In our Supply Chain Matters 2014 Predictions Research Report (full research report available for complimentary downloading in our Research Center) we specifically addressed consumer product goods supply chains where combinations of external forces are providing unique challenges. These forces include, among others, contraction of global growth rates and margins from previously expanding emerging markets, a certain group of activist investors demanding more cash value, and now, increases in key commodity costs.
While we have already provided a previous specific CPG supply chain commentary, an event held last week provided stronger evidence for additional thoughts.
One of the premiere events for consumer product goods companies is the Consumer Analyst Group of New York (CAGNY) Annual Conference, traditionally held in February. For those unfamiliar with CAGNY, it represents an organization of Wall Street analysts, investment bankers and others whose focus is specifically on CPG industry investment and performance. The conference which was held last week, is where a number of CPG senior executives provide a detailed business overview of their companies’ strategic goals.
Since 2008, Supply Chain Matters has utilized the content presented at this conference as reliable indicators for the upcoming challenges for CPG supply chains, and this year was no exception.
Thus far, we have reviewed presentations from Campbell Soup, Mondelez International, The Hershey Company and PepsiCo. We elected this initial grouping because these firms are exercising product growth strategies predicated on higher growth and margin businesses such as snacks, and because this grouping represents differences of corporate size, culture, as well as different perspectives, positive or otherwise, on supply chain challenges, capabilities or accomplishments.
Our initial analysis was to screen for common messaging regarding industry challenges and required business outcomes. That was not difficult, at all.
Mondelez, which has its sole business focus on a global snacks business, addressed the potential of a $1.2 trillion global snacks market, yet has experienced some realities of declining growth rates among snack categories in 2013. Hershey, a company that traditionally has been grounded in North American markets addressed a growth plank indicating that geographic expansion will be the key to growth and become Hershey’s #2 market by 2017. Campbell Soup, a company demonstrating positive results of late, stated its goals as growing faster in snacks and healthy beverages and expanding international presence.
As each CFO addressed his or her company’s segment it was clear that current signs of slowing growth among emerging markets has placed a pointed emphasis on improved operating margin and cost savings. Once more, such savings are to be re-purposed into product innovation, acquisition and/or increased sales and marketing initiatives to accelerate consumer demand. A clear common message was increasing stockholder value and operating cash flow, the obvious response to activist investors circling the industry. As examples: Mondelez expects to deliver an additional $3 billion in gross productivity savings, $1.5 billion in net productivity, and $1 billion in incremental cash; Campbell Soup stated its restructuring programs have yielded $160 million in annualized savings.
That leads to the stated priorities for each company’s supply chain.
Mondelez addressed four current supply chain priorities:
- Step change in leadership talent and capabilities, articulated as changing 40 of 115 key leadership roles;
- Transform global manufacturing platforms with an emphasis on new biscuit, chocolate and gum platforms across a global presence;
- Redesign the supply chain network- with 30 plants already “streamlined”, closed or sold and 3000 FTE’s reduced; and
- Drive additional productivity and margin improvement programs to fuel growth.
Hershey, which has demonstrated positive supply chain successes to-date, addressed its supply chain goals as:
- End-to-end supplier integration focused on increased on-shelf availability, improved freshness, and localized regional production;
- Strategic procurement partnerships for product innovation, sustainability and cost control;
- Insights-driven supply and value-chain stressing deeper analytics; and
- Global shared-services
Campbell Soup and Pepsico similarly articulate expansion of on-shelf availability, innovative direct-store delivery programs, leveraging direct online commerce and expansion in faster growing markets as supply chain priorities.
We highlight CPG industry challenges because our industry readers need to quickly internalize the implications, both for their organizations and for their careers.
CPG supply chains have always been driven by sales and marketing, along with efficiency and responsiveness. That is not, obviously, going to change. What is changing is the need for bolder leadership skills which is now articulated by talent management being ranked as a top goal. There are many implications to talent management, too many to articulate in this singular commentary. Suffice to state, it implies a far broader set of management skills that span international business markets, translating required business outcomes for margin improvement into prioritized strategies, and in-depth understanding of what is required to be both market and business outcomes driven.
Emerging CPG supply chain leaders will require more depth in the tradeoffs of incremental business process improvement with cost-conscious information technology investments that enable the best end-to-end network response capabilities grounded in more predictive insights as to what to expect. They will now have to manage with less fixed capital and resources, with no choice but to have more reliance on partners and suppliers, including third-party logistics providers. That unfortunately, will lead to the dynamic of passing more cost and risk burden lower into the supply chain. We maintain that this will require total visibility to what’s occurring across the global supply chain, and that implies an end-to-end B2B platform integrating suppliers, contractors, trading partners and other key value-chain participants.
