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Supply Chain Matters has noted in previous commentaries that Aerospace supply chains are now under stress.  Many factors have led up to this condition. A significant recent uptick in airline customer orders for new and more fuel efficient aircraft is locking-up industry delivery  capacity for many years to come.  Increased outsourcing of major components to suppliers has precipitated significant program setbacks with major OEM’s Airbus and Boeing both struggling with aircraft programs that have experienced multiple year delays for customers. Boeing’s latest Q3 earnings report provided a specific  backdrop to the highly visible 787 Dreamliner program, which just entered operational service, but remains three years overdue in production and customer delivery fulfillment of over 800 aircraft.  Customers and suppliers now seek financial consideration for these delays while Boeing makes plans for a serious supply chain ramp-up in production and final assembly of 787’s.

But alas, Boeing is not the only OEM dealing with setbacks.  Last week, EADS, the parent for Airbus, announced its second delay associated with the new A350 passenger aircraft. Initial delivery will delayed by up to six months because of supplier issues, pushing the time window into 2014. EADS also incurred a €200 million ($271 million)direct  charge as an immediate result of this delay. The A350 is made with more lightweight composite materials and is the Airbus competitive alternative to Boeing’s 787.

An article published last week in the Financial Times (paid subscription or free metered view) indicates that this latest Airbus delay was attributed to suppliers being late with planned delivery of key components. Of more concern, Airbus warned that some suppliers were struggling to renew bank loans in the midst of the current Eurozone debt crisis, and there are signs of a new credit availability crunch for European small and mid-range manufacturers. The article reports that EADS has started giving financial support to some subcontractors, and has had to acquire a German supplier, PFW Aerospace. At the height of Boeing’s issues with the 787, it was also forced to acquire some key suppliers.

In a mid-October commentary, Supply Chain Matters noted that that senior supply chain executives should be contemplating scenario plans and contingencies concerning the ongoing Eurozone crisis and its potential impact on global supply chain processes.  One of the outlined areas was the availability of credit to finance ongoing inventory and working capital needs.  A worsening of bank fragility or outright bank or country specific financial failures could cause an additional credit crisis to cascade across industry supply chains.  The latest Airbus announcement is evidence of this growing risk.  We suspect Boeing and other OEM’s are not immune since each has key suppliers located in Europe.

Within the aerospace industry there exists a paradox. On the one hand, order volumes and backlog that stretch well into the next five years and beyond provide the most enviable situation for any industry in the current global economy.  Airbus alone now has an order book rate above €500 billion. Any company or industry would celebrate at having such a situation. On the other hand, supply chain process and program deficiencies, incidents of supply chain risk, and now the potential of financial crisis, are all compounding the ability to deliver the end product to customers in a timely fashion. This should be an industry humming on all engines, but success comes with a burden.

For aerospace supply chains, continuous scenario and contingency planning coupled with proactive response management may well be the S&OP agenda for many, many months to come.

Bob Ferrari

Earlier this month the U.S. Food and Drug Administration (FDA) sought the help and assistance of Chinese food regulators as the U.S. prepares to implement the 2011 Food Safety Modernization Act. The law is aimed at stemming the continued rise in food contamination incidents across the U.S., and among increased inspection and enforcement initiatives, also includes the realization that food safety measures must be incorporated across the entire food supply chain. While the effort is laudable, the reality and scope of control efforts required from both nations remains a rather open question.

An article published in the Wall Street Journal (paid subscription required or free metered view) highlights the growing presence of China’s producers within U.S. food products, with China now representing a significant presence as an exporter of food products. China’s food and agricultural exports more than doubled in 2010, with major exports including processed vegetables and fruit juices.  We were surprised to read that 72 percent of U.S. apple juice imports originate from China.

According to the WSJ, the FDA currently shares inspection information with regulators in Europe and Australia and now hopes to include China. The agency’s current outreach is an effort to secure accreditation of private-sector inspectors and to create a documentation system for China’s suppliers.

Supply Chain Matters has featured multiple commentaries regarding the alarming increases in both food safety and pharmaceutical product contamination and we openly supported the passage of the Food Safety Modernization Act. But the reality remains that China has its own internal challenges regarding the safety of food products and food ingredients.

To gain a current perspective, we came acrossa recent Voice of America News article which indicates that newspapers across China continue to be filled with disturbing stories of egregious food safety violations. A Chinese university student in Shanghai, who was so fed up with the stream of contamination scandals, started a website that collects and summarizes reports of food safety issues.  Thus far, the web site has documented more than 2000 incidents from media sources, and while violations decreased from 2008 to 2010, the trend is rising again in 2011. A callout panel notes some rather disturbing examples, including pork tainted with bacteria that causes the meat to emit blue light, and vinegar tainted with anti-freeze. China’s population continues to be concerned, and China’s political leaders are stepping-up efforts for increased inspection and enforcement of food safety laws.  The question, however, remains the scope and scale of the effort.

While the efforts of both the FDA and China’s regulators to increase cooperation in inspecting food products are encouraging, it does not take away from the reality that food producers across all tiers , especially those involving export and import, have to insure that proper inspectional and process control safeguards are in-place. Government resources are limited, and the scope of the effort requires both governmental and private industry initiatives. The law itself requires that the riskiest U.S. facilities would have to be inspected every three years. One wonders aloud how the on-site inspectional requirement would be interpreted among China’s regulators.  The law also calls for U.S. food producers to have detailed food safety plans encompassing all stages of food chain production.  This provision alone should be the area of emphasis and concern for U.S. food producers, and not the reliance that government regulators will catch major problems.

Bob Ferrari