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Another Program Delay for Airbus

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For the commercial aircraft industry and its respective supply chains, a consistent track record of new aircraft development and production release program delays unfortunately remains the same.

To add to its other program woes, Airbus announced this week that initial delivery of its planned A350-1000 model long-range aircraft will slip another year. The initial test flight, originally scheduled for about this time, is now not expected until after September. Indications are that initial deliveries of this new aircraft to launch customer Qatar Airways are not expected until the second-half of 2017.  A350-1000_United

In a statement, Airbus indicated: “.”We have adapted the A350-1000 schedule to ensure we fully satisfy our customers’ requirements for a mature aircraft from day one.” The manufacturer further added that it would put adequate resources in place to achieve program milestones.

According to business media reports, the first three test aircraft are currently in the final assembly stage. From that fact alone, we suspect that delays have more to do with the readiness of the supply chain to be able to scale to initial productions levels. To date, Airbus has reportedly booked 181 orders from 10 airline customers for this new model, the largest long-range aircraft offering for Airbus.

The 1000 model is the longest-fuselage version of Airbus’ new A350 family of wide-body jetliners. With this design and configuration, the aircraft can accommodate a range of from 366-440 passengers, which means lots of seat per plane.  An ongoing constraint in wide-body supply chains has been availability of airline seats in-volume. Powering the A350-1000 will be a higher-thrust Rolls Royce Trent XWB engines from which will allow this largest model to attain even greater levels of fuel efficiency. Newer models of more technologically advanced aircraft engines have had their share of ongoing ramp-up problems as-well.

The program itself has had its ups and downs including in December of 2014, an announcement of a last-minute sudden delay in the initial delivery to launch customer Qatar Airways only to change that two days later. Since that time, the European based aircraft producer has experienced continual delays in its ability to support planned volume production of this model. As noted in a related posting last week, subsequent deliveries of new A350 model aircraft remain impacted due to adequate supply of cabin seating and interior equipment. Plans called for delivery of a total of 50 aircraft in 2016, but Airbus has managed to deliver only 10 so far this year due to the supply delays. There are a reported 40 of this aircraft in various stages of final assembly and Airbus has augmented production with added work stations to get late delivered cabin equipment installed as quickly as possible.

The ongoing tense customer relationship among Airbus and Qatar that dates back to the scheduled initial delivery of the A350 family now takes on more dimensions since Qatar had contracted for initial deliveries of the 1000 model starting this month. No doubt, Qatar’s candid and direct CEO will have the last word regarding this latest delay announcement.

While the latest Airbus program delay was probably motivated by prudence in assuring complete readiness of the supply chain, it does reflect and industry track record of continually underestimating the scope of program and supply chain challenges. With more and more major system components being outsourced to global based suppliers, aerospace supply chains seem to constant underestimate the ramifications and added requirements for increased design and production process coordination with major suppliers. What has not helped is an industry environment where booked orders far exceed available capacity placing more pressure of suppliers to meet aggressive milestones from multiple global manufacturers. Add to that, increased pressures for reduced costs and higher efficiencies and you get the picture of conflicted goals and priorities.

The A350 situation does not currently compare with the ongoing delivery delays with Boeing’s 787 Dreamliner program that has now amassed a reported $28 billion in ‘deferred production costs” because of continued multi-year delays in customer deliveries. None the less, the track record of missed program milestones and lack of supply chain readiness continues across most manufacturers.

Bob Ferrari


Tesla Founder Elon Musk Addresses Plan to Revolutionize Factories

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Our last Supply Chain Matters commentary concerning electric automotive manufacturer Tesla highlighted a candid admission of the importance of design for supply chain practices, as well as a new dilemma relative to the need to more dramatically scale its supply chain and manufacturing cadence.  Tesla Model X SUV

Earlier this week, in an address at Tesla’s annual meeting of shareholders, founder and CEO Elon Musk further addressed these challenges including a plan to revolutionize factories. Hearing the passion of Musk and his executive team, we believe that there may be some substance to these efforts, worthy of ongoing monitoring.

In addition to reiterating the fascinating history of Tesla, Musk shared with shareholders various lessons learned along the way. Among them was an admission that the Model X design was over complicated, perhaps too much to accommodate initial production volume needs. “We have great ideas, The smart move would have been to table those for version 2 or version 3.”

He reiterated that going forward, particularly with the new Model 3 design, Tesla teams will have a tighter integration loop among product design and manufacturing.

In his address, Musk indicated Tesla will “completely re-think the factory process.

