Kinaxis thought leadership VP Trevor Miles posted a recent Expert Community blog commentary, Dynamic supply chain alignment: A theory ready for practical application sharing highlights of a recent Global Supply Chain Business Summit hosted by noted supply chain management practices author John Gattorna.

 

In his commentary, Trevor highlights Gottorna’s thinking on the need to both segment your business market and supply structures, and then design the appropriate supply chain to meet the business objectives of that business segment.  While Trevor touched upon the organizational and business process impacts of this concept, I was triggered to the information systems impacts.

 

Too often today, businesses try to force fit the supply chain to meet all ranges of business needs. Hence the term “more agile supply chain” tends to be all encompassing.  Hewlett Packard was one of the first companies to embrace the need for segmented supply chains only to lose some of that focus in subsequent business unit and management restructurings, not to mention an enterprise software upgrade. Kraft Foods has made a decision to split into two separate companies, one focused on its traditional food business and one focused on snacks and convenience foods.  In planning for the split, two separate supply chain organizations were created, hopefully with different expected business support outcomes.

 

For the vast majority of larger companies however, are supply chain teams trying to make existing enterprise software applications support multiple supply chains, each with different fulfillment criteria.  In some cases, teams have been able to come-up with tailored solutions, but not without a lot of hard work and innovative thinking.  This is especially the case in supply chains that require high service response to customers. In other situations, teams had no choice but to seek out different technology more appropriate or more customized to support the needs of the specific supply chain model. Smaller firms may have more flexible options and less scope, but the same principles apply.

 

It seems to me that the IT perspective that the resident enterprise software, developed on business process principles of the past, can support 60 or 80 percent of today’s needed segmented solution does not make the mark to today’s far different B2B networks environment. The need to plan across the entire supply and multi-channel demand fulfillment network for a segmented business requires a different set of business and decision-support capabilities. Does it not make sense that teams elect technology that can support most all of the segment’s needs from the get-go?

 

Several years ago, such an argument would be heresy because of the excessive time and high cost of initially implementing, updating and supporting enterprise software.  Today, with the advent of cloud computing and SaaS/service options within the supply chain management software landscape, the option has become far more attractive, and perhaps less expensive over the long-term.

 

Bob Ferrari

 

Community readers have probably already aware of the newest entry in the tablet computer market segment, that being Microsoft. On Monday, the czar of Windows and Office software announced its first ever computer, a tablet to be named Surface. Beyond the product’s late market entry comes another interesting challenge, namely Microsoft’s deepening of its hardware supply chain planning and operational fulfillment capabilities.

 

On the product side, announced features and functions appear rather interesting in contrast to the obvious industry dominant, the Apple iPad.  The company’s colorful CEO, Steve Ballmer, was reported to repeatedly utilize the words “no compromises” to describe planned features. The Surface will feature a larger screen area (10.6 inches vs. 9.7 inches for the iPad), a built-in kickstand and magnetic cover which acts as a touch keyboard, and will be based on a mobile version of the company’s upcoming Windows 8 and Windows RT release. Speculation is that Surface users will be able to leverage Office applications such as Word and Excel on their tablets. Not stated was the actual timing of market availability, which business media speculates will be the second half of the year, prior to the 2012 holiday buying season.  The critical question of pricing was not disclosed as well.

 

The supply chain aspects for Surface are even more interesting, and open for speculation.  Microsoft declined to identify which contract manufacturer will produce the Surface, probably to avoid supplier information leaks regarding volume production numbers and component identities.  That is wise strategy given the increasing information leaks coming out of the Apple supply chain.  Supply Chain Matters speculates that Microsoft will leverage certain existing contract suppliers associated with its Xbox gaming and other accessory hardware devices. Speaking of speculation, one also has to ponder whether “no comprises” applies to individual component choices and overall material costs related to the Surface.

 

Even more of interest, The Wall Street Journal in its reporting, noted that Microsoft plans to sell the Surface at its current handful of retail stores and through some unnamed online channels, thus initially restricting a broad based distribution channel. That may limit the initial volume focused breakeven profitability threshold, but then again, Microsoft may be opting for more initial control of distribution and pricing as well as avoiding obvious channel conflicts with the company’s existing PC and mobile device hardware suppliers such as Acer, Dell, HP, Lenovo or Nokia. There is some reported speculation from Silicon Valley which indicates that with a limited volume distribution strategy, Microsoft can prove the value of its new tablet software, declare victory, and leave the market open for other hardware partners to exploit with Microsoft licensing royalties.

