In the commercial aerospace sector, both Airbus and Boeing both declared that they each exceeded operational targets for 2014. However, the supply chain ecosystems for each of these manufacturers have continual challenges to perform even better in the months to come.
Today, Airbus announced that it achieved a new record of 629 aircraft deliveries in 2014, representing an increase for the 13th consecutive year. That compares to the 626 aircraft delivered during 2013.
The breakdown of deliveries consisted of:
490 A320 model aircraft
108 A330 aircraft
30 A380 super jumbo aircraft
Initial A350 XWB to launch customer Qatar Airways
Airbus was challenged at the last minute in delivery of the launch A350 but overcame issues of customer customized equipment needs to make its 2014 milestone.
On the inbound customer demand side, the aerospace provider booked 1456 net orders from 67 customers making its year-end backlog to be 6386 aircraft valued in excess of $919 billion. If the Airbus supply chain were to continue to support and sustain its current shipment volume performance, the current order book represents in excess of 10 years of production.
Airbus program development highlights in 2014 included the maiden flight of the rather popular A320neo which is currently scheduled for operational certification in Q3, and first customer delivery in Q4 of this year.
Last week, Boeing announced that it had achieved delivery of 723 aircraft, a record for the most commercial aircraft delivered in a single year. That compares to 648 aircraft delivered in 2013. The breakdown of deliveries included:
485 737 program aircraft
99 777 program aircraft
114 787 Dreamliner program aircraft including the first 787-9 launch model.
Similar to Airbus, Boeing was challenged with December deliveries of 787’s and other wide body aircraft because of a supplier shortage of premium seating. All three of Boeing’s final assembly facilities each set new milestones for aircraft delivery volume. On the inbound side, Boeing booked 1432 net orders bringing its year-end backlog to 5789 aircraft, a declared all-time high. The company recorded 1355 net orders in 2013. If the Boeing supply chain were to continue to support current shipment volume, the current order book represents in excess of 8 years of production.
Boeing program development highlights included the launch of the 787-9 in 2014 and the planned assembly of the first 737 MAX scheduled for this year.
No doubt, the supply chain and product management teams and ecosystems of both Airbus and Boeing went the extra mile in successfully achieving each of the 2014 operational milestones. We extend our Supply Chain Matters Tip of the Hat recognition for their efforts, and hopefully, bonus goals were achieved and compensated.
Moving forward, 2015 brings expectations of even greater operational performance coupled with the needs to scale-up delivery cadence to even higher levels. As noted in a previous commentary, commercial aerospace supply chains exist in good and not so good news realities. All of the current backlogged customer orders need to be delivered to airline customer expectations for timing, anticipated reliability and performance. Once again, there is a very strong reliance on the performance of the extended supply network and in solid operations and risk management.
Congratulations to all.
In our industry specific coverage of commercial aerospace supply chains, Supply Chain Matters has featured a number of prior commentaries concerning Bombardier’s CSeries aircraft program, and the program’s efforts to penetrate single-aisle commercial aircraft market with the likes of an Airbus, Embraer or Boeing. Recent setbacks have impacted the CSeries program and yesterday featured an announcement that Bombardier’s senior head of commercial aircraft sales had resigned due to personal reasons.
We have provided a focus on the CSeries for three primary reasons. First, the program was Bombardier’s attempt to emulate a globally dispersed ecosystem of supply chain of major aircraft components to spawn program innovation and reduce overall program and production costs. Major components such as fuselage wings and tail are sourced in China, Ireland, Italy, and other countries. The C-Series continues to be targeted towards operational service among regional airline routes while delivering upwards of 20 percent fuel savings over existing smaller, single-aisle regional aircraft. The goal of the program was to: “revolutionize the economics and network strategies for airline operations in the 100-149-seat commercial market.”
Bombardier is also one of the largest and most prominent manufacturers in Canada, and like other commercial aircraft manufacturers, hosted governments and supply chain partners have a vested interest in product success and increased employment of workers. Thirdly, as we have noted in prior commentaries, the ultimate success of the C-Series was predicated on a very timely and competitive market introduction along with being more nimble than other competing aircraft manufacturers. This aircraft was originally targeted for market entry in 2013.