The last time similar words were communicated was when Tesla developed the strategy to source all of its supply requirements for lithium ion batteries from a massive production facility or “gigafactory” to be located in the United States. The long-term core mission for Tesla has been to build very high performance vehicles that could be affordable for consumers. The core component of an electric vehicle is its batteries. As Musk explained the situation, it was a revelation that the company’s needs for such higher performance batteries would exceed current existing global capacity, so why not build it in the U.S. The other revelation was that most existing battery manufacturing techniques stemmed from consumer electronics companies with different design principles. This, Musk challenged his internal and external supplier teams to literally re-invent the way batteries can be produced including the adoption of more vertically integrated value-chain principles.

On July 29, a grand party is scheduled to celebrate the culmination of such vision in the operational opening of this gigafactory located in northern Nevada.

When addressing the future, 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. To that end, he further disclosed that he now no longer has a Tesla office, instead spending the bulk of his time residing on the production floor and observing.

He indicated to shareholders that his team now realizes that in re-thinking the challenge for the ability to support output volumes of 500,000 or more vehicles per year the same principles, “you build the machines that build the machine” apply. 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.

To that end, Tesla is now calling on existing product design engineers who constantly labor to achieve vehicle performance enhancements, to now turn their attention and efforts into building far more efficient production capability. Musk himself indicated that he is very confident that improvements in a factor 10x can be achieved in these ongoing efforts. Then again, having already amassed 400,000 pre-orders for the newly announced Model 3, there is somewhat a sense of urgency for the need to fulfill these orders in a timely manner.

We at Supply Chain Matters continue to admire the supply chain and manufacturing thinking that exists at Tesla.  This is a company that literally challenged the notions that one could source owned internal manufacturing directly in Silicon Valley. As noted, they challenged existing notions of lithium ion battery design and high volume manufacturing. Similarly, the company challenged the industry norm of established dealer networks and instead has a direct sales and service relationship with its customers.

Tesla is always challenging established thinking and now, has expressed a renewed belief that the supply chain does indeed matter. We expect even more supply chain innovation from this innovation driven organization and would not at all be surprised that during the next five years, Tesla will be cited as one of the top five supply chains.

Readers can view the more than two hour address to shareholders by visiting this Tesla Investors web link.

Bob Ferrari

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


Airbus Aircraft Delivery Cadence Under the Looking Glass

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This week, The Wall Street Journal confirmed what many existing suppliers residing within the Airbus supply chain probably know, that the commercial aerospace firm continues to be challenged in consistency in supply chain customer fulfillment.Airbus Mobile Alabama Manufacturing Facility

The report, Airbus Tackles its Procurement Procrastination Woes, (Paid subscription or complimentary metered view) reports that Airbus executives are trying to end what has become an annual rite, the end-of-year hockey-stick effort to fulfill its annual target for customer airplane deliveries. Noted is that last December, commercial aircraft manufacturing delivered 79 aircraft in a single month representing about 12 percent of its annual total.  However, these all-hands, round-the-clock efforts take an annual toll on manufacturing and supply chain resources, causing the New Year to get started on a muted rate.

Thus far through April, the company has delivered only 177 planes, just 27 percent of its annual committed output volume.  As noted in prior Supply Chain Matters postings, deliveries of the new A320neo model single-aisle aircraft have shifted to June to allow engine provider Pratt and Whitney more time to correct some last-minute design and production issues. Additionally, the WSJ indicates that only four of the brand new A350 long-range jets have been delivered in the first quarter amidst supplier problems.

The company’s COO of commercial aircraft acknowledged to the WSJ the ongoing frustration and that: “we need to do better.” The report further indicates that the company is exploring further means to change the way airplanes are manufactured in a more predictable manner, language that often translate to additional manufacturing automation.

Both Airbus and rival Boeing face very aggressive supply chain and final manufacturing ramp-up targets over the next 3-4 years in order to meet both customer delivery expectations and aircraft program cash-flow milestones. At the end of April, Airbus reported net cash outflows of $3.37 billion largely as a result of delayed aircraft deliveries.  In many cases, suppliers are not paid until finished aircraft are delivered to customers. Boeing is not immune to same challenges, having recently announced a series of significant job cuts and additional cost reduction initiatives.

Commercial aircraft supply chains thus remain in this unique quandary- upwards of 8-10 years of customer order backlog, but at the same time, enormous and continually building challenges in the ability to meet unprecedented supply chain and manufacturing output cadence.

Truly unique with its own set of dynamic challenges.


Candid Admission from Tesla Provides the Importance of Design for Supply Chain Practices

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Supply Chain Matters provides an additional update relative to our previous commentary regarding the Tesla Motors Model 3 Product Unveil that occurred several days ago.

Yesterday, Tesla delivered an update relative to its Q1 FY16 operational and delivery performance.  The update indicates, among other items that the electric powered automotive provider delivered a total of 14,820 completed vehicles in Q1 consisting of 12,420 Model S and 2,400 Model X automobiles. While the statement indicates that Q1 operational performance was almost 50 percent more than the year earlier period, equity analysts were expecting an output number of upwards of 16000 vehicles. Tesla Model X SUV

Tesla further indicates that it is on-track to deliver 80,000 to 90,000 new vehicles in 2016.

