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General Motors Production Plant Seized in Venezuela

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In the many dimensions for supply chain disruption and risk, we sometimes cite geo-political events as a significant risk factor. Thankfully, this particular type of risk does not occur often, but this week provides a real-world example, in a country that has increasingly had tendencies towards seizing private assets and operations.

General Motors was forced to halt production operations in Venezuela after its plant in the country was unexpectedly seized by local authorities. Widespread political and sometimes violent street demonstrations have erupted in recent weeks after current political administration barred an opposition leader from holding political office for the next 15 years. At least nine people reportedly have been killed in these protests.

GM described the takeover as an “illegal judicial seizure of its assets” and that the seizure showed a “total disregard” of its legal rights. According to media reports, authorities had removed assets including cars from company facilities.

Venezuelan news reports indicated that the GM plant seizure stemmed from a lawsuit that dated to the early 2000s with a company in the western city of Maracaibo. But a GM spokesperson indicated that the plant had been shut down for the past 42 days because of a takeover by members of one of its labor unions.

In its reporting, the New York Times notes that the country was once among the most lucrative markets in Latin America for foreign businesses, but such times are long gone. According to the Times, the average Venezuelan must now wait in long lines for bread and medicine, and many are going hungry and unpaid, as the government struggles to avert default.

The GM plant in Valencia employed nearly 2,700 workers at its peak, but stopped producing cars in 2015 and has only been selling spare parts since then, according to a company spokesperson.

According to the U.S. State Department, the government of Venezuela has expropriated more than 1,400 private businesses since 1998. Manufacturers such as Bridgestone, Clorox, Coca-Cola, Ford Motor Company, General Mills, Kimberly Clark and Procter and Gamble have all since ceased production operations in the country.

Reuters reported that the country’s economic crisis has hurt many other U.S. companies, including food makers and pharmaceutical firms. A growing number are taking their Venezuelan operations into suspended states.

Because of the country’s volatile currency issues coupled with a severely declining economy, automakers produced only 4,900 vehicles last year, including heavy-duty pickups, down from 31,000 in 2015. In addition to GM, other automakers, including Ford and Toyota, have suspended operations for several months because of low product demand and an inability to get necessary supply chain parts.

Global based industry supply chains are indeed subject to geo-political risks as is being manifested in Venezuela and certain other countries. It is perhaps another tradeoff to forces of globalization.

Bob Ferrari

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


Apple Declares a Long-Term Commitment Toward a Closed-Loop Materials Supply Chain

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In its 2017 Environmental Responsibility Report released this week, global consumer electronics provider Apple has declared a goal towards implementing a closed-loop supply chain. This report includes a pledge to end the company’s reliance on mined materials from the earth, and to one day, make its products, including the iPhone, totally from renewable or recycled materials.  Apple Logo Apple Declares a Long Term Commitment Toward a Closed Loop Materials Supply Chain

The section titled Finite Resources includes the following statement:

Traditional supply chains are linear. Materials are mined, manufactured as products, and often end up in landfills after use. Then the process starts over and more materials are extracted from the earth for new products. We believe our goal should be a closed-loop supply chain, where products are built using only renewable resources or recycled material.

Apple is also realistic in acknowledging that a closed supply chain is indeed an ambitious goal for a high-tech and consumer electronics manufacturer. The company’s Vice President of Environmental Affairs, Lisa Jackson, told business network CNBC that while Apple does not currently know how the full objective will be achieved, it will require many years of collaboration across multiple internal teams, component suppliers, and specialty recyclers- but work efforts are already under way. She further indicated that the company is embarking on something it rarely does, establishing a goal before all the elements are completely figured out.

Current efforts include the encouraging customers to return end-of-life products through the Apple Renew recycling program. This program is piloting innovative new recycling techniques that include a line of disassembly robots that helps to reclaim materials from used smartphones and other electronics products. The company has further prioritized which materials to tackle first by creating Material Risk Profiles for 44 elements within products. These profiles identify global environmental, social, and supply risk factors spanning the life of each material.

