There has been much reporting within social and business media regarding the potential industry supply chain disruptive effects of the recent massive warehouse explosions that affected the facilities adjacent to the Port of Tianjin.
It is rather important and crucial that industry supply chain and sales and operations team obtain meaningful and insightful information regarding what is happening on the ground as well as the potential short or long-term supply chain impacts, if any.
We at Supply Chain Matters are disappointed to observe that certain technology and service providers are attempting to utilize this tragic incident as a backdrop to product marketing outreach campaigns. Neither should technology providers suddenly become news outlets.
Not good ideas by our lens.
Supply chain technology providers should instead continue to educate on the benefits of the technology they provide and allow industry supply chain teams to receive clear, unfiltered and unbiased insights and information from informed and educated sources.
One of the better Tianjin perspectives Supply Chain Matters has reviewed to-date ia a published white paper: The Aftermath of the Tianjin Explosions: A Global Supply Chain Impact Analysis, authored by supply chain risk management provider Resilinc.
While this 24 page white paper does include some product marketing, along with requiring registration, the bulk of the report provides meaningful and insightful information related to potential immediate, near-term, medium and longer term supply chain impacts.
The paper concludes that the less apparent ripple effects of the warehouse explosions will be felt weeks, months and even years to come.
The paper provides meaningful background information regarding this vital logistics and manufacturing hub, which services industry needs of automotive, commercial aerospace, high-tech, petrochemical and general industrial manufacturing supply chains, among others. It further outlines important mapping of industrial manufacturing and supplier concentrations within close proximity of the explosions, based on a mapping of over 30 sites in a 2-10 mile radius of the blast. Four large industrial zone districts are adjacent to the port, with the port serving as what is described as the largest free trade zone in northern China, and the second largest Vehicle Processing Center for importing and exporting of automobiles.
On the topic of near-term ripple effects, the Resilinc analysis predicts that extensive delays can be expected for most companies and sites moving products through Chinese ports as government agencies deal with the after-effects of a regulatory environment needing extra attention.
There are predictions that Tianjin port operations will only begin to resume normal operations by approximately mid-September, and that any containers now at the port will be inaccessible for the next two months, even if they are intact. Resilinc indicates that for any suppliers located within 2-15 miles of the explosions, companies may presume 12-16 weeks of delays.
Long-term impacts outlined related to the ripple effects of increased regulatory actions impacting certain industry sectors including the location and storage of goods near large population centers.
Regarding potential long-term impacts, the paper cites Chinese media as indicating the economic cost of Tianjin crisis could be as high as $8 billion.
If your organization is dependent on operations, logistics partners, suppliers or service providers in the Tianjin area, we recommend you review this report which can be accessed at the following Resilinc web link. (Some personal registration information required)
In our previous Supply Chain Matters commentary, we called attention to the significant winds of change that are blowing across the high tech and consumer electronics industry. Much of this has to do with more rapid cycles of advanced technology including the advent of cloud-based software applications and IT infrastructure.
This author recently read a published Bloomberg Businessweek article that reported on the significant implications in selling cloud-based technology. The article triggered me to share my observation and thoughts as to what is occurring in efforts related to the marketing and selling of supply chain, manufacturing, PLM and B2B business network support technology.
The Bloomberg article observes that classic sales techniques of setting high expectations for software, investing in numerous conferences and associated demo booths at industry conferences have become passé. Noted is that most technology buyers do their research online to ascertain the strengths and shortfalls of a particular application and/or vendor. This author founded Supply Chain Matters for that specific purpose, and there are now other well recognized independent and unbiased sources providing online technology perspectives. The days of traditional industry analyst firms, holding hostage with technology ratings and advisories is fast waning.
Bloomberg further notes: “The personality profile of the technology salesperson has shifted from aggressive and persistent to technical and smart.”
We could not agree more.
In my 16 plus years of observing and participating in the dynamics of positioning and selling information technology, I have witnessed many types of traditional sales personalities. The profile often tended toward high energy, ego, social and aggressive. Traits included meeting and exceeding quota goals in spite of any barriers, garnering all forms of sales perks and selling the customer as much as possible. That sometimes called for last-minute super deals offered over the weekend at quarter-end. Those traits and requirements are definitely changing, perhaps for the better. Yet, some technology providers continue to hold to prior methods, constantly churning sales teams to seek the most aggressive performers.
