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Tesla Motors Announces Intent to Acquire German Advanced Manufacturing Automation Design Firm

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In case our automotive and high tech industry focused readers were not aware, Tesla Motors made a very significant announcement this week regarding efforts to ramp-up manufacturing and supply chain volume expansion needs.

The innovative electric car manufacturer announced its intent to acquire Grohmann Engineering of Germany, a noted manufacturing automation design firm. A Tesla blog posting regarding this deal indicates that when this deal closes, the design firm will be renamed Tesla Grohmann Automation and will serve as the foundation of Tesla Advanced Automation Germany.  The automaker further indicated that it expects to add over 1000 advanced engineering and skilled technician jobs in Germany over the next two years.

In disclosing this deal, company founder and CEO Elon Musk declared to analysts; “This will really be our first acquisition of significance in our whole history.” Terms of this proposed acquisition have not been disclosed and the automaker indicates that it hopes to gain full regulatory approval by early 2017.

Grohmann is recognized for designing automated manufacturing plants in the semiconductor, electronics and automotive industries as well as the biotechnology and medical technology sectors, among others.

As we have highlighted for our Supply Chain Matters readers, Tesla’s ongoing challenge is the need for increasing annual production output to 500,000 cars per year by 2018. A posting appearing on TechCrunch indicates that both firms have been working in a partnership for the past few months and found that team cultures complemented each other, thus the decision to move forward in a formal relationship.

At its most recent annual meeting of shareholders earlier this year, CEO Musk declared that Tesla will “completely re-think the factory process.” He repeatedly raised the notions of “physics-first principles” and made the point that his team now realizes that where the greatest potential lies is in designing and building the factory. Advanced reservations with associated deposits for over 300,000 of the announced mass-market appeal Model 3 helped in the realization of such principles. He challenged Tesla engineering teams to the principles of “you build the machines that builds the machine.” In other words, the context is in thinking that the factory is the product, and that you design a factory with similar principles as in designing an advanced computer with many interlinking operating needs.

Adding a significant amount of additional manufacturing process design engineering resources in Germany has, by our lens, added significance that may well reveal itself over time.

By our lens, this week’s announced intent to acquire a noted external manufacturing process design firm is an acknowledgement from Tesla that it must seek external expertise, experience and outside process innovation thinking in achieving its production volume ramp-up goals by 2018. While Musk recently noted that he would move his office to directly on the company’s factory floor in Fremont California to better understand the exact needs for the production machine, the current aggressive goals for ramp-up had to compel this latest action to acquire external, proven experience. With a mere two-year planning and implementation window remaining, and with industry competitors now more keenly focused on Tesla, it was time to make a bold move.

Readers will recall when online retailer Amazon acquired warehouse automation and robotics firm Kiva Systems in 2012. The industry was initially puzzled with the move along with the hefty acquisition price, only to discover a few years later that Kiva technology now serves as a foundation for Amazon’s vast and quickly expanding global network of customer fulfillment and logistics centers.

Obviously, this is a significant announcement, one that merits industry attentiveness in the coming months.

Bob Ferrari

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


Some Positive News- Samsung Invests $1 Billion in Austin Texas Semiconductor Facility

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The news surrounding Samsung to state the obvious has been somewhat negative of late. There is the Galaxy Note 7 smartphone product recall and suspension debacle because of exploding and fire-prone devices. Today there is a U.S. government recall announcement involving 34 models of Samsung laundry washing machines representing upwards of 2.8 million top-loading devices whose entire top control consoles can potentially detach and cause injury.

Not a good time for Samsung public relations.

Supply Chain Matters thought it would perhaps be good to share some positive news.

This week Samsung announced plans to invest an additional $1 billion by the first-half of 2017, in its existing semiconductor operations located in Austin Texas. According to the announcement, this investment will help to meet expected demand for more advanced system-on-chip products, particularly mobile devices.

