We continue our Supply Chain Matters commentaries regarding the evolving global supply chain impacts concerning the devastating earthquake and tsunami that struck Japan on March 11. Reports today are noting that Sony Corporation has restated production at the last of the 10 Japan factories that were damaged as a result of the disaster. The Tagajo production facility which produces Blu-ray disks resumed limited production today.  Restoration was in-line with a plan announced in late April.

An article published in the printed Financial Times (paid subscription required) also makes note that direct damage for Japan’s manufacturers has been substantial.  A survey conducted by Japan’s Nikkei business newspaper has pegged direct disaster-related costs for listed Japanese companies at Y2, 000 billion ($25 billion).  Thus far, corporate reports of direct losses have been in the range of $4-$5 billion.

Meanwhile, Nikkei reports that the port of Serndai accommodated its first foreign vessel, a Panamanian-registered coal carrying ship, on noon Friday, eleven weeks since the day of the disaster. While the port was able to accommodate some shipping in April, concerns about high radiation levels from the badly damaged Fukishima Daiichi nuclear power complex caused foreign vessels to avoid the port. The newspaper also reported that Sendai International Airport is currently anticipating the hosting of international flights in late June.

Bob Ferrari

On the second and final day of the Supply Chain World North America conference, sponsored by the Supply Chain Council, I was privileged to be asked by the conference planning committee to moderate the Pundits and Influencers panel discussion.

This year, we wanted the panel to include broader perspectives and viewpoints on what is occurring across global supply chains, perspectives that span industry analyst, consulting, blogging and academia.

We were fortunate to secure a stellar group of panelists which included:

Simon Ellis, Practice Director, Supply Chain Strategies, IDC Manufacturing Insights

Brad Householder, Partner and Director, Supply Chain Management Practice, PRTM

Noha Tohamy, Vice President, Supply Chain Research, AMR Research / Gartner

Nick Little, Assistant Director, Executive Development, Eli Broad Graduate School, Michigan State University

I asked each of our panelists to articulate the one capability area they believed will be the most important for supply chain organization’s to focus upon in this post-recovery era.  The capabilities mentioned were:

• Responding to demand volatility
• Strategic alignment of the supply chain with the company’s business goals
• Supply chain managers possessing the skills to not only master their function, but more importantly, the soft skills required to sell ideas and innovation.
• Filling the pipeline for new supply chain talent by offering more opportunities for entry-level talent to gain needed cross-functional experience, and for educational institutions to perform a ‘supply-demand’ analysis relative to preparing students for the different skills required in managing globally extended supply chains.

Our discussion and panel interchange  time flew by quickly, but the panel was able to respond to questions directed at the current occurrences of supply chain disruption, including the implications of the recent devastating earthquake and tsunami that effected Japan and multiple industry supply chains. Other questions were directed at what specific general management skills are required in supply chain management, as well as the impact of the organizations in the emerging markets making future impacts on supply chain management.

As we concluded the panel, Noha Tohamy provided a rather interesting perspective.  She noted that some attendees were asking her earlier, what was the next ‘big thing’ that AMR Research/Gartner was declaring for supply chains in the coming months.  Her response was, “there is no new big thing.” “The challenge for supply chain teams in this next era is to continue to work and improve on all the required capabilities of demand response, agility, integrated planning and other declared competencies.”

To summarize our overall experiences and takeaways from this year’s conference, we close with some quotations captured throughout the two days.

“The unthinkable does happen- who would have thought that both an earthquake and a tsunami would occur at the very same time.”

Don Weintriitt, Global Supply Chain Director, Dow Chemical Company

“The planets are aligned for deeper supply chain analytics”

Tom Davenport, President’s Distinguished Professor of Information Technology and Management, Babson College

“Supply chain organizations cannot just return to the former ways of doing business. This new era requires far different means for fulfilling customer and supply chain needs.”

Dave Malenfant, Vice President, Global Supply Chain, Alcon Laboratories

“Once you figure out that something has gone wrong in the supply chain – the response is critically important.”   “Globalize what you can- localize what you must.”

