General Electric CEO Jeff Immelt is the Chairperson of President Obama’s Presidential Council on Jobs and Competitiveness, a commission that is addressing a set of policy recommendations for long term U.S. competiveness and job growth in manufacturing.  In a previous Supply Chain Matters commentary, we provided our impressions of the interim report of this commission.

Immelt recently hosted a select group of financial media journalists on a tour of three GE manufacturing facilities.  The GE team took the time to share with reporters some significant trends and observations regarding manufacturing, and the critical role played by industry supply chains.

Daniel Gross, economics editor at Yahoo Finance penned a fairly comprehensive blog commentary sharing his impressions of the GE tour. In his commentary, you will note some rather insightful points:

Modern manufacturing process is all about doing more with less: less time, metal and labor.  Work teams have repeatedly developed time and material saving innovations, which translates to higher and higher levels of manufacturing productivity.  Noted is that GE can accommodate a 20 or 30 percent increase in order volumes without the need for a corresponding increase in its employee base.

Readers may ask- where, if anywhere does job growth come from?  According to Immelt, it comes from the supporting supply chain.  Large manufacturers such as GE have placed ever more dependency on networks of suppliers.  GE’s Greenville South Carolina plant relies on 16 Tier One suppliers,  Immelt’s ratio is that for every employee at the factory, there are 8 jobs in the supply chain, because smaller suppliers lack the scale and resources to invest at the same level as global manufacturing OEM’s.

Another belief from Immelt is that the U.S. has to take market share in order to drive growth. Market share for U.S. based manufacturers is the product of endless product and process innovation, along with export markets. During the recent severe recession, GE elected not to cut back on research and development and came out of the recession with more products in the pipeline.

Some readers, and indeed journalists come to different conclusions, namely that the U.S. is in the midst of a jobless recovery.  John Gapper, and editorial writer at the Financial Times were also invited on the GE tour. In his column, (paid subscription or free metered view required) Gapper expresses the view that from what he observed, there is little cause for optimism in U.S. job growth. He cites statistics from the McKinsey Global Institute indicating zero growth in U.S. manufacturing jobs by 2020. He notes that the best hope is that manufacturing productivity rises so high that offshoring is no longer worth the effort.

For our part, Supply Chain Matters offers two of our own conclusions for readers and legislative policymakers to consider.

Long-term U.S. manufacturing competiveness must be predicated on a robust and competitive supply chain networks, particularly in key growth industries such as alternative energy and aerospace.  Mid-marker and smaller suppliers continue to struggle with financial lending and legislative policy practices that stem growth and investments in innovation.  Make no mistake that countries such as China have adopted policies and mechanisms to promote domestic manufacturing and supply chain growth, including favoring of domestic companies for strategic growth markets.

Second, with the current gridlock in the U.S. Congress, any form of a long-term strategic strategy seems to get totally lost in short-term parochialism and playing to the next election.  The U.S. needs a long-term strategic manufacturing and supply chain competiveness strategy and the time is now.

Too much time is being wasted on political gamesmanship and agendas. Mr. Immelt and GE should be applauded for raising more awareness but what is needed now is not tours, but concrete initiatives and action.

Bob Ferrari

This posting is a follow-up to our previous two commentaries, Aerospace Supply Chains Are Now Stressed, and Another Supply Chain Related Delay in Boeing’s 787 Program.

This week, during its fiscal earnings briefing, Boeing cut projected deliveries of its new 787 and 747-8 aircraft to 25-30 aircraft this year.  According to an article in the Wall Street Journal, Boeing chairman and CEO Jim McNerney indicated that the company’s recent decision to initiate a one month halt of 787 production final assembly lines gives its network of global suppliers a chance to catch-up.  His quote: “I view (the pause) as good news.  The facts are we have broad visibility across our supply chain now and when we need to make a pause to rebalance it… we do it early.”

Our Supply Chain Matters reaction- it’s about time!  After being three years late, and after a series of outsourced supply chain related setbacks, Boeing now assures that it has broad supply chain visibility.

During the month of July, Boeing has been conducting final certification and acceptance testing of the first 787, which will be delivered to All Nippon Airways. In our last commentary, Supply Chain Matters made reference to a posting on Flighblogger which noted Boeing’s careful use of wording regarding customer deliveries of the 787. That vague wording appears to continue, now being lumped together with the 747-8 program status which adds even more speculation as to stress points in Boeing’s supply chain.  Another open question points to any supply disruptions a result of the March earthquake that struck Japan.

