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More Definitive News on Pending Foxconn Investment in the United States

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In late January, we alerted our Supply Chain Matters blog readers of a published report from The Wall Street Journal indicating that global contract manufacturer Foxconn, (Hon Hai Precision Corp.) new parent of Sharp Corp. was evaluating a $7 billion in new LCD manufacturing facility in the United States. Our takeaway from this report was that if this investment did indeed occur, it would represent a significant milestone for the high-tech and consumer electronics supply chains. We believed that the plant investment would further have a linkage to Apple’s production needs.  Foxconn 300x201 More Definitive News on Pending Foxconn Investment in the United States

Since that time, there have been various reports indicating on and off again negotiations with individual U.S. states. Last week, the Associated Press, citing an informed source, indicated that Foxconn’s proposed U.S. factory might have a Wisconsin address and that active negotiations with state officials was occurring. The report indicated that the state of Michigan was also a possibility.

Today, the investment advisory site Seeking Alpha, Reuters and other news outlets are now indicating that a final decision is expected in July.

According to Seeking Alpha, the total investment is $10 billion across the United States, beginning with a $7 billion LCD factory. The July decision will likely determine whether Wisconsin or Michigan are the likely site for the factory.

Foxconn CEO Terry Gou has indicated that five other states are under consideration for Foxconn investments including Ohio, Pennsylvania, Illinois, Indiana, and Texas.

Reuters reports that Gau indicated to shareholders:

This time we go to America, it’s not just to build a factory, but to move our entire supply chain there.

Prior reports were indicating that Gau was playing hardball in his ongoing negotiations with individual states, in-essence threatening to continue the process until favorable terms to Foxconn were evident. In the latest Reuters report, Cau is now quoted as indicating he has been favorably impressed, beyond imagination, with the sincerity and confidence by individual state governors to attract investment.

If readers are noting a subtle political tone to these events, you are not alone. Many of the states noted under consideration, including the two finalists voted favorably for President Trump is the last election. The final announcement, when made, will resonate well with “Make America Great Again” voters.

Politics aside, make no mistake that this is a very big deal for high-tech and consumer electronics supply chains, specifically Apple’s supply chain, along with that of U.S. Based automotive brand owners that increasingly feature more high-tech electronics, autonomous driving features and visual displays in future automobile models.

A very big deal indeed.

 

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Mitigating Supply Chain Risk- How a Supplier Quality Management System (SQMS) Helps Minimize Supply Chain Deviations

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The following is a Supply Chain Matters Guest Posting is contributed by Alex Butler, Medical Device Product Manager, MasterControl

 The increase in international sourcing of drug production continues to rise in pharmaceutical manufacturing. With this increase, the FDA continues to document issues with supply chain breakdowns, errors, material quality and numerous other critical issues surrounding these activities. Supply chain issues have been further magnified in recent years as various to the degree that U.S. congressional committees have questioned the FDA in several instances in an attempt to uncover the root cause of these breakdowns.

Supply chain management for regulated companies is historically fraught with challenges, including many catastrophic instances impacting consumers. In 1937, more than 100 people, including many children, died from ingesting Elixir Sulfanilamide, which contained the deadly poison diethylene glycol. This caused President Franklin D. Roosevelt and the U.S. Congress to pass the Federal Food, Drug, and Cosmetic Act (FD&C Act) as an effort to prevent future catastrophes.

Leap forward to 2011, when the FDA produced a report titled, “Pathway to Global Product Safety and Quality,” and later, the European Medicines Agency (EMA) tightened their Good Distribution Practice (GDP) Guidelines and the Falsified Medicines Directive to improve supply chain management and minimize risk. At an earlier congressional meeting, the Principal Deputy Commissioner, Joshua M. Sharfstein, M.D., discussed the safety of the drug supply. He said, “Protecting Americans from unsafe or contaminated drugs is not just an important responsibility of the FDA—it is our core charge. Drug safety was the primary reason for the passage of our guiding statute.”[iii]

While problems that arose in the past may have been minimized by regulatory enforcement and the adoption of extensive quality control systems by responsible pharmaceutical companies, the industry is now experiencing a new era of quality-related dilemmas rising in the supply chain. Today, supply chain deviations have become a global threat not only to pharmaceutical companies, but potentially to healthcare professionals and public consumers as well, primarily due to the lack of the establishment of a quality culture in pharmaceutical supply chains.

