Yesterday marked a huge milestone for Boeing and its supply chain community, the first customer sign-off acceptance of the 787 Dreamliner aircraft, albeit three years late. 

All Nippon Airways (ANA), the Dreamliner’s original launch customer took contractual delivery in a ceremony hosted by Boeing.  This milestone follows the first maiden flight of the 787 conducted in December 2009 and after a number resets of the delivery schedule.

When you view the video you will hear one Boeing employee sum it all up: “after years of effort, energy and sacrifices”, the day has come.  Other videos on the launch web site provide a glimpse of the modern technology offered by this aircraft.

Supply Chain Matters extends its congratulations and large ‘thumbs-up’ to Boeing, all of its 787 team members and supply chain partners for achieving this milestone.

This is a time for all to celebrate this achievement.

After this week’s celebrations, Boeing will again turn its attention toward delivery of over 800 backordered Dreamliners and a production plan that involves two final assembly plants on opposite U.S. coasts.

Bob Ferrari

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

Recently, George F. Brown, the CEO of consulting firm Blue Canyon Partners, Inc. penned an article featured in Industry Week titled Early Birds and China’s Mice.  This article is an important one for the Supply Chain Expert Community.  While we do not agree with all of the article’s conclusions, we recommend it for your reading, especially if your role involves strategic sourcing, product management or global supply chain strategy and operations.

Brown traces some of the history of product and production sourcing within China where many companies invested in the country, including the necessary joint-partnerships, in order to gain a foothold on China’s emerging growth and market opportunities.  Brown coins the term, “Second Mouse firms” which are Chinese firms that were exposed to western product technology and design as well as the learning of solid manufacturing and business process competencies from their western partners.

He refers to the saying “The early bird gets the worm, but the second mouse gets the cheese,” With access to low-cost labor pools and with intimate knowledge of China’s broader middle markets where the ultimate growth for the next decade will be found, these companies can be a competitive threat. He notes that many western companies entered China’s markets targeting the top end, where western brands would prove to be most attractive for Chinese customers. Second Mouse companies have focused on the broader middle market with a willingness to engineer out unnecessary features from the cost structure and compete on ‘good enough’ buying motivations. Named examples include Haier, in the appliance segment, Geely, in automotive and Sany, in construction equipment. The notion is that each of these firms evolved from solid manufacturing and efficiency competencies who have been quick to learn and adopt.

Brown’s conclusion is that: “Ceding these (broad middle) markets to the Second Mouse firms not only most likely hands over global leadership to them, but also enhances the abilities of the Second Mouse firms to compete in the west, both as a result of the earnings from emerging markets and from their continued access to the world’s best laboratory from which to evolve products than can compete and win across the globe.” He notes that future growth will require western companies to develop the ability to compete in the broad middle segments of emerging markets like China, and with their “good enough” products, Second Mouse firms will be able to penetrate both emerging and western markets.

While the article provides some solid food for thought, our view is that the author did not take a broader perspective as to required competencies and existing environments, including constant product innovation, global based product marketing and supply chain capabilities.

If readers dwell on the companies that are truly succeeding in China and in other emerging markets today, firms such as Apple, BMW, Caterpillar, Procter and Gamble, Nestle or Volkswagen, to name just a few, they have done so from integrating all of their broad based competencies, not the least of which has been product marketing and global supply chain business process integration. It has taken Lonovo many years and some stumbles along the way to develop such competencies. Some such as Apple and BMW continue to grow exponentially because their products are attractive to many levels of Chinese and other consumers.  Other such as P&G, Nestle or Volkswagen have nurtured partnerships, local design teams and supplier sourcing to be able to competitively   compete in the broad middle market, or quickly adjust to changing consumer needs.

Western companies also have to deal with the reality of protected currencies and favored trade policies.  They also need to protect their own intellectual property which may prompt a need for different product strategies in different countries or regions.

While the notion that the second mouse gets the cheese seems so straight forward, in today’s challenging markets and hyper competitive economies, companies need to view strategies in the broadened lens of integrated sales, product development, marketing and global supply chain competencies. Rising to the challenge of up and coming companies and “good enough” products requires a market-driven enterprise that can leverage any number of sales, marketing and global supply chain fulfillment capabilities.

What’s your view regarding these market trends and required competencies?

Bob Ferrari

There is yet another milestone event regarding ongoing supply chain impacts concerning the alternative energy industry.

Readers may recall our recent Supply Chain Matters commentary regarding consolidations occurring in solar panel manufacturing.  Intense competition, overcapacity and certain economic advantages have caused China based producers to continue to benefit from global consolidation and more compelling economics that favor supply chain capabilities within China. We previously noted the events leading up to the bankruptcy of Evergreen Solar, and since that commentary, we can now add the bankruptcy intent of Fremont California based Solyndra, at the cost of 1100 jobs. Each of these companies cited their inability to compete with Chinese producers in an environment of global overcapacity and eroding market prices.

Evidence of similar trends, albeit early stage, are now starting to occur in battery production but with a different twist.  Xconomy reported this week that Boston Power, a developer of advanced lithium-ion battery technology announced a new round of strategic funding.