 

The notion of ultimate pricing also relates to the supply chain strategy supporting Surface. Microsoft’s plunge into this market segment is obviously geared to leverage more of its software and content revenue sales. Similar to Amazon’s Kindle Fire, will pricing of the hardware be pegged to either forgo initial profitability or achieve razor thin margins, in favor of a volume distribution strategy that places more number of devices in consumer hands. The limited distribution noted earlier seems to negate that argument.

 

Finally, a comment related to supply chain software technology. With this announcement, Microsoft was the added opportunity to demonstrate leveraged use of its own technology geared toward managing supply chain business processes. Leveraged use of Microsoft Dynamics AX, Windows Azure, SharePoint and other technologies should provide a testimonial that the company is willing to demonstrate use of its own products for achieving agile and efficient supply chain capabilities.

 

From our perspective, we look forward to Microsoft providing our community some interesting supply chain related commentary in the weeks and months to come.

 

Bob Ferrari

 

The following Supply Chain Matters commentary is also being dual posted for interest among the Supply Chain Expert Community.

 

This morning, Supply Chain Matters had the opportunity to attend an Economist Intelligence Unit (EIU) and HSBC Bank sponsored Executive Breakfast Series event titled Business without Borders. Leo Abruzzese, Global Forecasting Director for EIU provided many insightful economic insights regarding the current outlook among global countries and also moderated a panel consisting of:

 

- Michael Cahill, Managing Director for Marsh’s Global Specialties business unit that includes Trade Credit and Political Risk

- Raj Subramaniam, Senior Vice President, International Marketing at FedEx

- Tarun Khanna, Jorge Paulo Lemann Professor at the Harvard Business School

 

The title of Mr. Abruzzese’s presentation was quire timely and has pertinence to global supply chain executives: Digging Out- or Digging In for Another Shock? - Preparing for a Riskier World. 


The presentation confirmed what most of us involved in global supply chains already know, that Europe is already in recession.  The open question is how long, and how severe? Also noted was that the Chinese economy is slowing down and that the BRIC countries (Brazil, Russia, India, China) have collectively hit a brick wall in terms of prior economic momentum. The EIU adds the U.S. to that list as well.


In the area of business risk, most risk today resides in the developed world, due to high uncertainties related to Europe’s economy which represents one-third of the overall global economy. A chart indicating the ten countries with the highest current risk scenarios has Syria listed first, Greece listed fourth, Italy listed sixth, and Somalia listed as tenth.

 

More sobering from a supply chain risk perspective is Mr. Abruzzese’s indication that businesses should be paying very close attention to economic and political events in Europe over the next two weeks. 

 

To continue with this Supply Chain Matters commentary, please double-click on this link.

 

Many of our Community have read articles, heard talks and viewed blog commentary related to the ongoing challenge for prospective employers to locate and recruit qualified people. This has especially been noted as a challenge within broad areas of supply chain management and manufacturing. On the Supply Chain Matters blog, we have provided multiple commentaries related to this challenge being raised by executives.  Our latest commentary reflected on the takeaways from a recent MIT sponsored conference: The Future of Manufacturing in the U.S.  Again, many of the corporate conference speakers indicated challenges in filling existing job openings in manufacturing or supply chain related functions. Professional organizations such as the Supply Chain Council, APICS and CSCMP have raised similar alarms and concerns regarding both attracting younger graduates to our profession, as well as keeping experienced professionals qualified as needs for greater efficiency, productivity and advanced technology skills increasingly become a part of the discipline of manufacturing and supply chain management.

 

We came across a National Public Radio blog commentary that provides somewhat of a contrarian view: Employers Could Fill Jobs if the Trained More and Complained Less. It highlights an interview featuring Professor Peter Cappelli , Director for the Center of Human Resources of the Wharton Business School at the University of Pennsylvania. Professor Wharton argues that employers should stop blaming the educational system and start rethinking hiring practices. He also provides observations that many have perhaps been thinking, namely that employers actually seek the “perfect candidate”. The interview and commentary describe how today’s more prevalent automated human recruitment systems will eliminate candidates from consideration if there is lack of a defined match to listed skill needs.  Many readers who have recently gone through a recruitment and hiring process could also add the challenge of corporate HR recruitment or executive search firms who currently tend to exhibit a “check all of the boxes” approach in the recruitment screening process.

 

More importantly, and certainly more profound, is a challenge made from Professor Cappelli to prospective employers, namely, stop blaming the applicants and recognize: “You’re just not paying enough”.

 

That statement struck a chord with this author and perhaps you as well.  On the one hand, across many complex and ever changing supply chain environments, there are certainly skill gaps that need to be addressed in areas of procurement, planning, product management, manufacturing, logistics and service management.  On the other, how much are employers doing their part to support and provide training programs and opportunities.  This issue takes on even broader perspectives for smaller and medium-sized suppliers who require their supply chain talent to be more broad-based in skill levels, but do not necessarily have the training time and budgets of larger scale enterprises. 

