This week, business media noted an announcement from Nissan Motor Co. recalling 13, 919 of its newly designed Altima sedans.  The recall spans the 2012-2013 model years of vehicles produced at the automaker’s Canton Mississippi plant from May 10 through July 26 of this year. According to Nissan, the problem is related to four transverse link bolts and two power steering rack bolts that were apparently not torqued to the required specification.  The concern is that some of these bolts could loosen and fall off, increasing the risk of a crash.  The problem was discovered by production workers who discovered the situation after a characterized routine test. According to various news sources, there are no mentions of any injuries or crashes caused by this situation.

The Nissan Altima is a premier model for Nissan, and according to a published article in Reuters, currently accounts for 27 percent of the company’s sales in the U.S.  The vehicle has undergone a total redesign for the 2013 model year and continues to be positioned as the premier product in the overall product line.  Some consumers might question why it may have taken 3 months for routine tests to identify the problem.  Then again, they can provide Nissan the benefit of a doubt that the automaker decided to be cautious in the wake of the July inspection.  We can also speculate why it has taken three months to make the product recall decision.

The Altima recall comes on the heels of Ford Motor Company’s immediate recall of its brand new 2013 Escape SUV model in July of this year.  That incident involved the recall of 11, 500 vehicles based on a concern for a serious potential for fuel leakage.  Ford made the usual step of urging owners to stop driving their vehicles and make arrangements to have the subject vehicles towed to a local dealer at Ford’s expense.  That problem was suspected to be caused by a manufacturing process flaw in fuel lines supplied by parts supplier T1 Automotive.  The timing of that recall could not have come at the worst time for Ford. The 2013 Ford Escape was totally redesigned for 2013 to leverage Ford’s global single platform strategy, and represented one of the two critical product launches planned for 2012.  The market introduction of new 2013 Escape had already been delayed by other factors, including too much leftover inventory of the 2012 model year.  Shortly after the fuel line recall, Ford subsequently had to issue an additional recall concerning 8,266 of the 2013 Escape SUVs in the U.S. to fix carpet padding that could hinder proper braking. Ford indicated that wrongly positioned carpet padding could reduce space around the pedals and cause drivers to hit the side of the brake pedal when switching from the accelerator.  In late July Supply Chain Matters opined that the market introduction strategy appeared to be botched given the amount of negative oriented news concerning the Escape nameplate.

These incidents involving newly designed platforms are not confined to just two nameplate OEM’s. A search of the National Highway Traffic and Safety Administration web site includes other nameplates:

June 2012: BMW model 2013 X5/X6 SUV’s equipped with diesel engines due to a suspected machining problem within the steering wheel case, causing potential steering gear oil leakage and a potential fire.

July 2012: Hyundai 2012-2013 newly designed Sonata passenger cars manufactured between January-June 2012 for an issue involving airbags suddenly deploying, due to manufacturing error.

July 2012: Honda recalled 172,000 2012 CRV SUV’s and 2013 Accura ILX passenger sedans due to issues with the front door locks causing door to not lock properly.

Any new product has an initial period where certain undiscovered flaws can initially appear.  Product teams anticipate these circumstances and compensate with added inspections and checks.  With some much written about the maturity and deeper collaboration of new product introduction processes, we can all wonder why the frequency of product recall incidents involving re-designed products continues.  There are considerations for common component parts utilized across all product platforms, newer and older.  There are considerations related to the global platform strategy itself, magnifying the impact of a quality or product design flaw.  The increasing use of more sophisticated on-board electronics certainly adds a new dimension, coupled with the burden of component product innovation transferred to supplier responsibility.

One thin appears certain and that is that deeper supplier collaboration and more-timely, early-warning information is becoming essential for product management and supplier teams.

In the end, continued product recall incidents reinforce consumer impressions to wait out a new product until all the “bugs” are discovered.

Bob Ferrari

The following is a guest posting that is also published on the Supply Chain Expert Community web site.

This author recently had the opportunity to view a promotional webcast featuring Gartner analysts,  that set the framework for the upcoming designation of Gartner’s Top 25 Supply Chains in 2012. Some community readers may have viewed this webcast and had reactions to the messages delivered.  We would like to share ours.

