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

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 blog1 dot com.

Bob Ferrari

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 6^th 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

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

In my Part One posting, I provided commentary relative to the recently released 20^th 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