The notions of striving for product forecasting accuracy, driving incremental improvements in business performance based on historic metrics, or elongating timetables for achieving certain levels of supply chain maturity no longer make the cut, and are a relic of the past.
We, as thought leaders and/or consultants, need to stop feeding these fallacies and deliver more straight talk on what skills and competencies supply chain leaders, and their teams, need to be more successful in their efforts, keep teams motivated as well as enjoy coming to work every day. Technology vendors need to stop the endless re-purposing of supply chain visibility or competency acronyms and get to the essence of supporting CPG supply chains with more cost-effective and responsive solutions to immediate needs.
Finally, CPG firms themselves in need to quickly come to the realization that the supply chain leaders and individuals they require, today and in the future are indeed scarce, and be willing to recognize such leadership and technology savvy skills in compensation, incentives and management development and mentoring opportunities.
Throughout 2014, Supply Chain Matters will do our part in hard-hitting straight-talk commentary.
© 2014, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog, All rights reserved.
Supply Chain Matters recently had the opportunity to meet with executives of Arena Solutions, an innovative cloud-based software provider in the area of Product Lifecycle Management (PLM). Arena has been in the mid-market PLM arena for nearly ten years, and its founders, Craig Livingston and Eric Larkin came with deep roots in the PLM software technology, having worked at larger providers.
What was clearly evident from our briefing is that this PLM software provider understands the important business process connections among product management and manufacturing. The company has built a product suite to help mid-market companies to exploit these integration points in supporting critical process needs such as new product introduction (NPI), engineering change releases, or quality management.
The Arena PLM application suite consists of nine applications that include, among others, Bill of Material (BOM) management, Supply Chain Collaboration and Project Management control. A newer application Arena Exchange, which was released last fall, allows product manufacturing OEM’s to exchange design and product management information with key suppliers and trading partners. The software can support product information files generated by major ERP systems such as Oracle, SAP, or other best-of-breed PLM providers. The functionality is neat in that it allows to OEM to invite any number of suppliers, including contract manufacturers, to exchange product information directly with manufacturing control teams. Suppliers and contract manufacturers’ in-turn, gain the benefit of access to multiple OEM PLM collaboration spaces. The OEM pays the up-front access license and designated partners then get the opportunity to interact in a designated collaboration space, all within a cloud-based platform. Information sharing constructs are tiered under a concept which was described as circles of friendship, controlling the level or detail of information that will be shared with specific suppliers.
The software is architected to operate in a multi-tenant, software-as-service platform with what we consider, very attractive and affordable pricing, considering other market alternatives for equivalent functionality.
Arena’s customer base resides in high-tech, consumer electronics, life sciences, consumer products and transportation supply chains.
Every so often, we come across software providers we believe show the promise to be a disruptor to current technology segments. Arena Solutions is one such provider, and that is why we tweeted, after our briefing, this was one provider to watch in the coming months.
In what we would characterize as a significant development, a posting on the Wall Street Journal Digits Technology blog quotes informed sources as indicating that global-wide contract manufacturer Foxconn, also known as Hon Hai Precision Industry, has been quietly working with Andy Rubin of Google on developing advanced robotics that can be deployed within Foxconn factories. The posting further indicates that Foxconn has dispatch engineers to the campus of the Massachusetts Institute of Technology (MIT) to learn the latest in manufacturing automation technology.
Google has acquired eight robotics companies in the last year and has established a robotics development group. The WSJ posting makes note of the recent acquisition of Boston Dynamics, a company that has designed mobile research robots for the U.S. Defense Department. Speculation is that Google’s interests are in building a new robotics operating system for manufacturers, similar to its Android mobile operating system.
What makes this revelation more interesting is that Foxconn is the major contract manufacturing services provider to Apple and other high tech and consumer electronics providers. In essence, Google may be assisting these OEM’s in assuring a considerable manufacturing presence in China and other lower-cost manufacturing regions.
A number of major players are vying for control of the next iteration of automation and/or operating systems associated with the “Internet of Things”. In addition to Google, Amazon, General Electric, Siemens, Qualcomm and others are investing large amounts to be on the forefront of the next iteration technologies that leverage combinations of robotics, additive manufacturing and predictive analytics techniques.
Supply Chain Matters has previously brought attention to Foxconn’s aggressive goals to automate its factories with a million robots to counter increasing direct labor costs in China. This revelation comes after other announcements that Foxconn had established a joint engineering development effort with Carnegie Mellon University in the U.S.
This revelation comes in the throes of a recent revelation that Google’s Chairmen Eric Schmidt was the recent recipient of a $100 million compensation package, and the release of a former Yahoo senior executive with an exit package in excess of $100 million. There have been public protests in the San Francisco area concerning the growing wealth disparity among Silicon Valley companies, which gets continually reinforced by these revelations.