According to this announcement:

With about 3,000 employees and 2.3 million square feet of space, Samsung Austin Semiconductor (SAS) is one of the largest and most advanced semiconductor manufacturing facilities in the United States. Since 1997, SAS has been at the forefront of manufacturing technology, enabling the world’s digital devices to operate at their highest performance. Today, SAS produces digital large scale integrated components for tablets, smart phones and other mobile devices at its 300-acre northeast Austin manufacturing complex

The announcement includes testimonials on the value that SAS has brought to the Austin community including skilled jobs, education, workforce development and community contributions, and thus we pass that along.

Too often business media tends to emphasize strategic product design and manufacturing investments in emerging or low-cost manufacturing regions, and its sometimes wise to amplify investment commitments in established high-tech regions as well.

As for the newest consumer product recall, that is yet another critical challenge for the Samsung brand among consumer audiences.

Bob Ferrari


Initial Learning from the Samsung Note 7 Sales and Production Suspension

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More information continues to come forth regarding Samsung’s bold decision to permanently suspend production and sale of its newly announced Galaxy Note 7 smartphone. Thus far, the information points to both product design/management as well as supply chain related learning. While it is still rather early to be able to definitely conclude what led to this brand debacle, the one clear aspect is that the Samsung Note 7 incident will be of multi-industry discussion, thought exchange and study for many months to come.  samsung-galaxy-note-7-recall-fire-explosion-sized

Many industry, business and other media voices are already concluding that Samsung’s decision to terminate the Note 7 product represents a bold effort to protect its overall brand and creditability with customers. The more that the negative publicity continued regarding Samsung, the more the damage. New reports and social media commentary are surfacing that the manufacturer’s engineering teams were themselves challenged with determining the specific root cause(s) of the thermal runaway fires.

We initially call Supply Chain Matters reader attention to a recently published and rather insightful New York Times report: Why Samsung Abandoned Its Galaxy Note 7 Flagship Phone. This report indicates that within its process of overall response to reports of phones exploding and catching fire, Samsung’s engineers were unable to replicate the fire conditions. Further noted was that because of the tight deadlines and intense internal visibility to find root cause, engineering elected to conclude that the effect had to be associated with faulty batteries or battery design.

In August, the looking glass, as this blog speculated, quickly turned to battery supplier Samsung SDI. The Times citing documents from a South Korean product safety regulator as a source, indicates speculation that either the plates inside the battery were too close or the battery had defects in insulation or coating of electrodes. The early September product recall of 2.5 million phones was targeted to those Note 7’s that had Samsung SDI batteries. Both Samsung and the Korean regulatory agency turned to batteries supplied by alternative battery ATL to be those to be incorporated with the recall’s replacement phones. That decision reportedly backfired when reports of fires associated specifically to the replacement phones began to quickly surface.

No doubt, these efforts involving suspicions with battery design operation caused Samsung’s internal supply chain teams to scramble for a response plan.  We speculated in our prior blog commentary that the rest of smartphone and consumer electronics industry was obviously watching events very closely as well to ensure that a battery defect was not involved with other product supply chains. Samsung SDI itself is a supplier to many other branded smartphones including Apple’s iPhone.

The Times article goes on to cite a former director and battery expert at the Korea Electronics Technology Institute as indicating that blaming the batteries as the problem was too quick to judgement given the lack of definitive post-testing data. Instead this expert noted: “The problem seems to be far more complex”.

Other reports that we have reviewed thus far also point to engineers under the gun to quickly resolve the cause of fires with un-conclusive or definitive test data. In the end, concerns for the brand, and concerns for short and longer term revenues and profitability seemed to have taken hold. Equity analysts at Credit Suisse had recently estimated that the Note 7 recall could cost Samsung upwards of $19 billion in lost revenues. Research firm Strategy Analytics had earlier estimated more than $10 billion in financial losses. Samsung itself has indicated to shareholders that it anticipates A $5.3 billion loss during the next few quarters. The manufacturer has already downward adjusted its third-quarter profit forecast by $2.6 billion. Thus the financial implications of this incident can be substantial.

