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How a Single Expensive Component Can Inhibit End-of-Year and Customer Fulfillment Goals

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Over the remaining few days of December various supply chain teams will be hard at work supporting end-of-year shipment and revenue milestones. Most supply chain teams are aware that completing key milestones, whether financial, business or management focused, are critically important for compensation and career considerations.

In many cases, singular parts or component assemblies can likely be a cause for multiple end-item shipment delays. We are fairly confident that many of our readers residing in manufacturing, retail or service supply chains can well relate to this situation.

Thus, we were not at all surprised to have run across a Bloomberg published article indicating that Boeing and Airbus production and supply chain teams are working to ensure that 2014 end-of-year and program production and shipment milestone targets are fulfilled.  The December challenge stems from France based Zodiac Aerospace, a supplier of upscale lie-flat airline seats.  Certain deliveries for both the new Airbus A350 and Boeing 787 Dreamliner have requirements for the luxury seats which according to Bloomberg, can cost upwards of $200,000 each because of expensive finishes and complex mechanics. They are described as the “Ferrari” of airline seats.  This author appreciates that analogy.

For Zodiac Aerospace, a month-long labor stoppage within a Texas production facility that ended in late October coupled with backlogged engineering teams working with airlines for final seat design approvals have led up to the current challenges. The supplier is attempting to resolve all late deliveries and return to a normal schedule by mid-2015, but as is often the case, planning teams have been working to move deliveries of other new aircraft that can be completed to December customer delivery.  The article cites American Airlines as an example, who now expects to take delivery of its initial 787 during Q1-2015 rather than this month. American also needs to secure FAA approval to utilize these innovative seats within its new 787 fleet.

The 2014 shipment milestone for the Boeing 787 is 110 aircraft. Airbus encountered a sudden and unexpected delay in delivery of the first A350 to launch customer Qatar Airways because of an unexplained reason. Commercial aerospace supply chain and S&OP teams are thus behind the scenes and hard at work resolving last-minute snafus while working with various customers to move-up or re-schedule deliveries.

When the stakes are high, the individuals and teams that maneuver the various moving parts of the supply chain do matter. While technology can provide helpful tools, in the end, it’s the brainpower, creativity and tenacity of individuals that deliver the bacon.

No doubt all will done to insure December milestones are accomplished.

We share a wise holiday and New Year’s resolution- express your thanks to the planning, execution, procurement and product management professionals that are often called upon to be the last-minute enablers of customer fulfillment.

Bob Ferrari


BMW Announces New CEO with Engineering, Manufacturing and Operations Background

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Supply Chain Matters has previously called attention to executives with supply chain focused leadership experience ascending to higher levels of senior management.  Our last commentary of this nature focused on the ascendancy of Mary Barra as CEO of General Motors.

Now, BMW joins such ranks with the announcement that Harald Kruger will take over as CEO in May 2015. BMW’s current CEO Dr. Norbert Reithofer will step down from the CEO slot a year earlier than planned, because of upcoming changes in German law related to the composition of Supervisory Boards.

According to a BMW Blog posting, Kruger stood out as the most likely board member to step-  up and take the reigns for the next era of leadership at BMW. In its announcement, BMW indicates that Reithofer would move to head the supervisory board of the auto maker, while production executive Harald Krüger would become the BMW’s new chairman.

Similar to the prior background of Mary Barra, Krüger is an engineer by training, and his  previous background within BMW includes roles within manufacturing, product planning and management as well as human resources. A review of his CV of indicates that he began his career in the Technical Planning and Production division and from 1993-1995, worked as a project engineer for plant assembly at the Spartanburg South Carolina production facility. From 1997-2000, Krüger was the head of the Strategic Production Planning department in Munich, and served later positions as Director of Engine Production in the UK and Director of Technical Integration. He he was also responsible for brand management of the MINI, BMW Motorrad and Rolls-Royce brands. Since April of 2013, Krüger has served as Director of BMW Global Production.

According to reporting by The Wall Street Journal, Krüger at 49 years old would become the youngest CEO of any major car maker and signals a “generational change” for BMW leadership. That was obviously another criteria.

Once again it is great to observe that those who served under the umbrella of supply chain, manufacturing or product management operations can have a path for becoming CEO.

These are executives who know that supply chains do matter.

