On Wednesday, the White House blog announceda long overdue initiative, A National Strategy for Global Supply Chain Security. Overall, Supply Chain Matters applauds this initiative, and we urge our fellow supply bloggers, chain social media influencers, and professional groups such as CSCCMP to do the same.

The initiative, outlined in a White House PDF document, acknowledges that:” The global supply chain system that supports trade is essential to the United States’ economy and security and is a critical global asset.”  The effort is directed at articulating policies to strengthen inbound and outbound supply chains within the U.S. and its trading partners. The outlined document provides further details including the key objectives needing to be addressed in an implementation plan which readers can review.

The strategy includes two goals:

1. Promote the efficient and secure movement of goods, protecting the supply chain from exploitation and reducing its vulnerabilities to disruption.  This goal is described as strengthening the security of physical infrastructures, conveyances and information assets.
2. Foster a global supply chain that is prepared for, and can withstand, evolving threats and hazards along with recovering rapidly from any disruptions.  This particular goal umbrellas the management of overall supply chain risk through layered defenses.

The timetable for this initiative is rather aggressive and calls for the Departments of State and Homeland Security to provide recommendations in six months, with implementation of recommendations to begin immediately upon its release.  We believe that one of the most important aspects of this initiative is a White House encouragement of input from key stakeholders, including governmental and private sector interests and agencies.  The Department of Homeland Security has setup a custom web site that outlines how key stakeholders can submit recommendations.

What immediately concerns us is that this long overdue initiative has to address two very major issues, either of which would justify its own set of comprehensive initiatives.  This includes the threat of a major disruption event such as severe natural disaster or terrorist related, as well as countering a growing proliferation of goods that are illegitimate and not what they are represented to be.  The other aspect is that six months is not a lot of time to gather and assimilate stakeholder input, but we suppose that a longer timetable would only elongate this effort without near-term governmental actions in place.

Our hope is that industry bodies such as the Supply Chain Risk Leadership Council and the Global Risk Network shepherded by NYU will elect to be active contributors to this effort since each has developed much key learning and recommendations on supply chain resiliency and threats.

A final observation relates to the current toxic political climate that surrounds Washington DC.  No doubt, some on the right may elect to seize on the headline of this initiative as an election year political stunt, or another effort directed at more government regulation and oversight.  Supply Chain Matters emphatically declares that this initiative is much too critical to be tossed into the current toxic political discourse, and is rather one of the most important efforts needed to insure the economic viability of the U.S. economy.  Reflect back on the incidents of Hurricanes Katrina and Rita that previously impacted the U.S. Gulf coast and the tragic tsunami and floods that impacted Asia in 2011.  Consider the current vulnerabilities of the U.S. west coast or southwest, the U.S. power grid, and other potential threats.

In the coming months Supply Chain Matters will do its part to detail more of the activities and highlights of this effort.

Let us all enthusiastically get behind the President’s initiative on protecting global supply chains.

Bob Ferrari

Once more, Apple has rocked Wall Street and financial media with spectacular fiscal Q1 financial results, again fueled by the company’s supply chain capabilities.  However, with each passing quarter, that supply chain becomes subject to more visibility, not all of which will remain complimentary.

The numbers are staggering even in context to the fact that the quarter included the holiday selling period. They included a 118 percent year-to-year increase in profits amounting to $13.1 billion on sales of $46.3 billion.  There is commentary that Apple could once again overtake Exxon Mobil as the world’s most valuable company in terms of market value. Internationally based sales accounted for 58 percent of the quarter’s revenue indicating the increased tapping of emerging markets as consumers around the world succumb to the Apple experience.

In terms of output volumes, Apple delivered 37 million iPhones and 15.4 million iPads during the quarter, sustaining an average fulfillment volume of over 402 thousand iPhones and over 165 thousand iPads per day. These are volumes that can challenge any global based supply chain. The iPhone 4S is now available in 90 countries across multiple channels. Company executives also admitted that the company struggled to meet demand and could have done better if it could have ramped production. The iPhone was noted as on ‘significant’ backlog at the end of the quarter, and the unavailability of supply has been cited as a cause of rioting at Apple’s new Beijing outlet as consumers and black market profiteers sought new iPhones.

