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General Electric’s New Transformational Start-up Mentality

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Bloomberg BusinessWeek published an article profiling General Electric’s efforts to get the company acting more like a 21st Century startup.  Taking a cue from Silicon Valley’s start-up culture, GE recruited tech entrepreneur Eric Reis, author of the book The Lean Startup, to initiate the company-wide movement titled FastWorks.

Similar to Lean Six Sigma that fueled rallying and transformational efforts in the 1990’s, FastWorks is targeted to motivate GE employees to be more customer focused, speed new product development, reduce costs and improve customer engagement. The Reis philosophy is that faster product innovation is garnered from building imperfect early versions, gaining timely customer feedback, while continuously “pivoting” and adapting products to address market opportunities. The initiative is described by GE Chief Marketing Officer Beth Comstock as “giving employees the freedom to try things that may not prove successful: Fail fast, fail small.”

Easily stated, but with far different implications for a rather large, global based manufacturer.

According to Bloomberg, GE has already trained 40,000 employees in FastWorks. With more than 300 projects underway, the program is described as one of the largest initiatives in GE history. Early product development projects include a high-output gas turbine developed two years faster with 40 percent less cost than would traditional program management would have yielded.  Other product initiatives cited were a light bulb with built-in wireless dimming chip, an oil well flow meter which launched after a year in development and is being commercialized in alliance with an energy company.

In the article, a Harvard Business School professor is quoted as observing that as large companies get bigger and scale, they tend to slow down because they have so many processes, systems and structures. Having worked at large and small companies on technology related projects, and having observed the enterprise and supply chain technology marketplace for over ten years, this author can well relate to the obstacles and bureaucratic inertia of large organizations. Most of the innovation in software has come from smaller, best-of-breed start-ups who were laser focused on customer and supply chain needs. That said, failing fast is quite different in a larger vs. a smaller organization. If the philosophy is an integral fabric of the organizational culture, than teams expect to incur failures, learn quickly and move on.  In larger organizations there tends to be analysis paralysis as to why the failure.

Supply chain transformation initiatives take on similar characteristics. In a previous Supply Chain Matters commentary highlighting the Supply Chain Management Review article, Culture Eats Strategy, authors John D. Hanson and Steven A. Melnyk provide us reminders that organizational attempts for implementing strategies of radical innovation are often stymied by inherent organizational culture.  That includes the spillover of efforts directed at a firm’s value-chain focused processes. If an organization was previously managing suppliers based on cost competitiveness, adding quicker product innovation implies a potential conflict in culture. The article reminds us that the management myth of showing teams a better way and they will embrace it is often de-railed by an inherent organizational culture that can, and often will, resist radical change unless old ways are discredited.

Similarly, many organizational transformational initiatives need to address inherent organizational culture, especially if it detracts from desired outcome objectives, whether they target innovation, efficiency or responsiveness. Is it any surprise that certain enterprise software vendors have embarked on an acquisition frenzy to secure product innovation?

In the case of GE, culture has always been addressed from the top, and down.  The legacy of Jack Welch and the current leadership of Jeff Immelt each demonstrated personal passion toward changing organizational culture.  FastWorks will no doubt include GE’s internal business groups but its value-chain suppliers as well.

The takeaway is regardless of what name and purpose an initiative takes on, it must incorporate strategy and organizational culture needs.

What’s your view?

Are large organizational transformational efforts another means to employ large numbers of teams, or is changing existing organizational culture the prime objective?

Bob Ferrari

 


Canada Attempts to Legislate Solutions to Rail Bottlenecks

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In our recent Supply Chain Matters update on Q1 commodity price trending, we noted that the severe winter conditions that have occurred across the U.S. and Canada, coupled with operational disruptions in the placement and logistics of tank and bulk commodity railcars have led to reported disruptions in supply contracts of inbound bulk commodities. Commodity producers have had to shift to more expensive trucking options to accommodate food production line scheduling.

The government of Canada is now taking more extreme action against its national rail carriers with proposed legislation that would allow bulk commodity producers to switch between Canadian National Railway (CN) and Canadian Pacific Railway (CP) for flexibilities in getting commodity products to designated supply chain customers. 

