In last week’s Update Three commentary regarding the current crisis involving the near paralysis among the U.S. West Coast ports of Los Angeles and Long Beach, Supply Chain Matters highlighted that conditions on the ground were not showing any signs of improvement. As this week draws to a close, the situation appears to be deteriorating even more, and now involves clear impacts and continued disruption for both U.S. exports as well as imports.
Last week, the National Retail Federation (NRF) published an editorial with the statement: “The sudden change in tone is alarming and suggests that a shutdown of the ports — either from a walkout by labor or a lockout by management — is imminent.” The NRF has since been joined by other industry associations including the National Association of Manufacturers (NAM) the U.S. Chamber of Commerce, and 60 other organizations representing agricultural growers.
Agricultural exports such as apples, forest products, potatoes and other crops are now jeopardized. Growers indicate that Far East buyers are now cancelling orders and moving to alternative sources of supply. According to a report from industry trade group, Agriculture Transportation Coalition, the consequences of the current port congestion are being felt throughout the United States. The railroads are unable to bring agriculture products from the Midwest and the South to West Coast ports because of the port congestion crisis. In addition, ocean carriers continue to attempt to pass on their increased costs by imposing draconian congestion surcharge fees on U.S. exporters and importers.
A published report in American Shipper (registered sign-up or paid subscription) now indicates that formal labor negotiations among the lead negotiators of the international longshoreman’s union and the Pacific Maritime Association (PMA) are currently in recess and not expected to resume until December 2. The publication characterizes this development as: “bad news for importers and exporters hoping for a quick agreement and rapid restoration of normal operations at West Coast ports.”
A new wrinkle concerning labor work stoppages expanded earlier in the week as independent truck drivers contracted by trucking firms serving both ports initiated multi-day job actions seeking fair wages and better working conditions. These job actions expanded to five trucking firms serving the port complex as of Monday. Truck drivers, mostly hired as independent contractors, have had longstanding grievances with local trucking firms and now the Teamsters labor union has taken the current port crisis as an opportunity to leverage driver demands to be recognized as full-time employees.
We again echo our Supply Chain Matters advice that industry supply chains impacted by the current west coast port disruption should be in full response management mode and seeking alternative options for both imports and exports from these ports. The situation is such that there appears to be little indication of improvement and further indications of shutdown, lock-out or government imposed mediation. Response time to save holiday revenue budgets is in critical stages, too late to save the Black Friday-Cyber Monday holiday weekend, and essential to save customer December and January holiday fulfillment commitments.
We may well observe that the winners and losers of the 2014 holiday buying surge were those individual industry supply chain teams that demonstrated the most resiliency and responsiveness to the west coast port debacle.
Added Visibility to the Challenges of an Apple Supplier- The Increased Importance of New Product Information Integration
Supply Chain Matters has featured a number of commentaries regarding the perils and pitfalls for being an Apple supplier. Our commentary in early October reflected on challenges at Foxconn and the sudden bankruptcy filing of sapphire glass supplier GT Advanced Technologies. Subsequent information has come to light from the unsealing of information filed in relation to GT Advanced Technology’s bankruptcy. Embedded in these reports are important insights on the increased importance of more timely integration of new product introduction information across the extended supply chain business network.
This week, The Wall Street Journal Digits blog (paid subscription or free metered view) featured its own commentary regarding the lessons of being an Apple supplier. The WSJ was successful in gathering specific responses from other Apple suppliers including Pegatron and Wintek. Regardless of the significant customer demands, suppliers do not turn away from Apple’s business because it provides scale, volume and the potential for profits in far higher dimensions.
The WSJ commentary also cites Apple’s peak and valley tendencies for extraordinary new product ramp-up and corresponding large-scale production volume surges that correlate with condensed product release cycles. In one recent example, Supply Chain Matters called specific attention to a rather last-minute product design change that impacted the current iPhone 6 NPI process.
Apple’s key suppliers point to a common strategy to not have a singular reliance on any large, highly demanding customer but rather a diversification among several high-profile customers. Apple is often cited as a rather demanding customer, having key knowledge on a supplier’s cost and production process structures which is an important indicator for having the most up-to-date knowledge and detailed information on a new product’s required test and production process changes or needs.
