Supply Chain Matters will be traveling to Orlando to attend and participate in SAP’s annual 2011 ASUG/Sapphire conference which kicks-off on Monday, May 16.

Similar to last year’s event, we will provide commentary related to SAP technology, initiatives and customer activities related to supply chain, manufacturing, supplier relationship management and business intelligence. We will feature a number of in the moment commentaries during the conference. The SAP Global Communications team does an excellent job of inviting and accommodating a stellar group of global-wide bloggers and SAP Influencers and the upcoming 2011 venue should be no exception.  Readers are welcomed to review our summary impressions from the 2010 conference.

This year, we had a head start in commentary related to SAP’s supply chain activities, having the opportunity to attend the SAP Insider Logistics and Supply Chain conference in March. Our summary commentary of that conference can be viewed here.

This year’s Sapphire conference has been billed to feature new announcements in SAP’s mobile computing strategy, and in particular, collaborative development from SAP’s Sybase acquisition.  Also expected are announcements in the area of business intelligence.  We hope to also gather more clarity related to the release of new SAP Rapid Deployment Solutions (RDS) programs, including a highly anticipated Sales and Operations Planning offering.

Make a note to visit the Supply Chain Matters web site frequently next week as we provide updated commentaries on conference interviews and activities.

There is yet another product recall from Johnson and Johnson, with very similar characteristics and public relations script to previous product recalls.

Yesterday, J&J’s Janssen Pharmaceutical unit  recalled 11,700 bottles of the HIV/AIDS drug Prezista ©of products sold in Austria, Canada,  Germany,  Ireland and the UK.  The cause was attributed to trace amounts of the chemical TBA, believed to be leaching from wooden pallets. J&J noted it received four consumer complaints of musty or moldy odors.

Our most recent  Supply Chain Matters commentary for J&J involved a recall of select TOPAMAX© product produced by Ortho-McNeil Neurologics Division of Ortho-McNeil Pharmaceuticals, Inc., another J&J division. The press release had very similar characteristics of smell and odor caused by TBA leaching.

The affected products in this week’s recall were produced at a J&J plant in Puerto Rico, similar to the multiple recalls involving the McNeill.  The J&J statement again notes that in January 2010, a number of actions to reduce the potential of TBA contamination, including requiring suppliers to verify that they do not use pallets made from chemically-treated wood.

Sounds very familiar and again raises the question of why after 17 months of investigation, incidents of TBA leaching still occur, and what other products sold to consumers still have this lingering  problem.

More importantly, as pointed out in the Bloomberg BusinessWeek April cover story dedicated to the current challenges of J&J, its CEO continues to believe that quality issues involving just a few plants have overshadowed activities involving over 120 plants, and fully expects that J&J will regain the trust of consumers and patients.

While there may be a belief that consumers have short memories, constant product recalls, even if motivated on the side of caution and safety, make regaining trust a bigger challenge.  The time is long overdue for J&J senior management to become very visible on communicating efforts to address systemic supply chain quality remediation.

Bob Ferrari

Japan’s automakers have announced the initial quantifications of the financial impact of the March 11^th earthquake and tsunami, and the numbers appear to be significant.  While automaker Toyota continues to make extra efforts to be transparent, other OEM’s are bit more close to the vest in revealing the overall supply chain picture.

Toyota announced a 77 percent drop in profits for the most recent March quarter, and the financial media is declaring that Toyota will most likely lose its stature as the world’s largest automaker. The company pegged its initial direct losses as a result of the quake to be 110 billion yen  ($1,35 billion).

Toyota has had a series of misfortunes including the massive product recalls that occurred last year, and now the earthquake. In December, the company announced a massive corporate restructuring with the goal to eliminate management layers, and further declared a global production and sales forecast of 8.6 million vehicles, a level last achieved in 2008.

An article in the Wall Street Journal (paid subscription required) outlines the company’s current efforts to resolve and overcome supply chain issues.  While physical damage to Toyota’s main production facilities was spared, parts sourced with suppliers and sub-contractors were not. The good news is that Toyota expects to procure enough parts to lift global output to 70 percent by mid-June, which is a significant accomplishment. The number of critical parts in short supply has declined to 30 vs. around 500 in the days immediately after the quake. The article further outlines some rather interesting senior management dynamics as the company continues to rationalize a strong manufacturing presence in Japan. Akio Toyoda, Toyota’s president notes that the company will not resume full domestic and global production until November at the earliest, eight months after the quake.

Supply Chain Matters praises Toyota for its transparency and openness in outlining the supply chain picture for the company.  We believe that Toyota management is more sensitive to openness after last year’s drubbing.

Meanwhile, other Japanese automakers have also begun to quantify impacts. Honda, believed to be the hardest hit by the disaster, indicated in late April that its quarterly profit dropped 38 percent and attributed the effects of the earthquake and ongoing parts shortages as the biggest reason.  Honda was forced to shut down all production in Japan from March 14 to April 10, incurring a production loss of 58,500 cars. Honda further indicates that plants will run at 50 percent capacity until the end of June, when another assessment is made. Similar to Toyota, Honda does not believe it can return to full production levels until the end of the year. Honda’s North America plants produce 80 percent of domestic demand, with the vast majority of parts also sourced in the region.  However, Honda acknowledged in a March statement that some critical parts are sourced in Japan for global efficiency purposes, and that North America production could be impacted.

Nissan actually reported a profit in its March quarter, noted that overcoming supply chain issues is moving quicker than expected, but also indicated that global production would not return to pre-disaster levels until October.  Nissan quantified its direct quake related loses in the recent quarter to be 39.6 billion yen ($489 million).

Nissan had benefited from Toyota’s quality crisis last year, with U.S. sales rising 12.2 percent while Toyota’s U.S. sales increased by a mere 1 percent. That, along with robust sales in China, helped Nissan’s bottom line in the March quarter.  Results for the remainder of 2011 may be a different picture as the cumulative effects of reduced output, and competition from other global players, takes its toll. For its part, In a strategy directed at protecting market share erosion, Nissan plans to allocate limited parts supply to key market areas such as China and North America.

While it appears that Japanese automakers have risen to the crisis and our making some progress in overcoming continuous supply and parts shortages, other challenges remain, the most significant being additional shortages of electrical power. The government recently called for the shutdown of another nuclear power plant in central Japan, one that supplies considerable capacity to Toyota and other automakers. Plans are being made for back-up power generation along with staggered production shifts around the clock, but the electrical capacity situation remains rather challenging for the remainder of the year.

Bob Ferrari