The “white elephant” that the pharmaceutical industry is reluctant to address is counterfeit medications. Counterfeiting has become a massive issue worldwide. Detection and enforcement efforts are on the rise, and officials, regulatory bodies and watchdog organizations are not necessarily unified on best enforcement practices. Although there are many ways and reasons for why and how counterfeit materials and medicines are breaching the industry, one of the most troubling issues is when materials and ingredients are swapped with materials that are either inert or toxic. In some instances, these have made their way through the supply chain, resulting in harm and even death to patients. To date, these incidents are most commonly occurring in geographic locations like China and India. Because border agents and supply chain managers can’t always tell what’s been tampered with, regulators and governments are demanding tighter controls on the global supply, manufacturing, movement and storage of goods.

One thing is clear: it is the responsibility of pharmaceutical organizations to assume a leadership position in addressing and conquering the issue of counterfeit medicines and the challenges plaguing supply chain management. As the FDA states, the issue of managing a supply chain rests with the manufacturer, regardless of where deviations are generated in the supply chain.[iv]

The FDA’s Focus Shift

Historically, the FDA has focused its enforcement activities, including warning letters, seizures, injunction actions, consent decrees, criminal prosecution and so on, at U.S. facilities. However, recently the FDA’s enforcement focus has included facilities in other countries. This has resulted in a large increase in investigations into high-production countries such as China and India.

The pharmaceutical supply chain represents a new frontier for international enforcement activities. The FDA is beginning to increase its headcount in several countries, which signifies an increased emphasis on enforcement worldwide. Overall, the number of inspections has remained flat, but the investigators are being more thorough and are issuing more violations. Moving forward, we can expect to see continued enforcement against pharmaceutical companies with this heightened supply chain focus.

Supplier Quality Management System (SQMS) Software Solutions Can Help

Quality takes on different dimensions depending on the country in which a product is manufactured. Although nothing can take the place of a staff of quality professionals who are familiar with the regulations and the nuances of supply chain quality management and are well trained on the processes involved, the implementation of an SQMS software solution can be helpful.  An automated SQMS can help standardize vendor management processes and can provide efficiencies that give supply chain quality professionals more time—and a standardized process—to minimize the risk of supply chain issues that are breaching the borders and walls of pharmaceutical companies  and prevent problems before they arise.

Many organizations manage their supplier quality management processes using a paper-based or hybrid-electronic system.  While this system may be adequate and in accordance with FDA compliance requirements, it leaves room for significant errors and substantial inefficiencies.

Top Benefits of Implementing an Electronic SQMS

Although most leading pharmaceutical organizations have transitioned to using a software- or cloud-based SQMS, the majority do not. With the tremendous growth happening in the pharmaceutical industry, small and midsize businesses (SMB) have new opportunities to secure previously unforeseen or unavailable shares of the market with their proprietary drugs, generic drugs and advancements. Unfortunately, the inability to capitalize on these new market shares is often due to the fact that the SMBs have not yet shifted over to a software- or cloud-based SQMS. Here are some of the most mission critical ways that a software- or cloud-based SQMS can mitigate or prevent supply chain problems that commonly lead pharmaceutical companies to deliver or accept counterfeit medicines:

  1. Maintain All Supplier Quality Data in a Centralized Location: A repository for automating, maintaining and controlling all supplier quality data and documentation – from non-conforming material reports and audit observations to contracts and service level agreements – is an essential component of maintaining security and compliance. A secure, centrally-accessible storehouse allows pharmaceutical companies to more easily and efficiently manage and monitor supplier statuses and ratings, records, corrective actions and approved vendor lists (AVLs).
  2. Smoother Internal and External Audits: An SQMS can automatically track and store information derived from supplier management audits to help ensure that regulatory guidelines are followed. With an electronic SQMS, pharmaceutical companies can securely store and maintain all information related to supplier management audits, including audit approval statuses, recent data derived from supplier audits and links to quality assurance auditing and analytics reports.
  3. Improved Communication and Collaboration: All departments involved in supplier management—including authorized external parties—can stay connected across geographically dispersed locations, which facilitates better communication and collaboration with vendors and minimizes complications relating to specifications and materials. In this manner, pharmaceutical companies can gain greater visibility into supplier quality, reduce errors caused by miscommunication and, ultimately, receive higher-quality materials or parts.