More importantly, the selling of technology that will support mission critical business process needs reflected in many supply chain focused opportunities requires a consultative marketing and sales approach. It requires marketing and sales teams to fully understand both supply chain and B2B focused business process challenges, industry-specific nuances along with an awareness and full understanding of required line-of-business outcomes. The prime buying audience of today’s cloud technology is functional and business teams, while IT teams provide architectural advice, counsel and input.
Consultative sales cycles related to cloud-based software can extend through many weeks and months, helping customers to gain initial proof-of-concept and early benefits, and later extending those benefits with broader scope deployments. It is not a focus for seeking the 7 figure deal by end-of-quarter, but rather balancing customer sales cycles with required inbound revenue needs. Sales cycles are supported by industry and prospect education, continuous web-based content and ongoing interactions.
Building a trusted relationship with customer teams is thus essential. No longer can one just walk away to seek other opportunities. In essence, the marketing and sales model associated with cloud technology is akin to your neighborhood auto mechanic. He or she knows all about the vehicle, continuously stays current with the latest technology, is willing to go the extra mile to help customers and strives to be always available in time of most need.
What about your perspective? Do you feel cloud-based technology providers are adopting these new methods of interaction and support?
Gartner Reports Robust Growth in 2014 Worldwide Supply Chain Management and Procurement Software Revenues
In conjunction with its Supply Chain Executive Conference held this week, industry analyst firm Gartner reaffirmed a rather robust year of nearly 11 percent growth for supply chain and procurement software during 2014. Gartner estimated total revenues for SCM and procurement software to be $9.9 billion last year, outpacing other software market segments. The 2014 sizing of $9.9 billion reflects a nearly $1 billion increase from the Gartner $8.9 billion number reported for 2013 performance. The current 10.8 percent growth rate compares to the 7.3 percent growth reported for 2013. The fact that the pace increased by 3.5 percentage points is by our Supply Chain Matters lens, a reflection of a stepped-up emphasis in supply chain business and procurement process support needs.
Gartner again confirmed the overall fragmentation of this market segment which has continued by this author’s perspective, for the past 15 years. The top 10 vendors currently account for 55 percent of total market share, while the remaining 57 vendors tracked by Gartner account for the remaining share of the overall market. Gartner further reports that the average growth rate for remaining 57 vendors averaged nearly 10 percent, which is again, a very healthy growth performance.
As in the past, SAP and Oracle are again reported as the overall leaders of this market segment, followed by JDA Software (current Supply Chain Matters sponsor), Manhattan Associates and Epicor rounding out the top five revenue listing. We caution our readers to not be totally enamored by the SCM and procurement revenue numbers reported by both SAP and oracle since they are often internal estimates that are generated by each of these ERP providers vying for number one bragging rights. Neither reports such breakouts in their official financial reports to the investment community.
Double digit growth for this particular software segment is not at all unusual and reflects the continued importance that industry firms place on investing in supply chain capabilities. The most recent peak was in 2011 with a 12.2 percent growth rate. In its announcement, Gartner stated that: “The SCM and procurement software market experienced solid growth through sustained application demand, as supply chain remains a key source of competitive advantage in driving business growth objectives, such as improved customer satisfaction, greater business agility and operational improvements.” That statement seems understated.
From our discussions, client interactions and travels, we believe that the overwhelming complexity that is now impacting multiple manufacturing, retail and service focused industry supply chains has prompted needs for added technology support.
Disclosure: JDA Software is one of other sponsors of the Supply Chain Matters blog.
It was nearly 10 years ago when the initial hype of item-level tracking enabled by RFID began to emerge across retail and other consumer and industrial focused supply chains. The vision for the ability to connect the physical and digital aspects of the supply chain was within grasp and the hype cycle was extensive. Our readers might recall Wal-Mart’s highly visible corporate initiative for mandating RFID-enabled tracking across its supply chain as well as the U.S. Department of Defense efforts to do the same. But something happened, namely learning that seems to be rather consistent with advanced technology initiatives.
