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Airbus Aircraft Delivery Cadence Under the Looking Glass

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This week, The Wall Street Journal confirmed what many existing suppliers residing within the Airbus supply chain probably know, that the commercial aerospace firm continues to be challenged in consistency in supply chain customer fulfillment.Airbus Mobile Alabama Manufacturing Facility

The report, Airbus Tackles its Procurement Procrastination Woes, (Paid subscription or complimentary metered view) reports that Airbus executives are trying to end what has become an annual rite, the end-of-year hockey-stick effort to fulfill its annual target for customer airplane deliveries. Noted is that last December, commercial aircraft manufacturing delivered 79 aircraft in a single month representing about 12 percent of its annual total.  However, these all-hands, round-the-clock efforts take an annual toll on manufacturing and supply chain resources, causing the New Year to get started on a muted rate.

Thus far through April, the company has delivered only 177 planes, just 27 percent of its annual committed output volume.  As noted in prior Supply Chain Matters postings, deliveries of the new A320neo model single-aisle aircraft have shifted to June to allow engine provider Pratt and Whitney more time to correct some last-minute design and production issues. Additionally, the WSJ indicates that only four of the brand new A350 long-range jets have been delivered in the first quarter amidst supplier problems.

The company’s COO of commercial aircraft acknowledged to the WSJ the ongoing frustration and that: “we need to do better.” The report further indicates that the company is exploring further means to change the way airplanes are manufactured in a more predictable manner, language that often translate to additional manufacturing automation.

Both Airbus and rival Boeing face very aggressive supply chain and final manufacturing ramp-up targets over the next 3-4 years in order to meet both customer delivery expectations and aircraft program cash-flow milestones. At the end of April, Airbus reported net cash outflows of $3.37 billion largely as a result of delayed aircraft deliveries.  In many cases, suppliers are not paid until finished aircraft are delivered to customers. Boeing is not immune to same challenges, having recently announced a series of significant job cuts and additional cost reduction initiatives.

Commercial aircraft supply chains thus remain in this unique quandary- upwards of 8-10 years of customer order backlog, but at the same time, enormous and continually building challenges in the ability to meet unprecedented supply chain and manufacturing output cadence.

Truly unique with its own set of dynamic challenges.


Highlights of Supply Chain Matters Interview with Jabil

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Supply Chain Matters recently had the opportunity to speak with contract manufacturing services (CMS) firm Jabil’s, specifically Vice President of Supply Chain Solutions and Global Logistics, Fred Hartung.  If readers had any perceptions that certain CMS firms were laggards in advanced technology adoption, our interview led to quite the contrary perception.

Jabil has been featured in supply chain industry headlines these past two weeks. At the recent Gartner SCM Executive Conference, Jabil’s intelligent supply chain capabilities in real-time visualization and advanced analytics resulted in receiving an award as a “Supply Chaininnovator.” Hewlett Packard unveiled what it termed as the first production-ready commercial 3D printing system and Jabil participated in the press conference. At last week’s SAP Sapphire customer conference, SAP and UPS announced a partnership for services related to an on-demand 3D printing network which involves this CMS as well.

Hartung oversees multiple roles including responsibility for advanced supply chain technology, digital supply chain, advanced planning and trade compliance. He additionally heads a team overseeing Jabil’s supply chain global network.

Our discussion touched on a number of business and technology areas.

Regarding the current CMS industry landscape, Hartung described changing global transportation costs, foreign exchange rate volatility and changes in the “value density” of products as all dynamic industry forces.

More manufacturing focused OEM’s now see themselves as incorporating more and more software and technology as major parts of product design and functionality features and that impact spills over to contract manufacturers. OEM customers were further described as increasingly practicing near-shoring manufacturing sourcing practices aligned to major geographic product demand regions with Mexico and Vietnam really taking off along with resurgence towards manufacturing in Malaysia. Hartung indicated Jabil’s belief that 3-D printing will make a big difference in localized manufacturing tied to customer fulfillment. OEM’s are still experimenting with incorporating 3D printing concepts into product strategy and Jabil is assisting by maintaining various labs across Silicon Valley.

We discussed what is often described as the number one multi-industry supply chain decision-support challenge, that being gaining and enabling end-to-end planning and customer fulfillment visibility. Hartung described this challenge in the context of “actionable visibility”, a focus on the most pertinent information supporting business processes along with “in-control” digitized streaming information flow that is anchored in analytics-driven decision-making capabilities. Another Jabil consideration in its use of advanced analytics is directed at managing and mitigating supply chain risk. Nine separate categories of risk are continually tracked ranging from low to higher supply chain disruption and risk factors.

