A rather short news item caught my eye this week.  The Captain Hybrid blog featured on designnews.com takes issue with financial media reports indicating that there may be constraints in the supply of lithium powered batteries to displace gasoline-powered vehicles.  Rather, the posting notes quantitative research indicating that there may well be an oversupply of lithium ion battery production capacity.  It cites research studies from Pike Research and Lux Research which separately conclude that forecasted sales of all electric powered vehicles result in a predicted oversupply in currently invested lithium battery plant capacity.  As an example, Lux Research predicts there will be 18.2 gWh of lithium-ion battery supply available by 2015, but vehicle sales are only forecasted to consume about 11.0 gWh. Lux’s argument is that governments offering billions of dollars in subsidies to build new plants does not equate to the ability of private industry at naturally balancing supply and demand factors.

While I can partially support such a conclusion, I might offer another stream of commentary.  In the big-picture, governments and their associated industry players are in a global race as to which alternative energy supply chain ultimately prevails as the most innovative and cost competitive.  Is there some disconnect to forecasted demand for end-products? Absolutely.  Is this a economic business, or a political process?  I believe it is both.

The supply chain supporting alternative energy needs is a battleground for dominance in the coming decade. The reality, regardless of political leaning, is that governments are taking stakes in this key battle.  There is over capacity in many other industries today, because of these same strategic stakes, and private industry is just as much at fault.  Need an example, consider the current overcapacity situation in steel production that is occurring in China today.  Last year it was DRAM and flash memory to support consumer electronics growth industries. All remain key battleground areas for supply chain competitiveness.

Let’s move beyond the numbers and concentrate on supply chain strategic implications.  Natural forces of the market, coupled with political influence of lobbyists and governments are all in play.  Time will tell the ultimate story of the surviving lithium battery supply chain. Major automotive OEM’s are already placing their bets, both business and political in scope, on which battery suppliers they will partner with. In the meantime, current lithium-ion battery producers are in a marathon with a rather large prize- dominance of a future strategic industry.

Bob Ferrari

Once again, its time for another supply chain related announcement associated with Boeing, but this one should be viewed somewhat as positive in nature The Twitter #supplychain forum was actively re-tweeting articles summarizing the latest remarks from Boeing CEO Jim McNerney, who specifically cited concerns related to supply chain as potentially hampering Boeing’s ability to meet increased new aircraft orders, and potentially hampering future business needs.

I found a Financial Times article (free preview sign-up account may be required) as the most insightful commentary to this story.  The FT article cites McNerney as noting that a industry-wide growth across the entire aerospace industry, including Airbus,  has constrained many of the key suppliers to this industry. Boeing wants to up production of its 737, 777, and 747 models during the next two years, but suppliers are obviously raising cautionary notes.  Unmentioned, and in my view succinct to this situation, is that past delays, setbacks and communication issues on Boeing’s 787 Dreamliner program have made aerospace suppliers rather wary and cautious.  Key suppliers are now faced with important decisions on whether to invest in added capacity, or may demand more financial safeguards from Boeing and other aerospace OEM’s.

Boeing also continues to deal with specific supplier issues.  The FT article notes that it will no longer source aircraft seats from Japan based supplier Koito, after that supplier admitted it had falsified test results on as many as 150,000 seats provided to Boeing.  The company is also coming to grips with previous attempts to outsource major portions of production work to external suppliers without balancing all the various product design, engineering, and production risks, and without a seamless two-way flow of communications and expectations. Boeing also continues in its plans to ramp-up a second final assembly facility for its 787 Dreamliner production near Charleston, South Carolina, and adjacent to its major fuselage assembly supply.

From were we sit, the Boeing CEO acknowledgement of the critical importance that the supply chain will provide to Boeing’s future business is a rather noteworthy acknowledgement that Boeing senior management now gets it- supply chain matters!

Bob Ferrari

If you have not had the time to notice, there has been a rash of industrial related accidents occurring in China and the U.S., and one has to wonder whether these individual accidents will lead to further ecological impacts and/or supply chain disruptions. As we have previously commented on Supply Chain Matters, one has to wonder again as to whether basic safety, quality control and routine maintenance processes are breaking down on a systemic scale.

Last week, a major Chinese mining company, Zijin Mining Group Co. finally claimed responsibility for spilling copper laden wastewater from its manufacturing facility located in China’s southeastern Fujian province.  This wastewater penetrated the Ting River and resulted in a massive fish kill, as well as danger to nearby residents along the river.  This toxic spill later flowed into rivers in neighboring Guangdong province. The company initially indicated that high levels of rain was the cause, and denied any responsibility for the spill, but later its board of directors issued an apology that expressed regret for this accident. A statement issued by this board notes: “The Company was overconfident, had a lack of crisis awareness and didn’t properly handle the balance between economic efficiency, ecological benefit and public interest.” A Wall Street Journal article related to the incident noted that China’s top executives rarely accept responsibility for such incidents, and that this statement by the Zijin board was a new and welcomed precedent.

