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.
In the summer of 2010, a global supply manager at Apple was charged with wire fraud, money laundering and unlawful transactions in an alleged kickback scheme that involved multiple Apple suppliers. In our Supply Chain Matters commentary in August of 2010, we highlighted the alleged scope of the conspiracy along with a report indicating that the kickback scheme was believed to have dated back as far as 2006. The elaborate scheme was believed at the time to have involved at least three Apple suppliers where confidential information would allow such suppliers to negotiate on more favorable terms with Apple. The suppliers in question provided mechanical parts, tooling and fixtures related to the manufacture of Apple iPads and iPhones. Information allegedly shared included Apple’s planned sales volumes, product specifications, competitors target prices and bids, which in essence provided overall intelligence on how to best bid for Apple’s business.
In late February of 2011, Paul Devine, a now former Apple manager, pleaded guilty to 23 counts of felony fraud and conspiracy charges in connection with this incident. Mr. Devine admitted receiving kickbacks from six different Asia based suppliers in exchange for Apple related confidential information. Devine was further ordered to turn over $2.3 million in money and property acquired from the conspiracy.
This week provided news that Mr. Devine has now been sentenced to one year in prison, three years of subsequent probation and fined $4.5 million for his role in the former conspiracy. Devine will begin serving his prison term in late February 2015.
The halls of justice indeed run slow.
According to a published report on Computerworld, Devine’s activities were discovered after Apple reviewed personal email messages from his Hotmail and Gmail accounts on his company-provided notebook. The report further speculates that Devine’s relatively light prison sentence “may have been because he cooperated with authorities in their pursuit of others including Chua (Jacky Chua, former managing director of Singapore based Jin Li Mould Manufacturing) and Ang (Andrew Ang, an employee of Jin Li and a relative of Devine by marriage).”
In a separate posting this week on the appleinsider blog, at the time Devine plead guilty in 2011, “he was ordered to forfeit some $2.3 million in property and money. The federal government had seized $150,000 in cash from Devine’s home — which he reportedly stashed in shoe boxes — alongside nearly $1 million from various bank accounts in both his and his wife’s name.” That posting has thus garnered 50 Comments by today’s count, most of which focused on the greed of an individual who worked for a great employer, seemed to be well compensated by that employer, and chose to pursue unsavory business behavior instead.
We suppose that these are understandable reactions.
But, as Supply Chain Matters noted in a separate 2010 commentary, this incident should have provided a wake-up call on the state of ethical procurement practices when business pressures and various outside cultures collide. While some may deflect such remedies toward this being an isolated incident or the moral principles or motivations of the individuals involved, hiring policy has little to do with the underlying root cause of this and other related episodes. It would seem that within today’s business culture, some select firms and individuals within these firms continue with the belief that presumes that all confidential or proprietary information can be had with certain methods. After all, isn’t business about what is portrayed in today’s reality television programming such as Survivor or the Bachelor?
We should not kid ourselves that such practices exist just in certain financial hedge funds or increased cases of insider stock trading. Once more, information leaks throughout the global supply chain appear to be fair game, and it’s not just a problem solely related to Apple. It is a cross-industry, global-wide problem manifested by different degrees in various geographies.
Firms will continue to scrutinize hiring and procurement business practices and augment such practices with audits and controls. However, there needs to be heightened visibility and consequences for selling confidential or proprietary information to the highest bidder.
Added Visibility to the Challenges of an Apple Supplier- The Increased Importance of New Product Information Integration
Supply Chain Matters has featured a number of commentaries regarding the perils and pitfalls for being an Apple supplier. Our commentary in early October reflected on challenges at Foxconn and the sudden bankruptcy filing of sapphire glass supplier GT Advanced Technologies. Subsequent information has come to light from the unsealing of information filed in relation to GT Advanced Technology’s bankruptcy. Embedded in these reports are important insights on the increased importance of more timely integration of new product introduction information across the extended supply chain business network.
This week, The Wall Street Journal Digits blog (paid subscription or free metered view) featured its own commentary regarding the lessons of being an Apple supplier. The WSJ was successful in gathering specific responses from other Apple suppliers including Pegatron and Wintek. Regardless of the significant customer demands, suppliers do not turn away from Apple’s business because it provides scale, volume and the potential for profits in far higher dimensions.
The WSJ commentary also cites 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. In one recent example, Supply Chain Matters called specific attention to a rather last-minute product design change that impacted the current iPhone 6 NPI process.
Apple’s key suppliers point to a common strategy to not have a singular reliance on any large, highly demanding customer but rather a diversification among several high-profile customers. Apple is often cited as a rather demanding customer, having key knowledge on a supplier’s cost and production process structures which is an important indicator for having the most up-to-date knowledge and detailed information on a new product’s required test and production process changes or needs.