Bob Ferrari

 


Automotive Service Networks Response to Crisis: Update Three- Expanded Recall Involving Suspected Defective Air Bag Inflators

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Supply Chain Matters provides another update to the ongoing crisis involving the automotive industry as unprecedented levels of product recalls continue to stress auto aftermarket service supply chains to their limits. In our last commentary, we noted the colliding forces of regulatory, political, and capacity-restrained automotive replacement spare parts networks may well continue for many more months, and that appears to be exactly what continues to unfold. Once more, when the dust settles, we believe that the industry needs to take a hard look at lessons learned.

This week, there were further significant developments related to recalls of alleged defective airbag inflators produced by Japan based supplier Takata. After undergoing additional scrutiny from U.S. regulators, Takata refused to broaden the scope of the defective inflators recall beyond a select number of U.S. States with high humidity concerns.  That action forced OEM Honda, to expand its U.S. recall of suspected defective airbag inflators to all 50 U.S. states. Once more, Honda further indicated to U.S. regulators that the company is in discussions with other air bag suppliers to add augmented capacity of replacement parts. According to published reports, Honda is in discussion with suppliers AutoLiv and Daicel Corp. for supplementing supplies of required repair parts. In testimony this week, a Honda executive confirmed what Supply Chain Matters indicated several weeks ago, that the shortage of repair replacement parts would continue for quite some time.

U.S. regulators continue to pressure OEM’s BMW, Chrysler, Ford and Mazda to expand their driver-side air bag recall campaigns to include all 50 states. These actions have been prompted by additional information disclosed this week by the U.S. National Highway Traffic Safety Administration (NHTSA) indicating that prior incidents of premature exploding airbags are not just occurring in high-humidity areas. That is new information not brought forward previously. If these other OEM’s expand their campaigns to include all U.S. states, that will of-course add even more concerns to the ultimate availability of replacement parts.

According to a published report by The Wall Street Journal, earlier in the week Takata issued a letter to the NHTSA challenging the authority of that agency to compel a parts supplier to initiate a recall, arguing that the U.S. regulator authority is limited only to actual OEM’s that produce automobiles. From the lens of Supply Chain Matters, that argument is tantamount to a supplier throwing its major automotive OEM customers under the proverbial bus.

There should be little doubt among automotive line of business and supply chain leaders that these past few years of unprecedented product recalls are cause to revisit product quality imperatives. There has been a lengthy industry debate as to whether the quest for volume and profitability growth sacrifices quality conformance across the end-to-end supply chain. On the positive side, Hyundai recently scaled-back its volume growth plans when indicators of slipping quality motivated senior leadership to cut-back growth plans and endorse added quality measures.  The fact that Honda, which has prided itself in the quality image of its products is now front and center in the media is a symptom. In contrast, reports in business media of late question whether Toyota or General Motors have been chasing volume and profitability growth with quality and brand image as a casualty.

Evidence of common defective parts among multiple OEM brands and models point to shortfalls in quality monitors and component sourcing strategies that balance quality conformance risks. At the surface, these developments are perhaps a further indication that teams are not collecting or monitoring correct data as to component failure trends along with predictive indicators of broader manufacturing or material issues. The industry needs to take a hard look at supply-chain-wide quality conformance and feedback mechanisms.

Bob Ferrari


A New Value Towards CEO Operational Leadership Experience for Retail Industry

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In a May 2014 Supply Chain Matters commentary, Recruiting the New Era of Retail and Online Fulfillment Leaders, this Editor made the following statement:

“In this era of online retailing and Omni-commerce, there are two leadership competencies that will differentiate tomorrow’s executive leaders in retail.  They are a deep understanding of social-media fueled marketing and Internet focused retailing, and a deep awareness, understanding and appreciation of end-to-end supply chain inventory deployment and fulfillment capabilities.  From our lens, recruiting for retail C-level executives has been too focused on classic merchandising, finance or traditional brand marketing.”

Our commentary at that time reflected on business media reports indicating that major retailers such as JC Penny, Target and others were finding it difficult to recruit a qualified CEO. 

Now, more than seven months later, it is important to reflect on what is occurring, namely that some retail industry CEO selection teams now weigh operations leadership experience over that of pure merchandizing.

In late- July, Target, for the first-time in its history, brought in former PepsiCo executive Brian Cornell as its CEO.  Before accepting the Penny CEO role, Cornell had prior experience in leading PepsiCo’s Americas Food business unit and the Sam’s Club warehouse business for Wal-Mart stores.  Cornell is now in the process of re-evaluating all of Target’s operations and supporting processes.