Describing the need for high quality aluminum material free from defects found in mass level recycling programs Apple has begun a pilot proof-of-concept program using reclaimed aluminum from recycled phones to build new devices. The aluminum enclosures recovered from iPhone are melted and reused to create Mac mini computer enclosures.

What forward thinking companies are continuing to demonstrate is that supply chain sustainability efforts are good for business and they are equally good for the supply chain.  Increasingly customers based their buying decisions on a company’s commitment and demonstrated efforts in sustainability. In our current year predictions for industry supply chains, we have re-iterated that there is literally too-much momentum and positive business benefits to motivate senior executives to derail such efforts. Apple has been one of other early adopters of a supply chain sustainability commitment and this latest declaration of a closed-loop supply chain is indeed, an added manifestation of a sustainable business model, one that assures a continuous supply of product value-chain components at a more controlled cost with assured availability. We also like the emphasis on leveraging new technologies to address such needs.

Supply Chain Matters commends Apple for its declaration and commitment toward manifesting a closed-loop supply chain.

Well done and keep up this good work.

Bob Ferrari

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


Supply Chain Matters Shares Our Top Ten Blog Postings in 2016

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An annual tradition for the Supply Chain Matters blog has been to look back to the prior year’s readership uptake and share with our readers the top ten blog postings of the prior year.

Admittedly, we are a bit late in compilating all of our 2016 readership data but we did want to publish this for readers, clients and sponsors.

The list provides a sense of what particular topics were of the most interest in our over 300 blog postings published in 2016.  SCM 250 76 Supply Chain Matters Shares Our Top Ten Blog Postings in 2016

In the Dave Letterman style, we start with number ten and work our way down to the number one topic of readership uptake.

Number 10:

Observations on the Rankings for Supply Chain Planning Technology (February 5, 2016)

After industry analyst firm Gartner published its Magic Quadrant Rankings for Supply Chain Planning System of Record applications in mid-January, this commentary shared observations regarding the rankings of vendors. Our takeaway was that the current landscape of supply chain planning, sales and operations planning (SO&P) and B2B supply chain network planning technology was far more influenced by line-of-business and supply chain leadership input needs and requirements. Hence many other sources of information support the buying decision beyond industry analyst rankings.

Number 9:

The Value Proposition for Cloud Computing is Broader in Scope and in Business Implications (January 22, 2016)

This Supply Chain Matters commentary explored the implications of a full Cloud-based technology suite in supporting broad supply chain business process needs after industry analyst Bob Ferrari completed nearly two days of briefings and conference presentations related to Oracle’s Cloud based technology offerings. One takeaway provided was to view Cloud from the perspective of a broader focus on an engineered suite of pre-integrated software applications that are continually updated to reflect changing business needs. Why settle for business application innovation every 1-2 years when every 6 months is an option, and with lower capital and overhead costs.

Number 8:

Sports Authority- A Disturbing Twist to Consignment Inventory Management Practices (March 17, 2016)

Characterized as one of the largest sporting-goods retailers, Sports Authority was weighted down with debt from a prior leveraged buyout a decade ago. We called attention to a disturbing development in the ongoing bankruptcy process, as the retail chain filed lawsuits with more than 160 suppliers challenging supplier claims to consigned inventories. We opined that this development had significant ramifications for supplier collaboration practices within retail as well as other consumer goods focused supply chains.

Number 7:

A Disruptor is About to Enter the Heavy Truck Equipment Market (June 20, 2016)

Supply Chain Matters has continuously provided our readers visibility to emerging industry disruptors who are leveraging advanced technology and platforms directed at supply chain related business process and asset needs.  Such visibility included the entry of Uber and Lyft and their potential to move beyond people transportation. In this posting we provided visibility to start-up Nikola Motor Company and its ongoing development of a Class 8, 2000 horsepower electric powered semi-tractor truck that will be named the Nicola One.  The actual unveiling occurred in early December.

