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Activist Shareholder Attempts to Influence Nestle

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A significant development occurred in the consumer product goods sector, as one of the largest and most admired industry leaders came under the looking glass of an activist investor. CPG firms being targeted by activist firms is not a new development, but taking on the European based industry leader is noteworthy.

Earlier this week, hedge fund firm Third Point, under the direction of activist investor Daniel Loeb, announced that it had accumulated about $3.5 billion of stock holdings in global consumer products producer Nestle. With this move, Third Point became the sixth-largest shareholder with a reported 1.25 percent stake in company shares. Nestle Skinny Cow 300x300 Activist Shareholder Attempts to Influence Nestle

Upon the announcement, the hedge fund manager immediately published a letter with a list of recommendations as to how the consumer goods giant can dramatically improve earnings and growth.

Nestle recently appointed a new CEO in January of this year after the company had missed multiple years of sales growth targets. CEO Mark Schneider was recruited from the healthcare industry to add a fresh perspective and to assist in identifying key areas of growth in healthier foods and health care related businesses. Thus, fresh perspectives and a call-to-action were already underway internally.

Nestle wasted little time in announcing plans to launch a $20.8 billion share buyback program as well as to scout out consumer health-care acquisitions. According to business media, plans were fast-tracked amid building shareholder pressures.

Activist investors surrounding CPG and food companies is not per-se, newsworthy, since the likes of Procter &Gamble, Kraft-Heinz, Mondelez International, among others, are situations that Supply Chain Matters has previously commented on.

The significance of a very high-profile and well-respected European CPG company, recognized for superior supply chain and food sustainability capabilities and commitment being influenced by an activist investor and hedge fund is indeed, noteworthy.

Consider for a moment, if just some of the billions of dollars being allocated to share-buybacks were additionally invested in helping farmers and growers to convert their fields and methods to support broader and healthier food choices. Consider if added investments in advanced technologies are applied to monitoring the safety, freshness and processing of food across the end-to-end supply chain.

That is the difference between a short-term emphasis vs. one of longer-term. An industry being challenged by rapidly changing food preferences demands healthier food choices along with brands committed to freshness and sustainability. Investors seek shorter-term value through profitability growth as well as merger and acquisition moves.

We trust Nestle will prevail is balancing both such needs.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


3M Supplier Survey Brings Forth Important Insights for Increased Supplier Collaboration

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Diversified products manufacturer 3M recently conducted a survey among supply chain suppliers to hone in on current challenges related to the notions of supplier collaboration. While the survey population was small, the results caught our attention because they uncover important challenges that remain for procurement and supply chain teams.

The purpose of the survey- Driving growth and innovation through supplier partnerships, was designed to uncover insights (not specific to 3M) on the most urgent trends, opportunities and challenges facing suppliers today. Upon review, Supply Chain Matters noted a number of noteworthy findings.

Technology’s Impact Becoming More Important

On a positive note, and further validation of our Ferrari Research and Consulting Group’s 2017 prediction of increased investments in supply chain focused technology, 60 percent of the suppliers surveyed by 3M indicated they are in the process of making major changes and upgrades to their systems and technology to become more digitally connected. That from our lens is encouraging news.

Nearly all suppliers surveyed, ninety-five percent, reported being at least somewhat empowered and encouraged to innovate and make suggestions for improvement for the customers they supply. Yet only 43 percent of suppliers’ report feeling fully empowered to collaborate with their key customers. The survey evaluators indicate that the challenge of collaboration and joint innovation may not lie in lack of incentive and customer openness, but because the organizations they supply lack systems and technology that make collaboration more efficient. Seventy percent of suppliers indicated at least half of the customers they supply do not have a strong system and process in place for buyer and supplier collaboration. A similar theme of discussion emanated from our attendance at this year’s annual conference of the Institute for Supply Management (ISM).

