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Report Indicating Tesla Model 3 Pilot Build About to Begin

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After Founder and CEO Elon Musk declared last May an intent to revolutionize Tesla Motors production activities to coincide with the availability of the new dramatically lower cost Model 3, a report now indicates that the electric auto maker is planning to start pilot production this month at its Fremont California production facility.

The Reuters report syndicated by global business network CNBC, cites sources as indicating that Tesla has informed suppliers that test build of the new Model 3 sedans will initiate on February 20.  While the sources did not know of how many sedans were planned for this initial pilot build, it would likely be a small number to test the new assembly and test needs.

The February date happens to precede by two days, Tesla’s scheduled shareholders meeting. Speculation is that the initiation of test build would provide added optics for reservation customers as well as shareholders.

Upwards of 375,000 paid deposit reservations have been already made by prospective Tesla customers. Musk previously informed shareholders of plans to begin Model 3 volume production by July of this year but cautioned that the company could miss that date if suppliers do not meet deadlines.

According to the report, sources indicate that the Model 3 timeline is indeed considered to be extremely aggressive, especially since engineers are still making last-minute design changes to the vehicle. This has been a common pattern for Tesla, one in the mold of Apple under the leadership of Steve Jobs, where last-minute design changes drove suppliers and contract manufacturers crazy in periods of critical production volume ramp-up.  Tesla suffered some effects of this process with the prior Model X, whose revolutionary gull-wing doors and seating designs had to be re-visited because of volume production yield challenges.

At last year’s annual meeting of shareholders, Founder and CEO Elon Musk indicated that Tesla will “completely re-think the factory process.” Musk repeatedly raised the notions of “physics-first principles” and made the point that his team now realizes that where the greatest potential lies is in designing and building the factory.  He challenged Tesla engineering teams to the principles of “you build the machines that build the machine.” In other words, the context is in thinking that the factory is the product, and that you design a factory with similar principles as in designing an advanced computer with many interlinking operating needs. Further acknowledged was that the Model X design was over complicated, perhaps too much to accommodate production volume needs. Going forward with the development of the new Model 3, Musk indicated that a tighter integration loop among product design and manufacturing would be fostered.

This latest report raises the question of whether Musk can fulfill his promise for producing 500,000 cars annual by 2018. That currently represents 4-5 times 2016 production levels, which missed their annual goal as well.

From our lens, the other open question is whether Tesla’s unique new vehicle distribution and customer delivery model can also ramp-up to such levels. Increasingly, at the close of each quarter, Tesla reports thousands of vehicles still in-transit to awaiting customers.

Readers may well have their own views but it would seem to this blog that Tesla’s better efforts should be directed at taking the time to get all production and distribution processes highly synchronized in high volume dimensions across the entire supply chain. Rather than communicate whether suppliers can meet deadlines, communicate the readiness of the entire supply chain machine to meet production and distribution milestones.

The optics can come later.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


Report Indicating Sharp-Foxconn U.S. Plant Announcement Could Come This Weekend

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In late January, we alerted our Supply Chain Matters blog readers of a published report from The Wall Street Journal indicating that global contract manufacturer Foxconn, new parent of Sharp Corp. was evaluating a $7 billion in new LCD manufacturing facility in the United States. Our takeaway from this report was that if this investment did indeed occur, it would represent a significant milestone for the high-tech and consumer electronics supply chains. We believed that the plant investment would further have a linkage to Apple’s production needs.

Today, and this weekend, Japanese Prime Minister Shinzo Abe will meet with U.S. President Donald Trump both at the White House and in Florida this weekend.  This week, a subsequent published report by Reuters is citing informed sources as indicating that the proposed LCD manufacturing plant could begin construction as early as the first-half of this year.

According to this report, Prime Minister Abe will unveil this and other potential manufacturing investments during his meeting with Trump.  Further noted is an informed source indicating that the plant investment may include “other manufacturing equipment makers.” The report also indicates: “Abe will unveil investments to create as many as 700,000 U.S. jobs, people familiar with the matter told Reuters earlier.”