Yesterday’s announcement is yet another symptomatic indicator of a continued challenged program. The firm’s former head of commercial sales was replaced in December 2013 and business media speculated the 2013 executive sales leadership change implied more aggressive sales tactics to gather more C-Series orders.
A Wall Street Journal front page article published today (paid subscription required) begins to cast doubt on both the product strategy and market competitiveness of the CSeries. The article notes that Airbus and Boeing, along with Embraer have sharpened their competitive responses through more timely development programs updating existing models such as the Airbus A320 neo version and the Boeing 737 Max. According to the article:
“Bombardier, its suppliers and governments of Canada and the U.K., where the wings are built, are now on track to plow at least $4.4 billion into the CSeries program- up from the original plan of $3.4 billion and equal to nearly two-thirds of Bombardier’s total market value.”
The WSJ quotes an unnamed Bombardier executive indicating that the aerospace provider was blindsided with competitor’s actions to utilize the same Pratt and Whitney step turbine engine technology in upgrading existing models. Global airlines are thus electing to purchase the upgraded single aisle models from established manufacturers with Airbus having booked than 3400 orders for the A320 neo and Boeing garnering over 2600 orders for the 737 Max. Established fleets and infrastructure services make introduction of a new manufacturer more risky or perhaps most costly.
Unstated but another important development is that the price of oil has currently plunged allowing airlines more time and flexibility to schedule fleet equipment changes.
At this point, after restructuring efforts, the CSeries program reports directly to Bombardier’s CEO, including leadership of commercial sales. There is a continued belief that the aircraft will ultimately be recognized for its value. All hands and indeed the CSeries supply chain ecosystem are focused on completion of certification and first customer delivery with the belief that this aircraft family will eventually be recognized for its value and technological features.
For engineering-driven supply chain environments, program design objectives, a pulse of ongoing market dynamics and adherence to time-to-market milestones are all very important, especially in today’s more dynamic global industry landscape. These tenants take on a special meaning when the program’s objectives are to take on existing larger competitors when first mover advantage becomes a factor.
The CSeries will be a test of all of these principles.
Supply Chain Matters provides an update to a previous posting noting the previously reported delayed delivery of the first Airbus A350 XWB to launch customer Qatar Airways. Ten days ago, Qatar suddenly announced that it was delaying delivery of the launch A350 XWB aircraft just days before scheduled delivery without citing a specific reason for the postponement.
Today, a published Reuters report now indicates that the aircraft was delivered today, 10 days later than original planned. The report further indicates that Qatar “had last-minute problems with one of the suppliers of the “buyer furnished equipment”- items like seats and galleys that the airline buys directly from third parties.” That report places a different slant on reports that were previously in business media. The original news of the sudden Qatar delivery delay coupled with speculation regarding the potential termination of the A380 program caused Airbus stock to drop over 10 percent on the Paris exchange immediately after the announcement.
Regarding the A380, Reuters and The Telegraph had previously reported the head of another Airbus influential customer, Emirates, was one very unhappy customer upon hearing speculation that Airbus was considering a potential cancellation of the A380 program without consultation. Today’s Reuters report seems to place previous speculation totally to rest as the CEO of Airbus’s commercial aircraft unit declared earlier today that production of the A380 would continue, including the potential of adding new engines and a larger stretch configuration.
Our last commentary observed that in just one week, Airbus managed to get embroiled in openly communicated unhappiness among its top two most influential long-range, wide body customers, Qatar and Emirates. It seemed that product strategy was relegated to a public forum. Airbus seems to have now put all at-rest with today’s delivery and management statements.
Influential customers do have a very important voice in product development and delivery criteria.
Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide our annual ten predictions concerning industry and global supply chains for the coming year. We have maintained this tradition since the founding of this blog in 2008 and it continues to be quite popular with our readers and clients.
