The most significant U.S. focused supply-chain related news of last week came on Friday.  President Barrack Obama appointed General Electric CEO Jeffrey Immelt to lead a newly revised Presidential Council on Jobs and Competitiveness.  The conservative leaning Wall Street Journal’s headline, President Tries the GE Way, reflects perhaps the general frustration among business leaders on whether the White House did not understand the needs of business in creating further job growth within the U.S..

Supply Chain Matters applauds this decision for a number of reasons, but will quickly add that one executive alone does not make for a comprehensive strategy of concerted action.

The formal announcement was made as the President was touring a General Electric  factory in Schenectady New York that is building alternative energy related products. According to White House media briefings, this advisory board to the President is a successor to the President’s Economic Recovery Advisory Board led by former Federal Reserve chairmen Paul Folcker.  Whereas that board was chartered with a focus on the previous financial crisis and avoidance of an economic meltdown, the current council is to be focused with finding new ways to foster private sector job growth and building stronger White House and legislative relationships with the broader business community.

Supply Chain Matters remains a fan of Mr. Immelt.  In a June 2009 commentary, we noted how refreshing it was to hear a senior executive who understood the meaning of global manufacturing competitiveness and the important role that supply chain capability plays in supporting this capability. In 2009, Immelt was bold enough to suggest that U.S. companies may have outsourced too much, and turned over too many technological and intellectual property assets to foreign operations. At the time, Mr. Immelt expressed an opinion that manufacturing related activities should represent 20 percent of U.S. employment levels.

Already, concerns are being raised as to whether Mr. Immelt would use his new appointment to advocate for the business needs for GE, or perhaps advocate for more defense-related spending.

Of more interest, former Secretary of Labor Robert Reich penned two separate commentaries on The Huffington Post. The first, The Real Economic Lesson That China Could Teach Us, notes that China has a national economic strategy designed to make it, and its people, the economic powerhouse of the future, and that the U.S. lacks such a strategy. He goes on to state: “But the prosperity of America’s big businesses has become disconnected from the prosperity of most Americans.” Reich further notes: “China is eating our lunch. Why? It has a national economic strategy designed to create more and better jobs. We have global corporations designed to make money for shareholders.”

In a second related commentary, American Competiveness, and the President’s New Relationship with American Business, one other of his other arguments is that profits of U.S. based companies are soaring, largely because sales of their foreign-based operations are booming, and production costs in the U.S. have been reduced because of lower payrolls in the U.S.  That statement is of little surprise to our Supply Chain Matters readers. Mr. Reich further argues that in the final analysis, profitability has little or nothing to do with the quality or quantity of jobs in the U.S., and perhaps there is an inverse relationship.

Somewhere in between lies a critical need for the U.S. to have some recognized economic strategy on global competiveness, manufacturing and supply chain capabilities that can lead the world.  That need transcends one Presidential commission and one appointment to lead such a commission.  Americans, their political leaders, and U.S. based corporations need to quickly move beyond the rhetoric and posturing to address some serious realities of why so many jobs have been lost and from where future job growth will come.  That means some sacrifices for each stakeholder and perhaps additional needs for investment in infrastructure and capabilities.

We believe that somewhere in that discourse will come a reality that supply chain and manufacturing capabilities truly do matter.

Bob Ferrari

The Institute of Public and Environmental Affairs’ Green Choice Alliance, (also referred to as the Green Choice Alliance) a consortium consisting of 36 environmentally focused groups across China, has issued a report which is titled The Other Side of Apple. This report is gaining lots of Web pickup because of the very nature of its title.

On its web site, the Alliance indicates that it is a coalition of NGO organizations that promote a global green supply chain by pushing large corporations to concentrate on procurement and the environmental performance of their suppliers.

International news media is noting that the report consists of a ranking of 29 multinational technology companies based on how each responded to inquiries and concerns related to occupational health hazards at various supply chain factories within China.  Apple was ranked dead last among 29 companies, hence the selection of the report title. We at Supply Chain Matters wanted to actually read this report, but discovered that report currently only exists in its Chinese version.  We trust that the English version will be made available soon, since it is the details, not the headlines of this report that matter most

An article published in the Financial Times (free preview account may be required) referencing the report outlines a specific incident involving the alleged poisoning of workers at Liajian Technology, a subsidiary of Taiwan-based Wintek, which produces touch screen modules for Apple.  In that specific 2099 case, 49 workers were hospitalized for poising due to chemical exposure.  Wintek for its part, indicated that the factory in question stopped using the chemical.  Where Apple is being taken to task by these China based environmental groups was Apple’s refusal to confirm or deny whether polluting or harmful companies were Apple suppliers. Many in our global supply chain community are aware that Apple has a rather unfortunate iron-clad policy regarding not disclosing any details about its value-chain.