One can trust that Google will share intellect and collaborate with other manufacturers located across global regions including the Eurozone, North America and other regions. It would indeed be unfortunate that a future headline declares that other manufacturing regions are placed within a strategic competitive disadvantage because of the actions of a Silicon Valley giant with a singular goal.
B2B cloud-based network provider E2open reached a significant milestone today with the announced availability of E2 Planning and Response version 11.2 which includes enhanced supply chain planning capabilities including “what-if” scenario and simulation planning, network planning visualization and analytics.
Readers will recall that in late July of last year, the supply chain planning technology market was stunned by the announcement that Icon-SCM, a German based private provider of supply chain rapid planning and simulation capabilities, and a preferred partner to SAP at the time, was acquired by E2open. At the time of this announcement, our Supply Chain Matters commentary opined that with the addition of Icon-SCM and its vision of network-wide rapid planning and simulation, the product roadmap for E2open would vastly accelerate in the areas of advanced supply chain planning. Today’s announcement represents a significant step in that direction.
It is further evidence that the technology community is hearing your desire to provide a B2B network that provides support capabilities well beyond supplier connectivity, visibility and basic collaboration. The ability for a cloud-based provider to incorporate responsive planning, what-if and simulation capabilities, coupled with collaborative execution brings customers far closer to the ability to enable supply chain control towers supported by deeper, predictive and more informed supply chain wide decision-making capabilities.
Readers familiar with Icon-SCM will probably recognize the augmented capabilities included in the latest E2open release. That includes in-memory creation and comparison of planning scenarios, the ability to perform multiple what-if simulations of various product demand and supply situations, a configurable planning cockpit with drill-down capabilities to analyze exceptions or alerts. The new release further provides a certified SAP adapter to provide proven connectivity with SAP data sources and hubs.
Our belief is that this latest release is one of others to follow that will add even more supply chain predictive planning and business intelligence support capabilities and it will be interesting to observe the market uptake as E2open begins to compete more directly with existing supply chain planning and execution providers. This will afford manufacturers and brand owners enhanced opportunities to align direct procurement, supplier based management, customer fulfillment and logistics capabilities on a single network, perhaps far sooner than any existing ERP provider.
Disclosure: E2open is a sponsor of the Supply Chain Matters blog.
This week will feature some noteworthy announcements in the supply chain and B2B network technology arena.
We begin with today’s announcement that Elementum, which describes itself as the first mobile platform for end-to-end supply chain management, formally announced its market launch after 18 months in stealth mode as well as securing $44 million in Series B funding from Lightspeed Ventures.. The actual genesis of this B2B network comes from global contract manufacturer Flextronics, also an investor as well as a primary user. Flextronics has been utilizing the Elementum platform to plan and coordinate aspects of its own global supply chain and is now extending both the platform and the established network connections to other potential customers, including consumer products producer Dyson, also noted as a current customer.
The company’s marketing tag line is: Supply chain made simple, which is perhaps a bit too simplistic in message. It is great for marketing purposes but many of our readers are acutely aware that managing today’s global supply chains is not at all simple.
Supply Chain Matters was briefed on the cloud-based platform and technology stack incorporated within Elementum in early December. The rather interesting aspect is the network’s data management, end user experience and security model. It is described as rather similar to Facebook and Linked-In and indeed that is what we observed. It offers intuitive software primarily targeted at mobile based users providing action-oriented coordination based on evolving events. For our IT based readers, this multi-tenant platform is anchored in massively scalable data management techniques, REST-based API’s and Hardoop data extraction and synthesis. The technology embraces a graph-like network data model providing synthesis and visibility to information associated to activities occurring across the supply chain. It includes both structured and unstructured information sources.
The Elementum marketing team has commissioned a slick You Tube video to demonstrate its mobile-based functionality
Initially available are three applications that are named Perspective, Exposure and Transport.
Perspective is an executive dashboard like mobile based application that helps to monitor and respond to supply chain key performance indicators including supplier performance, cycle times, working capital and some others. In our briefing we were informed that Tom Linton, Chief procurement and Supply Chain Officer at Flextronics is a current mobile user of this particular application. The Exposure app provides real-time monitoring of risk management through an event monitoring center. If an event has significant impact on a particular supply site, the app alerts to that site through calculation of bill of material supply links. The Transport app provides visibility to existing distribution and transport movements and provides predictive alerts to potential late shipments.
Flextronics is not a new comer in the area of software spinoffs. Does anyone remember SimFlex Group a supply chain planning and optimization provider spin-off many years ago along with other B2B supplier management offerings?
On the one hand, prospective customers get the intellectual where with all and experience of a globally-based contract manufacturer with a massive supply base satisfying multiple OEM customers needs. On the other, it is a Flextronics based perspective grounded in high tech and consumer electronics supply chain ecosystem practices.