No system, paper-based or software-based, is foolproof.  However, pharmaceutical companies that implement SQMS software solutions, are seeing meaningful improvements in supplier and supply chain quality issues, significantly mitigating supplier risks, and gaining a higher return on investment for their efforts.

 

MasterControl Inc. produces enterprise software solutions that enable life science and other regulated companies to deliver life-improving products to more people sooner.

 

 


This Week’s Paris Air Show- More About Product Development and Supplier Tensions

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The Paris Air Show is being held this week representing an important sales and marketing event for aerospace and commercial aircraft manufacturers and supply chain participants. Thus far, two dominant themes appear; one being efforts by Boeing to premiere or hint of new aircraft as well as added services, the other by aircraft engine producers and key suppliers, exercising influence as the critical link in commercial aircraft supply chains.

Boeing has focused this week’s event as the formal market launch of the newest version of the 737-aircraft family, that being the 737 Max 10. This latest model of the 737 can seat upwards of 230 passengers and has a reported list price of upwards of $125 million, but customers more than often acquire aircraft at discounted price levels. Industry watchers position the 737-10 as a market response to Airbus’s rather popular A320 neo series Boeing began the week by announcing 135 new orders for the aircraft, and thus far, visibility to individual airline or aircraft leasing companies have come forth, including a United Airlines order for 100 of the aircraft. The aircraft manufacturer expects to book orders of upwards of 240-250 aircraft. The 737-10 is expected to enter operational service in the 2020 timeframe.  Boeing 737Max Tail 300x200 This Weeks Paris Air Show  More About Product Development and Supplier Tensions

The president of Boeing Commercial Airplanes indicated to attending press that customers wanted the aircraft producer to build the single-aisle 737 bigger, and with more operating range.  From our lens, that is reflection of airlines being primarily-driven by financial metrics vs. customer comfort factors.  Anyone who has had to endure a 5-6-hour flight on a packed 737 with few amenities including lavatories likely know what we mean by customer comfort.  Welcome to the new world of airline travel, where efficiency trumps any sense of overall customer experience. But, we digress.

From a product development perspective, because of existing iterations of the 737, incremental product development and manufacturing costs for the larger model are relatively modest by comparison, boosting product margins for Boeing.  The supply chain is already in-place and ramping-up production of all models of the 737 family.

Industry media including Aviation Week report that airlines in general have a mixed view of the 737-10, mostly because of market timing and overall claimed capabilities. Boeing is therefore taking the opportunity to leverage this week’s event as a sounding board for the development of a new, smaller twin-aisle “middle-of-the-market’ aircraft with the designated name of the 797 series.

The conceptual 797 would by some accounts, be positioned between the 737, and the 787 Dreamliner, providing airlines more options in operating U.S. coast-to-coast or transatlantic flights airlines. Many in the industry view this model as a successor to the very popular 757 series.

For Boeing, the 797 series would be a test of quicker-time-to-market since by some accounts, airlines have expressed enthusiastic response to initial paper designs. A further critical design decision would be the selection of the aircraft’s available engines. Thus far, we have read indications that existing 737 MAX and A320 neo engine providers CFM International and Pratt & Whitney would be potential suppliers as well as Rolls Royce, which has up to this point, concentrated its product strategy on the larger twin-aisle segment. However, we read one show report indicating that executives from General Electric and CFM International have no interest in sharing a supplier arrangement with Boeing’s 797 series. Instead that are bidding to be the sole engine provider to assure a timely market introduction.