These reports provide continued learning for high tech and other industry suppliers that feature highly complex, globally extended supply chain networks. Needs for timely two-way integration of new product introduction (NPI) information across the extended supply chain has become far more evident. Product innovation involves time sensitive collaboration for product design and test changes as well as supply chain production ramp-up needs. That is why product design process information is quickly becoming the new requirement for inclusion within end-to-end supply chain business and collaboration networks.
Supply Chain Matters provides a follow-up to Apple supplier GT Advanced Technologies and the events leading up to its bankruptcy filing. In early October, in a sudden and startling announcement, this developing supplier for new, more durable sapphire glass applications for Apple’s product lineup announced that it had commenced a voluntary filing under Chapter 11 of the Bankruptcy Code as a best means to reorganize and protect that company.
This weekend, The Wall Street Journal, which first identified GT Advanced Technologies as the prime supplier of the new sapphire based material, revealed details previously included but sealed in the bankruptcy filing in October (paid subscription required). On Friday, the bankruptcy judge had ordered the release of this information.
According to the WSJ, GT’s CEO characterized Apple’s efforts as a “classic bait and switch” strategy that caused this supplier to be stuck in what was described as an “an onerous and massively one-sided deal.” The article further indicates that the supplier described constant changes in product specifications without adequate compensation and that Apple had no obligation to buy the material but demanded the supplier restrict the company from selling to other consumer electronics company. In an earlier motion to the court, Apple stated that the filing was intended to “vilify Apple and portray Apple as a coercive bully” and that the CEO’s statements were untrue and defamatory. Apple also invested the sum of $439 million which it must now try to recover.
This Apple supplier relationship has obviously reached a point of no-return. The WSJ quotes GT’s bankruptcy lawyer as indicating: “There are discussions between Apple and the company not about continuing the marriage but rather what I could call a divorce without a custody fight.”
As Supply Chain Matters has noted in many prior commentaries, the perils of being an Apple supplier are those of having the capability of high agility in the wake of what others would view as rather difficult obstacles. That tendency dates back to the era of Steve Jobs who instilled a perfectionist culture for design engineering. Also with Apple come huge scale and the potential for financial reward. In the case of GT Advanced Technologies, the risk-reward strategy has an apparent far different outcome.
Obviously, Apple has no desire to have such a supplier relationship vetted in business and social media but this is a far different era of transparency and openness that sometimes transcends discussions behind closed-doors.
This is today’s mission for high tech and consumer electronics suppliers, namely dealing with whatever is required to make the customer’s business model successful, but sometimes at-peril if a counter-balancing strategies are not pursued. One of the Comments affixed to the WSJ article very pointedly states: “If you cut a deal with Apple, you better know what you’re getting into.” That comment sums it all.
This week, The Wall Street Journal reported (paid subscription) that global contract manufacturer Foxconn is in preliminary talks to build a high-end $5.7 billion LCD display screen factory in Northern China. According to this report, the CMS is in discussion with the government of Zhengzhou regarding potential investment arrangements. According to WSJ unnamed sources, Foxconn and Hon Hai Precision Chairmen Terry Gou visited Zhengzhou in August and met with government officials to discuss an investment proposal. The Zhengzhou region is also the home of an Apple iPhone assembly facility.
This news is significant in that it would represent Foxconn’s largest investment in component manufacturing and would be an additional sign of further diversification within key downstream strategic components of high tech and consumer electronics supply chains. LCD production requires rather expensive capital investments and the business has had its ups and downs in profitability.
In its reporting, the WSJ stated that it remains unclear as to whether Apple or other investors are being approached to invest in the proposed display plant. Apple already sources LCD display from three major suppliers. Apple declined any comment to the WSJ report.
Further reported was that Foxconn has been floating ideas for building a component and handset gain manufacturing facility in Indonesia, but is apparently driving a hard bargain for local authorities.
The Movement Toward Cheaper, Open Computing Compatible Servers Spells Opportunity for ODM and CMS Providers
Here is a Supply Chain Matters follow-up commentary that relates to the previous news on the pending split-up of Hewlett Packard along with our commentaries of several years ago, beginning in 2011/2012 commentaries and supplemented in a 2013 commentary) foretelling of original design manufacturing (ODM) and contract manufacturing systems (CMS) providers competing directly with their larger OEM customers.
A recently published Bloomberg article, Cheap Servers Are Bad News for HP and Dell, indicates that the contract manufacturers such as Quanta Computer that these OEM’s often depended upon are now producing generic, Open Compute Project compatible computer servers for hungry data center customers. These generic servers are reported to be one-third to two-thirds cheaper than the branded versions. According to the article, this has been a boon for server-hungry customers such as Amazon, Google and Facebook, but bad for established, branded hardware OEM’s. Further noted is that mega financial services firms such as Fidelity, have jumped-on the generic server bandwagon to reduce IT infrastructure costs.
What’s keeping branded OEM’s in the competitive game is their ability to provide extensive global customer service as well as global distribution scale. However, the current accelerating trend for matching generic server hardware customized to a specific software application compute resource need will only add to the momentum toward generic commodity servers.