Why is Amazon focusing on India? Revenue growth drives Amazon’s stock prices, and India provides a great untapped market. However, the consumer preferences are different, competition is intense, and infrastructure is not as good. Amazon will have to modify its business model to succeed in India.
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Why do start-ups struggle with #supplychain? Their operations are small to get a tailored solution from an outsourced provider, and they lack talent/knowledge in-house. Some of the issues that plague larger companies, plague start-ups as well. CEOs/leadership teams do not understand supply chain and its challenges. They spend too much money and time on innovation, and don’t focus enough on capabilities that deliver the innovation to market. Most time it’s not fatal unless of course, the supply chain is core to your business and your competition is very good at it.
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In the face of competition from Amazon, office supply companies are experimenting with same day delivery. Does increasing service level improve revenue and profitability? Not necessarily. The trick is to do it in a finically prudent way by developing a service model that competitors will find difficult to match and then getting customers to pay for the increased service. Otherwise, the advantage will be short lived and become the industry standard, thereby increasing cost for everyone.
The food industry is in the midst of disruption as consumers demand fresher and natural food. The industry is responding with traditional ways – M&As and cost reduction to improve profitability while revenues are declining. Companies that are successful in disruptive times such as Amazon, Zara, TJ Maxx, Starbucks, Airbus, and others have used #sourcing and #supply chain as a competitive tool.
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Why do M&As fail? Most M&As assume synergies from consolidation of operations to justify the purchase price. Unless overhead costs are significant and there is a large unutilized capacity, the complexity of combined operations can have an entirely different effect. #supplychain focused on improving customer experience to grow revenue and increased labor utilization to reduce cost can deliver the desired results.
What does U.S. auto sales decline mean? A significant jump in dealer inventory and discounts, and plant closure and vendor failure upstream. Most #supplychains are designed like a freight train with no visibility to tracks in front. If tracks go missing, there is a pile up that cascade throughout the network. With the availability of real time sales information, companies can adjust their production and avoid inventory build-up if they choose to use forward looking demand data instead of forecast data created from historical information for planning.
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Why innovative companies struggle to meet rapid demand growth for their new products thereby allowing competitors to piggyback their hard earned success? They invest a lot in R&D but fail to invest adequately in #supplychain. Take for example Tesla’s challenges with meeting growing demand for Model 3. They have to gear up in-house manufacturing while ensuring an adequate supply of parts from suppliers. The potential delay/wait time will test customer loyalty while competitors launch their products.
With countries requiring local manufacturing, #supplychain leaders will have to make distributed manufacturing work. For example, without offsetting tax benefits, a key challenge for Apple would be to stop the cross flow of their cheaper products from China and India to the U.S. market. Customizing for local markets and segmenting supply base to support different production sites/markets would be important.
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Another regulated industry, Pharmaceutical, poised for disruption? It is attracting new companies such as Samsung and Amazon. High-Tech companies such as Apple and Google are rumored to be hiring Pharma R&D talent. We could expect new business models, particularly in generics and biologics, with #supplychain playing a key role.
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Can #supplychain help retailers survive current market conditions? BestBuy averted failure by price matching Amazon, improving #supplychain responsiveness, and partnering with high-tech companies to create a “stores within stores” in addition to restructuring its business. It is successfully targeting impatient customers that wish to have products immediately by improving delivery times.
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Why are companies importing at a fast pace when retail sales and consumer confidence are down? Most companies continue to use historical data to forecast demand. Given low forecast accuracies, they do not provide proper guidance on future. A #supplychain driven by actual sales and not forecast has shown to make it more responsive to market demand.
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Disruptions are becoming common even in industries that are regulated such as Aircraft manufacturing. Companies in China, Russia, and Canada are making an entry in narrow-body market challenging the growth engine of Airbus and Boeing. #supplychain can help businesses address disruptions.
Telsa is taking an innovative approach to for post-sales support for its mass marketed Model 3. It is adding technicians to visit customer homes – a departure from the industry norm. Customer service (pre or post sales) remain key to winning and #supplychain plays an important role.
Why do innovative companies (like Tesla) fail to meet the demand for its products? They invest a lot in R&D/innovation but little on #supplychain that takes innovation to market. During rapid growth, in-house or external bottlenecks reduce revenue and profit potential and give competition time to catch up.
