Supply Chain Matters joined over three hundred attendees for the The Future of U.S. Manufacturing Conference, jointly sponsored by the MIT Leaders for Global Operations, MIT Industrial Liaison Program, and MIT Forum for Supply Chain Innovation.  In our previous Dispatch One commentary, we provided some initial impressions from the first day of the conference. In this commentary, we highlight day two as well as some important takeaways.

Last evening, upon reviewing our notes from day one of the conference, it was a bit difficult to synthesize some overarching themes and messages emanating from the many presentations.  In day two, the themes became clearer.

The morning began with remarks from MIT President Susan Hockfield, who reminded the audience  that manufacturing represents over 12 million jobs for the U.S. and that manufacturing companies employ two-thirds of scientists and engineers in the economy.  She also provided a reminder that when MIT was founded in 1861, its initial mission was to speed the industrialization of the U.S.. That mission has morphed to global perspectives, but at the same time, MIT has recognized its role to help in the current research related to the new importance and required competitive capabilities of U.S. based manufacturing.

Ms. Hockfield than introduced U.S. Secretary of Commerce John Bryson, who spoke to the critical importance of the upcoming recommendations related to the President’s Advanced Manufacturing Partnership (AMP) of which MIT is among a small group of premier academic institutions contributing to this initiative.  Secretary Bryson highlighted three important areas that will be addressed in the first report of AMP:

• Improving the business climate for manufacturing companies
• Improving the talent pipeline for required manufacturing skills and talent recruitment
• Enabling further innovation within manufacturing.

The Secretary also reminded the audience that manufacturing economy has helped to lead the U.S. out of global recession, accounting for over a half million jobs.  That may be interpreted by some as a political statement in a Presidential election year, but none the less, it is a profound statement that reinforces the fact that the U.S. needs to refocus on moving toward a broader based manufacturing economy. The Secretary also added that Washington does not have all the answers, and that it must continue to look to partnerships of private industry, labor and academia to provide recommendations and roadmaps.

Cindy Estrada, Vice President of the United Auto Workers provided a passionate but eloquent perspective on the changing role and voice of unions in this ongoing dialogue. She thanked the conference organizers for inviting labor to overall discourse and reminded the audience on the actions and collaboration that the UAW played prior to and during the 2008-2009  auto crisis in the U.S..  Ms. Estrada also reminded the audience on the overall negative impressions that unions seem to have in media and business reporting, and that actions of the past are not necessarily reflections of today and the future. Her statement was that unions seek a level playing field, not just in fair wages and benefits, but collaboration and voice from the shop floor.  Her most profound statement, which we tweeted, was that you cannot have a legitimate conversation regarding the future of manufacturing without worker input regarding eliminating waste, improving quality or fostering more process innovation. We would add, union and non-union. That statement was later reinforced by Diana Tremblay, Global Chief Manufacturing Officer of General Motors who provided some praise for the new collaborative actions of UAW members in identifying and helping to solve manufacturing related problems.  A sobering reminder was Ms. Estrada’s observations that much additional work remains within the automotive value-chain where some suppliers have yet to reach beyond previous management and labor behaviors of obstructing worker participation in joint problem-solving.

There was an outstanding presentation delivered  by Joseph Jimenez, CEO of Novartis on the defining moment on the future of manufacturing in the U.S., which outlined  some rather significant manufacturing process investments not only being made in the U.S., but also on some potentially game-changing joint research with MIT on transforming pharmaceutical manufacturing from previous specialty batch to a more innovative and far less costly,  continuous manufacturing process.

Another significant highlight was a panel discussion focused on workforce of the future, moderated by William Green, Executive Chairmen of Accenture.  The panelists were:

• Diana Tremblay of General Motors
• Cindy Estrada of the UAW
• Denise Johnson of Caterpillar
• Professor Thomas Kochan, Co-Director, Institute for Work and Employment Research, MIT Sloan School of Management.

