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Bombardier Announces Partial IPO for Rail Business Unit

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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 Bombardier C-Series First maiden Flightstrategic 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 Bombardier Transportation 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.

Bob Ferrari


Andrew Liveris Shares Winning Formula for Manufacturers

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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.

Bob Ferrari


Evidence of a New Business and Supply Chain Headwind: A Stronger U.S. Dollar

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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.

Bob Ferrari


New EBook: The Case for Tightly Integrating New Product Introduction and Supply Chain Management

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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.

Bob Ferrari

Disclosure: E2open, Inc. is both a Named Sponsor of Supply Chain Matters and a client of the Ferrari Consulting and Research Group.


How the Ebola Outbreak Can Impact Industry and Global Supply Chains

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The World Health Organization (WHO) has declared the ongoing outbreak of the deadly Ebola virus in West Africa to be a Public Health Emergency of International Concern (PHEIC) and humanitarian organizations such as Doctors Without Borders continue to work on the front lines to control the outbreak.  The consequences of further Ebola humanitarian reliefinternational spread of the virus coupled with fears of wider-scale contagion have created a call for coordinated global public health actions to stop and reverse the outbreak.

Other concerns should be the short or longer impacts to industry and global supply chains if the current outbreak cannot be adequately controlled. Within close proximity to the current effected region within West Africa is the country of Cote d’Ivoire, which is a major supply source for cocoa.  Countries within the West Africa coastal and interior regions also produce supplies of palm oil, iron ore and other commodity materials.

Beyond local sourcing are the broader implications to global transportation and logistics networks if the current outbreak spreads to other countries and spawns additional travel and cross-border restrictions. In short, industry supply chain and sales and operations planning teams definitely need to monitor the current Ebola outbreak and have some form of scenario and backup plans identified.

This posting serves to alert our Supply Chain Matters readers who subscribe to Accenture Academy training and webinars that this author will overview the current Ebola crisis from an industry and infrastructure supply chain perspective and provide expert perspective on the areas to watch along with considerations for building risk contingency scenarios. Accenture Academy is launching a new series termed Trend Talks, which are more compact and two-way interactive webinars that address and provide  collective discussion on important, rapidly developing trends among industry supply chains.

I am pleased and looking forward to delivering this inaugural Trend Talk webinar addressing this timely and rather concerning global topic.  The session is scheduled for Wednesday, December 10th at 10am Eastern time with participation available only to Accenture Academy members. Readers can utilize this Accenture Academy web link for login and registration.

Bob Ferrari

 


China Branded Trains Appearing in a U.S. Subway System

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If our readers have had the occasion to travel to Boston, you might have experienced the public transit subway system which is referred to as the “T”. Typical to the historic nature of the city, its subway system dates back to the late 1800’s. Today, its subway lines are denoted by colors, namely the Red, Green, Orange and Silver lines.

Last week, another very important milestone took place.

The Massachusetts Department of Transportation awarded a contract to China’s state-owned CNR Corp. for the replacement and delivery of 284 modern subway cars.  The important headline for this development was the awarded contract cost, namely $567 million, is a rather compelling sum for this amount of modern equipment. 

It its reporting, Bloomberg News echoed that this was the first deal of this kind for a Chinese company in the U.S.: “The deal breaks new ground for Chinese train makers whose overseas push, backed by Premier Li Keqiang, has been mostly limited to developing markets.” According to CNR officials, this deal eventually places CNR equipment in all of the world’s six continents.

The contract calls for CNR to replace 152 Orange Line subway cars, that line’s entire fleet, which has an average of 1.5 million miles of service per car. Additionally, 132 Red Line subway cars which date back 27 years and have racked up to 2.3 million average miles will also be replaced.  CNR will construct a new $60 million final assembly manufacturing facility at a former closed Westinghouse factory site located in Springfield, a central city in Massachusetts. The new production facility is expected to employ upwards of 150 factory workers.

Since the contract stipulates that 60 percent of the work to take place in the U.S., Supply Chain Matters speculates that the subway car components will be imported directly from China, most likely by ship via and expanded Panama Canal routing to an east coast port.

The timetable calls for a three to four year design phase, with initial pilot cars delivered in 2018, and production car output spanning the years 2019-2021. The deal has an additional option for the delivery of 58 additional Red Line cars.

The specifications for these new subway calls call for adding an additional 15 additional passengers per car, wider accessibility doors, LED lighting, regenerative braking systems, environmentally friendly HVAC and advanced customer information systems.

The Massachusetts Bay Transit Authority (MBTA), operator of Boston’s transit system has struggled with its finances for many years, falling behind in any efforts to invest in new operating equipment.  Thus, the opportunity to replace this amount of equipment at the stated cost had to be a very attractive proposition for taxpayers.  However, it has to a rather concerning development and omen for existing train equipment manufacturers.

A reported six companies bid on this replacement contract. Bidders were reported to have been evaluated on criteria ranging from technical and manufacturing experience, quality assurance, reliability as well as price. In its reporting, Bloomberg noted that the CNR price was a little more than half that of Bombardier and other bidders included Hyundai Rotem Co. of South Korea and Kawasaki Rail Car of Japan. An MBTA spokesperson later added that that agency found no human rights violations with CNR.

Rival state-owned CSR Corp. is reportedly keen to supply high-speed trains to the State of California. A published Reuters report indicates U.S.-based SunGroup USA indicated to Reuters earlier last week that it had teamed up with CNR and its unit Tangshan Railway in a pitch to supply California’s $68 billion project with up to 95 trains that can travel as fast as 354 kilometers per hour (221 miles per hour). That news is significant in that CSR could possibly team up with rival CNR, the recipient of the recent Massachusetts subway car contract, for the California contract. About a dozen firms are expected to compete for the California project.

And then there is one more development.  An additional Bloomberg report published yesterday indicates that both CNR and CSR will make “a major announcement” in about a week. The report cites speculation that China’s State-Owned Assets Supervision and Administration Commission (SASAC) is seeking the merger of the two companies to boost exports of high-speed railway technologies.

Obviously, China has indeed set aggressive targets for exporting train equipment and supply chains to global markets and developments are moving rather quickly.

Bob Ferrari

 


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