In the area of addressing Internet of Things, machine learning and cognitive computing opportunities, Hartung acknowledged that information security has got to be an area to be taken very seriously, and prominent in the early design process. Jabil views IoT as an enabler of new business models for customers and for Jabil, and here again, leveraging analytics, either prescriptive or predictive, is the important area of concentration. Responding to the question of whether customers ready for these types of initiatives, Hartung indicated that while Jabil is way ahead on the learning curve, customers indicate that they want to hear more.

Besides incorporating advanced supply chain technology and multi-tenancy practices across Jabil’s own extended supply chain, the CMS is increasingly being called upon to assist OEM customers themselves in deployment of such technologies across their extended supply chains as-well.  This has been a new area of technology services for some CMS providers.

As a key supply chain partner in many more multi-industry settings, a contract manufacturer must be knowledgeable of the business process and enabling technology competences that make a difference in meeting both customer and internal business and supply chain outcomes. This is an industry that moves in lock-step with its customers, and is constantly challenged with narrow margins to work with.

As a recognized supply chain industry analyst, this author has had the opportunity to view a number of Jabil industry presentations over past years as well as to speak with the firm’s executives. This CMS has consistently demonstrated a willingness to leverage and collaborate with customers on advanced technology use cases across its supply chain management processes.  After my recent interview, I am further impressed with the firm’s understanding and practice of leveraging areas where technology enablement can indeed be a facilitator of a more adaptive and resilient supply chain.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group LLC and Supply Chain Matters® blog. All rights reserved.


Overstocks of U.S. Retail Inventories Spell Challenges for the Remainder of the Year

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After many prominent retailers have formally reported their financial results for the first quarter, business and industry media have been quick to note that for the most part, U.S. retailers are facing a glut of existing unsold inventory.  The exception is certain online retailers such as Amazon who have managed to post continued sales gains and leverage the existing popularity of online shopping especially in categories such as apparel. However, retailers with a large physical retail store presence and who suffered significant revenue declines in Q1 are expected to deeply discount and promote the sales of excess inventories over the coming weeks.

While this is certainly some good news for avid shoppers, this quandary will have implications for the remainder of the year. A published report from Reuters quotes a retail industry equity analyst at Edward Jones as indicating that retailers are now in the process of cutting back inventory purchases for both the third, and the all-important fourth quarter of this year.

The stated risk is that without very comprehensive and purposeful inventory planning and supplier management, retailers run the risk of jeopardizing revenues and profits in the crucial holiday buying quarter that comes towards the end of this year.  Those retailers who have invested in more advanced inventory optimization and management applications that integrate with item-level point-of-sale sales data may well get the benefit of successfully navigating through some difficult upcoming quarters.

The other obvious implication will be on global ocean container transportation, which continues to slog through its own crisis of too many ships chasing declining shipping volumes. With many traditional retailers cutting back on second-half inventory purchases, shipping volumes may well decline even further. That will bring added revenue and profitability pressures to some existing ocean container shipping, port operations and inter-modal railroad lines.

The current environment of global economic uncertainty and rapidly shifting shopper buying preferences continues, and retail focused supply chains, as always, are in the cross-hairs of scrutiny and required performance. Retail supply chains and their associated sales and operations planning teams will continue to learn lessons in responsive merchandising and more proactive inventory management while continuing to discover the increased costs of online fulfillment.


Supply Chain Matters Highlights from ISM 2016- Part One

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This supply chain industry analyst just returned from attending the Institute for Supply Management (ISM) 2016 annual conference held earlier this week. This is the conference where purchasing and supply management professionals gather for added learning, education and insights related to supply chain management and in particular, supply management’s role in contributing to required business outcomes.ISM 2015 Conference Logo

I walked away from this particular conference with many positive impressions, some of which will be shared in subsequent Supply Chain Matters commentaries.

Overall attendance was impressive as well as the profiles of those attending.  I was especially pleased on observing the many Millennials in-attendance, more so than I have observed in the many supply chain conferences this author has attended over the years. That is indeed great and a testament to perhaps the growing attraction to careers in supply chain management. Praise to ISM’s conference planning teams for putting together an overall agenda that featured many topics related to do’s and don’ts of procurement management as well as a number of panels that addressed skills, talent and career management topics. In that light, I also had the opportunity to hear from five of this year’s 30 Under 30 Rising Supply Chain Stars which was equally impressive.  More on that will also be forthcoming in a subsequent posting as-well.

One very impressive presentation I would like to highlight was presented by Ian Hope Johnstone, Head, Sustainable Agriculture for Global Operations at PepsiCo. His presentation addressed how this global based food and beverage producer is advancing sustainability in agricultural practices across a spectrum of farmers.  Further addressed was PepsiCo’s ongoing Sustainable Farming Initiative(SFI).

