As a follow-up to my attendance at the recent Sterling Commerce Customer Connection 2010, I had the opportunity to provide a more detailed overview of my impressions and conversations held at the conference, particularly in the perspective of the current state of global supply chains.

You are welcomed to view this commentary in my guest posting on the Infosys Supply Chain Management Blog.

Bob Ferrari

I want to thank “the doctor” over at Sourcing Innovation for his unsolicited kind words in his recent posting, What About Bob?. 

In his posting, Michael makes some very astute observations regarding lots of movements in the so-termed Analyst 2.0 arena, and the emergence of many new supply chain oriented industry analyst models predicated with a web presence or sponsored research. In regards to this evolving landscape, Michael has posed the question- What About Bob? 

Here is the response.  Michael as usual, has astutely pointed out the ‘wheat’ from the ‘chaff’.  Substance and quality will often prevail over flash.  For my part, I am ready, willing and able to provide clients with my multifaceted and versatile consulting experience in global supply chain business process and information technology. I will continue to do what I do best, which may not necessarily be lots of flashy hype, but certainly experienced, honest and substantive insights when they truly matter.

By the way, if you are in need of someone with an absolute and unequivocal technology understanding behind supply souring and supply chain applications technology, Michael Lamoureux is your person.

 Bob Ferrari

I was recently asked to respond to April’s Manufacturing Business Challenge featured by Industry Week.

The problem concerns a hypothetical landscape and building maintenance vehicles manufacturer and are unlike those being asked by many small and medium manufacturers and distributors today.  Like it or not, the business environments in many industry settings have dramatically changed, especially if your business includes continuous product cycles and a volatile supply base.  Many supply chain organizations today find themselves asking a lot of ‘what-if’ types of questions.  An understanding of the difference in approaching ‘what-is’ vs. ‘what-if’ information analysis is the key to understanding what needs to change.  Knowing that you will have a problem, as well as what will cause the problem — before it occurs — is the first step to correcting any problem.  This capability is today’s fundamental building block for supply chain business intelligence.

I trust you will enjoy and benefit from this challenge scenario and my response.

Bob Ferrari

The following posting can also be viewed and commented upon on the Kinaxis Supply Chain Expert Community web site.

Supply chain professionals, like it or not, remain in an environment of high volatility.  Need some proof, consider the following…

A mere three months ago in December of 2009, I penned commentary on the Supply Chain Matters blog regarding the existence of euphoria among U.S. manufacturers.  At the time, a Washington Post article reported that the weak U.S. dollar was helping U.S. manufacturers to win back business previously lost to other global competitors.  This was certainly positive and uplifting news as these U.S. manufacturers approached 2010, but I stressed a cautionary note to the conclusions of this article.  While the economics of product cost, quality, inventory and logistics tradeoffs shifted more toward U.S. manufacturing sourcing, the political dynamics of today’s world economy must always be factored.

Last week, an article in the Financial Times (free sign-up preview account required) makes note that the recent fall in the value of the euro has given the eurozone economic recovery a new lease on life.  The article notes that German manufacturing output, thus far, in March has increased at the fastest pace since the mid-1990′s, and business confidence in Germany has jumped to its highest level in the past two years. Germany’s export orders are increasing at record speed, and the European composite purchasing manager index rose from 53.7 to 55.5 in February, its eighth consecutive monthly increase. The German global export manufacturing machine once again has been primed.

If you had read either of these press reports in isolation, or without context, the conclusions would in some cases influence senior managers to believe that a specific regional economy was on the road to post-recessionary recovery.  If both are placed in context of time, than perhaps the conclusion is that the geopolitical swings in currency rates are occurring at a much higher rate. The interplay of China, Germany and the U.S. economies are all swinging back and forth motion like a pendulum.

The reality for procurement sourcing and product planning teams is that global volatility is an unfortunate given in the current post-recessionary world of ongoing uncertainty. Reacting to current snapshots in time, driven by today’s rapid shifts in currency or energy markets will often change the economics of sourcing, and we need to be cautious about various options of response.   A sudden reaction to a currency or energy market shift in time may not prove to be prudent, since as we now can observe, today’s markets change rapidly. Conversely, not responding appropriately to a longer-tern structural economic shift could ultimately be financially costly.

