Tablet computers are hot; there’s no dispute about that. Apple’s iPad has proven enormously popular, and consequently, it seems that tablets were on-display everywhere at the Consumer Electronics Show held earlier this month. As reported in IndustryWeek previously, the tablet wars have begun, with everybody under the sun producing tablets, says Endpoint Technologies Associates analyst Roger Kay.

 

iSuppli forecast last year that despite the arrival of the first real iPad competitors in 2011, Apple will still maintain a 70 percent share of shipments. Given its headstart on the market and growing demand for its iPad, I’m not surprised that Apple is pegged by iSuppli to continue its market dominance through 2012. Indeed, the research firm forecasts that iPad sales will account for just over 60 percent of global tablet shipments in 2012. But some new designs were introduced last year by Apple competitors, and companies such as BlackBerry, Motorola, Notion Ink and Dell all have plans to unveil additional models in coming months. With all that in mind, it would seem business looks pretty good, right? Actually, that may not prove to be the case.

 

A recent Businessweek article reports that whether or not a company can obtain sufficient quantities of display components for their tablets may well be a significant factor in determining how successful they can become. Apple’s fast start last year and the quickly growing demand for its iPad caused LCD display shortages for Apple’s supplier LG, which had a difficult time keeping up with demand. As Apple’s iPad continues to sell well, an iPad 2 is in the pipeline, and other companies rush tablets to market, it certainly seems reasonable to expect that another display component shortage may be on the horizon.

 

What I’m interested in, however, is Apple’s work with its supply chain partners to prepare for the possibility. The company has plans—or is making plans—to secure its anticipated quantities of displays. Competitors undoubtedly are making similar plans, but since they have come to the party later than Apple, one has to wonder if they will be able to secure the number of displays they anticipate needing. It is, after all, difficult to match Apple’s recent experience with the electronic supply chain.

 

The Businessweek article speculates that a focus on displays may be what Apple spokespeople were referring to when they reported during an earning call that the company is investing $3.9 billion to secure inventory components through three vendors. In December, Apple reportedly struck deals with Toshiba and Sharp to manufacture displays, however Sharp has denied the report. The article also points out that Apple may be working to secure iPad display-panel shipments for 65 million units this year through LG, Samsung and Chimei Innolux.

 

There clearly is recognition by executives at Apple that while its technology and product innovation certainly play critical roles in the company’s success, its continued success will also hinge to a certain extent on its supply chain performance—and in particular, on the capabilities of its supply chain partners. It will be interesting to see how this plays out—for Apple and its competitors.

An article I saw yesterday on the SupplyChainBrain website caught my attention because it is about a dilemma an increasing number of manufacturers face. That is, they must balance demands for increasing levels of supply chain visibility against simultaneously growing requirements to protect critical information.

 

As more operations are outsourced, product lifecycles and time-to-market cycles shrink, and innovation becomes a key differentiator, companies must share information with a growing number of partners, suppliers, distributors, carriers and even customers. At the same time, however, given those very market conditions, protecting information becomes critically important in highly competitive markets. That’s why companies take great pains to prevent information about products such as new cellphones or tablet PCs from being leaked; no one can afford to let competitors know what they are on the verge of bringing to market or are currently developing.

 

It isn’t just new partners that pose a potential threat either. Consider, for example, that Motorola filed a lawsuit in federal court last year accusing its long-time partner, Chinese telecommunications firm Huawei Technologies, of stealing Motorola designs. And as reported today in The New York Times, Huawei has now filed a lawsuit seeking to prevent Motorola from completing the sale of its wireless networking division to Nokia Siemens Networks due to a dispute over technology contracts. In the lawsuit, Huawei cites concerns that the equipment and technology Motorola is selling includes technologies developed by Huawei.

 

In the SupplyChainBrain article, the author, Raja Chandrashekar, who is a vice president with JDA Software, wrote that it’s possible to safely share information among multiple trading partners using a carefully controlled, tightly managed, collaborative sales and operations planning (S&OP) process. The technology supports well-managed S&OP processes by ensuring a high level of collaboration from key suppliers while simultaneously controlling their access to sensitive information pertaining to end products, launch dates and sales forecasts.

 

For companies striving to minimize risk when sharing supply chain information with their business partners, Chandrashekar offers four strategies. They are:

 

Synchronize and align product development with the rest of the supply chain. The business rules, predefined partner roles, and permissions and authentifications demanded by a tightly managed S&OP process ensure that launch information is as carefully controlled as the rest of the supply chain’s sensitive data.

