Prediction Four in our Supply Chain Matters 2012 Predictions for Global Chains outlines a year of turmoil among three specific industry sectors, one being the Retail and B2C segment. More empowered consumers armed with smarter mobile devices continue to make a profound impact on this industry sector, and the results of these impacts again manifested themselves in the 2011 holiday buying season.  A recent Wall Street Journal article again re-iterated that showrooming is an increasingly bigger problem for retail chains ranging from Best Buy to Barnes and Noble, while at the same time being a boom for online retailers such as Amazon.

Retailers have no choice but to respond with alternative strategies to restore some balance of power and recent announcements from major retailers Target Corporation and JC Penny have provided some initial indicators for alternative strategies being explored.

Target has emphatically stated that it will not allow its brick and mortar stores to be utilized as a showroom that consumers utilize, only to later buy an item at an online site offering the most attractive price. This latest statement is on the heels of a rather disappointing 2011 holiday sales period for this U.S.  major retailer.   The retailer issued an urgent letter to its major suppliers suggesting that special differentiated products be made available only to Target. Where special products could not be made available by suppliers, Target is seeking assistance in matching the lowest available price for that item. While Target has had a history of influencing its suppliers to provide Target exclusive products, this new iteration appears to be an effort to expand this initiative.  In its reporting, the WSJ noted that designated Target suppliers will have little choice but to cooperate with the initiative or run the risk of losing a significant volume customer.

Meanwhile, retailer JC Penny’s new CEO Ron Johnson, who was the former chief of Apple’s retail stores, will unveil this week a sweeping re-alignment of that retailer’s brick and mortar merchandising strategies.  In an effort to make JC Penny stores a destination,  major stores will be partitioned into a variety of specialty shops, with the high traffic center of the store being turned into a “Town Center” hang-out or experience center similar to the Apple “Genius Bar”.  In addition to these physical store changes, the retailer is eliminating most all previous sales markdown efforts in favor of a lower price every day pricing strategy.  Here again, there is a strategy of differentiation among branded goods and making it more difficult for consumers to price shop particular items.

Supply Chain Matters fully anticipates that other big retailers will also follow with differentiation strategies, but the real impact will involve individual suppliers, who after many months of efforts to consolidate overall product offerings, may find themselves under pressures to once again provide product offerings for individual retailers.  That could also have negative inventory connotations.

As more retailers fire more salvos in the war with online providers, the implications cascading across supplier networks could well negate any previous cost and operational efficiencies.  If these same retailers do not invest in supply network efficiencies and more enhanced supplier replenishment initiatives, the overall goal may be for naught.

Bob Ferrari

The Supply Chain Matters Quarterly Newsletter is an added reader supplement to this blog.  This newsletter provides for a broader analysis of our daily and weekly commentaries, with an emphasis on this past quarters events and their implications for global supply chain business process and information technology needs.

The Q4-2011 newsletter was distributed today, so please check your email inbox to access and read your copy.  Reader feedback is always appreciated.

Our themes  for the last quarter of 2011 included a highly uncertain global economy providing increased challenges for predicting product demand and resource needs as well as another highly visible major supply disruption incident, that being the devastating floods in Thailand. Events and accelerated forces continue to stress multiple industry supply chains, including those supporting the PC industry, pharmaceutical, aerospace and alternative energy.  We also see clear signs of a building renaissance for U.S. manufacturing.

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Bob Ferrari- Executive Editor

Readers have been no doubt not been able to avoid all of the mass media reporting related to the Costa Concordia cruise ship disaster.  Not only was there loss of life but the circumstances related to this accident are very troubling for all of us to comprehend.

Why did the ship’s master navigate his vessel so close to a known reef? Then there are the unconscionable implications that the captain abandoned his ship before all survivors.

Carnival Corporation, the parent to Costa Crociere was quick to point a finger toward the ship’s captain, Francesco Schettino.  Meanwhile, global-wide media images flooding social and traditional media and continuing incident coverage are fueling a wave of concerns among maritime officials related to the state of safety procedures for large cruise ships.  There are reports that the International Maritime Association is prepared to review safety standards concerning large ships.

