Since 2010, Supply Chan Matters has provided specific commentaries related to the global supply chain challenges of Canada based Bombardier. This week features another milestone, an announcement that Bombardier has hired a new Chief Procurement Officer with the challenge of centralizing all supply chain strategy among its commercial aerospace and surface transportation units while significantly reducing costs.
Our first commentary in 2010 reflected on the new C-Series commercial aircraft program, and how this diversified transportation equipment provider had joined the supply chain outsourcing perils of the commercial aerospace industry. A lot has transpired over these five years and the C-Series program continues to struggle. The cash drain of elongated delays of this program has affected the company financially and earlier this year, led to a number of senior executive changes including a new CEO. In May, the company announced a partial IPO involving its rail transportation business.
The appointment of Nico Buchholz as CPO is unique, in that in his former role as Vice President, Corporate Fleet and Executive Vice President of Fleet Management for Lufthansa AG, he led efforts for acquisition of new aircraft. This included the influencing of the design of the new C-Series, since Lufthansa remains the designated launch airline for the program. Mr. Buchholz is also reported as having an extensive aerospace industry background. In his new role, the CPO will report directly to recently recruited Bombardier President and CEO, Alain Bellemare.
In the announcement, CEO Bellemare indicates that strategic sourcing is key to achieving best-in-class performance and that the new CPO will develop a company-wide approach, structure and clear action plans to make that happen. In its reporting, The Wall Street Journal added that the appointment of Mr. Buchholz places the veteran aerospace executive in a key role for initiating broad cost cutting initiatives.
Centralization of supply chain strategy and sourcing is often a pre-cursor to needed cost reductions, and in the case of Bombardier, it will include four business segments with complex relationships with various global-based suppliers.
Thus begins another chapter of change involving Bombardier’s supply chain, this time with a centralized strategy and approach.
Supply Chain Matters extends congratulations and best wishes to Mr. Buchholz and his extended supply chain team on this new chapter.
In October of 2014 we alerted Supply Chain Matters readers to a noteworthy milestone development, namely Chinese designed and branded railway cars appearing in a U.S. subway system. Much of U.S. media did not cover this development at the time.
The headline back then was that the State of Massachusetts Department of Transportation selected China’s state-owned CNR Corp. for the replacement and delivery of 284 modern subway cars for the Massachusetts Bay Transportation Authority (MBTA), also locally known as the “T’. This was the first Chinese manufacturer to win a U.S. based major transit system equipment replacement contract. The further significance of this development was twofold. First, the awarded contract cost, namely $566 million, was a rather affordable sum for this amount of modern rail equipment. A further significance was that the contract called for the railcars to be assembled at a new final assembly manufacturing facility at a former closed Westinghouse factory site located in Springfield, a central city in Massachusetts. Assembly operations would therefore be U.S. based, with the expectation that other U.S. equipment supply contracts could follow.
At the time of bidding, there were actually two China state-owned railway firms, CNR and CSR, as bidders along with other prominent global based producers. While CNR eventually won the contract, CSR was eliminated because of deficiencies.
In our 2014 commentary, we cited a Bloomberg published report indicating that the contract awarded price was a little more than half that of Bombardier and other bidders including Hyundai Rotem Co. of South Korea and Kawasaki Rail Car of Japan. Earlier this year, at the request of China’s government, both state-owned rail companies were combined, primarily because both were bidding against each other for the same business opportunities.
Yesterday, a ground-breaking ceremony was held at the site of this new $95 million assembly plant. Massachusetts Governor Charlie Baker was present along with officials of The China Railway Rolling Stock Corporation, the newly formed entity. This new production facility is expected to be completed by the end of 2017 and employ upwards of 150 local factory workers. Rail car production operations are expected to begin in the spring of 2018 with first deliveries of rail cars beginning in early 2019.
A published report from yesterday’s New York Times reiterates that this deal represents China’s biggest push into the U.S. rail market and is part of the Chinese government’s policy to encourage its tech companies to export expertise to foreign markets. It further notes that the contract may be an impetus for other U.S. states and cities to consider modernization of their transit and railway systems.