According to reports, Canada’s current conservative government is getting much more concerned about shipment bottlenecks, especially when it concerns commodity shipments to existing and newer export markets, including the United States. According to a report published by the Wall Street Journal, 150 grain elevators would have access to both rail lines under the proposed legislation.  Currently only 14 grain elevators have such access. For its part, the CEO of CN is quoted as indicated that this legislation will have little impact when considering the extreme winter weather conditions seen this year across North America.

No doubt, the debates concerning government vs. private industry solutions to logistics bottlenecks will continue. In the end, it’s always a demand and supply imbalance problem that needs a solution.


Aerospace Supply Chains: The Good News-Bad News Reality Brings Investor Awareness

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If you have been a loyal follower of our Supply Chain Matters commentaries and predictions concerning Aerospace supply chains, you would be aware of the difficult position these value-chain ecosystems currently find themselves in. Once more, you would have had awareness to these challenges three year ago.

Thus we were somewhat amused to stumble upon this week’s Bloomberg Businessweek article, With Epic Backlogs at Boeing and Airbus, Can Business Be Too Good? 

The article poses a fundamental question. With over 10,600 of firm orders for new aircraft among both Airbus and Boeing- When is order backlog too big?

In a July 2011 commentary, Aerospace Supply Chain Are Now Stressed, we observed that the building multi-year backlog comes amid an industry track record of not so stellar performance in operational consistency, two-way communication and predictability.  Over two years later, although some progress has been made,  many of the same challenges remain.

The question posed by Bloomberg, and indeed the Wall Street investor community, is indeed the appropriate question. As the article points out, if a wait for a new airplane stretches out over too many years, it can fundamentally impact the business model strategies of airline customers.  Some of those dynamics are already occurring surrounding the continued undelivered backlog of Boeing’s new 787 aircraft. It further can motivate these same customers to consider alternative aircraft deployment or procurement strategies.

Another important consideration are the quickly changing economic environments that often drive demand for airline travel.  Airlines from emerging markets are estimated to make-up at least a third of the current order backlog. Current concerns surrounding former booming developing markets are becoming evident in global equity markets as foreign currency tensions, devaluation and and other local economic factors impact business growth within these markets. There will certainly be increased airline travel within emerging economies but this demand needs to be balanced with economic up and down cycles.

In a meeting with Wall Street analysts this week, the CEO of Boeing reported strong earnings for the recent fical quarter but raised some warning signs for 2014 regarding earnings growth. Investors responded by driving Boeing stock down by over 5 percent.

Boeing’s 2014 operational plans call for increasing aircraft deliveries by 10 percent, roughly 715-725 aircraft amid a backlog of 5100 aircraft orders. By the end of the year, Boeing expects to be delivering two new 737 aircraft every day, yet only 10 new 787 Dreamliners monthly. Airbus remains operationally upbeat, empowering localized operational decision-making, yet the realities of a near decade of backlog is hauting.

The new reality is that investors are now becoming aware of the flip side of euphoria- you have to deliver the goods according to customer desires and expectations, and you have to be able to assure required operational on-time performance at customer ship time.

In our most recent commentary regarding Aerospace supply chains, we opined that agility and responsiveness are indeed going to be very important industry differentiators along with on-time and consistent performance for new product development milestones.

An enviable industry position awash with order backlog does not condone business-as-usual. Rather dynamic and responsive capacity management, end-to-end value chain visibility, enhanced supplier collaboration and goal-sharing all come into play.

Each of the major aerospace OEM’s can certainly boast of record performance in 2013, but the real challenges remain as each supply chain ecosystem responds to unprecedented requirements for development and execution. They will each put to the test the real meaning for agile and resilient supply chains.

Bob Ferrari


The U.S. Automotive Industry Needs Updated Finished Goods Benchmarks

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Earlier this week the Detroit Auto Show occurred, an annual event that provides industry players and business media the opportunity to feature multitudes of commentaries regarding the state of the industry and the state of automotive supply chains.

