Supply Chain of Things: Challenges & Solutions

The Internet of Things, (IoT) can bring more complexity to the supply chain, but it can also bring greater visibility affecting the supply chain's operations in a positive way. The IoT will bring supply chains a $1.9 trillion boost.

Pascal Fernandez, vice president at Avnet, one of the world's largest global distributors of electronic components, computer products, and embedded technology, spoke at the High-Technology and Electronics Supply Chain Summit in Amsterdam in May about challenges and solutions in the Supply Chain of Things (SCoT). He analyzed some challenges that the industry will be facing and offered some solutions to help supply chain leaders mitigate those challenges.

 

 

"Data and analytics are more important that the object itself," said Fernandez. "It goes from sensors to servers." All the connected things that will be around us in the next 10 years are going to be located in a cloud-based solution. "Big data is going to be the fuel of the IT industry," Fernandez said. "Big data is what people are going to be building, small data is going to be money. People are going to merchandize and monetize the analytics created by all the things connected."

 

 

"By the end of the decade there will be 50 billion connected objects. Samsung says there will be 130 billion objects. Whatever the number, it's going to be enormous," said Fernandez. According to Fernandez, there is going to be many contenders, but there are not going to be many winners.

 

 

The objective of the case was to provide the owner of intellectual property the control and visibility of who was able to order products containing their IP. The challenge was the startup didn't have a supply chain, or fulfillment capabilities. However, it possessed working prototypes, and funding.

 

The objective was achieved by providing the required encrypted programming services, and developing a licensee Onboarding Process between the IP owner and Avnet. There was also an authorization channel developed between the IP owner and Avnet. This was used to confirm who was authorized the purchase of components, nd under which conditions. An online ordering portal where the licensees could place orders for the components they were licensed for was also provided. 

 

 

• Fernandez observed how the electronics supply chain is undergoing some changes that affect digital trust:
• Emerging business models are changing the value chain: All the data collected is stored in the cloud and software is becoming the biggest investment.
• Connectivity: The IoT is taking a front seat. However, the connectivity that the IoT is bringing to all devices is making devices less secure.
• Hardware standardization is seen as a business enabler.
• Logistics: In terms of logistics, secured devices can't be stored in unsecured places.
• Traceability: With multi-location production and accessories partner with licensing, product pairing will become key for growth, but complex to control. In the sales channel, Web stores licensing, and all pervasive business models might bring complexity for the return of investment (ROI).
• Added value services will need higher level identification.
• Export control is becoming complex, and subject to governmental claim.

 

 

Complexity, volatility, and the need for velocity is the new norm in the high-tech industry, noted Fernandez. The SCoT will bring some additional challenges. Securing the supply chain is the way to be prepared: 

• Explosive growth, high density of startup companies, or newcomers to the hi-tech industry
• Analytics are more important than "things": Assess risk and secure data, and pay attention to Signal Chain (Trusted/Non trusted sites)
• Design ecosystem from sensors to servers: Control access, and manage IP and licensees network
• Many contenders, few winners: Assess risk, and be prepared to fail quickly

Big changes and growth for Big Lots

AUGUST 28, 2015 | BY GINA ACOSTA

The turnaround plan at Big Lots, which is helping the retailer grow profit and same store sales, is also prompting some management changes.

For the second quarter ended Aug. 1,  same store sales increased 2.8%. Net sales increased 1.2% to $1,209.7 million. Big Lots reported a profit of $17.6 million, or 34 cents a share, down from $19.9 million, or 36 cents, a year earlier. Excluding certain items, per-share profit rose to 40 cents from 31 cents. Revenue edged 1.2% higher to $1.21 billion.

David Campisi, CEO and president of Big Lots, said: "I'm pleased with our second quarter results. Despite unseasonable weather conditions, Q2 comps increased 2.8% reflecting strength in our winnable and ownable categories and improved consistency in all aspects of our operations. Jennifer continues to respond positively to our strategic improvements in merchandising, marketing, and in-store execution resulting in our sixth consecutive quarter of comp sales growth. Healthy comp sales growth and consistent execution across the business enabled us to exceed earnings expectations for Q2."

Big Lots also announced that Lisa Bachmann, a 13-year veteran and chief operating officer, will assume the role of chief marketing officer. Chief Financial Officer Timothy Johnson was also named chief administrative officer, responsible for distribution centers and global logistics. Michael Schlonsky will lead store operations in addition to heading human resources.

