Our readers among high-tech and consumer electronics supply chains are well aware that the supply and costs of rare earth minerals continues to be a supply chain. China has positioned itself to the primary global supplier of such strategic materials and has in the past exercised export quotas to favor its own domestic high tech industry needs. Supply Chain Matters touched upon this challenge in a 2011 commentary related to Phillips Electronics.
Bloomberg recently reported that a closely held miner from the country of Chile, Mineria Activa, has come up with a far different, green-mining and perhaps more sustainable approach for the mining of rare earths. The report indicates that elements such as neodymium and dysprosium are contained in clay soils near the city of Concepcion in concentrations similar to China. The difference, however, is rather than pumping chemicals into the ground for extracting these minerals, methods have been derived to dig out the clay, place it in a tank-leaching process with biodegradable chemicals and return the clean clay to the ground, while replanting displaced vegetation and trees.
The bet here is that certain manufacturers and OEM’s such as Apple, ThyssenKrupp or Raytheon are willing to pay a premium knowing that the supply is not destroying the planet.
Bloomberg points out that given the current recent capacity glut resulting in declines in the prices of certain rare earth materials, the timing of this development may not be ideal. The again, companies such as Apple with strong commitments to sustainability and green supply chain practices may be willing to consider a strategic supply alternative.
Commercial aircraft producer Airbus is reportedly evaluating a dramatic ramp-up of the monthly production of new A320 aircraft. The European aerospace provider currently supports a monthly production cadence of 42 A320 aircraft per month. In February, the company indicated that it had plans to increase the monthly production rate to 50 aircraft by early 2017, but is now actively evaluating an even larger cadence.
With a current order backlog of over 5100 A320 aircraft, current indications are that Airbus is now considering upping the cadence to 60 per month, which would represent a near 43 percent increase from current production volume. The company is now in the process of assessing the impact among its global based suppliers and expects to make a final decision regarding timing by the end of this year.
Rival Boeing’s single-aisle monthly production volumes averaged 40 737 and 10 787 Dreamliner aircraft during the recently completed first quarter, with plans to increase the monthly production rate of 737 aircraft to 52 by 2018. Boeing continues with efforts to ramp-up monthly delivery volumes of its multi-year backlogged 787 aircraft.
Since key suppliers for Airbus also support production requirement needs of Boeing, this planned ramp-up has significantly broader implications for the entire commercial aerospace supplier ecosystem. The most significant suppliers involved in these ramp-up decisions are often aircraft engine suppliers, fuselage and airframe components suppliers as well as the myriad of avionics and electronic component suppliers.
Airbus is likely matching and/or upping the competitive pressure on Boeing’s competing single-aisle aircraft families in assuring its airline and leasing customers more timely and flexible delivery options relative to orders. Supply Chain Matters has recently called attention to a recent trend of airline customers exercising changed order preferences as the economics and business strategies of the airline industry become more dynamic due to the current dramatic reductions in the cost of fuel and in the rapidly changing competitive dynamics of the global airline industry. Global airlines themselves are much more savvy customers who constantly monitor industry dynamics and are not shy to exercise customer influence among the two major aircraft OEM’s.
The recent occurrence of high-profile aircraft tragedies involving discount airlines is further raising concerns as to whether the supply of experienced pilots, air controllers and air safety systems can support the addition of so many new aircraft over the coming decade.
As Supply Chain Matters has noted in a number of our previous aerospace supply chain focused commentaries, the realities of multi-year order backlogs are now reaching the point of all-in commitment. These are record-breaking production volumes and massive scale that this industry has never experienced at a regional or global-wide perspective. Technology will play a critical role along with people, since the aerospace industry is facing the same reality of highly experienced older employees about to retire. Processes, systems, risk mitigation, talent and supplier management practices are sure to be tested in the journey that is unfolding.
As a supply chain community, those directly involved, and those of us as outside observers, get the opportunity to observe the lessons, process innovations and accomplishments that lie ahead for the commercial aerospace supply chain industry.
Supply Chain Matters has featured a number of previous commentaries related to Bombardier and its global supply chain challenges in development and launch of its new C-Series single aisle aircraft. The commercial aircraft provider has placed a huge strategic bet on the market success of the C-Series in filling an under served need within the single-aisle aircraft market. The effects of cumulative delays concerning the C-Series program have had recognized financial and market implications for Canada’s commercial aerospace producer and its supply chain ecosystem. This week provides news involving a broader implication.
Bombardier indicated yesterday that it will spin off a portion of its rail business, Bombardier Transportation in in independent offering of stock. According to business media reports, the IPO is being planned for the latter part of this year and the shares will be listed in Germany to attract transportation existing industry investor interest where rail equipment providers Siemens and Alstom are listed. According to a published report by The Wall Street Journal, other strategic moves remain on the table for the rail unit.
Of added interest is a previous published report indicating that China state-owned locomotive and rail equipment producers CSR Corp. and CNR Corp., who are in the process of merging their businesses, are possibly eyeing a controlling stake in Bombardier Transportation after completion of their merger. If that were to occur, it would have significant implications for the global wide passenger rail industry including high-speed rail equipment.
Bombardier CEO Alain Bellemare further indicated to the company’s annual meeting that the company was keeping all possible options open for its aerospace operations in the light of continued profitability challenges.