These reports provide continued learning for high tech and other industry suppliers that feature highly complex, globally extended supply chain networks. Needs for timely two-way integration of new product introduction (NPI) information across the extended supply chain has become far more evident. Product innovation involves time sensitive collaboration for product design and test changes as well as supply chain production ramp-up needs. That is why product design process information is quickly becoming the new requirement for inclusion within end-to-end supply chain business and collaboration networks.
Multi-year supplier contracts often are associated with the need for strategic direct materials. For large enterprises that have the financial resources, they can well provide a source of industry competiveness or edge in supply.
A prime example is provided in aerospace industry as Boeing has just announced a memorandum of agreement with Japan’s Toray Industries for long-term supply of carbon fiber composite material. Once finalized, this contract extension will take effect in 2015. According to one syndicated report, the contract is estimated to have a value of $8.6B.
This ten year supply agreement represents by Boeing’s words, a significant increase in material provided by Toray. It includes expanded material supply for Boeing’s ongoing 787 Dreamliner production program along with provisions to supply wing structures for the new 777x aircraft development and production program. According to the announcement, the wingspan of the planned 777x measures 22.8 feet longer than the span of today’s 777-300ER, which in-itself is a large commercial aircraft. Further noted was that in 2013, Boeing contracted for more than $4 billion in goods and services sourced within Japan’s aerospace sector suppliers.
A large portion of the future demand for commercial aircraft stems from Asia and Middle East air carriers. Sourcing strategic materials in these regions assures continuity of product innovation as well as customer related influence.
We are a mere two weeks before the Black Friday holiday shopping kick-off, and a mere six weeks before the actual Christmas holiday and the severe congestion that is crippling U.S. west coast ports essentially remains the same.
In last week’s Supply Chain Matters commentary we described what many are calling the “perfect storm” of supply chain disruption. Another week later, the crisis is cascading across industry and transportation channels, affecting both imports as well as time-sensitive exports. An NBC News broadcast in the U.S. notes that as of yesterday, 13 ships are anchored off the coast waiting to be unloaded and describes container shipping at “full stop”. While that may be a bit of journalistic sensationalism, it is descriptive.
The on-the-ground realities seem little changed from last week’s situation.
Public finger-pointing among the ILWU labor union and the Pacific Maritime Association (PMA) has become a public spectacle vs. any perceived constructive progress. Union officials continue to point to chronic shortages of truck chassis, the impact of having to unload far larger container ships and rail bottlenecks. Meanwhile, at least one container shipping line, U.S. Lines, is placing a Port Congestion Surcharge, effective November 17, amounting to $800 for a twenty-foot container and $1000 for a 40-foot container. That is sure to add additional heartburn for retailers and manufacturers alike.
A published report from the Journal of Commerce reports that air freight forwarders with operations in the Asia Pacific region are observing space shortages with shipping costs rising dramatically. That should not be a complete surprise considering that Apple and other consumer electronics providers had previously locked-up air freight capacity to overcome their own production backlogs.
The National Retail Federation (NRF) continues to lobby for the personal intervention of President Obama but that effort, even if it did occur, is unlikely to relieve the current congestion any time soon.
As we stated last week, regardless of the finger-pointing, the situation is indeed the perfect storm scenario that many had feared and industry supply chains need to deal with the current realities. Noted in this week’s Wal-Mart commentary, retailers have already kicked-off holiday promotional merchandising and are de-emphasizing the singular Black Friday shopping event in favor of a steady stream of promotions extending through the end of November and probably well into December.
Last year, UPS, and to some extent FedEx, were thrown under the proverbial bus by retailers for non-performance at the most critical time period. In 2014, the creditability of west coast ports and indeed the surface shipping industry is inching closer to being the Grinch’s of Christmas.
