The following  is a guest posting that I have authored and can be viewed and commented upon on the Infosys Global Supply Chain Management Blog site.

The 2009 holiday buying season in the U.S. and indeed worldwide, presented two important learnings for the retail industry.  First, more consumers turned to online channels to perform price and feature comparisons as well as to execute their purchases.  Online channels were reported as being up 4-5% through mid-December of 2009.  One of the most significant takeaways from this year’s National Retail Federation (NRF) conference was that cost and value conscious consumers have discovered that online shopping and integrated merchandising are becoming a far more attractive option, and these same consumers demand more of these experiences.  The ability to research products, place orders online, pick-up or return purchases at the nearest local retail outlet have captured enormous interest, and consumers demand that these experiences occur without a glitch.

The second learning was that retailers stand to gain more profitability in practicing smart, lean inventory management strategies.  The notion of stocking and promoting just high-demand items, while exercising supplier contracts for quick turnaround drop ship or order fulfillment worked well for those retailers able to pull-off such strategies. Indeed, the results of such strategies are being reflected in added profitability for these retailers. In its 2010 Predictions for Retail Industry, IDC Retail Insights noted that the new winners in retail will be those who can cater to more informed customers, with immersed experiences, integrated merchandising, and instrumental execution.

The reality of immersed experiences and instrumental execution is really about discussions related to Multi-Channel Fulfillment Operations (MCO) or Multi-Channel Commerce (MCC).  The two terms are often confusing, having drastically different meanings for functional retail teams.  In his blog posting, Decide where you integrate: MCO does not equal MCC,. Gopikrishnan GR (Gopi) makes a rather cogent argument that retailers need to separate the two meanings, and focus on one building to the other.  MCC is indeed more about B2C commerce strategies related to the customer shopping experience via the web, including personalization, content and shopping cart experiences.  MCO in my view, is really about the capabilities of the retail supply chain to be able to integrate multi-channel sales and inventory fulfillment.   The imperative for retailers is to spend more time and consideration toward implementing a phased MCO strategy, one that meets the specific needs of the retail segment.

The new realities of MCO are fostering the ability of consumers to shop and place an order online or through a mobile channel, have real-time response to global inventory availability, reserve inventory, and have all order information visible to all pertinent partners in the supply chain. As Gopi rightfully points out, this is easier said than done.  In fact, many global manufacturers have struggled and spent considerable resources in implementing many similar type capabilities.  The notion of “walk first and run quickly after” have relevance, and multi-year strategy can be very common.

In my view, retailers need to take two very broad perspectives in addressing an overall MCO strategy.  The first should be the retail supply chain infrastructure and fulfillment processes that are required to effectively manage multiple-channel fulfillment.  Processes should include a comprehensive analysis of the total supply chain network, with a eye toward agility vs. latency.  Think of the means for streamlining inventory cross-docking or supplier drop-ship programs. Supplier sourcing and collaboration programs directed at rapid replenishment will be a rather important consideration. And if your retail operations include private labeling of products, network connections and information integration with contracted manufacturers are also critical considerations.  As noted earlier, optimized inventory deployment, predicated on demand intelligence, is very essential.

After process comes the technology that can best enable specific needs of MCO. The reality of this post-recessionary climate is that technology investments may have to be funded by incremental or ongoing savings in supply chain operations.  The good news for retailers is that there is much learning that can be harvested.  Order fulfillment technology providers who have demonstrated implementation experience have best practices that can be leveraged.  Multi-echelon inventory management software providers also have demonstrated the ability to help retailers implement smarter and more efficient inventory stocking and deployment strategies.  More options exist for technology deployment, including third-party or SaaS platforms. Finally, specialized consultants and system integrators with proven retail industry experience understand the nuances of how to walk before you run, and test before you go-live.

If you take one nugget from this posting, it should be that a seamless customer experience starts and ends with seamless supply chain capabilities.  While the task is complex, the rewards are the ability to be a leader in multi-channel commerce and fulfillment capabilities for customers. Profits will be the end result.

Bob Ferrari

Disclosure: Infosys is one of other Supply Chain Matters paid sponsors.