These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, as well as helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the upcoming year. Predictions are sourced from synthesizing developments and trends that are occurring in supply chain business, process and technology dimensions, researching various economic, industry and other forecasting data, along with input from clients, thought leaders and global supply chain observers. We take predictions seriously and align our research and blog commentaries to focus on each specific prediction area throughout the coming year.
Supply Chain Matters will revisit each of our annual predictions at the end of the year to ascertain how close or how far each fared. The report card regarding our 2014 Predictions can be re-visited at the below web links:
We continue to believe that industry analysts should openly state their insight and opinion of what to expect in the coming year without the need for a paid subscription. Readers therefore have the opportunity to compare and contrast various sources of predictions.
As in the past, all ten of these 2015 predictions will be included in a more detailed research report which will be made available for no-cost downloads in our Research Center in January. Readers will be able to register to download a copy or can email us directly. More details regarding that process will come later.
In this Part One posting, we outline our first five predictions for 2015.
Drum roll please …..
2015 Prediction One: More optimistic global economic growth with the usual caveats and uncertainties
Forecasts point to an optimistic global economic outlook for 2015 with continued cautions and unknowns for industry supply chains. The bright spots will continue to be the United States and Mexico.
The October 2014 forecast from the International Monetary Fund (IMF) predicts 3.8 percent global growth vs. 3.3 percent in 2014. Advanced Economies are predicted to grow 2.3 percent vs. 1.8 percent in 2014. World trade growth is expected to expand 5 percent in dollar terms.
The most concern resides for the Eurozone, where tepid growth and deflation remains an identified and concerning risk.
China’s growth is predicted to be 7.1 percent vs projected 7.4 percent in 2014. China’s economic planners will be caught in a difficult balancing act to manage growth but deal with high levels of debt. We have read of more pessimistic forecasts foretelling of broader setbacks ahead for China’s economic growth, with concerns for a stumble. Then again, China’s economic leaders were adroit in avoiding a stumble in 2014.
According to the IMF, developing economies are predicted to grow 5.0 percent vs. 4.4 percent in 2014. A significant surprise will be India which is expected to grow 6.4 percent vs. 5.6 percent in 2014. Growth is expected to accelerate in Latin America with Brazil and Mexico leading the charge. Argentina remains an ongoing concern.
The IMF expects resurgence of U.S. economy to continue at 2.3 percent vs. projected 1.8 percent in 2014. However a poll of 50 economists conducted by The Wall Street Journal in September indicates closer to 3 percent U.S. GDP growth in 2015. For the United States, the ISM PMI Index in November was reported as 58.7, a significant 7.4 percentage points higher than the value recorded in January.
The J.P. Morgan Global Manufacturing PMI Index, a composite index and recognized benchmark of composite global supply chain and production activity provided mixed signals by November of 2014. An overall value of 51.8 was recorded in November reflecting expansion of manufacturing production for the 25th consecutive month, but the rate of expansion eased to its lowest level since August 2013. Growth in new orders was recorded as a 16-month low with the trend in international trade volumes stagnated. North America continues to be reported as a key growth region while concerns were expressed for stagnation in China and further subdued growth for the Eurozone sector.
Another area of concern is fluctuations or shifts in global currency, particularly Asian currencies and the Chinese yuan. As we pen these predictions, the currency of Russia has been impacted by significant de-valuation.
The takeaway for industry supply chains and their sales and operations (S&OP) processes is to anticipate another year of needs to be able to predict supply chain demand and supply needs on an individual geographic region or country basis. Generalized planning no longer suffices and industry supply chain teams will need the means to be able to respond to short-term market opportunities or sudden changing trends.
2015 Prediction Two: General Moderation and Reduction of Commodity Costs with Industry Exceptions
Expect a continued overall moderation trend for the cost of commodities with certain industry specific exceptions. Dramatically lower oil prices in 2015 will be the biggest headline driving commodity and pricing trends in 2015.