Number 6:

Chipotle’s Consumer Trust Crisis Enters a New Critical Phase (February 9, 2016)

One of our early blogs in a series of ongoing commentaries we outlined from a supply chain lens regarding the business, brand and supply chain crisis that impacted Chipotle Mexican Grill after hundreds of consumers were sickened by a series of varying incidents ranging from E-coli outbreaks to norovirus that date back to the summer of 2015. We opined that too much attention was being applied to corporate marketing vs. supply chain and restaurant risk mitigation efforts. It is now April 2017 and the challenges to restore brand trust remain.

Number 5:

Look to the Cloud to Support the Modern B2B Network (September 1, 2016)

This blog commentary addressed an organization’s journey toward mature B2B information integration and how this is made possible by today’s advanced cloud-based platforms, applications and infrastructure. We opined that there is no question that analytics and broader, more predictive business insight capabilities are opportunities to transform B2B business and supply chain business networks. The opportunity — and indeed the necessity — is to leverage an end-to-end business network to synchronize planning, execution, customer fulfillment and more predictive decision-making needs.

Number 4:

Gartner 2016 Top 25 Supply Chain Rankings- Supply Chain Matters Initial Impressions (May 19, 2016)

Our annual commentary related to analyst firm Gartner’s Top 25 Supply Chain Rankings.  Our annual commentaries reflect our beliefs that ranking criteria can be misconstrued, especially when it tends to favor supply chains that avoid major ownership of assets and inventory, or tend to weight other criteria lower, such as sustainability and social responsibility practices.

Number 3:

A Tour of Healthcare Supply Chain Innovation in Action (February 4, 2016)

Executive Editor Bob Ferrari shared impressions and insights regarding a November 2015 visit to the Cardinal Health Healthcare Supply Chain Innovation Lab located in Concord Massachusetts.  The lab served as a hub to explore innovative technology approaches such as smart sensors and near-field communications (NFC) in addressing healthcare supply chain product demand and supply inefficiencies.

Number 2:

What are Specific Skill Needs and Gaps in Supply Chain Management? (February 26, 2016)

Supply Chain Matters highlights results and an infographic from a supply chain skills survey conducted by Canadian based Argentus Supply Chain Recruiting outlining what specific hard and soft skills are organizations looking for in their hiring and recruiting efforts. Supply chain skills and talent development content has consistently drawn reader interest.

 

And now, a drum-roll for our most read 2016 blog:

 

Airbus and Boeing Continue to Experience Supply Chain Scale-Up Challenges (May 2, 2016)

After announcing Q1 financial and operational performance results, both Airbus and Boeing addressed ongoing challenges related to their supply chains and expected performance for 2016 total aircraft delivery commitments. We shared candid comments from Airbus’s CEO as to the global producer’s most critical new product introductions and clear signs of concerns related to various supply chain challenges. We also called attention to comments from United Technologies regarding the new Pratt and Whitney geared turbofan engine, which turned out to be the weakest link in the Airbus supply chain. Finally we concluded that for the two dominant manufacturers of commercial aircraft, supply chain challenges have once again come back as concerns amid an environment of robust order backlogs. Each has different manifestations and supplier challenges, and each reflects on internal operational scale-up as well. We opined our belief that challenging product design among the most critical supply components, including aircraft engines would continue to be the linchpin towards achieving required production scale-up milestones.

 

Thanks again to all globally located Supply Chain Matters readers for your continued readership and frequent visits.

Thanks as well to our sponsors, clients, and network contacts for their continued support. We will no doubt, have yet another set of different topics of reader interest throughout 2017.

A final thought, why not consider having your company’s brand appearing as a designated sponsor or advertiser on this blog. Send us an email at info <at> supply-chain-matters <dot> com and we will respond with all of the information.

Bob Ferrari

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


Vital Link in the Global Apparel Supply Chain- Third-Party Refurbishers

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The following is a contributed Supply Chain Matters Guest Contribution from Jeff Glassman, CEO of Darn It! Inc, a third-party refurbisher specializing in apparel and general merchandise inspection, repair, cleaning, kitting, and warehousing.

 

The apparel industry’s supply chain crisscrosses the globe. In concept, that’s pretty exciting. In reality, it’s fraught with complications. Glitches can occur, errors can be made and consistent communication can be at-times, be challenging.