On the subject of aircraft engines, this week’s event has manufacturers in this segment touting their new engine orders. As an example, GE and CFM expect to book $15 billion in new business, both in hardware and services. GE Aviation indicated that its engine order backlog now exceeds $150 billion.

Beyond the marketing, as we have noted in our most recent Supply Chain Matters commentaries focused on commercial aircraft supply chains, engine manufacturers are currently the critical weak-link in the supply chains for both the A320 neo and the 787-MAX.  Pratt continues to deal with initial engine component design and manufacturing deficiencies related to its new geared turbo-fan (GTF) engines requiring the planning of whole engine spares to keep existing operational aircraft flying to schedule.  Engine supplier CFM International, the joint venture of GE Aerospace and Safran, producers of the new LEAP series engines experienced an initial quality problem in a turbine disc within operating engines of the first 737-MAX. At this week’s event, CFM International management indicated confidence in discovering root cause of the turbine disc flaw and expressed further confidence in meeting the targeted delivery of 500 LEAP engines by the end of this year.

Finally, industry and business press is highlighting the July start-up of Boeing’s newly announced Global Services Business Unit.  This week, Boeing management indicated expectations to garner much more of the estimated 8 percent of business services existing Boeing operational aircraft representing billions of dollars in potential added revenues and profits. The goal is to double annual services revenues to $50 billion in five years. Boeing management acknowledged the potential of a “healthy tension” with major suppliers, including engine producers, since many key suppliers rely on services revenues to boost their financial performance. Some engine producers are currently threatening to invest less in product innovation if Boeing insists on taking more market-share in services. That threat includes the currently contemplated 797 aircraft.  For Boeing to accomplish its business goals for services growth, it will need to convince major suppliers to give-up intellectual property as well as spare parts distribution rights. That is a tall order that is bound to lead to added supplier tensions. A further battleground will be the area of Internet-of-Things enabled service models where both aircraft manufacturers and suppliers are expected to clash on whom owns and controls customer-focused operational and services data. This is an area that bears quite a lot of observation in the months to come.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


UPS Holiday Delivery Surcharge Announcement Will Lead to Industry Structural Shifts

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The small parcel transportation and delivery industry, under the lead of United Parcel Service (UPS), once again elected to add yet another business challenge to online retailers. Only this time, Supply Chain Matters anticipates structural shifts in online business practices likely to occur because of this move. UPS Natural Gas Van 300x177 UPS Holiday Delivery Surcharge Announcement Will Lead to Industry Structural Shifts

This week UPS announced a series of delivery surcharges timed to the busiest online fulfillment period in the United States, that being the period between the Black Friday shopping and Christmas holiday period of 2017. UPS plans to impose a 27-cent per package surcharge on all ground packages destined to U.S. residential addresses between the period of November 19 and December 2, a period that includes the Black Friday and Cyber Monday online and in-store shopping holidays. Likewise, surcharges will be imposed for the period that includes December 17 through December 23, the traditional last-minute holiday shopping surge period. For this period, the surcharge amounts to an extra 27-cents for each ground shipment, 81 cents for each next-day air, and 97 cents for two or three-day delivery. Again, these surcharges only apply to package deliveries to residential addresses, as opposed to business.

UPS further announced added dimensional package surcharges of an additional $24 to the existing surcharge of $70 for packages weighing more than 150 pounds or exceeding certain large package dimensions. Further included is a peak surcharge of $249 per package for “overmax” packages.

The motivation for the new UPS pricing actions is obvious, to protect or boost the carrier’s own profit margins by compensating the carrier for needs to add surge personnel and logistics capacity. More than likely, rival FedEx will also initiate similar pricing actions. The effect for online retailers is yet another assault on their business margins, already stressed by the increased cost factors for online fulfillment needs. While dominant online retailers such as Amazon and Wal-Mart have the financial and market power to buffer such increases with sheer market influence, that may not be the case for all other online retailers.

