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A Non-Traditional Supply Chain and Capacity Planning Automation Effort Underway at Ford Motor

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This author had the opportunity to attend the Kinaxis Kinexions customer conference last week. Among the customer presentations there was a rather insightful talk from a supply chain executive at Ford Motor Company. This presentation delivered by David Thomas, Director of Global Capacity Planning at Ford was titled, Creating Global Standards Across Regional Sites, provided important insights on building and adopting global-wide data and business process standards without the use of traditional waterfall based program and change management methodologies. This technology effort underway at Ford is so different and novel, and conference attendees were citing this presentation as noteworthy and insightful.  Thus are we sharing the highlights with our broader multi-industry cross-functional supply chain readership community.

Since the global financial crisis of 2008-2009, the Ford Motor Company has been focused on “One Ford”, a series of foundational initiatives directed at overhauling unaligned management and business processes. This umbrella initiative was designed to address Ford’s internal tendencies toward regionally-based independence in P&L, product development and product value-chain strategies. Rather than operating as a single global based company, the emphasis was more toward disparate, top-heavy independent operating divisions. As was the case with many other manufacturing companies, the “near-death” experiences of the financial crisis provided the wake-up call to the requirement that Ford had to change.

Indeed, Ford was able to quickly bounce back from the financial crisis but Thomas described hitting another wall by 2011. Unforeseen global capacity restrictions were hindering growth.  The major supply disruptions brought on by the devastating tsunami that impacted Northern Japan, and the major floods that effected Thailand’s automotive sector were another reminder that the company’s overall sales and operations planning was not globally aligned for capacity and resource based decision-making. That prompted the need for a global capacity planning initiative that would be able to coordinate global response to capacity and supply alignment needs based on singular planning data.

This global capacity planning team soon concluded that there were no existing global standards related to product and capacity data across Ford. Spreadsheets were the dominant planning mechanism, with differing dimensions of data and information that hindered any global perspectives to dimension problems or to assess resolution actions. Thomas described the prior dominant atmosphere as being described internally as “dumpster diving for data.” The team quickly came to the conclusion that a global-wide set of data standards supported by a single global planning system had to be initiated as quickly as possible. However, the initial goal was to provide consequential evidence that global-wide data standards would result in far more effective capacity and resource planning.

Rather than traditional system program management, the steering team elected to focus on a faster innovation cadence, that of two-month development processes. A total of 14 cycles of fast innovation focused at building management credibility on the business value of a globally aligned data supporting a common S&OP framework. Thomas described the selection of a pilot development window as a purposeful effort to uncover needs and provide more positive evidence to the business value for global data and information standards to improve decision-making. These efforts included painful methods directed at mapping data tables and building simplified Excel based extraction tools. Eventually, a cobbled together single view of global and capacity that included all regions, markets and major components was developed, enough to convince senior management of the value of a singular, authored, S&OP framework. Thomas described this pilot phase as advocating that a lot of little adjustments with improved visibility can save hundreds of millions of dollars.

This initial pilot effort provided the impetus to secure formal approval to move forward in the development of a global-based S&OP systems support initiative that remains underway across Ford. It is being designed to move away from a current monthly planning process to more agile, better-informed and more predictive planning.

For the subsequent phase of off-the-shelf application selection and implementation, the steering team again avoided a big-bang, multi-year waterfall planning effort that would involve as-is and to-be state analysis, and instead elected to go with a tops-down approach. Thomas indicated that the steering team avoided waterfall global workshops to depict future state needs because: “nobody would ever agree.” Thomas’s described a viewpoint that people are often conditioned by the tools they currently utilize to perform their jobs. Instead the effort was directed at the expectation that Ford will have a global S&OP system framework that would launch on-time without major business disruption.

