In June of this year, supply chain planning technology provider Kinaxis announced a public offering of its stock. This IPO garnered little visibility in the U.S. because news of the IPO offering was restricted to Canada and the Canadian equity community. Supply Chain Matters readers were made aware of both the pending IPO and in a Friday news round-up, completion of the initial offering.
According to a Kinaxis press release published in June, the IPO consisted of 5 million common shares with an aggregate of 2.7 common shares being sold by certain selling shareholders at a price of Cdn$13.00 per share. The initial public offering and secondary offering was priced at Cdn $15 per common share and resulted in aggregate gross proceeds of Cdn$65.0 million to Kinaxis and Cdn$35.6 million to the selling shareholders, for total aggregate gross proceeds of Cdn$100.6 million.
At the time, Canadian business media reports identified the selling shareholders as Boston based HarbourVest Partners and Alberta Trust of Montreal, both of which retained a 30 percent ownership stake. Kinaxis CEO Doug Colbeth further indicated to media that proceeds from the IPO were to be utilized to pay down $30 million in debt and strengthen the company’s balance sheet. He did not rule out acquisition of other companies if that made sense for Kinaxis’s business.
Supply Chain Matters reviewed statements prepared for the initial IPO. They indicated that the supply chain planning provider had total revenues of Cdn $38 million in 2011, $46.6 million in 2012, and $60.8 million in 2013. Kinaxis reported a net loss of Cdn $9.7 million in 2013. In the first quarter of 2014, the company reported revenues of Cdn $15.6 million and a net income of Cdn $2 million.
This week provides additional, somewhat unexpected news of another secondary offering. Kinaxis announced that selling shareholders HarbourVest International Private Equity Partners III- Direct Fund L.P. and TechnoCap I, L.P. completed the sale of an aggregate 2.5 million of Kinaxis common shares at a price of Cdn $18.35 per common share with gross proceeds of Cdn $45.8 million. According to the press release, Kinaxis did not receive proceeds from this offering.
Following the closing of the Offering, TechnoCap now holds 3.2 million common shares representing approximately 13.7% of the issued and outstanding common shares of the Company, and HarbourVest holds a little over 2 million common shares representing approximately 8.7% of the issued and outstanding common shares of the Company. Individual executives from HarborVest and TechnoCap are current members of the Board of Directors of Kinaxis.
Technology providers often get involved in private equity relationships to fund growth and innovation. Private equity invests for a return. These relationships bring their own set of dynamics.
The business-to-business (B2B) network has become the new opportunity for fostering stronger supply chain and product business relationships with suppliers. More often today, this includes integrating new product management and introduction (NPI) with product design, collaborative manufacturing design and supply chain fulfillment.
Recently, Supply Chain Matters has highlighted a number of current day examples of the critical importance of these relationships. We highlighted recent accident investigation findings from previous Boeing 787 Dreamliner lithium ion battery fires along with findings from a joint FAA and Boeing study published in March which reviewed the broader 787 build program. Among report findings was added credence to the reality that globally extended aerospace and complex equipment supply chains need to consider more timely two-way integration of product lifecycle management (PLM) and manufacturing process test information across B2B supply chain networks.
In the high tech and consumer electronics sector, product lifecycles are far shorter and NPI cycles occur more frequently. The recent unexpected bankruptcy of a prototype Apple supplier of sapphire glass provided yet another example. Apple’s peak and valley tendencies for extraordinary new product ramp-up and corresponding large-scale production volume surges that correlate with condensed product release cycles place enormous pressures on suppliers and any last-minute product design changes can be a disaster without timely two-way information integration and change assessment. Within automotive supply chains, recent unprecedented levels of product recalls are a reflection of the exposure of common product platform strategies, where common component design is leveraged across multiple models or brands. Many if not all of these multi-industry examples point to the product and production information alignment disconnect.
Under sponsorship of E2open Inc., our research parent The Ferrari Consulting and Research Group recently published an E-Book, The Case for Tightly Integrating New Product Introduction and Supply Chain Management. This document identifies the new opportunity for leveraging the end-to-end supply chain business networks not only for synchronizing planning and fulfillment execution but the new opportunities for incorporating two-way NPI process information as well. Certain B2B networks provide the ability to support a hub-and-spoke, federated data model that spans these broader process areas and bridge the gap in existing PLM and ERP systems for integrating broader forms of process information across extended supply and demand networks.
