Supply Chain Matters

As a global supply chain blogger, I’ve been commenting on numerous product recalls that have led to supply chain disruption or major hits to a product brand.  There have been numerous public incidents involving basic foods, medicines, furniture, you name it, it just continues, which is cause for serious concern.  These past days, however, it really hit home.  Now, my namesake is involved. One of the most sought after and highly expensive supercars, which was described as the ‘ultimate toy for motoring millionaires’, has been voluntarily recalled.

I’m specifically addressing the Ferrari 458 Italia, which has a top speed in the area of 200 miles per hour and will set you back a mere $253,000, direct from factory. This magnificent vehicle is apparently suffering from a series of spontaneous fires.  Consequently, the 458 is nurturing a new Google search term, ‘Flaming  Ferrari.’

Ferrari, now a division of Fiat Group,  is recalling 1,248 of these vehicles after six burst into flames. The recall is being described as one of the largest in Ferrari history, and thus far, involves specific fire incidents occurring in China, Europe and the U.S..  According to Ferrari, it seems that during manufacture, some of these cars were fitted wrongly with glue that could leak on to the exhaust. The glue will be replaced by metal fasteners, which should be little consolation to a prestigious customer who paid tons of money for a new 458.

Talk about an interesting photo, how about the following ‘Flaming Ferrari’s from across the world:

Burning Ferrari 458 in Paris

Burned Ferrari 458 in California

Burning Ferrari 458 in Switzerland

We can sometimes describe a bad day, but perhaps the privilege of watching your $250K plus sports car incinerating itself may qualify in the real bummer category.

Ferrari, of course, had an official statement which was noted in financial media.  “It happens sometimes that cars catch fire.” Read it again folks, I’m not making this up.

It seems when driving your Ferrari, you should expect an occasional problem, especially if you drive loose and fast. The Financial Times humorously noted at the end of its print edition article that “fire extinguishers are an optional extra.”

An entry penned by Marin Evans of the UK based Telegraph quotes a sports car expert as quick to note that is not unusual for new owners to exhibit a few initial crashes as they develop a feel for the new vehicle. I suppose therefore the unanswered question is whether these fires are over and above the usual ‘I need to test this monster’ period, perhaps within the normal learning curve.

This Ferrari (the author) would certainly conclude that today, supply chain risk has no boundaries, not even involving a namesake.

For the time being, please take note that Supply Chain Matters and this author, have no direct relationship with Ferrari cars, including its public releases concerning recalls.  As is sometimes said, these things happen.

I guess!

Bob Ferrari

I’m again pleased to report that the Supply Chain Matters blog established another record month of readership in August of 2010, and I once again thank all of readers for their loyal following.  We also extend thanks to our sponsors for their continued recognition of quality thought leadership in this exploding medium of social media.  Please take a moment to read about our sponsors’ capabilities and thoughts related to supply chain business processes and technology.

The blog has experienced a 41 percent increase in visits, and a 53 percent increase in unique visitors in the past three months.  Nearly twenty thousand readers have added this blog to their ‘add to favorites’ category, which really pleases us.

I would also like to extend a shout out to Jason Busch, founder and editor of the Spend Matters blog for his very gracious comments regarding Supply Chain Matters. Jason was the original pioneer in this medium and provided inspiration to get this blog underway, for which I will always be grateful.  On a humorous note, despite what Jason says, I did not rip-off the “matters” naming when creating this blog.  As I often pen, I sincerely believe in the fact that supply chains do matter.

We still have a limited amount of blog sponsorships available, including the prestigious Gold level sponsor.  You can send an inquiry by clicking the ‘Sponsorship Information’ page in our Pages section, or sending an email to info at supply-chain-matters dot com.

Bob Ferrari

Executive Editor

Next week I’m going to be attending the Sales & Operations Planning Summit conference being held in Boston on September 9 thru 10. Supply Chain Matters will be providing commentary and I will especially be seeking out the current state of S&OP practices across various industry settings, as well as common process related challenges.  No doubt there will be many that are related to cross-organizational alignment and change management.   The other positive for this author is that I will not have to get on a plane to attend, but then again, will have to put up with Boston traffic congestion.

The planned agenda of presenters is rather interesting and includes representatives of Coca Cola, Jarden, Nikon, Research In Motion, Sharp, Stanley Black & Decker, Sony, among others.

If you would like more information or interested in registering, you can click here.  If you plan on attending, send me an email or seek me out, since I would enjoy meeting and speaking with you.

