We would like to again call Supply Chain Matters readers attention to two upcoming conferences involving Executive Editor, Bob Ferrari.

On April 28-29, the 2011 OpsInsight Leadership Forum will be held in Boston. This forum will focus on important challenges and approaches undertaken by operations management teams and includes stellar listing of planned speakers from organizations such as Accenture, Aberdeen Group, Economist Intelligence Unit, Kotter International, MTV Networks and Xerox.  Topics include strategy to execution, lean concepts, innovation and change management. We are pleased to announce that Bob Ferrari will serve as master of ceremonies for this event including the conference kickoff presentation.

On May 24-25, the Supply Chain Council will be hosting the Supply Chain World North America conference in Baltimore. These are not normal times for global supply chains.  Speakers at the conference will be addressing needs for building and sustaining supply chain capabilities in the “new normal” of post-recessionary business where business change and unplanned events occur at an extraordinary pace. Join us for a particular session which will be the Pundit and Thought Leaders Panel Exchange, scheduled for day two of the conference, which will be moderated by Bob Ferrari.  Panel participants will include AMR Research/Gartner, IDC Manufacturing Insights, Industry Directions. In this session, industry analysts, noted industry influencers and bloggers will comment and exchange insights on what can be expected in global supply chain needs in this next era, and you will not want to miss this dynamic exchange from some of the most insightful supply chain observers and thought leaders.

Topics addressed will include:
• In light of the increased incidents of supply chain risk and disruption, what are the proactive outsourcing strategies for the next two years?
• What are the next step for organizations in Sales and Operations Planning?
• What strategies can we use to align global supply chain operations in the ‘new normal’?
• What are the talent and information technology skills required in the post-recessionary supply chain environment?

Information and registration information for either of these conferences can be accessed via the Conferences section appearing in the right-hand panel of this site.

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B2B e-commerce provider GXS announced that it had acquired supplier information and community management technology provider RollStream. Specific financial information regarding the transaction was not made available. An FAQ document on the GXS site notes that this acquisition advances GXS’s strategy to speed and simplify the integration of global business communities.

This acquisition comes as no surprise, at least to this author, since RollStream was a technology vendor with a lot of upside opportunity.

Supply Chain Matters previously commented on our impressions of RollStream back in June.  We were favorably impressed with the business approach, user interfaces and breadth of information management functionality. We were especially impressed with the social media based design aspects of RollStream’s Community Platform.  This provider has a marquee customer base of customers in healthcare distribution, grocery and manufacturing related supply chains. A noted drawback was that the RollStream platform per se lacked transactional or value-stream planning capabilities, but this acquisition is an obvious response to that drawback.  Both companies stand to gain from this event, since the GXS EDI and transactional platform now has the opportunity to leverage RollStream’s social and supplier collaboration platform.

While some would question the definition or value of social supply chain concepts and technology, we believe that this area will prove to be more important over the long-term.

If you desire to gain further understanding of social supply chain potential, you are welcomed to view an on-demand thought leaders webcast previously delivered by Lora Cecere, Altimeter Group, and myself that explored both the front-end demand and supply concepts of social supply chain.

Supply Chain Matters will have further, more in-depth commentary regarding the implications of this acquisition after we have had the opportunity to secure a further briefing from both parties.

Bob Ferrari

The Wall Street Journal reported today(paid subscription may be required) that Johnson and Johnson will embark on yet another  reorganization in the wake of significant manufacturing quality problems resulting in multiple product recall incidents  that stretch back to 2009. There have been 19 product recalls dating back to September 2009. J&J’s McNeill Consumer Healthcare Group is the primary manufacturer of cold, allergy and pain relief medicines under the popular Tylenol, Benadryl, Motrin and Zyrtec brand names which have been involved in various product recall incidents.

According to the WSJ article, the McNeill unit in the U.S. will be spun-out as a separate organization. The unit will be headed by Patrick Mutchler, a 35 year veteran employee who has had a variety of assignments on the consumer business side.  Also reported was that executives Marc Robinson, who had overseen J&J’s OTC worldwide businesses, and Peter Luther, who had been president of the McNeil  unit, have been given other roles.  These moves were apparently motivated to give more focused attention to quality and compliance needs as well as restoring consumer confidence in J&J consumer brands.  Supply Chain Matters commented in late December on a series of previous executive promotional appointments at J&J which were designed to assure more focused accountability and attention to company-wide manufacturing and supply chain process needs. These included the promotion of executives Alex Gorsky and Sheri McCoy, who were speculated to be in line for succeeding current Chairmen and CEO William Weldon.  We communicated in that commentary our hope that the newly elevated executives would put personal competitive instincts aside and come together with a unified plan of action to address the ongoing quality crisis. (As a side note, Mr. Weldon was granted a 3 percent base salary increase for 2011, but his 2010 bonus was cut by 45 percent.  The increase was reported to be based on Mr. Weldon’s handling of the product recall crisis.)