In the early days of RFID, there were challenges involved with the economic cost of individual RFID tags. Recall the threshold number of tags eventually costing less than 5 cents each. The IT infrastructure of required mobile and fixed readers, antennae, and database systems was more expensive than vendors were communicating. Industry-wide consistent information transfer standards development was elusive because either technology vendors continued to advocate for certain proprietary standards, hoping to cash in on the new technology wave, or specific industry groups themselves favored certain standards.
It is therefore very noteworthy to reflect on results of a recent survey conducted by GS1’s US Apparel and General Merchandise Initiative. For those unfamiliar, GS1 is a global information standards based organization that fosters trading-partner collaboration through adoption of global-wide consistent item numbering and identification electronic information exchange. Keep in-mind that apparel and merchandise supply chains operate on narrowest of product margins, with cost, inventory and shrinkage being prime challenges. Apparel and general merchandise was one of the prime targets of the early RFID mandates.
Last week the organization released the results of a 2014 survey providing indicators for how apparel and general merchandise manufacturers and retailers are utilizing item level Electronic Product Code (EPC) enabled RFID tracking. That survey indicates that nearly half of the manufacturers surveyed now indicating that they are currently implementing RFID, with a further 21 percent planning to implement within the next 12 months.
Of the retailers surveyed by GS1, more than half reported current implementation efforts underway with another 19 percent planning to implement in the next 12 months. Retail respondents indicated that on average, 47 percent of items received in their supply chains have RFID tags. In the news release, an Auburn University researcher indicates that retailers are garnering greater than 95 percent inventory accuracy, decreased out-of-stocks, increased margins and expedited returns. That phrase should sound familiar since it was the original declared benefits of the prior mandate efforts.
In the current clock-speed cadence of business where results are measured and expected in weeks and short months, 10 years is a lifetime. Yet, that it what was required for the technology maturity and economics of RFID item-tracking to reach what appears to be the dawn of mainstream adoption. This GS1 survey announcement should be viewed in that light.
For RFID enabled item-tracking, the early innovators have paved the way of learning and economics, as well as what worked and what did not. We at Supply Chain Matters have already brought to light the next wave of item-level tracking, sensor tags that can monitor the composition, state and movement of products across the global supply chain utilizing today’s mobile technologies and near-field communications (NFC). These tags will eventually provide for use cases in supply chain settings requiring higher levels of monitoring and detailed visibility such as fresh foods, pharmaceuticals, aerospace and others.
What is ever more important is that as a community, we learn from previous technology adoption curves where elements of business process adoption, standards and cost-effective technology all interplay. One obvious conclusion is that supplier mandates for technology implementation will not work if these elements have not been realistically evaluated.
Beyond all the hype are the inherent realities. Advanced technology does provide meaningful business benefits when applied to well-understood business process needs, challenges and cost factors. Technology adoption is not driven by vendor product marketing but by business education, process maturity, people and process realities.
© 2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.
Prediction Ten of our Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains calls for increased attention and new investment interest for service focused supply chains in the coming year. This includes after-market business process services, service parts and service delivery supply and demand business processes.
The obvious reasons are the unprecedented increases in occurrence of product recalls that add large amounts of consumer negativity towards a brand, especially in the U.S. automotive sector. Too often, there has been a “throw it over the wall” mentality involving service beyond product sale and thus the after-market service supply chain has lagged in process modernization and investment.
Yesterday, the New York Times published an article, Auto Industry Galvanized After Record Recall Year (paid subscription but complimentary metered view with sign-up). This article reminds readers that about 700 individual recall announcements involving more than 60 million motor vehicles occurred in 2014 across the United States, double the previous record logged in 2004. The rate of recalls was the equivalent of one in five vehicles currently in the road. Many of our readers can probably attest to the current situation.
Auto manufacturers have been forced to clean-up years of defects that were either undetected or ignored amidst heightened regulatory scrutiny.
The result is obvious, service supply chains swamped with requirements for numerous replacement parts and service networks buffeted by consumer rage as to why their perceived unsafe vehicles cannot be immediately repaired. In the care of the massive recalls involving airbag inflators sourced from supplier Takata, product recalls are prioritized for warm region sensitivity along with broader U.S. wide needs.
