The bulk of Apple’s component supplier and contract manufacturing partners reside in China and Asia where many high tech electronics products are produced. Unfortunately, this is an area that continues to deal with high levels of industrial pollution, worker safety and industrial accidents.
Apple is now taking meaningful steps to initiate substance regulations across its supplier network.
According to a recent posting appearing on Apple Insider, the company is banning the use of cleaning agents’ benzene and n-hexane within supplier factories. This moves is part of Apple published Regulated Substances Specification which has recently been made available for open viewing. The purpose of this specification reads in-part:
“We require our suppliers to adhere to this Regulated Substances Specification, which describes Apple’s global restrictions on the use of certain chemical substances or materials in our products, accessories, manufacturing processes, and packaging used for shipping products to Apple’s customers.”
Apple’s vice-president of Environmental Initiatives has additionally published a letter regarding the company’s stance on safe working environments. Apple further intends to establish a new advisory board made up of chemical and pollution prevention experts who are tasked with finding additional ways to minimize or eliminate the use of toxins across Apple’s supplier network.
These moves come after activist groups submitted petitions calling for the company to place a ban on dangerous substances.
The fact that one of the top rated global supply chains has taken this proactive stance regarding supply chain safety and environmental responsibility is quite meaningful. Hopefully it will be an impetus for more high tech and consumer electronics brand owners to join in citing higher standards for safe chemical use.
Earlier this year, severe winter conditions across North America coupled with the continued boom of bulk crude oil shipments originating from the Bakken region of North Dakota led to significant railcar bottlenecks and shortages. Business media was quick to note that the rail car shortage problems stemmed from pileups at the BNSF Railway, which was one of other railroads heavily burdened by surging demand for crude oil transport. The problem was a classic capacity-constrained network, as winter conditions incurred a heavy toll on equipment and schedules. At the time, the railcar shortage was expected in extend further into the year.
A recent published report from Bloomberg now indicates that grain farmers in the upper Mid-West region of the United States now have a compounding problem. The article quotes grain industry sources indicating that 10 to 15 percent of last year’s grain crop still remains stored in silos because of the continued lack of availability of specialized bulk rail cars to transport the crop. Some contracts for delivery of grain from as far back as March remain unfulfilled.
This problem is expected to now compound further because the harvest of spring wheat is about to take place. Grain elevators still contain storage of the prior harvest while an expected large harvest needs to be stored and transported to designated domestic and export markets. According to the U.S. Department of Agriculture, the U.S. spring wheat crop will rise to a four year high in the coming weeks, the bulk of which coming from the Dakotas, Minnesota and Montana. The president of the North Dakota Grain Growers Association is quoted as indicating: “With the railroad situation the way it is, it almost looks hopeless as far as catching up.”
From our Supply Chain Matters lens, the key railroad carriers, BNSF and Canadian Pacific seem to be taking the classic rear-view mirror approach to the problem. A BNSF group vice president reports to Bloomberg that the backlog is expected to be down to less than 2000 past-due railcars by the middle of September. Bloomberg further reports that as of the end of July, the Canadian Pacific reported in excess of 22,000 requests for grain cars in North Dakota being an average 11.7 weeks late while over 7000 rail cars are over 12 weeks late in Minnesota.
We strongly suspect that farmers, agricultural distributors and consumer goods companies are more interested in the plans that railroads will put in-place to avoid both the past and expected upcoming railcar backlogs. What are these railroads specifically addressing to get in front of the problem? More than likely the resolution involves broader considerations including crude-oil shipments taking up the bulk of line capacities, along with compounding specialty rail car supply and demand imbalances.