As of mid-December, the Standard & Poors GSCI Index of broad based commodities is projecting a 27 percent decrease in overall commodity prices over the next twelve months.
As we pen our 2015 predictions, the prices of crude oil have plunged to their lowest levels in five years after the International Energy Agency (IEA) cut its forecast for global oil demand on the fifth occasion in six months. The news has added volatility among global equity markets as investors become increasingly concerned about the implications. Global oil prices have consequently plunged from the peak of $110 per barrel to a range of $60-$70. Some forecasts now peg 2015 oil prices as low as $50 per barrel.
Global and industry supply chain strategies are driven by the forces related to oil prices and the cost of energy and thus this commodity trend looms large for broader implications in 2015. The open question is whether the trend is permanent or short-lived.
Purchasing and commodity teams can therefore anticipate inbound cost savings in the coming year with the usual exceptions related to unforeseen weather or risk events.
2015 Prediction Three: Momentum for U.S. and North America Based Manufacturing Sourcing Continues but Motivates Broader Needs
We predict that the momentum for U.S. and North America based manufacturing will continue in 2015 with discernable benefits for certain industries. The need to broaden investments in certain industry supply ecosystems and U.S. logistics and transportation infrastructure will continue to dominate business headlines and industry agenda.
Throughout 2014, U.S. and North America based supply chain related activity continued at a steady state. As of October, 16 of the total 18 tracked industries within ISM’s PMI indices were reporting growth momentum.
The continued growth of U.S. and North America manufacturing comes from a number of factors not the least of which have been the ongoing double-digit increases of labor costs in China, increased positive momentum of the U.S. economy and more attractive energy costs throughout North America. Specific efforts by Wal-Mart, other retailers and manufacturers concerning significant long-term commitments for sourcing products in the region have helped immensely.
In August of 2014, the Boston Consulting Group noted in its report, Shifting Economics of Global Manufacturing, that in some cases, the shifts in relative costs of manufacturing among China and North America have placed Mexico as the cheaper low-cost manufacturing alternative.
However, the sourcing of U.S. and North America based manufacturing continues to uncover gaps in globally competitive component supply chain networks, many of which still reside in Asia or China. This is especially the case in high tech and consumer electronics, footwear, apparel and other industries. Continued momentum is thus increasingly dependent on further re-building of global cost competitive North America based supply ecosystems among multi-industry supply chains.
A caveat for 2015 stems from the plunging price of oil and energy outlined in Prediction Two which could influence some manufacturers to remain concentrated in an Asia or Eastern Europe based sourcing strategy.
2015 Prediction Four: Internet of Things (IoT) Continues to Attract Wide Multi-Industry Interest But Certain Challenges Need to be Purposely Addressed
Cross-industry interest levels and momentum surrounding B2B products and services leveraging Internet of Things (IoT) coupling sensor-based based technologies will continue to attract wide multi-industry interest. IoT provides a new era of interconnected and intelligent physical devices and/or machines that will revolutionize supply chain processes related to production, transportation, logistics and service management. We expect more technology vendors to jump into this area along with heightened M&A activity as these vendors position for industry needs and requirements.
IoT will further drive a convergence among product and service focused supply chain planning and execution processes as well as certain product lifecycle management information integration needs. PLM and SLM provider PTC is a current example of this dimension but other vendors will be attracted to this business model.
The realities in the lack of consistent or conflicting global-wide standards, overcoming data security concerns and scalability of networks will provide more visible challenges for broader industry deployments. We have recently indicated a feeling of de-ja -vu for the replay of early RFID efforts, as vendors tended to ignore certain realities of the technology. Vendors will need to step-up efforts to address current challenges and individual industry needs.
2015 Prediction Five: Noted Industry Specific Supply Chain Challenges
Noted industry specific supply chain challenges will remain in B2C-Retail, Aerospace and Consumer Product Goods (CPG) sectors. Automotive manufacturers will have to address continued shifting trends in global market demand and a renewed imperative for corporate-wide product and vehicle platform quality conformance measures.