Again, from our lens, that finding may reflect differences fostered in ongoing supply chain segmentation strategies that place major emphasis on key customers and suppliers vs. all trading partners.  Regardless, the finding reinforces that procurement teams need to step-up their technology deployment strategies as well as to re-double efforts to foster various forms of process and product innovation. We suspect that hidden in the numbers are supplier needs to have incentives to want to broaden collaboration. That trend was brought out by the survey authors who indicated that nearly half of the suppliers surveyed have held back from making a strategic recommendation due to lack of incentive or customer openness.

 

Risks

The 3M survey validated that suppliers are facing an unpredictable risk landscape in 2017. The majority, 61 percent, identified volatile commodity and supply prices as their primary concern related to risk. Respondents listed their other concerns as the following:

Uncertain policies of the new U.S. administration- 8 percent

Regulatory compliance- 7 percent

The performance of tier two and tier three suppliers- 6 percent

Natural disasters and supply disruptions- 3 percent

Cybersecurity- 3 percent

Cost concerns remain by far the biggest risk

Here again, suppliers may need to broaden their perspectives of risk, especially since all the other rated categories have increased incidents across multi-industry supply chains.

 

Widespread Consensus

The area of widespread consensus was reported to be that of sustainability and social responsibility, both of which the survey authors point to as core focus areas in 2017. Nearly 76 percent of suppliers identified the biggest motivator for operating in a more sustainable fashion are positive business outcomes. The next biggest drivers for sustainability is noted as suppliers’ desire to create a more socially responsible supply chain (69 percent), compliance (64 percent) and brand reputation (62 percent).

 

Supply Chain Matters thanks 3M and its associated supply chain and public relations team for bringing this survey to the attention of our blog readers.

Our readers can review the full PDF version of the 3M supplier survey at this web link.

 

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


A Commentary Related to Denying Efforts to Combat Global Climate Change

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Last week, President Donald Trump announced that the United States intends to withdraw from the Paris Climate Agreement. Speaking from the White House, the President indicated he was open to renegotiating aspects of the Paris COP21 Agreement, which was inked under his predecessor and which all nations except two have since signed onto. Paris COP21 A Commentary Related to Denying Efforts to Combat Global Climate Change

Needless to state, the responses to this decision have been widespread and voluminous. Preparing to scribe this blog, we performed a Google search on the terms- “President Trump withdrawal from Paris Climate Agreement”, which yielded over 8.4 million search responses. Obviously, such a number represents a significant amount of reaction, much of which has not been complimentary to the decision, both at home and abroad.

White House communications teams indicated that the decision favors the views of America’s businesses in that the accord did not provide adequate benefits for companies and their employees. Yet, after the announcement of the decision, Twitter and other social media featured direct postings from a multitude of well-recognized CEO’s indicating their disappointment in the decision, and that regardless, their company’s efforts in sustainability actions and commitment will continue. Likewise, over 200 Mayors of U.S. cities, 10 U.S. state governors, and other political leaders collectively indicated that sustainability efforts must continue. The States of California, New York and Washington immediately formed a coalition to unite efforts and share learning in fighting global climate change.

Included in our 2017 Predictions for Industry and Global Supply Chains is our declaration that business, and indeed, our planet’s future, will fuel continued efforts in supply chain sustainability actions and focused initiatives, regardless of any political developments.

We re-iterate that statement in the light of last week’s rejection by President Trump of any U.S. commitment.

As we all began 2017, scientists indicated that the Earth reached its highest temperature on record, the first time in the modern era of global warming data that average temperatures have exceeded prior levels for three years in a row. The Artic Sea has experienced a record ice melt, and the Great Barrier Reef suffered an unprecedented coral breaching in 2016.

Industry supply chain teams know first-hand, the increased impacts of global warming have had on more frequent supply chain disruptions, concerns and actions addressing sustainable and less costly forms of raw materials, food, energy, and commodities. Across many industry supply chains, a lot has already been accomplished in identifying opportunities related to reducing industry supply chain related GHG emissions, preserving natural resources including water, and insuring sustainable supply of Earth dependent commodities. Multi-year objectives have been established that include annual tracking of performance to each objective. The benefits of these initiatives are meaningful in relation to savings on supply chain related costs, reductions in responsible emissions, insuring adequate supply of key strategic supply needs and a more positive perception to one’s corporate and product branding.

