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Praise to APICS in Efforts to Update SCOR Reference Model

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Last week, APICS made a noteworthy announcement regarding The Supply Chain Operations Reference Model-SCOR, which we wanted to highlight for our Supply Chain Matters readers.

The supply chain educational and performance improvement organization indicates that SCOR Release 12 is currently under development by a committee of global supply chain practitioner experts and is expected to be released in the Fall, most likely in conjunction with the APICS Annual Conference. We call reader attention to the release because of the new topical areas being planned for inclusion in the new iteration, along with an increased effort to make this framework even more amendable to machine-readable language that can be leveraged for supply chain focused Cloud-based advanced analytics purposes.  APICS logo Praise to APICS in Efforts to Update SCOR Reference Model

From our lens, the planned SCOR Release 12 is a definitive acknowledgement that industry supply chain business process and advanced technology needs are rapidly changing, and manufacturers and services providers who have currently adopted tenets of SCOR need to incorporate such new factors into their performance frameworks and metrics.

APICS indicates that a SCOR job task analysis survey completed by over 1600 supply chain professionals validated the increasing importance for:

  • Sourcing and procurement processes for the SCOR framework
  • Metadata, digitization, omni-channel, and supply chain maturity model
  • Data analytics, data acquisition, data science, and predictive analysis as staff skills related to organizational supply chain initiatives
  • Continuing education and improvement of supply chain manager skills and abilities

In addition to these added context areas, ongoing APICS Special Focus Forums are addressing unique performance framework needs in areas such as humanitarian supply chains and new iterations of integrated of integrated business planning. Documentation efforts from these forums call for periodic updates to the digital library that APICS members have access to.

A further area addressed by a specific forum are opportunities to make SCOR more of a fabric in IT-centric supply chain analytics, dashboarding and overall integrated decision-support capabilities. Currently available is the software- SCOR Business Process Management Accelerator powered by Software AG’s ARIS tool. The tool itself can be extended via an open API to other Cloud-based ERP or specialty supply chain management applications, allowing analytics data to reference existing SCOR metrics. APICS further indicates a willingness to work with added software providers on other analytics and decision-support needs that seek to leverage existing SCOR performance or metrics relationship data. By our way of thinking, there is added opportunity down the road for the ability to incorporate artificial intelligence or machine learning techniques with SCOR frameworks for more predictive factors of supply chain performance.

Supply Chain Matters applauds the recognition of all the above as emerging drivers of supply chain success and of areas that can truly continue to benefit from a common supply chain reference model.

A final note relates to the need for augmented SCOR training, considering the addition of the above timely topics.  A recent conversation with Peter Bolstorff, APICS Executive Vice President, Corporate Development acknowledged the need for stepped-up training, given the added content areas with SCOR-12. The organization is currently working on stepped-up plans for SCOR training, in addition to current company hosted and public training activities. We anticipate further announcements in this area in the weeks to come.

Industry supply chain process and decision-support needs are indeed changing and its go to observe supply chain professional organizations adapting tools, frameworks, and training to help organizations manage such changes.

 

Bob Ferrari

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


A More Visible Challenge for Tesla Model 3 Production

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The visibility on Tesla’s Model 3 production ramp-up took on some new dimensions this week, as U.S. national morning news program CBS This Morning aired a segment featuring Tesla auto workers expressing concerns about on the job safety.

Supply Chain Matters has featured several prior blog commentaries regarding the both the supply chain and actual production ramp-up challenges for the new Model 3 sedan. The reality remains that Tesla must ramp-up its annual production from the current rate of 84,000 to 500,000 vehicles per year over the next two years.  tesla model 3 450 300x148 A More Visible Challenge for Tesla Model 3 Production

Tesla initiated pilot production of the soon to be mass-produced for the masses Model 3 in February, to coincide with company’s annual report to stockholders. In a letter to shareholders, CEO Elon Musk declared that Model 3 product development, supply chain and manufacturing are on-track to support volume deliveries in the second-half of this year, while installation of manufacturing equipment was underway at both the Fremont California and the Nevada based Gigafactory. The company expects to invest somewhere between $2 billion and $2.5 billion in capital expenditures ahead of the start of Model 3 production and by our lens, there is little tolerance for missteps in engineering and process design. Initial reports of strains in the workforce came after the final quarter of 2016 when production workers were called upon to make-up production time for some supply-chain snafus. Additional reports of worker fatigue came prior to Tesla’s February formal reporting of both Q4 and 2016 performance.

This week’s televised report adds yet another dimension, that of a production workforce that continues to express concerns related to excessive work hours leading to added workplace accidents.

The CBS News report cites data from advocacy group Worksafe that released Tesla safety data to back-up worker concerns. A Tesla production worker, on the advice of the United Auto Workers labor union, obtained three years of worker injury reports. A reported independent analysis of the numbers pointed to a 31 percent higher than industry average rate of serious injuries, that resulted in either days away from work or restricted duty.