Also in late July, Tesco recruited Dave Lewis, a 28 year executive veteran of Unilever as its new CEO after first-half profit trailed the grocer’s expectations. Lewis previously led the expansion of one of Unilever’s fastest-growing businesses, and was the first outsider CEO hired by the UK retailer. Lewis’s leadership experience included the chairmanship of U.K. and Ireland business and president of the Americas operating units at Unilever. When the Chairmen of Tesco was asked why that retailer sought with Lewis, he stated:

If you look at what Dave Lewis brings, David is absolutely the leader in brand management and brand identity, communication, customer development, customer management. Tesco is not short of retail skills.”

Last week, JC Penny finally selected its new CEO designate. In its reporting, The Wall Street Journal lead-in to the announcement noted that Penny elected to go with strength in nuts and bolts retailing rather than flashy merchandising. Former Home Depot and Target operations executive Marvin Ellison will ramp into the CEO position by August of 2015 after a several month transitional period as President. After the disastrous episode when former Apple retail executive Ron Johnson brought the retailer to near financial disaster with a $4 billion hit in revenues, Penny’s directors are opting for a longer ramp-in for its new CEO designee. Ellison will serve under the stewardship of Myron Ullman, who was brought back to save Penny in April of 2013.

Ellison’s accomplishments include 15 years at Target before joining Home Depot, where he held roles in global logistics and vice president of U.S. stores.  Ellison was reported to have helped to integrate Home Depot’s e-commerce operations with brick-and-mortar stores, namely implementing the buy online and pick-up in store initiative.

Regarding the JC Penny CEO selection, the WSJ provided the following commentary:

The appointment also reflects a broader shift in retail in which some big companies have favored detail-oriented operators over executives mainly lauded for brilliance in merchandising, as the industry faces giant new challenges in managing its supply chains and keeping customers from defecting to the web.”

Certainly, each retailer requires different leadership skills at a point in time, and operations experience may or may not be favored.  However, the evidence from above indicates that for those retailers who have especially struggled with the impacts and ramifications of today’s Omni-channel retail environment and permanent structural shifts in retailing are opting for proven operations leadership.

Sales and operations, supply chain and customer fulfillment professionals in retail industry environments should take note that this now building evidence of value in operations leadership will hopefully continue for selecting next generation retail leaders. 

Keep that in-mind as the next several weeks bring the usual doses of operational realities.

Bob Ferrari


Industrial Robot Demand Reinforces Production Automation in Low Cost Manufacturing Regions

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Supply Chain Matters has featured prior commentaries regarding the evolving digitization of manufacturing and the entry of advanced robotics to springboard the next wave of manufacturing productivity and labor cost savings, particularly in former low cost manufacturing regions. A recent perspective focused on the largest global contract manufacturer, Foxconn, collaborating with Google on advanced robotics applied to human assembly operations.

We alerted from a Twitter posting from Colin Masson of Microsoft to a report published by World Industrial Reporter regarding a recent disclosure from International Federation of Robots (IFR). That organization reports that industry investments in robotics have been on a sustained rise since 2010.  While robot investments are slowing down in certain industries, others are increasing at hefty rates. IFR indicates that electrical/electronics industry investments are on the rise in applications related to retooling production processes.  A more revealing statistic was that growth in the order of 21 percent is expected in China, Taiwan, South Korea and other Southeast Asia regions in 2014.  Robots sales in the Americas are forecasted to grow 11 percent in that same period. Once more, IFR indicates that robot sales in the Asia/Australia region will grow 16 percent on average, per year, in the period from 2015-2017.  Specifically for China, IFR predicts that 400,000 industrial robots will be installed among that country’s factories by 2017.

That is obviously a strong data point indicating that low-cost manufacturing regions are indeed looking to invest in advanced and more cost affordable robotics to leverage production operations. IFR points to the entry of new on-shore domestic suppliers to add to the competitive landscape. Readers will further note that later in the report, an auto industry robotics specialist indicates that the direct interaction between humans and robots remains in beginning stages.

Then again, with Google invested in this area, that perspective may quickly change in the coming months.


General Motors Attempts to Turn to a New Chapter of Growth, Customer Loyalty and Supply Chain Practices

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The public relations teams supporting General Motors have been in high gear these past weeks for obvious reasons.  Lapses in product design and quality management practices, and what has been billed by business and general mediaas the worst U.S. product safety crisis in recent memory has led to a series of product recalls among multiple GM brands involving upwards of 2.6 million vehicles.