B2C and Retail
Global retailers continue to be challenged in emerging and traditional markets and in permanent shifts in consumer shopping behaviors. In 2014, retailers encountered the realities of lower margins for online fulfillment, the needs to invest in enhanced inventory management, distrusted fulfillment and order management capabilities, and the perfect-storm presence of developments that resulted in dysfunctional west coast ports.
Retail sales in China, Asia and Australia are expected to surpass that in North America, but China’s efforts in greater scrutiny of foreign-based retailers and service firms will likely continue to impact growth expectations in the coming year. According to industry and business media, retailers are expected to instead target the other so-termed MINI countries (Mexico, Indonesia, Nigeria, Turkey) for growth prospects in 2015.
The accelerating trends and implications of Omni-channel and online fulfillment will impact traditional retailers with more casualties recorded in 2015. Amazon, Google and Alibaba will continue to be industry disruptors, movers and shakers in 2015 and Wal-Mart.com may join that list. We would not be surprised if Alibaba concentrates acquisition efforts toward more U.S. and North America online properties to prepare for a presence.
Consumer Product Goods
CPG companies continued to view emerging markets such as China and India as important regions for future growth but experienced the effects a far more complex and risk-laden supply and regulatory networks. The heightened influence and actions of short-term focused activist equity investors, applying dimensions of financial engineering to one or more CPG companies will continue to have special impacts on consumer goods industry supply chains with added, more troublesome cost reduction and consolidation efforts dominating organizational energy and performance objectives. The new winners in CPG will continue to be smaller, more nimble producers who lead in product, supply chain business process and technology innovation.
Industry dominants Airbus and Boeing and their respective supply ecosystems will continue to be challenged with the needs for dramatically stepping-up to make a dent in multi-year order backlogs and in increasing the delivery pace for completed aircraft. Dramatically lower costs of jet fuel in 2015 will likely present the unique challenges of airline customers easing off on delivery scheduling, but at the same time insuring their competitors do not garner strategic cost advantages in deployment of newer, more fuel efficient and technology laden aircraft. Middle East and Asian based airlines and leasing operators will continue to influence market dynamics and aircraft design needs.
Renewed hostilities involving Ukraine or severe economic or currency crisis within Russia could impact strategic supply of titanium and other metals. The economic malaise that is expected to continue across the Eurozone region along with expected contraction in China will present 2015 challenges for Airbus and Boeing’s supply ecosystems. Boeing will especially be focused on continuing to influence more cost reduction and productivity efforts among its global suppliers while continuing to address identified issues from regulatory investigations in practicing added supplier oversight for design and production process quality.
In the U.S., an unprecedented and overwhelming level of product recall activity spurred by heightened regulatory compliance pressures will drive product quality and compliance as the overarching corporate-wide imperative. Cascading incidents in 2014 pointed to issues of quality lapses among global suppliers and early-warning of potential component defects. Existing product recall campaigns will most likely extend through the first-half of 2015, placing added strains on aftermarket service dealerships. Japan based air bag inflator supplier Takada will continue to deal with its creditability crisis and could lose significant new business if it does not step-up and get-ahead of the airbag quality crisis. OEM General Motors will especially be under the looking glass in 2015.
This concludes Part One of Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains. Part Two in this series will unveil our next five predictions.
We encourage readers to share in the Comments section their own predictions on what to expect in 2015.
In the meantime, we extend best wishes for the holiday season and the New year.
©2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved
Over the remaining few days of December various supply chain teams will be hard at work supporting end-of-year shipment and revenue milestones. Most supply chain teams are aware that completing key milestones, whether financial, business or management focused, are critically important for compensation and career considerations.
In many cases, singular parts or component assemblies can likely be a cause for multiple end-item shipment delays. We are fairly confident that many of our readers residing in manufacturing, retail or service supply chains can well relate to this situation.