As supply chain professionals, we often approach such incidents from a broader lens.  In other words, is this an isolated incident or an indicator of broader issues concerning the safety of very large and potentially dangerous vessels, regardless of cargo?

In early January, we noted New Zealand’s worst maritime disaster, the incident of the stricken cargo ship Rena which is breaking-up on a highly ecological barrier reef.  The vessel struck the Astrolabe Reef enroute to the port of Tauranga in early October and has remained aground all of this time.  There remain concerns for fuel spillage along with some containers carrying hazardous materials spilling their contents in a highly maritime sensitive area. That incident raised troubling questions as to why the ship’s captain steered his vessel dangerously close to a known and long-chartered barrier reef while steaming at 17 knots.  This ship had documented safety problems, including the lashing of containers, and had been retained in previous ports. That incident has raised questions regarding ‘flag of convenience” ship registration to circumvent safety standards as well as whether ship operators and the shipping industry as a whole, reacting to overcapacity and financial trends has taken a zeal for cost control too far.

This weekend, an explosion aboard the 4191 ton oil tanker Doola No. 3 sailing off the coast of South Korea occurred as crewmen were draining gas from an oil tank. That vessel normally transports diesel fuel. had previously discharged a shipment of6500 tons of gasoline.

There have also been other ship related accidents including the August 2010 ship collision that involved the container ship MSC Chitra in waters adjacent to the port of Mumbai.

In six-sigma methodology, we are often reminded to analyze cause and affect patterns.  Too many and too frequent ship related accidents with unexplained circumstances should motivate maritime and government safety officials to take a comprehensive view of current operating practices involving the maritime industry.  Too many lives and too many exposures to more tragedy are at stake.

Bob Ferrari

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

Earlier this week I had the opportunity to partake of my favorite activity, actually visiting a manufacturing facility with a unique value proposition. This facility is demonstrating leading-edge techniques for both lean and flexible manufacturing in an area not necessarily known for practicing these advanced techniques. What made this experience so unique was that the facility is located in Massachusetts, not necessarily known as being a hub of high volume manufacturing.

My visit was to ETM Manufacturing, a custom metal enclosure design and fabrication producer that caters to computing, telecommunications and other industry related manufacturers.  ETM’s CEO, Rob Olney invited me to visit and I was quite impressed with both the business he has developed as well the as management philosophies that this CEO practices.

ETM recently moved to far larger quarters in Littleton Massachusetts to accommodate increasing volume and future expansion needs.  ETM caters to low volume-high mix, custom manufacturing needs. The facility itself has a work center layout involving flat sheet metal in one door and finished product from another door.  Production specialists are cross-trained to support multiple work centers and to flex with day-to-day production volume needs. What visually strikes anyone visiting is the lack of any excess inventory staged anywhere within the facility. Production orders are scheduled in weekly increments and ETM boasts the ability to move from product design to metal products within 4 weeks.

Rob Olney is a visionary CEO with a lot of experience in both contract manufacturing and other manufacturing-oriented environments.  He has built a business model that allows ETM to be able to serve multiple industry needs for metal enclosures, while also providing buffers to any one industry’s business or ordering cycle. As an example, the facility can be producing metal enclosures for a customer who manufacturers medical electronics and also be producing surgical trays for the healthcare industry. Rob is an avid believer in lean manufacturing and compressing the supply chain barriers for his customers.  As an example, transportation is often an expensive component for the movement of metal enclosures.  Rob and his team actively work with manufacturing customers to find more cost affordable means for moving product, including an in-house transportation capability.

From my conversation with Rob over lunch, it was easy to discern his passions for lean manufacturing and ways to compress the supply chain for his customers.  Rob also finds the time to be a blogger on the company’s web site.  To get a true sense of ETM’s customer responsiveness, readers are welcomed to review a representative blog posting, Gary to the Rescue.  One gets the sense that being responsive to a customer’s unique needs should always be valued along with praising employees for going the extra mile.