While the headlines of this story are indeed disturbing, we believe that more focus should be placed on the positive aspects.  First, the fact that a consortium of dozens of Chinese environmental teams is diligently monitoring workplace and environmental safety, and taking multi-nationals to task, is certainly a positive.  Second, the companies that have been cited as proactive and responsive, namely Alcatel-Lucent, Hewlett Packard, Hitachi, Samsung, Sharp, and Toshiba , should each receive positive accolade.

Apple was not the only company cited as not responsive, but that does not make headlines, especially when Apple was ranked as lowest.  There is also an obvious two-edge sword to Apple’s extraordinary business success.  On the one hand, Apple has been very open and public about declaring its commitment to worker safety and environmental responsibilities across its global supply chain.  On the other, a policy of secrecy and/or supplier protection may not be serving Apple well.

As is the usual case in these affairs, what really matters in the end is how Apple and other multi-nationals respond with concerted actions to their publically declared corporate commitments for social responsibility.  Let us all, as a global community, praise those companies who have placed positive action to their words.

Bob Ferrari

The following commentary can also be viewed and commented upon on the Supply Chain Expert Community web site sponsored by Kinaxis.

These past few days have brought some euphoric news in the high tech and consumer electronics sector, but I could not help but ponder lessons of the past.  Times of euphoria are a time to celebrate the fruits of long hours and hard work, but after the celebrations, there needs to be some reflection on the complex supply chain challenges that lie ahead.

Two specific timely stories of note are Intel and Apple.

Intel just reported its best financial year ever, recording a 24 percent increase in 2010 revenue and a whopping 167 percent increase in profits from a year earlier.  In reporting background on these results, Intel executives noted growing corporate and consumer demand for personal computers, business demand for server, and robust demand for other Intel products.  Since Intel products represent the lower echelon of high tech value-chains, a speculator year for Intel could portend another great year for the industry. CEO Paul Otellini noted that results can get even better in 2011 as the economy improves and Intel brings new products to market.

However, market analysts have been noting that sales of personal computers are being quickly overtaken by the explosion of sales in smartphones and other mobile devices, and Intel needs to be better positioned to take advantage of this new wave.  Semiconductor technology innovation cycles remain constant, and Intel has again allocated billions for new plant and equipment to support the next generation of chip technology. There are also different channels of distribution and demand fulfillment in mobile consumer devices, and Intel will continue to adjust its product demand forecasting and management processes to accommodate a more dynamic demand signals.

Speaking of this sector, yesterday, Apple continued its unprecedented momentum, reporting enviable fiscal 2011 first quarter results which involved this past holiday buying season.  Apple revenues increased 70% and profits increased 78% from year ago. The company produced $6 billion in profits while generating $9.8 billion in cash flow from operations. Volume shipments were impressive, and included an 86 percent increase in iPhone, and a 23 percent increase in Mac shipments.  However, iPod shipments declined 7 percent from a year ago.

A commentary penned by John Boudreau of the San Jose Mercury Times noted: “Apple’s current performance would be spectacular even for a startup a fraction of its size.” Another Wall Street analyst notes that other similarly sized industry players such as Hewlett Packard or IBM while also growing, are not growing at the 60 percent annual pace that Apple has right now.  Steve Jobs himself noted: “We are firing on all cylinders and we’ve got some exciting some exciting things in the pipeline for this year including iPhone 4 on Verizon, which customers can’t wait to get their hands on.”

However industry watchers have raised cautionary tones regarding the announcement of another undetermined medical leave for Steve Jobs, as well as the ongoing strategic race for market dominance between Apple’s iPhone and the Google’s Android operating systems. Nokia, and Research In Motion are each embroiled in this race for who will prevail in platform dominance. It should be no secret that Apple’s supply chain capabilities, while the envy of the industry, remains constantly being challenged with balancing explosive demand with the realities of constrained supply and constant product innovation cycles.