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

A recent article featured on the ASQ (American Society for Quality) web site and originating from the Arkansas Democrat-Gazette notes that Wal-Mart has tightened its delivery windows for suppliers. Wal-Mart will impose a 3% penalty, based on cost of goods,  if a supplier shipment arrives at a regional distribution center outside of a prescribed four day delivery window, either early or late.

The notion of delivery penalties is not new in retail but the fact that Wal-Mart has now tightened the window has a lot of connotation for many suppliers to retail.  As Wal-Mart goes, so does the rest of the industry. This strategy is driven by Wal-Mart’s desire to continue to decrease its own inventory levels, transferring that burden to suppliers.

The article rightfully points out that Wal-Mart usually does not tighten-up policies without the input of suppliers.  However, as we all know, big business and large volume suppliers tend to have much more influence than smaller suppliers.  Large global CP firms  such as Colgate Palmolive, Kimberly Clark, Procter and Gamble and others have dedicated supply chain planners who can tap into Wal-Mart’s Retail Link information system, as well as various sophisticated supply chain planning, replenishment and logistics systems to coordinate and track shipments.  Small and medium business oriented suppliers often do not have such resources. That thought caused me to ponder that the supply chain stakes for these SMB suppliers continues to escalate, while these same smaller firms stand to lose the most financially with any late delivery penalty as high as 3%.

The Gazette article notes that truckers try to avoid loads that come with built-in penalty fees related to early or late delivery. And why not, since shippers can often tender a shipment at the last moment expecting or even demanding that a carrier expedite a shipment, irregardless of weather or other unplanned conditions along the route.  The notion of the “last mile” is often interpreted with that game of musical chairs, when the music stops, the entity holding possession is the one out of the game.

As carrier Transplace has done, more and more transportation and logistics providers will need to continue to reach out to shippers and suppliers in providing more “predictive” reporting relative to exception events.  But all of this information needs to be captured in a supply chain information repository.  With these higher stakes, SMB’s themselves will need to focus more on “predictive’ rather backward looking planning processes.  Today it could be Wal-Mart’s delivery window, tomorrow it could be a major customer in a foreign market.

The use of MRP or MPS planning logic which attempts to satisfy a customer delivery date without factoring all sorts of dynamic and often changing constraints across the entire supply chain can often fail to adopt to strict delivery window needs.  Small suppliers can no longer use “rules of thumb” planning, such as it usually takes n days of ship time, or production has always required two weeks or order lead time. A more predictive planning tool is often a better alternative, one that allows rapid re-planning based on near real-time events, or that can allow for what-if analysis, when the planning system is alerted to a delay in production or shipment activity.  If a supplier stands to lose 3% by being early or late, the planning system needs to be able to factor that logic against all other alternatives.

Before, SMB’s had little choice but to try and swallow a very expensive ERP focused supply chain planning system that was originally designed with classic MPS/MRPlogic, and additionally offered lots of overhead IT infrastructure to maintain. Today, the situation is far different and the good news is that there are more software-as-a-service (Saas) or hosted planning applications available that not only are tailored for SMB needs, but also offer more forward-looking predictive analysis capabilities.

The key takeaway for SMB firms is to get serious about predictive vs. reactive supply chain management and fulfillment capabilities.

Bob Ferrari

Disclosure: Kinaxis is one of other paid sponsors for the Supply Chain Matters web site.

Besides the Super Bowl and that great win pulled-off by the New Orleans Saints, the other big news in the U.S. this weekend, at least in the blogsphere, centered on enterprise software.

SAP AG announced that former CEO Leo Apotheker has abruptly resigned, and that the company would return to a dual-CEO leadership structure. Both Jim McDermott, head of field operations, and Jim Hagermann Snabe, head of product development, will assume co-CEO roles for SAP. Apotheker’s management contract was up for renewal and the SAP Supervisory board obviously decided it needed to make a change.

Hasso Plattner, co-founder of SAP and head of the SAP Supervisory Board, was charged with putting the public voice to this announcement. It also appears that Hasso will again take a high profile role in leading SAP through yet another executive leadership transition.