Lalit Wadhwa, Vice President, Global Supply Chain Operations, Avnet Inc.

“Deep collaboration with suppliers and customers is never wasted”

Don Esses, Vice President, Supply Chain Operations, QCT Division, Qualcomm

Supply Chain Matters again thanks the North America Leadership team of Supply Chain Council for the opportunity to participate in this year’s annual conference.

Readers can view our other previous conference commentaries at the following links:

Dispatch One

Dispatch Two

Bob Ferrari

The second day of the Supply Chain World North America conference  was just as informative as the first, and the highlight was a presentation from a supply chain grounded CEO.

Readers can view our day one commentary at this link.

The morning keynote was from Alan D. Wilson, the CEO and President of McCormick & Company, Inc., who’s corporate headquarters were but a few blocks from the conference venue in Baltimore.  CEO Wilson’s presentation was insightful from two perspectives. First, Wilson comes from background and grounded experience in supply chains, having served in the military as a logistician, and having contributed in supply chain roles at Procter and Gamble.  He clearly understands and can relate to supply chain management strategy and importance.

More importantly, Wilson provided a live demonstration on how supply chain professionals can speak and relate to the language of the executive suite.  In his articulation of the shareholder and business goals for McCormick, he was able to clearly map these top level goals to required metrics in material conversion, supply chain and process reliability areas, all within a single, cascading slide. McCormick also has unique supply chain challenges in that its business model of spice and flavor products requires a high level of SKU’s, as well as the need to source inbound materials from over 50 countries.  It was great to observe a CEO who could also clearly articulate these challenges to an audience dominated by supply chain professionals.

Another important strength brought forward was McCormick’s strong emphasis and reinforcement of corporate culture being the fabric of the company.  This culture includes an obsession with quality and firm and demonstrated beliefs in respect, inclusion, recognition and collaboration. McCormick believes that taking care of employees will lead to employees taking good care of customers and suppliers. A noted example, during the darkest days of the past global recession, McCormick continued to invest in people and in benefit programs. Wilson firmly believes that this strategy, although counter to the prevailing industry norms, paid enormous dividends in commitment and performance. There is also a strong linkage between desired outcomes in business performance with organizational design and individual employee incentives.  The management tenet of measure and reward what you want to change is alive and well at McCormick.

McCormick is not immune to ongoing supply chain challenges in the area of sourcing risk, exploding commodity costs or overall improvement in inventory turns. However,  listening to Wilson, one gets a clear sense that the entire organization is aligned and focused on these challenges and remedial plans.

It would be great if every major supply chain conference could have a CEO guest speaker with the DNA of Alan Wilson.

Bob Ferrari

At this week’s Supply Chain World North America conference, Nick Little, Assistant Director, Executive Development at Michigan State University reminded the audience of the critical importance of any company to invest strategically in innovation and supply chain capability, even in the dark stages of a global recession. He reminded us that in July 2008, prior to the occurrence of the global financial crisis, Volkswagen decided to make a $1 billion commitment to U.S. resident manufacturing, and maintained that commitment even after the U.S. auto market collapsed in 2009/2010.

This week, Volkswagen conducted the grand opening of its new automobile assembly plant located in Chattanooga Tennessee, a plant which could employ 2000 workers and designed to produce upwards of 300,000 vehicles per year.  Volkswagen’s motivation to build a U.S. presence was to become more competitive in the North America market, and also buffer the current negative effect of currency fluctuations incurred by cars exported to the region.  The primary model for manufacture will be the Passat, and Volkswagen will aggressively price the new U.S. manufactured version of the Passat at roughly $7000 less than the current model.  The Passat was designed to compete head-to-head with the Toyota Camry and Honda Accord in the U.S.  As fate often plays out, both Toyota and Honda are struggling to recover from the March earthquake and tsunami that devastated northern Japan, and U.S. inventories of Camrys and Accords are at all time lows.

Volkswagen stands to benefit from more than $570 million in state and federal governmental incentives, and has designed the new plant for maximum efficiency. Up to 85 percent of parts will be source from nearby suppliers, eight of which are located on site to insure just-in-time delivery of parts.  The Wall Street Journal also noted that the average wage level estimated to be $27 per hour is the lowest of all current auto manufacturers with presence in the U.S.

