E. Coli Investigations and Disruption Spread Through Food Supply Chains

July 3rd, 2009

Once again, I’m penning a posting related to product contamination and recall, and again it involves the cascading supply chain effects of an incident of suspected forms of E.Coli contamination which can cause serious food borne illness.

The latest incident involves a voluntary recall of 420,000 pounds of beef products produced by JBS Swift Beef Company of Greeley Colorado.  According to a U.S. Department of Agriculture press release this recall was expanded because the Centers for Disease Control and Prevention (CDC) has an ongoing investigation into 24 illnesses in nine U.S. states. The beef products were produced back in April, and JBS Swift conducted the recall out of an abundance of caution.  As can sometimes happen with recalls involving food products, certain production also makes it way into other supply networks, namely private label branded products.  In this specific case, the CDC has acknowledged that meat may have been re-processed into ground beef and other products, making it difficult to trace actual identity markings for consumers. To no surprise, Smith’s Food and Drug Stores, a division of Kroger has also issued a similar recall warning involving its store brand and store-packaged beef products, including that processed into ground beef and other products.  If you plan on a barbeque this Fourth of July holiday, make sure you check the various web sites that identify the impacted products.

I’ve noticed from my various food industry news feeds that the industry has been reacting to a significant shift among retailers and wholesalers in offering more private branded products.  This shift has been a response to consumer trends in purchasing more affordable or value-based products.  I’m beginning to suspect that these same retailers may not quite understand the ramifications of supply chain disruption that can be brought on by a significant product recall. But alas, this may be the subject of a future post.

In the other ongoing incident, on June 19, Supply Chain Matters posted its first commentary on the voluntary recall involving Nestle Toll House cookie dough  which was also a suspected E.Coli contamination. To update readers on that incident, the CDC now reports that 72 people in 30 U.S. states have been associated with this outbreak. Of this number, 34 people have been hospitalized, and 10 have been diagnosed with a form of kidney disease. The U.S. Federal Drug Administration (FDA)  has now confirmed that it has found E.Coli 0157:H7 in an unopened sample of pre-packaged dough within Nestlé’s Danville Virginia plant.  .  Nestle USA has also acknowledged this finding and continues to cooperate with FDA officials to identify the root cause of this contamination.  In my view, Nestle was very wise to take the initiative to voluntarily recall these products.  In its press release, Nestle smartly outlines the timeline of its response, and attempts to insure its customers that other Toll House branded products are not involved. 

The latest article from the local Danville News indicates that the FDA had found no traces of the bacterium after  conducting exhaustive inspections of both the cookie dough production equipment and the workers.  The FDA also took samples of all the component ingredients and they have come back negative.  The investigation has apparently shifted upstream in the supply chain with a joint inspection of the flour supplier underway.

This cookie dough incident has been a concern to industry followers since E.Coli is usually traced to animal bacterium in cattle, and seems highly unusual in flour and dough products

Besides the obvious concerns we all have regarding the overall safety of our food products, these constantly occurring incidents present some interesting questions.  Which brand suffers the most, and which party bears the most responsibility when a disruption brought on by food contamination cascades itself through various supply chains? Whose reputation suffers the most?

 Share your thoughts.

 Bob Ferrari

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Tomorrow’s CIO

July 3rd, 2009

An opinion article penned by Ashwin Rangan of MarketShare Partners, Understanding Tomorrow’s CIO’s, appearing on SandHill.com, caught my interest.  The premise of the article is that the next generation of top technology executives will be a different breed, with a different focus of management competencies and traits.  This article was written primarily to inform software and technology companies on how to best market their products to this new breed of manager.

I’d like to add some of my own thoughts, building on Ashwin’s perspectives.  His article points to key competencies in which tomorrow’s technology leaders will differ from those in the past:

Business-driven vs. brand-driven goals, as well as open-mindedness- namely that software applications that are brought into the company must no longer just pass the “brand name” test, but also provide a strong value proposition which will either reduce cost, grow revenues, improve productivity, or contribute to all three combined.  It seems to me that this implies a bit more open-mindedness to exploring “best-of-breed” type applications to address specific supply chain business needs, or more tendencies to evaluate SaaS, Cloud Computing, mobile or other forms of outsourced IT infrastructure models to provide more efficient IT cost structures. In my view, the new CIO will no longer function as the “gate-keeper” of technology, but rather the business advisor and change agent that balances business needs to logical technology options.