Last winter, rail bottlenecks and delays rippled not only to grain and crude oil, but to other bulk commodities such as sugar and fertilizer, and to the shipment of automobiles and steel. According to this latest Bloomberg report, rail lines anticipate the backlog of grain rail shipments could extend through the October-November period, which overlaps with other agricultural harvests. Some railroads may not recover at all, which will present additional shipping challenges for farmers, grain operators, and indeed other industry supply chains in the coming months. As noted in previous commentaries, ongoing capacity and driver shortages among U.S. trucking companies cannot be relied on to solve this problem, nor is it economical for shippers and producers.
U.S. rail transportation infrastructure remains challenged and there needs to be concerted efforts to address both short and longer-term resolution of consistent reliability in rail shipping networks.
To our readers directly involved in the impacts of these bottlenecks, let us know what you are observing. How can and should railroads resolve these bottlenecks?
It’s the end of the calendar work and this commentary is our running news capsule of developments related to previous Supply Chain Matters posted commentaries or news developments.
In this capsule commentary, we include the following updates:
Google and Barnes and Noble Partner to Take on Amazon
Earlier in the week, the New York Times reported (tiered subscription) that Google and Barnes and Noble are joining forces on for fast, cheap delivery of books. According to the report, buyers in Manhattan, West Los Angeles and San Francisco Bay locales will be able to get same-day delivery of books from local Barnes and Noble retail stores via Google Shopping Express, beginning this week. The effort is billed as a competitive response to Amazon’s same-day delivery services.
Google Shopping Express already allows online shoppers to order products from 19 retailers including Costco, Walgreens, Staples and Target and secure same-day delivery. As noted in a previous Supply Chain Matters News Capsule, the Google Shopping Express strategy is to become an ally and complement a retailer’s local brick and mortar presence, relying on inventory from local retail outlets rather than the deployment of a larger network of fulfillment centers.
Airbus Completes Test Trials of the A350
Airbus completed the route-proving certification phase for operational testing of its new A350-900 model commercial; aircraft, approximately two months after completing the maiden flight of this aircraft. During this completed phase, engineers had to demonstrate to safety and regulatory agencies that the aircraft is ready for commercial service. A Vice president in charge of flight testing for Airbus declared; “The airplane is perfectly fit to go into service tomorrow.” The A350 was designed to compete against the current operational 787 Dreamliner and the 777 aircraft. Bookings for the A350 have surpassed more than 700 aircraft.
It has been noted that 7000 engineers worked on the development of the A350, with roughly half of these engineers stemming from key suppliers. Important learnings have included the need for a singular Product Lifecycle Management (PLM) software system, creating a single electronic rendering of an aircraft that every program engineer can reference or modify when needed.
Administrative reporting to various agencies remains a milestone before this aircraft can be officially certified for commercial use. Meanwhile, the Airbus supply chain ecosystem continues preparations and scaling to support planned production levels of 10 A350’s per month by 2018.
Boeing to Make Additional Cost Cuts from Defense Focused Supply Chain
Supply Chain Matters has posted numerous commentaries related to Boeing’s commercial aircraft focused supply chain ecosystem, faced with a dual challenge of having upwards of 8-10 years of customer order backlogs while continually being challenged to reduce costs.
Boeing’s defense businesses have a far different problem. Cutbacks in military and government spending programs have led to declining business, and a supply chain oriented to engineer-to-order specialized aircraft and spare parts. Early this week the head of Boeing’s defense, space and security business unit called for an additional $2 billion in cost cutting, two-thirds of which is being targeted among suppliers. Boeing has already cut $4 billion in spending related to its defense businesses. The unit chief called on suppliers to note efficiencies that have been gained in Boeing’s commercial aircraft programs.
Hewlett Packard Announces Smaller, Less Costly Cloud Platform
Hewlett Packard announced what it is communicating as a less costly cloud based IT platform under the Helion brand name.
Helion Managed Virtual Private Cloud Lean is being targeted for use by small and medium sized businesses looking to move applications development, software testing and workplace collaboration onto a Infrastructure as a Service platform. According to HP’s announcement, the new service offering can further provide services around SAP’s HANA in-memory systems.