Last week also brought news of China’s largest oil spill as an oil pipeline owned by China National Petroleum Corporation, Asia’s largest oil and gas producer by volume, exploded and caught fire near the northern port city of Dalian, after workers completed unloading a large tanker.  Initial attempts to contain the spill were not productive, and the spill extended to hundreds of square miles closing beaches on the Yellow Sea and causing China’s environmental officials to warn that the spill posed a “severe threat” to sea life and water quality. Dalian is a popular beach getaway. Images from this disaster also paint a grim picture as local workers and fisherman clad in insufficient protection are shown attempting to gather the oil. In the wake of the spill, China’s  Ministry of transportation has expressed the need to tighten inspection guidelines related to ports that handle hazardous materials. According to a New Times report, ports that handle oil, liquefied chemicals and gases are now required to carry out checkups every two years, as well as to come up with emergency response plans and to conduct drills.

Earlier this week, two additional incidents occured. A plastics factory located in a densely populated part of Nanjing exploded and caught fire, killing at least 12 workers and injuring scores of other people. A posting on The Guardian web site provides shocking images in the aftermath of the explosion and fire. The Nanjing No. 4 Plastics Factory was located within a 66 building compound aside an industrial residential area.  The blast filled the emergency rooms of five major downtown hospitals, and death toll is feared to rise. While the exact cause of the explosion is yet to be determined, This incident is raising more questions regarding the widespread practice of placing manufacturing sites within densely populated urban areas. The second reported incident involves another water pollution incident. More than 1000 containers of a chemical utilized in the manufacture of explosives spilled into the Songhua River near the city of Jilin. This chemical, when exposed with water, can cause hydrochloric acid.

Meanwhile on the U.S., in the wake of the unprecedented BP Oil spill in the Gulf of Mexico, the Midwest is facing its own oil spill crisis.  An oil pipeline owned by Enbridge Energy Partners sprung a leak near Marshall Township Michigan. According to the New York Times, over one million gallons of the oil has flowed into a nearby creek and is making its way down to the Kalamazoo River. The leak was in a 30-inch pipeline that carries millions of gallons of oil each day from Griffith, Indiana, to Sarnia, Ontario. A state of emergency has been declared in southwest Michigan’s Kalamazoo County, and residents have been warned to avoid going near the creek.  Environmental officials and the governor of Michigan have expressed major concerns about the oil spill reaching Lake Michigan, 60 miles away, where it could result in a ‘grave’ environmental crisis.

One final entry, a Lufthansa MD-11 cargo plane recently crashed while on approach to Riyadh Airport in Saudi Arabia.  The plane originated in Frankfurt and was destined for Saudi Arabia, Sharjah, and eventually Hong Kong. According to a posting appearing on the web site airlineindustryreview.com, this was the eighth total loss involving an MD-11 cargo plane, and an aircraft with a history a troubled aerodynamic design.  Luckily, both the pilot and co-pilot suffered minor injuries.  The identification of the cargo on board has not been disclosed.

One really has to ponder whether all of these accidents are just a result of unpredictable events or a pattern of eroding quality procedures.

What’s your view?  Incidents caused by chance or eroding standards of quality and maintenance?

Bob Ferrari

Finally, the U.S. electorate and potentially the U.S. Congress have awakened to the fact that Manufacturing is the foundation of a growing economy, but is it too late?

An article featured in CNNMoney.com notes that a political poll conducted in the spring of 2010 found “deep popular angst with the decline of America’s manufacturing might.”

Nearly four in ten respondents indicated that manufacturing based industry is the most important to the overall strength of the American economy, and 78% want the U.S. to develop a national manufacturing strategy.

While Supply Chain Matters applauds this effort, we cannot help but remain skeptical as to whether any substantive strategy will ever come forth.

U.S. Democrats, who face serious hurdles in the upcoming Congressional elections in the Fall, are apparently positioning to have various legislation addressing U.S. manufacturing introduced, but this article notes that some of these efforts may turn out to be political posturing in order for Democrats to have a rallying cry in the Fall elections.

One of the most interesting bills being proposed is the so-termed “The National Manufacturing Strategy Act” which directs the President to create a manufacturing strategy every four years.