According to Gartner, the overall criteria, among others, for being designated on this prestigious listing are supply chains that are:

• Predictable and reliable
• Flexible to changing business conditions
• Exhibit a profitable response to product demand
• Exhibit sustainable growth and satisfied customers
• Move from words on a PowerPoint slide to attitudes and demonstrated practices

Readers might recall last year’s the top ten listing, which included:

1. Apple
2. Dell
3. Procter & Gamble
4. Research In Motion
5. Amazon
6. Cisco
7. Wal-Mart
8. McDonalds
9. Pepsico
10. Samsung

The year 2011 was very challenging for these supply chains, not only from the perspective of a rapidly changing and dynamic global economy but also major incidents of supply chain disruption. My first reaction was to take note of the listed supply chains and reflect on how many of them had a reported stumble during the year.  I came up with at least four.  Even Apple has had to deal with the challenge of heightened visibility to labor practices. Community readers may come up with the same or a different number.  That triggered a pointed reminder that even the top supply chains are not immune to vulnerabilities. The real criteria are how each responds to such challenges.

Another theme brought forward by the Gartner presenters was the possibility of changed ranking or new names appearing in the 2012 ranking. That brought forward a reminder that no supply can rest in the satisfaction that it has reached the pinnacle of capabilities. The global economy and events move far too quickly, and there will always be next objective to address. One supply chain stumbles and another takes advantage. One supply chain is mandated to reduce costs to the detriment of certain capabilities while another aligns to business needs and business outcomes.  The result is the shifts that we continually observe.

If this listing included mid-market supply chains, those that included the challenge of far more limited resources and higher stakes, perhaps the listing would further reveal how wide the gap in capabilities has become. Many mid-market companies were severely impacted by either the global recession, or the disruptive consequences of the tsunami in Japan, and the floods in Thailand.  Their influence over suppliers was morphed by larger supply chain dominants, perhaps some of those listed in the Top 25. Perhaps they who have successfully overcome these challenges and maintained an objective for responsiveness and resiliency should have recognition as well.

The takeaway from this commentary is that we as a community sometimes place too much emphasis on a singular tenet or goal.  In one year it may be lean, another demand-driven, resilient or agile.  Perhaps the reality is that the top supply chains must have the ability to respond to many challenges, along with multiple objectives. They must have a lens that extends well beyond the current quarter, or current fiscal year.

Finally, Supply Chain Matters would like to provide a helpful suggestion to those of you that have volunteered to be Peer voters for the 2012 Gartner rankings. It might be helpful for all in the supply chain community if your lens of ranking included multi-dimensional, multi-geographical and multi supply chain tried perspectives of the top supply chains. The reality is perhaps that the entire value-chain eco-system of partners really determines which supply chains are top ranked. Perhaps the lens of ranking is really weighted toward attitudes and consistent demonstrated practices in spite of the realities of constant change.

Bob Ferrari

Note: The following posting can also be viewed and commented upon within the Kinaxis Supply Chain Expert community web site.

Amidst all of the attention being made to Toyota’s ongoing product recall and sales suspension crisis related to sudden unattended acceleration of certain model vehicles, another interesting question has been posed.  In the weekend edition of The Wall Street Journal, reporter Daisuke Wakabayashi penned an article (subscription may be required) noted that lean manufacturing can sometimes backfire.

The premise is that the utilization of common designed parts (i.e. the accelerator assembly) across multiple product models can backfire when major quality control issues arise. Toyota utilized one supplier, CTS Corp., to supply the subject accelerator pedal assemblies.  The argument is that cross-model component sourcing risks are magnified as companies expand globally.  The other premise noted in the article is that growing technological complexity… makes it harder for manufacturers to diagnose problems in the early stages, before the issue becomes more widespread.

My view is to reject this broad argument.

Lean manufacturing methods and common platform designs are a long proven method for insuring cost, as well as quality efficiency.  In fact it was Toyota that led the way in pioneering these efforts.  Common part designs can enhance product quality and cost by allowing product designers to source from approved suppliers with consistent quality and on-time performance capabilities. Lean production methods, when performed correctly, can also spot any quality malfunctions at the source of production, insuring that corrective actions are taken before a build-up of non-conforming parts.

The incident with Toyota, in my view, appears to be more related to a broader feedback loop, one that involves the actual operating use of vehicles and reporting of incidents.  We can all speculate as to when Toyota first became aware of the SUA problem in its vehicles, and what actions were taken to ascertain the scope of such problems.  No doubt, Toyota and certain governmental agencies will be pursuing such investigations.  This has more to do with product management and design than lean manufacturing.

I believe the headline for Toyota is not about the backfire in lean manufacturing, but rather an awareness of both design and supply risk management. This should not be the purview of manufacturing and supply chain, but rather product management and design.

