The Detroit Free Press last week featured a well-timed article written by Bill Ford, the Executive Chairman of Ford Motor Company, entitled Why Manufacturing Still Matters. Mr. Ford’s current concern is that maintaining manufacturing capability in the U.S. absolutely matters not only in producing jobs and tax revenue, but in fostering innovation and new technology. I could not agree more.  I found this quote to be the most powerful takeaway from the article. “Our home team – America – can no longer take its economic leadership for granted.  Other countries have strategic plans and carefully thought-out growth policies.  We don’t have a plan, and sometimes it seems we don’t have a clue”.

Coincidentally, in the backdrop of this week’s financial crisis, the U.S. Congress did pass a $25 billion loan subsidy bailout for the three major U.S. auto companies, Ford, General Motors and Chrysler, and several of their suppliers.  This legislation provides so-called loans that would allow each of the big three to borrow money at interest rates as low as 4 percent, and have five years time to start repaying the government back for these loans.  Indications are that there are few strings attached as to where these companies can apply this money, and we would all hope that based on Bill Ford’s eloquent article, that some of these monies would be invested in new manufacturing capability. Interesting enough, the same industry lobbying group that influenced the legislation is also seeking another $25 billion in loans, but the political climate right now is probably not the best for implying bailout.

Rather than adding more political commentary as to why U.S. legislators continue  to prop-up specific U.S. auto companies that have a legacy of being non-competitive in fuel efficient products and cost-competitive manufacturing capabilities, I will rather take to heart the spirit of Mr. Ford’s comments.  I would propose that if there is going to be any consideration of another $25 billion legislative proposal, that it instead be directed at developing a U.S. long-range plan for manufacturing innovation and capability that would be available to all U.S. companies. One would think that Mr. Ford and all of his other auto industry executive colleagues would take to heart the message of having a carefully thought out U.S. strategic plan available for all U.S. industry. Isn’t that what America is all about, all boats rising!

Bob Ferrari

In a previous post, I provided a warning about the supply chain disruption impacts of Hurricane Ike that struck the U.S. Gulf coast.  While the overall destruction was not as bad as could conceivably happen, the cumulative impacts to energy-related supply chains are still occurring as I pen this posting, and caution is still advised as to damage to the overall infrastructure.

Articles in the Financial Times indicate the overall extent of the disruption.  As much as 20 percent of U.S. oil and gas production, as well as refining capacity was lost for over two weeks, and the industry continues to struggle to maintain normal supply. Both Hurricane Gustav and Ike collectively destroyed 52 offshore oil platforms, and severely damaged 33 others.  Four drilling rigs were also destroyed, and one was also severely damaged, along with six gas transmission pipeline systems. Six refineries remained off-line, with 27 others now in stages of re-starting or raising output to normal levels. The U.S. government released more than one million barrels of oil from the Strategic Petroleum Reserve to ease shortages, but still must be refined and distributed.

Oil refiners and distributors faced with a difficult demand and supply imbalance, were forced to divert fuel from other markets to ensure adequate supply to the emergency areas.  As a result, gasoline filling stations throughout the Southeastern U.S. are now experiencing shortages, with long lines and frustrated consumers seeking ways to fuel their vehicles. With prolonged power shortages, residents and businesses in the greater Houston and Galveston areas scrambled to purchase backup generators. Gasoline prices in the Houston Texas area hit $5 per gallon earlier this week, but gasoline prices for the remainder of the U.S. have only spiked marginally thus far.

The planning for supply chain disruptions often involves understanding of the various scenarios that can occur as a result of the specific disruption.  Supply chain planners often need the ability to simulate and analyze potential scenarios, as well as have the tools and visibility needed to quickly respond to demand and supply imbalances within markets or regions.

Readers of Supply Chain Matters from the Southeast U.S. will no doubt be able to relate to the effects of this problem.

 Bob Ferrari

The more I observe the incidents of critical product recalls involving highly sensitive food and drug related supply chains originating from China, the more outraged I, and all of us should become regarding this culture of insensitivity toward human life and widespread suffering.  The recent incidents involving the contamination of the life saving drug heparin, pet food, and now milk safety, show a consistent pattern of initial high visibility and regulatory focus to the targeted contaminated end product, followed by days or months of tracing back to the origins of the raw material supply chain uncovering the real scope and magnitude of the problem.  This has often proved to be too late and too time consuming to protect consumer safety, and masks the real problem, which was further upstream in the origins of the supply chain.

The latest tragic incident of contaminated infant formula in China is now playing itself out through various milk suppliers, with implications to other dairy and food related products.  Since Supply Chain Matters initial post on this incident on September 12 (Baby Formula Recall in China- Another Product Safety Concern), Chinese health officials now indicate nearly 53,000 children have been sickened, of whom 158 are reported with kidney failure. Tragically, there have been four reported deaths of infants.