The complete void of a manufacturing or supply chain capability strategy for the U.S. has been a constant rant within the Supply Chain Matters blog. Our latest rant in February noted that if an economy doesn’t build value in the manufacture of goods, which in-turn drives the need for robust supply and value-chain capabilities, than we may as well all get in line for those very few service jobs left in retail, financial services or restaurant sector.  The world economy, and particularly China, continues to up the ante on world class competitive manufacturing and supply chain capabilities, and the U.S. muddles along with both political parties stalemated.

For what it is worth, we should all pass along some stern advice to our U.S. Congressional leaders.  If readers will indulge, let me start the ball rolling:

Yes, the U.S. lacks a strategic manufacturing strategy, and the proposed bill to create one should pass post haste.  By the way, include in that bill that the strategy needs to be delivered to the President in less than six months, since it is way overdue.  The President should appoint a commission that is balanced among senior executives of well known manufacturing focused companies such as Ford, GE, Caterpillar, 3M, and others.  The commission should also include people who understand the importance of building supply and value chain capabilities to support strategic industries.  Andy Grove should chair the Commission, since he has already nicely articulated the challenge and the need. While the U.S. is addressing supply chain capabilities in alternative energy vehicles, it probably needs to address other strategic industry as well, and please Mr. President, refrain from appointing anyone from the Wall Street insider community on this commission.

My observation is that Americans are highly frustrated with their political leaders because of a lack of movement in the economy and in the longer-term economic welfare of their families. Posturing and bickering only adds to the frustration, and quite frankly, if Republicans and Democrats really believe in the vibrancy of private enterprise, they should be enthusiastically sponsoring and supporting a strategic manufacturing and value-chain strategy for the U.S.

A message to Republicans- your stance of do-nothing for the sake of political posturing or protecting against the deficit has little meaning if the U.S. cannot revive its economic and job growth.  These are hollow without a vibrant U.S. manufacturing resurgence with a strong U.S.-based supply chain.

A message to Democrats- advocating for a comprehensive manufacturing strategy is the right issue, but please, please do not give it the lip service.  Provide leadership and substance and actively work with the opposition to get it done.

For the health of the American economy, don’t waste time.  The stakes are very high, and supply chains do matter.

Bob Ferrari

I came across a Wall Street Journal article, Chinese Firm Meets Global Branding.  This article outlines the market strategies of Chinese firm Changzhou Asian Endergonic Electronic Technology Co., or its English brand, Züuma (pronounced zoo-ma), a name created by its U.S. partners. This firm manufactures the portable dashboard mounts that house many of our portable GPS units, and the article hit home with me since I actually purchased one of these mounts about a year ago, but it carried a private brand label from a well known electronics retailer.  By the way, the mount is very stable and works well on my car dashboard. By creation of the Zuuma brand, the company will offer a higher featured mount for the U.S. market. If successful, more product margin will be able to be garnered.

The article further notes through an interview with the CEO that Chinese companies have difficulties understanding the implications of fostering global brands. We should add that understanding global market needs also connotes having agility and flexibility in one’s supply chain planning and fulfillment capabilities. Zuuma, however, wisely engaged the assistance of two U.S. partners who provide branding and distribution services.

I recall surveys conducted of Chinese firms as much as five years ago that also pointed to the fact that in order for China to succeed in the global marketplace, management skills in global product marketing would be a necessity, and were in very short supply. The Journal article notes that the Chinese government has loosened rules for foreign investment and now offers education to encourage Chinese companies to develop their own brands and move up the value chain, just as Japanese and South Korean companies had.  Make no mistake, Chinese government officials understand the tenets of moving up the supply chain.

The Journal accurately notes that few Chinese companies have truly developed a full global brand presence, and cites Lenovo Group Ltd. in computing, Haier Group in appliances, Sany Group in construction equipment, and Mindray Medical International Ltd in medical devices as on the threshold.  Lenovo itself gained its global marketing guidance from its previous owner, IBM, who spun off its Chinese manufacturing partner, and today the Lenovo brand has become much more recognized by consumers.

My sense is that Chinese companies mastering global branding is much closer than one thinks, and will be achieved via acquisition of certain global brands.  Community readers may want to refresh their memories regarding the announcement of  Volvo being acquired by Geeley Holding Group, and Geeley’s management announcements that brand management will remain in Sweden.  Little-known heavy machinery maker Sichuan Tengzhong Heavy Industrial Machinery tried to buy GM’s Hummer group, but that attempt failed.

There will no doubt be other announcements in the coming months. Think of contract manufacturer Foxconn’s tremendous production and supply chain capabilities being married to a noted brand.

If your professional skills lie in global product marketing and/or global supply chain fulfillment, you might want to consider a mastery of Chinese corporate culture. Your skills are going to be in great demand.

Bob Ferrari