The E-book is available for complimentary downloading with registration at the following E2open web link. Later this month, we will also feature this E-book in the complimentary section of the Research Center associated with this site.
Disclosure: E2open, Inc. is both a Named Sponsor of Supply Chain Matters and a client of the Ferrari Consulting and Research Group.
We continue with our series of Supply Chain Matters postings reflecting on our 2014 Predictions for Global Supply Chains that we published in December of last year.
Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008. We not only publish our annualized ten predictions, but scorecard theses predictions as this point every year. After we conclude the scorecard process, we will then unveil our 2015 annual projections for industry supply chains.
As a reminder, our self-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.
In our Part One posting, we revisited 2014 Predictions One and Two related to economic forces to expect in 2014.
In our Part Two posting, we revisited Prediction Three, related to continued U.S. and North America based manufacturing momentum, and Prediction Four, ongoing challenges in supply chain talent management.
In our Part Three posting, we rated Prediction Five, our specific call out of extraordinary supply chain challenges among three specific industries.
In the Part Four posting of this series, we revisited Predictions Six and Seven.
In this Part Five posting, we conclude with a look at the final three predictions declared for this year.
2014 Prediction Eight: Industry Re-Structuring of Global Transportation Surface and Air Networks Increase Momentum as Carriers Adjust to Realities
Our prediction in this area was predicated on a continued uncertain global economy, along with the after-effects of severe recession in the Eurozone motivating industry supply chains to rely on more economical and cost effective surface transportation modes. However, multiple years of excess shipping capacity across global ocean container fleets continue to be exacerbated by the ongoing delivery of massive new mega-ships designed to carry far more containers at a lower overall cost. The result was a relative no-brainer prediction- namely that industry consolidation was inevitable.
In March of 2014, industry watchdog Fitch Ratings once again declared that consolidation in the container shipping segment via alliances or mergers was likely to accelerate due to persistent overcapacity and freight rates pressures. The CEO of industry leader Maersk Lines also predicted that excess ocean container capacity would extend through 2016.
As a consequence, number of industry alliance or consolation announcements permeated 2014. There was an attempt among the top three global ocean container carriers to form the P3 Network which was thwarted in the end by Chinese maritime regulators. That was followed in July with the announcement of the 2M Alliance as industry leader A.P. Moller-Maersk announced a ten year vessel sharing cooperation agreement with Mediterranean Shipping Company (MSC) for designated Asia-Europe, Transatlantic and Transpacific routings. In August, global maritime regulators gave the go-ahead to the merger German based Hapag-Lloyd and Chile based CSAV which was expected to create the fourth-largest global shipping company in terms of capacity. In September, the Ocean Three Sharing Alliance was announced as French container shipping group CMA CGM entered into a service alliance with China Shipping Container Lines (CSCL) and United Arab Shipping (UASC).
As 2014 came to a close, a perfect storm crisis crippled U.S. west coast ports as the compounding issues of ongoing labor contract negotiations, larger ocean container vessels requiring more time to unload and load, an overall shortage of container transport carriages and labor disputes among trucking companies and independent drivers all intersected to form a bottleneck for crucial holiday fulfillment supply plans.
In June, the 25rd Annual State of Logistics Report prepared for the Council of Supply Chain Management Professionals (CSCMP) reported cost of the U.S. business logistics rose by another $31 billion in 2013. The report further confirmed that both U.S. trucking and rail networks were running at near 100 percent capacity, leading to spot shortages of specialized trucks and/or railcars. The boom of rail car shipments of crude oil from the North Dakota Bakken region fueled such shortages along with more incidents of railcar accidents and explosions. The last months of 2014 featured the first overture of a major railway, Canadian Pacific, calling for network consolidation within North America rail networks.
More use of surface transportation motivated international air freight carriers to further cutback on overall capacity in an effort to uphold rate structures and profitability goals.