Business background- the premise here is that rather being the most tech savvy executive for the organization, the need may instead focus on the being the most knowledgeable in understanding business process and decision-making needs.  Rather than the expert on “how” IT architecture and systems are to be implemented, it may instead be the “what and why” of how specific business processes needs can be aligned to overall technology deployment options and plans.  Last summer, I penned a posting titled CIO’s as Supply Chain Leaders, where I shared my beliefs that in certain organizational situations of large-scale supply chain transformation, it may make sense to have an executive skilled in broad supply chain management and operations leading the CIO function.

In terms of product marketing’s ability to connect with the new breed of CIO, Rangan points to what I believe may be some flawed advice. 

Rather than helping the new CIO to be a change agent, I would argue that this executive wouldn’t have the position unless he/she had demonstrated competencies to drive change.  Instead, product marketing should be helping the CIO to articulate the best value proposition for the proposed technology, as well helping with the internal educational needs for the organization.  The focus should be on building educational awareness among the broader functional audience on the potential business and process benefits of the technology.

The second tip, understanding the business needs is a two-way focus.  Too often, many smaller software companies try to instill their go-to-market sales model on broad categories of customers.   I’ve found that no two businesses are alike, and that an industry specific or domain approach is far more productive in connecting with the specific needs of that business.  If you are positioning supply chain related technology, you had better understand the buying persona of each of the supply chain functional teams and be able to assist those teams in understanding the specific product, business, and organizational benefits of the technology. This implies a pre-sales team that has broad or sometimes deep supply chain domain knowledge.

Finally, making the CIO look smart and engaged is a no-brainer.  Technology players like IBM and others have been practicing this tenet for years. But too often, over zealous sales people cross organizational lines to close a sale, and sometimes alienate the functional teams who must implement both changed business practices as well as the new technology. The focus should instead be on insuring that a customer’s entire leadership team is successful as well as insightful in their decision. Never ignore a customer, especially after the sale.  A customer’s success is your success, not the other way around.

Bob Ferrari

 

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Swine Flu and Global Transportation Visibility Principles

July 2nd, 2009

I read an interesting article, courtesy of The Drudge Report, and written by Reuters that indicates researchers have correlated that the recent outbreak of the H1N1 flu virus spread according to major airline routes spread around the globe.

These researchers from Saint Michael’s Hospital in Toronto correlated the geographic outbreak of the virus to the actual major airline patterns during the outbreak period.  For instance, the virus initially spread from Mexico to the United States and Canada, where 80 percent of airline passengers traveled to during March and April of 2008.

This article points out that by the time health officials were able to declare a definitive outbreak, the infection had spread too far and too fast to try to mitigate its further spread.  Instead, these researchers recommend that officials integrate information about current worldwide air transport traffic with global disease outbreak patterns.

For transportation and logistics professionals, one would surmise that these conclusions are a “no-brainer”.  Just follow the traffic flow of people from the most impacted region.  Then again, these findings also raise the questions that so many government and industry officials fear the most, namely selectively stopping air travel immediately when a potential flu threat is suspected.

There are certainly no easy answers on either side of these arguments.

What’s your view?  Should government officials be allowed to suspend air travel from a suspected outbreak region of a major flu outbreak, or just continue to quarantine air passengers at points of entry of other countries?

 Bob Ferrari

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Boeing Takes Supply Chain Action

July 2nd, 2009

There has been some significant supply chain news and blogsphere commentary relative to Boeing’s ongoing challenges to get its 787 Dreamliner plane into full production. 

Yesterday, Jon Ostrower’s FlightBlogger broke the news that Boeing is set to announce its intention to acquire the North Charleston South Carolina based 787 fuselage manufacturing operations currently operated by Vought Aircraft Industries.  Cudos to Jon on an informative and well written posting. The story was also reported in today’s Wall Street Journal (subscription required).

According to FlightBlogger, as well as the WSJ article, this move is an acknowledgement that Boeing needs to take a more direct role in both the current supply chain and manufacturing operations of the 787 program.  Both point to speculation that Boeing may well be considering opening a second final assembly manufacturing operation at this Charleston facility.

Supply Chain Matters has had multiple commentaries related to the ongoing supply chain challenges of Boeing, the latest being Yet Another Setback at Boeing. In that post, my observation was that Boeing management should learn from its outsourcing snafus related to the 787, and it was time to move on and correct the problem.  This pending announcement seems to be a step in the right direction.