Such a jobs figure is rather significant in scope, especially if the announcements come in the context of contract manufacturing for other high tech and consumer electronics providers. To paraphrase Trump language: it would be a very big deal. Foxconn declined to comment to Reuters regarding any investment.

Prior to the planned meeting with President Trump this weekend, Abe also met with the head of Toyota, which has also been a target of prior Trump criticism regarding a decision to build a Corolla manufacturing facility in Mexico for export of vehicles to the United States.

Such an announcement will obviously make significant news in the coming days.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Breaking News: Foxconn Evaluating $7 Billion Investment in U.S. LCD Manufacturing Facility

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The Wall Street Journal is today reporting (Paid subscription required) that high-tech and consumer electronics provider Foxconn Technology is considering an investing $7 billion to build an advanced flat-panel LCD screen factory in the United States. This investment would involving the contract manufacturer’s recent acquisition of Sharp.

However, ongoing discussions reportedly remain fluid and highly dependent on government and other incentives. According to the WSJ report, a Foxconn spokeswoman declined to confirm specific statements but did indicate that the company was considering potential manufacturing presence in the U.S.

When SoftBank Group CEO Masayoshi Son recently personally met with U.S. President Donald Trump during the transition period, the two disclosed upwards of a $50 billion investment of technology companies with the United States. A hand-written piece of paper held by Mr. Son and shown to the press had the words Foxconn and SoftBank included.

Today’s WSJ report indicates remarks from Foxconn Chairman Terry Gou:

In his comments Sunday, Mr. Gou indicated that a deal was far from assured, and that he thought his discussions with Mr. Son were private and informal. But then when he and Trump met with the media, he exposed me

Speaking a company event in Taiwan on Sunday, Gou indicated that such a facility could generate from 30,000 to 50,000 jobs in the United States and discussions were underway with state and local officials in Pennsylvania and other U.S. states. Further stated was that any deal would hinge on getting rather attractive land and utility rates.

The report indicates that Foxconn has been considering a flat-panel display manufacturing facility in the U.S. for years in order to avoid the costly transport of large displays from Asia to U.S. based destinations. These efforts did not make headwind because of reported unfavorable economics and terms. Last month, Foxconn announced a new $8.8 billion investment for a new flat-panel manufacturing facility in Guangzhou China.

We at Supply Chain Matters view this Foxconn focused report in the context of our 2017 Prediction related to increased anti-trade geopolitical forces providing added supply chain global sourcing challenges and/or opportunities.  The new dynamic related to the United States is for multi-national manufacturers to gain the good graces or attention of the new Trump Administration by announcing incremental investments in U.S. based manufacturing. What makes this Foxconn development ever more interesting is not only its potential strategy related to Sharp LCD technology, but also its relationship as the prime contract manufacturing partner to Apple which has the bulk of its component and finished goods high tech consumer electronics manufacturing capabilities sourced throughout China.

While Chairman Gou’s hand was possibly forced by the SoftBank announcement, one can speculate as to other potential manufacturing shifts motivated by Apple. Thus morning, President Trump met with a select group of business CEO’s and reinforced his tendencies to favor a major border tax on products imported into the United States by manufacturers selling products in the U.S. Such statements may motivate other manufacturer’s, including Apple to revisit existing sourcing strategies.

Thus is this evolving new era of global sourcing dynamics.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Airbus and Boeing Report 2016 Year-End Operational Performance Amid an Industry Inflection Point

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Once again, both Airbus and Boeing declared that they each exceeded operational performance targets in 2016 but the numbers would indicate an industry inflection point is at-hand, one that has implications for the collective industry supply chain ecosystem for the next several years.  Boeing 737 Max Production Line

Airbus

Airbus announced the delivery of 688 completed commercial airliners among 82 customers in 2016 representing an 8 percent increase over 2015 delivery performance. Of the total, upwards of 79 percent of total deliveries originated in the A320 aircraft line-up, including 68 of the new, more fuel-efficient model A320neo (new engine option).