The sum total of this 2014 prediction is that industry supply chains experienced longer transit times, increased costs and further heartburn as to the overall reliability of transit times. Industry consolidation and constrained logistics networks thus far has been for the benefit of asset owners or carriers vs. shippers.
2014 Prediction Nine: Internet of Things Picks Up Considerable Momentum
The Internet of Things (IoT) provides a new era of interconnected and intelligent physical devices and/or machines that will revolutionize supply chain processes related to production, transportation, logistics and service management. Our 2014 prediction was that IoT interest and development efforts would expand globally and would feature more announcements from well noted global based players in manufacturing, services and technology circles. That turned out to be exactly the case, and as we approach the end of 2014, IoT has become the buzz of industry and global supply chain news.
In consumer dimensions, Google kicked off the year by announcing its acquisition of home monitoring provider Nest Labs for $3.2 billion. Automobile manufacturers continued with strategic efforts focused on connected automobiles, while General Electric became the leadership icon for connected industrial equipment. The industrial conglomerate recently disclosed that it has already garnered over $1 billion in revenues related to its connected industrial products and services.
Increased market momentum naturally fueled vendor interest in positioning or jockeying interoperability standards. That led Supply Chain Matters to speculate whether the market was positioning for a replay of the RFID standards mess. In March, AT&T, Cisco, GE, IBM, and Intel officially formed the Industrial Internet Consortium (IIC) to accelerate work on areas such as interoperability standards for IoT in industrial markets. In July, a handful of tech heavyweights, namely Intel, Broadcom, Dell and Samsung Electronics unveiled a new non-profit termed Open Interconnect Consortium (OIC) with a mission to come-up with certification standards for devices operating in IoT environments. That announcement came after a December 2013 announcement from nonprofit Linux Foundation in conjunction with names such as Microsoft, Panasonic, Qualcomm and others that calls for the AllSeen Alliance to come up with a similar goal.
Technology vendor moves included product lifecycle management (PLM) and service lifecycle management (SLM) technology provider PTC initiating two strategic acquisitions to position the company to be able to leverage IoT platforms. In December as we published our prediction, PTC announced its $112 million acquisition of ThingWorx, a provider of platform that allows firms to build and run applications that leverage machine to machine information exchange. In July the provider announced the acquisition of Axeda, an IoT cloud-based technology provider offering technology that connects machines and sensors to the cloud, for a reported $170 million in cash. SAP recently announced a series of supply chain, service management and manufacturing applications enhancements that can leverage IoT platforms, along with an intent to develop applications support in this area over the next two years.
In 2014, strategy consulting firm McKinsey included the IoT as one of the ten truly disruptive technologies for the next decade that will be adding several tens of trillions of dollars to the global economy by 2025. Increased momentum and interest in IoT and its potential business benefits was a prediction that indeed played out throughout 2014.
2014 Prediction Ten: Continued Technology Investments in Cloud Computing, Predictive Analytics and Select Supply Chain Services.
Our assumption for 2014 was that a more optimistic global economy would motivate industry supply chain and line-of-business teams to increase levels of investment in specific areas of supply chain business process needs. Areas we highlighted were enhanced sensing of product and geographic demand , deeper lower-tier visibility to supply risk areas, more emphasis on leveraging B2B network platforms and added investments in more predictive or prescriptive supply chain intelligence capabilities. We further predicted that the attraction of cloud-based applications technology would continue to gain market adoption, primarily due to the needs for quicker time-to-value.
Our monitoring of both technology vendor and end-user communities throughout 2014 indicated for us that this prediction area generally played out with a couple of exceptions. Buying activity focused on cloud-based options for supply chain related business processes is indeed on the increase, validated at double-digit growth rates among various by many of the quantitative market research firms.
In the area of enhanced sensing of product demand, in 2014 we discerned a movement on the part of a select number of supply chain planning vendors to enhance their connectivity and support of demand sensing processes. In March, SCP vendor ToolsGroup announced the application of “machine learning” applied to product demand forecasting. In the case of Steelwedge, it was manifested by release of initial supply chain and S&OP focused “apps” released on the Salesforce.com platform.