What’s your view?  Do you view this ongoing recall as being exacerbated by lean, or by other shortfalls?

Bob Ferrari

Disclosure: Kinaxis is one of other sponsors of the Supply Chain Matters blog, and as such provides financial consideration for having its product logo and product information linked to this blog.

Note: This blog posting can also be found on the Kinaxis Supply Chain Expert Community Site.

Recent developments regarding inventory and capacity in the semiconductor industry have rather interesting connotations for this and other related industries.   The significance is important for two important reasons.  First, semiconductors are the lowest tier of many high tech, consumer electronic, and lately automotive component supply chains.  Decline or growth in production or capacity is an important sign of what will ripple up the value-chain.  Second, trends occurring in the lowest tiers of supply chain have implication for what those at the far-end of supply chain, the component buyers, planners and brand owners can expect to encounter as they plan for 2010 supply chain needs.

Two important stories appeared almost simultaneously this week.  Taiwan Semiconductor Manufacturing (TSMC), one of the world’s largest chip foundry producers, is rushing to build new capacity to meet surging demand.  An article featured in The Industry Standard notes that TSMC is speeding up plans for new Fab lines as demand for chips used in electronics surges. The conclusion noted is that aggressive building plans in an environment of rising demand indicate that recovery in the global technology industry continues to strengthen.  That is certainly good news for the industry, but we need to dwell a bit on other industry-related news.

An article featured in Electronic Design News boasts that semiconductor inventories are in good shape, a key to 2010 recovery.  Analysts at iSuppli note that overall inventory levels are at very healthy levels, and proper inventory management will be a key to a 2010 growth recovery.  By iSuppli’s calculations, inventory levels at semiconductor makers declined to 66.4 days, or 15% from 74.6 days for the same period in 2008. Inventory at distributors was reported as 36.9 days at the end of Q3, down 15% from the 43.4 days in Q3-2008.  The article conclusion is that tight control of  overall inventories throughout the electronics supply chain bodes well for the industry.  Here is the most important quote for our community to focus on: “This means that any increase in demand for such end products is likely to translate directly into rising semiconductor sales, …”

As I try to connect these two developments, I see the potential for other conclusions.  TSMC’s aggressive expansion is noted as being motivated by needs for smaller and faster multiple function chips needed in computing, video and music playing devices.  New breakthrough technology translates to the need for newer innovation in products. Now couple the two developments: industry demand has precipitated the need to build additional chip capacity for both TSMC and competitor GlobalFoundries, and that overall inventory levels up the chain are at their lowest levels.  The conclusion that I come to is a different.  My sense is that increases in end-item product demand, especially new product demand, will equate to a need to ramp-up capacity and adequate inventory.  This will likely translate into more headaches for planners and product management teams as they try to take advantage of opportunities to expand top-line revenue growth opportunities.

I would sure like to hear the comments and observations from those of you in the electronics supply chain community who are on the ground, closest to the action..  But from my lens, keep those seat belts fastened and prepare for moderate turbulence.

 Bob Ferrari

As I pen this posting on Cyber Monday, there are already lots of predictions in the blogsphere regarding the sales activities for the 2009 holiday buying season.  The headline in today’s Wall Street Journal, More Shoppers Hit Stores, but Spend Less Each, (subscription may be required) summarizes a consensus of industry observers noting that while more shoppers turned out this weekend for the traditional start of the holiday buying season,  they spent less per shopper and tended to favor lower-priced items. The National Retail Federation estimated that 195 million U.S. consumers will have shopped both stores and online over this past weekend, up from 172 million last year.

If this trend continues, there will be revenue and supply chain implications not only for retailers, but also producers.

Last week, a Business Week article, Amazon Paces Holiday Tech Discount Drive, noted that early price cuts on consumer electronics led by Amazon and Wal-Mart may be good for consumers but not so good for profits.  Retailers began planning holiday price promotions for consumer electronics in mid-November, working with various brand suppliers to pre-select specific promotional items. Lowered prices and highly planned and marketed promotional items have definitely drawn the interest of consumers. The Consumer Electronics Association (CEA) estimates that these lower prices will boost unit volumes by 6% for consumer electronics, but cut overall sales by 7.5 %, Consumers are opting for cheaper netbooks instead of traditional laptops, or smaller flat-panel TV’s rather than bigger sizes.