If any of our reading audience has unique needs for metal enclosures or metal fabrication, it may be worth your effort to speak with ETM Manufacturing.

Bob Ferrari

Disclosure: The author of this commentary has no current financial or consulting interests in ETM Manufacturing.

In conjunction with the Detroit Auto Show that has been underway in the U.S. there has been no shortage of business media news stories related to the state of the industry. No doubt, the headline for industry and associated supply chain oriented audiences reflects on what a difference one year can make.

Readers can certainly recall that during the past global financial crisis, two of the largest automotive OEM’s were in bankruptcy and in need of large scale restructuring. Global markets were weak and many governments had to initiate stimulus programs to salvage their respective home country manufacturers along with industry jobs. Japanese brands were dominant, but Korean brands such as Hyundai were starting a thrust.

As we enter 2012, the industry has a far different picture. Both General Motors and Chrysler Group are doing superbly after re-structuring and new management. Auto sales among the “big three” U.S. OEM’s rose 13 percent in 2011. Volkswagen and Hyundai have garnered tremendous momentum while Toyota and Honda continue to respond to significant supply setbacks brought about by supply chain disruption.

From a global markets perspective, the largest growth market for autos was in the U.S. which experienced a 10 percent growth rate.  A review of individual OEM U.S. sales growth rates in 2011 reveals:

• Chrysler up 26 percent
• Volkswagen up 26 percent
• Hyundai up 20 percent
• Nissan up 15 percent
• General Motors up 13 percent
• Ford up 11 percent
• Honda down 7.1 percent
• Toyota down 6.7 percent

The state of the U.S. automotive supply chains has transformed and is in far better shape than just a year ago. OEM’s have worked hard on global-wide platform product strategies along with improved flexible manufacturing techniques that allow factories to be able to support multiple models with different market growth rates. The industry has also gained more sensitivity to positive supplier relationships and participation in globally focused S&OP planning activities.

China, the world’s other market in terms of long-term growth potential, only grew 2.5 percent in 2011 as suspended government subsidies took a toll on overall demand. Of more interest, foreign brands such as BMW, GM, Ford, and Volkswagen demonstrated healthier growth levels which indicate that Chinese consumers are very particular with the brands they ultimately purchase.

Europe’s auto sales actually contracted by more than one percent and the ongoing Eurozone financial crisis do not provide optimism that Europe’s market will improve anytime soon.  Europe continues to suffer from far too much production capacity, and industry executives such as Fiat / Chrysler chief Sergio Marchionne predict more consolidation among industry participants.

In recent weeks, as a result of these trends, as well as the worsening currency exchange and energy supply problems affecting Japan, there has been a spate of announcements from automakers who have now decided to additionally invest in U.S. production capability.  In addition to Honda’s significant announcement in December, BMW, Chrysler, Daimler, Ford and others have each announcement significant new investments in U.S. production capacity.

Hyundai has had such a spectacular growth in the U.S. and other global regions that its management has announced that it has throttled-back growth expectations to take the time to focus instead to build on process quality and customer service needs. The Financial Times last week noted that Hyundai management wants to avoid the mistakes made by GM and Toyota that put too much emphasis on growing market share than in quality.  Supply Chain Matters commends Hyundai for that decision.

A rapidly changing global economy, changed make-up of executive leadership, significant unplanned supply disruptions and continued investments in value-chain capabilities have resulted in the automotive industry being in a far different landscape in the coming months.  This is yet another reinforcement that for this economy the need for teams to have the supply chain in constant alignment to a rapidly changing set of business strategies is a continuous imperative.

In our soon to be published Supply Chain Matters Q4-2011 Quarterly Newsletter, we will provide additional commentary relative to the signs of a renaissance for U.S. manufacturing.

Bob Ferrari

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