 

When launching new products, minimize the number of partners who are directly involved. The reality is that most product launches require the active participation of only a few key partners. As more parties are involved, the risk for proprietary information being leaked grows correspondingly.

 

Limit the amount of non-critical information shared with suppliers. Organizations must make strategic decisions about when and how much information should be shared. So, while suppliers do play a key role in meeting launch deadlines, they need not be privy to such information as price points or sales forecasts.

 

Maintain and enforce strict confidentiality agreements. Every company should manage its trading partner relationships via carefully conceived contracts that, in addition to spelling out roles and deadlines, should also include strict confidentiality clauses and penalties for violations. Such contracts remind partners that information access should be limited within their own businesses via passwords, authentifications and other security measures.

 

I’m reminded by all this of the old “just because you can,” advice. So in this case, just because a company can share information doesn’t necessarily mean it should. In the end, while some information does need to be shared to improve supply chain performance, it behooves companies to limit just how much information is being disseminated as well as who has access to it.

While conventional wisdom holds that offshoring of jobs causes higher unemployment in the U.S., participants in a new survey say that isn’t necessarily the case.

 

As reported on PRNewswire earlier this week, the Center for International Business Education and Research’s (CIBER) Offshoring Research Network (ORN) at Duke University’s Fuqua School of Business and The Conference Board released the results of a new study, which is part of on-going research into the effects offshoring has on American competitiveness. Over half of the participants in the survey stated that offshoring has resulted in no change in the number of domestic jobs in most functions. Arie Lewin, Fuqua Professor of Strategy and International Business, went further, and said that the finding that the U.S. software industry has the highest ratio of offshore to domestic employees--almost 13 offshored jobs per 100 domestic jobs--may actually be a reflection of a lack of domestic science and engineering graduates in the U.S.

 

On the other hand, however, the results of new research from consulting firm The Hackett Group, indicate that while offshoring may not be the sole cause of job loss in businesses in the U.S. and Europe, it certainly is a leading cause. Furthermore, the level of job losses seen at U.S. and European companies in 2008 and 2009 will continue through 2014, according to the firm.

 

The group’s latest research found that close to 1.1 million jobs in corporate finance, IT and other business functions were lost at large U.S. and European companies in 2008 and 2009 due to a combination of offshoring, productivity improvements and lack of economic growth. The trend is expected to continue, as more than 1.3 million additional jobs are expected to be offshored by 2014. For example, while IT dominated the mix of business function jobs lost to offshoring since 2000, that loss is now leveling off. Loss is growing, however, in other areas. The total number of jobs lost to offshoring in corporate finance is expected to grow by a compound annual rate of roughly 20 percent between 2010 and 2014, according to Hackett research.

 

But while the practice of offshoring continues to grow, it’s interesting to note that there are potential pitfalls and the practice may not end up being as lucrative as it sounds.

 

Respondents in the Fuqua School of Business and The Conference Board survey have lower expectations than respondents to previous surveys in regard to average cost savings from offshoring. That most likely stems from the realization that despite placing a high priority on cost savings and labor arbitrage, average achieved cost savings through offshoring have declined for some functions. Contact center, IT and software development offshoring, for instance, have seen the largest declines in savings among all offshoring functions. Much of that decline, survey participants note, comes from companies new to offshoring discovering that there are a number of hidden costs involved that add up quickly—such as expenses for training, staff recruitment and retention, and government and vendor relations.

 

In the end, the potential for cost reduction alone is no longer reason enough to move operations, says Ton Heijmen, senior advisor to The Conference Board.

 

I’m interested in what you’ve seen. Has your company offshored business functions, and if so, has it paid off as expected?

 

Someone I know recently ran across what appeared to be a great deal. Actually, it was one of those “This is too good to be true” deals. After further investigation, it certainly seems that the product in question is counterfeit. That in turn, started me thinking about the proliferation of counterfeit products and their impact on the supply chain.

 

I suspect you are well aware that counterfeiting is big business. The International AntiCounterfeiting Coalition (IACC), estimates that counterfeiting is a $600 billion-per-year problem that costs U.S. businesses somewhere between $200 billion and $250 billion annually. More importantly, this isn’t just a matter of fake Coach purses, Rolex watches and Nike shoes either. That’s because some counterfeit products can potentially cause personal injury or even death.

 

For instance, counterfeit batteries have caused some cellphones to explode. While the prospect of a cellphone exploding in your pocket is bad enough, perhaps even scarier is that the Federal Aviation Administration estimates that two percent of the 26 million airline parts installed each year are counterfeit—that equals approximately 520,000 parts.

