform provides for additional capabilities for predictive analytics to be layered across these combined information streams, allowing for a form of machine learning relative to patterns of information that would correlate with expected outcomes
  • Configuration for industry-specific requirements with eight industry sectors already configured or in-process and SAP Supplier InfoNet is initially targeted to industries with a complex manufacturing and value-chain profiles.

The issue of pricing of the application is not as clear, and as we suspected, customers will have to sign-up for a separate subscription to utilize SAP Supplier InfoNet. We were not provided pricing specifics other than the subscription model may be predicated on the size of the network. We are certainly interested in hearing from SAP and Ariba customers on their impressions of pricing. We will continue to seek out that information since that may be the Achilles heel to wide-scale adoption.

An open question is obviously how timely all of the functionality of SAP Supplier InfoNet can be eventually incorporated within and on the Ariba Network along with a critical mass of industry-specific supply and value-chain intelligence that firms are willing to share.

Bottom-line- SAP Supplier InfoNet on the Ariba B2B Network has tremendous potential for customers and prospects in the ability to provide early-warning to major supply disruption, to manage all pertinent information when that disruption occurs and to provide more predictive capabilities in supply chain risk mitigation. Let us hope that the SAP bureaucracy does not stymie that attractiveness with elongated milestones and unattractive pricing.

Bob Ferrari

© 2014, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog, All Rights Reserved


A Sobering Report on the Target Credit Card Hack

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A lot has been written and spoken by general media regarding the massive credit card data breach that occurred within retailer Target’s IT systems.  Many have labeled this incident as one of the largest retail data breaches in history as personal information concerning upwards of 40 million shoppers was breached by hackers. Would such a massive breach cause consumers real concerns in their online buying patterns?

We urge our Supply Chain Matters readership to take the time to read the published Bloomberg Businessweek artcle: Missed Alarms and 40 Million Stolen Credit Card Numbers: How Target Blew It 

By our lens, the article is a superior example of journalism directed at seeking out what might have occurred, especially since this incident is one that many of the impacted parties are reluctant to publicly speak about. The authors spoke to more than 10 former Target employees and outline a set of events leading-up to the breach, and shortly after this breach. Upon reading the article, one can get the impression that incident appears to have been very preventable. It reports that while the data breach occurred around the November 30th timeframe, the data did not actually move out of Target’s network until two days later, instead being stored on an internal server. Once more, security systems alerted to a potential data breach.

Six months prior to the incident, Target installed a $1.6 million malware detection system from FireWire, along with engagement of a security systems monitoring firm out of Bangalore India. The technology reportedly performed the way it was designed to perform, alerting Target’s IT and security staffers of a potential intrusion among the retailer’s systems. According to the authors, nothing happened. The article states: “Target has said that is was only after the U.S. Department of Justice notified the retailer about the breach in mid-December that company investigators went back to figure out what happened.” Once more the article concludes: “Not only should those alarms have been impossible to miss, they went off early enough that the hackers hadn’t begun transmitting the stolen credit card data out of Target’s network.

Obviously, what actually occurred and why mitigation and response efforts were not initiated after technology alerted to the breach, is a matter that Target and its internal investigation will no doubt uncover.  Earlier this month, Target’s Chief Information Officer voluntarily resigned allegedly as a result of this incident.

We wanted to call reader attention to the events outlined in the BusinessWeek article because they are events that retail and manufacturing supply chain operational teams can well relate to.  During critical periods of customer fulfillment such as the holiday buying surge when so much of a company’s revenue and profitability results are at-stake, management leaders are often reluctant to be receptive to bad news, especially when such news implies communicating that mission critical systems may need to be temporarily brought to an offline condition to deal with a major problem.  Supply chain and B2B/B2C focused IT teams know darn well the adage “if it ain’t broke, don’t’t fix-it” often applies, especially when it implies shutting down customer fulfillment to fix a problem. According to the BusinessWeek article, Target had information security staff numbering 300 people, and that the breach could have been stopped without any human intervention. According to the report, Target staffers had elected to turn-off auto deletion of malware in favor of a human decision. That could be understandable if there were processes in-place to quickly assess, upwardly communicate and deal with such a threat and make the appropriate management decisions for how to both deal with an information security threat while continuing to maintain customer fulfillment.  Target’s internal investigation should hone in to this very area,

Reports indicate that Target has already incurred upwards of $60 million in expenses directly related to the retailers response to the credit card information breach. The retailer if now reported to be considering an investment of upwards of $100 million in new point-of-sale and other technology, perhaps RFID enabled, to manage the security of customer credit cards.  That is an incredible amount of money coming from an incident that reportedly could well have been avoidable.

There are many lessons to be garnered from the incident at Target, lessons that will reverberate further in the weeks and months to come. We urge supply chain and B2B fulfillment teams to harvest the lessons of the Target incident, especially in the context of management response systems.

Bob Ferrari


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