Increased interest in leveraging B2B business networks for broader end-to-end visibility captured the interest of many industry supply chains and we observed vendors in this area branching out beyond their core vertical industries. SAP communicated a strategy focused on “Integrated Business Planning Network” eventually leveraging elements of the AribaB2B platform with elements of supply chain planning, execution and S&OP support. The year 2014 brought added emphasis for including new product introduction (NPI) and PLM focused information within B2B networks and motivated E2open to acquire Serus Corporation, a provider of network-enabled NPI information.
Supply chain focused cloud technology also captured renewed interest from the venture capital community. In February Elementum, which describes itself as the first mobile platform for end-to-end supply chain management, formally announced its market launch after securing $44 million in Series B funding from Lightspeed Ventures. In late May we called reader attention to a CB Insights blog posting titled: Software Eats the Supply Chain which provided succinct quantification of the renewed interest and that further indicated that over the prior four quarters, investors poured $359M into 63 deals in the logistics & supply chain software industry segment. Early stage investments in mobility, same-day delivery and cloud based end-to-end platform investments were of the most interest. Oracle made added strides toward availability of its public cloud version of supply chain applications support.
On the services side, more industry supply chains opted to outsource supply chain logistics and fulfillment processes to external third part logistics (3PL), transportation or BPO services firms. The increased pressures for cost reduction coupled with needs to serve Omni-channel market and fulfillment segments motivated these moves. However, firms may well discover in the coming months the hidden costs of such moves. As noted in our scorecard related to Prediction Eight above, the costs related to business logistics and 3PL services continues to rise with little relief in sight.
This concludes our series of looking back on 2014 to assess how our Supply Chain Matters Predictions fared. We trust our readers were able to gain benefits from following our series. Again, feel free to share your own observations regarding the key supply chain, procurement and B2B developments in 2014.
As we move toward the latter stages of December, we will shift our attention to what to expect in 2015.
©2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.
These past few weeks have featured a series of noteworthy news items related to enterprise and supply chain technology provider SAP. In a prior posting, Supply Chain Matters called attention to the announcement of a new chief marketing officer and the formation of a new Digital Business operating unit. In this posting we touch upon some other announcements and their significance to a broader strategy that is underway, one that is perhaps strategically critical to SAP.
Earlier this month, SAP announced three business applications to help customers leverage Internet of Things (IoT) technology. These announcements represent initial efforts towards an overall multi-year effort for SAP to provide increased leveraging of digital based technologies.
SAP Predictive Maintenance and Service, which is developed on SAP’s HANA Cloud Platform, is directed for manufacturers’ support in predicting a malfunction of installed equipment before it occurs by monitoring equipment sensors and historic operational data. SAP Connected Logistics is also provided on the SAP HANA Cloud Platform to provide logistics hub operators the ability to monitor traffic toward and within a hub and facilitate communication between involved parties including those that do not have a direct business relationship. The software is planned to offer integration to backend transportation management systems, and lean dispatching capabilities for logistics service providers that do not have a sophisticated backend solution in place. Finally, SAP Manufacturing Execution, Version 15.0 is envisioned to offer IoT support for manufacturing operations, by integrating manufacturing results with real-time feeds into the SAP HANA platform.
The above announcements, in themselves, are significant because they are another reinforcement of the building interest among manufacturers and service providers for increased leveraging of IoT in business support and supply chain planning and execution processes. SAP does not typically initiate development efforts without some form of customer pull influence. The announcements are an indicator that SAP does not want to be the also-ran player in leveraging cloud-based IoT networks. From our lens, that is an indicator that the enterprise vendor needs to foster forms of deeper relationships with broader IoT ecosystem players, similar to what PTC has been initiating with its recent acquisitions in this area, and broadened channel relationships.
Readers may recall SAP’s prior announcement in September of the technology providers intent to acquire travel and expense spend control provider Concur Technologies for $8.3 billion. Last week, both companies announced that Concur’s shareholders have now voted their approval of the acquisition and that the transaction is expected to close on or about December 4, 2014, subject to the satisfaction or waiver of closing conditions, including those related to regulatory approval. At the time of the announcement, this author’s initial reaction was that of puzzlement. Why pay such a significant premium for a cloud-based travel expense support provider and what is the strategic fit to other cloud-based strategies? Apparently, after noting numerous comments from other industry observers as well as SAP’s own influenced blogging community, we were not alone in that perception. Indeed, the SAP user community should wonder whether Walldorf is again taking precious financial resources away from its core strength of supporting broad manufacturing industry business process support needs.
