It is a sincere pleasure to announce to Supply Chain Matters readers that the supply chain management (SCM)  practice of Infosys Technologies will be a continuing sponsor of this blog during 2010.  In fact, Infosys has elevated its level of sponsorship, recognizing the increasing reach and influence of Supply Chain Matters, as well as our joint efforts to provide added thought leadership in the area of global supply chain management business process and information technology needs.

The supply chain practice of Infosys continues to be on a roll, providing supply chain clients with the ability to unlock added value from their supply chain business processes and information technology systems.  Key practice areas umbrella a wide swath and include areas of supply chain planning, strategic sourcing/procurement, elements of supply chain execution and enterprise asset management. Industry coverage is broad and includes manufacturing, retail, energy, media and financial services industries.

I first became aware of this practice in late 2005, have monitored their engagement growth since that time, and was delighted to include Infosys as a Supply Chain Matters sponsor in 2009.  During the year, I was invited to contribute guest postings regarding key supply chain and information technology strategic topics on the Infosys Supply Chain Management blog, and was pleased to exchange commentary with Gopikrishnan G.R. (Gopi), delivery manager and head of enterprise solutions and supply chain management consulting, as well as other participants(This cross-blog exchange activity will expand during the coming year and readers can anticipate guest postings and added commentary from Gopi and other Infosys senior consultants on Supply Chain Matters.  I will be attending key Infosys partner conferences in 2010, speaking and interacting with participants and providing live blog commentary, and will continue to be a guest blogger with Infosys.

Today this Infosys practice includes a healthy track record of over 400 supply chain  engagements with a 100% on-time delivery record.  This practice provides clients with unsurpassed project ramp-up capability with over 900  dedicated consultants.who can be called on to provide either functional as well as supply chain information technology expertise.  Delivery centers support a global presence, and currently include India, China, pan- Europe and North America.  Their supply chain technology skills span a variety of ERP and best-of-breed applications, with strategic partnerships that include Oracle, SAP, Sterling Commerce,ATG Commerce, Maximo and other technology alliances.  In 2010, look for Infosys to expand its presence in multi-channel selling, end-to-end order fulfillment and enterprise asset management process capability dimensions.

I am very pleased to have the supply chain management practice at Infosys as a sponsor of Supply Chain Matters and look forward to a continued joint collaboration of thought leadership and industry commentary. 

If you need additional information, you can view the Infosys SCM services profile in our About Our Sponsors page on the right-hand panel. Insure that you have Infosys on your short-list of large-scale supply chain information technology consulting needs.

 Bob Ferrari

Starting in 2009, I initiated the Supply Chain Matters Quarterly Newsletter as a supplement to this blog.  The newsletter is designed to provide a broader analysis of our daily and weekly blog commentaries, with a more reflective perspective on this past quarter’s events and their implications across global supply chains. The Q4 2009 Newsletter was distributed this morning, so please check your email inbox to access your copy.

Four prominent themes dominated the events from October through December of 2009:

• The performance of supply chains leading up to the 2009 holiday buying season.
• Significant blockbuster acquisition events directly involving supply chain transportation and industry analyst advisory services
• Preparing for 2010 supply chain business and process challenges
• More significant incidents of supply chain risk

If you did not receive your copy, or would like to be added to our newsletter distribution list, please send an email with Newsletter Request on the Subject line, and include the following information:

 Your Name

 Company

 Position

 Email Address

You can send your request to the following mail address:

info@ (at sign) blog1 dot com.

Also as a reminder, our free research report outlining 2010 Predictions for Global Supply Chains is also available by sending a request to the above mentioned email address.

 Thanks

Bob Ferrari- Executive Editor

It seems that I am far too often penning Supply Chain Matters postings related to product contamination and supply chain risk.  I sometimes get asked why so many postings relate to this topic.  The short answer is that the occurrences of incidents are just growing and growing, and implications to food related and other regulated supply chain are rather troubling. They also point to a continuing trend that outbreaks of food contamination are not being traced in a timely manner.

The latest highly visible incident involves the voluntary recall of over one million pounds of ready-to-eat varieties of Italian sausage products involving Daniele International Inc. of Pascoag and Mapelville Rhode Island.  The brands involved are rather noteworthy for their image of quality, and include Boar’s Head, Black Bear and Dietz & Watson brands. The recalled products may be contaminated with Salmonella. The U.S. Department of Agriculture and The Center for Disease Control are jointly conducting an investigation regarding the source of the outbreak. To date, 189 persons across 40 U.S. states have been identified as being infected with illness, with incidents being tracked thus far back to July of 2009  A dedicated web site has been established by the CDC to provide public information regarding this recall.