Similar to Airbus and other complex manufacturers, the notion that a company can simultaneously outsource major materials and structural design, as well as production operations to suppliers without comprehensive coordination and program management is a misnomer.  Jason Busch on SpendMatters notes that:  .. “Boeing has learned the hard way that being a guinea pig for incorporating unprecedented amounts of new materials (e.g. titanium) into certain supplier-produced parts/components (e.g. fasteners) introduces significant new supply chain risk into the sourcing equation.”  Lisa Reisman noted on her MetalMiner blog that the latest structural problem found during static testing will now require even closer collaboration among supply partners Mitsubishi and Fuji Industries with Boeing engineering.

I myself feel that Boeing needs to dramatically step-up efforts in the transparent flow of two-way communications among its senior management and program teams.  It seems to be that old adage of “tell them what they want to hear” rather than “tell them what they need to hear” is again at play.  Then again, perhaps senior management had too many filters in place.

This new development is a more positive step for Boeing in fixing its supply chain outsourcing issues. While some of Boeing’s backlogged customers remain disappointed in multiple delivery setbacks, it is far better to have a technologically advanced as well as a structurally safe aircraft that future flyers can admire.

 Bob Ferrari

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Applause for IBM’s Green Sigma Coalition

July 1st, 2009

IBM recently announced its Green Sigma Coalition, an industry alliance among technology oriented companies, which I believe should be applauded by our community. 

Charter members of this coalition are Johnson Controls, Honeywell Building Solutions, ABB, Eaton, Cisco Systems, Siemens Building Technologies Division, Schneider Electric and SAP, and each has indicated its willingness to work with IBM to integrate their products and services under the umbrella of a “Green Sigma” product offering. The program is further described as helping IBM Business Partners validate market and sell their offerings with an assurance that the product or service has been evaluated and demonstrated to reduce environmental impact based on customer use.

Green Sigma is an IBM approach that applies Lean Six Sigma principles and practices to energy, water, waste and GHG emissions throughout a company’s operations, which include transportation, manufacturing and distribution center operations that make-up a product’s value chain. A validation process calls for products and services to meet stringent criteria that address the reduction or use of resources such as energy, water or paper materials.  Submissions are to be reviewed by an IBM Energy and Environment Review Board.

IBM’s commitment to a sustainable supply chain includes its own internal operations.  As a founding member of the Electronic Industry Citizenship Coalition (EICC), the company accepts the EICC Code of Conduct as an equivalent and alternate to its existing Supplier Conduct Principles. IBM is also actively involved with two initiatives to analyze greenhouse gas emissions associated with its supply chain through its membership in the EICC and as a member of the Carbon Disclosure Project’s (CDP) Supply Chain Leadership Collaboration.

What I especially like is an approach that brings together real-time metering and monitoring with advanced analytics that can facilitate more-informed decisions regarding improved energy efficiencies and reduced environmental impact.

Well known and respected companies such as IBM, Hewlett Packard, and lately SAP continue to provide an active executive commitment toward more environmental sensitive products, and are now taking the lead in bringing together more environmentally sensitive technology from multiple companies. This can help in facilitating more green initiatives that involve many aspects of a company’s supply chain.  Surely other companies will follow in these efforts.  It just makes good business sense for both prospective customers as well as the companies themselves.

Bob Ferrari

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GE’s Jeff Immelt- What a Refreshing Change

June 26th, 2009

Last night, I had the opportunity to watch the Charlie Rose Show on PBS.  Charlie’s guest for the entire hour was Jeff Immelt CEO of General Electric, and I have to state that Mr. Immelt restored my confidence in American business.  What a refreshing change! 

The interview touched upon many of the difficult challenges facing global business today, including post-recession recovery, global outsourcing, and the reality of what it will take to keep America competitive in the rapidly changing world economy.

Mr Immelt did not choose “CEO speak” but rather made understandable as well as candid comments on what a company like GE, and others, need to do to remain competitive.  He spoke to a permanently changed consumer landscape, a reality that consumer spending can not alone drive future business growth.   He clearly stated that the U.S. needs to refocus its economy on manufacturing and exports, and that manufacturing should represent 20 percent of employment, a far cry from what it is today. Having 60% of your economy anchored in financial services won’t suffice in this new world business environment. There is a reality that countries such as Brazil, China, India, and others will have faster GDP growth than the U.S. but that is not a cause to abandon a U.S. investment strategy.

