Wall Street financial analysts and commentators were quick to pounce on Amazon’s recent quarterly earnings announcement.  In the latest quarter (Q4-2011) that included the 2011 holiday buying season, Amazon revenues grew 35 percent, but income was down 57 percent.  Wall Street was very disappointed. Not only were Street analysts anticipating more revenue growth, they have been savage in questioning Amazon’s increased spending and margin erosion.  During the recent quarter, operating expenses were up 38 percent which surpassed quarterly revenue growth.

The other continual topic of speculation revolves around how many Kindle tablets did Amazon really sell during the holiday season.  Supply Chain Matters is just as guilty as others in speculating on the fulfillment wars of Kindle vs. the Barnes and Noble Nook reader, and of course, the largest shadow, Apple’s iPad.  For its part, Amazon remains rather coy in providing very general statements regarding Kindle sales.  The online retailer was quick to point out that Kindle was, by far, the best-selling Amazon holiday product in both the U.S. and Europe. Then again, Amazon visitors were bombarded with constant reminders about Kindle.  While some industry observers and influencers speculate that Kindle sales may have topped six million, the final authority will be Amazon itself.

We all know that Wall Street’s lens on strategy to results centers on the next 90 days vs. a longer-term perspective of market influence.  If all the doom and gloom were taken literally, a short-term investor would have the impression that Amazon executives are spending for the sake of spending.  History, however, provides a far more long term strategy being deployed.

Like the Cheshire Cat, Amazon has a far broader strategy at play and retailers and other online providers had better be paying attention since Amazon is often characterized as the most competitive company ever built.  According to Morgan Stanley: “Amazon is the Wal-Mart of our era but it’s better, in our view — Amazon.com is the combination of technology + logistics company, allowing it to participate in a transition of physical to digital retail supported by store-less (in Seattle) business model that leads to higher long-term economic returns.”

What should concern all is where Amazon is investing.  The latest earnings briefings indicate that Amazon continues to invest heavily in global based sales fulfillment centers.  The online provider has plans to deploy an additional 17 centers on top of the over 40 global fulfillment centers already in-place.  Headcount has increased 67 percent from a year earlier, and Amazon reports that the majority of people investment is in operations and customer support areas. Add physical distribution and logistics to a virtual network of incredible online IT, cloud and customer intelligence data infrastructure, and the evolving business model becomes clear.

While some retailers and online providers elect to outsource physical fulfillment, technology and services under a strategy of lowest-cost provider, Amazon blends strategies and technological capabilities together as an unstoppable force in physical and digital based fulfillment of customer needs.  While some retailers such as Target are becoming more aggressive in product and price differentiation, Amazon can have the ability to leverage each of its tools and capabilities to always be the lowest-cost alternative.

Supply chain senior managers and strategists should heed the long-term game plan of Amazon rather than Wall Street’s convenient short-term outlook.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and Supply Chain Matters, All rights reserved.

Supply Chain Matters has previously noted that in these challenging business times, even the best organizational supply chains can experience a snafu.

Procter and Gamble, on just about every influencer’s listing as one of the top rated supply chains, is experiencing an uncharacteristic supply snafu which is gaining wider visibility. The timing is not ideal since P&G recently disappointed Wall Street by reporting a 49 percent drop in quarterly profits (quarter ending Dec. 31), a hefty write-down of previous acquisition costs, and 1600 planned job cuts.  The Wall Street Journal reported that P&G lost market share in a greater portion of its business lines during the past quarter partly because competitors held back on product price increases while P&G raised prices. P&G is now reversing some of these previous price increases.

The supply snafu involves the market introduction of a new branded line of Tide Pods, a capsule blended laundry detergent that was originally planned for market introduction in August of last year.  P&G product management had to push the market entry date to this month, and it now appears that supply constraints may limit how much supply will be available at retail outlets to support a broad product launch.

An article published on the Cincinnati Business Courier web site cites a Deutsche Bank analyst as indicating a second supply delay involving Pods and that P&G is communicating to retailers that constraints will limit supply for shelf displays only, and that off-the-shelf volume promotions should be timed for no sooner than July of this year. Noted was that the “three-chamber unit dose” delivery system for Tide Pods required special manufacturing processes to be developed. A spokesperson for P&G noted: “Unfortunately, we recently experienced unexpected challenges as we ramped-up new manufacturing capacity and processes in mid-November and December. However, we continue to see improvements in the manufacturing processes and are confident we will achieve the manufacturing capacity we expect on Tide Pods.”