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Global companies are failing to adapt to local markets thereby giving breed to new competition, who could eventually disrupt world markets. Chinese smartphone manufacturers are top players in China and Africa. In addition to the cost advantage, they are quickly providing features that are valued by locals. How long do you think it would take them to disrupt U.S. and other developed markets? #supplychain can help companies adapt to local markets by balancing customization vs. complexity and preempt disruption.
Why is globalization failing? It is not nationalist desires to retain jobs, but the economics are no longer favoring global companies. The advantages of scale and cost arbitrage have diminished. On the other hand, #supplychain complexity is increasing cost as companies try to meet local demand with global platforms. They are unable to compete with local businesses. #supplychain, if designed correctly, can help companies balance complexity and cost effectively to win in the global markets.
With 33 quarters of same-store sales growth, TJ Maxx is not focusing online or using big data to figure out what consumers want. Why are they not impacted by Amazon’s onslaught? It is their sourcing organization that buys merchandise to keep customers coming back for deals. #supplychain and #sourcing can help companies compete in disruptive times.
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Amazon acquisition of Whole Foods has led to drop in Grocery companies share prices. Are the fears realistic? Though Amazon is a fierce competitor with a focus on customer service, the #supplychain for groceries is different from products sold at Amazon. Managing brick and mortar stores is new for Amazon where overheads are high, versus online where variable costs make the difference. One thing is sure Amazon will learn and make it better for consumers.
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Can #supplychain help companies win online? Zara’s supply chain capabilities have helped it to outperform the competition and now helping it succeed online. Great article in WSJ on how Zara created online presence while other retailers are struggling to build e-commerce capabilities alongside traditional stores.
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Does currency devaluation help exports? It depends on pass through components (imported) in exports. Higher the pass through lower is the impact of currency devaluation. Excellent article in WSJ on the impact of UK’s currency devaluation on exports.
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Why do innovative companies struggle to meet rapid growth and allow competitors to catch up? They invest in R&D but fail to invest in #supplychain that take new product/services to market. For example, Nintendo’s Switch console is taking the gaming world by storm, but the company is struggling to get supplies of parts to meet rapid demand growth.
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Oil demand is getting impacted by electric and more efficient vehicles. The potential disruption comes from solar energy and natural gas. It could affect businesses and economies that are dependent on oil, environment, and geopolitical conflicts. #supplychain and #logistics could see significant changes as well.
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Does economy of scale (bigger is better/cheaper) provide competitive advantage? The concept of scale has been a bedrock principle in business strategy – an argument used in most large mergers. With customization demanded by consumers, the scale can hamper success. Excellent article in WSJ about Subaru’s approach and its CEO’s view on increasing size of production. #supplychain can make the trade-off between customization and cost work.
Why do global companies fail in emerging markets? All analysis point to one factor, they fail to tailor products for the market and focus on their global platform – a trade-off between customization and cost. #supplychain design can make the trade-off work.
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Does automation reduce cost and improve quality? Every time my U.S. clients visit their partners in Japan, they come back with suggestions that automation will improve their manufacturing performance. Though automation reduces variation (6 sigma) and looks impressive, it does not necessarily improve quality or efficiency. The cost and quality depend on overall #supplychain strategy to meet demand and fine tuning of parameters. Would be interesting to see outcomes from Tesla’s experiment with automation.
Supplier risk is becoming a key challenge for corporations with increasing size of vendors. Take a look at the potential fallout from Toshiba’s bankruptcy on the high-tech industry. Time to rethink vendor consolidation strategies.
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Wal-Mart’s effort to capture demand data from consumer homes could revolutionize supply chain. It would allow better anticipation of demand and provide replenishment options to consumers before they are aware of their need. Adoption would depend on how these services are sold to consumers and regulatory framework.
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Automotive demand has declined over the last two months resulting in high inventory and price cuts. The demand swings may be due to industry cycle, past promotions, or more used cars entering the market. It would create a significant whiplash throughout #supplychain with plant closures and financial distress. Improving responsiveness is key to ensuring the long-term health of the industry and its suppliers.
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Consumer online buying is upsetting another traditional industry – automotive dealerships. The focus is moving away from real estate holdings to streamlining of #supplychain. Dealerships are being used for showcasing then delivering the cars from a central warehouse when a final sale is made. Perhaps, we will soon see direct delivery from plant to consumers.
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Does vertical integration provide lower cost than buying from suppliers? Customization and scale play a significant role in the trade-off. If you are buying highly customized products and in smaller volumes, it may make sense to manufacture in-house or owning specialized tools. Buying from suppliers make sense if you purchase a large volume or standardized products. These decisions require careful analysis.