GM desperately needs to move beyond its current state and restore confidence in its brands and in its business management model.  Suppliers and partners associated with supporting this U.S. based OEM need to also move on to more collaborative and win-win relationships, but that requires a different GM perspective.

When Mary Barra was appointed CEO of General Motors, this author communicated our Supply Chain Matters elation for this announcement. Our enthusiasm came from the dual fact that not only was Barra the first senior female executive ever to lead a global automobile manufacturer, but more importantly, because her 35 year background included plant management, manufacturing, product design and development leadership experience. She is also an engineer by training. Barra likely understands the elements of producing high quality cars and trucks and the important contribution of the GM supply chain ecosystem in achieving that goal.

If readers want to gain a candid perspective on Mary Barra’s current challenges in transforming GM, we recommend the recently published Time article, Mary Barra’s Bumpy Ride at the Wheel of GM. Author Rana Foroohar pens an insightful perspective on Barra’s management style and her efforts to change a rather in-bred corporate culture built around functional fiefdoms and little accountability. She describes Barra as the consummate “outsider-insider” with a far different style from most of her CEO predecessors. She has been put in charge to become the change agent and apparently has the support of many of GM’s employees in that task.  In our previous commentary in December 2013, we called attention to the Wall Street Journal characterizing Barra as “having a reputation for speaking her mind, a trait that hasn’t always been appreciated in GM’s executive suite.”

This week, business and general media are featuring reports of GM’s latest earnings announcement. The WSJ reported that after nine months, Barra wants to switch gears towards a multi-year strategy to deliver increased revenues and profits while restoring consumer trust. She explained to a group of GM’s top 300 executives that the company must do what it takes to be the “world’s most valued automotive company”.  The going forward strategy leans heavily on reliance on planned new models expected to come to market, many of which were shepherded under the leadership of Barra when she previously led new product development. A goal is to have 47 percent of global sales to be fueled by these new models by 2019. It further includes market expansion and growth within China through investing in five additional auto assembly plants and he introduction of nine new Cadillac models in that country.

GM will further focus on the broader supply chain’s contribution to its renewed business goals.

According to a recent WSJ report, there is an internal belief that GM pays more than its competitors for materials and technology because the company bases parts purchases on unrealistically high forecasts that burden suppliers with high fixed costs when ultimate demand falls short. Our community is more blunt in such an explanation: it is lousy forecasting predicated on achieving functional stovepiped goals. The WSJ quotes some analysts as indicating that the automaker could save upwards of $1 billion a year with smarter purchasing practices, which as we know, is a typical Wall Street short-term perspective these days. Squeeze those suppliers!

GM’s existing product development chief, Mark Reuss, actually met with executives representing 700 suppliers indicating that the company is ready to share more financial risks if sales projections are high. At that same meeting, GM’s purchasing boss, Grace Lieblein indicated that the supplier base will likely need to add capacity to support growth plans. In a Detroit Free Press published report, she is quoted as stating: “we just have to be cautious and strategic about how we add that capacity and not move too fast.” Lieblein further communicated that an important strategy is convincing suppliers to locate closer to GM assembly plants to reduce transportation costs.

Obviously that’s a tall order for suppliers since transportation cost savings do not necessarily weight themselves to the benefit of the supplier. Adding production capacity to support additional volume and spreading that capacity further across the globe requires a significant financial investment. Add some history of throwing suppliers “under the bus” when quality plans go south because of component design flaws, well, you get the picture of legacy trust.

The new era of GM obviously requires what Barra has described as bold thinking and leadership. What this author was hoping to read is that goal of GM’s supply chain going forward is to support continued product innovation while controlling costs and accelerating productivity. Perhaps that will be articulated in the coming months.

It is this author’s view that such thinking can benefit by a broader and deeper perspective by GM’s executive leaders on how more modernized supply chain business practices, new product introduction (NPI) practices incorporated to supply chain impacts, more collaborative based inventory and supply chain planning practices  have led to benefits among other industries as well as other automotive OEM’s. Today’s supply chain and B2B business network technology capabilities can further link the global end-to-end supply chain with more granular levels of planning and supply chain execution synchronization.  

The business practices and enabling technology are available but it requires a good dose of change management infusion before real benefits can flow. We trust GM will hence forth nurture the leadership to set such perspectives.

Bob Ferrari

© 2014 The Ferrari Consulting and Research Group LLC and Supply Chain Matters. All rights reserved.


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