The Times article observes that sending out notification letters does not suffice, requiring more direct interaction with consumers. That, by our lens, implies more timely information and visibility as to the prioritization of repair campaigns and availability of required repair parts for specific regions. The article further hints to underreporting of potential product defects or failures.
OEM’s such as Toyota are overhauling safety and product recall practices as well as processes incorporated within its service networks. Supply Chain Matters has previously highlighted General Motors new brand survival emphasis on up-front product quality and more responsive tracking and detection of potential product problems. Social media will play a very important role in these new methods including the transmission of product recall information directly to consumers and their individual vehicles. Legislators continue utilizing the big-stick of criminal prosecution of executives and a means to motivate automotive OEM’s to be more responsive to product quality and overall vehicle safety.
Crisis often brings opportunity, and in the case of service networks, the opportunity is the ability to leverage today’s more advanced technologies related to vehicle sensors, predictive analytics, advanced simulation and scheduling, demand sensing and item-level B2B business network wide visibility among service focused supply chains.
The forces are indeed in motion for greater attention to service supply chain capabilities in the New Year.
Just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog share our annual ten predictions concerning industry and global supply chains for the coming year. We have maintained this tradition since the founding of this blog in 2008 and it continues to be quite popular with our readers and clients.
These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, as well as helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas. Predictions are sourced from synthesizing developments and trends that are occurring in supply chain business, process and technology dimensions, researching various economic, industry and other forecasting data, along with input from clients, thought leaders and global supply chain observers.
We take predictions seriously and align our research and blog commentaries to focus on specific prediction areas throughout the coming year. Supply Chain Matters will revisit each of our annual predictions at the end of the year to ascertain how close or how far each fared.
Part One of this posting series outlined our first five predictions for 2015. In this Part Two posting, we share our remaining five predictions.
2015 Prediction Six: A Stalling of Big Data and Predictive Analytics in Favor of Alternative Application Focused Strategies
We anticipate that the promise of Big Data and Predictive Analytics technology in enabling more insightful and predictive decision-making stalls in 2015 because of certain technology and organizational constraints. The promises in capabilities to analyze terabyte streams of enterprise structured and unstructured data related to customers, products, suppliers and equipment are dependent on software and database capabilities that can accommodate large data streams and simultaneous user inquiries. The term Big Data itself is a symptom of a far more perplexing problem, namely that enterprises, organizations and industry supply chains are currently overwhelmed by collecting too much extraneous data. The challenge at-hand is collecting and harvesting “smarter data”.
Database applications such as Hardoop provide the promise of smarter data, but for the time being, such applications need to be designed with more focused managed scope needs and requirements.
On the organizational side, one of the highest in-demand skills is that of a data scientist and the forces of demand far outpacing current supply has made these specialists quite expensive. Once more, what companies seek is more than just data analysis and interpretation skills but knowledge of customers, markets and business processes. That implies leveraging, building or training such skills among existing experienced teams, those with intimate understanding of the firms end-to-end supply chain. A further organizational challenge is addressing inherent concerns focused on security and governance of the mission critical sensitive data inherent in managing business operations.
Because of the above noted constraints, in 2015, IT leaders will influence line of business and supply chain functional teams to narrow the scope of these initiatives within certain supply chain process areas. For technology support, look for more supply chain, procurement and S&OP focused applications to be augmented with embedded predictive analytics and machine learning capabilities. Supply chain planning applications that include predictive analytics and/or augmented simulation will continue to lead in this effort. Expect similar efforts for cloud-based B2B supply chain network application and services. This will accommodate line-of-business needs for shorter-term, narrowed scope initiatives for smarter data and more predictive or prescriptive capabilities to respond to specific supply chain related business challenges.. We anticipate that best-of-breed technology vendors will lead with innovation in these areas while larger ERP and enterprise services providers will continue to communicate longer timetables for such functionality.
Narrowing current smarter data and predictive analytics within supply chain focused applications provides more likelihood for timelier benefits and will be a likely continuing trend in 2015 as broader streaming data efforts are re-focused and organizational challenges are resolved.
2015 Prediction Seven: A Turbulent Year in Global Transportation
Expect a turbulent 2015 involving competitive market, regulatory and business realities impacting global transportation, railroads and contracted logistics services.