The supply chain can be interrupted due to all kinds of issues – some can be quite surprising!

Often, quality issues in apparel supply chains stem from a few key factors:

  • As retailers pressure offshore manufacturers to meet tight timeframes, an overwhelmed factory may subcontract work. This is a prime opportunity for a breakdown in communication, resulting in garments that don’t meet specifications.
  • When a retailer begins working with a new supplier, it can take time before the factory fully understands the retailer’s quality expectations.
  • If offshore manufacturers seek to increase profit margins, they may substitute inferior fabric or trim.

As a third-party apparel refurbisher, my company often receives frantic calls from apparel manufacturers, distributors, and retailers in the midst of a supply chain crisis. They have received a problematic shipment and need help getting first-quality garments on the shelves and online.

Here’s a sampling of just three situations that have interrupted our customers’ supply chain:

 

  1. Cartons of clothing had soaked in salt water – Due to a storm at port, a retailer’s shipping container with 20,000 pairs of pants had been submerged in salt water. (This is not your typical supply chain challenge!) We conducted an ozone shock treatment to remove mold and mildew, then pressed, re-ticketed, and repackaged the pants – all in time for the company’s big promotion.

 

  1. Correcting 56,000 mislabeled t-shirts – A retailer’s entire shipment of t-shirts arrived from the overseas manufacturer with the wrong size screen-printed on the shirts. After completing an inspection to determine correct sizes, we used a cover-up heat transfer label to overlay the correct size.

 

  1. 43,000 stuck zippers put $2 million in sales at risk – Beyond broken buttons, apparel often requires a variety of sewing repairs. In one case, we repaired the zippers on 43,000 sweatshirts (the zippers had the wrong slider). In another case, we replaced the red drawcord on 8,000 pajama bottoms (the dye was bleeding and staining the pajamas). In another example, the retailer’s durability test uncovered an issue with 5,000 men’s sleeveless shirts – the armholes needed to be repaired and properly reinforced. In yet another example, we repaired 16,000 lady’s wool pants with inseams that were randomly too long or too short; clearly, the garment measurements didn’t match the original factory specifications.

 

Mistakes are made from time to time – it’s a fact-of-life. Combine this with the notions that many retailers have implemented just-in-time inventory strategies. As a result, when apparel is produced offshore but doesn’t meet quality specs, it’s too time-consuming and costly to ship the product back.\

Unfortunately, apparel refurbishment services are an inevitable reality of today’s globally extended apparel supply chain.

Who bears the cost of refurbishment?

Depending on the contractual relationship, the retailer may charge the cost back to the original manufacturer. What if the specs were unclear? Retailers prize their relationship with quality apparel manufacturers so, in some cases, the retailer and offshore factory may share the cost.

A U.S. or domestic based refurbisher can help to minimize fall-out rate, avoid consumer returns, and return garments to first-quality condition. An experienced third-party refurbisher is an important link in the apparel supply chain, helping to ensure manufacturers, distributors, and retailers can quickly get products into customers’ hands.


Jeff can be contacted at Jeff@darnit.com .

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

 


Airbus and Boeing Report Q1-2017 Delivery and Order Booking Performance

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One of our more popular blog postings tends to be our updates on either the quarterly or annual operational performance numbers for the two dominant commercial aerospace manufacturers, Airbus, and Boeing. The interest levels extend not only from supply chain participants in each of these manufacturers but across their global supply chain ecosystems.  Boeing 787 Production Line 300x200 Airbus and Boeing Report Q1 2017 Delivery and Order Booking Performance

Thus, this posting updates on the latest Q1-2017 operational data.

Overall, the operational numbers would indicate that Boeing had a relative excellent Q1 while Airbus experienced an unusual slower than expected start to 2017.