There are other cloud-based offerings available in today’s B2B connectivity, direct and indirect procurement technology market. Some emphasize supplier management, procurement, deep supply chain planning, B2B messaging or transportation and execution fulfillment. This whole area remains in a state of change with broadening technology footprints and ongoing M&A activity. Our view is that at some point, one or a few of these networks will be closest to enabling true supply chain control tower management capabilities.
In the meantime, $40 million in funding coupled with the best in talent can lead to some interesting potentials down the road, not to mention another B2B network player for consideration.
Industry Analyst firm Gartner has issued a new advisory, namely that CIO’s and their IT teams must take action to address the fast-approaching reality of ‘legacy ERP’. According to Gartner’s latest prediction, by 2016: “heavily customized ERP (Enterprise Resource Planning) implementations will be routinely referred to as ‘legacy ERP. CIO’s and application leaders must take action to address the fast-approaching reality of ‘legacy ERP.’”
Pause for a moment and reflect on the above statements. The analyst firm that first introduced the applications IT market to the concepts and benefits of Enterprise Resource Planning systems along with the rating of capabilities among ERP vendors so many short years ago is now raising warning flags for technology end-users. A Gartner Vice President observes: ”The need for agility and responsiveness has led highly customized ERP implementations to an impasse, creating a subset of legacy ERP installations that must be dealt with constructively.” Similarly, analyst firm IDC has been strongly urging IT vendors to concentrate all future applications development on the so-termed “Third Platform” namely cloud, mobile and business intelligence enabled applications.
From our experience within the industry analyst world, that is the clearest acknowledgement by the traditional analyst firms that traditional ERP platforms and applications are struggling to keep pace with supporting required business change utilizing legacy behind-the-firewall applications. Keep in mind that these same analyst firms garner significant revenues from ERP vendor clients but must advise multitudes of end-users.
Most in the supply chain and B2B fulfillment community who have had any experience with information systems or transformation initiatives have long discovered the obstacles and pain levels associated to highly customized ERP systems. Customization becomes a significant obstacle to timely business process innovation not to mention the heartburn for streamlining information flows and decision-making. Legacy ERP was constructed with the design principle of inside-out control, but today’s businesses are faced with the challenge of outside-in information, planning and decision-making needs.
IT leaders who follow Gartner’s research may recall that a couple years ago, the analyst firm articulated three layers of systems innovation:
Systems of Record (presumed to be legacy ERP systems)
Systems of Innovation (presumed to be best-of-breed or cloud-based point solutionbs_
Systems of Engagement (presumed to be extensions social based systems in the concepts of Facebook, Linked-In, Twitter and others)
A new reality is occurring however, at a far more rapid pace. Business and supply chain functional teams are stepping-up to accept more time-phased accountability for delivering required business outcomes or dynamically responding to ever changing business process requirements. Accountability includes more responsibility in IT applications funding and selection. The CIO and his/her IT teams have similar strategic needs to accelerate the pace of business innovation but also reduce the legacy IT infrastructure costs.
As noted in Prediction Ten of our 2014 Predictions for Global Supply Chains, the fate of technology investments now rest in the hands of business and supply chain teams, with the counsel and assistance of IT. The days of multi-year, highly disruptive IT transformation has been subsumed by highly targeted business process initiatives directed at phasing-in continuous improvement capabilities toward a desired business end-goal.
Gartner, IDC and indeed ourselves in our advisories are acknowledging the reality of today’s IT landscape, namely that continuous innovation and faster time to business value dominate the C-level agenda. Leveraging the technologies of cloud and mobile computing, deeper business analytics and faster decision-making processes are increasingly looked upon as systems of innovation and engagement enablers.
Need more evidence.
SAP, a major player in ERP, announced to its investors that it has elected to forgo previous profitability goals for the next two years in order to accelerate development efforts to transform its business suite of applications to better leverage cloud platforms. Co-CEO Bill McDermott told investors: “we have bold ambitions in the cloud.” Bloomberg reports: “SAP is searching for a balance between expanding cloud-software offerings and safeguarding its mainstay license business.”
Similarly, Oracle has been aggressively investing in cloud offering through both acquisition and internal development as are many other ERP providers.
In today’s new normal of business, industry competitiveness is predicated on seizing market, product and services opportunities quicker and faster than competitors. The new realities of business imply a globally based supplier and trading partner ecosystem bringing increased dimensions of complexity, scope of control and risk. The IT applications landscape supporting end-to-end supply chain business process innovation will benefit from the rapidly changing applications development trends being enabled by today’s cloud, mobile and analytics technologies.
Heed the growing evidence that highly customized ERP systems are headed toward legacy status and systems of innovation, engagement and deeper supply-chain-wide intelligence and insights should be your organization’s priority.
© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.