The Initial Signs of the Donald Trump Era- Continuous Change, Uncertainty and Supply Chain Risk Mitigation
As Supply Chain Matters has noted in prior commentary, the election of Donald Trump as the incoming President of the United States will present quite a number of global and domestic supply chain management uncertainties for industry teams to manage over the coming months, and perhaps years. The question is how to be prepared.
Thus far, Trump’s initial communications and proposed Presidential Cabinet appointments would imply that campaign promises to kill unfavorable trade agreements as well as openly confronting American companies to keep jobs in the United States are holding true. Then again, news of potential Cabinet and advisor appointees would imply a pro-business administration.
The first public confrontation involving the heat and air conditioning Carrier business unit of United Technologies over proposed job reductions that were transferring to Mexico has received quite a lot of media coverage. Trump’s supporters are elated with this initial confrontation. In the end, after closed door discussions, Carrier has agreed to keep roughly 1,000 jobs in Indiana, while the state of Indiana had to agree to provide UTC upwards of $7 million in financial incentives to remain in the state. While Carrier still plans to invest $16 million to retain some operations in Indiana, the intent is to go-ahead with the movement upwards of 1300 other jobs to Mexico and close another facility in Indiana as originally planned. While visiting the Carrier Indiana facility yesterday, Trump once again vowed to reexamine existing trade agreements such NAFTA, and put U.S. businesses on-notice that there would be consequences for any decision related to the movement of jobs out of the country.
Political opinion is now raising the specter of U.S. corporations having to base business sourcing decisions on threats of punitive actions. That further raises speculation that other countries will respond to a Trump administration with threats or their own punitive actions.
On a somewhat positive note, the selection of Elaine Chao, a former Cabinet secretary serving eight full years during the Bush Administration as the nominee for Secretary of Transportation is being perceived as an intent to follow-through on the campaign promise to aggressively invest in needed infrastructure in roads, bridges and other badly needed U.S. transportation infrastructure needs. Ms. Chao provides what is widely perceived as an extensive policy background and she is also the spouse of U.S. Senate Majority Leader Mitch McConnell. If confirmed, Ms. Chao will inherit management of current unprecedented levels of safety related recalls involving the U.S. automotive sector, especially those related to air bag inflators manufactured by supplier Takata. She will have oversight of regulations pertaining to Uber-like transportation services as well as regulations pertaining to autonomous driving vehicles.
For industry supply chain teams, there is little doubt that capabilities in assessing supply chain network design decision support options based on criteria related to direct labor costs, inventory, transportation and landed costs, as well as what may be constantly changing local content requirements will be essential. Capabilities in managing what may turn out to be very fluid and changing global trade management policies and regulations will obviously be essential along with integrating such information with existing product sourcing and planning systems.
Supply Chain Matters sponsor LLamasoft has already indicated a marked uptick in interest levels in the firm’s supply chain network design and Supply Chain Guru focused technology coming from UK based firms because of the Brexit referendum, and anticipates similar increased interest levels as the Trump leadership era unfolds.
As teams prepare for their 2017 investment and resource budgets, minimizing risks related to global sourcing and material movements, deeper analysis and more informed decision-making capabilities, along with overall agility in supply chain focused decision making should be high priority areas.
In 2017 and beyond, supply chain and product management teams will indeed be very involved in counseling senior and line-of-business management on the various whiplash effects of a far more changing global trade environment.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Boeing made a senior management change this week, recruiting a General Electric Aviation Services executive to be the new head of the Commercial Aircraft division. This executive move, which is effective immediately, likely has manufacturing, supply chain and services management implications from two perspectives.
Kevin McAllister previously served as the head of GE’s Aviation Services business unit which is the customer support arm of the aircraft engine unit. Thus, McAllister brings an aftermarket services perspective. His background is one of design engineering, having served in roles of engine component development and services sales.