Looking ahead, the company expects to earn $2.90 to $3 this year, up from an earlier range of $2.80 to $2.90 a share. Same-store sales will grow in the low-single digits, the company said. 

The discount retailer operates 1,463 Big Lots stores in 47 states.

As Amazon Fresh looms, Ocado emphasizes tech over food

BY BLOOMBERG NEWS

Online grocery competition is heating up, and UK-based Ocado may deliver more computer and warehouse technology with partners, including international ones.

(Bloomberg)—At Ocado Group Plc’s warehouse in Hatfield, a half-hour north of central London by train, hundreds of red shopping crates wind their way through a labyrinth of conveyor belts.

The plastic crates make a series of pit stops where workers fill them with any of 45,000 different products in the warehouse: corn flakes here, oysters there, bananas farther along. The crated groceries are then loaded into vans in time to make it to homes across Britain within a one-hour window.

The sophistication of the operation has many investors betting that the most important product for Ocado—the world’s biggest online grocery specialist—might not be food, but technology. With the stock trading at about 140 times estimated earnings, the stakes are high.

“If you believe Ocado is simply a U.K. grocer, the valuation is ridiculous,” saidCharles Allen, an analyst at Bloomberg Intelligence. “But if you believe they have some technology to sell, then its outlook is much brighter.”

Ocado, No. 19 in the Internet Retailer 2015 Europe 500 Guide, has plowed hundreds of millions of pounds into its U.K. distribution centers, and this coupled with the thin margins in the grocery business means the company has reported just one annual profit in its 15-year history.

Amazon Fresh

Chief Executive Officer Tim Steiner plans to boost returns by licensing Ocado’s technology to an international grocer—a prospect he has been talking up for two years. With speculation that Amazon.com is preparing a delivery station near London to offer its rival ‘Fresh’ service, the pressure is mounting.

Steiner, a former Goldman Sachs banker, says he wants to provide grocers with all of the computer technology and warehouse equipment they need to run an online service of any size. Ocado’s system offers “better operational efficiency than anything that’s been launched globally,” Steiner said on a conference call with analysts in June. He said the company is in advanced talks with multiple potential partners and aims to sign an international deal by December. Steiner declined to be interviewed for this article.

Andrew Gwynn, an analyst at UBS AG, cautioned that by targeting a deal this year, Ocado may have “backed itself into a corner.” The credibility of any partner is paramount, and Steiner shouldn’t rush into an agreement with a “lower or mid-league” grocer that wouldn’t provide the revenue boost needed to justify Ocado’s investment in technology, he said.

Ocado has ruled out partnering with any retailers that generate less than 10 billion pounds ($15.4 billion) in revenue, according to a person familiar with the matter. The decision was made due to concerns that an agreement with a smaller retailer could signal that the company was unable to attract a large grocer, said the person, who asked not to be identified because the negotiations are private.

Many of the largest potential partners already have online services, often supplied with goods directly from their own stores. Of the 24 grocers globally that generated at least 20 billion pounds ($31.6 billion) in sales last year, all but one sell food online, according to brokerage Redburn Ltd.

In the U.S., Ocado faces competition from both established players and new entrants. Royal Ahold NV’s Peapod, an online grocer with 25 years’ experience, has said it may consider licensing its technology.

Uber-esque alternative

And a startup called Instacart has a low-tech, Uber-esque alternative: Instead of building warehouses and shipping operations, the company simply hires personal shoppers. Customers place an order from their favorite grocer via an app; One of Instacart’s 10,000 shoppers goes to a store, picks up the goods, and delivers them. Instacart is valued at $2 billion—roughly two thirds of Ocado’s market capitalization—and already counts Costco, Safeway and Whole Foods among its partners.

With an international deal elusive, skepticism still surrounds Ocado. Almost half the analysts covering the company recommend selling the stock. According to data compiled by Markit, a London research firm, traders have borrowed and sold 9% of the company’s shares in so-called short sales, a bet that they’ll be able to buy the stock back at a lower price. That compares with an average of 1.7% across the FTSE 250 Index.

“There’s a lot of negative talk about Ocado’s prospects, and management are sensitive to that,” said Richard Hyman, an independent retail consultant in London who follows the industry closely. “Building revenue internationally is critical for their future, and they need to get their skates on.”