These include the continuing shake-out of excess capacity among ocean container shipping lines and the re-sizing of global transportation and airfreight fleets. The reality of more super-sized container ships calling on ports not equipped for timely unloading and loading has made its presence. The “perfect storm” of dysfunction among U.S. west coast ports in the latter half of 2014 will have implications in how shippers, exporters and retailers route future shipments destined for the United States and global markets. Canada’s west coast ports will likely benefit along with U.S. Gulf and east coast ports. More importantly, the issues uncovered in labor contract negotiations, independent trucking’s driver contracts, the leasing and 3rd party deployment of tractor-trailer carriages to transport containers must be addressed by transportation industry and labor union players to avoid a repeat of what occurred in 2014. As we noted in our previous predictions in 2014, the desire for carriers or logistics providers to be asset light invariably leads to implications for having assets and equipment positioned for shipper vs. industry benefits.
Canada and U.S. based railroads will likewise encounter turbulence in industry shipping needs for accommodating higher volumes of crude-oil shipments under existing regulatory speed and safety constants while resolving additional multi-country regulatory requirements for upgrading thousands of tank cars to new safety standards. The Railway Supply Institute, a railcar industry trade group has argued that there is not enough tank car retrofit existing capacity to meet proposed regulatory deadlines for upgrading nearly 17,000 tank cars to new safety standards. This will lead to more industry and regulatory dynamics in 2015. Agricultural and bulk commodity shippers are caught in the middle of this dynamic as service levels continue to erode, leading to additional pressures by regulators on railroads to accommodate this important economic segment. Already, the share of Canadian based wheat exports to the U.S. has reached a six year low because of these dynamics. This balancing act is likely to spur higher rates and added transport dynamics in 2015.
The plunging cost of crude oil prices which is forecasted to continue in 2015 will add to turbulence involving existing fuel surcharges affixed to transport rate structures. Carriers and parcel shipment firms will likely attempt to drag out the suspension of fuel surcharges to protect or sustain ongoing margins. Carriers with a strong reliance on fuel surcharges for margins may find themselves in financial difficulty.
Finally, the implications of omni-channel commerce in B2C and B2B markets will face a number of important tests. Carriers FedEx and UPS implementation of dimensional pricing rates in 2015, causing the transportation rates of bulky but lower value shipments to be far higher will likely motivate consumers and procurement teams to revise shopping practices and place additional pressures on online providers to adsorb such costs. Amazon and Google have been positioning to control broader aspects of logistics and parcel delivery, and 2015 could well feature additional acquisition announcements from either or both players. Amidst further global-wide governmental and legislative pushback, ride-sharing services firm Uber may well alter its business strategy to focus more on priority package delivery vs. people.
The added complexities and service needs for omni-channel and industry-specific logistics needs continue to spur more service and technology requirements by customers on third-party logistics providers (3PL’s). Individual 3Pl’s must therefore invest in broader technological and systems capabilities and scale, or risk losing business to larger more versatile providers. The acquisition announcement by FedEx of GENCO this month portends this dynamic in the coming months.
2015 Prediction Eight: Sales and Operations Planning transitions to broader scope information management connectivity augmented by what-if and simulation capabilities
In order to more proactively respond to today’s constantly changing and complex business requirements, we predict that select industry sales and operations planning (S&OP) processes will begin efforts to transition toward inclusion of broader aspects of internal and external business planning, response management and predictive decision-making capabilities. This will most likely include deeper, cross-application information connections to product demand pipelines, augmented with traditional and social media based demand sensing. We further anticipate more-timely information connections with external or outsourced suppliers along with key customers, leveraging cloud-based planning and fulfillment synchronization networks. In those industries with more rapid new product introduction (NPI) cycles such as high tech, telecommunications, consumer products and electronics, the two-way flow of new product introduction (NPI), product management and program milestone information will be a consideration as well.
Because of these needs, expect B2B supply chain business network providers, including ERP players, to deepen their support for broader integrated business planning needs by leveraging cloud-based platforms or networks. Again, best-of-breed vendors have the ability to lead in this innovation. ERP provider SAP has already declared its intent to enhance its existing S&OP focused application towards more external integrated business planning elements.