Naturally, an announcement involving such a large global enterprise provider such as SAP is bound to draw a lot of business media and blogsphere commentary. An article in the Financial Times (free sign-up account is required for viewing) written by a reporter in Berlin notes that SAP has admitted that it had lost the trust of some of its customers. Previous efforts to increase software maintenance fees last year in the middle of an unprecedented global recession obviously did not go over well with SAP customers, particularly those in Germany and the rest of Europe. A direct quote attributed to Hasso Plattner notes “Unfortunately, SAP has made a few legal and technical mistakes, especially in Germany, …” Delays in the release of long hyped SAP Business by Design Suite of software applications tailored for small and medium sized business have also been attributed to leadership disappointment. These are both significant admissions.

Supply Chain Matters has penned a number of previous commentaries (latest is linked here) regarding the poor timing and arrogance of enterprise software vendors in increasing software maintenance fees at such an inopportune time. If one considers that CIO’s and IT groups are your core customer influencers, then why place these same groups in such a precarious and awkward organizational dilemma by having to deliver the news that despite all efforts to reduce internal costs, an ERP provider is demanding increased maintenance fees. More often than not, these increased fees were passed along as an added “tax” to supply chain functional teams who utilized many of these ERP applications, and who obviously did not appreciate having to pay more overhead costs.

Blogsphere commentary has been widespread, particularly from those who profess to be “in the know” of enterprise software and IT industry trends. Keep in mind that SAP has the influence to call on certain favored bloggers to provide background commentary to top-tier business media stories. I do not elect, as other bloggers may, to repeat or hype this commentary except to call out where I specifically agree with or differ in viewpoint, particularly where it may have implications for manufacturing, supply chain and procurement customers of SAP.

Leo’s success at SAP came from his accomplishments in sales and his broad influence in the SAP field organization. In previous commentary, I have noted that his previous ascension to the role of CEO was a de-facto transfer of organizational power to the field organization. There were many reasons for this, but the primary one was that product development and solution management had dropped the ball in the ability for SAP to stay current in rapidly evolving software buying trends, including software component services and software-as-a-service (SaaS) platform offerings. Instead, SAP was forced to spend multiple years in re-architecting its ERP and Business Suite applications platforms, including supply chain and procurement, leaving loyal SAP customers and prospects little option but to wait months for desired enhancements. This also placed IT teams at the ire of supply chain functional teams tasked with getting more done with less people.

On his Enterprise Irregulars blog, Ray Wang pens that Apotheker’s demise was a result of “…Low morale among the Walldorf engineering team, the issue with Enterprise Support and maintenance, and uncontrollable poor quarterly performance proved to be factors beyond his control. Customers over the past 2 to 3 years began to wonder how to tap SAP’s innovation. A clear need emerged for having more technologists at the helm.” While I agree withsome of these statements, I disagree that another technologist at the helm would have solved anything. SAP’s manufacturing and supply chain customers have seen little innovation because of other priorities among SAP’s direct sales and solution marketing groups. During these past months, it seemed to me that most all of the SAP messaging and communication was hijacked by Business Objects and not on the core applications and sharp industry focus that have always been the soul of SAP’s success. The SAP sales teams are too vested in maintaining their commissions, and marketing in turn was too vested in maintaining a share of budget dollars and individual attention. Vinnie Mirchandani in his Enterprise Irregulars posting, captured the essence of this view. “SAP needed someone to dismantle that “old field” as the market transitions away from the big, honking upfront license and implementation and operating cost model. It is screaming for soul and innovation. Instead they rewarded Leo. Surely, they did not expect him to choke his own baby?”

I believe that the elevation of Jim Hagermann Snabe as co-CEO is a good decision for the very fact that Hagermann has led both the industry business units as well as product development teams. He has always impressed me with his sensitivity to customer needs and his awareness of how important value chain and industry-specific capability is for SAP’s installed customer base.

