Today is a rainy day in Philadelphia. I am recovering from bronchitis. I am reflective as the rain sheets down my window.
My travels this week took me to California and Boston. I worked with consultants defining a business case for cloud-based supply chain solutions and new vendors looking to use artificial intelligence to solve the problems of master data management. On the road, I scanned the newspapers… read newsfeeds. It was not a good week for supply chain leaders. Yes, there was lots of the usual hype coming from NRF, and CES conferences filling the airways. but underneath this bravado, there was some grim news:
1) West Coast Ports. The ports of Long Beach and LA, representing 40% of port capacity in the United States, are gridlocked. Today, on average, there are 10-25 ships sitting on the water waiting to unload. Jon Slangerup, CEO of the Port of Long Beach, made a public statement that this is a new normal. He advised that it will take an average of three additional weeks for container unloading for the west coast ports throughout 2015. Three weeks is substantial and may tip the hand to reshore more manufacturing into North America.
2014 was not a good year for the western ports. What started as a chassis issue is now compounded with labor negotiations. When the mediators’ chairs cool following a labor settlement, the Port of Long Beach will still struggle with the instantaneous capacity and unloading of megaships. The port is landlocked.
Action: Expect the issues in the west coast Port of Long Beach to linger. As a result, add three weeks standard leadtime to inbound shipments and expect unloading to be more variable. Do not put time-dependent shipments through these ports at this time.
2) Wall Street Journal Announces E2open Is Attempting to Find a Buyer. Last week was a busy week for E2open. The Wall Street Journal published that an unknown source reported that the Company had the intent to find a buyer. In calls with the E2open management team, I found that the company had not initiated this action and that the Wall Street Journal reported on a rumor. The Company did publish a Shareholder Rights Plan at the end of last week to protect shareholders.
In July 2012, E2open went public with a market capitalization of 442M. Today, the market capitalization value of the company is 191M. The two and 1/2 years have been a rough ride. Cash burn, acquisitions, sales turnover, and lumpy revenue contributed to the issues; but at the end of the day, I attribute the fall of the stock to inexperienced leadership. Running a public software company in the supply chain management space is a tough job. E2open has struggled.
In contrast, Kinaxis, a close competitor to E2open, went public in 2014 on the Toronto Stock Exchange. Today, the market capitalization has grown to 452M since the Initial Public Offering (IPO). The patterns of the two stocks are quite different, and to the uninformed buyer, might be cause for alarm.
Action: If you are an E2open client, open up a dialogue with the E2open leadership team. Stock turmoil and market capitalization does not translate to the true value of a stock. While the Wall Street Journal article is based on a rumor, the undervalued state of the E2open stock makes the company vulnerable to the accumulation of stock by a third-party attempting to gain governance to improve market value. The Shareholder Value Action helps. I do believe that the current E2open management team is focused on trying to drive business as usual, but this distraction of the Wall Street Journal article in E2open’s fourth quarter will be tough for the E2open sales team to navigate. If you are a prospect of E2open’s software, recognize that the product is unique in value, and also delivers significant business value. If you are worried about the stock gyrations, protect yourself with a clause in the contract to renegotiate the term of the agreement if there is a change in ownership of E2open. Based on consideration of the E2open balance sheet, and discussions with the management team, I think that this is low risk, but crazier things have happened in the market. After all, who ever thought that the Wall Street Journal would report the intent to sell the company based on an unconfirmed rumor?
3) Target Announces Closure of Canadian Stores. Target had 133 stores and 17,600 employees, but due to supply chain snafus, has decided to discontinue operations for 70M$ Canadian (59M$ US). The company quickly moved from 17 stores in Ontario to 133 stores across Canada in two years. It now admits it opened too many stores—too quickly and too soon—without building an understanding of the market and supporting supply chain operations. The U.S. is not Canada, and the Canadian market did not feel that the stores were sufficiently differentiated.
Action: Test and learn is a critical capability for consumer-facing supply chains. Localized assortments, tailored programs, and doing retail differently is increasing in importance. Broad-brushing markets is the recipe for failure.
What do you think of the news? Any insights to share?
This week, the travels continue. I will meet with a small group of supply chain leaders to discuss analytics and supply chain organizations at the Shaman’s Circle on Amelia Island and I am preparing to do a focus group session for Elemica early next week.
Here at home, things are busy. Supply Chain Metrics That Matter has been selling briskly on Amazon, and we are actively working on the program for the Supply Chain Insights Global Summit on September 9th and 10th, 2015.The program is shaping up. We are also working on the design of a new experiential learning game to help teams understand the value proposition of outside-in processes (think new-age beer game), and kicking off Supply Chain Planning Benchmarking Analysis for 2014. A lot is going on at Supply Chain Insights.