The origin of this latest contamination is diluted milk in which the industrial chemical melamine has been added to mask protein count in quality tests. The chemical melamine was also the target of the pet food contamination problem in 2007, where 700 tons of wheat gluten exported to the U.S. was suspected of being laced with this harmful chemical.  Thousands of cats and dogs died as a result of that incident.  The incident related to the critical blood thinning drug heparin in early 2008 involved a Chinese factory as a suspected source of the contamination. A compound made from animal or shark cartilage, which was seven times cheaper than the inert heparin drug, was substituted by a downstream supplier.  That incident resulted in 82 deaths and hundreds sickened in the U.S. and other countries.

As more and more information leaks out regarding this incident, there are indications that Sanlu, China’s largest producer of infant formula was aware of the magnitude of the problem as far back as August, but neglected to make full disclosure due to the sensitivity for the upcoming Olympic games being held in China.  Once acknowledgement was made of the potential human extent of the infant formula problem, the Chinese central government has been fairly quick to move beyond the apparent coverup and inspect its nationwide producers of milk.  Those inspections have revealed that the problem is much more widespread, with melamine found in samples of milk from many other dairy producers, including two of China’s largest producers. Other world brands,  such as Fonterra and Nestle,  are being dragged into the effects of this scandal on their supply chains.  Meanwhile the World Heath Organization indicated this scandal highlighted flaws in the country’s entire food supply chain which caused the resignation of the minister of China’s Quality Supervision and Inspection agency. China’s central government is now taking extraordinary actions to assure its citizens that food supply chains are safe.  The suspected contamination has spread beyond the mainland, with Japan, Singapore, Taiwan and Hong Kong recalling Chinese-made dairy products, breads and candies made from these products.

Chinese consumers, and all of us as citizens of this world, are rightfully outraged by these terrible incidents. While the government of China has extraordinary means to manage the after effects of this situation, including the potential death penalty to any specific individuals involved, the fundamental problem of corruption in a supposedly requlated supply chain remains. I and other bloggers will be no doubt penning additional posts on the lessons learned and watch outs for the broader supply chain community, but for now, my thoughts and concerns are with the citizens of China who must deal with the after effects of this tragedy and absolutely demand reforms to their food supply chain. The question is whether the sickening and death of innocent children will prove to be the turning point.

What’s your view?  Do you feel that China’s central government can reform its regulation and safety of food and drug-related supply chains?  If your supply chain involves Chinese supply, are you concerned toward action?

 Bob Ferrari

I am very pleased to inform readers that the month of August provided yet another milestone in the overall growth of Supply Chain Matters readership.  Not to bore you with statistics, but in the spirit of “proud father”, there were over were over 5000 views and 1200 unique visitors to this site in August, representing an 85% increase since June.  There are also now over 4300 hits from established bookmarks, doubling the number from June.  I want to sincerely thank each and every one of you for your continued interest and participation in this forum.

I started this journey of blogging back in mid-February with a two-fold strategy in mind.  First, that this blog could differentiate itself in the broader blogsphere by providing a different slant of advisory information, stimulate debate, and educate readers on what I believe to be the key topics in supply chain management and technology.  The blog title was chosen to reflect my belief that there is a continuing need to educate readers on the important aspects and critical strategies involved in managing global supply chains. Second, this blog also serves as a marketing instrument to my consulting and other advisory skills for clients. Like any other start-up business, I placed more early emphasis on open sharing of advisory information so that clients and prospects could get a sense of the consultancy.

Any venture needs to have an economic model to sustain itself, and Supply Chain Matters is no exception.  While I continue to believe that plastering this site with all sorts of search engine marketing advertisements dilutes the site for readers, some select sponsorships will help to insure needed investments in upgraded user features and scope of coverage. I have plans for adding podcasts, video, and other interactive features, but all of these require investment.  So if you are a supply chain technology, consulting services, or software provider, and find this site valuable for promoting thought leadership and education, please contact me at supplychaininfo@theferrarigroup.com. Select sponsorships are now available.

Bob Ferrari

This is the third in a series of Supply Chain Matters posts that responds to a challenge among the blogsphere community of supply chain bloggers to offer some thoughts on the seven grand challenges for supply chain management for the next ten to twenty years. The notion of seven challenges was motivated from a recent Gartner research theme that outlines The Seven Great Challenges for IT.

In my part one and part two posts on this topic, I outlined what I believe to be the first five grand challenges, namely:

-Ubiquity of Portable Computing Leading to Sensory Networks

-True Supply Chain Business Intelligence and Decision Making Tools

-Managing the Explosion of Data and Information Needs Involved in Global Based Value Chains

- Managing Supply Chain Risk Management on a Global Basis

- Resolving of Who Assumes Ownership for the Extended Supply Chain?