Members of this community may also have a different lens to what occurred behind the scenes in 2010.  In the midst of the gloom and after effects of two years of severe global recession, high unemployment and generally negative news, consumers determined that having the latest PC, smartphone or tablet computer was a priority.  That caught certain semiconductor, OEM’s and key component suppliers off guard, since capacity and inventory had been cutback and many suppliers were not prepared for the sudden upticks in demand.  Throughout 2010, supply chain teams had to manage numerous component shortage situations and longer lead times, seeking either alternative sourcing, temporary design changes or sheer willpower to insure that customer fulfillment was accomplished.

It was truly a year of ‘rapid response’ and agility.

For 2011 and beyond, the challenges continue, and more caution signs remain.  How long will current consumer demand for the latest gadgets continue when continued high unemployment levels persist?  Commodity costs are rising across the board, and certain rare earth materials have become a bargaining chip in geo-political affairs. High unemployment levels in the U.S. and looming uncertainties of more financial crisis in Europe loom as a dampening effect to consumer demand. Will supply chain teams once again succumb to the ‘bullwhip effect’ of redundant orders and inventory?  New product and innovation cycles continue on an intense, non-stop basis.  One significant glitch or miscalculation and the results can be somewhat disastrous.

Perhaps at this point, readers may be presuming- why is this Ferrari guy being such a curmudgeon? After all, look at all the great things that have happened.

My point in this commentary is to provide some wisdom.

Results and hard work should indeed be a cause for celebration and reward.  But, it is precisely in the times of euphoria that there may be the tendency for leaders to take their eye away from certain longer-term signs.  Perhaps names such as Digital Equipment, Apollo Systems, Wang Systems, RCA or others come to mind.  Each had times of euphoria and perhaps ignored the signs of caution and diligence in always keeping a keen eye out for overcoming constant value-chain challenges. After all, the people, processes and systems that are the fabric of any value-chain are the key facilitators of outstanding performance, and are often the lookout of what is to come.

Bob Ferrari

Boeing announced today that it now expects to deliver its first 787 Dreamliner to customer All Nippon Airways sometime in the third quarter of 2011.  Originally, first customer ship had previously slipped to early this quarter after numerous delays. This news comes after the in-flight incident of an electrical fire and power failure that occurred on one of the 787 test flight aircraft in November.

There has been much speculation as to how much impact the November incident would have on a program that has suffered numerous delays and supply chain snafus.  Boeing indicated that four of the eight designated testing aircraft will resume governmental test flights this week.  Further details regarding the 787 customer delivery schedule are expected to be part of Boeing’s fourth quarter earnings briefing scheduled for the end of January.

We certainly hope that Boeing can once and for all maintain a consistent airline customer delivery program for the long awaited 787.

We have had the opportunity to review the broad spectrum of readership statistics for 2010, and we would like to sincerely thank all of our Supply Chain Matters readers for their loyal following..

In 2010, this blog experienced:

• A 64 percent increase in visits since the beginning of the year.  In 2010, there were close to 250,000 visits to this blog and over 3 million site hits.
• A 56 percent increase in unique (first time) visitors since the beginning of the year.  We welcome each of the nearly 100,000 new visitors to this web site in 2010.
• Nearly 52,000 search engine links referencing Supply Chain Matters content.

We have also received a lot of kind complimentary feedback regarding the quality of the commentary published in Supply Chain Matters along with the broad array of supply chain cross-functional topics that we elect to provide in our ongoing commentary and insights. This has led to follow-on individual consulting and other incremental business for our consulting and research business.

Again, thanks to all our readers for your loyal following, and keep the feedback coming.  We also extend a shout out with sincere thanks to all of our blog sponsors in 2010 and trust that readers had the opportunity to view each of their capabilities.  They have each demonstrated a commitment and have embraced the power of blogs as a new medium for global supply chain related thought leadership.  Please take the time to review their capabilities.

If you have interest in becoming a Supply Chain Matters sponsor, and would like to know more about our other services, please send an email to: info<at>supply-chain-matters<dot>com or fill in our sponsorship inquiry form which can be accessed on the top menu.

Bob Ferrari, Executive Editor