In the long term, most manufacturers, large or small, are better off by being recognized for product and service innovation as opposed to being evaluated as the lowest-cost producer. Customers often want to establish long-term supplier relationship with innovative and value-added suppliers, suppliers that can be extensions of a long-term business relationship. These same customers, however, need to also navigate their business models to seek any means to drive more top line sales growth in 2010, and/or drive more procurement cost savings. Thus they will seek out an opportunistic relationship with this year’s lowest cost provider to exploit sales expansion plans or create product promotional opportunities in the market.

Given this commentary, you may well ask the obvious question; How will we sort out all of this uncertainty in our organization’s business planning?

My advice to is to invest in supply chain intelligence and advanced analytical capabilities, tools that focus on supporting more informed decisions that can have multiple alternatives or economic impacts. The new table stakes for firms is the need to quickly assess the impacts of rapid changes in markets and their implications to short and longer-term supply and demand plans. If a customer approaches your sales teams with an unplanned buy, how will your firm rapidly respond toward filling that requirement?  Conversely, if sudden changes in the economy cause a customer to cancel existing pipeline orders, what actions can be taken to buffer the financial impact of excess inventory or production capacity?

In an environment of volatility and rapid change, effective planning is more about the ability to quantify the impact of various changed business scenarios, rather than a summarization of what has occurred in the past.  Today, markets are changing very quickly and timely response capabilities are indeed what will differentiate the survivors.

Bob Ferrari

Last week, manufacturing and production indices in many parts of the globe again turned positive, spawning many in the financial media as well as Wall Street to declare that the recession is over.  Let the recovery begin!

I’m not inclined to pop those champagne bottles just yet, and I’ll explain why.

The October 2009 ISM Report on Business noted that the U.S. manufacturing sector expanded for the third consecutive month, and the overall economy grew for the sixth consecutive month.  As I have pointed out repeatedly in this column, you really have to dig deeper into these numbers.  Consider that the New Orders Index registered 2.3 percentage points lower and the inventories index was 4.4 points higher than readings in September.  Prices were also slightly higher.  All of these indices still reflect signs of caution in my eyes.  I’m in the camp that questions whether the current U.S. economic stimulus programs, the after effects of the “cash for clunkers program”, and the inertia of the past inventory recovery program are really what drove these numbers. I’ve also noted in past postings that the ongoing trend of higher inbound material prices seems to be ungrounded to supply and demand forces, reflecting more on the need for certain suppliers to maintain some form of profitability through inflated pricing.

 In other global regions, The China Federation of Logistics and Purchasing PMI index grew to 55.2% in October, the eight consecutive month that reading was above 50.   The production index at 59.3 was the highest level since May, and China’s new export index was up 1.2 percentage points.  While the indices are indeed positive, the government of China has had massive stimulus programs in place to spawn more consumer buying, and to accelerate investment in newer product growth areas such as green and alternative energy markets.

A lot has been written regarding “the new normal” , and what really constitutes a global economic recovery.  If you have been scanning corporate earnings reports from the past few quarters, companies that have maintained levels of profitability have done so based on expense reduction rather than sales growth.  To get a deep understanding of what the “new normal’ might really be, I recommend you read the October 3, 2009 edition of The Economist magazine, specifically the article titled: A dull, heavy calm. The Economist argues that while the world economy has stopped falling, recovery will be measured.  To further paraphrase, the world economy will bounce back in the next few quarters, and consumers may resume spending, albeit somewhat modestly. Companies that depleted their inventories will restock, but remember the overall depressed starting point.  More specifically, U.S. consumers are not in any position to currently lead a sustained recovery, and U.S. companies will continue to turn to exports as a means to ignite growth.  The question raised is whether Asian consumers are really ready to be the customers for those exports?

My advice to value-chain executives is to continue to be cautious, and don’t over react to the current euphoria in financial markets.  Now may be the time to prepare for recovery, but my consul is to invest in process capabilities that focus on broad market intelligence, more resilient supplier sourcing, deeper product demand sensing and business intelligence capabilities. 

While the bottom has been reached, the road to recovery looks to be uncharted waters, and previous business planning methods grounded in what happened in the past, are not going to cut-it for charting the path to growth in the “new normal”.

Bob Ferrari