With the new service offering, HP’s goal is to provide the same level of large enterprise services but at a lower-priced alternative. Pricing for this announced service is noted as $168 per month for a small virtual service configuration. A pilot trial service also is available for customers who want to certify an application to run in the cloud with the full support of the HP team.
U.S. Job Openings at a Thirteen Year High
Talent management, retention and skills development has been a constant theme among supply chain management forums and indeed many Supply Chain Matters commentaries. Executives and team leaders constantly lament on how difficult it is to find people with the right level of skills. Current forces of supply and demand in the U.S. labor market are not going to help in overcoming this challenge.
The number of job openings across the U.S. reached a 13-year high in June with U.S. employers announcing 4.7 million job openings. Reports indicate that employers additionally hired 4.8 million workers in June; an indication that the U.S. labor market is showing new momentum. With this increased level of hiring activity, existing workers have showed increasing willingness to seek other opportunities, given the level of new opportunities. A reported 2.53 million U.S. workers quit their jobs in June, up from 2.49 million in May.
The Asian editions of the Wall Street Journal report (paid subscription or free metered view) that Amazon is taking a long view on the growth opportunities for online commerce in India.
The online juggernaut is reported to be prepared to invest $2 billion in India for developing a nationwide delivery system along with technologies tailored to serve India’s consumers, most of which don’t have computers but do have mobile phones. Amazon reportedly obtains 35 percent of its current India business via mobile phones. Thousands of merchants must be trained to utilize Amazon’s web site and logistics services.
In its reporting, the WSJ notes that analysts were surprised by the large investment. India’s e-commerce market is likely to grow to more than $30 billion in next six years, much smaller than prospects in China. Once more, Amazon will have to compete with existing India based, or other foreign-based e-commerce providers.
This is a follow-up commentary related to Tesla Motors, specifically this electric powered automotive manufacturer’s efforts in supply in deploying a broader supply chain vertical integration strategy. In our Supply Chain Matters commentary in February, we noted Tesla’s announcement to build its own $5 billion electric battery supply facility which is termed the “gigafactory”, capable of supplying up to 500,000 electric vehicles per year. That level of supply commitment exceeds Tesla’s current planned output and implies providing a U.S. based manufacturing presence for electric batteries that would be available to other automotive and vehicle producers. Tesla currently supplies batteries for the ToyotaRAV4 EV and the Mercedes B-Class electric.
We noted that the strategy savvy, given that when one reflects on the entire value-chain and cost-of-goods sold (COGS) for an electric Tesla Motors Model S powered automobile, the batteries are indeed the highest portion of material cost. Tesla expects that the new factory would reduce its current battery costs by 30 percent in its first year,
In late July, during its second-quarter earnings report, Tesla executives made a side announcement indicating that the company had reached a final agreement with Panasonic Corp. as the supplier partner in the construction and operation of the planned gigafactory. Five western U.S. states continue to be cited as potential sites for either one or two linked supply facilities, although site work has actually begun in an area near Reno Nevada. Other potential U.S. states in the running are Arizona, California, New Mexico and Texas. The western portion of the U.S. is an obvious choice because of its proximity to the supply of lithium carbonate, a key raw material for lithium-ion batteries.
Journalist Michelle Quinn pens in a report posted by the San Jose Mercury News that the potential for landing this new battery factory with upwards of 6500 manufacturing continues to fuel a massive wooing and lobbying effort among each of the potential states. State legislatures are rushing through incentive packages to sweeten prospects in their individual states and Governors and city mayors have resorted to novel efforts in demonstrating enthusiasm and keen interest. One example, Texas Governor Rick Perry drove a Tesla Model S to California and taunted California officials about the overwhelming advantages of locating manufacturing in the Lone Star State. Quinn describes these lobbying efforts as a ‘beauty pageant” and: “if a song and dance could help (California), let’s do it.”