That leads to the third significant announcement. At a recent Morgan Stanley investment conference, SAP CEO Bill McDermott indicated that the enterprise technology provider is about to unveil a five year operating plan. According to a posting by re/code that highlighted a recent interview with McDermott, the first elements of the strategic plan will be laid out in January, when SAP next reports quarterly results. In February, at the SAP shareholders meeting in New York, the CEO will unveil the detailed five year plan. After spending upwards of $16 billion in prior acquisitions of cloud-based providers it would appear that SAP may be chasing installed-based seats vs. an overall cohesion of strategy. According to the re/code commentary, “now it falls to McDermott to make the disparate parts work together in a coherent strategy with SAP’s core group of applications.” In the interview, SAP’s CEO further indicates that the company may be done with large acquisitions, preferring instead to pursue strategic “tuck-in” acquisitions to supplement cloud applications. That is the sure sign that SAP’s financial resources do have limits, particularly as the company transitions to its goal of having a more cloud-based, subscription revenue stream.
Supply Chain Matters highlights all of these announcements as data points because for us, they indicate that SAP has reached an important stage. The technology provider needs to differentiate itself to its customers and to its investors. Which markets and which technology areas does it portend to strategically pursue over the next five years? Which core industries, including manufacturing related, will SAP continue to provide technology innovation and what areas will SAP open to broader strategic partnerships? Will SAP’s market strategies be governed by the influence of its direct-sales model? Will innovation in future supply chain, manufacturing and B2B business network areas be once again diluted by other strategic needs?
These are all crucial questions, not only to SAP and its installed base customers, but to the tenure of its current senior management team. We can all look forward to 2015 as providing some added answers for the SAP ecosystem.
In March of 2012, Amazon agreed to acquire privately-held warehouse automation and robotics provider Kiva Systems in an all cash deal of $775 million. At the time, there was much speculation regarding Amazon’s strategic intent in acquiring this warehouse and distribution center robotics automation provider at such a hefty price. Speculation primarily centered on what was Amazon’s strategic intent. That speculation changed shortly thereafter when external sales of Kiva based technology was no longer offered to new external customers. In essence, Kiva was to become an in-house fulfillment center automation innovator for Amazon.
In June of this year, Supply Chain Matters highlighted reports noting that at Amazon’s annual investor meeting, founder Jeff Bezos indicated that the Internet retailer would have upwards of 10,000 Kiva based robots deployed by the end of this year.
Last week, The Wall Street Journal reported (paid subscription or free metered view) that during the current surge of holiday orders across the Internet retailer’s 80 distribution centers, Amazon will be able to now leverage its Kiva deployments. Readers further have the opportunity to view information relative to the results of some deployments.
According to the WSJ, in the first nine months of this year, Amazon’s fulfillment costs averaged 12.3 percent of net sales compared with 8.9 percent in 2009. Wall Street investors are obviously quite concerned with the size and current growth of that number. But, with full deployment of robotics, fulfillment center workers who previously recorded upwards of 100 order picks-per-hour are expected to average 300 picks-per-hour. A security equities analyst is quoted as indicating that Amazon could reap $400-$900 million in annual cost savings as a result of Kiva technology deployment. If those savings are accurate, they more than justify the original acquisition cost and would provide some buffering to the growth of Amazon’s fulfillment costs.
In our June commentary, our view was that Amazon has a broader strategy, one that allows robotics to buffer the often perplexing need to flex fulfillment center human resource requirements during seasonal peak periods. For the current 2014 holiday fulfillment surge, Amazon has brought in 80,000 temporary workers, an increase of 10,000 from the 2013 period.
In September, Supply Chain Matters called reader attention to Amazon’s efforts in testing deployments of new sortation centers to mitigate shipment delivery congestion and provide added flexibilities in the selection of last-mile delivery carriers.
Amazon’s supply chain leadership has numerous technology enablement strategies underway and we will all have the opportunity to observe the initial results of these efforts over the next few weeks.