The company announced that it raised an additional $125 million of funding, but with a new twist to its business model.  That revision caused the company’s existing CEO, CFO and vice president of marketing to resign at the time of the announcement. Beijing based GSR Ventures is leading the current round of funding, and the deal is reported to include other funding from the Chinese government.

The company’s new strategic plan calls for a product direction weighted toward the powering of electric vehicles while production operations and most of product marketing are to be shifted to China, where Boston Power is currently building a new factory.  However, Xconomy reports that research and development, product design and sales will initially remain in the U.S. while hundreds of jobs will be added in China. Boston Power’s original founder and now international chairmen, Christina Lampe-Onnerud will also remain in the U.S. while GSR managing partner Sonny Wu will now chair the company’s board of directors. One of Boston Power’s current strategic customers is Hewlett Packard which utilizes its battery technology in its portable electronics.

In essence, this is an example of a westernized  venture capitalist model with a China thrust.  With R&D and design resources remaining in the U.S. while high volume production and global distribution sourced within China, the Boston Power has the opportunity to leverage lower labor costs, lots of governmental incentives and U.S. developed product technology.

Replication is the best form of flattery.  However, this development is yet another warning sign for existing North America and Europe based producers who continue to compete with Chinese producers for market share and long-term supply contracts. All of this is important since many auto industry observers, including ourselves, anticipate a glut of excess electric battery production capacity over the next 3-4 years.  Such situations always tend to favor the lowest cost, most efficient supplier with the strongest OEM supplier ties.

Once again, as U.S. and European politicians make hay of out-of-control spending without the context of a strategic economic growth plan, China continues to show signs of building out the high volume production and distribution expertise to sustain a long-term presence in important strategic growth markets.  We now must add a venture-capitalist model that favors China’s strategic interests.

Bob Ferrari

During these past two days I have had the opportunity to attend and deliver a presentation at the Progress Software’s 2011 Revolution customer conference.  Progress Software develops enterprise software that supports business process management (BPM), event-driven visibility and open integration of information. The name Progress may not be a totally familiar name to the supply chain functional audience, but readers may want to keep this company on your radar scope.

The conference itself drew by my unofficial estimate, over a thousand people representing multiple industry sectors.  Progress customers tend to be those in the IT function, but make no mistake, IT is paying close attention to the needs of supply chain, particularly in the area of BPM and predictive analytics support of supply chain processes along with needs for information cockpits and control towers.

My talk addressed the emerging adoption of predictive analytics in supply chains and I was pleasantly surprised at the number of audience members, nearly a hundred, weighted toward IT and supply chain support. I also had the opportunity to have dinner with some of the conference attendees who are actually implementing control tower concepts such as Dell and others.

The key messages delivered in my presentation are that the planning of global supply chain resources are quickly moving toward the need for more prediction of events and outcomes. Traditional supply chain key performance indicators (KPI’s) such as on-time delivery, efficiency and quality will be supplemented by key responsive indicators (KSI) regarding how the supply chain responds to changes in demand, supply, or market opportunities. The converging forces of a more volatile and fast-changing business environment that requires quicker and more timely decision-making, coupled with the converging forces in IT technology have now provided the opportunity for supply chain teams to leverage needs for broader proactive global visibility, information access and more timely decision making.

Today, supply chains represent constant information in motion, and BPM approaches to capturing, analyzing and predicting outcomes can produce value for businesses. Various forms of supply chain control towers are being discussed and formulated by leading-edge organizations, and it was great to view an actual released control tower application that is now being offered by Progress.

In all cases, every organization should have some form of a joint business and IT roadmap that leverages planning processes into various forms of more predictive planning and analytics.

Does your organization have such a roadmap?

If you  desire more information or a further discussion or presentation on this important  topic, send us an email and we would be pleased to respond.  The address is: info <at> supply-chain-matters <dot> com.

Bob Ferrari

The saga of Hewlett Packard and its missteps continue.  Financial and news media are reporting that HP’s board of directors is this evening considering the ouster of current CEO Leo Apotheker after eleven months of turbulence and  controversy, with his successor noted to be recently appointed board member and ex-CEO of eBay, Meg Whitman.  The latest headline comes from the New York Times. The ongoing comedy is that these decisions are supposed to be confidential until announced officially, but then again HP’s board tends to have lots of apparent leaks, extending back to the ouster of two other CEO’s.  Also interesting, HP’s stock has risen as a result of this speculation.

From a supply chain perspective, this new development drops yet another bomb of huge uncertainty, both for HP’s existing customers such as our office, as well as HP’s supply chain partners..  Will the new CEO revisit the decision to spin-out the PC division or go ahead with the decision?  Does Meg Whitman understand supply chain strategy, or does she care? Will HP lose its leverage in the volume procurement of key electronic components, or then again, will HP exit the hardware segment? Will HP sell-off its tablet and Palm WebOS mobile operating system IP?

Our previous Supply Chain Matters commentary noted that the key player in the catbird seat with all of these developments is Apple, who stands to keep eating into the revenue erosion of current PC and tablet producers.  Perhaps we should speculate that Apple’s board, Tim Cook and the senior management team are popping the champagne corks this evening, yet again.

Stay tuned to this streaming set of HP events since more is sure to come.

Bob Ferrari