Capturing Sweet Success in S&OP

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Hailey Lynne McKeefry, Editor in Chief
8/28/2015   Post a comment

Sales and Operations Planning (S&OP) is not a new idea, but many organizations report that their efforts have been less than effective. As the saying goes, though, when you get lemons, it's a good time to make lemonade. That is, rather than a point of failure, S&OP improvement offers an opportunity for great improvement.
In a study titled Race for Supply Chain Insights 2020, which outlines research by Supply Chain Insights, 71% of organizations surveyed reported having an S&OP process in place. When asked to rate the effectiveness of that process, though, 43% felt that it was effective, while 20% said that it was not and 24% were neutral.
"Why, after more than 20 years, does S&OP still top so many executives' lists as an area of great opportunity for supply chain improvement?" wrote Sean Rollings, vice president of product marketing at E2Open in a blog. "The truth is that most companies have plateaued with the return on their efforts, yet they expect more from such a promising collaborative process."
Supply Chain Insights reported that competing priorities and lack of understanding and support from the executive team topped the list of stumbling blocks around improving the S&OP process.
The infographic below, created by E2Open, outlines some basics around creating a process that works. Take a look, and then let us know about your experiences with S&OP improvement. What worked well? Where were the stumbling blocks?

Yuan devaluation good for US retailers, bad for exporters

Alan M. Field | Aug 29, 2015 10:11AM EDT

China’s devaluation of the yuan may not kick off a currency war around the world, but it’s already triggered similar moves in Asia, and that’s potentially great news for U.S. retailers, the dominant importers of U.S. containerized products such as apparel, footwear and furniture.

A week after the Asian giant acted on its currency, Vietnam reacted by doing the same to the dong, and other Asian countries could follow suit. “This could definitely be a very positive development for retailers who are importing from China or Southeast Asian countries whose currencies are being devalued,” said Jack Kleinhenz, chief economist for the National Retail Federation, which represents some 14,000 U.S. retail companies, restaurants, grocers, e-tailers and others. Prior to the yuan’s devaluation, China’s currency was very expensive relative to other countries in region, such as Indonesia, Cambodia and Thailand, he said.

On the downside, U.S. exports to Europe and China “carried us through the first part of our recovery a few years ago,” Kleinhenz added. “Retailers exported the luxury brands, and found some really good years. Now they are seeing speed bumps, especially with foreign purchasers and particularly in China, including brands that really have had an attraction for buyers” such as Coach and Tiffany. 

China also buys about $25 billion in beef, nuts, pork, wine and other agricultural and food products from the U.S. each year, products that now will become less affordable to some Chinese consumers. The cheaper yuan also could reduce U.S. exports of machinery and equipment to that country.

In theory, a cheaper yuan “should improve the profitability of U.S. retailers,” because they will need fewer dollars to buy the same quantities of Chinese goods, Kleinhenz said, before noting the headwinds on this side of the Pacific. “The challenge is that there is deflationary pricing going on in retail. U.S. consumers are
very discount-oriented, and promotion-oriented,” making it harder for retailers to pass on the higher margins to consumers. “Consumers are struggling, in some cases, with lower wages, so to try and pass on the benefit of these lower input costs is very much a challenge.”

Even before China devalued the yuan, the NRF lowered its retail sales growth forecast for 2015 to 3.5 percent from its earlier estimate of 4.1 percent, because of weak demand and the slow pace of wage growth in the U.S. 

Retailers, Kleinhenz said, have become more expert and agile in adjusting their supply chains to changes precipitated by currency evaluations and other surprises. “The mom-and-pop firms may be a lot more exposed, but by and large, we have learned from the past.”

Whereas retailers used to need five or six months of lead time when ordering from China, “that has been winnowed down considerably.” Retailers still need enough lead time to get a better deal on the products they order, “but in some cases, we’ve seen a turnaround that can be less than six weeks,” although such cases may involve using air freight.

“Our retailers have become more astute at gauging their inventory needs,” Kleinhenz said. “With the aid of online inventory management tools, they can adjust more quickly to abrupt changes in consumer tastes, so “they are tracking this much more closely than they were 10 years ago.”