In our coverage of challenges and learning among aerospace supply chains, we have featured commentaries related to industry dominants Airbus and Boeing, as well as those attempting new innovation such as Bombardier. Our Supply Chain Matters coverage of the C-series program dates back to 2010 as the company’s Aerospace Group cranked-up efforts to introduce a technologically advanced single-aisle aircraft, termed the C-Series that could compete with industry dominants Airbus and Boeing in the smaller single-aisle aircraft segment. Bombardier embarked on a huge strategic gamble with the supply chain deployment and market launch of the new and innovative C-Series aircraft which was originally slated for market introduction in 2013.
Earlier this year, the program experienced a noteworthy setback resulting in a nine-month delay for the program due to a malfunction concerning the aircraft’s technologically advanced power plant. Since that time, program management and global supply chain teams have been working to resolve issues and move the C-Series forward.
Bombardier has now demonstrated what we believe was a rather effective use of social media based product marketing. The company utilized Twitter to broadcast a video link featuring program vice-president Rob Dewer, narrating a visual status report of the program. The video, which can be accessed by double-clicking here, speaks for itself and provides a good example on how to get the word out on program progress. It further points out the important coordinated contributions being made by all production, design engineering and supply chain teams.
How did you respond to this video? Do you view it as an effective means of brand marketing? Do you believe that senior management within your industry is open to such efforts?
Share your thoughts in the Comments section.
In our ongoing observations of global business developments and the linkages to the areas where supply chains do matter, this editor has been amused as to how equity analysts and business media now hone-in on a company’s supply chain information leaks to uncover information on a particular firm. To cite an example, Apple’s supply chain across Asia has had numerous information leaks regarding potential new products or supply chain glitches related to Apple.
Supply Chain Matters readers have most likely been following our ongoing commentaries relative to the current crisis that has impacted aftermarket service supply chains within the automotive industry. An explosion of various automotive model recalls has cascaded to unprecedented levels. Beyond the current air bag deflator issues surrounding supplier Takada, lest we forget the incidents of faulty ignition switches leading to a multitude of product recalls involving multiple models of General Motors vehicles.
In what we can best described as “oh crap” news, The Wall Street Journal disclosed this past weekend (paid subscription required) that GM placed an order for a half-million replacement ignition switches almost two months before alerting U.S. safety regulators. The publication cites its source as emails viewed between a GM contract worker and supplier Delphi Automotive, and where the supplier was asked to develop an aggressive plan of action to produce and ship these replacement parts. The article further cites communication among a GM contract worker at Menlo Worldwide Logistics in-turn, seeking a plan from Delphi regarding the build and ship plan for the replacement switches. The report further indicates that it took Delphi about a month to outline a parts shipping plan.
The publication notes that the timing “is sure to give fodder to lawyers suing GM and looking to poke holes in a timetable the auto maker gave for its recall of 2.5 million vehicles. Readers can certainly review the entire WSJ published article which addresses a multitude of implications. However, we feel compelled to add a supply chain planning perspective.
Supporting a product recall of such magnitude requires the coordinated planning of a rather complex spare parts and service management network. Automotive manufacturers know all too well that proper up-front planning and synchronization of parts and dealer servicing resources is required as much as possible, before notifying consumers of the product recall. However, regulatory reporting requirements can foil attempts for proper planning.
Consumers expect to have specific information as to the defective part and when their vehicle will be repaired. A product recall of the size of 2 million or more vehicles requires urgency to planning and it seems rather plausible that GM would issue such a spare parts order with requirements for aggressive production. It also places supplier Delphi in a rather difficult situation in having to coordinate revised product design specifications within existing production, allocate supplemental resources and generate volumes of parts over and above prior planned spare or production parts schedules.
The sum total of this commentary is perhaps two-fold. First, supply chain information leaks and security is an obvious growing problem. The utilization of emails or spreadsheets to plan or initiate supplier orders adds to the potential of information leaks.
Second, manufacturers often overlook the critical aspects of their service management supply networks, which can often support higher margins than product management value-chains. Just as product supply chains have to manage in the new normal of supply chin complexity while being more responsive to constantly changing events, service supply chains have even more complex challenges. They often represent the most current touch point and customer perception of your brand.