These panelists provided many insights on what may be required to fill the requirements of an entirely different skilled manufacturing workforce, on the complementary needs for joint leadership skills among manufacturing managers, and how to get younger people from the K-12 to the community college level far more attracted to a career in manufacturing. The panelists observed that the current perceptions of manufacturing among younger people is sometimes reflected in negative connotations of being a non-rewarded occupation in a sometimes dirty environment that requires long hours that begin early in the morning. Professor Kochan reminded to the realities of current data indicating that the U.S. needs 20 million jobs just to return to post-recession levels, and that 5-7 million of these jobs have to be contributed from the manufacturing sector. This requires political will and commitment to make the necessary investments in programs and initiatives and better alignment of all stakeholder groups.

This concludes our commentary of day two of this important and timely conference.  Our final commentary will reflect on our view of the key takeaways that both the conference and audience dialogue brought forward.

Bob Ferrari

Today, Supply Chain Matters joined over three hundred attendees for the The Future of U.S. Manufacturing Conference, jointly sponsored by the MIT Leaders for Global Operations, MIT Industrial Liaison Program, and MIT Forum for Supply Chain Innovation.  The day one agenda was rather jam packed and featured some interesting perspectives.

Some common themes were brought forward in many presentations while some other questions remained unaddressed.  As an example, Jeffrey Turner, President and CEO of Spirit AeroSystems, a major supplier for Boeing and other aerospace manufacturers brought forward the critical importance of having an experienced and well trained workforce supporting manufacturing. Mr. Turner described this as “tapping the reservoir of incredible human power” and offered the audience ample evidence in describing how Spirit’s workforce rallied to overcome the after effects of a recent devastating tornado that damaged much of its Wichita manufacturing facilities, with the potential to have significant business impact. He further described how Spirit was able to negotiate a partnership and performance based variable compensation plan with its predominate union based workforce.

Many subsequent presenters concurred with the need for a more skilled manufacturing workforce. Diana Tremblay, Global Chief Manufacturing Officer at General Motors also pointed to the need for both highly and broadly skilled employees, and praised United Auto Worker union members for demonstrating more awareness and flexibility in labor agreements during GM’s post-bankruptcy recovery. Ms. Tremblay also identified the need for vocational training to include more leadership skills training, including the ability to work in self-improvement and innovation teams.

The afternoon speakers and panel discussions brought forward the influence that governmental incentives in investment, research and tax policy aide in developing a vibrant manufacturing presence for the U.S..  Many speakers stated that manufacturing absolutely matters in corporate capabilities, but were more inclined to favor a geographic based strategy that can support multiple global and/or regional markets.

Our highlight for today one was a closing panel discussion on the theme of Innovation in Manufacturing, was moderated by Tana Utley, Vice President, Product Development and Global Technology Division for Caterpillar, Inc.  Ms. Utley led a pointed and informative discussion of important topics related to manufacturing, some of which required some candor from panelists.  This panel featured:

• Tim Copes, Vice President, Manufacturing and Quality, Boeing Commercial Airplanes
• John Hayden, Executive Vice President and Global Head, Phillips Group Operations
• Martin Mrugal, Head of Manufacturing Industries and Sectors, SAP America
• Professor Martin Schmidt, Associate Provost, Director, MEMS@MIT Center

Discussions involved the experiences of Boeing in introducing its innovative, carbon fiber based 787 jetliner that included both engineering, materials and supply chain sourcing challenges. Another discussion involved efforts to drive common product platforms and process-centric initiatives at Phillips. Martin Mrugal stressed how SAP has learned from its own product development and market strategies, and how this technology provider is working with companies such as Boeing to support needs for mobility based computing on the factory floor or assembly line. Most of the panelists concurred that manufacturing has an “image” problem, that young graduates do not view manufacturing as a challenging or rewarding career.  Interesting enough, we have noted in this blog, on many occasions that supply chain career paths also suffer from this same image problem. Tim Copes noted how governmental agencies in South Carolina greatly assisted in developing educational partnerships among industry and academia to address vocational and technical training needs. Other panelists pointed to programs in Singapore and Ireland as world class benchmarks in this area.

Day two of the conference also has a packed agenda of speakers and in our later commentaries, we will provide some summation of overall themes and messages brought forward.

Bob Ferrari

Aerospace industry blogger and writer Jon Ostrower  authored a Wall Street Journal article (paid subscription or free metered view) one week ago citing the significance of  the first ever completion and customer shipment of a Boeing 787 jetliner from Boeing’s new North Charleston, South Carolina facility.  (Note Boeing photo).