I for one have never believed that a co-CEO model brings success to any software firm. Supply Chain Matters readers might recall some years ago when AspenTech tried to follow this model with a dismal outcome. There can only be one person to make the final call, and SAP’s Supervisory Board should have known this by now. Some may speculate that the final call may again be Hasso, who can then throw another executive”under the bus”.

Time is indeed the sole judge of any senior leadership change, but in the case of SAP, time is marching all too fast. On the one hand, the SAP Supervisory Board should be applauded for taking bold action. One wonders if Larry Ellison and Oracle will ever back down to customer push back on increased maintenance fees.

On the other hand, can a sharing of leadership power among the field and product development actually bring customer innovation and satisfaction to the table in a much more rapid manner? Will SAP ever re-capture innovation in managing external manufacturing and value-chains?

We will all find out in the ongoing drama at SAP.

Bob Ferrari

There was some rather noteworthy news from supply and contract management software provider Emptoris this week.  The company announced that it has opened Emptoris China, a full service office on mainland China.    William Li, an executive with previous experience with Ariba, PeopleSoft and Oracle, was named General Manager and Group Vice President of China.  The office, located in the city of Shanghai, will include sales, local product development, professional services and customer support.

In addition to the office opening, the company also announced that China National Offshore Oil Corporation (CNOOC), the third largest national oil company in China, has signed on with plans to implement that vendor’s supply and contract management suite.

Industry analyst firms indicate that the most significant IT systems and supply-chain applications growth in 2010 will originate in the Asia-Pacific region, including China. We have on this blog noted that this region will lead in 2010 industry recovery.  These announcements from Emptoris continue to add validation to the regions growth and interest in advanced technology over the coming years.

Congratulations and best wishes to the Emptoris China team.

 Bob Ferrari

ERP software customers have gained a renewed sense of power with last week’s announcement from SAP AG that the company would step back from its previous plans to move all customers to Enterprise Support contracts priced at 22%.  According to an article featured in InformationWeek, SAP will instead adopt a two-tiered system that reintroduces a Standard Support option priced at 18%, which is 1% higher than 2008 rates. 

This move is a victory not only for SAP customers, but others as well, including Oracle’s ERP customers.  The issue of increased maintenance fees concerning SAP dates back to a July 2008 decision to increase software maintenance fees to 22% over the next five years.  SAP’s European customers, specifically Germany and Austria were the first to cry foul, and ever since, more and more of the worldwide SAP customer base have been pushing back.  The revised plan is to gradually increase support rates starting in 2011.

The current challenging economic times have forced many companies to slash costs and preserve cash.  While most employees and suppliers were often asked to give concessions, the major ERP providers persisted in raising overall software maintenance fees.  As most IT professionals would explain, software maintenance is double-edged. Companies must not only pay the annual fee, but must also expend efforts to remain current with new software releases or upgrades, or upgrade IT headcount and infrastructure to maintain current release levels. What can be even more frustrating is when the ERP supply chain module is not even being used, or lies “on the shelf” because functional teams have lost interest or focus in the application.

To present both sides of the issue, the ERP providers argue that maintenance revenues provide the means to keep new enhancements and technology flowing to installed base customers, along with insuring that the software will be supported when a problem occurs. Those arguments do not hold much value with today’s more empowered customer base.  To no surprise, companies are also turning to other non-ERP technology alternatives including hosted or software-as-a-service providers, or even third-party maintenance providers.

I agree with the consensus that credit should be given to SAP for biting the bullet and finally listening to the voice of its customer base. 

In April of last year, Supply Chain Matters called attention to an open letter blog entry penned by Bob Evans of Information Week, which at the time was directed to Oracle CEO Larry Ellison.  That letter challenged some fresh thinking regarding Oracle’s 22% maintenance fee.  Evans correctly noted that rather than a fee, the name should be changed to “innovation and development funds“. Others chimed in, utilizing other terms such as “M&A capital raising activities” or “user tax”. With this development concerning SAP support, Oracle customers should feel more empowered to exert their voice of protest as well.

A lot of commentary regarding the new decade reflects on the notion of “reset”.  In the case of ERP and perhaps the entire installed customer base of enterprise-level software, that reset is underway.

Bob Ferrari