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Report Indicating the Assembly of the First iPhone in India

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In late January, we alerted our Supply Chain Matters readers to a report indicating that global smartphone and consumer electronics provider Apple was nearing a deal to manufacture its products locally in India. In March, we updated readers to a report from The Wall Street Journal that production could begin in a matter of 4-6 weeksiPhone 6 und 6 Plus 324 267 300x253 Report Indicating the Assembly of the First iPhone in India

The WSJ reports today that initial trail-run pilot production of the Apple iPhone SE model has now begun in Bangalore. (Paid subscription required) with devices scheduled to ship to customers across India this month.

Taiwanese contract manufacturing services provider Wistron is reportedly managing local manufacturing of iPhone6 and 6S smartphones from an existing production facility located in Bangalore, and longer-term plans include a production facility to be in the southern state of Karnataka. The report cites market research data indicating the smartphone ships across India grew 18 percent annually compared to 3 percent globally, thus making the country a very attractive growth market.

According to the latest report, domestic pricing for the iPhone SE still remains unclear, with speculation that Apple would want to maintain its gross margins.  Government officials in India are apparently pressuring for a lower domestic price.

The report again notes that the government of India is very supportive of an Apple manufacturing presence in the country, noting that it represents a sense of great pride for its citizens. Officials in the state of Karnataka are reported as eagerly cooperating to ensure that the future domestic manufacturing site means Apple’s needs.

We view Apple’s manufacturing strategy concerning India to be quite savvy, one that when completed, can provide a lot of market and supply chain benefits down the road. The key however, as always, will be Apple’s pricing and distribution strategy for smartphones managed in this country.

Bob Ferrari

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


Profile of the Airbus U.S. Commercial Aircraft Assembly Facility

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The New York Times Money Issue recently featured a profile of the Airbus factory in Mobile Alabama, complete with some stunning photo and video images produced with Samsung technology.

This profile provides evidence of Airbus’s extended global value-chain along with the overall logistics and transportation required to supply the relatively new U.S. aircraft assembly plant. As an example, completed major Airbus A321 aircraft components are loaded on a ship for transit to the Port of Mobile.

The profile provides other important observations, namely:

  • Airbus saves little money by assembling commercial aircraft in the U.S.- the move is more about competing in large markets where the planes are sold and in the notion of demonstrating to the U.S. government a commitment to the economy.
  • Lower wage rates across the Southern U.S. helped in the decision to source the plant in Alabama.
  • Airbus reportedly secured $158 million in state and local incentive benefits regarding the U.S. commercial aircraft facility including publicly funded training of factory workers.
  • Upwards of 20 Airbus suppliers have reportedly opened offices near the Alabama facility.

We highlight this interesting profile for the benefit and enjoyment of our Supply Chain Matters readers.

 


Apple’s iPhone Supply Chain Begins Ramp-up for the Big Release

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Several published reports are indicating that Apple’s supply chain is now gearing-up for the release of the new family of iPhone models later this year.

Asia based DigiTimes recently reported that semiconductor fab producer TSMC has received orders from Apple for production of the next generation 10nm A11 processor chip that will be included in the new models. The report cites sources as indicating that production was once affected by issues involving stacking components in the backend integrated fan-out packaging process, but have subsequently been resolved. The open question is when TSMC will be able to support full-scale chip production. Citi analyst Roland Shu has indicated that volume production is expected by July.

The South China Morning Post reports that Foxconn has been designated by Apple to be the sole contract manufacturer for the planned top-of-line model also due out  later this year. This most expensive and full-featured iPhone Pro model is reported my multiple sources to include a 5.8-inch light-emitting diode (OLED) touch screen, 3D facial recognition, front and back glass casing and augmented reality applications. There are indications that the Pro model could retail in the $1000 range.  According to the report, Foxconn was selected as prime manufacturer for the Pro because of its demonstrated experience in this CM’s ability to ramp-up Apple’s more complex new products.

The MacRumors site features a chronicle of all three of the rumored iPhone 8 models, including features and functions.