The synchronization and management of the Omni-channel customer fulfillment experience has fast become a complex problem for retail industry business management and supply chain teams. The added dimensions of taking orders online or from physical stores and fulfilling from multiple channels adds complexity and needs for smarter and more-informed decision-making. Cost to serve and determining impact to profitability become ever more a challenge.
Yesterday, in conjunction with the Focus Connect 2014 event being held in Barcelona, JDA Software and IBM made a joint announcement that Supply Chain Matters believes demonstrates the ongoing importance and continued evolution of Supply Chain Control Tower (SCCT) support capabilities in the supply chain technology market. This announcement could also portray a possible broader relationship among these two technology providers in the months to come.
The specific announcement involves a joint collaboration among JDA and IBM development teams to address the need to process and fulfill retail industry Omni-channel orders in a more efficient and more intelligent manner. The approach calls for combining the elements of JDA’s warehouse management, demand planning and workforce planning business support capabilities (JDA Intelligent Fulfillment and Labor Productivity) with IBM’s Sterling Distributed Order Management network platform capabilities. In essence, this approach marries elements of supply chain planning and execution with an end-to-end order management and fulfillment platform that connects all channel participants. The combined capability is expected to be offered in either an on premise or cloud deployment option, the latter being supported by IBM’s SoftLayer business arm. The joint development effort is currently underway and according to the announcement, is expected to be available in late spring of 2015.
This author had the opportunity to speak with IBM regarding the joint announcement. Discussions among these two technology providers began in January of this year at the National Retail Federation (NRF) conference. Both companies have a rather strong market presence among global retailers and each was hearing customers speak to the increasingly complex challenges currently manifested in Omni-channel customer fulfillment, including the dynamic aspects of having to manage the tradeoffs of inventory, appropriate fulfillment location, transportation and labor requirement needs. In May of this year, our Supply Chain Matters commentary associated with attendance at IBM’s Smarter Commerce Summit highlighted the evolving dimensions of Omni-channel and the needs to provide more predictive and prescriptive decision-making capabilities into the process.
The joint press release includes a quote from joint customer Lowe’s Home Improvement, and we were informed that both firms have identified interest from other unnamed retailers as well. Apparently, the original timetable called for announcement of joint product integrating JDA and IBM elements later in 2015, but it was obviously pushed-up to coincide with this week’s JDA customer event.
Our supply chain and B2B business community education series regarding SCCT has articulated that the concepts of control towers involve efforts to bring together supply chain planning and execution business process elements with enhanced intelligence and more predictive decision-making that can be provided in near real-time dimensions. There have been a number of strategic movements underway among multiple supply chain, enterprise and ERP technology vendors to build, broaden or position SCCT capabilities. We view this JDA-IBM joint announcement as yet another dimension of such efforts. JDA has the potential to leverage a broader more feature-rich distributed order network platform that supports more dynamic process parameters while IBM garners access to deeper retail-specific supply chain planning and execution support functionality. We have been informed that JDA is building and architectural framework that supports plug-in capabilities from other vendors, similar to what we have heard from supply chain planning providers such as Steelwedge and its connection to the Salesforce.com platform. Similarly, supply chain business network provider E2open augmented supply chain planning and product management support capabilities with the acquisition of Icon-SCM and Serus Corporation respectively.
As noted in our previous commentaries, IBM has been integrating elements of Sterling order management and B2B messaging capabilities with its IBM Emptoris sourcing and procurement business suite, and has communicated efforts to bring the predictive elements of Watson decision-making to online fulfillment and supply chain synchronization challenges. Thus, the SCCT business process support elements continue to broaden from many dimensions and are a sign of what will transpire from SCCT support technology down the road.
In the meantime, readers and joint JDA and IBM customers should watch the ongoing joint efforts among both providers for further signs of what is to come. Just like the prior announcement of the partnership among IBM and Apple, both parties provide the potential to remove the information integration burden for today’s highly complex supply chains.
Disclosure: IBM, E2open and Steelwedge have current or prior business relationships with the Ferrari Consulting and Research Group, parent of the Supply Chain Matters blog.