 Immelt also urged U.S. legislators to support broader research and development investments in the future technologies of alternative energy, efficient infrastructure and sustainability  He also challenged other U.S. firms to build more industry and government partnerships and to invest in the U.S., as well as other emerging economies. He admitted that GE and other U.S. companies may have outsourced too much, and turned over too many technological processes to foreign operations.

Finally, it was clear to me that Mr. Immelt understood the critical importance of having dedicated people, as well as a network of quality suppliers, regardless of geographic region. Heck, he even mentioned the words “supply chain”.

Immelt was energizing, and he made sense.  We need more CEO’s of this mold.

You can view this interview through the following link to The Charlie Rose Show.

Perhaps Mr. Immelt’s example might influence the financial news networks of CNBC and Fox Business to stop booking “talking CEO heads” in favor of those who can inspire, and energize, as well as lead.

So what was your reaction to this interview?

 Bob Ferrari

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More Positive Stories- Update Five

June 26th, 2009

It’s Friday and we all need a dose of positive news to start the weekend.  This is the fifth update to the series of posts I launched during the darkest days of the global recession, when there was literally no good supply chain news to share.  I don’t know about you, but I’m finding it easier to locate these positive tidbits which must be a sign that the bottom has come.

This week’s theme is focused on some positive in the midst of far negative news concerning U.S. automotive and discrete manufacturing industries.

The State of Indiana which was especially hard hit by the global recession as a result of its dependence on discrete and recreational vehicle manufacturing, announced a series of encouraging new developments.  They include a partnership among Electric Motors Corporation and Gulf Stream Coach to build a light duty electric powered pick-up truck, with the potential to create 1200 jobs by 2012.  Also, Autocar LLC announced a three year supplier deal with Balqon Corporation to develop and market zero emission heavy duty electric vehicles for on-road, short-haul applications.

VC mogul and Kleiner Perkins partner John Doerr, along with Ray Lane facilitated an investment deal that helped a group of Louisiana business people purchase a former General Motors facility in Ouachita Parish, Louisiana with the intent to turn the plant into an electric car factory. The deal is expected to add 1400 jobs.

General Motors announced a decision to locate a new small car plant at its existing facility in Orion Township, Michigan.  The decision was no doubt influenced by political and union pressures to invest in a U.S. small vehicle plant as opposed to importing these vehicles. The Orion plant was selected because of the high unemployment rate in the state of Michigan, as well as the plant’s existing capabilities to build smaller automobiles. GM was evaluating three other alternative U.S. plants prior to this decision.

Finally, in another related story, GM and joint Chinese venture partner Shanghai Automotive Industry Group announced that it delivered its two millionth Buick sold in China.  “It took eight years for Shanghai GM to sell its first one million Buicks, but only three years to sell its second one million units” stated Kevin Whale, President of GM China.  GM sales in China have grown nearly 34% from the same period a year ago, surpassing 670,00o units.  This is an obvious bright spot for GM and its Shanghai Automotive. The Buick brand has special significance in China. It first arrived in 1912 and became the chosen vehicle for China’s emperors and political leaders.

If you have other significant positive stories that you feel are worth a mention, send them along to bferrari at supply-chain-matters dot com.

Bob Ferrari

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Apple Does it Again in Supply Chain Fulfillment

June 23rd, 2009

Apple launched its latest 3G version of the iPhone over the weekend, and the company announced that it sold one million units by Sunday, June 21, the third day after its launch.

When it comes to excellence in all around supply chain capability we have to place Apple on the top of the benchmarking list.  Year after year, and product launch after product launch, the ability of this company to execute on product supply availability is just something to be admired.

A related article in The Washington Post (free sign-up required) points out the ” rising all boats’ effect in the market, namely all the market buzz around the iPhone has raised consumer demand for other smartphones such as the Palm Pre, in spite of a severe recessionary economy.

I recently commented on Palm’s challenge with the Pre, in the attempts of its supply chain to maintain availability of product during this peak demand where consumers now have more competitive choices in which phone to buy.  The Post article indicates that analysts believe that 100,000 Pres were sold the first weekend of its June 6th launch, a far cry from Apple’s performance, but none the less, encouraging.

Consistent supply chain execution by Apple will seem to be the biggest obstacle for its competitors, and a benchmark for all to try to emulate.

 Bob Ferrari

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Yet another Setback at Boeing

June 23rd, 2009

Well it has happened again at Boeing, another setback.  The company announced this week that the long awaited maiden test flight of the 787 Dreamliner jet will be delayed, which is certain to be disappointment to all of Boeings supply network partners. Here is a link to both the Business Week and Wall Street Journal articles.