Bombardier’s business strategy has been designed to have its commercial aerospace and rail business’s serve as a cyclical balance, namely those in good economic times, commercial aircraft sales thrive, but struggle during broad economic slowdowns. Rail equipment, on the other hand, tends to sustain itself during hard economic times. With the increasing financial challenges brought about by the C-Series and other commercial aircraft program delays, the company is navigating a tightrope to raise additional capital while sustaining its prior business strategy. What has obviously changed are the global wide industry dynamics among both of these industries. Both Airbus and Boeing have managed to attract the bulk of airline buyer interest in new, technologically advanced single-aisle aircraft while China’s state rail players are making their thrust towards broader global market penetration to compete with Siemens, Alstom as a lower-cost producer.
This will be an important multi industry dynamic for Bombardier’s supply chain ecosystem to monitor in the coming months.
Supply Chain Matters has in the past cited Andrew Liveris, Chairmen and CEO of Dow Chemical Company for his understanding and appreciation for the value and contribution of manufacturing and supply chain capability to business outcomes. Besides his current leadership of Dow, Mr. Liveris is an author and U.S. Presidential advisor on manufacturing competitiveness. In a September 2013 commentary, we highlighted his keynote delivered to the MIT Production in the Innovation Economy (PIE) Conference which unveiled results of MIT’s study on U.S. manufacturing competiveness.
Thus we were pleased to be alerted to a commentary appearing in the online version of Chief Executive Magazine where Mr. Liveris shares his winning formula for manufacturing success with other chief executives. His prime messages was for manufacturers to rethink the role in evolving global supply chains and actively address workforce training and development needs for today and the future.
One of the more powerful statements brought out in this interview article deserves highlighting:
“Entrepreneurial action and its ability to pivot, according to the world we face, is one of America’s greatest attributes. Manufacturers, for far too long, did not really display agility when global competition disrupted supply chains. We are in a different world. We’re traveling at the speed of flight. We are so connected to the information age without realizing that we’re still at the dawn of it. The smarter companies have figured out their place in the global supply chain and have adjusted their service and product models accordingly.”
Those statements are rather powerful when considering that they come from a CEO. They reflect the new awareness to supply chain’s contribution. Within his own industry, Mr. Liveris points out that of the top 20 global chemical manufacturers in 1990, 17 disappeared by 2010. Dow prevailed because of its ability to pivot to dramatic market changes.
A further pearl of wisdom:
“Manufacturing today means you’ve got to innovate faster than they commoditize you.”
On the all-important skills challenge:
“The biggest issue we have is training a new skilled workforce to deploy against that value add, and for me, that is the key topic in manufacturing today. We need technically trained people at the German skill level, in automation, robotics and fine-precision manufacturing. This is the world that we’re in today and we’ve got to adjust to it, and frankly that’s what I spend my time on.”
From our lens, there needs to be many more global manufacturing firm CEO’s possessing the wisdom of Andrew Liveris, one’s that understand that supply chains and manufacturing capabilities do matter.
During this period of earnings announcements for the December-ending quarter, a new and significant headwind, the effects of the U.S. dollar, has appeared for industry supply chains with operations anchored in the United States. That was significantly delivered to Wall Street by yesterday’s earnings announcement from Procter and Gamble, which currently has nearly two-thirds of its revenues coming from outside of the U.S. Procter and Gamble was not alone, even the likes of Apple encountered the same headwinds.
P&G reported a 31 percent drop in profit as the stronger U.S. dollar diluted the effects of a modest 2 percent organic sales growth. Net income dropped nearly a billion dollars from the year earlier quarter. According to business media reporting, foreign exchange pressures reduced net sales by 5 percentage points. Once more, P&G indicated that these currency effects will continue to be a drag within 2015, potentially cutting net earnings by 12 percent or in excess of another billion dollars.
The implications are obvious including a continued selloff of underperforming brands and businesses. One published financial commentary report by The Wall Street Journal implied the continuance of “ruthless cost cutting” and a continued slim-down of brands. P&G has further undertaken ongoing efforts to source more production among emerging global regions, and those efforts are likely to accelerate in momentum.
The strong headwinds of currency were not just restricted to consumer product goods. Today’s WSJ reports that it is now evident that:
“The currency effects are hitting a wide swath of corporate America- from consumer products giant Procter and Gamble Co. to technology stalwart Microsoft Corp. to pharmaceutical company Pfizer Inc.. Those companies and others have expanded aggressively overseas in search of growth and now are finding that those sales are shrinking in value or not keeping-up with dollar-based costs.”
Further cited was a quote from the CEO of Caterpillar indicating: “The rising dollar will not be good for U.S. manufacturing or the U.S. economy.” The obvious fears for investors and economists alike is that the U.S. dollar’s explosive gains will backfire for U.S. based companies by reducing the price attractiveness of goods offered in foreign countries as well as reducing the value of foreign-based revenues.
The implications to U.S. centered industry supply chains are the needs for yet further shifting of strategies and resources. The existing momentum for U.S. manufacturing may well moderate with these latest developments. Initiatives directed at supporting increased top-line revenue growth now have the added challenges for more flexible, global-wide sourcing of production and distribution needs. Operations, procurement and product management teams that believed that they could get a breather from draconian and distracting cost-cutting directives will once again face the realities of having to cut deeply into domestic focused capabilities and resources.
We often cite the accelerated clock speed of business as a crucial indicator for agility and resiliency for industry supply chain strategy. Here is yet another example where perceptions of a booming U.S. economy quickly change to the overall business and supply chain implications of the subsequent currency effects.
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.