According to statements from Boeing CEO Dennis Muilenberg, the aerospace manufacturer sought an executive with “fresh ideas” to lead in efforts to triple services related revenue over the next decade. In conjunction with this executive change, Boeing further indicated that it plans to centralize management of the service businesses related to defense and space operations as well as commercial aircraft.
Supply Chain Matters believes that the above moves signify intent by Boeing to expand revenue and profitability growth across managed services and such efforts will likely include leveraging of Internet of Things (IoT) and connected devices as technology underpinnings of such efforts. Boeing had previously announced its intent to leverage more revenues from service parts which decreases revenue opportunities from certain suppliers.
As the new head of Commercial Aircraft, McAllister will oversee all of Boeing’s manufacturing and internal supply chain resources. He represents the first outsider hired for a senior management position since 2005 when former GE executive Jim McNerney was recruited to be CEO. We believe that his prior background in product engineering, services and manufacturing will surely help in the continuing challenge to ramp-up Boeing’s existing aircraft production cadence to meet backlogged product demand. Boeing previously
According to a report published by the Seattle Times, during his tenure, former Commercial Aircraft CEO Ray Connor had precipitated a sharply negative turn in Boeing’s relationships with its various labor unions. Much of this animosity came during plans to source manufacturing and supply chain related strategies for Boeing’s next generation 777X aircraft. In a January 2014 blog commentary, we had highlighted the effects of Boeing’s strong-willed collaboration efforts with the State of Washington, with prospective suppliers, and with Boeing’s labor unions. Other sour relations remain in the shared manufacturing responsibilities for the 787 Dreamliner aircraft among Seattle based, unionized manufacturing workers and predominate non-unionized workforce at its Charleston South Carolina production facility. Mr. McAllister must now direct some of his leadership efforts at addressing these sore areas.
The announcement of this new external executive hire comes after a corporate supply chain management announcement in March. Pat Shanahan, the former head of Commercial Airplane Programs was appointed as Senior Vice President for Supply Chain Management and Operations companywide. According to that announcement, Shanahan was provided direct responsibility for oversight of manufacturing operations and supplier management functions, including implementation of advanced manufacturing technologies and global supply chain strategies. At the time of his appointment, Shanahan reported directly to Boeing CEO Dennis Muilenburg. There will obviously be some shared collaboration and leadership with both McAllister and Shanahan moving forward.
© The Ferrari Consulting and Research Group LLC and the Supply Chain Matters® blog. All rights reserved.
There was a rather stunning announcement concerning the world of Cloud based ERP and B2B systems technology this week.
Infor announced yesterday that it has received an additional equity investment of more than $2 billion from Koch Equity Development LLC, the investment and acquisition subsidiary of Koch Industries, Inc. According to the announcement this incremental investment “will provide Infor access to additional growth capital to accelerate innovation, expand distribution, and continue disrupting the enterprise applications industry.”
The investment transaction is expected to close in early 2017 and represents the largest ever made by Koch Equity Development involving another firm.
The name Koch may have resonance with readers, and yes, ladies and gents, this is the same privately owned Koch Industries that reported $100 billion in revenues in 2015. The Koch conglomerate of industry presence stems from brothers Charles G. Koch and David H. Koch who have garnered a fair amount of visibility in U.S. political discourse.
Under CEO Charles Phillips, Infor has undertaken a new phase of growth and innovation that is clearly leveraging Cloud based technologies. This new $2 billion infusion obviously represents a significant boost in such efforts, representing the equivalent of what the company has invested in product design and development in the previous five years. In its recent last fiscal year, Infor recorded total revenues of $2.7 billion and invested $422 million in research and development in FY16 alone. The closing cash balance in Q4 was $705 million, and that position immediately climbs to near $3 billion when the Koch infusion occurs. That represents a lot of firepower in the world of mid-market ERP technology.
Infor has been private equity owned by Golden Gate Capital and Summit Partners, and both firms will retain control of the company. However, Koch Equity will be granted four of the total nine Board of Directors seats.