The Times cites an independent rail economist as indicating that the Massachusetts contract might have been a price-loss leader as a means to establish a presence in the U.S. The publication cites CRRC’s vice-president of international business as indicating that his company was eager to apply the lessons learned in building transit and high speed rail systems in China. This same executive was the former chairmen of Tangshan Railway Vehicle, and oversaw the design and manufacture of one of the fastest high-speed trains in the world. The manufacturer has previously produced subway cars for many systems including three separate lines within Beijing’s subway network. (pictured).
The contract calls for the design, manufacturing and replacement of 152 Orange Line and 132 Red Line subway cars, along with an additional option for the delivery of 58 additional Red Line cars. Existing decades older Orange Line cars have racked up in excess of 1.5 million miles of service per vehicle while some Red Line cars have logged even longer service.
Last winter, the city of Boston and its surrounding metropolis experienced its most severe winter that included in excess of 100 inches of snowfall and subsequently crippled its subway system. Its aged equipment just could not overcome the accumulation of snow and ice and many cars were forced out of service. That situation has placed enormous ridership pressure on the MBTA to replace the aging fleet as soon as possible. Thus it is rather crucial that China Railway Rolling Stock meet its production and delivery milestones.
From a supply chain perspective, the initial plans call for many of the major train components to be produced in China and shipped to the U.S. for final assembly at the Springfield Massachusetts facility. However, there have been some indications that some U.S. service and production suppliers may be considered. Another open question is the recruitment of an adequately skilled U.S. workforce that can adapt to Chinese work methods.
This remains an important development to observe over the coming months as China’s railway experts continue in their efforts to make a more sustained presence within the U.S. We at Supply Chain Matters will continue to provide updates and perhaps a plant visit at some point.
There has been much reporting within social and business media regarding the potential industry supply chain disruptive effects of the recent massive warehouse explosions that affected the facilities adjacent to the Port of Tianjin.
It is rather important and crucial that industry supply chain and sales and operations team obtain meaningful and insightful information regarding what is happening on the ground as well as the potential short or long-term supply chain impacts, if any.
We at Supply Chain Matters are disappointed to observe that certain technology and service providers are attempting to utilize this tragic incident as a backdrop to product marketing outreach campaigns. Neither should technology providers suddenly become news outlets.
Not good ideas by our lens.
Supply chain technology providers should instead continue to educate on the benefits of the technology they provide and allow industry supply chain teams to receive clear, unfiltered and unbiased insights and information from informed and educated sources.
One of the better Tianjin perspectives Supply Chain Matters has reviewed to-date ia a published white paper: The Aftermath of the Tianjin Explosions: A Global Supply Chain Impact Analysis, authored by supply chain risk management provider Resilinc.
While this 24 page white paper does include some product marketing, along with requiring registration, the bulk of the report provides meaningful and insightful information related to potential immediate, near-term, medium and longer term supply chain impacts.
The paper concludes that the less apparent ripple effects of the warehouse explosions will be felt weeks, months and even years to come.
The paper provides meaningful background information regarding this vital logistics and manufacturing hub, which services industry needs of automotive, commercial aerospace, high-tech, petrochemical and general industrial manufacturing supply chains, among others. It further outlines important mapping of industrial manufacturing and supplier concentrations within close proximity of the explosions, based on a mapping of over 30 sites in a 2-10 mile radius of the blast. Four large industrial zone districts are adjacent to the port, with the port serving as what is described as the largest free trade zone in northern China, and the second largest Vehicle Processing Center for importing and exporting of automobiles.
On the topic of near-term ripple effects, the Resilinc analysis predicts that extensive delays can be expected for most companies and sites moving products through Chinese ports as government agencies deal with the after-effects of a regulatory environment needing extra attention.
There are predictions that Tianjin port operations will only begin to resume normal operations by approximately mid-September, and that any containers now at the port will be inaccessible for the next two months, even if they are intact. Resilinc indicates that for any suppliers located within 2-15 miles of the explosions, companies may presume 12-16 weeks of delays.
Long-term impacts outlined related to the ripple effects of increased regulatory actions impacting certain industry sectors including the location and storage of goods near large population centers.
