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Reminders of Tighter Information Linkages Among Product Management and the B2B Supply Chain

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On Sunday, this author flew to Nashville Tennessee to both attend and moderate a panel discussion at the annual Supply Chain World North America and Global Member Meeting 2014 conference sponsored by the Supply Chain Council. Supply Chain Matters will share highlights from that conference in an upcoming commentary. Flying provides the opportunity to catch-up on reading, and for this author, my prior unread issues of The Economist magazine. Two specific articles with a common theme captured my interest and I wanted to share such observations with you in this commentary.

At the many industry conferences I get the opportunity to attend, I often hear supply chain leaders speak to accelerated clock-speed of product innovation, and how that can add additional challenges and potential havoc for the end-to-end supply chain, particularly when that supply chain is significantly outsourced. For a supply chain that is primarily supporting product innovation, a major industry product shift has significant implications.

The April 5th edition of the The Economist featured the article: General Motors’ woes: What do you recall? (paid print and digital subscription) The article notes that automobile design has become far more complex with thousands of mechanical and electronic parts. If you have acquired a new vehicle in the past three years, you probably have experienced the availability of so many new electronic-based systems such as in-car navigation, satellite radio, in-car diagnostics, and powered operational components and, of course, prompted service reminders. Couple the increased product innovation with supply chain and manufacturing strategies that leverage common global platforms sharing common parts components, and the potential effects of a product recall can be significantly magnified.  In the specific case of General Motors, the article states that what appeared at the surface to be a routine recall of 800,000 older models due to a faulty ignition switch has turned out to be anything but. As many of you have been reading in business and mass media, that initial product recall has increased to upwards of 26 million vehicles because the ignition design was shared within so many other models. The Economist authors opine that despite a growing list of reported crashes and human injury, a part that likely costs a few dollars at most now involves significant potential monetary expense for GM. Further stated: “A small part can do great harm if bad publicity leads to reputational corrosion, lost sales and litigation, which in America can include hefty punitive damages.” The article authors point out that carmakers need to spot trends in warranty repairs across global regions in far more timely manner and be able to more quickly respond to these indicators. While the terms of GM’s exit from bankruptcy provided immunity to lawsuits involving products produced prior to bankruptcy, GM will likely have to compensate injured parties to avoid a reputational impact to its product brands.

As noted in a previous Supply Chain Matters commentary related to the GM ignition switch recall, another industry backdrop concerns the Toyota agreement to pony-up a $1.2 billion criminal penalty settlement with the United States Justice Department after acknowledging that it misled consumers regarding unintended acceleration problems (SUA) that occurred from 2009 through 2011. That in the view of many will force automakers to be even quicker to declare a product recall for fear of punitive consequences.

A second article concerning a different industry provides yet another edge to product innovation and its impact on an industry supply chain. Many first-time global-wide smartphone consumers care less about brands and more about price. The Economist article titled: The rise of the cheap smartphone, points out that because the cost of making smartphones has declined so quickly, newer or existing market players can now acquires standardized processors and other components to offer smartphones priced below $80. Some of the brands mentioned are France based Wiko, Micromax and Karbonn in India and Symphony in Bangladesh. The article cites an analyst at IDC indicating that shipments of smartphones priced below $80 more than quintupled, and devices priced under $100 make up one-sixth of the current market. “Two years ago, while the median price of a smartphone was $325. Last year it was $250. This year it may be $200.”

With Apple and Samsung are noted as the only market providers making money, the implication is how long will this continue. Then, there has to consideration to last weekend’s announcement from Amazon indicating that it will enter the market with its own branded competitively priced smartphone.  That has set-off additional industry tremors.

If your supply chain exists in this segment, these quickly changing dynamics have implications for supply chain strategy, specifically how the supply chain will be called upon to either differentiate the brand, or drive even more scale and volume efficiencies.

The reading of both of these timely articles reinforced for this author that the linkages from product design and management directly to the manufacturing floor and the broader multi-tiered B2B value-chain network have got to be stronger than ever because the clock speed of industry change requires less information latency and more responsiveness. Stay tuned for an upcoming announcement regarding my participation in a webinar addressing this area in more detail.

Bob Ferrari


Boeing Announces Q1 Delivery Performance for Commercial Aircraft: The Good and Not So Good News

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Boeing has announced the results of new commercial aircraft delivered in the first quarter, declaring the deliveries rose 18 percent from year earlier results. That headline seems to be somewhat of a misnomer.

First quarter 2014 deliveries included 161 commercial aircraft compared with 137 in Q1 of 2013.  The misnomer is that all operational and in production 787 aircraft were in a grounded condition a year ago pending FAA investigation of suspected lithium ion battery fires, thus a comparison to last year’s Q1 has little meaning. Boeing re-started 787 deliveries in early May of last year. 