To give readers a perspective of aerospace supply chains in general, consider the following.  In its latest earnings briefing, Boeing reported a total order backlog of $323 billion, $262 billion of which was attributed to commercial aircraft.  Boeing also announced that it was increasing the rate of 737 production to 42 per month in Q1-2014.  Rival EADS, manufacturer of Airbus aircraft, reported its total order backlog as €453.8 billion (($649 billion), most of which involves commercial.  That amounts to close to one trillion dollars in combined backlog, and does not count other smaller aircraft OEM’s.  Delivery schedules extend out at least seven years, and are growing in time windows.

Boeing’s supply chain has been under the looking glass for many months.  Airbus’s supply chain, after some initial snafus and setbacks with its massive A380 program, seems to be humming, but it also faces more challenges as order rates continue to climb.  EADS booked €58 billion ($83.3 million) of new orders in the first six months of this year alone, the majority being the newly announced A320neo. In response to the explosive popularity of the new A320neo, Boeing is scrambling to re-engine its popular 737.

Yes indeed, aerospace supply chains are being stressed.  If participants are not feeling it now, they will soon.

Bob Ferrari

©Copyright 2011 The Ferrari Consulting and Research Group LLC

Supply Chain Matters has readership representing a broad range of supply chain functional and operational disciplines including planning, procurement and product management.  For those readers who are involved in conducting or participating in your organization’s Sales and Operations Planning (S&OP), we would like to call attention to an upcoming conference you might want to consider attending.

The IE Group is conducting its S&OP Innovation Summit in Boston on September 15-16.  We had the opportunity to attend last year’s conference, and we found the conference to be jam packed with presentations addressing S&OP case studies from multiple industry settings, as well as ample opportunities for networking with other S&OP related professionals.  You are welcomed to read our summary impressions from last year’s Summit. This year, Supply Chain Matters is featured as one of the media sponsors of this year’s conference.

Thus far, the conference organizers have lined-up speakers representing Abercrombie & Fitch, ConAgra Foods, Dow Chemical, Elizabeth Arden, Mars, UPS, among others.  There is also a quality group of technology sponsors where you can have opportunities to “kick the tires” among software dedicated to supporting S&OP and related planning processes.  Supply Chain Matters will also be in attendance at this year’s conference and we look forward to networking among conference attendees and sponsors.  Look for our conference commentary shortly after the conference.

Further information and an invitation can be found at the following web site. Please note that an early registration discount is in effect until July 31. Last year’s conference was filled to capacity.

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

As companies continue to report their Q2 fiscal results, a picture is emerging regarding how high tech, consumer electronics and automotive supply chains responded to the crisis caused by the Japan earthquake and tsunami that occurred in March.  The headline now reads excess inventory, but the implications may not be all that bad.

An article appearing in today’s Financial Times (paid subscription or metered free view required) concludes that fears of supply chain shortages, occurring as an immediate response to the quake, are turning into worries about excess inventory.  Companies exercised precautionary stockpiling of key components to buffer for a potential longer term disruption in supply.  A quicker than expected comeback from Japan’s high tech manufacturers coupled with declining consumer demand in Europe and U.S. markets has inventories remaining extraordinarily high.  The FT quotes the head of Taiwan research at HSBC noting: “Nothing is tight right now.  Those components where there was a risk of shortage are now having the biggest problems (in terms of over supply).”  In the article, FT goes on to note that because potential shortages were addressed so quickly,  it was a testament to the flexibility and diversity of supply chains.  Unfortunately, the move coincided with ongoing weaker demand in the two biggest PC markets, Europe and Japan.

Nanya, Taiwan’s largest DRAM manufacturer by sales, has indicated that its inventory levels are now double the normal two to three weeks of stock.  The Wall Street Journal noted that Freescale Semiconductor, which derives more than one-third of its revenues from the auto sector, confirms weakness in the automotive and industrial sectors while confirming a buildup of inventory at certain customers and distributors. Similarly, Microchip Technology has indicated a similar trend.

So what’s the deal?

Wall Street and the financial markets praise the fact that many supply chains have performed extraordinarily in the midst of the Japan earthquake crisis.  Manufacturers took decisive action to buffer critical component inventories, while quickly locating and qualifying alternative components.  Now, the financial community seems concerned about high inventories.  Go figure !

Supply Chain Matters has its view regarding this dilemma, and readers are welcome to share their viewpoints as well.

Is it not better to be dinged for excess inventory than not being able to support the company’s revenue plan in the midst of a crisis?