The Food Safety and Inspection Service (FSIS) of the FDA has become involved because of an ongoing investigation of a multi-state outbreak of Salmonella Montevideo illnesses, which have thus far been traced to Daniele.  The Montevideo strain is noted as a somewhat common strain of salmonella infection, and is the same strain found in the 2009 incident involved in the pistachio nut recall.  It is however different from the Typhimuriam strain involved in the peanut butter paste recall that occurred roughly one year ago.

According to a public statement  provided by Danielle International, the potential culprit may be the cracked pepper utilized to coat the meat products.  The manufacturer notes that it has switched suppliers and will now use irradiated pepper, which is pepper that is treated with high doses of radiation to kill deadly bacteria.  While government officials have not completely pointed to that conclusion, this development should be of concern to all other food manufactures who utilize cracked pepper in their products.

This ongoing incident could have the same implications as found in the past peanut paste and pistachio nut recall incidents, the fact that the incidents of contamination impact the supply chains of other manufacturers or food providers who are utilizing cracked pepper product.  

Supply Chain Matters issues similar caution, if you have not already, immediately start checking the sources of your cracked pepper supplies, along with their use. Traceability of products is a rather important need at this juncture.

Unlike the ongoing product recall incident concerning Toyota vehicles, Danielle is demonstrating a rather positive outreach with public communication.  An open letter from the President of Sales  of this family operated business notes the concern to resolve this issue in the quickest and safest manner.  We applaud Danielle for this proactive outreach.

Food-related supply chain professionals need to remain focused on insuring that all aspects of the supply chain are constantly audited for ingredient safety and traceability.

 Bob Ferrari

Needless to say, Toyota has managed to capture the complete interest of its customers, and the stakes are extremely high for the company, and potentially its supply chain partners.  I refer to the ongoing unintended acceleration problem relative to certain Toyota vehicles.

Existing Toyota owners are justifiably concerned about their safety in driving such vehicles, and very typical of these types of incidents, clear answers are not yet evident. If one attempts to sort through all of the information that may be related to the specific problem at hand, it becomes rather confusing.  Initially, this alleged problem was attributed to floor mats that were jamming the accelerator pedal.  Now it seems that the root-cause investigation has widened to other potential causes.

My commentary is going to focus on the global supply chain risk implications stemming from this ongoing incident.  In my view, what makes this particular situation so difficult is that Toyota is dealing with a problem that seems to have a lack of clarity in terms of root-cause, and significant implications if not managed smartly. 

Supply Chain Matters has not been alone in making observations over these past months on perceptions that Toyota may have stretched its resources a bit too thin, and that quality was slipping. In my commentary in early December I observed that a multitude of major product recall incidents have tarnished the company’s previous stellar reputation as a producer of reliable vehicles.  The effects of nearly two years of global recession, coupled with some business missteps, has also had a severe impact on Toyota’s sales growth and lack of profitability. Since that time, I, along with other Toyota owners have become increasingly concerned about the reported incidents of unintended sudden acceleration of select Toyota models.

On Monday evening, when I received email alerts related to the announcement that Toyota had suspended all new vehicle U.S. sales of models subject to the ongoing latest recalls, I immediately knew that this event was going to be unprecedented in terms of scope.  As I pen this post it seems that the entire Internet and international media are running with all sorts of articles, reports and commentaries.  Vehicles subject to recall have now been extended to Europe and China.

The clearest explanations as to the potential causes I’ve found thus far come from an AP story published on msnbc.com.  This article notes that Toyota is telling governmental agencies that it thinks that a friction problem in its accelerator pedal mechanisms may be to blame.  CTS Corporation of Elkhart Indiana, the supplier that produces the accelerator assemblies for Toyota states in a press release issued on its web site that the friction problem accounts for just a few cases of stuck accelerators. The vendor notes that its products are not implicated by the November 2009 Toyota recall, but further states “that CTS has been actively working with Toyota for awhile to develop a new pedal to meet tougher specifications from Toyota.” 

Other experts express other various opinions ranging from complicated electronic sensors to a multiplicity of different factors.  Separately, Ford Motor Company has halted production of its full-sized commercial vehicles manufactured by its joint partner in China, Jiangling Motors Co., after discovering that the accelerator pedals it uses came from CTS Corporation.  Ford CEO Alan Mullaly noted in an interview on CNBC that while Ford had not noted any incidents of unintended acceleration, it was erring on the side of caution.

CTS supplies similar accelerator parts for Honda, Nissan and Mitsubishi Motors, but it appears that these three other automakers have received no complaints about the operation of accelerator pedals.

All of these issues should have been mitigated long before visibility reached global proportions. Why haven’t Toyota engineers been able to definitively correlate repair, warranty and customer feedback incidents for so any months? Why is CTS actively working on a tougher specification if the accelerator problem is termed limited in nature?  Without definitive explanations of root-cause or solid action plans, customers are left with massive doubt and lingering negative perceptions. 