In 2017, despite any U.S. political notions that climate change may or may not be a significant factor for business risk, industry supply chains and the respective businesses and customers they support and serve, will be at a disadvantage in de-railing or slowing down sustainability efforts.

Benefits have already been recognized along with added opportunities.

From our lens, the ongoing convergence of digital and physical business processes manifested by Internet of Things (IoT), more predictive analytics, autonomous decision-making and additive manufacturing will provide added opportunities towards sustainability needs and objectives.

Supply Chain Matters therefore urges supply chain leaders and their respective teams to re-double ongoing sustainability efforts in all forms. Such efforts are good for business and ever more important, essential for the future of the planet. To do otherwise is short-sighted.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Deep Dive on 2017 Prediction Nine: Business Self-Interest Will Fuel Continued Efforts in Supply Chain Sustainability Actions and Initiatives

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The following Supply Chain Matters blog is part of our ongoing series of deep dives into each of our previously unveiled ten 2017 Predictions for Industry and Global Supply Chains.

At the start of the New Year, our parent, the Ferrari Consulting and Research Group along with our Supply Chain Matters blog as a broadcast medium, provide a series of predictions for the coming year. These predictions are shared in the spirit of assisting industry specific and global supply chain cross-functional teams in helping to set management objectives for the year ahead. Our further goal is helping our readers and clients to prepare supply chain management and line-of-business teams in establishing impactful programs, initiatives, and educational agendas.

The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and customer service management.

In an earlier Supply Chain Matters blog postings, we provided deep dives related to:

 Prediction One- Subdued World Economic Outlook and Heighted Uncertainty to Test Industry Supply Chain Agility.

Prediction Two- A Challenging Year in Procurement

Prediction Three- A Supply Chain Talent Perfect Storm

Prediction Four- Increased Anti-Trade Geo-Political Forces Provide Added Global Sourcing Challenges

Prediction Five- Continued Global Transportation Industry-wide Turbulence

Prediction Six- A Renaissance in Supply Chain Focused Business Services and Technology Investments

Prediction Seven: Enhanced Supply Chain Intelligence Capabilities Among B2B Network Platform and Managed Services Providers Will Pay Dividends for Industry Supply Chains

Prediction Eight-Amazon and Alibaba Continue to Position for Global Online Platform Dominance

 In this deep-dive series posting, we drill down on our next prediction.    Paris COP21 Deep Dive on 2017 Prediction Nine: Business Self Interest Will Fuel Continued Efforts in Supply Chain Sustainability Actions and Initiatives

2017 Prediction Nine: Business Self-Interest Will Fuel Continued Efforts in Supply Chain Sustainability Actions and Focused Initiatives

Despite the declarations by U.S. President Trump that climate change has not been proven to be an issue, we predict that individual business and supply chain self-interest needs, along with the track record of benefits to-date, will continue multi-industry green and supply chain sustainability initiatives and momentum.  There is literally too much positive momentum on a global basis to motivate senior executives to derail such efforts in 2017.  The need remains compelling.

Where Emissions Emanate

Scientists point to three sectors that are most critical toward reduction of GHG emissions:

Energy– the engine and most influential cost aspect of global business and of industry supply chains represents upwards of 30 percent of global CO2 emissions. Throughout modern history, the cost of energy and fuel has been the principal driver of a majority of industry, manufacturing, distribution, and global supply chain strategies. Reduction opportunities reside in the consumption of alternative and low carbon renewable energy sources, smarter and far more efficient energy, and logistics utilization practices.

Agricultural, Land Use and Forestry Practices account for an additional 30 percent of global-wide emissions. With world population growth expected to reach 9 billion people by 2050, our planet cannot tolerate an unsustainable food production system. Farming practices, fertilizer, water use, animal husbandry all add to considerable emissions.