An article appearing on AdvertisingAge noted that P&G appeared to have a first-mover advantage in the biggest laundry innovation in 25 years, but these latest supply setbacks provide an opportunity for laundry detergent competitors to launch their own versions of blended product.  That article notes: “A slew of ultra-concentrated detergent “packs” that are slated to hit stores in February are expected to ratchet up marketing outlays in the category by nearly $300 million.” The article also cites an executive at a P&G competitor indicating that “retailers are furious” and that P&G’s sales force is “having to use up chips saying they’re sorry” for changing plans twice in six months.

While competitors will seize on market opportunity, P&G as a leader in global supply chain capability will eventually bounce back and manage this Tide related supply crisis. Articles have also noted that P&G has complete patent protection on this new formulated product. As is often the case, lessons will be learned, especially regarding the alignment of product management, sales, marketing, and global supply planning in new product introduction involving highly complex manufacturing processes. There well may be lessons related to the executive S&OP processes, and in handing competitors an unplanned opportunity to seize on supply constraints.

We suggest that the takeaway for readers is that even the best supply chain teams can stumble, and when it occurs in the public limelight, when disappointing financial news is being communicated the headlines well become magnified.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC, and Supply Chain Matters.  All rights reserved.

In March of 2011, Supply Chain Matters had posted commentary related to high-level executive re-organizations occurring at Johnson and Johnson.  The noted reorganization came in the wake of prior executive re-organization which Supply Chain Matters  commented upon in December 2010.  Each of these prior executive changes was in light of the significant manufacturing quality problems at J&J’s McNeil Healthcare business unit which resulted in multiple product recall incidents that stretch back to 2009.  McNeil’s prime manufacturing facility in Pennsylvania remains temporarily shutdown pending significant multi-million dollar investments in new process control capabilities, and is scheduled to be re-opened this spring.

In December of 2010, Alex Gorsky was given broad responsibility for proactively addressing company-wide initiatives related to manufacturing and supply chain quality while Sheri McCoy was given global oversight of the entire consumer business unit. In March 2011, the McNeill unit in the U.S. was spun-out as a separate organization to be headed by Patrick Mutchler, a 35 year veteran employee who has had a variety of assignments on the consumer business side. These prior subsequent moves were apparently motivated to give more focused attention to quality and compliance needs as well as restoring consumer confidence in J&J consumer brands.  In December 2010 we opined our concern that Gorsky, McCoy and all other responsible executives would have the motivation to put personal competitive instincts aside and come together with a unified plan of action and executive commitment to address significant manufacturing issues.

This week the Wall Street Journal reported (paid subscription required or free metered view) that the  New Brunswick, N.J. health-products giant is now replacing two company group chairmen who held key roles trying to turn around a consumer business.  Patrick Mutchler, the previous tasked head of McNeill North America last April will now retire from the company and his duties will be assumed by Roberto Marques who currently heads the J&J consumer business in North America. Also reported was that Pericles Stamatiades, chief strategist for J&J’s consumer business, is leaving the company. The Journal also quotes a former J&J executive as noting that Vice Chairman Sheri McCoy encouraged the two officials to leave “to bring in some fresh thinking and direction” and fix the unit. There has been no public mention on any changes related to the responsibilities of Alex Gorsky.

A J&J spokesperson is quoted as noting that the consumer business unit “will continue to be operated as a separate, integrated business in order to maintain its focus on quality and compliance, and on the successful reintroduction of OTC medicines in the U.S. market“.   U.S. sales at the McNeil unit plunged to $1.4 billion, from a peak of $3.1 billion in 2008, which is a significant decline and further amplification as to the severity that the quality crisis has had on the consumer business. Also reported was that morale among employees has suffered amid cost-cutting, including additional layoffs of more than 100 people in the U.S. in recent weeks.

While we can only speculate at this point, it would appear that patience for corrective results is running thin across McNeil and the natural speculation is whether these latest executive changes will help to gain more focus and cross-functional accountability for fixing damaged brands and troubled processes. The stated current need for “fresh thinking and direction” was, one would speculate, motivated by either impatience or organizational non-alignment on a framework of action plans required for in-house and supply chain related changes.