The segment also features video of Tesla’s HR Manager and three production managers all indicating that the company maintains worker safety as a top priority.  Ongoing efforts to prepare for the addition of Model 3 production include ergonomics experts being brought in and the addition of an extra third-shift, to replace two 12-hour shifts, to mitigate worker fatigue and burnout.

To be balanced, the CBS News report does provide an undertone of an effort by the four interviewed production workers to seek other safeguards. The other backdrop is that the United Auto Workers is possibly marshaling a labor union representation campaign. That adds another dimension of ongoing challenges for Tesla

In either case, as this news report implies in video, Tesla will need to re-double efforts to make the majority of its production workers feel more optimistic that the full ramp-up will not be perceived to be at the expense of worker safety and burnout.

No one, including production workers, seems to be disputing the engineering and design features of the Model 3. But, something compelled a small group of production workers to go public and voice concerns, and that adds a more visible dimension to Tesla’s supply chain and manufacturing ramp-up.

 

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


Another Example of SKU Proliferation Leading to Cost Complexity

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Yesterday in one of our news feeds, we came across a report on FoodBusinessNews regarding snacks producer Snyder-Lance, and it efforts to address an ongoing challenge to increase profitability. We view this report as a typical current day example of how the C-Suite turns to the supply chain as a prime barometer and facilitator of needed cost savings.

The report outlines a “comprehensive and aggressive performance improvement plan” that a result of recent first-quarter financial results falling behind management expectations., according to the interim CEO. A number of factors were attributed to the sub-standard performance that were described as category softness, lower net price realization, unfavorable mix, cost headwinds and certain execution lapses. Some or most of these phrases should be familiar to our readers in consumer packaged goods, food, and beverage companies since most of the industry has been whiplashed by many of these same forces.

What is rather interesting and noteworthy are statements that overall business complexity drive increases in costs. Snyder-Lance has identified five priorities to attack the complexity problem which include manufacturing and supply chain streamlining efforts. That includes a realization that a proliferation of SKU’s (stock-keeping units), half of which only contribute a reported 5 percent of revenues, the other-half, the majority of revenues.

SKU proliferation is a familiar challenge in supply chain business planning, one that dates back quite a few years in CPG and consumer brand-oriented product areas.

There are many causes.

Companies that undergo periods of active merger and acquisition cycles will often inherit both added distribution channels as well as associated SKU’s. Likewise, companies with inherit multiple channels of distribution are often subjected to such risks.

The snack food area is particularly vulnerable because snacks are often subject to impulse buying within multiple outlets including neighborhood convenience stores, dispensing machines, convenience restaurants, food purveyors catering to service firms such as airlines, passenger trains, ferries and the like, and the typical member warehouse and retail grocery chains. A new market twist is that of online grocery basket shopping which online providers such as Amazon, Wal-Mart, Target, and other online retailers have introduced.

In fact, this analyst is of the belief that SKU proliferation is again becoming a more widespread problem because of the new realities of online retail. Retailers themselves are finding themselves bloated with SKU’s to address different sales channels, be that physical store where snacks are purchased in bulk or online on an induvial basis.

Another challenge that Sales and Operations (S&OP) teams are quite familiar with is the relationship dynamics of sales and marketing, who advocate for creating separate SKU’s for what they believe will be new and upcoming customers. After all, a separate SKU allows the new customer to gain personalized product and at the same time, more definitive tracking of a channel’s sales volume.

There is little doubt that SKU Proliferation indeed can drive complexity and supply chain inventory and distribution costs. Advanced inventory management or inventory optimization tools help in identifying and addressing problem areas. The resolution, however, involves a lot of internal supply chain cross-functional and external sales and marketing collaboration. It is also a condition and a watch out that should be factored in the analysis of the increased costs related to supporting today’s more focused online business models.

Bob Ferrari

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

 


Tesla Reports Q1 2017 Vehicle Production and Delivery Performance

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Global electric auto and solar power producer Tesla reported Q1-2017 automobile production and delivery performance this weekend, and the numbers provide both good, or concerning news, depending on perspective. Tesla ModelX Live 300x210 Tesla Reports Q1 2017 Vehicle Production and Delivery Performance

The automaker reported that it had delivered just over 25,000 vehicles for the March-ending quarter, establishing a quarterly record. Total deliveries consisted of 13,450 Model S and approximately 11, 550 Model X vehicles. These numbers were characterized as a 69 percent increase over the year-ago quarter. However, the year ago, quarter is perhaps not a meaningful benchmark, given Tesla’s strategic objectives.

As noted in our last Tesla operational and business performance focused commentary, the company still has a long way to go to meet its milestone of producing upwards of 500,000 vehicles across all model lines on an annual basis by 2018.