City Infrastructure, Buildings and Transportation can be responsible for upwards of 40 percent of global emissions. More of the world’s population is expected to be concentrated in larger cities, (mega-cities) and thus will be the hubs for economic growth, commerce, delivery, and fulfillment logistics. The potential of smarter, more connected cities coupled with advances in more sustainable, renewable energy sources provides the opportunity for a complete re-thinking of urban logistics and transportation. Global trade must now stem from advances and efficiencies in global, regional, and local transportation networks.

To address these three imperatives, more and more organizations have discovered that the firm’s supply chain can be responsible for up to four times GHG emissions beyond that firm’s direct in-house operations.  Industry supply chains are therefore one of the most critical areas of opportunity to enable GHG reductions and climate chain resilience.

Sustainability is further not limited to emissions and natural resource protections, it further umbrellas global-wide social responsibility as a business and corporate citizen, and in the treatment and respect of labor provided by individuals. Here, the latter is especially pertinent to industry and global supply chains who elect to source production, component supply or business services in low-wage, limited protection geographies.

Current Status

As we begin 2017, scientists indicate that the Earth reached its highest temperature on record during 2016, breaking an earlier record set in 2014. This development represents the first time in the modern era of global warming data that average temperatures have exceeded prior levels for three years in a row.

The 12th Edition of The Global Risks Report 2017, sponsored by the World Economic Forum, observes that extreme weather events, climate change and water related crisis have each consistently been noted as among the top ranked global risks for the past seven editions of this report. However, according to this latest report, the pace of change is not yet fast enough to curb current warming trends.

The Artic sea ice had a record melt in 2016 and the Great Barrier Reef suffered an unprecedented coral bleaching event last year. Estimates are that GHG emissions are growing by 52 billion tons of CO2 equivalent per year even as the share from industrial and energy sources may be peaking because of investments in green and sustainability initiatives among multiple industries and countries.

Much has been accomplished these past few years, but more difficult work remains.

The Paris COP21 Agreement on climate change entered force during November 2016. This agreement has now been formally ratified by 110 countries with another 196 countries including China, now indicating strong support. The Global Risks Report 2017 cites data indicating: “The reality remains that to keep global warming to within two degrees Celsius and limit the risk of dangerous climate change, the world will need to reduce emissions by 40% to 70% by 2050 and eliminate them altogether by 2100.

Moving Forward

This new era of the Paris COP21 Agreement provides both a profound call to action as well as a significant opportunity- an opportunity for bolder collaboration and joint goal-setting to not only address greenhouse gas reduction imperatives and to saving our planet, but the imperative of sustainable business itself. It literally should change our perspectives and goal-setting for sustainability strategies surrounding industry supply chains, moving such initiatives beyond supply chain functional to line-of-business level efforts.

Across many industry supply chains, a lot has already been accomplished in identifying opportunities related to reducing industry supply chain related GHG emissions, preserving natural resources including water, and insuring sustainable supply of Earth dependent commodities. Multi-year objectives have been established that include annual tracking of performance to each objective. The benefits of these initiatives are meaningful in relation to savings on supply chain related costs, reductions in responsible emissions, insuring adequate supply of key strategic supply needs and a more positive perception to one’s corporate and product branding.

Opportunities to Further Leverage Technology

With the era of COP21, industry supply chains are presented opportunities to seize upon the tenets outlined in Jeremy Rifkin’s book, the Third Industrial Revolution as well as other Industry 4.0 thought leaders that point to the compelling convergence of technologies that are before us. One that leverages the convergence of green and renewable technologies, new more renewable energy sources, IoT enabled predictive-focused analytics and the digitization of manufacturing and supply chains. All are converging over the not too distant future, and collectively can foster insured business continuity through strategies that are directed at long-term sustainability of commodity, raw material, and natural resource supply.

Our Takeaway

In 2017, despite any U.S. political notions that climate change may or may not be a significant factor for business risk, industry supply chains and the respective businesses and customers they support and serve, will be at a disadvantage in de-railing or slowing down sustainability efforts.