P&G Cuts CEO Lafley’s Bonus After Earnings Shortfall

The consumer-goods company’s sales and profit growth came up short of its targets

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Procter & Gamble Chief Executive A.G. Lafley’s bonus was cut by $1.1 million in the company’s recently ended fiscal year. PHOTO: TIMMY HUYNH/THE WALL STREET JOURNAL

By

SERENA NG

Aug. 28, 2015 6:39 p.m. ET

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Procter & Gamble Co. cut Chief Executive A.G. Lafley’s bonus by $1.1 million in the company’s recently ended financial year, after the consumer-goods company’s sales and profit growth came up short of its targets.

Mr. Lafley, who came out of retirement in May 2013 to run P&G a second time, received total compensation of $18.3 million in the year ended in June, a 6.2% decrease from his $19.5 million compensation package the previous year, according to a proxy statement the company filed on Friday.

The decline was mainly due to a smaller bonus of $3.29 million, which was down from $4.4 million a year earlier. P&G said it paid Mr. Lafley 66% of his target bonus because the company didn’t reach its profit and sales goals.

P&G reported net income of $7 billion for the year through June 30, down 40% from a year ago. Sales fell 5% to $76.3 billion, weighed down by the weakening of many foreign currencies against the U.S. dollar.  The company’s organic sales growth, a measure that excludes currency swings and the effect of acquisitions and divestments, grew 1%, as a result of weakness in P&G’s beauty division and challenges the company faced in China and other markets.

At the start of P&G’s last fiscal year, the compensation committee of P&G’s board had set a 3% organic sales growth target and a 5% target for growth in so-called core earnings per share, which excludes certain items like restructuring costs. The company ended up not meeting the earnings target, reporting a 2% decline in core earnings per share growth mainly because of currency swings.

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Mr. Lafley’s salary remained at $2 million and he received stock awards valued at $12.4 million. P&G paid $512,040 to cover the cost of Mr. Lafley’s use of the company’s aircraft when he commuted to its offices in Cincinnati from his home in Florida and when he traveled to attend board meetings at other companies.

On Nov. 1, Mr. Lafley will become P&G’s executive chairman and hand over the CEO reins to David Taylor, a 35-year company veteran. The two will work together to pull P&G out of a yearslong performance slump.

Mr. Taylor, 57 years old, currently oversees P&G’s divisions that make up around 40% of its sales. He received a $6.1 million compensation package in the year to June, including $945,000 in salary and a $790,272 bonus.

P&G earlier said that after Mr. Taylor becomes CEO, he will receive a base salary of $1.6 million, with a target bonus of 200% of his base salary, as well as equity grants under the company’s long-term incentive program. Mr. Lafley will receive a base salary of $1.25 million in his executive chairman role, with an annual bonus target of 150% of that amount.

Accounting for a Lean Supply Chain

Aug 29, 2015

^by Paul Myerson

Professor of Practice in Supply Chain Management, Lehigh University

Lean accounting and a lean supply chain together can ensure that everyone is aligned to reach the maximum, long-range goals and benefits of lean thinking.

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“Benefits of Lean Accounting in a Lean Manufacturing Company,” author Dan Anthony discusses the  major differences between traditional and lean accounting, starting with a quote from Taiichi Ohno stating  that “costs do not exist to be calculated; costs exist to be reduced.” This really gets to the core of the difference between traditional and lean accounting: traditional accounting focuses primarily on the cost of goods sold, whereas lean accounting focuses on the value stream from customers to suppliers.

Lean accounting looks at cost reports on a daily basis, as opposed to after the fact in weekly or month-end reports as is common in traditional accounting; it views capacity as an asset instead of just idle time, and sees inventory as a liability and not an asset.

The lean accounting process itself frees up the time of the financial people by eliminating a great number of transactions, reports, reconciliations and meetings so that they can be less like “bean counters” and more like consultants, providing timely, detailed, focused reports as to costs at any step in customer fulfillment.

When using traditional accounting methods, companies try to break down expenses by determining the cost of each unit produced, then create their financials based on that through standard costing. In lean accounting, it is more “real time,” so you look at what you have sold and what it cost you to estimate your profitability continually.

This can have a huge impact on the manufacturing and supply chain processes in a company. If you think about it, one of the main goals of lean is to identify and eliminate waste and non-value added processes, but traditional accounting systems really have no ability to measure waste and inefficiency (and don’t think in terms of value streams). As consultants, lean accountants can readily see the impact on profits of expediting shipments and quarter-end “push” to meet quotas and targets. Yet for the most part, today’s executives are primarily driven by financial reports, which don’t really do a good job of modeling the supply chain.   