This blog has provided many specific commentaries regarding Boeing setbacks, the latest being in February, Time to Move On at Boeing.  In that post, my observation was that while Boeing was in a highly enviable position to have over 800 planes on order backlog, recent setbacks reflected in a 10 week labor disruption, along with other incidents of supply chain outsourcing snafus, had placed the company in a negative light.  Essentially, it was time to move on, learn from the past, and get these planes delivered.

This latest delay brought on by what was reported as a need to reinforce certain sections of the aircraft is yet another disappointment for all involved.  Boeing’s supply chain partners will continue to be hurt with increasing production delays, and this is unfortunate for the entire industry.

Bob Ferrari

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Commentary on the State of U.S. Logistics- Part Two

June 22nd, 2009

In my Part One posting, I provided commentary relative to the recently released 20th Annual State of U.S. Logistics Report.  I shared what I believed were the three important takeaways from this year’s report, over and above the usual media headlines.

With two non-stop days of rain over the weekend, it was a great opportunity to dive more into the details of the report for more information nuggets.  In this posting, I’m going to comment on additional trends that I found to be noteworthy for further discussion and thought.

One area that really caught my eye was the increasing rise in warehousing costs.  The report indicates that warehouse costs rose 9.5 percent in 2008.  This was incremental to the 9.9 percent increase reported in the 2007 report, and amounts to a cumulative 19.4 percent increase over the past two years.   That is significant.  The report cites the cause of these increases as additional value-added services such as kitting, assembly, label printing and other services.  While I can understand and acknowledge fulfillment process postponement needs in shifting more services to warehouses, this level of increase doesn’t seem to make sense unless it is significantly offsetting other production related costs.  I would like to call on my distribution and operations management readers to share their impressions of what’s really happening with this trend. Should this be an area of ongoing concern?  I myself suspect that it may be, since so many of these services are provided by third-party logistics entities under the guise of cost savings.

One cannot comment on warehousing without also mentioning inventory.  As mentioned in Part One, in spite of dramatic and swift actions to decrease inventory, the inventory to sales ratio remains high.  The increases have occurred across all channels, wholesale, manufacturing and retail.  This needs to be an area of continued concentration by Sales and Operations Planning (S&OP) and supply chain planning teams in the coming months.  Technology will no doubt play a continued role in facilitating more advanced analysis and management techniques.

Another noteworthy trend was in the area of ocean container movement, and specifically two trends. The first is a continued existence of over capacity, and the second is the fact that there was a noted reduction in market share traffic to the west coast ports of Long Beach and Los Angeles.    The report bluntly states that: “the ports of LA/Long Beach are experiencing what may actually be a permanent reduction in traffic levels.”  The loss is attributed to other west coast ports making significant improvements in their infrastructure, but more troubling, the higher costs being imposed to shippers for environmental programs at these specific ports. I shared some commentary in March about the Clean Trucks Program and attempts by the ports of LA/Long Beach to shift fees to truckers as an incentive for cleaner trucks.  There is obviously some factors of economics that must still be played out in the quest for sustainability strategies.  The report also acknowledges the state of overall overcapacity, and predicts that the industry will probably not right itself until 2014 or 2015. That implies that we may continue to see different means for managing or dealing with idle ships, and further reinforces the reality that ocean container shippers will continue to have a bargaining advantage.

Looking ahead, report author and economist Rosalyn Wilson predicts an upcoming period of stabilization rather than recovery.  She describes a U shaped cycle where the bottoms currently being experienced may linger for some time. Her prediction is that U.S. logistics activity will not returning to pre-recession volumes until late 2010.  She also points to permanent structural change in consumer buying behaviors, brought on by continued declines in U.S. household wealth.  As I stated in my posting on pending structural change in supply chain, recovery in supply chain activity will occur quicker in the developing regions of the BRIC countries, as opposed to any U.S. led recovery.

Finally, regarding action planning over the coming months, Ms. Wilson cites the most important advice as staying proactive vs. reactive.  “Analyze your supply chains, re-examine your supply chain partners and the risks associated with them, increase productivity, and add new technology…. Re-evaluate your relationships with your supply chain partners and strengthen them.”

Very good advice for all.

What’s your reaction?  Have you briefed your senior management regarding  the implications of current state of U.S. Logistics/

Bob Ferrari

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