Bob Ferrari

The following posting can also be viewed and commented upon on the Kinaxis Supply Chain Expert Community web site.

A few weeks back, I shared a Supply Chain Matters commentary , Parts Shortages in the Mainstream Press-Are you actively educating senior management?.  This commentary noted how financial and other media were featuring more and more articles noting that critical parts shortages among a variety of industries were affecting major manufacturing supply chain activities, and in some cases, making an impact in financial results. In that commentary, I noted that now is the time to keep senior management constantly informed on current demand and supply imbalances, which again reinforces the overall importance that a viable sales and operations planning (S&OP) process can demonstrate.

A tip of the hat goes to Lauren Bossers of Kinaxis for calling my attention to a couple of additional  articles that also bring these points to reality.  An article featured in the Dallas Morning News notes that critical parts shortages are effecting many popular smart phone producers.  While the article points out that Texas Instruments, a supplier of several component chips for the DroidX, EVO and  iPhone4, is struggling to keep pace with customer demand,  it is far from being the only company with supply chain challenges. The mobile manufacturers themselves are responding by switching to other components that may have more availability.

To drive home the importance of S&OP in this current environment, an article published in CFO looks at how the CFO of Oakley discovered the benefits of improved alignment of cross-functional teams, as well as the reduction in debates as to who has the most up-to-date data. The article reinforces what I have often found as well, that sales teams will ask for ultimate flexibility to make the sales plan.  However, an occasional ‘nudge’ from the CFO can be a rather grounding.  The article also mentions another interesting, but sometimes hidden benefit to S&OP, a more timely process for grounding a company’s financial plan with feedback loops on supply and demand imbalances.

Firms sometimes abandon challenging and highly visible processes when the stakes on potential bad news increases, but, it is precisely in these current challenging environments when these types of processes have the potential to deliver their most effective benefits.

What about your organization?

Are you experiencing S&OP benefits?

Bob Ferrari

In anyone’s lifetime, there are just a few events that can be characterized as ‘once in a lifetime’.  This weekend, both my wife and I experienced such a thrill. The weekend featured the Boston Portsmouth Air Show, with the main headliner being the famous U.S. Navy Blue Angels.  But that was not the only awesome highlight of this show.

I was fortunate to receive a very gracious invitation from Oracle, that was featuring noted stunt pilot, Sean Tucker, as part of the Team Oracle presence and billing at the show.  When my wife and I checked in at the Oracle chalet, we were asked if we wanted to volunteer to be part of a designated team of  ‘pole holders’.  Naturally we sought clarification of what that meant. Among his numerous talents as an experienced pilot, Sean Tucker performs a maneuver during his exhibition where he flies about 15-25 feet above the main runway, between three sets of Oracle bannered poles tethered together by a colorful ribbon. ‘Pole holders’ hold these poles as Sean flies past at a few hundred miles-per-hour.

After this explanation, I looked at my wife who to my surprise, immediately stated, “Absolutely, sign us up.”  I replied “Don’t we want to talk about this?”, but she was hearing none of that.

After a rigorous safety briefing, Sean’s able team explained to the team of designated pole holders that we were to walk about a half-mile out to the main operating runway with our poles.  They then explained that the next queue would be to raise our poles and extend the ribbon from pole-to-pole.  As a final stunt, Sean would fly his plane  (noted in the attached picture) under each of the extended poles. He would then loop around the field and make a second pass, this time, cutting all three ribbons with his wing tips.  “With his wing tips.. O…K…?”

As all our team members walked out to the runway, all I could think of was all those numerous warnings that I heard on airliners when taxing to and from boarding gates.  “Please keep your seat belts fastened because we are on an active runway.”  We only had our two feet on this runway!

After taking a deep breadth, we watched Sean perform a magnificent demonstration of stunt flying and then the command came, “Raise your poles.” As Sean’s bi-plane approached, my first thought was that I hope that he was having a good day.  The plane dipped, and under the banner he flew in a flawness manner.  The noise was daunting, but the ‘rush’ was incredible.  Next came the turn for the second pass and my wife and I held that pole in a white knuckled grip.  We braced ourselves as the red blur approached, and to our astonishment, we hardly felt any pull as the ribbon was severed at 25 feet off the ground.  Incredible and a thrill of a lifetime!  Unfortunately, I was not able to bring my Flip videocam to capture the moment,

As we were walking back the crowd gave us very gracious applause.  My wife turned to me and exclaimed, “Aren’t you glad we volunteered”.  “You bet!!! Yahoo!!!”