 

That doesn’t necessarily prove that it is safer to drive than it is to fly. The Motor and Equipment Manufacturers Association has cited safety violations due to a number of counterfeit auto parts. There are, for example, instances of automotive brake linings being made of compressed grass, sawdust or cardboard; transmission fluid made of oil that has been dyed; and oil filters that use rags for the filter element.

 

And finally, here’s one for anybody who has ever thought about ordering medications via the Internet. According to the World Health Organization (WHO), more than half of the medicines purchased over the Internet from illegal sites that conceal their physical address have been found to be counterfeit. These counterfeit medications, which may contain dangerous content or may lack active ingredients, pose a significant risk. Their use can result in treatment failure--and contribute to increased resistance in the case of anti-malarial medication that contains insufficient active ingredient--or even death.

 

With those examples in mind, it isn’t surprising then that research and advisory firm ARC predicts the Anti-Counterfeiting and Brand Protection (ABP) market will expand globally between 2010 and 2015. In fact, according to an ARC press release, the ABP market grew significantly over the past couple of years due to the high growth in counterfeit goods—most notably, drug counterfeiting that has increased worldwide as counterfeiters become more savvy and on-line purchasing continues to grow as a result of consumers’ search for less-expensive medicine.

 

Manufacturers cannot afford to take a chance on counterfeit products infiltrating the supply chain, says Janice Abel, principal analyst and the author of the ARC study “Anti-Counterfeiting and Brand Protection Worldwide Outlook.” This is especially important if the counterfeit is a risk to safety, health or liability. Manufacturers must secure their supply chains to deter counterfeiting because it isn’t worth the risk to not secure the supply chain, Abel says.

 

Given the potential for lost revenue—not to mention growing concerns about liability, risk and protection of brand image and reputation—it makes sense for companies to implement ABP solutions that make use of human-readable markers, machine-readable markers, printers, applicators, authenticators, track and trace software, serialization and e-pedigree software. What’s more, as demands and requirements are standardized to ensure compliance and supply chain visibility, I can see how use of these technologies will become increasing prevalent.

 

What about your company and supply chain? Are you implementing technologies to prevent counterfeiting?

What do you think is the leading cause of new product failure? Would you guess: Failure to meet customers’ needs due to a lack of insight?

 

According to the results of a new study from Capgemini, close to two-thirds of the respondents stated that less than half of their products launched in the past three years have been successful. An inability to meet customers’ needs due to a lack of insight was chief among the reasons respondents cited for that failure.

 

The study, titled, “Collaborating for Innovation,” examines evolving trends in product and service innovation across the manufacturing industry, and is based on responses from 189 participants in companies located across 15 countries.

 

Over the past couple of years, most manufacturers have focused on cutting costs and improving productivity, but many are now focusing on growth and they consider innovation to be a key factor in their efforts to achieve top-line growth and maintain a competitive edge. A growing number of those companies have executive support as well. In fact, 65 percent of the survey’s respondents noted that they receive “good support” at an executive level for innovation projects. That number is up from 2008, when 50 percent of the respondents indicated that they receive “good support” from executives.

 

That stands to reason, because as the report points out, in verticals where margins are tight, innovation must be at the heart of strategic initiatives, break new ground in product and service offerings, forge cross-boundary partnerships and introduce new capabilities through mergers, acquisitions and joint ventures. That’s why companies implement collaborative business models, processes and technologies; they strive to gain competitive advantage in their innovation efforts across all parts of the value chain.

 

As highlighted in the report, some of the key ways in which manufacturers can achieve improvements in their ability and confidence to develop and promote new services and products using external collaboration are: targeted outsourcing, and supplier integration and collaboration that includes the use of IT tools, open-innovation environments and involvement in the innovation process.

 

I was interested to see, however, a disconnect about customer satisfaction. So on the one hand, 77 percent of the respondents believe that their engagement with customers is positive. At the same time, almost half of respondents said that less than 20 percent of their new products sprang from ideas generated or shaped by customers. Given that level of response, I can understand why respondents blame product launch failures on a lack of insight concerning what customers really want.

 

Like researchers at Capgemini, I am encouraged by the results of the survey. A focus on innovation that includes executive support, and a willingness to increasingly involve suppliers or partners clearly are critical aspects to this strategy, and certainly bode well for continued innovation. I’m interested to see how manufacturers can collaborate with customers to gain their perspective and include them—or at least their input—in the design process. I’m sure that evolving technology such as social networking and, perhaps, virtual worlds, will be used to involve customers and create truly innovative products.