Benefits have already been recognized along with added opportunities. From our lens, the ongoing convergence of digital and physical business processes manifested by IoT, more predictive analytics, autonomous decision-making and additive manufacturing will provide added opportunities towards sustainability needs and objectives.

The challenge remains insuring a sustainable business within domestic and global dimensions, and that momentum is likely to continue in the coming year.

 

This concludes our Prediction Nine drill-down. In our final posting of this series, we will explore Prediction Ten which addresses certain industry-specific supply chain focused challenges in the current year.

Stay tuned.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


New and More Controversial Food Labeling Requirements About to Go Into Effect in the United States

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Last week, the United States Congress passed new federal legislation related to the labeling of food ingredients, specifically food products made from genetically modified organisms (GMO’s).  The new regulations are expected to be signed by President Barack Obama.  These new requirements have drawn mixed perceptions among consumers as well as industry participants and will lead to further language interpretations along with process and technology changes in the months and years to come.

While the Grocery Manufacturers Association lauded the bill passing as a tremendous victory for consumers and common sense, general and business media are noting quite different perceptions.

The new labeling regulations supersede tougher measures already passed by the State of Vermont  that went into effect in July. That Vermont law required food manufacturers and grocery chains selling prepared foods in the state to explicitly label food containing GMO ingredients by January 0f 201.  Some leading food producers had already initiated efforts to comply.  According to news reports that we have reviewed, this new federal legislation renders the Vermont law null and void.

The new federal food labeling legislation allows regulators up to an additional two years to determine the new federal guidelines while smaller food manufacturers would have up to three years to comply. The compromise federal bill spreads out the timetable for conformance and introduces the ability of food manufacturers to utilize QR codes as a means of transmitting full disclose of GMO ingredients.  The new federal regulations passed in what the New York Times described as: “.. after a battle that cost food and biotech companies hundreds of millions of dollars (Of lobbying) over the last few years.

As business media notes, within the core of this ongoing debate is a reality that the vast majority of corn, soybeans and other crops grown across the United States are currently genetically engineered to avoid pest and crop losses. One U.S. Senator predicted certain future litigation challenging the new regulations.  For instance, the U.S. Food and Drug Administration (FDA) interprets the current bill’s definition of foods as not including the many products containing refined oil and sweeteners.  The U.S. Agriculture Department, designated to oversee enforcement of the new labeling regulations disagrees with the FDA interpretation.

Perhaps the most controversial aspect is that the new law allows food companies several options to disclose ingredients.   According to reports, producers can either add additional text to existing physical labels, place a yet to be determined symbol on product packaging to denote GMO ingredients, or utilize a “digital link” such as QR bar code that consumers can scam with a smartphone that would transfer detailed information from a dedicated web page. The latter option is drawing pointed controversy because current industry data seems to indicate that only 20 percent of current shoppers actually scan a digital code on grocery items to retrieve such information.  Proponents also point out anything short of full physical label disclosure will inhibit full disclosure. They further point out that the use of digital media penalizes consumers that currently do not own a smartphone with scanning capabilities.

In spite of all of this ongoing controversy, leading food manufacturers have the opportunity to rise above the noise and take the lead on measures of full disclosure.

Regardless of the ultimate timetable, there are obvious food supply chain implications.  They include the ongoing transition to more organically sourced farming and food ingredients which will take additional years of transition to complete.  The other obvious implication is greater transparency related to the entire food supply chain.

As Supply Chain Matters has noted in many prior commentaries, most all of this activity should come under the broader umbrella of incorporating broader aspects of sustainability in ongoing business objectives.  By our lens, advanced technology in providing full end-to-end visibility of product, ingredient and supplier sourcing will be the new table stakes in providing consumers the visibility they desire.  Producers who elect to drag their feet are delaying the inevitable, and open the door for industry disruptors to gain the trust and confidence of consumers and grocers that actions are being taken to assure both visibility as well as longer-term sustainability for healthier products.

Bob Ferrari

©Copyright 2016. The Ferrari Consulting and Research Group LLC and the Supply Chain Matters® blog. All rights reserved.


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