Our thanks go out to Team Oracle for this fabulous experience and to the organizers of the Boston Portsmouth Air Show for organizing a truly awesome event.

Bob Ferrari

There have been many consistent themes in our continuous commentary on Supply Chain Matters and one of the most consistent over these past months has been the supply chain setbacks that have occurred within Boeing’s infamous 787 Dreamliner manufacturing program.  All you need to do is type in ‘Boeing’ or ‘Boeing supply chain’ in this blog’sSearch box, and you get to review the full litany of commentary.  Our latest posting was at the end of July, commenting on the fact that Boeing’s CEO finally admitted the key importance that Boeing has on its supply chain capability, which was a gross understatement of the obvious.

Today there is more disappointing news.  Boeing has now announced that it has to postpone the planned first customer delivery of the Boeing 787 into the middle of the first quarter of 2011.  Mind you, for most of this year, after numerous setbacks and postponements, Boeing’s senior management had been assuring stockholders that first customer ship would occur by the end of 2010.  This latest setback was attributed to engine supplier Rolls-Royce PLC, who’s Trent 1000 engines were specified as power plants for initial customer All Nippon Airways (ANA).  A statement released by Boeing notes that this delay: “follows an assessment of the availability of an engine needed for the final phases of flight test this fall.” The Trent engine suffered a failure while being tested on a test bed in early August.

An article penned by noted aerospace blogger Jon Ostrower on the Flightglobal site notes that compounded issues with workmanship problems with the aircraft’s Alenia Aeronautica-built horizontal stabilizer and its Rolls-Royce Trent 1000 engines led-up to this latest setback. Ostrower also provides details on the subject engine issues.

The most patient of all related to this ongoing litany has been designated first customer ANA, that has had to deal with an anticipated new addition to its fleet that is now three years behind schedule.  The Wall Street Journal noted in its article that ANA called the delay regrettable but added, “However, we trust that the time will be used to deliver the best possible aircraft in the shortest possible time frame.”

We at Supply Chain Matters express praise to ANA for their eloquence, since ANA has every right to be frustrated at this point. (We refrained from using a more down-to-earth six letter term that begins with a ’p’)  The sole purpose of the supply chain , as we know, is fundamentally serving the best needs of customers.

The delay announcement came very late in the evening, Seattle time, no doubt after a very long day of discussion and deliberation among Boeing’s top management. To Boeing’s credit, it has to deliver a safe and reliable aircraft. We have to wonder, however, as to which Boeing executive (s), if any, will suffer the next fall in this latest setback. Suffice it to say, Boeing’s senior management and supply chain teams remain under a very sensitized looking glass. We all need Boeing to succeed, and soon!

Bob Ferrari

Over on Sourcing Innovation, Sudy Bharadwaj, technology executive most recently with Inovis, has penned a guest posting, Is there a T in BPM? ,  that those of you involved in business process management (BPM)  initiatives may want to check out. Based on his 20 tears of experience, Sudy offers some rather practical advice on how teams should successfully undertake such initiatives.

The pointers I especially liked and would reinforce with our readers, are to have a thorough understanding of the subject process before getting into a discussion on technology alternatives.  Sudy’s other wise counsel lies in avoiding the use of internal acronyms in describing the tenets of any process.  I can’t tell you how many times I have encountered teams who insist in communicating in the internal acronyms that only they understand.  Using generally understood industry or supply chain terms forces teams to clearly articulate the purpose and expected deliverables of a given process, and as Sudy notes, can also aid in better communication and understanding.

Bob Ferrari

Readers of this blog are well aware that unlike other blogs, I tend to limit specific rants to just a few; specifically issues or concerns that I feel may well be critical and important to industry and their supporting supply chains.  One of those rants has been an ongoing concern relative to what I feel is a lack of awareness and concerted action by U.S. legislative and executive leaders on identifying and fostering a strategic manufacturing and supply chain strategy for U.S. based industry. This week, I have a bit more optimism that the Obama Administration has finally “got-it”,  acknowledging the importance of a vibrant and competitive U.S. based supply chain network.

I was pleasantly surprised to read a Huffington Post featured commentary penned by Jared Bernstein, who serves as chief economist and economic policy advisor to Vice President Joseph Biden.  Bernstein utilizes the Vice President’s recent trip to a Chrysler assembly plant in Toledo, Ohio to take note of how important a role supply chain plays in employment and value-chain strategy.  Bernstein begins: “When it comes to auto companies, we often focus more on the lake than the streams and rivers. ..Much of the attention to how this critical is faring focuses on the end-of-the-line assembly plants, and less on the suppliers that provide the parts to be assembled… But in fact, for every worker in the assembly plant, there are three workers in the supply chain.”