It is better to have select excess component inventory for sales teams to take advantage of an industry competitor’s lack of inventory, and perhaps leverage new business?  After all, the incremental cost of carrying additional inventory pales to the cost of losing significant business from a key customer because teams failed to hedge for a shortage.  Many high tech and other manufacturers  also continue to sit on boatloads of cash, so what’s the big deal?

Today’s more responsive supply chains have proven time again their ability to quickly deal with occurrences of excess inventory. The crisis of the Japan earthquake has tested the ability for various industry supply chains to deal with potential financial catastrophe.  Responsive S&OP based planning and what-if scenario analysis have proved to be valuable. Supply chain planning teams will also respond to temporary excess inventory bubbles.

Wall Street- which problem would you like to complain about?

Bob Ferrari

Supply Chain Matters had the opportunity to attend SAP’s Supply Chain Management Summit meeting at SAP North America headquarters. The purpose of this day and a half  summit was to bring SAP’s current supply chain management applications customers together to share information and gain further knowledge on SAP’s various software applications supporting supply chain business processes.  In our initial part one posting, Supply Chain Matters provided commentary on the leadership change within SAP SCM.

We had the opportunity to attend a number of educational sessions during the Summit.  Here are some summary impressions.

A deep-dive session entitled Best Practices in Improving Supply Chain Response Management was rather interesting.  The session facilitators billed their presentation as an educational overview on the role and purpose of response management and stated up-front that the session would not be technical.  The audience however had other needs, and wanted more detailed knowledge on how the newly released SAP Supply Chain Response Management by ICON-SCM would specifically integrate with SAP’s APO and SNC and ERP ECC applications. What became evident is that integration to other existing  SCM applications is still a work-in-progress  What was mentioned is that the initial integration target involves Global Available-To-Promise (gATP).  Also mentioned was that in the interim, customers desiring integration of Response Management to existing SCM or other applications can do so on a custom project management basis.

A session summarizing all the changes incorporated in SAP APO Version 5.0 and 7.0 reinforced that APO customers need to keep abreast of changes, since a lot of enhancements continue to be added.  The key takeaway for APO users is SAP’s message that Release 7.0 provides the staple ECC core release, and that once customers move to 7.0, they will be able to henceforth take advantage of SAP’s less disrupting Enhancement Release Paks which promise to make future upgrades less disruptive.  Eric Simonson of SCM Solution Management demonstrated superb and detailed knowledge of various APO enhancements, and APO customers should keep Eric’s contact data on their smartphones.  One of the other most significant takeaways for SAP customers in life sciences and process industries is that APO has finally addressed comprehensive and detailed support for shelf-life planning, an issue that dates back six years. Supply Chain Matters would be highly interested in speaking with any SAP APO customer who has had experience with this newest shelf-life optimization technology.

There were a series of roundtable luncheons involving customers representing specific industries.  Supply chain Matters sat in on the Life Sciences roundtable that included representation of a broad cross-section of life sciences companies spanning generic drugs, proprietary drugs and pharmaceuticals, medical devices and other ancillary products.  The listing of hot topics and process challenges was quite comprehensive and by our count, the ones most emphasized included lean enablement, extended warehouse management, master data management and reporting, inventory optimization and response management.   To our pleasant surprise, we also discovered that SAP currently sponsors four different forums dedicated to the topic of supply chain tracking and serialization, which is another life sciences challenge given upcoming state and governmental mandates for supply chain drug tracking capabilities. Many life sciences companies are also moving toward extended contract manufacturing, which has added more challenges for visibility and process controls.

By our observation, the most widely attended customer sessions involved Newell Rubbermaid’s use of SAP APO to enhance its S&OP process, and Medtronic’s deployment of SAP Enterprise Inventory Optimization by SmartOps, one of SAP SCM’s other solution extensions.  A lot of learning and watch outs came from both of these presentations. Supply Chain Matters will provide additional comment in subsequent postings.

Overall the Summit was very educational, providing ample time for attendee networking, which is rather important in these times of social media.  Some attendees indicated that they preferred these smaller sized venues, as well as a location that was easy to travel to by automobile, train, or quick plane ride.

In the category of disappointment, was the lack of any definitive knowledge-sharing of how SAP’s ongoing in-memory HANA technology would play a role in SAP’s evolving SCM suite, especially SAP APO. At this year’s Sapphire, SAP Supervisory Board Member Hasso Plattner indicated that APO would be a top priority for HANA. The lack of any education or update was an opportunity lost.

Bob Ferrari