This brand new Dreamliner was decked out and on its way to customer Air India.

In his article, Ostrower cites many important “firsts”.  “The first commercial jet built on the East Coast and the first assembled by a nonunion workforce. The 240-acre site here includes the first new jetliner assembly campus in the U.S. in more than four decades and Boeing’s first outside Washington State.”

The author also points out certain risks as well, a largely untested non-unionized workforce, some of which are a mix of those previously skilled in building the Space Shuttle, and some trainees with no previous aerospace experience.  Readers will recall that Boeing’s attempts to open a second assembly facility were side tracked by National Labor Relations Board actions imposed by its labor unions.  The NLRB dropped its objection after both sides agreed to build Boeing’s next generation 737 aircraft at the unionized facility in Renton Washington.

Another risk, shared with Boeing’s prime 787 assembly facility in Washington State is the unprecedented 40 percent ramp-up of 787 production volumes. Plans call for build rates to ramp to upwards of 10 787 Dreamliners per month by the end of 2013. Three of those aircraft must come from the Charleston complex.

In the article, Boeing Commercial Airplanes President Jim Albaugh is quoted as indicating that Charleston employees have “exceeded all our expectations.”

Supply Chain Matters extends a “thumbs-up” to Boeing and all of its employees at the North Charlestown facility for achieving this first customer ship milestone.

Perhaps Boeing will be a bit more open-minded and extend invitations to recognized blogs such as ours to visit the facility at some point.

Bob Ferrari

Just over a month ago, we alerted Supply Chain Matters readers to business media reports that Delta Airlines was in talks to acquire its own oil refinery. Our commentary viewed this development as an interesting play on vertical integration of supply chain. According to media reports, Delta spent $11.7 billion on fuel supplies in 2011 which amounted to 36 percent of its total operating costs.

Last Monday, Delta confirmed that it had reached an agreement with Conoco Phillips to purchase the previous idled Trainer Pennsylvania refinery. The deal calls for Delta to invest $150 million to acquire the complex and invest an additional $100 million to retrofit the refinery to optimize its ability to refine jet fuel. Delta also has plans to enter into marketing and sourcing agreements with both Phillips 66 and BP PLC to exchange gasoline, diesel and other refined products that are additionally produced at this refinery for distribution in other retail markets.

With the acquisition, Delta intends to reduce its annual jet fuel costs by $300 million, along with having the ability to plan on a reliable source of supply for eastern U.S. operational needs. In fact, plans call for the deal to close in the first-half of this year, with production likely to begin in the third quarter, providing Delta an estimated $100 million savings in this year alone. While this timetable seems aggressive, the numbers themselves seem to point toward a healthy return on investment over the long term.

U.S. east coast refinery owners of late have been bailing out of their investments because marketing and refining has become less profitable in the context of a broader business model. Conoco Phillips decided to sell its refinery complex located near Philadelphia in July of last year.

Supply Chain Matters again complements Delta for its bold thinking on the possibilities and outcomes of vertically integrating the biggest component of its supply chain. Process innovation can come from external or internal forces and bold thinking has been the basis of many supply chain capability breakthroughs. Thinking out-of-the-box and turning someone’s perceived problem into a business opportunity is the stuff that motivates business case studies.  Perhaps this bold move by Delta is the basis of an industry competitive shift within the airline industry. Then again, it can be another incremental revenue opportunity beyond charging fees for food, luggage and other services fees.

For our part, we will continue to monitor the end-result of this supply chain related initiative.

Bob Ferrari

In June of last year, Supply Chain Matters featured a commentary noting that cargo and retail theft remains a significant supply chain challenge.  Our commentary re-iterated how thieves, half of which stem from organized crime rings, exploit any and all weak links in distribution and transport aspects of supply chains to seize goods.

One of the largest cargo thefts in U.S. history occurred in March 2010 and involved the theft of $76 million worth of pharmaceuticals from an Eli Lilly warehouse in Enfield Connecticut. This week, federal authorities arrested two people in connection with the Eli Lilly incident.  According to an article printed in The Wall Street Journal (paid subscription or free metered view), the arrest was described as a takedown of a major theft ring. Two Cuban born brothers were indicted on federal conspiracy and theft charges and ten additional persons were also charged in federal court. The U.S. attorney in Connecticut is quoted as indicating that a prolific cargo theft ring has been dismantled as a result of the investigation and subsequent arrests.  Most of the stolen drugs were reported to be recovered.