Regarding potential long-term impacts, the paper cites Chinese media as indicating the economic cost of Tianjin crisis could be as high as $8 billion.
If your organization is dependent on operations, logistics partners, suppliers or service providers in the Tianjin area, we recommend you review this report which can be accessed at the following Resilinc web link. (Some personal registration information required)
Last week, while on our two-week summer break, we took the time to alert Supply Chain Matters readers to the reports of severe explosions that occurred last Wednesday at the major Chinese logistics center at Tianjin. The reports and video images alone implied to this author that this was a concerning event.
Since that time, the scope and implications of this tragedy continue to evolve.
Reports now indicate that this tragedy has taken 112 lives with upwards of 700 people injured as a result of the two massive explosions. According to media reports, 95 people, mostly firefighters, are still missing. Supply Chain Matters expresses our condolences and concerns for all of the victims of this tragedy.
The video and visual footage of the wide-scale destruction is sobering to view. The China Earthquake Networks Centre indicated the initial explosion had a power equivalent to three tonnes of TNT, while the second was the equivalent of 21 tonnes. The blast zone extended in excess of 2 kilometers.
Yesterday, authorities confirmed reports that hundreds of tons of the highly toxic chemical sodium cyanide were present in the warehouse involved in the initial explosion. A BBC report indicates that the warehouse stored other chemicals including calcium carbide, sodium cyanide, potassium nitrate, ammonium nitrate and sodium nitrate. The warehouse itself was operated by Ruihai International Logistics Co. and questions have been raised as to how much of the chemical was authorized for storage. Chinese media indicates that at least one member of staff from Tianjin Dongjiang Port Ruihai International Logistics, which owns the warehouse, has been arrested.
When burned, sodium cyanide releases hydrogen cyanide gas which is now the overriding concern for residents throughout the Tianjin area as the clean-up efforts continue. According to published reports from the BBC and The Wall Street Journal, criminal prosecutors are vowing to conduct an extensive probe amid a growing concern that regulators often turn a blind eye to enforcement of regulations.
Chinese Premier Li Keqiang has visited the scene and has met with the victims of this major disaster and has indicated that regulators will act in transparency regarding readings of current air, water and soil quality within the area. Nearly 3000 troops with chemical protection equipment are reportedly combing areas outside of the 2 kilometer blast zone for possible hazardous chemicals that were ejected by the explosions.
This disaster occurred in the logistics zone serving Beijing, and one of the busiest ports in China and perhaps the world. The port is a major trading center for commodities and metals and a gateway to the industrial northern regions of China. Reports indicate that shipping containers were tossed into the air like matchsticks and were crumpled by the blasts and a logistics park containing several thousand cars was incinerated by the fireball. Renault indicates that some 1,500 of its cars were lost, while Hyundai indicated that around 4,000 cars on the site may have been lost as well.
While the port remains partially open, operations are noted as restrictive due to continued investigations and checks within the area. Toyota announced that it was closing production lines at its factories near Tianjin until the end of Wednesday, while agricultural machinery maker John Deere suspended work indefinitely. Both saw some of their workers injured by the blasts.
For industry supply chain teams, the implications of the Tianjin disaster will likely continue in the coming weeks or months. As the building tide of widespread sentiment reflecting that regulators have turned a blind eye to industrial safety, there will likely be increased scrutiny of manufacturing and logistics operations, particularly those involving forms of hazardous or industrial materials. Already, China has ordered a nationwide check on dangerous chemicals and explosives.
Similar to the 2013 tragedy involving the Rana Plaza explosion in Bangladesh, the 2015 Tianjin explosion could well be a watershed event concerning industrial safety standards. Anticipate that individual firms and industry groups will be motivated to become more active and involved in assuring international standards of warehouse and factory safety, particularly in areas adjacent to high population areas.
The Tianjin disaster could well turn out to be one that either defines improved safety standards or one that places certain industry supply chains with heightened challenges to assure and attest to individual worker and industrial safety standards. Social responsibility practices will likely again be tested against product margin needs. The final outcome is one yet to be determined, but one that reflects the realities that China needs to maintain its export volumes and global competitiveness.
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.