The agile development approach carried over, and development teams now work to what was described as continuous two-week development milestones. Rather than assemble and allocate on a full-time basis a dedicated global team of Ford employees to manage overall implementation, a decision was made to utilize dedicated externally based experts, those that were not anchored in Ford’s past practices. The people who will ultimately utilized the global system work alongside the external team during the review phases. The current effort is described as including 9 dedicated resources from Kinaxis along with resources from Deloitte, Prana Consulting and Ford’s internal IT staff. Efforts are now underway to build full data transparency across all product demand and supply, along with provisions for regionally-based S&OP efforts that are collectively based on a more timely, global based planning data.

Thomas indicated that Ford is about 6-9 months away from global launch of its singular S&OP process framework. It was described as a big-change for thousands of people who do not really want their existing jobs to change but do want their jobs to be easier in the needs for gathering common, more insightful and meaningful supply-chain wide data that can provide for more informed decision-making relative to line-of-business and functional supply chain goals. Then again, a continuous development cycle is already providing the evidence of the benefits of a singular planning data model along with the value of managed scope efforts that stream continuous economic benefits for the business. Gone are the days of big-bang implementations that risk business disruption and significant added costs of change management and implementation.

Supply Chain Matters extends praise to Ford’s ongoing transformational planning efforts and we look forward to learning more about the post implementation results.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Emissions Scandal: Volkswagen Agrees to Financial Settlement with U.S. Dealers

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The ongoing brand crisis involving Volkswagen and specifically its customers and franchised dealers over the diesel engine emissions alteration admission scandal that occurred over a year ago continues as it ever so slowly moves toward action plans and financial compensation.

Earlier this month, VW agreed to pay as much as $1.2 billion to its over 600 U.S. based dealers to compensate for the costs of the emissions scandal. In mid-July, The Wall Street Journal reported that VW dealers across the U.S. were fuming regarding any receipt of specific guidance regarding the estimated 12,000 diesel powered autos that they are not allowed to sell. These unsold and currently prohibited stop-sale vehicles had been sitting in lots for months while VW and U.S. regulators traversed an elongated legal process for determining next steps. According to the July report, U.S. VW dealers had already been sitting on approximately 107 days of finished goods inventory of which 12 percent represent currently non-saleable models.

Not wanting unsellable inventory to be clearly visible, many dealers reverted to moving stop-sale inventory onto adjacent or off-site storage lots. While VW was compensating dealers for additional financing and needs for periodic servicing of this large amount of unsold inventory, dealers were not apparently making up the difference in new sales volume because of a lack of new saleable inventory. The long awaited family-sized sport-utility vehicle is not expected to be introduced in the U.S. until early 2017 while anew Alltrack small station wagon is due to be introduced in the next several months adding to dealer frustrations for more models to sell. Plans are very unclear as to whether the new family-sized SUV model will be offered with any diesel powered options as previously planned.

According to business media reports, the new settlement with U.S. dealers could result an average payout of nearly $1.8 million per dealer.  This is to compensate dealers for the financial hardships of lost sales, damaged reputations and declines in dealership value that has been precipitated by the emissions scandal.

VW had previously agreed to pay as much as $15 billion to owners of 2.0-liter diesel powered vehicles in a direct settlement with consumers. Attorneys representing this class of consumers indicate that upwards of 65 percent of U.S. based 2.0-liter diesel engine owners want to take advantage of their settlement. Owners have a choice of selling back their diesel powered vehicle or having it modified by a yet as to be determined emissions repair procedure. Regardless of either choice, affected vehicle owners are entitled to additional compensation that equates to 113 percent of the retail value of their vehicle before the scandal occurred in September 2015. Final approval for the consumer settlement is scheduled for court review next week.

Owners of the larger 3.0-liter vehicles that were impacted by the emissions alternation are still waiting terms of a settlement.

A detailed timeline regarding the proposed buyback and repair program across the U.S. is expected to extend through the end of 2018.  According to reports, a software fix would be made available for third-generation diesels by this month, followed by a combination hardware and software fix for first-generation diesels beginning in January 2017, and a software update for second-generation diesel powered vehicles in February 2017. VW further indicated that it expects to have a hardware fix ready for third-generation diesels by October 2017.