Volkswagen is not the only company that maintained an investment in innovation supply chain capability during the past downturn.  We have previously noted on Supply Chain Matters how the specialized Mittelstand mid-market companies located throughout Germany utilized the recession to invest in more product innovation and production capability, and have been the first to benefit from the current boom of demand from emerging markets. These companies have a relentless focus on market niches, areas where bigger companies chose not to compete, and also in areas that demonstrate steady growth. German exports to China increased 45 percent in the first ten months of 2010, while other countries struggled.  While companies in the U.S. were quick to shed experienced workers, Germany’s industrial and legislative leaders pulled together to come up with innovate means to retain workers and prepare for the recovery.

Yesterday at a subsequent presentation at the conference, Alan D. Wilson, the CEO and President of McCormick & Company Inc., a global producer of spices and flavorings, proudly noted that during the recession, his company continued to invest in people and benefits, and that has paid off with a consistent track record of 4-6 percent sales growth and consistently exceeding Wall Street expectations.  McCormack continues to have a strong belief in continuous innovation and investment in supply chain capability.

Management books and business case studies often point to specific companies who were able to be best prepared to take advantage of a business upturn cycle, often disrupting existing industry participants.  It seems to us that a common trait was not so much growth by acquisition, but rather growth by consistency and follow-through in understanding customer needs, maintaining innovation and value-chain capability.

How many of today’s CEO and Wall Street players really understand this tenet?

Bob Ferrari

Day one of the Supply Chain World North America Conference featured a variety of interesting and insightful presentation as well as the opportunity to renew old and make new acquaintances.

This morning’s keynote delivered by Tom Davenport, Professor of Information Technology and Management at Babson College was titled Competing on Supply Chain Analytics.  This was a very timely presentation given the messages we heard at last week’s SAP Sapphire conference regarding an upcoming era of in-memory computing and broader, faster analytical computing capabilities.  Key takeaways from Professor Davenport talk included messages that good data and executive leadership are the most important pre-requisites for meaningful analytics, insuring that all supply chain analytics are tied to specific decisions and desired outcomes.  Also emphasized was that organizations often tend to dwell more on descriptive analytics (what is occurring or has occurred) vs. prescriptive analytics (what’s the best set of probable outcomes).

Throughout the day we had the opportunity to attend different sessions that included Dow Chemical’s strategies and commitment toward driving social and environmental values across the supply chain, Lenovo’s efforts to segment its supply chain design and fulfillment outcomes, along with Motorola Mobility Division’s ongoing supply chain transformation.

This afternoon featured an executive panel discussing current challenges of the post-recessionary supply chain. Panel participants identified supply chain security and risk management, increased regulatory compliance, a growing gap in supply chain talent and transformation to the “new normal’ of business as common cross-industry challenges.  Dave Malenfant, Vice President, Global Supply Chain for Alcon Laboratories made a very astute statement.  Dave observed that after supply chains were ripped apart during the recession, many may believe that returning to previous structures and organizational norms are the path forward.  Dave emphatically declared that this is not going to work since this new era requires a far different set of organizational capabilities and supply chain process responsiveness.  All of the panelists also reinforced the growing gap in management skills in end-to-end supply chain management, particularly in the growing emerging market regions.

Day one concluded with the announcement of the 2011 Supply Chain Council North America Awards for Excellence.  Supply Chain Matters echoes congratulations to the 2011 award recipients:

For Operations Excellence: Celestica and their Project FireFox initiatives in dramatically improving inventory turns and ROIC.

For Academic Achievement: The University of Tennessee and performance based procurement initiative developed for the U.S. Air Force

For Technology Advancement: SAP and its efforts with Coca Cola to implement SAP Business Objects Supply Chain Performance Management for supply chain wide analytics.

For Defense Sector Operational Excellence: U.S. Air Force Global Logistics Support Center for its initiatives in supporting combat operations.

A very busy day indeed at Supply Chain World North America.

Bob Ferrari