As these new appointments were announced, another J& J product recall announcement came yesterday involving 34,000 bottles of Tylenol 8-Hour Extended Release caplets after continued consumer complaints of musty or moldy odor. Readers might recall that similar complaints, tracked to chemicals applied to wooden pallets, existed in certain 2010 recalls. In this occurrence, the presence of trace elements of the chemicals TBA (2,4,6-tribromoanisole) and TCA (2,46-trichloroanisole) were linked to the recalled product, which is different than previous recalls. J&J also as a precautionary measure, widened a wholesale-level recall first announced in January, adding 10 product lots comprising 717,696 bottles of various Benadryl, Tylenol and Sudafed products. A review of past manufacturing methods found cases where equipment cleaning procedures were insufficient or not adequately documented.

While J&J is taking organizational action to resolve its ongoing quality crisis, one has to wonder about the clarity and speed of management actions.  What does a spinoff of McNeill accomplish?  More importantly, where are the accountability efforts across all of J&J’s manufacturing and supply chain activities?  It was previously noted that Mr. Gorsky was given responsibility for proactively addressing company-wide manufacturing and supply chain quality measures while Ms. McCoy had oversight of the consumer business units. There have, at least to our knowledge been no high-level executive firings, other than announcement last September of the early retirement of Colleen Goggins, the former lead of the consumer business.

As noted back in October, no company, not even J&J, can rest on a previous reputation of quality and responsiveness. J&J needs to fix its quality and supply-chain problems fast. It is unclear that adding more executive layers of focus and responsibility will help in this effort. What J&J needs is a complete transformational strategy that encompasses accountability, process, technology and change management components.  Time is of the essence along with clarity of communications and action.

Bob Ferrari

As the global supply chain community enters the third week since the devastating earthquake and tsunami that hit northern Japan, some distinct patterns are beginning to emerge, particularly in the automotive and high tech industries.

Situation on the Ground

The priority focus on the ground remains with taking care of survivors, recovery of the victims, and strong concerns related to controlling the effects of radiation leakage from the five reactors located at the nuclear power station at Fukushima.  Food and water supplies are now flowing to the impacted region, which continued evacuation plans remain muddled.  Japanese and other multinational companies continue their efforts on assessment of the condition of people, facilities, and supplier networks. Aftershocks are still prevalent with some exceeding 6.0 on the Richter scale. The availability of consistent electrical power throughout the country as well as growing concerns of the effects of radiation leakage remain growing concerns among citizens and businesses.  One little known fact from those not residing in Japan is that while the Tokyo region uses 50-hertz electricity, the western region around Osaka utilizes 60-hertz electricity, thus making it very difficult to share electrical power burdens across all of Japan.

Food Products

As more communities, drinking water supplies and food products are discovered with elevated or abnormal levels of radiation, various countries have imposed outright bans on the import of food products to stem any radioactive contamination spreading across global food chains. As of Friday, authorities noted six types of vegetables with traces of contamination.  The most immediate concern is focused on the spread of radioactive iodine, which is more hazardous to humans.

The immediate crisis will have impact on both the export and import of food supplies within the country. Australia, China, Taiwan, South Korea, Singapore and the United States have banned imports of dairy products, fruit, vegetables seafood and other products from the areas located near the impacted nuclear plant. More bans will surely follow.

Meanwhile as Japan continues to deal with the aftereffects of the disaster, it will most likely be forced to increase imports of certain food and water supplies to compensate for elevated contamination levels, thus adding to global concerns for increased commodity prices brought about by global supply and demand shortages.

Automotive

For the automotive industry as a whole, it would appear that most of the impact will be felt in the Tier Two or Tier Three components that feed production of other components and final assembly of actual autos, trucks and other vehicles.  A Financial Times article quotes Dave Andrea, vice-president of the Original Equipment Suppliers Association as noting: “What vehicle manufacturers are finding are parts within parts within parts that are sourced from a single-source Japanese manufacturer.” The article also notes that Goldman Sachs has tagged two other supply chain areas, rubber products and plastics, along with electronic components as heavily reliant on Japanese manufacturers. Other reports have noted shortages beginning to appear for mass inflow air sensors manufactured by Hitachi Sawa Automotive Systems, which accounts for 60 percent of the global supply for airflow sensors.  Another identified shortage involves a shiny paint pigment, termed Xirallic, manufactured by German specialty chemical maker Merck KGaA, which is utilized in the formulation of shiny metallic paints used by multiple automotive brands.  Industry observers expect the bulk of the impacts to become much more visible by mid-April, when current inventory and safety stock levels begin to diminish.