As noted in our previous blog commentaries, VW continues to experience painful lessons regarding its ongoing emissions scandal. A company noted for a somewhat tops-down management style and an engineering-driven culture and among one of the two top global producers will learn some tough lessons as a result of this scandal. Further, the industry as a whole can adsorb some key learning regarding balancing the pressures to introduce market-leading innovative products on a timely basis with organizational tendencies to cover-up potential hardware or software design flaws.

The most important when all the dust settles, will be more sensitivity to customer, market and dealer network needs along with implications of being afoul to governmental emission standards.

Over a year ago we noted that the forthcoming weeks and months promise to provide Volkswagen with a leadership and response crisis with significant product development, product and service focused supply chain implications. Such challenges will continue to unfold for years to come, and represent critical learning for multi-industry supply chain and product management teams.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


The Effects of Hurricane Matthew Are Yet to Unfold for Multi-Industry Supply Chains

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I am penning this Supply Chain Matters blog commentary on Friday morning as Hurricane Matthew continues to make its way up the Florida coast. This morning, the central eye of this powerful storm is located just off Daytona Beach Florida and continues on its northward path, with a potential threat of a U.S. landfall looming.  The U.S. Hurricane Center continues to warn residents in the path of this storm to be not only watchful of the potential of significant wind damage but coastal and river flood surges along with significant amounts of rainfall.

Hurricane Matthew

From our lens, sales and operations planning, supply chain planning, operational logistics as well as procurement teams need to pay very close attention to the ongoing and potential effects of this natural disaster since the potential of further supply chain disruption is yet to unfold.

I have been in Orlando Florida this week attending an IBM supply chain focused conference and had the opportunity to hear all of the local and national media coverage of this storm, along with the dire warnings to residents and businesses. This storm presents significant threats as the hurricane makes its way further towards the Southeastern U.S. coastal regions.

We were very fortunate to have been able to catch an early afternoon flight out of Florida yesterday, before the major effects impacted Orlando. However, I already witnessed the activities related to preparedness and emergency response as residents began to expire local food and grocery supplies.

Thus far, this powerful Category 3-4 storm has brought devastation and sadly, the loss of life in Haiti, Cuba and the Bahamas, with more destruction and casualties expected. President Barack Obama has signed federal declarations of emergency for Florida, South Carolina and Georgia, ordering federal aid and allowing federal authorities to coordinate disaster relief efforts in those states. The governors of Florida, Georgia, South Carolina and North Carolina declared emergencies as well, and more than 7,800 National Guard military personnel have been activated or placed on alert to assist civilian agencies in this ongoing emergency. Likewise, the Federal Emergency Management Administration (FEMA) has been marshaling its emergency response teams to the impacted regions. What continues to concern governmental authorities is that the hurricane’s path will soon impact where the land mass begins to curve out from the Florida coast.

The governors of both South Carolina and Georgia have announced mandatory evacuations involving many of these state’s coastal regions because of the expectations of upwards to 7-10 feet of coastal storm surge with rainfalls of up to 10-12 inches in these regio

Hurrican Matthew

ns. We attach the latest NOAA visual of expected rainfall amounts.

Both of these states are major transportation and logistics hubs for the U.S. Southeast, a region that now includes the presence many automotive, commercial aerospace and other manufacturing focused firms.

The Port of Savannah, as we all know, is a major U.S. East Coast port and logistics hub serving the broader Southeast region, with container ships navigating up the Savannah River to both access and port, and down the river to exit the port. Likewise, the Port of Charleston serves the region as well. As of his morning, the U.S. Coast Guard has closed both of these ports because of the expectation of the gale force winds generated by this hurricane. Respective Port Authorities have likewise suspended all trucking and ocean container logistics activities directly related to these ports. The ports will remain closed to incoming and outgoing vessels until each respective port captain assesses any damage conditions and changes that status, which is expected to be late Sunday or later.

Keep in mind that both of these ports reside in areas that have been susceptible to heavy coastal flooding and excessive rainfall, especially the Savannah River region. Previous significant storms in these areas have resulted in disruption. Air freight facilities, while located in more inland areas could be impacted by storm conditions and heavy rainfall as well. We are well into the most active period for hurricanes  ansd severe storms potentially impacting U.S. East Coast regions.