In a previous commentary addressing the global and industry supply chain ramifications of the recent COP21 Paris Climate Agreement, this author came to a realization, that the recent ground breaking COP21 Agreement on stemming global climate change provides both a profound call to action as well as a significant opportunity- an opportunity for bolder collaboration and joint goal-setting to not only address greenhouse gas reduction imperatives and to saving our planet, but the imperative of sustainable business itself.  It literally should change our perspectives and goal-setting for sustainability strategies surrounding industry supply chains, moving such initiatives beyond functional to line-of-business level efforts. Through Supply Chain Matters, my hope is to provide specific examples of such efforts, and clearly I can now cite PepsiCo’s ongoing efforts as a benchmark example of the context of business sustainability.

PepsiCo’s sustainability umbrella is indeed broad and includes sustainability needs related human, environmental, talent and global citizenship initiatives. No doubt the firm’s dynamic Board Chairperson and CEO, Indra Nooyi has been a guiding and important C-Level sponsor for such efforts and resources. Within the firm’s 2014 Sustainability Report, Ms. Nooyi articulates very powerful statements that communicate the broader requirements for sustainable business. One of those statements is here noted:

Weaving sustainability into the very fabric of our organization is a way to help future-proof our business for the changing world around us.”

PepsiCo’s sustainability umbrella therefore extends beyond procurement and umbrellas the entire value-chain and the many dimensions of doing business.

In his presentation, Johnstone highlighted the compelling need that food production must double by 2050 amid constrained land environments, an aging farm population and the ongoing climate changes impacting our globe today.  Once more, he validated that consumers are highly influencing sustainability needs, being much more demanding of health conscious and protein-based foods, along with demanding visibility to where particular food products are sourced.

From the procurement lens, PepsiCo’s Sustainable Farming Initiative is both consumer and supply chain facing linking the two toward common objectives. The Procurement criteria now include a diamond visual that includes Service, Quantity, Price and recently added Sustainability as buying criteria. Sustainability includes security of supply over a much longer-term window, ten or more years in many cases. Noteworthy was PepsiCo’s procurement team efforts in listening to and collaborating with various farmers on efforts required to reduce water consumption, smarter agricultural practices and respecting the data ownership needs of farmers.

This global food and beverage producer clearly recognizes that no one corporation can succeed in farming sustainability without actively working with other consumer products producers such as Land of Lakes, Kelloggs, McDonald’s Unilever and others in an industry consortium for addressing common standards in sustainable farming practices and in consistent water and land conservation and renewal practices.

For further information, our readers can review PepsiCo’s dedicated sustainability web page.

In our Part Two commentary I will address some other personal highlights from this year’s ISM annual gathering.

Bob Ferrari

 


Evidence of Business as Usual in North America Automotive Supplier Relationships

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In the week that the purchasing and supply management community is meeting at the Institute for Supply Management (ISM) annual conference being held here in Indianapolis, is a disappointing report of business as usual supplier relationship management challenges across the U.S. automotive industry.

The Wall Street Journal reports Lukewarm Supplier Ties Hamper Auto Makers (Paid subscription required), reflecting a recent survey involving many suppliers to the U.S. automotive industry. The report concludes that: “top U.S. and Japanese auto makers are losing out on hundreds of millions of dollars in potential cost savings because of lackluster relationships with their parts suppliers.” This 16th annual survey, conducted by Planning Perspectives Inc. polled 647 salespeople from 492 top suppliers.

According to the survey results, four out of the six auto makers operating manufacturing plants in North America experienced erosion in their supplier rapport over the past year, a year in which auto sales have been booming in North America.

Among the top five ranked automakers in supplier relationships were brands such as Toyota, Honda and Ford Motor.

Noted as having the largest erosion in supplier relationships was Nissan Motors, which intensified pressures on suppliers to reduce costs. Cited as most improved in supplier relationships was General Motors which reportedly resulted in suppliers contributing more than $3,000 to the profit GM realized on every vehicle manufactured and sold in North America last year. However, GM was ranked just 25 points above Nissan. The report notes that GM hired a new procurement chief in 2014 with previous executive experience at parts supplier Delphi Automotive, who asked suppliers for input as to what GM was doing that, was not contributing to a win-win relationship.

Coming in with the lowest supplier ranking was Fiat Chrysler which reportedly has improved many of its internal processes but those processes still lag behind those of its competitors. The automaker has recently reorganized its quality and purchasing management teams including recruiting a new chief purchasing officer.

From our lens, the takeaway seems to be that for U.S. automotive OEM’s, when it comes to fostering more positive supplier relationships, the trend remains one of business as usual, namely singular cost reduction pressures flowing down the tiers of North America automotive supply chains. The more times change, the more behaviors remain the same, despite learning to the contrary including unprecedented industry product recall incidents


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