Gross margin was equally impressive growing to 44.7 percent compared with 38.5 percent one year ago. Wall Street has been taken back with the fact that the company generated $16 billion in free cash flow during the quarter, along with a near $100 billion cash balance. In its reporting, the Wall Street Journal made note that Apple not only benefitted from strong demand but also lower component costs, highlighting how the company’s supply chain remains a distinct advantage. Keep in mind that the consumer electronics industry has been dealing with certain supply shortages brought about by the compounding effects of the Japan tsunami and Thailand floods. Apple’s influence over suppliers made its mark and volume remains a considerable influence.

The lens on Apple naturally turns to what comes next and how can it sustain these spectacular results.

For its supply chain, the lens is of course maintaining a steady stream of supply while supporting a new edition of the iPad later this year. As the company’s distribution turns more toward international channels, the risks will increase. Company officials see China as a huge untapped opportunity but the reality of being the most expensive smartphone implies either more prepaid plans and distribution channels or a scaled-down version. The lens on supplier social responsibility policies has also widened considerably.

Supply Chain Matters provided previous commentary related to Apple’s recent release of its 2012 Supplier Social Responsibility Report.  This weekend, New York Times columnists Charles Duhigg and Keith Bradsher penned one of the most revealing articles in our memory concerning the supply chain capabilities of Apple.  The article, How the U.S. Lost Out on IPhone Work, (paid digital subscription or free metered view) extracts observations from former employees and others as to why Apple elects to source all of its major manufacturing operations in China. It describes one incident where 8000 workers at one of Apple’s contract manufacturers were awakened after midnight and started a 12 hour shift fitting last minute re-designed glass screens into frames to support iPhone volume production.

Bottom line, Apple believes that China provides far more speed, flexibilities and far more skills than can be garnered elsewhere, including the U.S. Corning’s CFO is quoted: “The consumer electronics business has become an Asian business. As an American, I worry about that, but there is nothing I can do to stop it.   Asia has become what the U.S. was for the last 40 years.”

The Times article raises some profound conclusions as to the definition of supply chain flexibilities, and we urge our readers to absorb all that is within the article.  Apple employees and management appear to demand total flexibility without regard to the worker ramifications associated with such directives. At the same time, they enjoy the healthy financial benefits in corporate profits, bonuses, and over $2 billion in stock awards. Apple CEO Tim Cook, the architect of the current supply chain received a 2010 compensation package valued at $59 million, while the average Chinese factory worker garners $17 per day. Not many of these Chinese factory workers could afford to buy a new Apple product.

From our perspective, the most profound cited quote came from an unnamed current Apple executive who states that the company does not have an obligation to solve America’s problems, but rather making the best product possible. Having its pile of cash grow even more each quarter only leads to more perceptions of greed and lack of national or social responsibility as U.S. job growth continues to falter.

Readers no doubt are aware of the technology vendor hype concerning the need for supply chain flexibility.  The looking glass into Apple’s supply chain is perhaps revealing a real-world definition.

The Times columnists began their article by citing an event last February and the question that President Barrack Obama posed to Steve Jobs: What would it take to make iPhones in the United States?  We believe that Apple, and all of us in the supply chain community need to think long and hard on that question.

What’s your view? Have countries such as the U.S. any realistic opportunities in closing the supply chain capabilities gaps in consumer electronics and high tech?

Bob Ferrari

©2012, The Ferrari Consulting and Research Group LLC and Supply Chain Matters.  All rights reserved.

We have all been reading the tragic circumstances surrounding the accident involving the cruise liner Costa Concordia, and we at Supply Chain Matters posted our related commentary, Should We Be Concerned About Ship Safety?