In short, Toyota ‘s dilemma spanning dimensions of quality, safety, profitability, supplier loyalty and risk mitigation all rolled together in one very visible looking glass.

If there were any doubts about how important supply chain risk has become, stay tuned to this evolving story involving an icon of quality and dependability.

Bob Ferrari

Note: This posting can also be viewed on the Kinaxis Supply Chain Expert Community web site.

In the past, it was not very often that we would have the opportunity to view on the front page of the Wall Street Journal an article that directly concerns developments in global supply chain strategy  That was before the onslaught of the global recession. Now we find supply chain related stories often on the front page.

Today’s U.S. edition of the Journal has the front-page headline, “‘Bullwhip’ Hits Firms As Growth Snaps Back.”  (paid subscription required) The article cites events occurring within the supply chain of global heavy equipment manufacturer Caterpillar Inc. as a reflection of a large inventory replenishment cycle currently underway and the inherent risks it can cause.  It also raises two important and rather pertinent questions. Will the current inventory replenishment cycle cause the “bullwhip effect” to again amplify through the various tiers of the supply chain?  Will suppliers have the ability to scale-up activities to meet this new demand given the rather fragile financial and operational state that suppliers currently find themselves?

This article is a must-read for our supply chain community, and cudos to WSJ reporter Tomothy Aeppel for a well written article.

I’ve often commented on this blog that the overall level of inventories is at unprecedented low levels across the globe.  The WSJ article cites the overall reduction as $207 billion since the financial crisis began, and further notes that the pendulum began to swing in October and November, when total inventories began to grow. This data adds further quantifiable evidence that an inventory replenishment cycle is currently underway.  What comes beyond the current cycle is the open question.

My biggest concern therefore remains on the second question, namely, how will suppliers know when demand has moved to a more sustained growth cycle and,  when that occurs, what capabilities and/or resources will suppliers have to scale-up in a timely manner to stay ahead of such demand.

The WSJ article addresses these concerns through the example of Caterpillar and its outreach to its supplier network.  Caterpillar CEO Jim Owens has a PhD in economics, and that has pertinence to his understanding of “bullwhip” phenomenon. The company has prepared a number of potential business scenarios regarding business activity in 2010, ranging from conservative to optimistic.  In its latest fourth-quarter earnings announcement, the company’s current guidance for 2010 sales growth has a range of 10% to 25%. With these scenarios in hand, it dispatched two procurement executives to hold meetings with 500 of the company’s major suppliers, representing 80% of all component purchases. The messages delivered seemed straightforward: Explain that inventory buys would begin and that even if end-item demand were conservatively flat in 2010, an unlikely projection at this point, Caterpillar would boost production in its factories by 10%-15%, along with the need for re-stocking dealer parts inventories.  Caterpillar’s estimates that this baseline scenario alone would cause output from all of its suppliers to rise 30%-40% from current levels.  In essence Caterpillar’s messages will help suppliers to assess the bottom threshold of buying activity expected in 2010.

To help financially strapped suppliers with added resources, Caterpillar also instituted a program that allows suppliers to factor their Caterpillar accounts receivable at favorable interest rates, thereby accelerating payment at five days rather than an average 60 days from time of invoice.  Readers may recall our commentary related to major retailers such as Wal-Mart and Kohls also launching similar supplier financial assistance programs directed at key suppliers.

The article also notes how Caterpillar has proactively supplemented supplier relationships in other initiatives, namely:

• Creating a three month “freeze period” during the transition period, where orders will not be changed, allowing suppliers the ability to do firmer financial and resource planning
• Revamping end-item selling strategy away from predominately large customer customization, and instead introducing four “lanes” of customer buying options, ranging from a company configured in-stock lane containing most frequently ordered customer options, up to “lane four” custom configured with highest lead time.
• The existence of an ongoing supply risk-assessment team that meets weekly, assigning overall risk ratings to suppliers.

We should applaud Caterpillar for its proactive supplier outreach activities as well as its sensitivities to helping suppliers overcome the effects or false starts related to “bullwhip”.

In my view, if enough companies of the global scope and outreach demonstrated by Caterpillar institute such comprehensive supplier outreach programs, than industry supply chains will be able to more adequately scale and meet product demand needs.  If on the other hand, large OEM’s continue to treat suppliers as pawns in multiple games of chess, than the effects of “bullwhip” will be even more far reaching. 

Procurement and supply chain teams need to be thinking more like Caterpillar.

Congratulations and a thumbs-up to Caterpillar for their outreach, and to the Journal for its front-page recognition that supply chains, and suppliers do matter.

Bob Ferrari