He further notes that in the year before the Obama Administration took office, the U.S. auto industry shed 431,300 jobs, but in the 13 months since Chrysler and GM emerged from bankruptcy, auto industry employment has increased by 76,300 jobs, of which 40,000 is estimated to come from suppliers.

Since the beginning of the global recession, I have been penning my view that to save a key industry one needs to have focus on all the strategic elements of its value-chain.  Contrary to some journalists and bloggers, I advocated for the financial rescue of both Chrysler and General Motors for the sole purpose of saving jobs and capabilities among the industry supplier base.  Earlier this year, in the posting What Really Threatens the U.S. Auto Industry?, I further noted that while very uplifting news was coming out of Detroit’s Big Three, industry observers were noting that U.S. automotive suppliers were suffering from too much financial instability and too much capacity.  The Obama Administration, specifically Ron Bloom, The President’s advisor for manufacturing made it clear that industry consolidation, as much as 30 percent, needed to happen. I suppose we should phrase that as a “thin the herd” strategy.

Eight months later, the picture among the automotive supplier community seems far more optimistic.  Surviving suppliers are now expanding their presence within growth-oriented emerging markets, and many tier one suppliers are experiencing operating profitability. Some are branching out to other growth industry, and all together this is positive news.

Bernstein notes that the story is not over, that the auto industry is moving in the right direction, but there is still a ways to go.  That’s stating the obvious.  Beyond the political rhetoric, the effort has to addrss more than the automotive industry, to include alternative energy, aerospace, high technology and others. This also cannot be a political process, but rather a joint government and industry process.

The political system indicates that they “get-it”, supply chains do matter.  If the Vice President and the President are inclined to take input from this blogger, here’s another suggestion on direction.  Appoint more experienced operational and supply chain professionals to your advisory and policy teams addressing a world class manufacturing and supply chain strategy framework for the U.S., and include some of the country’s top manufacturing firms in that effort.  My frustration has been that Wall Street related executives have had too large a voice in strategy thus far, and while thinning the herd might have been appropriate, supporting and fostering world-class capabilities are the real goal.  The fact that GM’s largest shareholder, namely the U.S. government, seems content to have another former private equity and Wall Street executive now lead GM into its renewal and growth phase is a troubling sign.  Let’s make the growth and renewal phrase about world class value-chain capabilities and operational excellence.

Bob Ferrari

August 2010 is quickly turning out to be quite a month for consumer safety concerns regarding the overall safety and quality of U.S. food-related supply chains. Governmental agencies are under the gun to step-up inspection and enforcement and are seeking more jurisdictional power as a litany of urgent alerts permeates news and social media sites.

A lot of attention and commentary have been directed at the massive recall of eggs that was announced on August 13, and now that incident involves over 380 million recalled eggs.  The U.S. FDA reports an ongoing four-fold increase in the occurrence of Salmonella Entertidus that led-up to this recall incident. In our commentary on Supply Chain Matters we questioned why an egg enterprise or agri-business with such a wide distribution of product and private brand volume could experience this type of occurrence without a rigorous quality and inspection program. Former U.S. secretary of labor and University of California Professor Robert Reich penned a scathing litany featured on both The Huffington Post and his own web site, concerning the history of violations involving Jack DeCoster, owner of various nationwide egg farms including the involved Iowa farms.

Adding more to consumer concerns, this week, consumers were alerted to an FDA Class 1 recall involving 380,000 pounds of deli meat products that may be contaminated with Listeria monocytogenes.  Zemco Industries of Buffalo New York is voluntarily recalling product which was distributed to nationwide Wal-Mart stores, as well as delicatessens, where they were processed into sandwiches. The products in question were produced on various dates from June 18 to July 2, 2010.  The problem was discovered in a retail sample collected by the State of Georgia that tested positive for a strain of listeria. To date, the USDA has received no reports of human illnesses.  According to a Wal-Mart press release, upon learning of the recall by Zemco, all Wal-Mart stores were instructed to remove select Marketside Grab and Go deli sandwiches from store shelves.