During 2016, Supply Chain Matters highlighted some significant challenges related to delayed deliveries of the innovative new Pratt & Whitney geared turbofan engine featured on the neo model. Pratt had to cut back its original delivery commitment of 200 to 150 because of several supply and production challenges. With announcement of the final delivery number, we can now estimate that customer deliveries of 71 percent of the A320 family aircraft came in the second-half of the year. In the month of December alone, 66 A320 model aircraft were delivered, 45 in the new engine option. That would seem to imply that Pratt made the bulk of its revised engine delivery commitments promised for the end of the year. In its year-end announcement, Airbus indicated that it has now commenced deliveries on both engine variants of A320neo, to include the CFM International LEAP 1A as well as the Pratt PW1100G model engines.

Another noteworthy data point related to deliveries was the 49 A350 XWB aircraft delivered in the year.  This model was dogged with component supply shortages related to interior seating, lavatory, and other interior components throughout the year. The fact that Airbus actually delivered just short of its 2016 goal of 50 A350’s in 2016 is a testament to detailed planning and collaboration with key suppliers.

The European aircraft producer further achieved a total of 731 net orders from 51 customers, eight of which were new. That included a mix of 604 single-aisle and 124 wide-body aircraft.

At the close of 2016, Airbus’s overall order backlog stood at 6874 aircraft valued at $1,018 billion at list prices.

Boeing

U.S. based Boeing announced the delivery of 748 completed commercial aircraft among 100 customers, taking the industry title of highest delivery number. Of that total, 65 percent of deliveries (490) originated in the 737 single-aisle model. The 2016 delivery performance of 748 represented a decrease of 762 aircraft delivered in 2015. Boeing made a management decision earlier in the year to throttle-back the production delivery rate for 2016 to control costs and boost profitability.

A continued challenged program remains that of the 787 Dreamliner, which recorded a total of 137 completed aircraft in 2016, two more than the 135 total delivered aircraft in 2015, despite achieving break-even profitability of this program. Keep in-mind that airline customers pay the bulk of an aircraft’s negotiated price at time of delivery.  The leading-edge designed 787 Dreamliner was first unveiled in 2007 representing the most fuel-efficient aircraft at the time, and a planned more innovative replacement for aging 777 operational aircraft. The aircraft was originally planned to enter service in 2008, but first flight did not occur until late 2009. After a series of highly visible snafu’s related to explosions with its lithium-ion batteries resulting in a several month FAA grounding, the Dreamliner did not enter full operational service until 2011, and today, two separate production facilities produce finished aircraft. Boeing has now elected to shelve plans to increase monthly delivery rates from 12 to 14 monthly.

Chicago based Boeing reported a total of 668 net orders in 2016 worth $94.1 billion at list prices, well below the 768 net orders booked in 2015. This represented the company’s weakest year for new order growth, a sign taken by Wall Street that the prolonged boom in aircraft sales may be waning. Boeing actually secured gross orders for 848 new jetliners but experienced cancellations of 180, the majority of which were from customers switching from wide to narrow aisle aircraft. The company’s new order rate considerably lagged in the second-half of the year, and ultimately led to sudden senior management leadership change for the Commercial Aircraft business arm.

 

Our stream of Supply Chain Matters commentaries related to commercial aircraft supply chains have painted a picture of an industry that is designing and manufacturing new generations of more technology laden, far more fuel efficient new aircraft. This led to the enviable position of having order backlogs of upwards of $1.5 trillion that extend outwards of ten years. At the same time, an industry with a track record of prior challenges in its ability to more rapidly scale-up overall aircraft production levels is clashing with the industry dynamics of both Airbus and Boeing in their desire to deliver higher margins, profitability and more timely shareholder returns.  Smack in the middle of these dynamics are relationships among suppliers, who need to continue to invest in higher capacity and capability, but of-late have had to respond to key customer requirements for larger cost and productivity savings.

All of this is about to change and a declared industry inflection point is at-hand. We will dive deeper into this inflection point when we drill down on 2017 Prediction TenIndustry-Specific Predictions coming at the end of this month.