In today’s world of global business, events reverberate continuously at the speed of social and traditional media. Staying in-front of and in-control of such information flow, particularly when it involves brand crisis is a daunting challenge that requires expert resources.  Industries further exist in an overall business environment more inclined to lawsuits and litigation response to product recall incidents which often hampers open communication and timely response when lawyers become the filter for external and internal communications and investigation mechanisms. We have observed that theme consistently in these incidents as well as the supplier implications.

While information, discourse and industry implications related to the 2016 Samsung Note 7 product management events will continue to unfold, we offer one clear takeaway.  The business process, information, market intelligence and decision-making relationships among product design, management, procurement and broader supply chain strategy teams is ever more important and required in today’s global business environment. No company is immune, regardless of stature or brand identity. The supply and product value chain leadership and accountability umbrella is broad and ever more inter-dependent.

Supply Chain Matters advocates that Sales and Operations Planning and internal organizational management mechanisms include product design and management as an entity within integrated business and operations planning.

Bob Ferrari

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

Report Indicating that Samsung has Temporarily Suspended Production of Galaxy Note 7 Smartphones

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Supply Chain Matters has previously posted commentaries regarding the ongoing brand, product and supply chain learning implications regarding the product recall surrounding the fairly newly announced Samsung Galaxy Note 7 and its manufacturer, Samsung Electronics.  Incidents of fires presumably caused by lithium ion battery thermal runaway remain a concern, as is the damage to the Samsung brand. The Note 7 represents the premium smartphone model offering in the Samsung product lineup and now upwards of 2.5 million of these devices have been recalled across 10 geographic markets.

The initial news of the recall prompted Samsung investors to punish the stock to a 13 percent decline, but the company’s stock quickly bounced back on news of the product recall efforts.

Since our last update at the end of September, there was a fire incident involving a phone belonging to a passenger flying on a Southwest Airlines flight traveling from Louisville Kentucky to Baltimore Maryland.  The fire incident caused the evacuation of that aircraft. The Galaxy Note 7 phone in that incident was a new replacement phone and battery, raising added concerns that the battery fire incidents may or may not be addressed in the prior product recall. Other incidents involving replacement phones are also being investigated by safety agencies and Samsung.

The Wall Street Journal, citing a source familiar with the matter is today reporting that Samsung has now temporarily halted production of the troubled Note 7. A statement by Samsung indicates that the manufacturer was “temporarily adjusting the Galaxy Note 7 production schedule in order to take further steps to ensure quality and safety matters.” Samsung is further offering a software update for customers in South Korea that limits the charging to only 60 percent of battery capacity.

In its reporting the WSJ opines that this latest production halt underscores the growing seriousness of how Samsung is dealing with its largest product recall to-date.  The publication also points to the global supply chain implications involved in the production of the product’s battery. Noted is that the smartphone battery cells are produced in both South Korea and China but the unit’s packaging is performed in Vietnam.

The manufacturer further indicated to the WSJ: “If we determine if a product-safety issue exists, Samsung will take immediate steps approved by the CPSC (U.S. Consumer Product Safety Commission) to resolve the situation.”

On the distribution front, AT&T, T-Mobile and Verizon Communications have now indicated that each would stop issuing new replacement Galaxy Note 7’s to replace recalled units, in essence forcing customers to select other Samsung model phones as replacements or to seek a refund.

Obviously this latest news adds many more dimensions to the ongoing Samsung product recall efforts involving the Galaxy Note 7 smartphones and perhaps to other smartphone manufacturers who may have a similar supply chain profile. Time, product and supply chain troubleshooting and degree of response are all key to this ongoing set of challenges that are impacting Samsung.

Consumer trust is all important and for current Galaxy Note 7 owners, such trust is growing quite thin.



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.

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