The FDA also issued an urgent nationwide recall of frozen mamey fruit pulp sold under the La Nuestra and Goya Foods brands because of an epidemiologic link between an ongoing outbreak of Salmonella Typhi infections and these products. The U.S. CDC reports that at least 9 people in California and Nevada are ill with typhoid fever caused by Salmonella Typhi.  Consumers who have these products in their homes are being urged to discard them immediately and further inquire as to what brand of mamey products are being used in drinks processed at juice stands and retail stores.

A select batch of pistachios and pistachio kernel products that were distributed by California Delights Inc. have been voluntarily recalled due to fears of salmonella contamination.  The products were shipped to two other distributors, Austinuts Wholesale Inc. and Glory Bee Foods, Inc. , and were re-packaged and sold to stores and bakeries within the states of Oregon, Texas and Washington.  Austinuts received two shipments of suspected product that were re-packaged as pistachio kernals, deluxe nut mix, and gourmet nut mix.  GloryBee Foods recalled its Patty brand 5 pound bags of whole raw pistachios, and 25 pound boxes of Special Commodities brand whole raw pistachio kernals.  Keep in mind that a previous nationwide recall of pistachios over a year ago impacted over 80 products and multiple brand names.

August may well turn out to be a watershed month in triggering concerns about the breakdown in quality processes involving global based food supply.  Many have noted and recognized, including the current head of the FDA, that the U.S. government has limited resources to monitor and inspect global-related flows of food products.  My belief is that the overall zeal of supply chain cost reduction efforts across many industries, including those dealing with most sensitive of products, is taking a visible toll in the breakdown of quality and conformance. I’ll be commenting more on this trend in upcoming writings.

In the meantime, the consumer goods and food industry has to self-police itself or risk more daunting regulation and control, as consumers reel from a litany of disturbing events.

Bob Ferrari

The following posting can also be viewed and commented upon on the Kinaxis Supply Chain Expert Community web site.

The fallout from the indictment and arrest of Paul Devine, a global supply manager at Apple charged with wire fraud, money laundering and unlawful monetary transactions involving more than one million dollars in alleged kickbacks, has continued since we first commented on this incident.  As I pen this entry, a Google search notes over 1200 web entries directly related to various aspects of this incident. Commentaries in the blogosphere and among academics are focusing on the implications for procurement and supply planning strategies, and we all have to ponder whether this one, highly visible incident is just another sign of the state of the times or whether this is a watershed incident leading to more focused ethical standards.

Reports in various global financial publications such as the Financial Times and The Wall Street Journal are focusing on the general reactions among specific suppliers involved, as various companies respond to protect either legal interests or reputations in the market.  According to the Financial Times, Kaedar Electronics of China, a unit of Taiwan’s Pegatron Corp. and Cresyn of South Korea admitted it benefitted from the information provided by Mr. Devine. The article notes that “Cresyn and Mr. Devine signed a “consulting services agreement” spelling out what Mr. Devine was required to leak, including Apple product roadmaps and sales forecasts, in exchange for $6,000 in monthly payments.” The Times notes that Pegatron had begun its investigation and had suspended the Kaedar manager allegedly involved. Meanwhile a Wall Street Journal article notes that a Pegatron spokesperson acknowledged that Kaedar did pay a brokerage commission to an intermediate trading company for its business with Apple, but declined to disclose the amount of money paid. Others suppliers reportedly involved are indicting that such practices are not condoned.

No doubt, the coming days and weeks will provide even more opinion and commentary on the implications of this incident, and whether it sends a wake-up call on the state of ethical procurement practices when supply chain business pressures and various business cultures collide.  While some may deflect such remedies toward the moral principles or motivations of the individuals involved, or on future hiring and selection policies, in my view, hiring policy has little to do with the underlying root cause of this episode.

Individuals respond to the business culture and the goals and organizational expectations practiced within their firms.  We all know that Apple surrounds itself with a culture of extreme secrecy to protect itself from competitors.  Suppliers want an edge on their competitors, and will sometimes go to extraordinary means to secure protected information that provides that edge.  To change all of this, all members of the value-chain need to equally share in the risks and rewards of success, and further need to know where the lines are drawn. Apple has a well articulated Supplier Code of Conduct, and to its credit, is taking very decisive action in dealing with this incident.

I come back toward the needs for insuring that proper risk and reward strategies are practiced and properly monitored among all in the value-chain, and with all professionals involved. Confidentiality and the safeguarding of key information has its place and all parties need to understand that certain behavior and practices will not be tolerated.  The anticipation of lucrative business does not warrant unscrupulous behavior.

What’s your view?

Bob Ferrari