Meanwhile, Japanese OEM’s Honda, Nissan, Subaru and Toyota continue to scramble to assess the condition of both final assembly plants as well as supplier networks within country.  The Wall Street Journal reported today (paid subscription may be required) that supplies of some fast-selling vehicles such as the Nissan Rogue and Subaru Forrester already are beginning to dwindle. Deutsche Bank cut its estimate of Toyota’s profit in the fiscal year beginning in April by 84 percent, Honda’s 2012 profit by 50 percent, and Nissan’s by 79 percent.  These are significant impacts

Semiconductor, High Tech and Consumer Electronics

In the semiconductor, high tech and consumer electronics sector, a similar challenge in shortages effecting lower tier components and supplies is also emerging.  Supply Chain Matters noted in our previous third advisory the developing concerns for shortages in NAND flash memory, DRAM memory, microcontrollers, LCD displays and electronic components  Japan accounts for 60 percent of the world’s raw silicon wafers and the shutdown of two impacted factories impacted a quarter of global supply. Noted was a Taipei analyst report that 80 to 90 percent of the products that bond integrated circuits to glass panels for electronic displays coming from two Japanese providers. Similarly, BT resin utilized to bond chipset packages may be impacted.

Today’s Wall Street Journal also notes that Kurea Corporation, a supplier of 70 percent of the global market for a polymer used in the production of certain specialized  lithium ion batteries, the kind currently utilized in Apple iPods.  The company’s polymer, which is made from a resin known as PVDF, is used as a binder in lithium-ion batteries and its factory located in Iwaki has been closed since the quake, with an uncertain time as to when the plant can resume operations.  The company has factories in China, Vietnam and the United States but none can produce PVDF. Kurea’s chief executive noted that the Japan disaster would accelerate plans to source more production external to Japan. The supply of lithium-ion batteries is also affected by the production facilities for Sony and Hitachi which produce the anodes, which are located close to the nuclear reactor incident.

Action Planning

Now is the time for supply chain planning and sourcing teams to be validating the sourcing and status of all supplies that originate from Japan.  While northern Japan is the obvious impacted area, other parts of Japan will continue to deal with some of the aftereffects of the disaster such as a lack of consistent electrical power, and the effects of the radiation crisis stemming from the Fukushima Daiichi nuclear complex. One report notes that businesses covered in the area served by Tokyo Electric Power and Tohoku Electric Power account for 45 percent of Japan’s manufacturing output, with measures for reduced work shifts as a possible outcome in the coming weeks. Supply Chain Matters believes that manufacturers should have plans developed for a worst case or best-case scenario for plans incorporating the next two quarters.  While current in-transit or buffer inventory levels may allow some breathing room, the evolving situation in Japan points to some period of capacity and supply reductions.

Procurement teams should also be planning for price increases and secondary qualification and sourcing of impacted components as global supply chains scramble to compensate for supply and demand shortfalls.  Larger, high volume OEM’s will fare better in insuring supply, while other manufacturers  will probably have the challenge for securing other sources of supply.

It is far better at this point to have scenarios identified for sales and operation teams and executive management, scenarios that while unpleasant, may be more prudent as the situation evolves.

We would like to invite our readers to respond to our interactive poll located on the right-hand panel, regarding your organization’s current perceived impact from the events in Japan.

Bob Ferrari

A news report out of China indicates that Procter and Gamble and Unilever will each dramatically increase prices for their products sold in China.  Both companies confirmed the price increases but have declined to provide specifics.  The Shanghai Daily reported that prices on detergent and soap could rise up to 15 percent next month.

Last month, P&G indicated that it was facing at least $1 billion in increased commodity costs this year and had no choice but to raise prices.  Similarly, consumer goods companies such as Coca Cola, Hershey, Kraft Foods and PepsiCo have each indicated increased input costs in the hundreds of millions.

The more important implication implied in this recent development is noted in the Shanghai Daily news account, namely that China’s policy makers are invoking a keen eye on price increases from foreign companies operating in China. China’s monetary authorities have had to raise interest rates three times since October because of increasing inflation in the economy. With inflation pressures rapidly rising each month in China there is quite significance to China’s policy makers pushing back on the likes of these multi-nationals.  If either is forced to cutback on the level of planned increases, it will have implications for many other industry players and supply chains.

Bob Ferrari