There will be lots of initial speculation as to what areas will be leveraged by this investment. Some executive quotes from the announcement point to co-innovation efforts involving various Koch multi-industry businesses. That would imply Infor’s movement up-market to support larger enterprise Cloud ERP support needs, while connecting seamlessly with operating subsidiaries or external supply chain partners. It would thus likely include further conversion of current Koch business units to Infor based technology.
Infor’s prior acquisition of GT Nexus, a B2B network supporting customer global transportation and logistics transactional and business process support needs may well be another area of added investment in either further network and applications development or leveraging growth by added acquisitions that can support process needs beyond logistics and transportation, including procurement and planning.
A third area could be in direct ownership of Cloud infrastructure, since Infor currently contracts with Amazon Web Services (AWS) for most of its cloud hosting needs. Of the largest players in the ERP market today, Oracle has invested and deployed its own Cloud applications and IT infrastructure network while SAP has elected a hybrid model that features both SAP hosted for HANA Cloud based technology and partner owned Cloud infrastructure for hosted ERP applications.
Our initial view is that Infor stands to gain more by added investment in all three areas, but in different scope. Our bias points to a lost opportunity if Infor does not take the opportunity to expand its capabilities to be a unified Cloud ERP, supply chain B2B network and managed services provider and GT Nexus is the key to such strategy.
This Infor announcement comes on the heels of Oracle’s July announcement to acquire Cloud ERP provider NetSuite for an estimated $9.3 billion. That acquisition also presented various possibilities but in different dimensions.
The initial takeaway from this week’s Infor announcement is that a thunder bolt has been heard in the Cloud ERP landscape, one that will certainly play out in the months to come. It serves yet another indication of serious money being invested in Cloud based applications and technology and on the customer adoption attractiveness of these technologies.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
General Electric Digital conducted its Minds + Machines event this week which featured several significant announcements related to efforts directed at GE’s concept of the Industrial Internet and GE Digital’s Predix System.
On the product front GE unveiled its next release of Predix that will now include a distributed computing at the edge feature. Instead of unilaterally sending volumes of machine sensory data directly to the Cloud, Predix Edge provides an option to perform analytical analysis of such data either at the physical device itself, a local controller, or a network gateway, prior to transmitting data and information to the Cloud. The benefit of this feature rests with machines and devices that support safety conscious use where a severe fault would cause serious consequences and where remediation reaction time is critical. Picture a physical jet engine or a locomotive not only streaming operational data but in some cases, analyzing such data at the source with the ability to adjust or fix abnormal conditions.
An important metric for uptake of any new operating systems is the number of Independent Software Vendors (ISV’s) along with outside developers who are building applications. GE Digital now indicates that after one year after opening Predix to the broader industrial community, there are now more than 19,000 of such developers.
In addition to technical updates, a series of industry focused IoT applications were announced focusing on areas such as optimizing energy use in lighting, HVAC and other systems, an Asset Performance Management application that provides continuous inspection data for the oil and gas sector, and a new release of Digital Power Plant software for various forms of power plants to help customers to reduce unplanned downtime or reduce false positive alerts. For healthcare, GE has expanded partnerships focused on its Health Cloud area in areas of what are described as deep learning, collaboration and analytics to improve patient outcomes.
There were mentions of ongoing IoT focused customer adoption including names such as BP, Excelon, NEC Corporation and Teledyne Controls. One of the more interesting adoptions was that of the Port of Los Angeles which is partnering with GE Transportation to pilot what is being described as the first of its kind information portal that makes shipping data from today’s supermax container vessels available to cargo owners and transportation operators through secure, channeled access. Data will include that from the U.S. Customs and Border Protection’s Automated Commercial Environment (ACE) system.
Another very newsworthy development from GE this week was its continuing efforts in acquisitions of other technology firms to augment its IoT development strategies. On Monday came the announcement of the acquisition of field service software support provider ServiceMax for a reported $915 million. What makes this acquisition somewhat more significant was that ServiceMax and PLM and IoT provider PTC had initiated a strategic partnership in the middle of 2015 in which both companies would collaborate on integrated products that would combine modern field service management with connected device management leveraging PTC’s ThingWorx. Where this strategic alliance stands after the GE Digital acquisition remains an open question.