Boeing delivered 18 new 787’s in Q1, a shortfall of the company’s planned 10 aircraft per month goal. That compares to 25 new 787’s delivered in Q4 and a continued sign of production and other supply-chain problems associated with the Dreamliner. On the positive side, Boeing delivered an incredible 115 new Next Generation 737 aircraft in Q1.

Supply chain glitches or issues involving the 787 have been ongoing. In early March, there were reports that inspections were being conducted for suspected hairline cracks on 43 yet to be delivered Dreamliner’s because of potential flaws in a manufacturing process concerning supplier Mitsubishi Heavy Industries. In late March, the FAA issued its fourth airworthiness directive involving the 787-8 model, ordering an immediate fix to aircraft containing certain General Electric power plants where a suspected software glitch could cause the engine to lose thrust when close to landing. There have been other reports indicating that Boeing has experienced some difficulties in ramping-up overall production volumes at its Charleston South Carolina final assembly facility, prompting a hiring surge to augment the existing workforce there.

Currently operational 787’s with GE engines are cautioned not to fly through severe thunderstorms after reports of some ice build-up incidents. In early February there was a report that Boeing was continuing to pressure suppliers for cost concessions and one major supplier, Sprit Aero Systems reported significant pretax charges for the final three months of 2013, including $385 million directly related to work performed on the 787.

Boeing’s stated goal for 2014 is to deliver 110 long overdue Dreamliner’s to airline and leasing companies, roughly 27-28 per quarter. Q1 was obviously not what the 787 supply chain ecosystem wanted in performance and bar has risen for Q2 and the remainder of the year.

In an era of high customer expectations and pay for operational performance, Boeing needs to quickly shift its 787 supply chain objectives from cost control to achieving and maintaining reliable delivery and operational performance for airline customers.


FAA Releases its Report on the Boeing 787 Dreamliner- A Consistent Theme

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In January of 2013, The U.S. Federal Aviation Administration (FAA) announced a thorough formal review of Boeing’s 787 Dreamliner aircraft after a series of incidents, including electrical fire incidents in both Boston and Japan occurred. Supply Chain Matters readers are well aware that the 787 has been the subject of multiple commentaries on this blog.

This week, the FAA finally released the results of that study.      

Boeing 787 first ship from South Carolina facility

Source: Boeing Website

 

The review team consisted of a team of engineers and inspectors from both the FAA and Boeing.  The report indicates that the 787 is soundly designed and that processes exist to identify and correct manufacturing issues. Media coverage has cited a specific report statement: “The global fleet’s reliability during the first 16 months of service was comparable to previous new Boeing models.” We suppose you can interpret that statement in a number of ways but from our lens, it does not seem to reference an industry-wide benchmark of reliability metrics for newly introduced aircraft.

Several recommendations and some concerns were also put forward in this report. The FAA was cited for relying too much on Boeing to ensure the safety of the 787 design and manufacturing processes. The Wall Street Journal reported that Boeing senior executives acknowledged that they lost some control of the manufacturing process because of the nature of the global supply chain, and placing too much reliance on suppliers for the overall quality of 787 components and systems.  The most comprehensive coverage we found was a report filed by The Seattle Times which provides broader insights from the FAA report. One statement cited was: “in some cases complete and accurate design requirements did not flow down from Boeing to its primary supplier and then to involved subtier suppliers” resulting in “communication and verification issues along the supply chain.” Boeing’s sometimes ambiguity in stating what was required of partners led suppliers to believe that they had met requirements.

From our lens, that translates to a lack of continuous two-way information linkages from design and product management to manufacturing and value-chain partners.

Another recommendation reported is that the FAA must step-up oversight of foreign and “high-risk” subcontractor facilities to insure that suppliers are fully aware of their responsibilities. 

Hmm… are all the above statements consistent with a theme of throwing suppliers “under the bus”?

Supply Chain Matters has not as yet had the opportunity to dive into the FAA report and we will reserve any other direct observations or viewpoints until we can do so.  However, there seems to be a very consistent pattern from Boeing regarding overall supplier management.

The detailed report can be downloaded from this FAA web link.

We welcome comments from readers residing in multiple tiers of aerospace supply chains on how they perceive these recommendations.

Bob Ferrari


Breaking News- Boeing Indicates Manufacturing Defect in Some Dreamliner Wing Structures

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The Wall Street Journal is reporting (paid subscription or free metered view) that Boeing and a key supplier, Mitsubishi Heavy Industries,  are inspecting the wing assemblies of 43 yet to be delivered 787 Dreamliner aircraft after discovering hairline cracks caused by a manufacturing process.

According to the report, the supplier informed Boeing that a change in its manufacturing process may have caused the cracks. Inspections are being carried out at Boeing assembly facilities near Seattle and Charleston South Carolina.  Boeing indicated to the WSJ that none of the 123 Dreamliners delivered to-date are affected by this wing issue.