There are many areas all along the supply chain that could prove to be weak links, not to mention the steep ramp-up needs for both the battery gigafactory and the Fremont facility. We called attention to a published San Jose Mercury Times expose commentary in February indicating that long hours and reported unsafe working conditions was causing disgruntled workers to seek out potential external labor union assistance. The report indicates that during November and December, employees worked a minimum of 6-day workweeks to keep-up with production needs, as well as a supply chain disruption involving auto pilot technology, that skewed production output into December.

Included in Tesla’s Q4 production report was a notation that 2750 vehicles missed the production cutoff at the end of December, while a total of 6450 vehicles were classified as in-transit to customers.  Thus, the recent Q1 2017 performance numbers had a total Q4 carryover of 9200 vehicles at the start of the quarter.  Thus, net production could be interpreted to be 20,450 vehicles when one nets out the 9200 vehicle Q4 carryover and the 4650 vehicles that were still in-transit to customers at the end of the quarter.

A broader historic to the vehicles in-transit carryover numbers would be the following:

Q1-2016: 2615 vehicles in-transit

Q2-2016: 5150 vehicles in-transit

Q3-2016: 5500 vehicles in-transit

Q4-2016: 6450 vehicles in-transit

Q1-2017: 4650 vehicles in-transit

As Supply Chain Matters has previously observed, the above in-transit trending points to a building vehicle transportation and customer last-mile fulfillment challenge, that continues to weigh on overall operational performance. To reach its 500,000-annual performance goal in just under two years, both production, distribution and customer delivery processes must scale at a much higher rate.

Tesla is now completing an additional round of equity and debt supplemental funding to launch the scale-up of the new Model 3, designed to appeal to a broader consumer audience, and with higher pent-up demand for production output.

Which each passing quarter, there will be far more scrutiny surrounding Tesla’s operational performance as well as the underlying supply chain processes and management systems. While this week’s financial headline is that Tesla may be a more valuable company than perhaps Ford Motor Company or General Motors, we submit the broader determinant is overall consistent supply chain performance and scalability.

Bob Ferrari

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


Tesla’s Ongoing Financial, Operational and Supply Chain Growing Pains

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If Supply Chain Matters readers have been following along our streams of blogs related to Tesla are probably aware that the global electric automaker has had its share of growth and supply chain scalability challenges. It’s the good news notions of groundbreaking technology and a cult following of loyal customers, fueling demands for vast scalability in supply, manufacturing, and global distribution of completed vehicles.

In addition to producing the increasingly attractive and rather expensive all-electric Model S and Model X sedans, the supply chain is now in the throes of preparing for the ramp-up of volume production of the less expensive, broader market appeal Model 3 sedan targeted at a sales price of $35,000.  The latter vehicle began pilot production in early February with plans to produce upwards of 5000 Model 3 vehicles weekly by the end of this year. That is an aggressive timetable from many supply chain perspectives.

To prepare for Model 3 volume production needs, both the existing “gigafactory” in Nevada that produces lithium-ion batteries, and Tesla’s existing production assembly site in Fremont California have undertaken square footage expansion. The Fremont facility itself will expand by up to 4.6 million square feet, adding upwards of 3100 additional jobs.

As noted in our prior blog commentary at the time of Tesla’s report of Q4 and 2016 financial reporting, the company has amassed upwards of $18 billion in debt with total cash on-hand amounting to $3.4 billion at fiscal year-end. That condition prompted Founder and CEO Elon Musk to call for an additional round of a combination of upwards of $1 billion in bond and equity financing to provide an added cushion for capital investments needed to ramp Model 3 production. As we pen this blog posting, a breaking news report indicates that China based Tencent Holdings has invested a reported $1.8 billion in Tesla, amounting to a 5 percent stake in the company. Tencent acquired its stake in a combination of the added stock offering by Tesla and shares purchased on the open market. While Tencent’s stake is reported to be passive, it does represent that Chinese company as the fifth largest shareholder of Tesla stock. Tencent own’s China’s largest social network, WeChat, and is recognized as the world’s largest electronic games publisher.

Regarding the ongoing scalability challenges of Tesla, the San Jose Mercury Times published an expose commentary in February indicating that long hours and reported unsafe working conditions was causing disgruntled workers to seek out potential external labor union assistance. The report indicates that during November and December, employees worked a minimum of 6-day workweeks to keep-up with production needs. At the same time, the high cost of living within Silicon Valley forces production workers to have a reported reliance on overtime to survive financially. The report further indicates that all Tesla employees were recently asked to sign a supplemental non-disclosure agreement indicating that all observations of work activities, schedules or production plans are confidential information.

As noted in our last Tesla focused commentary, the company still has a long way to go to meet its milestone of producing upwards of 500,000 vehicles across all model lines on an annual basis by 2018. There are many areas all along the supply chain that could prove to be weak links, not to mention the steep ramp-up needs for both the battery gigafactory and the Fremont facility.

The market stakes are high, along with the rewards. In the end, the supply chain, including product management and manufacturing will serve as the critical enablers to Tesla’s bold expansion plans.

 

Bob Ferrari

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

 


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