Other CM’s mentioned for the other planned model variations are Pegatron and Wistron respectively.  Supply Chain Matters is of the belief that this upcoming iPhone 8 model cycle will the largest test to-date of Apple’s supply chain segmentation strategy, specifically the three CM’s and the suppliers feeding component parts.

Other suppliers mentioned in the report include:

  • Samsung Electronics for the OLED panels.
  • Sharp and JDI for LCD panels.
  • AAC Technologies for miniature acoustic systems.
  • ASM Pacific Technology for the alignment bonding system used on camera modules.
  • Luxshare Precision Industry for wireless charging componentry.
  • Corning for glass screens.

 

Given the current streaming information, it would appear that product design has been solidified and the iPhone supply chain is now engaged for manufacturing ramp-up activities.

From our Supply Chain Matters lens, one thing is certain, Apple’s Sales and Operations and supply chain planning teams are going to be very busy in the coming months. If all goes according to plan, the 10th Anniversary of the iPhone will wow aficionados with one of the most expensive and full-featured devices to-date, along with other models at different price points. If any of the usual hiccups or snafus occur, teams will perform their usual response plans to ensure that global channel available meets plan. The biggest challenge will be in planning the proper model-mix plans among all planned three models.  During the last holiday season, the premium iPhone 7 Plus became supply constrained because planners did not initially plan for the actual demand for the full-featured, more expensive model. This year, the stakes are higher, along with the ability to gage and sense expected consumer demand.

It will all be fascinating to observe.

Bob Ferrari

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


Some Positive Supply Chain Food Safety Efforts at Chipotle Mexican Grill

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Supply Chain Matters has featured several streaming commentaries focused on Chipotle Mexican Grill, and on the business and supply chain impacts related to the past series of food related illnesses including E-coli, salmonella, and norovirus that date back to 2015. Finally, we have some positive and more encouraging news to share with our readers.  Chipotle logo Some Positive Supply Chain Food Safety Efforts at Chipotle Mexican Grill

Excuse the pun, but our biggest beef with the restaurant chain has consistently been its outward arrogance, and in not communicating definitive efforts to mitigate food safety concerns across the entire supply chain. Our take was one that management initially had not publicly grasped the full magnitude of its brand crisis, and supply-chain wide implications. The elephant in the room has been consumer perceptions of ongoing food safety and whether this chain had taken all necessary measures to ensure that the series of incidents that occurred in 2015 would not be repeated, at least by insuring that controlled, network-wide management and quality focused practices were being addressed.

Our observations have questioned why this company has relied solely on sales and marketing tactics to bring previous loyal patrons back. Our last update related to Chipotle in December of last year, echoed reports of building pressures on senior management manifested by continued disappointing financial performance results. Monies spent on new marketing initiatives were not resonating with loyal patrons. Employee turnover at restaurants was reported as 130 percent, defeating efforts for increased employee training on food safety measures. Declining sales and profits seemed to be defeating efforts of following through on supply chain food safety initiatives.

However, new information now encourages us.

In March, the Director of Food Safety for the restaurant chain, recruited shortly after the crisis, addressed the Food Processing Suppliers Association Annual Conference. A published April report by FoodBusinessNews.net highlights efforts that have taking place since the 2015 incidents. Dr. Dale Dexter, Manager of Food Safety Programs indicated that the company has come a long way in the past 16 months, but it was also an interesting ride.

Noted was that the food safety initiative scoured every ingredient that suppliers utilize. While previously, raw beef was brought into restaurants, two of chain’s beef suppliers are now required to practice sous-vide cooking to control food-borne risks prior to shipping to individual restaurants. Efforts were also made to initiate similar practices on raw chicken, but that effort was curtailed because the quality of taste did not pass the standards of founder Steve Ells. Chorizo sausage supplies are now subject to high pressure processing before being shipped to restaurants. For produce, two employees at individual restaurants are typically brought in two hours before opening to blanch raw fruits and vegetable in a five-second boil to kill any food borne bacteria.

