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2012

 

 

As is usually the case, business and financial media has been obsessed with the topic of Apple’s recent iPhone 5 product launch. A product launch total of 5 million phones sold during the initial week of product launch have apparently disappointed some Wall Street analysts and the bylines now point to a constrained global supply chain as the culprit. The latest lament seems to be why couldn’t Apple support a buying surge of 8 million new phones?

 

According to media reports, Apple has now admitted that it has entirely sold out of the initial supply of the iPhone 5 and has declined to comment on why it has not been able to provide more supply. In today’s Wall Street Journal, an article penned by Ian Sherr and Drew Fitzgerald raises a rather interesting question noted as follows: “Another theory is that Apple may have reached a theoretical limit to how many products can be produced in a specific window of time.” The article goes on to quote industry observers as noting that Apple’s challenges are extraordinary, having to balance the needs to control product information leaks in its global supply chain, with needs to have a massive production ramp-up leading to product launch date.  Even if product management was late in the release of the final design, our global supplier base is always up to task of making up the difference in time.

 

In this author’s view, the recent Apple product launch represents a watershed reminder that there are now new realities for the high tech and consumer electronics supply chain in terms of the presumed availability of endless flexible capacity.  It seems that before, the assumption was presumed that contract manufacturers and component suppliers residing in low cost manufacturing regions would always have the ability to insert legions of workers and ramp-up working hours to meet ever changing peak periods of supply chain demand dictated by an OEM customer. 

 

Workers are demanding their basic rights to fair wages, safer working environments and appropriate working hours.  As we have noted in commentaries on the Supply Chain Matters blog, Apple’s efforts in actively supporting audits by the Fair Labor Association will have far reaching effects on the broader industry, and on the supplier base. Samsung is also actively supporting its own directed supplier social responsibility audits.

 

Change and reform is long overdue and the industry can no longer turn a blind eye to what may be occurring among suppliers and contract manufacturers. The notion that an OEM can dictate unplanned changes or insist that virtual capacity exists is now being challenged by the realities of supplier social responsibility. Whether the objective is a new product launch, the peak consumer buying season, or an extraordinary market opportunity, there are new realities occurring in global based supply chains, and as community, we need to be aware of the implications.

 

When global supply chain dominants such as Apple, with the influence and sheer scale that it can exhibit, experience these new realities, other players will be impacted, especially smaller industry players.  There will be implications in the need for increased automation of assembly tasks, flexible and multiple sourcing strategies and better planning. Product marketing and executive teams may presume that the global supply chain will always respond to the needs for endless agility and flexibility to changing market needs or market opportunities.

 

The new reality is that, like or not, more realistic, responsive and intelligent planning, supported by an effective Sales and Operations Planning decision-making capability that realistically manages business expectations and supply chain response, are about to again serve as the new realities for global supply chains.

 

In time, a new paradigm will develop around global sourcing flexible production capacity and the ramp-up or ramp-down of the global supply chain to support product milestone needs. This author often cites a Bob Dylan tune of the 1960’s to depict a period of significant change, namely: “The Times They Are a-Changin”. These new realties are certainly a basis for thought and discussion in planning supply chain resources for 2013 and beyond.

 

What’s your view?  Is your firm and supply chain team dealing with the new realities of a socially responsible supply chain?  Have the prior assumptions concerning low-cost manufacturing permanently changed?

 

Bob Ferrari

 

Imagine for a moment that the CIO or CFO of your company has just encountered a vendor audit of the resident backbone ERP system and informs your supply chain organization that the cost and payback of that recent best-of-breed focused supply chain planning or business intelligence capability will now cost more than previously assumed. Would that change the direction of existing or planned future technology automation efforts?

 

While ERP vendors continually speak to “openness” of their systems, the potential of collecting software licensing fees for what is termed “indirect access” is too lucrative to ignore. 

 

Supply Chain Matters calls attention to an important posting on the SAP North America Users Group (ASUG) web site titled SAP Systems Open Up, But Watch for Software Licensing Gotchas.  The ASUG posting notes that SAP in its periodic audits of existing customer installations is citing certain customers for unpaid access to SAP generated data.  Examples may include tapping into SAP from a Salesforce.com, supply chain or sourcing and procurement focused application. The posting points out that “indirect access” have been stipulated in contracts since the late 1990’s but generally unfamiliar to most SAP shops.  It further notes that apparently SAP has not provided a clear definition of what is meant by the term, except when audits are performed. Also noted is that there can be upwards of 60 different definitions of “user” that can be applied, along with vagueness as to real-time or batch access to an SAP application.

 

It is important to note that this ASUG posting communicates to the broader community that SAP will not risk the wholesale ticking-off hundreds or thousands of its customers, but will uphold a principle that SAP generated information is subject to software license privileges. It does not preclude the surprise that may come at the conclusion of a user audit when multiples of non-SAP software applications are tapping SAP applications for needed data. In our view, it is positioning the SAP community for what to expect.

 

This trend also reinforces what some independent analysts, such as this author, have been warning, that as more innovative supply chain and B2B focused applications gain market attractiveness, larger enterprise technology vendors will attempt to buffer the market attractiveness by extracting suitable value.  You can call it a form of an excise tax.  In our view, it provides more ammunition for C-Suite executives to question a best-of-breed approach in favor of harvesting existing cost-benefit value provided by the resident ERP backbone. Even more profound to contemplate are future S&OP enablement, business intelligence or supply chain control tower initiatives that will tap countless existing sources of supply chain and supplier related data from the resident ERP backbone or other supplier ERP systems.

 

Interesting enough the article notes that some of SAP’s more innovative customers such as Burberry and Kimberly Clark have elected a strategy to innovate their business processes via “indirect access” to SAP applications, from other best-of-breed platforms such as Salesforce.  Their lies future conflict as well as customer realities.

 

The takeaway for the broader supply chain community is that the continuance of ERP vendor’s insistence on collecting information access licensing adds a different dimension to the cost-benefit equation. It introduces added tension among supply chain functional and IT teams since added access licenses initially hit the IT budget and our invariably allocated to various functions or business units.  The determination of that allocation could get messier to say the least, adding additional unplanned cost considerations or could temporarily de-rail some truly innovative initiatives.

 

In the end, customers will ultimately determine the course of events in existing backbone ERP and best-of-breed software strategies.  Firms have been rather aggressive in pushing back on ERP providers in the increasing cost of annual software maintenance and licensing, especially in times of economic challenge and uncertainty which is again evident today. We would argue that the increased adoption of cloud computing, B2B and/or other new systems innovation practices are the direct consequence of this ERP customer pushback. These latest “indirect access” license enforcements only add more to the overall market dynamic and could accelerate strategic change in the market.

 

In the meantime, stay aware of the fact that information may not be necessarily free, depending of whom is your ERP backbone provider.

 

Bob Ferrari