Other acquisitions that were announced this week included that of Bit Stew Systems, positioned to bring deeper data intelligence capabilities to Predix and other Industrial Internet applications. GE Digital also acquired Wise.io, a machine learning and intelligent systems provider. These new acquisitions augment other acquisitions of Meridium and Wurldtech.
In a Supply Chain Matters posting in June that reported on GE Digital’s mid-year report of progress, we noted that GE is clearly an industrial company that is fostering a software industry type culture of fast innovation and acquisition of advanced technology to maintain market momentum and dominance. The uniqueness is in being an industrial equipment manufacturer, a multi-industry specialist presence and now a technology provider that is tracking to software revenues of more than $7 billion in 2016.
The industrial conglomerate elected to begin efforts to move its corporate headquarters from pastoral central Connecticut to Boston’s seaport tech district principally to foster an overall culture of fast innovation. GE is in a race among other enterprise technology providers, systems integrators and industry platform providers, an IoT focused race that presents differing roles of partner, equipment operator, developer, maintainer and perhaps key competitor.
Like previous market inflection points such as Client-Server, ERP, RFID, Cloud and now IoT, the race is on, and rather than a sprint, it is a marathon that features many hills and valleys and changes along the route. Only this time, the make-up now includes a very interesting new player, one’s that lives, breathes and practices industrial networks, equipment maintenance, services and understanding of asset management.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
While industry supply chain teams continue to work on achieving 2016 year-end strategic, tactical, operational line-of-business business and supply chain focused performance objectives, this is the opportunity for Supply Chain Matters to reflect on our prior 2016 Predictions for Industry and Global Supply Chains that we published just before the start of the year.
Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008. Our approach is to view predictions as an important resource for our clients and readers, thus we do not view them as a light, one-time exercise. Not only do we research and publish our annualized predictions, but every year in November, we look-back and score our predictions for the year.
As has been our custom, our scoring process is based on a four-point scale. Four will be the highest score, an indicator that we totally nailed the prediction. One is the lowest score, an indicator of, what on earth were we thinking? Ratings in the 2-3 range reflect that we probably had the right intent but events turned out different. Admittedly, our self-rating is subjective and readers are welcomed to add their own assessment of our predictions concerning this year.
In our prior Part One posting, we looked backed on our prediction for overall economic climate and business planning and the outlook for sourcing and procurement.
In our Part Two posting, we revisited our prediction for continued turbulence and change surrounding global transportation, along with our prediction related to the widening of supply chain talent and skill gaps.
In our Part Three posting, we revisited and reported on our industry specific supply chain predictions for this year.
2016 Prediction Six: Certain Industry S&OP Processes Would Morph to Broader Forms of Integrated Business Planning and Product Management.
Self-Rating: 2.5 (Max Score 4.0)
The term integrated business planning is often depicted as a specific technology vendor term but in reality it is a desire that all functions of a firm be aligned at a single set of financial, business, supply chain operational and tactical business outcomes.
Multiple surveys of multi-industry Sales and Operations Planning (S&OP) processes consistently point to existing frustrations in setting the right key performance indicators, investing more time in collecting data than in analyzing implications of decisions and insuring expected business results. Some point to the need for the S&OP process to be able to more directly influence top-line revenue growth along with closing the product demand and supply gaps of existing plans.
A lot of these challenges remain driven by lack of integration among various financial, line-of-business and supply chain decision-support systems, not to mention integration to new product planning and portfolio management. All exist as islands of information that were not pre-designed to integrate into a singular decision-support process. The unfortunate reality is that the decision process supporting S&OP remains firmly rooted in spreadsheets linked to various disparate internal and structured applications and unstructured information.