Earlier this week, the Wall Street Journal printed edition published the article Carnival CEO Lies Low After Wreck.  (paid subscription required or free metered view) The article begins with the question: Where is Mickey Arison?  Mr. Arison is the chief executive and chairmen of Carnival Corp., which owns ten cruise lines, one of which is Costa Crociere, the designated operator of the Costa Concordia. According to the WSJ, it seems that as events continue to unfold, Mr. Arison is allowing Costa Crociere CEO Luigi Foschi to be the public face to corporate responsibility and to account for the on-scene response. Mr. Foschi has already blamed the ship’s captain for causing this tragedy.  The article notes a Carnival company statement that Mr. Arison is “in continuous contact” with Costa executives, but the CEO decided that the Costa team is best suited to handle the response.  A longtime acquaintance of Mr. Arison is quoted as stating: “He wants to distance Carnival from this disaster.” “If he talks, Carnival is Speaking.” Others are quoted as to Mr. Arison’s calming, behind the scenes influence.

All of this however, once again raises the question of corporate reach-out in times of crisis, especially considering this new era of enhanced social media profiles.  Although remaining out of public view, Mr. Arison has leveraged company news releases and has utilized Twitter to express condolences to the victims and families involved in the incident. He has also provided “personal assurance” that Carnival would “take care” of passengers, crew and victims. The WSJ notes that some have questioned the wisdom of Mr. Arison not taking a more public role in the wake of this tragedy, and one crisis communications consultancy executive notes that you cannot be invisible when the spotlight is shining.

To provide one example, my wife and I have been on previous cruises from rival Norwegian Cruise Lines and both just received a direct email message from that company’s CEO stating safety as the number one priority and further providing a listing of that company’s existing policies and measures directed at assuring safety and training of captains and crew.

Supply Chain Matters has provided previous commentary on the leveraged use of social media tools when corporate crisis occurs, specifically the early 2011 incident surrounding Rolls Royce PLC’s Trent 900 series aircraft engine was involved in a near tragic in-air uncontrolled blowout involving a Qantas Airways A380 super jumbo aircraft. During the events related to the actual incident, and later events tracing the cause and remediation, Rolls Royce executives were publically silent, choosing instead to allow airline senior executives such as the CEO of Qantas to be the public persona of the incident and its consequences to the aircraft’s safety.  The complete research report involving this particular incident can be downloaded free of charge in our Research Center.

Business and supply chain executives, like it or not, exist in a new and highly viral medium of communication fueled by social media and mobility.  In tragedy, those equipped with smartphones can beam live video of an incident in a matter of minutes, and victims can leverage social media applications such as Twitter and Facebook to express first-hand emotions. A corporate response and persona is becoming a mandatory component to these incidents, along with timely communication of what is being done.

In the specific case of Carnival, we believe that readers can and will form their own opinions relative to the public profile and subsequent actions of Mr. Arosin.  The fact that high profile business publications now openly question a senior executive’s presence in the social based narrative is the more important takeaway.

Travel counselors and future cruise consumers are savvy enough to know or to figure out which cruise lines are owned by which large operators, and as the post-accident investigation and consequences become more apparent, will easily connect the dots.  Consumers will henceforth add safety considerations to their cruise vacation selection process.

The lesson is that the right combination of personal and social media outreach during and after a crisis incident, along with a narrative of concern and active response, is becoming a key component to any risk disruption and mitigation plan.

Bob Ferrari

©2011 The Ferrari Consulting and Research Group LLC and Supply Chain Matters.  All rights reserved.

The Supply Chain Matters Quarterly Newsletter is an added reader supplement to this blog.  This newsletter provides for a broader analysis of our daily and weekly commentaries, with an emphasis on this past quarters events and their implications for global supply chain business process and information technology needs.

The Q4-2011 newsletter was distributed today, so please check your email inbox to access and read your copy.  Reader feedback is always appreciated.

Our themes  for the last quarter of 2011 included a highly uncertain global economy providing increased challenges for predicting product demand and resource needs as well as another highly visible major supply disruption incident, that being the devastating floods in Thailand. Events and accelerated forces continue to stress multiple industry supply chains, including those supporting the PC industry, pharmaceutical, aerospace and alternative energy.  We also see clear signs of a building renaissance for U.S. manufacturing.

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Bob Ferrari- Executive Editor