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Increasing overhead costs is making brick and mortar stores more uncompetitive versus online retail, thereby accelerating store closures. Retailers rushed to open stores when interest rates were low. However, rising interest rates are increasing overhead costs. Store costs could be reduced by making construction and operations efficient – #sourcing could help.
Companies in retail, pharmaceuticals and other industries have raised prices incessantly to compensate for dropping profits. They are learning that this is not a sustainable long-term strategy and eventually there are consumer/regulatory pushbacks, even towards brands such as Tiffany & Co., Neiman Marcus, and others. #supplychain can address issues behind falling profits and set up companies for success in the new environment.
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As protectionism gains traction in the U.S. and other major economies, #supplychain will play an important in ensuring country of origin requirements are met for favorable tax rates. The challenges are more pronounced in industries which are known for their country of origin such as Swiss watches.
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Many industries (automotive, consumer goods, retail, tech, and others) face the problem of bloated inventory, and they blame the unexpected slide in sales or demand. Is it the demand that dropped or forecasts were wrong? Analysis has shown that underlying demand does not change dramatically, forecasts are usually the culprit as they tend to reflect hope more than reality. Perhaps, a better way to plan is to ditch forecast and move to demand-based planning/pull based replenishment.
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Business models of leading companies are static; built on three legs – incremental innovation, marketing, and global expansion. How long do you think Apple can maintain growth by updating iPhone? As businesses get disrupted by new technology or startups, there is a need to rethink the traditional business model. Maybe a fourth leg encompassing #supplychain or #sourcing could help.
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Rollback of globalization is happening from Brexit to Beijing to Washington. Older business models created to take advantage of globalization have to change. #supplychain and #sourcing have a critical role to play not only for business continuity but also for providing a competitive edge in respective markets.
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Apple will start production of iPhones in India over the next couple of months. It plans to introduce older models; a better strategy could be to customize products and #supplychain to local market demand. A painful lesson learned by consumer goods, automotive and other global companies.
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Innovative companies find it difficult to retain the lead. Though FedEx’s revenue is growing, it is challenged with integrating its TNT Express acquisition, adjusting to more expensive e-commerce deliveries, and competition from Amazon. Rethinking #supplychain approach could help.
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Autonomous driving is disrupting car industry with parts manufacturers starting to play a bigger role. As the influence of auto manufacturers reduces on #supplychain, we could expect to see the long-awaited transformation in a very traditional industry.
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The aircraft industry has been plagued with supply issues. Now, Boeing is stress testing its #supplychain with suppliers. A significant step in assuring supplies to customers.
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Retailers are caught between a rock and a hard place. Trying to reduce cost by keeping inventories low and then lose sales due to lack of stocks on shelves. Moving from a forecast based planning to demand-based planning could address the apparent contradiction in #supplychain choices. Excellent article on Best Buy challenges between inventory and revenue!
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Processed food industry is getting disrupted by startups focused on healthier and less-processed foods. Business models need to change – #supplychain and #sourcing could provide alternate ways to meet consumers evolving needs. Excellent article on the industry disruption!
Changing consumer food preference and inability of 3G capital to drive additional savings pushed Kraft to offer merger with Unilever. #supplychain can do more than drive savings – it can improve quality, and bring additional products and services to market. Excellent article on the challenges faced by Kraft and 3G Capital playbook.
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Rural America is changing buying habit from retail to online shopping. It is helping farmers reduce cost. A trend that potentially benefits Amazon. Excellent article.
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If you wondered why prices online and Walmart stores are different, it is because they had two buying teams. Walmart is now consolidating the #purchasing organizations—a good idea for buying products.
Food companies are optimizing delivery (last mile) to reduce costs. The article highlights the risk to sales due to Kellogg’s decision to stop delivery to stores. There is an alternative way to manage delivery that optimizes sales with cost, by segmenting customer base, optimizing routes and refining incentive structure.
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Excellent article on #logistics industry trend – warehouse employment is increasing whereas transportation employment is decreasing. The trend towards increasing warehouses/inventory is concerning.
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Excellent article on Amazon’s effort in shoring up its #supplychain by investing in air cargo, trucks and ocean freight in direct competition to FedEx and UPS. The move will provide more control and may reduce costs for Amazon but unclear on customer service benefits.
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With increasing eCommerce shipment, retailers are streamlining their #supplychain by direct/drop shipment from suppliers. On the risk side, the move may disintermediate retailers with no clear value-add. Excellent article on the industry trend.
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