The timing of this potential disruption is not all that good, coming just prior to the start of the holidays focused retail fulfillment period that begins in about a month’s time. Likewise, automotive and commercial aircraft manufacturers are striving to complete end-of-year or final quarter production commitments.

Thus Supply Chain Matters urges teams to stay abreast of ongoing storm related developments and ascertain if any key suppliers or transportation providers could or have been impacted by the effects of this ongoing hurricane.

We suspect that there will be implications in the days to come and we will keep our readers updated.

Bob Ferrari, Executive Editor

 


Tesla Motors Reports Q3 Operational Performance and Some Progress is Evident

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In July, innovative electric car manufacturer Tesla Motors announced its Q2 product and operational results.  In our July Supply Chain Matters blog posting related to Q2’s performance, we concluded that Tesla remained challenged with supply chain ramp-up issues as it strives to meet aggressive short and required longer-term production scale-up needs for existing as well as future model needs. Tesla ModelX_Live

Yesterday, Tesla reported its Q3 operating performance and it would appear that the auto maker is now responding to its short-term supply chain challenges.

According to a published report by The Wall Street Journal, CEO Elon Musk called for a strong third quarter to strengthen his equity raising case for scaling up the supply chain and production needs of the newly announced Model 3, along with massive lithium-ion battery facility, the termed gigafactory, near Sparks Nevada. It appears that operational teams indeed performed in Q3.

From an operational perspective, Tesla delivered approximately 24,500 vehicles across the globe in Q3, of which 15,800 were Model S and 8,700 were Model X. That level of output was nearly double that of the year-earlier quarter. The Model X production performance improvement stands out because of that vehicle’s previous production hiccups due to design-for-supply chain challenges causing some components such as the vehicle’s doors to be brought in-house. It further represented an increase of just over 70 percent from last quarter’s deliveries of 14,402. Quite impressive. In addition to Q3 deliveries, the manufacturer indicated about 5,500 vehicles were still in transit to customers at the end of the quarter and these will not be counted as deliveries until Q4. Tesla further reiterated its prior guidance of 50,000 vehicles being delivered for the second-half of 2016.

In late July, we posted a blog commentary reflecting on Tesla’s revised master plan as communicated by founder Elon Musk. After taking hundreds of thousands of advanced reservations and up-front financial deposits for the Model 3, Tesla’s initial answer to a mass-produced and more affordable electric vehicle, Tesla had to revise its longer term production plans to target total annual vehicle output of 500,000 vehicles two years earlier than originally planned, which is now planned to occur by 2018. Musk’s response has been to rally his engineering teams to now focus on what is termed: “designing the machine that makes the machine.” In essence, the effort reflects on turning Tesla’s supply chain and existing production facilities into an engineering design challenge in accelerating capacity, integrated design and tory automation. As readers are also aware, Tesla maintains its own global wide logistics and delivery network for finished vehicles, without the use of traditional dealers and finished automobile lot inventories. That adds to the challenge.

If Tesla indeed continues to perform and deliver its anticipated 50,000 vehicles in the second-half of this year, 2016 will close with a production rate of slightly over 83,000 vehicles. That will set the stage for 2017/2018 to ramp-up to the 500,000 volume target, a near tripling of existing capacity and value-chain ramp-up volumes.

While short-term performance indeed looks better, the longer-term challenges remain and it will obviously involve all of the best engineering, supply chain operational minds and advanced technology adoption that Tesla can muster. That is not to state that the goal is not achievable, but rather the effort will be one that will make-up business case stories for many years to come.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


A Changing Product Design and Volume Manufacturing Strategy for the Automotive Industry

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In 2011, this analyst began to share observations on a growing reality of a changed model of outsourced contract manufacturing services (CMS).  The following two postings provide some specific evidence that this shift is now underway and involves multiple industry sectors. We begin with commentary related to automotive industry supply chain strategy.