Restaurants are now equipped with in-duct air purifiers and ice machine sanitation systems. A partnership with Ecolab includes food safety audits and mentioned is utilization of a Supplier Management and Traceability program. The chain has now adopted a paid sick leave policy and restaurant employees are monitored for signs of sickness, supported by a hotline of on-call nurses.

These are positive steps, and should be commended.

From our lens, communication and updates of such efforts should not only been shared at an industry forum, but broader platforms as-well including general media. Such initiatives and progress reports should have been the mission of Chipotle’s marketing and public relations efforts month ago.

This week, Chipotle announced the appointment of a Chief Restaurant Officer. Scott Boatwright was a prior senior vice president of operations at Arby’s Restaurant Group. The announcement indicates that Mr. Boatwright’s responsibilities will be- “enhancing the guest experience, developing and leading field leadership teams, developing strong teams inside the restaurants, and enhancing operational efficiency.”

There is no mention of insuring that ongoing food safety initiatives are consistently implemented and maintained across all restaurants.

Here again, a communications and mission commitment opportunity lost.

As a supply chain social medium, we are now willing to add some praise to Chipotle’s ongoing efforts to address supply chain wide food safety mitigation. But the job is never complete.

For food related industry, and for food related supply chains, marketing efforts are not only about products and services, but also about food safety efforts across the entire supply chain, including restaurants.

Bob Ferrari

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


Another Example of SKU Proliferation Leading to Cost Complexity

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Yesterday in one of our news feeds, we came across a report on FoodBusinessNews regarding snacks producer Snyder-Lance, and it efforts to address an ongoing challenge to increase profitability. We view this report as a typical current day example of how the C-Suite turns to the supply chain as a prime barometer and facilitator of needed cost savings.

The report outlines a “comprehensive and aggressive performance improvement plan” that a result of recent first-quarter financial results falling behind management expectations., according to the interim CEO. A number of factors were attributed to the sub-standard performance that were described as category softness, lower net price realization, unfavorable mix, cost headwinds and certain execution lapses. Some or most of these phrases should be familiar to our readers in consumer packaged goods, food, and beverage companies since most of the industry has been whiplashed by many of these same forces.

What is rather interesting and noteworthy are statements that overall business complexity drive increases in costs. Snyder-Lance has identified five priorities to attack the complexity problem which include manufacturing and supply chain streamlining efforts. That includes a realization that a proliferation of SKU’s (stock-keeping units), half of which only contribute a reported 5 percent of revenues, the other-half, the majority of revenues.

SKU proliferation is a familiar challenge in supply chain business planning, one that dates back quite a few years in CPG and consumer brand-oriented product areas.

There are many causes.

Companies that undergo periods of active merger and acquisition cycles will often inherit both added distribution channels as well as associated SKU’s. Likewise, companies with inherit multiple channels of distribution are often subjected to such risks.

The snack food area is particularly vulnerable because snacks are often subject to impulse buying within multiple outlets including neighborhood convenience stores, dispensing machines, convenience restaurants, food purveyors catering to service firms such as airlines, passenger trains, ferries and the like, and the typical member warehouse and retail grocery chains. A new market twist is that of online grocery basket shopping which online providers such as Amazon, Wal-Mart, Target, and other online retailers have introduced.

In fact, this analyst is of the belief that SKU proliferation is again becoming a more widespread problem because of the new realities of online retail. Retailers themselves are finding themselves bloated with SKU’s to address different sales channels, be that physical store where snacks are purchased in bulk or online on an induvial basis.

Another challenge that Sales and Operations (S&OP) teams are quite familiar with is the relationship dynamics of sales and marketing, who advocate for creating separate SKU’s for what they believe will be new and upcoming customers. After all, a separate SKU allows the new customer to gain personalized product and at the same time, more definitive tracking of a channel’s sales volume.

There is little doubt that SKU Proliferation indeed can drive complexity and supply chain inventory and distribution costs. Advanced inventory management or inventory optimization tools help in identifying and addressing problem areas. The resolution, however, involves a lot of internal supply chain cross-functional and external sales and marketing collaboration. It is also a condition and a watch out that should be factored in the analysis of the increased costs related to supporting today’s more focused online business models.

Bob Ferrari

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

 


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