Readers should recall that Boeing launched a nationwide RFP bidding effort among potential U.S. states for selection of component and final assembly facilities for its new announced 777x commercial aircraft program. In our January posting, Collaboration According to Boeing, we noted that Boeing’s ultimate objective was to secure the most lucrative economic incentives related to production sourcing. Boeing was in-essence conducting a reverse auction, seeking the lowest economic bidder. In the end, a package of incentives described as the largest of its kind in U.S. history assured that new generation 777 production would remain in the OEM’s current Seattle area.
One of the learnings from the deep economic recession of 2008-2009 is that state, local and provincial governments will do all that is required to secure needed jobs and an economic future in times of uncertain economic growth. If that requires massive incentives in tax breaks, site location subsidies, workforce training and infrastructure developments, so be it. Current efforts among local and state governments to top one another only adds to the reality that manufacturers can hold out for the sweetest deal available with lucrative benefits. Appearances, stunts and lobbying add more leveraging power for the manufacturer.
In the specific case of Tesla, a company well known for its innovative and bold thinking. When the company announced that it would manufacture autos in California, many auto industry observers scoffed at that decision. California is not known as a low-cost manufacturing region.
The ultimate selection of its U.S. based battery gigafactory will accomplish four objectives:
- Bold supply chain vertical integration
- Proximity to key commodity supply and transport networks
- A well trained and technically savvy workforce
- Subsidies that may well defray the overall cost burden.
At this point, Tesla has more than likely honed its selection list based on the above objectives. The thinking is bold and timing is exquisite. It’s time to move beyond the politics and to the objective at-hand.
Three weeks ago, Supply Chain Matters commented on the effort underway among Apple’s ecosystem of suppliers and manufacturing partners to prepare for the upcoming product launch and distribution of the new model iPhone. Our commentary made note of reports indicating a number of moving milestones and potential challenges related to new product production ramp-up and product yield. Besides the next generation of the iPhone, there were additional published reports indicating that Taiwan’s Quanta Computer would begin mass production of Apple’s new smartwatch in July, with the planned product launch coming as early as October.
Today, Bloomberg, citing sources with knowledge, is reporting that Apple suppliers have also begun initial manufacturing of the planned new models of the iPad. According to the report, volume production of the next generation full-sized 9.7 inch version of the new model iPadAir is underway, with a newer version of the 7.9 inch iPadmini now entering production with general availability expected by the end of the year. The product introduction announcement is reported to be either at the end of Q3 or early Q4, but many Apple watchers are betting on the month of October, since other next generation products are scheduled for market introduction in that month. In any case, the NPI and volume production scenarios for iPad and iPhone are both pressing towards critical windows for required availability.
The latest quarterly financial results for Apple reflected a marked decline in iPad sales volumes, declining by over 13 million units, thus the upcoming new product introduction cycle is crucial. Timing is critical since there must be inventory available when consumers elect to make their end-of-year holiday purchases.
Like all things related to Apple’s product innovation cycles, design engineers introduce last-minute component features that would challenge any high volume focused supply chain. In our previous iPhone6 commentary, we highlighted reports of yield challenges with the larger LCD screen, the rumored inclusion of sapphire based screens and continued challenges for higher-volume production of fingerprint scanners. The next generation iPad Air is strongly rumored to include more innovative anti-reflective coating as well as a fingerprint sensor.
A separate report from the Associated Press further indicates that Apple’s sapphire glass provider, GT Advanced Technologies, indicated this week that its production facility is close to starting production, but does not expect to reach full operational production until early 2015. That is not an encouraging report for Apple’s supply chain planners and will likely lead to further tough decisions in the weeks to come.
Apple supply chain teams indeed important challenges is the coming 12 weeks with many simultaneous moving milestones impacting multiple product management plans. It is a consummate example of changing information in constant motion. Integration of NPI and supply chain information coupled with multi-tier response planning will invariably be put to the test.