The statement further indicates that deliveries were impacted by severe Model X supplier parts shortages in January and February that extended longer than planned. According to the update, build rates for the Model X in March rose to 750 vehicles per week once the parts shortages were resolved, but many of the vehicles were built too late to be delivered to owners before the end of the quarter.

Of more interest was a candid admission that the root causes of the parts shortages was:

Tesla’s hubris in adding far too much new technology to the Model X in version 1, insufficient supplier capability validation, and Tesla not having broad enough internal capability to manufacture the parts in-house.”

First and foremost, Supply Chain Matters applauds Tesla for its direct candor.

There are very few automotive manufacturers, and for that sake, other industry manufacturers that would publically state such candor even though internal operations was well aware of the challenges that were encountered and the efforts required to make the numbers. Tesla clearly indicates that the operational details disclosed for Q1 were provided because of: “unusual circumstances of this quarter and will not typically be provided in quarterly delivery releases going forward.”

We none the less, applaud this action because it provides the broader industry supply chain community another important learning relative to the importance of design for supply chain practices, where product design and product management teams work collaboratively with supplier sourcing, procurement and manufacturing operations teams to insure that product design and manufacturing specifications can adequately meet production volume scalability requirements. Obviously there is learning relative to supply chain risk mitigation, having back-up contingency plans in-place to account for supplier snafus or shortcomings.

Supply Chain Matters continues to admire Tesla’s boldness and embrace of modern supply chain and manufacturing practices and such public lessons are indeed learning that even the best can encounter a snafu.

When product design boldness outpaces the realities of the current supply chain, something will give. Apple, among other supply chain leaders, have previously stumbled in new product releases because of design for supply chain factors not addressed in the initial product launch and release cycle.

Tesla indicates that it is addressing root causes to insure that these mistakes are not repeated in the Model 3 launch. We raised that possibility in our prior commentary.

Time will eventually tell the final outcome.

Earlier this week, Tesla indicated that customer reservation orders for the new Model 3 had surpassed 276,000 orders. At current production rates of the Model X of 750 vehicles per week, that order backlog is the equivalent of 368 weeks or roughly 7.36 years of production at current volumes. That gap alone represents the critical tensions of elegant or leading-edge product design contrasted to customer delivery and experience expectations. The end-to-end supply chain becomes the important difference in meeting such expectations.

Bob Ferrari

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

 


New Research Report from APICS: What’s Keeping Supply Chain Leaders up at Night

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APICS and Michigan State University have recently partnered to research top concerns among leaders of supply chain management. This week, both organizations released their latest joint research report: Supply Chain Issues: What’s Keeping Supply Chain APICS- professional association for supply chain and operations managementManagers Awake at Night? (Report also available for complimentary downloading)

This research represents Michigan State’s research efforts profiling challenges among more than 50 supply chain organizations. Supply chain management executives were asked to assess the challenges their organizations are currently facing along with new opportunities. The research effort was led by David J. Closs, Department Chair and John H. McConnell Chair in Business Administration and Patricia J. Daugherty, Bowersox-Thull Chair in Logistics and Supply Chain Management at Michigan State University.

The six most common issues that were cited by executives were:

  1. Capacity /resource availability
  2. Talent
  3. Complexity
  4. Threats/challenges
  5. Compliance
  6. Cost/purchasing challenges

Upon reviewing the report, Supply Chain Matters noted lots of common theme similarities that have been identified by other multi-industry focused executive surveys. An important difference in this latest APICS-Michigan State report, however,  was how talent issues, namely  recruitment, retention, or skills development, permeates all of the other five areas of executive concern. Much of this was summarized in the citing of one executive’s statement:

It’s a different type of talent that we’re going to need if we’re going to keep up with the pace of change.

A further common challenge identified by this Michigan State as well as other surveys, is the impact that B2C or B2B Omni-channel business is having on supply chain complexity, SKU proliferation, process and system complexity as well as costs. Similar themes were raised in the third annual PWC Viewpoint study involving 300 retail and consumer goods CEO’s that was administered in late 2015. That survey concluded that over 80 percent of executives were still attempting to breakdown the organizational silos that were hampering a singular Omni-channel customer fulfillment experience. That activity invariably impacts the supply chain in many different dimensions.

Our readers will likely find other common themes and concerns identified in each of the areas. In conjunction with its latest research series, APICS has announced a series of upcoming webinars addressing topics such as capabilities, costing, global talent development, purchasing, sustainability, Omni-channel and complexity.


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