For 2016, we anticipated that certain S&OP teams, those experiencing high levels of value-chain complexity and business change, would begin to morph S&OP process and decision-making with broader information and contextual decision-making components and begin to identify and address obstacles for incorporating key information integration from product management and financial systems. We predicted that S&OP teams have new options and paths towards their need for more integrated business planning and that the attractiveness for such movements will increase in 2016 and beyond.
The latter part of our prediction has indeed become far more evident in that there are today, far more defined business process and supporting information technology paths directed at IBP. For the former prediction, our sensing of such efforts lead us to believe that such morphing has generally not occurred.
While certain very large enterprises may have had the dedicated financial, IT and people process support e resources to augment their S&OP processes into broader forms of IBP, the clear majority did not have the bandwidth, senior management support or resources to undertake such efforts. Organizational barriers and cultures remain to be overcome, as is the compelling business case.
Our sensing of systems integrators and consultants specializing in S&OP augmentation indicate that multi-industry teams were far more concentrated in understanding what Cloud computing options meant to their various processes, and what various technology vendors were offering for IBP support. Some of the larger ERP platform providers such as SAP remain in the process of trying to integrate the various dimensions. Integrators and consultants found more engagements related to establishing S&OP or overall business planning groundwork initiatives.
For these reasons, we have scored this prediction in a lower quadrant. However, we still believe that IBP efforts will drive substantial business benefits. The question now reflects a reasonable timeframe.+
2016 Prediction Seven: Internet of Things (IoT) Initiatives Would Continue to Dive into Realities of Line of Business Strategy and Deployment
Self-Rating: 3.5 (Max Score 4.0)
Our 2015 prediction was that cross-industry interest levels surrounding products and services leveraging IoT would continue to attract wide multi-industry interest. Indeed, that high level of interest and initial investment continued.
We predicted that in 2016, the realities in the lack of consistent global-wide standards addressing data security concerns would provide visible challenges for broader industry deployments, and that challenge will remain. On Supply Chain Matters, we highlighted one expert’s observation indicating a territorial battle among operations technology focused teams and those responsible for the security of company networks that centers squarely on information security concerns. We joined others in predicting that information hacking will provide additional headline visibility in 2016, increasing the pressure on technology providers and device producers to focus more on information security remediation techniques. Hacking incidents indeed dominated both business media as well as the U.S. Presidential election news with many high-profile incidents of information cyber-attacks. In October, we posted a Supply Chain Matters commentary noting that more powerful and widespread cyber-attacks were the wake-up call for IoT. In the late October incident that struck DNS provider Dyn, Inc., the hackers created a malware program that was carried out, in part, by calling into service unsuspecting devices connected to the Internet, and said devices included digital video recorders and webcams in people’s homes that were taken over by malware and used to help execute the massive cyberattack. Once more, hundreds of thousands of existing devices were believed to have been infected with the malware. The reality of information security did occur and the IoT community is compelled to address this ongoing challenge.
It is rather important to not get caught-up in the multiple predictions of billions of devices connected to the Internet. Rather it is very important to differentiate B2C consumer focused and consumer market use cases from those of broader B2B needs, often referred to as the Industrial Internet. The consumer device sector may well be quagmire in conflicting standards, protocols and security vulnerabilities.
In 2016, we anticipated that B2B focused manufacturers and services providers will broaden their perspectives on connected devices and services, especially in the notions of the realities for being a software-driven vs. a hardware-driven enterprise. That included leveraging intellectual property and software knowledge into more innovative products and services that result in new revenue streams. Enhancing customer engagements and value-added services is the obvious priority. The value of products will increasingly be defined by the embedded sensors, software and consequent added services that products provide for customers. Innovators such as Flex, Cardinal Health, General Electric, John Deere, Siemens, Tesla and others, where senior management embraced the potential of connected devices we believed would continue to lead in these development and deployment efforts. Indeed, the above has occurred and by our lens, the most visible and active player is turning out to be GE and its Digital Business unit. (See subsequent posting related to GE Digital)
We expected some IoT initiatives to stumble in the year because of conflicts in approach and stakeholder interests. We believed that efforts championed and funded by line-of-business groups directed at customer value would have more success than those championed by internal functional groups and focused solely on the “Things.” It was rather important for supply chain and product development teams to align efforts with LOB needs and sponsorship and avoid data silo approaches, particularly with over emphasis on singular software applications. We believed that successful IoT initiatives would stem from data streaming architecture that can feed many different software applications. We anticipated most IoT initiatives in 2016 to be elementary in scope with plans for more peer-to-peer device interaction to come in later years when standards matured.