Airbus

We begin with Airbus, which reported a total of 136 commercial aircraft deliveries in the March-ending quarter. That compares with 125 total deliveries in Q1-2016. The Q1-2017 breakout includes:

107 single aisle aircraft (A320ceo, A320neo, A321ceo)

13- A330

13- A350

3- A380

In an operational review conducted in February 2015, Airbus made supply-chain wide plans to target a production rate of 50 A320’s per month by early 2017.  Thus, among the closely-watched numbers are the deliveries of the A320ceo and A320neo (new engine option). At the close of Q1, the single aisle grouping has a rather significant 5547 of backlog orders from airlines with high expectations related to improved and more fuel-efficient performance.  The Q1 report indicates that a total of 36 A320ceo and 26 A320neos were delivered in Q1. Our sense is that Airbus would have preferred these numbers to be reversed.

The new engine option (neo) features an airline choice of two available, new fuel efficient aircraft engines, either the Pratt & Whitney geared turbofan (GTF) engines or the CFM International alliance of General Electric and Safran LEAP engines. The Pratt engine was added to production in Q3-2016 while the CFM International engine has been incorporated in the recently completed quarter.

During 2016, Supply Chain Matters highlighted some significant challenges related to delayed deliveries of the new Pratt GTF engine featured on the neo model, which both significantly impacted Q3-2016 and to a lesser extent, Q4-2016 deliveries to airline customers. The GTF became a rather visible broken-link in the A320 supply chain because of ongoing issues related to operational performance in high heat or humid climatic conditions such as that reflected in certain Asia or Middle East environments. Qatar Airways has been especially vocal regarding the performance of the GTF powered A320neo. Both Bloomberg and Aviation Week have recently reported that while the new Pratt GTF engines are meeting promised 15-20 percent fuel savings, combustion chamber and bearing distress glitches continue with engines operating in certain climates. Bloomberg reported that as of the end of February, as many as 42 GTF engines had to be taken off-wing prematurely, most in environments in India, which currently has the largest fleet of operational A320neo’s.  Pratt has been responsive to operating airlines, but the new engine spares are likely coming from engines destined to support new production.  Modifications to the combustor and additional upgrades are due by the end of the third quarter.  For Airbus, the fallback is concentrating A320neo production on allocated Pratt CFM engines or the new CFM International engine which thus far is showing no signs of glitches.

Turning to new orders, Airbus reported a rather lackluster total of 6 net aircraft orders in Q1, after experiencing several cancellations during the quarter including 8 A320neo’s and 2 A380 jumbo aircraft. Total gross orders were 26 aircraft in the quarter. None the less, the traditional rule of thumb in commercial aerospace is to book more orders than actual deliveries.  As we have noted in this year’s predictions, that period may be ending.

 

Boeing

Boeing reported a total of 169 aircraft delivered in the quarter. Late last year, Boeing announced to its investors that is was going to scale-down deliveries in 2017. Boeing’s Q1-2016 deliveries were a total of 176 aircraft. The breakout for Q1-2017 included:

113-single-aisle 737’s

32-787

21-777

2-767

1-747

 

Boeing’s most critical delivery number also relates to its single-aisle 737. The more fuel efficient 737 MAX is still in the final stages of flight certification and is thus not reflected in Q1 deliveries. There are, from our lens, two positive notes from this latest quarterly report of deliveries. The first is the 32 reported deliveries of the 787 Dreamliner, an indication that prior production glitches and consequent shortfalls are likely resolved.  The 787 is produced by two separate Boeing final assembly production facilities. The other is 777 family- with the newer more fuel-efficient and technically advanced 777X family announced to the market, Boeing has done a good job of filling production slots for the now legacy 777 model.

For new orders, Boeing reported a total of 198 net new orders in Q1, a rather stunning performance considering Airbus’s Q1 order performance. This number was far ahead of the 121 net orders logged in the first quarter of 2016. The breakdown included:

167- 737’s

11- 787’s

15- 767

9-777

As our commercial aerospace readers are aware, net order performance can vary in any given quarter, with announcements tied to specific events such as major air shows or investor conferences. That stated, Airbus has several challenges to address in the coming months, both on the inbound orders flow and in addressing A320neo production glitches. Regarding the latter, we surmise that Airbus’s patience for added glitches or supply shortfalls may be on the edge.

 

Bob Ferrari

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


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