 

And what about the perception of paying enough?  Many Community contributors have often noted the increased recognition of the important contribution that supply chain management teams are making to bottom-line results. Is that translated to valuing supply chain skills at comparable levels with other functions such as sales, marketing or finance? It is no secret that that the wave of outsourcing activity to lower-cost manufacturing regions that began ten years ago had as its primary motivation, lower labor costs.  Since that time, companies have come to recognize other cost factors including a lack of skilled supply chain professionals and lower productivity levels.

 

The resolution no doubt lies in a balance of all of these forces. One thought however bears reinforcement.  It is time for all of us to stop citing a shortage of skills as an ongoing problem and instead cite programs and initiatives that address both proactive training and compensation for skills acquired.

 

I’m curious as to reader views.  How do you view the current skills shortages within supply chain management and manufacturing?  Are companies doing their part in addressing both increased training and fair compensation?

 

Bob Ferrari

 

 

Some recent Supply Chain Expert Community commentaries have cited the recently published 2012 BDO RiskFactor Report for Technology Businesses which cited a principal finding that natural disasters and other geo-political issues pose serious threats to supply chain management and operations among the top 1000 technology-oriented companies. A three year perspective of the top concerns of these companies indicates almost a doubling factor of concern in the areas of:

 

·         Natural disasters, war, conflicts and terrorist attacks- From 55 percent concern in 2010 to 88 percent concern in 2012

 

·         Inability to maintain operational infrastructure and systems- From 42 percent concern in 2010 to 73 percent concern in 2012

 

·         Beaches in technology security or privacy- From 44 percent concern in 2010 to 71 percent concern in 2012

 

·         Credit or financial risk of customers, vendors or suppliers- From 48 percent concern in 2010 to 64 percent concern in 2012

 

Kerry Zuber able executive at Kinaxis, Lions and Tigers and Bears, Oh My!….Oh Supply! questioned whether these increased concerns are actually materializing into meaningful actions.  Kerry further observes that most risk mitigation activity has the negative consequence of increasing operating costs as supply chain teams attempt to balance risk mitigation with added safety stock or dual sourcing of components, causing a conundrum with the continual pressures of cost control and efficiency. This author echoes these same concerns.

 

But it also important for senior supply chain and business leaders to take a step back and reflect how many technology companies came into this current situation.  As an industry analyst, I can recall numerous executive surveys up to 10 years ago that all identified high supply chain costs and consequent cost reduction as topping the executive agenda.  We all know what resulted.  Technology and other industry focused firms flocked to low-cost manufacturing regions, initially for component sourcing and consequently major value-chain sourcing. The notion that these regions were located in higher risk areas, whether that amounted to natural disaster, IP protection or security breaches, were secondary to the goals of cost reduction. While access to new and potentially lucrative new markets was an added motivation, cost reduction was the overriding initial motivator.

 

Here lies the conundrum for today’s supply chain leaders.  C-level executives were initially tuned into the increased profiles of supply chain risk, until these risks became brutally quantified. The recent supply chain disruptive incidents of 2011 and in 2012 have been the wake-up call. Major portions of critical supply were eliminated in days and vulnerabilities of highly lean supply chains have been exposed, with the impact being direct to the bottom line. Many senior executives are still not sensitized to their supply chain profiles.

 

Throughout this same period, if you asked many business and supply chain executives the question, as I did, who in the organization had primary responsibility to oversee the identification and mitigation of supply chain risk, the answers tended to be vague, ranging from procurement to finance. Notice that I have not mentioned the word “accountability”, since that question is often a non-starter with today’s complex global footprints of supply chain trading partners. That seems to be changing, as well, as C-level executives now must respond to stockholder concerns relative to mitigation of future occurrences.

 

The point of this commentary is for executive teams to context today’s concerns of increased supply chain risks with the broader perspective that cost is, in reality, a two-edged sword.  Initiatives that continue to reduce cost can all be neutralized with the direct and indirect cost of major business interruption.  Such costs can exceed current insurance coverage in terms of retaining key customers or an erosion in industry competitiveness. Cost concern must also be buffered by investment in business resiliency.

 

Supply chain teams need the ability and executive support to invest in supply chain risk mitigation capabilities.  These capabilities take on organizational, business process, inventory investment and added advanced technology dimensions.  That is why the concepts of scenario based planning, advanced business intelligence, predictive analytics and supply chain control towers are gaining increased supply chain functional attention. They are an important extension of business continuity strategy and should come under the stewardship of a cross-functional, cross-business steering team tasked with the same.

 

Bob Ferrari

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