The year 2013 was a good one for the U.S. automotive market as sales rose 7.6 percent to 15.6 million vehicles.  That is quite a comeback from the levels of 2009-2010 when severe recession all but forced the bankruptcy of both Chrysler and General Motors and caused many other automakers severe cutbacks in revenue and profits, not to mention jobs.

As we begin 2014, the U.S. market is now the target for most of the globe’s auto makers as the U.S. economy continues its steady rebound and U.S. consumers are much more inclined to replace or buy a new vehicle. The latest estimates for auto sales in 2014 hover in the 16 million vehicle range, a slight improvement.

Yet, in reading certain news reports, we wonder aloud if the industry has learned some operational lessons regarding inventory management, specifically finished goods inventories management.

On Wednesday, the Wall Street Journal published two articles on the industry.  One of the articles made note that many automotive OEM’s are now considering even more investments in added capacity.  Yet, some seasoned CEO’s such as Sergio Marchionne, CEO of Chrysler and Fiat openly states his constant concern regarding excess inventories. He was quoted as indicating that he watches inventory like a hawk. He should know, since he has been responding to that problem in the European market.  Auto makers are augmenting North America production capacity not only to serve the domestic market but export markets as well.  Today’s more prevalent common platform design strategies coupled with more sophisticated levels of factory automation allow auto makers to exercise far more flexibility in production options from any given plant.

What did catch our attention were reports of current finished goods inventories across various U.S. automotive retailers.  According to Autodata Corporation, auto dealers had 3.45 million cars and trucks in inventory at the end of 2013, which is reported as the equivalent of 63 days of finished goods inventory at roughly $100 billion in value. That number is reported as being considered “optimal” by the industry. Keep in mind that automotive OEM’s book revenue credit at point of shipment to dealers, thus their metrics of revenue are fulfilled, but dealer metrics of unsold vehicles being financed is a different story.

The WSJ published a sidebar article indicating that Mike Jackson, the CEO of AutoNation, one of the largest retail auto dealers in the U.S. was indeed concerned about finished goods inventory levels. Jackson is of the opinion that inventories are much higher, closer to 90 to 120 days of supplies if cars sold to fleets is excluded from the selling rate equation. Thus the value of sales rate is combined for fleet sales and private sales which skews the specific type of product demand.

We applaud Mr. Jackson for his candor.  It strikes us that since 2009, the industry should have learned some very important lessons regarding unsold inventories and conflict of metrics among OEM’s and retail dealers.

Today more than ever, auto markets are driven by a B2C online presence.  Consumers can literally shop and price any make or model vehicle and view current inventory levels from the majority of OEM online sites.  Auto dealers can now view finished goods inventory across wide geographic regions and can electronically swap inventory with other dealers. Some of the luxury OEM’s such as BMW or Mercedes allow consumers to actually order a vehicle to be built at the factory and then arrange to pick up that vehicle when completed.

Now more than ever before, OEM’s and their retail dealers have information available as to what models and options consumers are most interested in and from what specific geographic regions product demand is coming from.  They also have the ability to select and utilize a wide variety of advanced software applications directed at item-level inventory management and optimization that are delivering bottom-line savings in more efficient overall management of inventories.  Technology should not be an issue.

Why then is 60 days of unsold inventory viewed as an acceptable norm?

We obviously suspect it has more to do with conflicting metrics, namely revenue recognition or output performance.  If OEM’s receive some revenue recognition at every shipment, they consequently only care when the pipeline gets bloated. They then turnaround and offer retail dealer’s additional cash selling incentives to motivate them to sell unsold inventory more aggressively. Our household bought a brand new Honda in 2013 and it was very clear that the salesperson was highly motivated to offer the most attractive price if we opted for a vehicle in dealer inventory.

This problem has been the bane of the industry and it is shocking that it continues with so many other options in product demand and inventory management now available.

Supply Chain Matters is therefore seeking input from those within the industry- why does this situation continue?  Is the adage of “push it down the pipeline” still an acceptable norm with so many other alternatives now available? It seems to us that there has got to be a better way of channel distribution.

What are your observations?

Bob Ferrari

 


New Product Introduction Flaws Getting Very Visible for the Automotive Industry

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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

 


A Reflection on Ranking of Top Supply Chains

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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

 


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