Existing supply chain planning providers will have to deepen their connectivity to external cloud-based networks or risk being displaced by broader cloud-based network capabilities that synchronize planning, collaboration as well as execution information. In that light, we anticipate additional M&A or strategic alliance activity among best-of-breed planning and cloud-based platform providers in 2015. Similarly, 2015 entrants to the supply chain and enterprise technology arena will leverage Salesforce.com and other cloud-based platforms to broaden end-to-end supply chain visibility, deeper collaboration and more informed decision-making. One particular ERP player will have to make some major moves in this space.
2015 Prediction Nine: Industry supply chain step-up efforts towards supply chain vertical integration and modular product platform strategies with impacts on contract manufacturing sourcing models.
For the past three years, we have observed and highlighted on Supply Chain Matters, a number of manufacturing focused supply chains moving more towards various forms of supply vertical integration. The automotive industry has clearly been on this path while some high-tech manufacturers have embarked on initiatives as well. The newer, more technology laden versions of new models Airbus and Being commercial aircraft are demonstrating these strategies. The models varied by industry setting but the shift was discerning. This year, after reviewing data within SCM World’s published Chief Supply Chain Officer Report 2014 , we became even more convinced that industry or company specific vertical integration and modular product platform strategies would begin to accelerate in 2015. This movement comes from the realization that more and more products share common parts and components and that modular manufacturing design and deployment strategies make sense because they can facilitate more flexibility in geographical and individual customer fulfillment as well as product differentiation for various market channels while providing added protections for risk.
This strategy shift will begin to have impacts on contract manufacturing models in the latter-half of 2015, or even 2016, since these strategies involve a good portion of manufacturing value-added moving back to internal manufacturing. Since contract manufacturing arrangements for the most part stem from multi-year contracts, the impacts will be felt at contract renewal time. Many contract manufacturers currently operate on very slim product margins and symptoms of the evidence of these shifts will be reflected in even more deteriorating margins. We expect some contract manufacturers such as Foxconn, continuing to move upstream or downstream in an industry value chain to leverage the ability to either be considered a more strategic component player or eventually manufacture individually branded end-products. Likewise, key retailers and 3PL’s will asked to implement more production focused final assembly of finished goods postponement strategies at time of customer fulfillment.
Because of these strategy shifts, or perhaps anticipating such shifts, we would not all be surprised by active M&A activity among the impacted industry players noted above.
2015 Prediction Ten: Service supply chains garner increased attention and new investment interest.
We predict that in 2015 multiple equipment manufacturers and services providers will place added emphasis in evaluating their service focused supply chains. This includes after-market business process services, service parts, service delivery supply and demand networks. There will be two distinct motivations for increased investment and we anticipate that lines-of-business will be the prime investment leaders.
In the light of increasing incidents and broader occurrence of product recalls brought about by tighter global regulation, manufacturers have no choice but to protect the brand and customer retention. Service focused supply chains are the response mechanism that provide timely resolution to product quality or malfunction issues while root-cause defect areas are traced and investigated across the extended supply chain. Too often, there has been a “throw it over the wall” mentality involving service beyond product sale and thus the after-market service supply chain has lagged in process modernization and investment. Automotive industry services focused supply chains are the obvious prospect in 2015 along with industrial and medical equipment providers.
As noted in Prediction Four, IoT coupled to connectivity networks has the potential to drive new, more innovative, predictive focused product as a service platforms where connected machines and equipment serve as the demand sensing signal for maintenance, repair or consumable parts. Thus, the other investment motivator for service networks is enabling newer augmented line-of-business service revenue models that leverage IoT networks. We expect firms such as General Electric and Tesla Motors to serve as a benchmark in this area, but others will follow in the coming year.
This concludes the unveiling of Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains.
How did we fare? Have these Predictions resonated for you and your organization? Did we miss an important prediction for the coming year?
Let us know either via Comments to this series or email feedback: info@supply-chain-matters <dot> com .
In early January, the complete listing of 2015 Predictions will be made available in a research report available for complimentary downloading.
Once extend we extend best wishes for the holiday season and the upcoming New Year.
©2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved