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Supply Chain Matters Impressions of the OpenText Enterprise World 2016 Conference

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In providing our Supply Chain Matters readership with market landscape education regarding technology supporting B2B business networks process needs, we have provided prior visibility to Canadian based technology services provider OpenText.

Last week, this analyst and executive editor had the opportunity to attend OpenText Enterprise World 2016, this vendor’s annual customer conference and we walked away with rather positive impressions regarding direction and services.  OpenText EW 2016 Banner

OpenText has now assimilated technology centered on three focused strategic areas which CEO and CTO Mark Barrenechea addressed in the conference opening keynote:

OpenText Enterprise Information Management (EIM) which is just about everything related to document and content management. Many SAP ERP users may or may not be familiar with the brand, but much of the document content exchanged within SAP applications is powered by OpenText including new iterations of SAP HANA and SAP S4HANA applications.  Likewise, the vendor supports EIM needs for other ERP systems as well.

OpenText Business Network which is a B2B business network platform that supports EDI messaging, supplier and customer onboarding, purchase-to-pay transactional support and other growing managed services. The gem of this network is the 2013 acquisition of the GXS Trading Grid network with its genesis as the prior General Electric Information Services. In June of 2012 this author declared that GXS was the hidden gem in B2B information transfer and software services and that prediction continues to manifest itself.

OpenText Analytics which is the new evolving area for this provider, one that promises to harness insights and business decision support related to both EIM and Business Network operational and business information flows. This capability has become a new strategic thrust for the company, one that by our view can present a more visible player to the analytics and enterprise technology market.

 

Regarding the latter, Barrenechea provided two major product announcements in conjunction with the conference. The first was Project Bandaroo, a technology to be focused on the changing nature of work. It was described as bringing together OpenText Core, the vendor’s core Cloud platform for everything related to EIM, with other elements of social communities, channels, bots and project management. An on-stage demo outlined a scenario of working group interactions and discussion forums centered on specific information needs. From our lens, the concept seems interesting but needs more specifics related to actual business challenges. Timetable communicated was the second-half of 2017.

The second announcement related to Project Magellan which is described as a next generation cognitive platform being designed to integrate voice, video, natural language processing and other content. It was outlined as an open systems based platform that would leverage both the Spark Apache platform along with the analytics capabilities of Actuate, OpenText’s most recent acquisition focused on advanced analytics. Barrenechea was not shy in making a direct head-to-head technology comparison with the IBM Watson Cognitive platform and that his company will compete directly as an alternative platform in the market. From this author’s lens, this was a far more newsworthy announcement and one to keep an eye on in the coming months, especially since such technology can be applied to the OpenText Business Network.  This capability is also planned for introduction in the second-half of 2017.

Regarding the Business Network, much more strategy and information was shared with conference attendees, information that we garnered from an April industry analyst event. Product managers declared that upwards of $7.4 trillion in commerce, the equivalent of 10 percent of world GDP, along with connections to 65,000 partners are currently supported by this network.  Support encompasses 37 data centers across 18 countries and 25 satellites.

In addition to electronic transactional messaging (EDI), support is provided in the process areas of purchase-to-pay (P2P), order and shipment visibility and other business process areas. Evolved capabilities in a series of managed services for specific industries and customers continues to expand with an increase of over 200 customers in this segment alone since the acquisition of GXS. The audience was reminded that OpenText Business Network is currently positioned by Gartner in the Leaders Quadrant for B2B Business Networks.

Our on-site executive briefings not only provided more background to new functionality and services that are enabled by the latest OpenText Suite 16 product release but future capabilities being planned in the all-important area of supply chain wide analytics.  Of further interest is the introduction of what is termed as Supply Chain Activity Index, an analytical based aggregate view of the B2B network, with forms of Business Process Management (BPM) support for processes that span the supply and value chain network. These two areas should really peak interest, depending on eventual design and functionality.

There was additional validation that support for SAP Ariba’s efforts to move beyond indirect procurement and support more direct materials procurement processes such as electronic invoicing and messaging will stem from OpenText Managed Network Services.

Our other impressions from this event include:

OpenText is indeed well on the road towards addressing the complex and fast-changing requirements for supporting globally-extended B2B networks beyond electronic messaging and EDI. Unfolding support in specific managed services and analytics areas are very promising as is the unfolding strategy of leveraging analytical capabilities to support network-wide decision-making.

An open question acknowledged by senior management is whether OpenText remains an infrastructure and Cloud services provider or moves more boldly into applications. This will be an area we keep an eye to in the coming months since there are pros and cons to either.

We are of the impression that OpenText senior management now understands the stand-alone nature and business value of OpenText Business Network in terms of an independent marketing persona of that of EIM that includes need for brand recognition within broader supply chain management functional audiences. Anticipate more concentrated efforts and visibility in this area.

Having the opportunity to attend many vendor conferences in any given year, this author can quickly extract a sense of overall management culture. Having now had direct 1:1 interaction with a number of OpenText senior executives at multiple events, we are impressed with their openness, sensitivity to customer and market needs and desire to make good on commitments. That was supported by some select customer interviews conducted. Once more, the company continues to reach out and hire and retain additional experienced talent. As an example, we were impressed with the technical savvy and communication skills of Actuate executives brought forward from that most recent acquisition.

As always, this analyst will provide continued assessment commentaries related to both Open Text and the broader B2B supply chain business network technology landscape. In the meantime, if readers have specific questions, send us an email or call.

Bob Ferrari

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

 


Two Contrasting Events: Brexit and the Expanded Panama Canal Add New Dimensions for More Active Planning – Part Two

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It’s the last Monday in June and as we pen this part two Supply Chain Matters advisory commentary two major developments over these past few days are going to have a definitive long-term impact on various industry supply chains. One is the unexpected results of the referendum by voters in the United Kingdom endorsing an exit from the European Union. Our part one posting of this series addressed our initial perspectives and recommendations regarding Brexit. In this part two advisory, we will address yesterday’s formal opening of an expanded Panama Canal.

Yesterday, after nine years and in excess of $5 billion in investment, the Panama Canal Authority formally opened new locks on both the Pacific and Atlantic Ocean facing entries to accommodate the transit of far larger ships. The first ocean container ship to transit the expanded canal, the renamed Cosco Shipping Panama, operated by Costco Shipping Lines traversed an expanded canal from the Atlantic to the Pacific side.   PanamaCanalExpansion_2_450

The opening of this well-known expanded waterway was completed after nearly two years of delay, and considerable cost overruns. At one point in 2014, a stalemate raised doubts as to whether this huge infrastructure project would ever be completed.  Container vessels with capacity in excess of 12,000 TEU’s are now expected to be able to take advantage of the widened canal with promised faster direct transit times from Asia based ports directly to eastern United States ports, thus avoiding inter-modal movements across the United States. The other opportunity is for east coast based regional shippers to now have a direct transit route to East Asia.

There has been much anticipation as well as speculation regarding the benefits of an expanded Panama Canal. About a year ago, The Boston Consulting Group (BSC) and C.H. Robinson released a joint study-How the Panama Canal Expansion is Redrawing the Logistics Map, and predicted that by 2020, up to ten percent of container traffic bound for the United States from East Asia could shift their destination to U.S. East Coast ports. According to the authors, that shifting volume is equivalent to building a port double the size of the existing Ports of Savannah and Charleston. The study concluded that this container routing shift will permanently alter the competitive balance among U.S. East and West Coast ports as well as the battleground region for determining the most cost efficient or service-sensitive assumptions in logistics and transportation routing. The BSC study concluded that time-sensitive cargo may continue to route through U.S. west coast while cost sensitive or high density cargos may have economic advantages in east coast port routings.

Since then, other studies have pointed to new opportunities in logistics and transportation related to direct Asia to U.S. and converse goods transit, including the operation of new inland ports.

However, the one current gating factor is that many of the key U.S. East Coast ports are still working on infrastructure projects that would allow larger vessels to call on such ports. The ports currently best prepared to handle these larger vessels are the Ports of Miami and Savannah. Both the Ports of Baltimore and Charleston have active dredging projects underway while the combined Ports of New York and New Jersey still have significant infrastructure requirements yet to be overcome including a bridge near Bayonne New Jersey.

As we noted in a previous Supply Chain Matters commentary, a current boom in distribution and warehouse development includes large investments in east coast regions. The State of South Carolina is aggressively positioning its logistics and distribution infrastructure to be an economic beneficiary of the new routing. Over six million square feet of warehouse space is under construction in the Greenville- Spartanburg region mostly being attributed to the ability to support direct ocean container movements from Asia to the U.S.  An inland port at nearby Greer South Carolina is connected by rail to the Port of Charleston. From the Greenville- Spartanburg area, trucks can transit goods to the rest of major eastern U.S. cities or to U.S. Midwest manufacturing regions within a day’s drive. Thus, an alternative option opens up for direct transit and distribution of goods.

A lot will depend on active analysis and modeling by logistics and transportation as well as S&OP teams on the various cost and service options related to ocean movements to U.S. West Coast ports with intermodal truck and mail inland vs. direct ocean transit to U.S. East Coast ports with adjacent inland distribution and transit. A factor in modeling will be assumptions on port and infrastructure readiness as well as direct labor environment. Another uncertain factor is the all-important long-term cost of fuel, which is currently still hovering at unprecedented  low levels.

Needless to state, global supply chain logistics and distribution routing has no changed. Active global supply chain network modeling and assessment has become an all-important necessity followed by capability elements for ensuring broader supply chain wide visibility. The expanded Panama Canal now opens a long anticipated new opportunity but comes with differing and changing assumptions.

Be prepared with people, technology and more informed decision-making capabilities.

Bob Ferrari

© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.


Two Contrasting Events: Brexit and the Expanded Panama Canal Add New Dimensions for Active Planning- Part One

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It’s the last Monday in June and as we pen this advisory commentary two major developments over these past few days are going to have a definitive long-term impact on various industry supply chains. One is the unexpected results of the referendum by voters in the United Kingdom endorsing an exit from the European Union. The other is yesterday’s formal opening of an expanded Panama Canal. Supply Chain Matters features two commentaries related to both developments. We begin with the Brexit vote.

The results of the Brexit referendum took many by surprise, including this author.  On Friday, alone investors wiped away nearly $2 trillion in market value from various global equity markets in reaction to the news.

By voting to exit the EU, British voters have set off a series of events that many are describing as unprecedented.  The most cited analogy seems to be- “unchartered waters and political events.” Such uncertainly not only surrounds the direct impact on the U.K., but on the EU alliance itself if other select countries take a similar course. Some fear the unwinding of Europe itself, which seems somewhat extreme at this point.  However, it will add more political and governmental dimensions to this ongoing crisis, along with building pressure to accelerate Brittan’s exit to stave-off other efforts at similar separation.

Many of the implications currently reflect such uncertainty and caution. After all, the timeline of Brittan’s exit would likely span two or more years. None the less, there will be short and longer term industry supply chain impacts and various supply chain and S&OP teams need to begin thinking about and educating management on certain strategy scenarios. We view these impacts coming from specific industry, trade and transportation as well as people related dimensions.

Two major industries dominating UK based manufacturing are automotive and aerospace industry, the latter being focused primarily in commercial aircraft component manufacturing.

Two of the most dominant stakeholder brands of autos in the UK are Volkswagen and Tata Motors, The latter is currently the leading car maker in sales of various VW, Audi and Porsche branded vehicles and has a significant manufacturing presence in these brands as well as that of Bentley. For VW, the news is especially troubling given its current crisis for dealing with the financial and brand fallout stemming from the diesel emissions scandal across Europe and the United States. It adds yet another challenge to protecting its market interests. Tata Motors is the producer of Jaguar and Land Rover branded vehicles and the U.K. represents its single biggest market and source of profits. The shares of both of these manufacturers were impacted by the news of the exit EU mandate.

According to published business media reports, most global auto manufacturers seem to be collectively in reassessment mode regarding their current UK based operations. Concerns center on impacts on tariffs, uncertain currency fluctuations and the local market, as U.K. consumers themselves deal with new uncertainties and any economic consequences related to exit. According to a published report by The Wall Street Journal, registrations for new autos amounted to 18.5 percent of all European registrations last year. The WSJ cites forecasting firm data indicating that there could be as much as an $8.9 billion hit to auto OEM earnings and a nearly 14 percent decline in U.K. new car registrations in 2017. With the broader European auto industry coming off multiple years of retrenchment and downsizing as a result of the past global financial crisis, news of the UK exit, coupled with potentially other subsequent impacts, has many industry executives at-pause.

According to Wikipedia, the aerospace industry within the U.K. is the second- or third-largest national aerospace industry in the world, depending upon the method of measurement. The industry employs around 113,000 people directly and around 276,000 indirectly and has an annual turnover of around £25 billion. Domestic companies with a large presence include BAE Systems (the world’s third-largest defense contractor), Britten-Norman, Cobham, GKN, Meggitt, QinetiQ, Rolls-Royce (the world’s second-largest aircraft engine maker), and Ultra Electronics. External companies with a major presence include Boeing, Bombardier, Airbus, Finmeccanica, General Electric, Lockheed Martin, Safran and Thales Group. From our lens, the most significant company to watch will be that of Rolls Royce which was already struggling with growth and profitability challenges.  Many of these providers exist in supply chain ecosystems being challenged to ramp-up production but at the same time, reduce overall costs. With such presence from many component manufacturers and actual commercial and military aircraft producers the open question is whether the reliance on a local currency and broken ties with EU trade policies will have an impact on the economics of the local industry. Only time will tell if they do.

From the independent trade and transportation lens, we had already predicted at the beginning of the year that major geopolitical developments centered on global trade agreements would present new concerns and challenges for industry supply chains. With a U.K. exit from the EU, industry supply chains need to factor another border crossing in their logistics and transportation plans, not to mention the potential for different tariffs or duties to emerge.

With major trade pacts such as the Trans Pacific Partnership (TPP) and the Transatlantic Trade Investment Partnership (T-TIP) still in ratification stages, a new unknown is entered, namely the U.K. as a separate negotiating party.  With many pushing for quicker ratification because of the current anti-trade political environment, these agreements could be faced with having to factor the U.K. as an unknown until exit is achieved and new trade policies adopted, not to mention a possible change in political leadership. The implication extends to product labeling, country of origin, intellectual property protection and other unknowns at this point.

Finally there is the issue of people, both in talent attraction and retention. An advisory from CBI Insights notes- “The free movement of workers between the U.K. and the EU arguably made London into a top tech startup talent pool in all of Europe. The decision to leave the EU may cause a brain drain that could hamstring innovation in London.” Some others take issue with the notion of brain drain.  However, multiple industry supply chains have already been impacted by the need for new talent and as supply chains become deeper invested in new technology needs and requirements, UK based producers, service firms and tech companies will need to assure that workers will find the U.K. economically and workplace attractive.

Brexit has ongoing implications beyond the U.K. that could conceivably impact other geographic regions, specific countries and industries. We advise supply chain and line-of-business teams to take on a precautionary approach towards any impacts brought about by Brittan’s exit from the EU. Rather than alarm, now is the time for active supply chain modeling and scenario planning to advise senior management of various business or financial implications, if any? Clearly, with overall global supply chain activity levels already trending toward contraction, and with this new politically active and vocal electorate, the global economy and global markets are becoming less uncertain.  This is a time of constant strategy awareness and attention to needs for contingency planning with added visibility to ongoing global events. We highly recommend that industry teams be vested in market and industry intelligence, supply chain risk mitigation and technology that brings added intelligence and insights to both customer-facing and supply-facing operational, financial and global trends.

Bob Ferrari

© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.


Pay Close Attention to the Rising Costs of Online Customer Fulfillment

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 The added costs for fulfilling online orders are likely to increase over the coming months because of the current boom in overall demand for large-scale distribution and warehouse space across the United States as well as other regions.

Reuters reports that real estate investment trusts (REITs) that weight their portfolios towards warehouse and distribution real estate holdings have now become the favorite of Wall Street interests because of the current pent-up demand for additional space from retailers. The report specifically mentions logistics real estate services provider Prologis, which counts Amazon as its largest customer, as raising rents a record 20 percent in the first three months of this year. The report cites Morningstar data as indicating that fund ownership in real estate investment firms such as Prologis and Duke Realty Corp. has increased 30 percent or more in the last quarter.

The trend was further reinforced by a recent announcement from the world’s largest commercial real estate services and investment firm, CBRE Group that indicated that- “Voracious global demand for e-commerce fulfillment centers fueled a 2.8 percent year-over-year increase in prime logistics rents globally, led by double-digit percentage gains in U.S. coastal markets.”

According to a recent CBRE report, six of the top 10 markets with the fastest growing prime logistics rents globally were within the United States. Among what CBRE ranks as the Top 10 Global Logistics Hubs by Prime Rent Growth:

  1. Oakland
  2. New Jersey
  3. Inland Empire
  4. Midlands, United Kingdom
  5. Santiago Chile
  6. Ciudad Juarez Mexico
  7. Los Angeles- Orange County
  8. Dallas- Fort Worth
  9. Seoul South Korea

The Wall Street Journal recently published an infographic indicating current areas of warehouse space under construction across the U.S… That mapping indicates the largest double-digit increases in construction of warehouse space focused in the Dallas-Fort Worth and Houston areas, Los Angeles and Inland Empire, Chicago, Atlanta and Greenville/Spartanburg SC areas.  From our lens, that data would indicate broad geography coverage for online fulfillment needs.

And, cost increases are not just confined to warehouse and distribution space.

We have brought reader attention to increasing rate increases by the major parcel transportation and delivery firms, including added surcharges and handling fees. As consumers continue to purchase online items that are larger, more bulky and heavier, there has been increasing demand for logistics delivery services. That is providing opportunities for traditional less-than-truckload (LTL) carriers who are increasingly being called on to provide additional delivery services to support online purchases of hard line goods. This will likely require some LTL providers to invest in augmented technology and logistics assets, which will add to rates charged.

As we have further highlighted, the largest high profile retailers such as Amazon and Wal-Mart continue to aggressively invest in more internal and owned resources in augmenting their own parcel transportation, logistics and last-mile delivery networks under the banner of premium, free shipping services. That is obviously part of the reason for the current building and investment boom underway. A continued competitive battle fueled by multi-billion investments adds to the supply-demand imbalances and speculators to drive up costs further.

However, other retailers with limited financial resources are now faced with the realities of even more increasing cost challenges associated with online customer fulfillment. No doubt, something will have to give.  Either retailers will become more creative in prime, no-cost free- shipping membership programs that can offset the effect of added fulfillment costs or the largest retailers with financial scale will become more dominant retail fulfillment platforms.

Our takeaway for retail and B2C focused supply chain organizations and procurement services teams is to up your game in supply chain network modeling and strategy implications.  Insure that you factor the real possibilities of more added costs in distribution, logistics, transportation and inventory carrying costs. The coming months may well be very challenging, including the upcoming 2016 holiday online fulfillment surge which will more than likely test limited capacity in certain key areas, forcing teams into more costly alternatives.  Be wise, be pro-warned, and conduct rigorous scenario based planning.

Bob Ferrari

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

 


The State of U.S. Logistics in 2015- An Acknowledgement of an Industry In-Transition

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This week, The Council of Supply Chain Management Professionals (CSCMP) with the collaboration of A.T. Kearney, published its 27th Annual State of Logistics Report©. As has been our annual custom, Supply Chain Matters provides our initial impressions of this year’s report.

Before we begin, let’s take a step back.  MSC_Ship_2

For the past several years, we have raised a number of concerns and added perspectives regarding the state and overall costs of logistics across the United States. Our chosen editorial commentaries reflecting on the 2012 thru 2014 reports expressed concerns towards a continued trend for increased logistics, transportation and inventory costs and in 2014, we again cited our growing concerns regarding cost and service trends.  Regarding the 2015 report, our headline takeaway moved toward action, indicating that industry supply chain teams required to take attentiveness to the implications of what was occurring in various logistics and transportation channels.

We quote one of our Supply Chain Matters key takeaways from last year’s report:

With the latest (2015) report, we believe that industry supply chain teams to move beyond industry media spin. Pay close attention to the concerning industry trends and their implications, and act proactively to continuing logistics challenges that could prove costly.”

Similarly in our annual predictions for industry supply chains published prior to the beginning of every New Year, we have continually raised awareness to increasing forms of ongoing disruption occurring in various logistics and transportation sectors.

This year’s report was compiled by a different research partner, AT Kearney. Thankfully, the current report authors are finally acknowledging that change is occurring, with the main theme being- Logistics is in Transition. Other sub-headlines and takeaways in this year’s report include:

  • The logistics industry is entering a new era of disruptive forces that involve technology investments and operational constraints that will fundamentally change the rules of the game.
  • Growth in the parcel and express segment continues to be fueled by the ongoing explosion in online B2C E-commence and Omni-channel retail growth.
  • Overcapacity and buyer’s market state conditions continuing in the ocean container, air freight and now the U.S. rail segments.
  • Technology continuing to play a key role in the future transformation of the 3PL industry.

Regarding that latter headline, the CSCMP sponsored report indicates:

“The pace and breakthrough nature of technological innovation- and the rate of which it is adopted- will heavily impact supply chain assets, processes and people.”

A further perspective we urge are multi-industry supply chain readers to dwell upon is that according to this latest report, while business inventory growth flattened in 2015, it was countered by a 42 basis point increase in the weighted cost of capital resulting in a 5.1 percent overall increase in inventory carrying costs in 2015. Part of the explanation can be found in the Appendix section of the current report. The new authors elected to modify the calculation of inventory carrying costs because prior reports multiplied the total value of business inventories by a fixed percentage- 19 percent in prior years. The new authors elected to calculate the value by utilizing other matrices more reflecting actual values of weighted cost of capital.

The implication going forward is that pressures to add additional inventory to mitigate risk or respond to customer needs for same-day delivery will come with a stiffer financial cost beyond zero interest rate conditions.

Thus, if you chose not to consider what we have been pointing out in the last 18 months, you now have a renewed industry perspective. Therefore, we need not dwell in broader or different perspectives,, rather we urge our readers and followers to just read and absorb the report for yourself.

The latest report is available for download on the CSCMP web site.  Existing CSCMP members can download the report at no-cost, while non-members must pay a publication fee.

A few added comments related to the changes in this year’s report. We applaud CSCMP and AT Kearney for the changed methodology and added internal logistics industry and external multi-industry perspectives and insights brought forward in the new format. We encourage both organizations to continue that effort in future annual reports. Previous reports featured more added color and current data points in the current year and we trust the authors will take that into effect in future reports as well.

We re-iterate our ongoing key Supply Chain Matters takeaways:

The “new normal” of logistics and transportation is reflected in strategies directed at assuring consistency of service, deeper levels of business process collaboration delivered at a competitive cost. The renewed message in the light of continuing data is to insure that the cost, service and inventory benefits derived by contracting or outsourcing logistics and transportation services outweighs the continuing pattern of increasing services costs. As supply chain processes and risk profiles continue to become more complex, especially in light of the demands of online and Omni-channel fulfillment, 3PL’s and total logistics providers will have to invest more in technology and services, adding more motivation to increase fees or institute risk sharing methodologies.

If you require another proof-point- reflect on the actions that Amazon has been taking to take more control of its logistics and transportation capabilities for premium fulfillment services. If your organization spent billions on transportation and logistics, you would probably be just as motivated.

A final note:

At this year’s annual CSCMP conference being held in late September, this author will be collaborating with The Washington Post in moderating a specific panel discussion related to ongoing logistics and transportation industry trends and how specific industry supply chain organizations are responding to these changes. Stay tuned for further details.

Bob Ferrari

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


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