I read an interesting article yesterday about collaboration among suppliers and buyers, and how organizations can improve supply chain performance as a result of improving such collaboration. In the article, which ran on the SupplyChainBrain website, Kevin Cornish--chief technology officer of Aravo Solutions—explains what many of you have already seen. That is, companies are moving away from a strict reliance on just-in-time (JIT) supply strategies, and are instead, adopting a more collaborative approach toward working with vendors.

 

True collaboration entails an exchange of detailed knowledge among buyers and suppliers concerning the conditions they face as well as the challenges of serving local markets. And while it’s important to improve supplier management in a poor economy, the real advantage comes during recovery because practitioners gain competitive positioning as a result of having already focused on measuring the performance of key suppliers, and they will have brought them into the “virtual enterprise,” Cornish says. In the process, companies are able to improve product quality while making better use of limited capital and also respond more quickly to actual demand signals.

 

Thinking about improving relationships with suppliers also reminded me of a post here in the Kinaxis community by Carol Macintosh, titled “Successful outsourcing requires good relationships (not just good contracts) with suppliers.” In that post, Carol explains that given the high levels of volatility in today’s marketplace, it is now critical for organizations to be able to respond quickly to any sort of unplanned event or supply chain disruption. That in turn, requires a robust set of tools to assess risks, visualize and evaluate mitigation and response scenarios, monitor situations and quickly alert appropriate personnel to unexpected events, determine appropriate actions and their consequences, and ultimately respond (quickly and profitably).

 

Equally important, however, is an organization’s relationship with its suppliers or partners. Actually, the important aspect is really the relationships between an organization’s employees and the supplier’s employees.

 

In her post, Macintosh cited research from Chwen Sheu, Paul Edgerley Chair in Business Management, professor and interim head of the department of marketing at Kansas State’s College of Business Administration, who studied how nearly 1,000 companies worldwide manage outsourcing. He also co-authored a paper—“What makes outsourcing effective- a transaction cost analysis”--along with John Wacker from Arizona State University and C.L. Yang from Chung Hau University, Taiwan.

 

In the course of their research, the authors determined that most organizations depend on both legal contracts and an informal supplier-buyer relationship. Sheu says both methods are effective, but informal relationships with suppliers deserve more attention from management since in outsourcing, for example, it’s impossible to cover every risk and outcome contractually.

 

The point here, is that when an unexpected event occurs—as it surely will--and the contract doesn’t specify how to respond, it’s imperative to be able to sit down and resolve the issue with suppliers, Sheu says. This is really a trust and information sharing issue, which allows both parties to deal with unforeseen risks and uncertainties more effectively. In a truly trusted relationship, both parties recognize that to achieve success, all decisions must be mutually beneficial. So essentially, the people are the difference between a satisfactory relationship and an exceptional relationship, where both parties will over achieve to ensure their partner’s success.

 

What do you think? Does your company collaborate this way with suppliers? If so, are you part of that collaboration?

I’ve been thinking a lot today about IT security and the potential loss of IP after reading two recent news stories. Earlier this week, computer manufacturer Dell announced it has signed an agreement to acquire SecureWorks, a supplier of information-technology security services. SecureWorks’ Security-as-a-Service solutions include Managed-Security Services, Security and Risk Consulting Services and Threat Intelligence. The acquisition, which is expected to be finished early this year, is the latest investment in Dell’s efforts to expand its global IT-as-a-Service offerings and information security expertise.

 

Given the frequency and sophistication of attacks on technology infrastructure and malicious attempts to access data, companies require reliable, capable and innovative information security, says Peter Altabef, president, Dell Services. SecureWorks is a recognized industry leader in information security services, and its offerings and expertise will immediately enhance Dell’s solutions portfolio, he says.

 

That announcement was interesting enough, but it’s the news today that really started me thinking. The story today, as reported by the Agence France-Presse in an article that ran on IndustryWeek, concerns French automaker Renault. While the company has released little information about the incident, company spokespeople did say today that the company’s “strategic, intellectual and technological assets” had been targeted, and that the company suspended three managers yesterday for leaking secrets about its electric cars.

 

A months-long investigative probe established that, as senior vice president Christian Husson puts it, there is a body of evidence that shows that the actions of these three employees were contrary to the ethics of Renault, and that they knowingly and deliberately placed the company’s assets at risk. He went on to say that this is a very serious incident involving people in a particularly strategic position in the company.

 

The company and its Japanese partner Nissan plan to launch several models of electric cars by 2014 to meet the rapidly rising demand for more environmentally friendly vehicles. In fact, along with Nissan, Renault is investing 200 million euros a year in the program.