For the industry’s respective multi-tier supply chain, the implications of this inflection point are sobering in terms of planning windows through the year 2020. The decline of new order flows for higher margin wide aisle aircraft place the major emphasis on narrower margin single-aisle aircraft that must produce higher volumes to meet financial business objectives.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Supply Chain Matters Unveils Ten 2017 Predictions for Industry and Global Supply Chains

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At the start of the New Year, our parent, the Ferrari Consulting and Research Group along with our Supply Chain Matters blog as a broadcast medium, traditionally provide a series of predictions for the coming year. These predictions are provided in the spirit of assisting industry specific and global supply chain cross-functional teams in helping to set management objectives for the year ahead. Our further goal is helping our readers and clients to prepare supply chain management and line-of-business teams in establishing impactful programs, initiatives, and educational agendas.

The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and customer service management. crystal_ball

We are admittedly and purposefully late in our usual unveiling of these 2017 predictions. We made a conscious decision in mid-November to delay after the sudden and widely unexpected results of the 2016 U.S. Presidential election coupled with the similarly unanticipated results of the Brexit referendum across the United Kingdom.

To reiterate once again, our predictions process includes a re-look at all that occurred in the current year, a reflection of future implications, and soliciting input from clients and other various industry supply chain participants and observers. Unlike others, we incorporate a lot of thought and perspective into our annual predictions and take the time to scorecard our annual predictions at the end of the year.

Readers are welcomed to review our scorecard series of our 2016 predictions that occurred in November. We are further planning to make available the scoring evaluation of all of our prior 2016 predictions in a report to be made available in our Research Center later this month.

In this initial blog, we will unveil our complete listing of our ten predictions for the coming year along with some introductory takeaways. In subsequent postings spanning the month of January we will dive further into each of our predictions.

In late- January or early February, we anticipate publishing the complete Ferrari Consulting and Research Group research report, 2017 Predictions for Industry and Global Supply Chains that will incorporate all our predictions along with even more details and supporting data related to each prediction. This report will be made available to all our consulting clients and blog sponsors and will additionally be made available for no-cost complimentary downloading in the Research Center of Supply Chain Matters, also in February.

Let’s therefore begin the process with the unveiling of our ten 2017 predictions.

Drum-roll please……

 

2017 Prediction One- A Subdued World Economic Outlook and Heightened Political Uncertainty Will Test Industry Supply Chain Agility

 There is little doubt that the year 2017 will present even more uncertainty and increased volatility for many industry supply chains. Organizations will once again need to be prepared.

 

2017 Prediction Two- A Challenging Year in Procurement with Renewed Emphasis on Strategic and Technical Skill Needs

Unlike 2016, what is becoming near certain is that in 2017, multi-industry supply chains will be managing a period of rising inbound component and service costs. The role of the CPO will further have to evolve in 2017 to one of strategic business advisor along with a continuing agenda of tactical procurement challenges, most notable a potential global volatile global sourcing environment peppered by continuous anti global trade forces. One of the most significant challenges in the coming year will be in skills development and filling-in skills and talent gaps.

 

2017 Prediction Three- A Supply Chain Talent Perfect Storm

 For all functions that make up the umbrella of today’s supply chain management capabilities, we predict a supply chain talent perfect storm, one that is sure to occupy more of the management attention of supply chain and business senior leadership. The perfect storm is increased skills demand meeting limited available skilled talent supply. As Bloomberg BusinessWeek declared in late December 2016: “Right now the problem isn’t too many workers who can’t find jobs. It’s too many jobs that can’t find workers.” The coming year may well provide a period where lack of skills and talent will take on a discernable and visible impact on required competences.

 

2017 Prediction Four- Increased Anti-Trade Geopolitical Forces Will Provide Added Sourcing Challenges for Industry Supply Chains

Major developments surrounding global trade policies will occupy the attention of many industry supply chain organizations during the year, but now from an opposite perspective. With heightened global tensions now turning toward more anti-trade and possibly more protectionist rhetoric among developed nations, industry supply chains must now be prepared to deal with potential near and longer term implications that such policies will bring about.  We anticipate that industry supply chain network models will undergo continuous analysis and scrutiny in the coming year as individual supply chain teams assess various changing landed cost factors among product management models. Global trade issues will once again percolate in the coming year and they will likely be complex and confusing to sort out in terms of which will ultimately come to fruition.