Since this incident, pharmaceutical companies have undertaken strong preventative measures to secure drugs in the supply chain. These include installation of video cameras in warehouses, requiring multiple drivers on tractor trailer movements along with other measures.  The industry should be commended for its actions.  At the same time, however, the WSJ article also reminds readers that while stepped-up measures have occurred, incidents continue, including a $10.9 million tractor trailer theft of blood thinner drugs that was hijacked from a tractor trailer parked at a Kentucky rest area last November.

Our 2012 Predictions for Global Supply Chains, available for complimentary download in our Research Center,  included predicted stepped-up efforts to mitigate cargo theft and unscrupulous activities across global supply chains.  Arrests associated with one of the largest thefts of pharmaceuticals recorded in the U.S. should hopefully be an important reminder of the needs to continue preventive measures and remain diligent.

I pen this commentary on a Friday after a very long week involving extended travel and consulting services activity.  Knowing that I’m overdue for my weekly Supply Chain Expert Community commentary, I thought I would come up with something different, a fruit analogy related to supply chain capabilities.

Lately, many commentaries related to global supply chain business process capabilities focus on Apple, which often, and deservedly, lands on every supply chain analyst’s top ranking and many business media related articles.  Many in the supply chain expert community can point the finger at this author for often penning commentaries highlighting Apple, but I’m not alone in doing this.  Lately, much of Apple’s supply chain capabilities have come to light, both positive, and not so positive.

An analogy that can come to mind is that of the shiny apple, which distinctively sits in the fruit basket and can easily be identified in its familiar image and taste. This apple is very delicious, somewhat tart, but consistently delivers on taste. Some content of the apple is used to make or blended to make other delicious products such as pies, cakes or juices.  Because the apple is so shiny, and because the apple is loved by millions and millions of consumers, sometimes the apple gets attention that it does not necessarily desire.  Sometimes the apple can develop blemishes.

The apple also competes with other fruit for consumer tastes.

Let us turn our attention to another fruit, the orange.  It has a rather complex structure, there are actually embedded layers within the orange, each providing a piece of juicy, and yes, sometimes tart , but fairly enjoyable taste. The orange does not garner all the attention of the shiny apple, but the reality is that it is slightly bigger, and can serve multiple purposes.  You can eat the orange itself, either at breakfast, or as a daytime snack. The orange peel is utilized in baking recipes and sometimes the pulp can is used in other products or snacks.  The orange itself can be converted into delicious juice, a huge market seller. You see, the orange also serves as a multi-purpose fruit, but perhaps more behind the scenes.   Because its peel is pebble-like, its blemishes are more easily ignored.

Can you guess what our orange analogy equates to?

Our analogy points to Samsung.  A global giant, not only in smartphones and tablets, but also in major consumer electronics value-chain components such as semiconductor chips, high-resolution  LCD displays and memory components.  Last week, business media began recognizing Samsung as the global market leader in smartphone shipments.  According to market forecasting firm Strategy Analytics, Samsung shipped 44.5 million smartphones in the first quarter compared with Apple’s output of 35.1 million units.  Business media has been quick to declare Samsung the market leader, surpassing both Apple and Nokia.  Once more, according to the Financial Times, the company recorded record quarterly profits, with its mobile division accounting for 73 percent of that total operating profit.  Because Samsung is a major supplier to Apple and other brands, this vertically integrated producer also gains additional benefits in overall market unit volume sales.

While Apple seems to top many rankings in supply chain capabilities, Samsung does not. Its unit volumes, supply chain breadth and volume output shine above others with few glitches or supply disruptions. Global consumers have obviously embraced Samsung mobile devices as an alternative to Apple’s iPhone, by witness of these latest results. As our orange analogy notes, Samsung also can play a very influential role in the innovation of future products, since it is positioned as a major value-chain player.

The shiny apple does indeed get lots of visibility in the fruit bowl, but we had better pay attention to the orange as well. That includes ranking of global supply chain capabilities.

Bob Ferrari