The other open question is whether bringing in new leadership and outside thinking last year would have made a more positive impact.  Then again, would any outsider be willing to risk her/his career to solve this crisis, given such an organizational climate and lack of senior executive alignment at the top?

Seeking the help of outside consultants was perhaps another option, but rather than busloads of inexperienced consultants, speedy resolution may well stem from highly seasoned and experienced change agents who completely understand the tenets of integrative operations and supply chain management.

What comes next is an open question. Executive changes while perhaps required, can frustrate the remaining organization as to who is ultimetly in charge and accountable for fixing overall operational and supply chain related quality.

Reader comments are certainly welcomed, private or otherwise.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and Supply Chain Matters.  All rights reserved.

In conjunction with Oracle’s JD Edwards Summit being held this week in Broomfield, Colorado, Oracle has announced a second phase of mobile access applications that are being made available for the specific JD Edwards EnterpriseOne applications suite.  These include:

• Mobile Requisition Self Service Approval – designed to provide real-time transaction processing access for the review, approval or rejection of requisitions.
• Order Approval Mobile Purchase – Helps enable mobile workers to review and approve purchase orders regardless of physical location.
• Mobile Sales Inquiry – Addresses the needs of sales representatives, service technicians and managers by providing access to sales orders, item availability and item base price on-demand.

Each of these applications will now support smartphone enablement to include the Apple, Android and Blackberry specific platforms.

Supply Chain Matters had the opportunity to speak with Oracle JD Edwards Group Vice-President and General Manager Lyle Ekdahl regarding this week’s announcement, and we were especially interested as to why Oracle elected to have its premiere mid-market ERP offering lead the charge for mobile computing enablement, particularly in supply chain related applications.  Ekdahl’s response was that mid-market companies are just as challenged with reduced staffing and doing more with less, forcing many supply chain functional teams to be much more mobile in their day-to-day business activities.  When the JDE customer councils prioritized areas for needed future enhancements, mobile support was at the top of the list. This week’s announcement is the second iteration from a prior announced support of Apple iPad enablement  made at Oracle Open World last Fall. Ekdahl also noted that there will be several waves of JDE mobile enablement over the next 18 months. He also clarified that each of Oracle’s ERP product lines will have separate rollout strategies relative to mobile enablement.

We still find it interesting that that the JDE suite is currently leading Enterprise Business Suite in this area. Meanwhile, SAP and Microsoft continue to be low-key on their respective supply chain applications mobility strategies and support for customers.

The needs for select mobility enablement among certain supply chain business processes is a growing need and it is interesting to observe how the major ERP providers select processes and applications for mobility support.  Security of information however, will continue to remain a rather important requirement for businesses deploying more mobility features.

Bob Ferrari

E2Open has just announced the release of its Multi-Tier Cost Management application which was designed to orchestrate bill-of-material and product cost collaboration among an extended network of brand owners, contract manufacturers and suppliers.

In conjunction with this announcement, Supply Chain Matters viewed a demonstration of this new application several weeks ago.  The application allows supply chain procurement and buying teams the ability to propagate multiple product costing scenarios among an external network and was initially designed for E2Open’s high tech and consumer electronics client base. What impressed us the most was the means to leverage an alternative way of sharing product lifecycle and management data across the extended supply chain, since PLM (product lifecycle management) technology is typically deployed in a single tier of users.  This could pave the way for a more cost-affordable alternative for externally sharing this data rather than paying for extended PLM user licensing. The application potentially opens the door to leveraging PLM beyond just engineering and into more operational tactical utilization such as sourcing landed cost and broader transformational cost management purposes among trading partners.

The user interface for this application is straight-forward and the screens are relatively easy to understand. Cost data is extracted from any resident PLM system, users can elect different forms of cost management analysis, and an audit trail of changes is provided, helping product management teams to garner a perspective of change activities.

The announcement also represents efforts from a relatively new E2Open management steering team to invest more in internal development of network applications vs. reliance on other external partner applications. As an example, last year there were overt signs that E2Open and Kinaxis would build a stronger technology relationship but that effort seems to have subsided in favor of this internal development strategy.

Beyond high-tech industry -focused clients, it remains to be seen whether E2Open will also invest in the more stringent requirements among its Aerospace industry networks.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and Supply Chain Matters.  All rights reserved.