An obvious behavior continually reinforced by online consumers is their reluctance to pay for shipping, and thus Free Shipping remains the ultimate determinant for online shopping cart execution. We therefore anticipate that the effects of this week’s UPS pricing actions will be added motivations by many online retailers to either permanently change online buying behaviors or explore added parcel delivery alternatives. That most likely will include planning holiday related online merchandise promotions even earlier than Black Friday. Online retailers with brick and mortar presence will follow Wal-Mart’s lead in incenting online customers with free shipping or added discounts to pick-up online purchases at local retail outlets or receiving lockers. The U.S. Postal Service will likely see added package volumes during the busiest holiday periods, with the added risk that the service will not be equipped to handle such a surge or be able to recover added costs. Third-party logistics services firms, who are already marshaling resources and services to handle the need to support online purchases of larger-sized goods such as appliances, furniture and like will also benefit with increased holiday volumes, as well as opportunities to negotiate added services to online retailers. Like China, we could well observe the formation of independent parcel delivery entrepreneurs similar to an Uber or Lyft type of on-demand transportation, supported by advanced routing and dispatching technology.

In other words, if the intent of small parcel carriers was to somehow permanently change online buying trends, they will indeed get their wish.  However, as what occurred last year when Amazon demonstrated the prowess to implement its own parcel transportation and last-mile fulfillment capabilities, online retailers will have little choice but to explore other more cost-effective options to protect their margins. That will open the door to new industry disruptors.

From our Supply Chain Matters lens, the takeaway from this latest industry development is the continuing industry dynamics as to which business entity, or which supply chain or customer fulfillment partner stands to gain higher margins and profits from the ongoing explosion of online commerce. It involves the realities that consumers have become patterned to shop for the best online deals offering free or reduced shipping, regardless of time-period. Same or next day delivery is becoming part of this expectation.

At the same time, there is the reality that online fulfillment shifts the cost burdens from that of operating physical stores, where consumers take-home their purchased merchandise, to an online era that requires ever more expensive pick, pack, and parcel transportation costs. The forces related to financial gain ultimately lead to added structural changes and to new winners and losers in the weeks and months to come.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Campbell Soup Elevates Role of Supply Chain Management

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From time to time, Supply Chain Matters will highlight supply chain management leadership appointments that provide our readers insights into specific supply chain challenges.

One we did want to highlight was a recent organizational announcement by Campbell Soup. Co., which last week promoted three internal executives into wider senior responsibilities that include membership for the corporate executive leadership team, reporting to the firm’s CEO.  campbells soup can 350 175x300 Campbell Soup Elevates Role of Supply Chain Management

In the Campbell announcement, CEO Denise Morrison states in part:

As the external operating environment continues to evolve at a rapid pace, it is critical that we adapt our organization along with it to realize the potential of our Purpose, ‘Real food that matters for life’s moments.’ We are elevating these roles in recognition of the strategic importance they play for our business and our growth plans.

Bob Furbee, a 32-year employee of Campbell’s was elevated to Senior Vice President of the Campbell Soup Company and Senior Vice President of Global Supply Chain. The announcement indicates that Furbee: “will lead efforts in creating an integrated supply chain organization designed to deliver new capabilities and efficiencies to drive growth.” Most recently, Mr. Furbee was Senior Vice President of Supply Chain for Campbell Soup America’s Simple Meals and Beverages business segment, where he held leadership responsibilities for manufacturing, distribution logistics, procurement, and customer service for the Americas division.  Furbee’s background At Campbell’s includes international experience as well having led European supply chain and operational activities.

What Supply Chain Matters found significant was the emphasis on driving top-line revenue growth as well as ongoing efficiencies. That takes on special significance for an industry faced with significant forces of external change brought about by changed consumer consumption and buying preferences as well as game-changing shifts occurring at the retail grocery level. Frankly, we would expect other CPG producers to elevate the role of supply chain management beyond that of a cost line related to operations and more toward a key enabler of needed business changes and desired business outcomes.

In addition to supply chain, other executive leadership elevation included an expanded vide-presidential role for corporate strategy with the appointment of Emily Waldorf, and the leadership of a single, integrated U.S. sales organization under the direction of Jim Sterbenz.


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