So simple and timely information focused on value streams helps empower people at all levels of the organization and can foster a lean culture focused on customer value. Together, lean accounting and a lean supply chain can make sure that everyone is “rowing in the same direction” to reach the maximum, long-range goals and benefits of lean thinking.

Retail Marketing Strategies: Connecting The Dots

As more shoppers turn to their smartphones to do product research, retailers need an all-inclusive mobile marketing strategy to reach consumers at just the right time, says columnist Allan Haims.

Allan Haims on August 28, 2015 at 9:05 am

Today’s retailers are still very much siloed between operational, brick-and-mortar, and digital and social mobile teams.

Often, store level teams do not receive timely communication from corporate regarding important new pricing strategies and promotions, and social, digital and mobile efforts may not be consistent with what is happening in the field in real time.

Priorities In Digital Marketing Drive Brick-and-Mortar Transactions

We have come a long way from the late 1800s, when Sears, Roebuck and Co. offered its first catalog. Omni-channel retailing, or multi-channel retailing, which uses a variety of methods to reach the consumer, is becoming a reality.

While many businesses take advantage of the various avenues of digital social networking promotions (think Facebook, Pinterest, Instagram), the challenge for today’s marketing world is connecting the dots of one all-inclusive mobile marketing strategy.

Many marketing teams are stretched thin, and communication can be challenging between those who are monitoring retail sales and those who are promoting the sales. In those instances, it is important to take a step back and re-examine the marketing team’s roles and priorities.

With recent research from Forrester showing that 84 percent of consumers use their smartphones while in a store to go online — more than in any other location — retail and mall developer marketers alike have a massive opportunity to influence in-mall purchases through targeted mobile engagement.

Corporate marketing, merchandising and planning and allocation teams typically do not work on the weekends, even though weekends are the busiest time in the field. Corporate teams meet on Mondays to go over the numbers from the weekend, but analysis after the “big game” can be less effective than following the sales and inventoryduring the game.

Though these meetings are valuable, they miss the real-time flexibility offered by digital technology, which can be harnessed to reach consumers at the exact moment of opportunity.

Integration Is Key

From a retailer’s perspective, how do you centralize your efforts?

There must be a delicate balance between the marketing department, which develops marketing promotions based on a calendar including floor sets, printed in-store signs and other marketing collateral — a process that takes time and is carefully and thoughtfully planned at corporate headquarters — and digital departments, which are designed to react quickly to current trends or inventory.

In order to operate effectively in the modern retail world, successful retail campaigns need both kinds of departments, so they have both regular planning and flexibility to act.

In examining marketing priorities, what it comes down to is this: integration. Considering all of the elements that contribute to transactions, a successful company will require the integration of the teams who manage merchandising, planning and allocation, digital marketing and store operations.

Companies need to designate a team at corporate headquarters to monitor retail results in real time, so that if something happens over the weekend, the store can capitalize on a novel opportunity instead of missing it.

Traditionally, planning and allocation teams would not be tied to marketing, so if there was excess inventory, nothing could be done at a local level. However, integration of these teams and close communication allow digital technology to notify customers of these events and bring consumers in at a local level.

And close communication also means that the brick-and-mortar stores will be ready for consumers when they do come in. It’s one thing to announce a “flash sale” but another thing altogether to be ready for one.

The different silos of the retail teams have to be broken down, so to speak.

Shopping “On Demand”

In the end, we are living in an “on demand” society, with consumers preferring the likes of Hulu and Netflix to traditional providers of commercial programming. And we prefer to have our promotions come our way “on demand,” just as we do our television shows.

Promotions being sent to and accessed by the consumer need to be relevant, personalized and localized. Consumers do not want to receive a push message regarding shoes when they are out shopping for towels.

In today’s fast-paced retail environment, shoppers are mostly using their smartphones to do product research. They use their phones like they would a sales floor associate, to ask questions but not to actually complete a purchase.

In order to increase brick-and-mortar sales, stores will need to offer more of an incentive to buyers to get them in the door, and utilizing the incredible flexibility that digital offers can certainly facilitate that process.