 

The news and suspensions at Renault are the latest in a series of so-called industrial espionage attacks that have shaken France’s large automotive industry. French tire maker Michelin and auto parts maker Valeo have also been the targets of spying.

 

Obviously, it isn’t just automotive manufacturers—or even pharmaceutical, high-tech electronics and A&D companies—that are at risk. Indeed, as companies continue to enter new markets and expand global operations, the problem (or at least the threat) will grow. That’s because outsourcing and off-shoring critical functions such as product design, manufacturing and even product support require companies to share critical information with an ever-growing number of partners and suppliers.

 

Consider, for instance, the automotive or A&D industry, where OEMs must share sensitive information with their Tier 1 suppliers. These companies, of course, have their own network of subcontractors, and they must share product information with those companies as well. Those companies then have their own suppliers, and so on. So, each time critical information is passed down a level in the supply chain, the potential for IP leakage—as well as outright theft—grows.

 

How does your company handle this security risk? I’m guessing you can’t publicly comment on the strategy, but I am curious.

In many respects, “volatility” was the watchword for 2010. And by volatility, I mean as it relates to customer demand as well as supplier availability.

 

While they substitute “uncertainty” for “volatility,” I believe research from Tompkins Associates underscores the point, and indicates that the trend will likely continue. The firm’s staff has researched, compiled and written what it calls the Top 11 Priorities for Profitable Growth for 2011. There are different lists for differing industries, but in the end, even though each industry has its own individual priorities, there are similarities that lead to general expectations for 2011. So while executives at many companies face a great deal of uncertainty about what 2011’s “new norms” will be—it seems the only clear new norm is uncertainty itself, says Jim Tompkins, president and CEO of Tompkins Associates. 

 

Obviously, key challenges identified by the firm do differ among industries. For instance, in the consumer products industry, uncertainty—as the firm calls it—will continue to be the leading challenge. As Tompkins says, organizations throughout the consumer products industry must accept uncertainty and implement agile processes that allow them to move forward.

 

Considering some recent conversations with manufacturers, I wasn’t surprised to see that the research firm pegged outsourcing along with working with logistics service providers (LSPs) and suppliers as the second leading challenge for consumer products makers. That’s because—as many of you have learned—working with large numbers of LSPs and suppliers creates internal challenges for the organization and introduces additional cost to the supply chain. Reducing the number of LSPs then, can improve service and reduce cost.

 

Rounding out the top three challenges for consumer products manufacturers is addressing globalization, and China, in particular. That’s because many emerging markets have moved beyond simply being where low-cost manufacturing takes place, and are now instead, where some of the greatest opportunity for growth can be found. Indeed, with young, growing and affluent populations, these emerging markets can be what Tompkins says, are the growth engine for both local and global consumer products companies.

 

While the high-tech industry differs greatly from consumer products, there are similarities as well. For example, according to Tompkins Associates’ list of priorities, the key challenge for organizations in this industry is logistics and manufacturing outsourcing. Outsourcing provides an opportunity for high-tech companies to maximize results because it enables them to focus on core competencies while delegating non-core processes and activities to others. On the other hand, managing that network of logistics providers and suppliers is obviously easier said than done.

 

Globalization, and in particular, China, is the second key challenge for high-tech companies, according to Tompkins’ lists. Again, that’s because companies now look to China not only for sourcing and production, but also for growth. As companies begin to sell—and/or increase sales capabilities--into China’s growing consumer market, the ability to manage supply chain activities in that country will become increasingly vital.

 

The chief challenges for one final industry also caught my eye, and that’s what Tompkins Associates terms the pharmaceutical, biotech, medical products and other related-healthcare sectors. As the research points out, mergers and acquisitions continue to blur the lines between organizations, creating additional supply chain challenges and pressure. In addition to continued uncertainty, executives at pharmaceutical, biotech and medical product organizations must determine how to either best integrate multiple supply chains or manage multiple, non-optimized supply chain units. What’s more, each new acquisition potently adds to the complexity.

 

I was somewhat surprised though to see that the research firm named Inventory/Sales, Inventory & Operations Planning as the number two challenge for this industry. That’s because, according to the research, some companies have continued to slash inventory levels. Consequently, Sales, Inventory & Operations Planning (SIOP) must be greatly improved to not only enhance inventory turns, but also improve customer service. As the research firm points out, SIOP processes should be designed to facilitate inventory acquisition and allow deployment decisions that mediate conflicts among planning, manufacturing and sales.

 

What do you think about uncertainty, or volatility? Will it continue to be a problem throughout 2011?

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