 

2017 Prediction Five- Continued Global Transportation Industry Turbulence

For the past three years, we have predicted industry turbulence among global and certain domestic transportation networks.  Our predictions turned out to be fairly accurate but then again, the industry signs were obvious. In 2017, firms should plan for further industry turbulence and change occurring on many modal fronts. As the Washington Post, has recently observed: “industry change is indeed sweeping from all directions.”

 

2017 Prediction Six- A Renewed Renaissance in Business and Technology Investment

As industry supply chains enter 2017, there are distinct signs of a renewed renaissance in business and technology investment that will surely include the need for supporting augmented supply chain related business process and decision-making needs. An initial pro-business environment fostered by the election of Donald Trump and a Republican Party dominated U.S. Congress looks to lead to lower corporation business taxes and repatriation of overseas profits. There are now signs that after multiple years of plowing excess cash into stock buybacks or increased stockholder dividends, businesses may be ready to shore-up needed investments in critical areas such as increased productivity, manufacturing, and broader supply chain automation along with needs for more informed, analytical-driven decision making anchored in predictive decision-making methods. At the same time, a renaissance in multi-industry business process and technology investment activity will surely lead to further merger and acquisition activity involving either the enterprise software, supply chain, IoT, and management decision support technology vendor community.

 

2017 Prediction Seven- Enhanced Decision Support Capabilities Among B2B Network and Managed Services Providers Will Pay Added Dividends for Customers

 There will exist increased industry specific needs for deeper and wider levels of customer, product, physical object, and supply network focused information visibility, capture and analysis.  This need is coupled to building multi-industry supply chain requirements for more predictive, analytics data-driven decision making competencies that involve outside-in insights. The objective is a literal 360-degree view of supply chain wide data and information, horizontally spanning the end-to-end supply and vertically coupling high level enterprise to shop-floor decision-support needs.  A means to achieve such a capability are analytics and business intelligence engines that are now being embedded across supply chain focused B2B network platforms, edge systems and production shop floor transactional and information transfer flows. B2B business networks and edge platforms are today the prime opportunity for digitizing the horizontal and vertical flow of information and analytics across end-to-end supply chains.

 

2017 Prediction Eight- Amazon and Alibaba Position for Global Online Platform Dominance

Similar to 2016, Amazon and Alibaba will continue to position for being the dominant global online retail platform.  This competition has been civil with each respecting the other entities capabilities and strengths. Each has certain weaknesses or vulnerabilities. The head-to-head competitive battle ground in 2017 will likely be India, the next big online retail market opportunity that will test both provider’s capabilities to adapt to local requirements.

 

2017 Prediction Nine- Business Self-Interest Will Fuel Continued Efforts in Supply Chain Sustainability Actions and Initiatives

Despite the declarations by U.S. President Donald Trump that climate change is a hoax, business and supply chain self-interest needs, requirements and benefits to date will fuel continued sustainability initiatives and momentum. The goal is beyond supply chain sustainability, and remains sustainability of the business itself.

 

2017 Prediction Ten- Unique Industry-Specific Supply Chain Challenges in 2017

Each year we call out industry-specific supply chain challenges that are unique and dominant challenges. In 2017, we are including the following industry sectors for mention:

Automotive Supply Chains Existing Across North America

B2C and Online Retail

Commercial Aerospace

Consumer Packaged Food and Beverage

Global Based Pharmaceutical Supply Chains

 

Keep your browser pointed to Supply Chain Matters as we dive into each of the above 2016 predictions in more detail. Our next Predictions posting will provide added detail for our first two predictions. Subsequent posting will dive into the remaining eight predictions.

Our series will also feature some invited guest commentaries reflecting more on the topic area.

If readers or clients require further clarity, or wish to contribute additional thoughts related to what to anticipate in the coming year, you can contact us via email: feedback <at> supply-chain-matters <dot> com. Our final blog commentary of the series will include a summation of additional contributed thoughts for what to expect.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.  Content appearing on Supply Chain Matters® may not be used by any third party without written permission of the author and our parent, The Ferrari Consulting and Research Group.

 


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