The above stated, this was a prediction area that was difficult to gage and score. Feedback from our network of contacts among system integrators indicated that many clients did not initially express needs related to IoT initiatives, but with further probing and investigation, integrators and consultants were able to educate prospects on taking initial pilot steps toward connected device applications or business pilots. While attending PTC’s LiveWorks’s IoT technology conference in June, we reported on a panel of systems integrators indicating most customers are not seeking out a specific IoT initiative per-se. Instead, they were seeking technology to assist in resolving use cases involving ongoing business challenges in manufacturing or supply chain or tapping new business opportunities and revenue streams. One panelist indicated that the current hype surrounding IoT has many teams “scratching their heads” in terms of selecting start points or understanding what business problems IoT will solve. From our lens, that feedback reflected needs for broader market education. Where projects lean toward IoT, the sales and approval cycle tends to be elongated, cited in the range of 6-12 months, with indications that discussions representing different business functions such as IT, manufacturing, service management and other functions are involved.
As for technology vendors, we predicted that AT&T, Cisco Systems, Google, Microsoft, PTC, Symantec to be high profile market participants. We anticipated that the battle of IoT platforms will rage again in 2016, which will become very confusing for businesses and selection teams to follow. This was about vendor market positioning and jockeying for being the adopted standard. Regarding our listing of high profile vendors, we actually observed GE and Microsoft, and to a lesser extent Cisco and PTC, to be the higher profile participants. Major ERP providers Oracle and SAP upped their game in strategic alliances and initiatives directed at capturing streaming information produced by edge devices into various manufacturing or supply chain management support applications.
We alerted our readers and clients to expect a high amount of M&A activity in 2016 associated with the IoT segment, as various providers jockey for market dominance or broad and deep expertise. This was an obvious no-brainer prediction and 2016 featured a litany of billion dollar M&A deals that had deep-pocketed technology vendors making strategic moves for entry into various industry specific segments and applications, not to mention additional efforts of strategic alliances. Some highlights included:
- PTC’s acquisition of software developer Kepware
- SAP’s alliance efforts tapping PTC’s IoT technology stack
- To some degree, IBM’s acquisition of The Weather Company
- Cisco’s acquisition of Jasper Technologies for $1.4 billion
- Announced strategic alliances involving Microsoft with both GE Digital and SAP
- Rockwell Collins acquisition of B/E Aerospace
- Numerous acquisitions by GE Digital that included ServiceMax, Bit Stew Systems, io, among others
- Samsung’s acquisition of Harmon International for $8 billion
- Qualcomm’s acquisition of NXP Semiconductor for $39 billion.
Overall, our 2016 IoT prediction missed on implementation momentum but was spot-on related to technology and software vendor M&A and alliance efforts to gain footholds in the market.
We come to the end of Part Four in our scoring series of this year’s predictions. In Part Five, we wrap-up with our final two predictions, those being geopolitical events such as TPP impacting global supply chain strategies, and our final prediction that Amazon and Alibaba would broaden their investments in last-mile fulfillment.
Now that we have revisited 8 of our original predictions related to this year, we welcome reader comments and observations related to any of our predictions and consequent events. As always, you can add your voice in the Comments section appearing at the end of any of our postings.
© Copyright 2016. The Ferrari Consulting and Research Group LLC and the Supply Chain Matters® blog. All rights reserved