I myself was a participant in Black Friday activity. Spending a few hours on Friday afternoon searching for a good deal on a 32 inch flat panel TV, it was rather interesting to note that while there were deals to be had, it appeared to me that most of the larger volume outlets were doing their homework and working with manufacturers to match price on the same model of TV’s.  

If this weekend’s trends hold for the remainder of this holiday buying period, supply chain and retail managers will be facing even more cost and business planning challenges.  Higher unit volumes with lesser revenue yield mean that previous cost efficiencies in production, logistics and transportation will be tested yet again, particularly if retailers attempt to replenish certain inventory prior to end of the period. Imagine being LG, Panasonic, Samsung or Sony, and being asked to possibly replenish a last minute shipment of hot-selling TV’s, but having to adsorb a lower margin transportation cost.  Since many retailers have already been practicing smarter inventory management to reduce overall inventory exposure prior to this period, their overall ability to make-up potential revenue shortfalls by a last minute buy may present an interesting scenario among seller and buyer.

As the Journal article also points out, if you were hoping to get your hands on that Zhu Zhu pet hamster, electronic reader, or bargain flat panel TV, you may well find yourself on an online auction site outbidding someone.

While others argue that in the past sales on Black Friday weekend have not been an accurate barometer of for the season as a whole, 2009 may well be different as this era of lean inventories across supply chains may dampen the ability to meet or surpass revenue and profitability goals. Having supply chain wide agility and responsiveness capability may be the acid-test for the 2009 holiday selling season.

 Bob Ferrari

This is my fourth live posting of observations and commentary related to events at this year’s Annual Conference of Supply Chain Management Professionals (CSCMP).

When I performed my pre-planning prior to the conference, one of the sessions that had been on my “must attend” list was the session titled Wall Street’s Perspective on Supply Chain. This session did not disappoint.

It consisted of a panel of four senior investment professionals experienced in private equity and investment banking, with first-hand knowledge of how the Wall Street community looks to supply chain as a measure of value.  The firms represented included Frontenac, Jeffries and Company, Inc., MERK Capital Corporation and NKF Consulting. Each panelist began by providing an overview of their firm activities as well as a perspective on how they view supply chain.  The session then turned to an open Q&A exchange among the panelists and the audience.

Some of the summary messages from the consensus of the panelists follow.

The focus of mining supply chain for continued cost savings must continue over the coming months.  A statement by William Hunter, Managing Partner at Jeffries was that companies have done a great job of rationalizing costs and shedding excess people. Even though most feel we have begun to turn the corner, recovery across broader industry sectors will take more time.  The perspective echoed by many CEO’s / CFO’s is that top-line revenue growth will not begin to occur until mid-2010.  This implies that profitability will continue to come from reductions in cost as well as increased efficiencies. Cash is still king, and Wall Street will punish unexpected surprises.

CFO’s must respond to Wall Street, and the panelist consensus was that many CFO’s will continue to not only have a keen eye toward continued profitability, but will also look to:

• Top line innovation
• Capacity rationalization
• Specifics of risk management

I was especially tuned to the validation that supply chain risk sensitivity has now become a top item of interest within the C-suite.

A slide shared by Hess addressed his view of Wall Street’s expectation as we transition to the next phase of the business recovery.  Whereas the current phase has had a primary focus on optimizing business liquidity, the next will focus toward optimizing performance management and operations execution.  One other noteworthy quote from Robert Hess, Managing partner of NKF Consulting specifically addressed supply chain equilibrium.  Going forward, Wall Street will look negatively on companies that attempt to plan demand based on forecast history.  “Forecasting on the past is dead wrong” noted Hess.  Forward-looking demand planning and operational excellence, especially process-related excellence, will continue to make positive impressions on the value of a company.  “It’s all about “doing fewer things better, and proving it.”

An observation by two of the panelists relates to the ability to get money for transformation and/or rationalization initiatives related to supply chain.  According to the panelists, credit markets remain very tight, and access to additional money will remain a challenge. ROI and hurdle rates need to be very strong, and eliminating a couple of distribution centers may not necessarily be a positively received investment by private equity investors.  Reduction in inventory turns or bottom-line inventory, on the other hand is looked on as positive.

Let’s end on a positive note.  The panelists did indicate that experienced supply chain talent will continue to be in demand across multiple industry sectors, which was phrased as good news for the audience.  My reaction was simply, who else in the organization has the scope and knowledge to deliver continued process excellence- supply chain, of course.  But don’t ask for that raise just in salary, at least not for a few more months.

Bob Ferrari