In this post, I will outline my view of the final two challenges that make-up the overall seven grand challenges for supply chain in the next five or so years. You will obviously note that the final two challenges relate to changing skill needs.

Challenge Six- Articulating the Value and Consequences of Supply Chain Directly to the C-Suite

Supply chain professionals have been frustrated by the need to better connect the consequences of the tradeoffs in various functional supply chain strategies to the overall value to the business or potential impacts to the balance sheet.  This is similar to the ongoing challenge that the IT community has in relating to the need for identifying the business value and financial consequences of investing in IT.  Challenge six is an individual challenge to all who reside in our community, whether in sourcing, planning, manufacturing and distribution operations, transportation, or any other related function.

In past years, multiple interviews, surveys, and group discussion uncovered a general frustration among SCM participants that senior executives just “don’t get it”.  Supply chain professionals rightfully believe that there are critical tradeoffs among the objectives for driving down overall costs vs. needs to improve service levels to customers, establish relationships with key suppliers, insure security within the supply chain, or improve agility in a rapidly changing business environment.  Benchmarking data of the top leaders in supply chain management note that the organizations can track improvements or potential; strategies directly to financial or service value. But this challenge objectively lacks two missing tenets, a lack of consistent skills, and a lack of well understood communication to the C-Suite.

To be fair, a lot of progress is now being made within various industry settings. Consultants, academia and industry professional organizations such as APICS, CSCMP and SCOR have provided a positive helping hand, and I for one, believe that the community is now on a more positive track. What has also helped is the reality of past decisions.  The effects of global sourcing decisions with limited information related to the effects of these decisions are now an education to senior management on the importance of having a common understanding of the potential implications or tradeoffs of these decisions, as well as having continuous mechanisms for better mitigating potential risks. An increasing trend toward more centralized supply chain structure has also reinforced the need for broader analysis and decision skills.

More and more supply chain professionals are taking the initiative for expanding their individual skills, including broadening their general supply chain business and process awareness skills, and their ability to both speak to and more clearly demonstrate the various tradeoffs and/or implications of decisions.  Clearly, educating management on the benefits of adopting Sales and Operations Planning (S&OP), Strategic Sourcing, Lean and Demand Management methodology has begun to help, but I believe more work remains.  Technology has also helped, and there continues to be better tools available for quantifying risk, simulating various supply chain business scenarios, or providing more-timely sensing of an exception event before it becomes a significant problem for the business.

This challenge to members of our community, as well as to senior executives, is to continue to take responsibility and sponsorship of initiatives that broaden both individual, organizational, and cross-enterprise team skills that focus on the ability for assessing, articulating, and managing the contribution of supply chain management to the business.

Challenge Seven- A Global Shortage of Talent and Skills in Supply Chain Management

As Gartner and others have pointed to an increased shortage for software development and programming skills, a similar skills grand challenge can be expressed regarding the long-term need for talented supply chain management professionals on a global-wide basis.

Under the initial sponsorship of the Supply Chain Operations Council (SCOR), an ongoing multi-company effort is underway to address an industry-wide concern regarding the need for recruiting and retaining of supply chain talent over the next five to ten years.

As many in our profession are well aware, we have reached an era of the globally integrated value-chain, where supply and demand needs can come from every corner of the globe.  Of further concern is a potential lack of uniformity among various global-wide academic institutions in the teaching of broader curriculum and the preparation of local  new talent.

The origins of this initiative began in 2005 when IBM initiated a partnership with a select group of universities focused within supply chain management, requesting help in building a globally accepted competency and management career framework.  Since that time, companies such as Boeing, Intel, Molson Coors, Procter & Gamble and Whirlpool have joined in broader sponsorship of this effort.  Thus far, this industry diverse committee has completed a survey where 300 plus companies among seven different industries have provided input on supply chain process and skill needs required within their organizational teams. Perhaps readers have participated in this survey.  I posted an update on the initial findings of this survey (Supply Chain Skills Gap) back in May.

One of the observations of this survey reinforced the stated need.  “There are concerns about (supply chain) resource stability and the value of employees understanding of country-level idiosyncrasies, which only be quelled by building sustainable, local talent.”

 The ultimate goal of this challenge is to generally overcome longer-term skill and talent needs, as well as forge partnerships with industry and academia for attracting more numbers of talented students and professionals into the supply chain management profession.

A Final Note

My purpose in penning this three part series is to stimulate both thought and discussion, with the goal of providing clarity and knowledge-sharing within various supply chain related organizations.  I encourage Supply Chain Matters and other associated blog readers to add their commentary to this articulation of challenge for the community.

You can also contact me directly with your comments at bob.ferrari@theferrarigroup.com.

 Bob Ferrari