Thus, we were not at all surprised to have run across a Bloomberg published article indicating that Boeing and Airbus production and supply chain teams are working to ensure that 2014 end-of-year and program production and shipment milestone targets are fulfilled. The December challenge stems from France based Zodiac Aerospace, a supplier of upscale lie-flat airline seats. Certain deliveries for both the new Airbus A350 and Boeing 787 Dreamliner have requirements for the luxury seats which according to Bloomberg, can cost upwards of $200,000 each because of expensive finishes and complex mechanics. They are described as the “Ferrari” of airline seats. This author appreciates that analogy.
For Zodiac Aerospace, a month-long labor stoppage within a Texas production facility that ended in late October coupled with backlogged engineering teams working with airlines for final seat design approvals have led up to the current challenges. The supplier is attempting to resolve all late deliveries and return to a normal schedule by mid-2015, but as is often the case, planning teams have been working to move deliveries of other new aircraft that can be completed to December customer delivery. The article cites American Airlines as an example, who now expects to take delivery of its initial 787 during Q1-2015 rather than this month. American also needs to secure FAA approval to utilize these innovative seats within its new 787 fleet.
The 2014 shipment milestone for the Boeing 787 is 110 aircraft. Airbus encountered a sudden and unexpected delay in delivery of the first A350 to launch customer Qatar Airways because of an unexplained reason. Commercial aerospace supply chain and S&OP teams are thus behind the scenes and hard at work resolving last-minute snafus while working with various customers to move-up or re-schedule deliveries.
When the stakes are high, the individuals and teams that maneuver the various moving parts of the supply chain do matter. While technology can provide helpful tools, in the end, it’s the brainpower, creativity and tenacity of individuals that deliver the bacon.
No doubt all will done to insure December milestones are accomplished.
We share a wise holiday and New Year’s resolution- express your thanks to the planning, execution, procurement and product management professionals that are often called upon to be the last-minute enablers of customer fulfillment.
The business-to-business (B2B) network has become the new opportunity for fostering stronger supply chain and product business relationships with suppliers. More often today, this includes integrating new product management and introduction (NPI) with product design, collaborative manufacturing design and supply chain fulfillment.
Recently, Supply Chain Matters has highlighted a number of current day examples of the critical importance of these relationships. We highlighted recent accident investigation findings from previous Boeing 787 Dreamliner lithium ion battery fires along with findings from a joint FAA and Boeing study published in March which reviewed the broader 787 build program. Among report findings was added credence to the reality that globally extended aerospace and complex equipment supply chains need to consider more timely two-way integration of product lifecycle management (PLM) and manufacturing process test information across B2B supply chain networks.
In the high tech and consumer electronics sector, product lifecycles are far shorter and NPI cycles occur more frequently. The recent unexpected bankruptcy of a prototype Apple supplier of sapphire glass provided yet another example. Apple’s peak and valley tendencies for extraordinary new product ramp-up and corresponding large-scale production volume surges that correlate with condensed product release cycles place enormous pressures on suppliers and any last-minute product design changes can be a disaster without timely two-way information integration and change assessment. Within automotive supply chains, recent unprecedented levels of product recalls are a reflection of the exposure of common product platform strategies, where common component design is leveraged across multiple models or brands. Many if not all of these multi-industry examples point to the product and production information alignment disconnect.
Under sponsorship of E2open Inc., our research parent The Ferrari Consulting and Research Group recently published an E-Book, The Case for Tightly Integrating New Product Introduction and Supply Chain Management. This document identifies the new opportunity for leveraging the end-to-end supply chain business networks not only for synchronizing planning and fulfillment execution but the new opportunities for incorporating two-way NPI process information as well. Certain B2B networks provide the ability to support a hub-and-spoke, federated data model that spans these broader process areas and bridge the gap in existing PLM and ERP systems for integrating broader forms of process information across extended supply and demand networks.
The E-book is available for complimentary downloading with registration at the following E2open web link. Later this month, we will also feature this E-book in the complimentary section of the Research Center associated with this site.
Disclosure: E2open, Inc. is both a Named Sponsor of Supply Chain Matters and a client of the Ferrari Consulting and Research Group.