Product strategy change within the automotive industry is now underway, and will continue to involve industry disruptors.

Looking back, initial reports of high tech and consumer electronics Apple potentially entering the electric car business came to speculation light in early 2015. In a Supply Chain Matters commentary published in February of that year, we called attention to published reports by both the Financial Times and The Wall Street Journal indicating that Apple was working on a secret research lab possibly directed at developing a concept electric car.  According to the reports at that time, the code name “Project Titan” was assigned to the effort and hundreds of automotive engineers were recruited. Apple, of course, has declined comment to any of these publications.

Since that time, business media has reported that the effort shifted its product development strategy away from internal development of an electric vehicle and more towards a potential autonomous electric self-driving vehicle that could rival that of Tesla. Once more, information leaks indicated that without a definitive deliverable, Project Titan was waning, leading to informed sources indications of layoffs and talent exits occuring within the Project Titan team this summer.

A recent new report from the Financial Times cited informed sources as indicating that the consumer electronics giant was in talks to potentially acquire luxury sports car manufacturer McLaren.  Both companies have been quick to deny the occurrence of such talks.

As our readers are aware, manufacturing an automobile is enormously expensive with a single plant costing upwards of well over $1 billion. Thus, it was of little surprise that in 2015, Apple was already investigating existing contract manufacturing options. The February 2015 WSJ report specifically cited Canadian based contract manufacturer Magna International as an option and reported that that Apple executives had flown to Austria to meet with the Magna Steyr unit of the Canadian based auto parts supplier.

In the latest edition of Bloomberg Businessweek, a report titled: The Foxconn of the Auto Industry, indicates that Magna has taken more proactive actions to position itself as the contract manufacturer of choice for self-driving vehicles. The premise is that if Apple, Google, Uber or other technology focused firms want to manufacture a self-driving vehicle than Magna may well remain as the first step as the design and manufacturing outsourcing option, freeing up resources of the automotive or transportation services provider to concentrate on a software and managed services business model.

According to this Bloomberg report, CEO Don Walker has initiated plans for Magna to be the one-stop option. Walker has tasked his Chief Technology Officer to establish an effort across Magna’s various component divisions to develop an autonomous self-driving vehicle capable of transporting four to five people within the next two years. A noted strategy shift is that rather than waiting for a customer to engage with Magna to respond to certain design specifications, Magna will instead provide a vision and capability for where the transportation market is headed, and a pre-designed Magna product platform that can be leveraged for more responsive time-to-market entry into the market.

The premise of this new strategy is twofold.  First, there is a belief that in the coming five years, the core of product design expertise and IP for hybrid or electric powered self-driving vehicles will rest in software and services, rather than automotive component design such as bodies, engines and transmissions. Second, the contract manufacturing industry itself is moving more towards a one-stop shop for product design as well as more automated manufacturing processes including additive manufacturing techniques. Such a shift allows contract manufacturers to broaden their margins while increasing a presence up and down the automotive value-chain.

As Bloomberg, other business media, and we at Supply Chain Matters continually point out, Tesla, after reaping the benefits of thousands of consumers providing up-front deposits to secure a slot for the new Model 3, must now figure out a supply chain wide scaling process to internally manufacture this new vehicle in sufficient volumes to meet customer delivery and product margin expectations.

Magna on the other hand has a premise that industry disruptors will pursue an asset-light strategy, preferring to outsource physical component design and final assembly to a competent and trusted contract manufacturer.

Magna already has relationships with BMW, Land Rover and Mercedes for the outsourcing of model production. As noted in the report, Magna has been producing the Mercedes Benz G-Class vehicle for decades., and has now brought on BMW. This latest Bloomberg report further indicates that Magna has assigned nearly a dozen engineers to work with the Apple team in Sunnyvale California in vehicle development.

As noted, the contract manufacturing model is now quickly changing placing more responsibility for product and supply chain network design with the contract manufacturer. We will all likely observe the consequences of this new model in the not too distant future and it will involve many more industries and products.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


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