The WSJ quotes sources as indicating that the latest problem stems from fasteners use to connect shear ties to the carbon composite wing panel. Boeing indicates that it will take 1-2 weeks to inspect and correct this situation on the impacted production aircraft. Boeing further indicated to the WSJ that it fully expects to maintain its schedule for customer delivery of 110 787’s this year although Q1 shipments could slip beyond March.

The saga of the 787 supply chain glitches continues.


Product Demand Response Challenges Among Aerospace Supply Chains Showing New Market Realities

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Four weeks ago, Supply Chain Matters called attention to the good news – bad news world of today’s aerospace focused supply chains.  We cited a Bloomberg Businessweek report that posed a fundamental question- with over 10,600 firm orders for new commercial aircraft among Airbus and Boeing, when Boeing 787 production lineis order backlog too big?

Many of these new and technology laden fuel efficient aircraft orders are destined to support expected explosive Asia focused air travel growth. But, what happens when the CEO of Asia’s fastest-growing discount airline and other airline executives begin to communicate an air of caution.  A more recent Bloomberg published report now indicates that Asian aviation guru Tony Fernandes, CEO of AirAsia has cautioned that the jet buying frenzy among Asian based carriers may give way to a more sober approach that reflects the current airline challenges of intense competition, pilot shortages and inadequate infrastructure. That is significant since AirAsia has reportedly 350 in unfilled aircraft orders.  The report further quotes senior executives of prominent aircraft lessor firms indicating that there may well be a thinning of order volumes. 

Carriers operating across Asia are responding to pressures to sustain 30 to 40 percent growth rates while having to deploy new aircraft on newer routes. Intense competition has raised concerns for overcapacity, especially if marginal airlines start to succumb to faster growing operators. Terminals, runways and air traffic control systems are reportedly not keeping pace with current demands for airline expansion across Asia. Euphoria has made way to the realities of hyper-growth.

The question posed by the January Bloomberg report was that elongated aircraft deployment plans can be impacted by ever changing business conditions motivating some aircraft owners to consider alternative aircraft deployment or deferred procurement strategies. When senior executives of the most influential customer stakeholders for new aircraft orders begin communicating such caution, than supply chains need to be cautious and diligent. Suppliers have a special take since OEM’s continue to practice financial compensation when aircraft are shipped.

We again echo our prior advisory, namely that an enviable industry position awash with order backlog does not condone a business-as-usual focus on product introduction and supply chain management. Rather, dynamic and responsive capacity management, end-to-end value chain intelligence, enhanced supplier collaboration and goal-sharing will all come into play as aerospace supply chains continue to adjust to extraordinary and constantly changing industry dynamics.

Bob Ferrari


More on How the Airbus A350 Program is Integrating PLM and SCM Processes

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In our aerospace supply chain focused commentaries, Supply Chain Matters has featured ongoing commentary regarding the upcoming certification of the Airbus A350 wide-body commercial airliner. A350_XWB_first_flight_350242 Last week we noted how Airbus has increased the visibility to the current certification testing phase for this aircraft.

This blog pays special attention to commercial aerospace supply chains for two specific reasons. In today’s world of aerospace, the large OEM’s have far more overall reliance on the product and process innovation capabilities of their supplier eco-systems. Secondly, this industry is rather unique in its scope and complexity of global supply chain challenges, including having upwards of 5-8 years of current customer order backlog. Aerospace OEM’s, each have unique styles in their focus on engineering, supplier management and collaboration.

Last night, this author was reading the latest edition of Bloomberg Businessweek, which includes the article: How Airbus is Debugging the A350. I am always fascinated on how a complex, engineering-driven supply chain ultimately designs, tests and produces today’s complex commercial aircraft loaded with incredible levels of product and process technology. If you have such an interest, than I encourage you to read this article. Airbus has a lot riding on the success of the A350, which could represent 40 percent of this OEM’s revenue stream in the next 20 years.

The author, Jeff Wise, does a great job of profiling how Airbus is maturing its engineering development processes based on important learnings derived from one of the largest and most complex commercial aircraft, the A380. Noted is that there are 7000 engineers working on the A350, with roughly half of these engineers not employees of Airbus, but rather of its key suppliers. Airbus specifically wants to avoid the kinds of problems that have been associated rival Boeing’s 787 Dreamliner.

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. Today’s modern commercial aircraft come with a host of sophisticated sub-systems, with many more potential failure modes. Testing and production are conducted on a global basis and highly coordinated. Simulation systems are used extensively. Decision-making has been de-centralized and Airbus believes in transparency with suppliers.

As noted in our previous commentary, Airbus test engineers report that the A350 testing program to-date has uncovered half as many problems as previous programs, leading to a heightened sense of optimism.  Yet, current test teams know to always expect the unexpected.

The Bloomberg article provides a great snapshot of how engineering and design development are much more integrated with global supply chain management for aerospace environments.  And make no mistake, Airbus has learned a lot from what has occurred with the Boeing 787 program.

It is a good read.

Bob Ferrari


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