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Interview Highlights: The Intersection of Supply Chain Design and Operations Implementation

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Today’s constantly changing business needs have dynamic implications in supply chain management, for product and services focused supply chains. One of today’s more important challenges relates to what companies can do to ensure that changes across supply chain networks are integrated to operations plans and strategies.

Professor Yossi Sheffi, founder of the MIT Center for Transportation and Logistics (CTL), recently noted in a commentary featured on Supply Chain MIT and LinkedIn the following: “An area where (supply chain) agility is sorely needed is distribution. Logistics networks are constantly being reconfigured in line with changing market conditions.” Professor Sheffi goes on to indicate that the pace at which networks are reconfigured will continue to increase as new innovations emerge, particularly as supply chains support combined discrete product and service package needs.

To further explore this challenge, Supply Chain Matters recently interviewed two executives at supply chain consulting firm Chainalytics.  Vice President Steve Ellet leads the Supply Chain Design Practice focusing on applying large-scale optimization and simulation models to strategic and tactical supply chain network planning. Vice President Irv Grossman leads the Supply Chain Operations Practice where he is responsible for the delivery of services related to service supply chains, encompassing reverse logistics, after-sales service, and service-centric networks.

The following is a summarization of our discussion.

 

Q: How often should an organization be reviewing the supply chain network design plan?

Our conversation noted that supply chain network design is no longer a one-time exercise. There is a constant need to keep the supply chain network model refreshed to reflect current supply chain process activities. Strategy changes are occurring all of the time. Merger and acquisition, addition of new customers or required changes to customer fulfillment needs all can impact the network. Organizations need to have the model up and ready to be able to assess the implications of such changes.

Indeed, supply chain network design is no longer an annual or periodic exercise, but rather an active tool for strategic, tactical and operational assessment. Supply chain network design technology has become more and more mainstream for many teams.  However, such models do require ongoing expertise and continuous refresh. Teams need to know what they are doing, and that is where a specialist comes into play.

In the specific area of B2C and retail focused supply chains, further consideration are the rapidly changing implications on Multi-Channel or Omni-Channel commerce where for instance, retail stores have become customer fulfillment centers or DCs service both cross-dock distribution, online fulfillment or direct ship needs.  Retailers trying to manage two separate networks, one for brick and mortar and one for online, may well be sub-optimizing supply chain network capabilities. Retailers for the most part are just beginning to internalize such implications and these are important changes that need to be reflected in supply chain network design and fulfillment strategies.

 

Q: What should teams specifically be reviewing? Should supply chain network design be utilized as a means to evaluate different alternative business scenarios?

Noted in our discussion is that this is an area where Chainalytics consultants help all the time. Some supply chain decisions are constant, some are periodic and others ad-hoc. Teams need to be up-to-date with current data regarding the network. Transportation or fuel costs are changing constantly, coupled with changing key customers and suppliers. Each should be incorporated in the network model on a timely basis.

Certain tactical decisions that are easy to implement or do not require expensive capital can be continually evaluated with a vibrant supply chain network model. Examples may be moving a fulfillment site for supporting a key customer, adding a new production line, altering distribution patterns to reflect an expected product demand spike. Decisions focused on entering a new market, closing or adding a new facility are less frequent, but have considerable implications financially and otherwise. Models therefore can be configured so that data that is constantly changing is reviewed on an ongoing basis while other, more strategically focused network needs are reviewed periodically based on a particular business need. A decision as to whether to acquire another business or enter a new market can be quantifiably assessed as to impact on the current supply chain network.

The important tenet is that the network model provides a singular information reference point to depict profiles and changes, and is continually being refreshed.

Outside consultants add value when firms lack the knowledge for knowing what specific metrics to assess and how to represent them in a foundational network design. At what point does current supply chain performance imply an analysis of the current network to uncover bottlenecks in capacity, significant cost or service degradation? An experienced analytics team can help assess when it is time to evaluate or recommend needed changes.

 

Q: What best practices does Chainalytics recommend for clients to assure continuous supply chain network design processes are integrated into existing planning and operations proceeses?

Both Steve and Irv pointed out that performing a one-time large-scale network design consulting engagement is becoming less common in favor of ongoing assessments that make network modeling a continuous process that is part of the fabric of decision-making support tools. This makes it easier to assess network changes when constant business change becomes the norm.

Further brought out in our discussion is that change management competencies have become much more important for the network analytics team. Who is involved, who is brought in to assess various network scenarios, and how senior management becomes comfortable with recommendations from network design teams becomes integral to ongoing business planning and are now aspects of this change management component. While the analytics team has confidence in the results of network optimization, transference of that confidence to the broader business team to support such recommendations is often a stumbling area that is implied in change management.  Chainalytics has advised clients on implementing a model value assurance scorecard process to assist in these efforts.

Q; Are there special considerations for service focused supply chains?

Service-focused supply chains are somewhat unique in that demand patterns are different, driven more from location of equipment, service facilities, or customer installations. There tends to be a lack of understanding on the overall elements and cost structures of the end-to-end value-chain network. Supply network changes constantly impact services businesses and, according to Ellet and Grossman, such supply chains can indeed benefit from use of supply chain network modeling to add more intelligence and context to decision-making. Consider that sometime in the not too distant future, parts or components can be produced by 3D printers located within key physical areas of the value chain.

While this segment has admittedly been slower than product-focused supply chains in the adoption curve, there are proven benefits.  As an example, Chainalytics consultants have conducted previous network design and operations projects for an automobile parts distributor, a natural gas utility modeling the placement of service crews and parts, and a beverages supplier needing a model for network dispensing equipment with periodic maintenance and other needs.

In summary, today’s more dynamic clock speed of business change warrants consideration for continuous use of supply chain network design modeling, integrated with operational decision-making. We would like to thank both Steve Ellet and Irv Grossman for speaking with Supply Chain Matters on these important capabilities.

Bob Ferrari

Disclosure: Chainalytics is a client of the Ferrari Consulting and Research Group LLC.

 


Another Reported Work Stoppage Incident at Amazon’s German Fulfillment Centers

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Supply Chain Matters has been continuously alerting our readers to the ongoing labor disruption incidents occurring at Amazon’s customer fulfillment centers located across Germany, with implications to other global regions. The last reported work stoppage involving German based fulfillment centers occurred at the height of the 2013 holiday buying period, obviously strategically timed to capture the attention of Amazon management. Labor union officials vowed to continue with protest efforts.

The Wall Street Journal reported that yesterday, hundreds of German workers again walked off the job and staged an all-day strike at the Amazon fulfillment centers in Liepzig and Bad Hersfeld. According to this report, at day’s end, Amazon estimated that less than 650 workers among both locations took part in this work stoppage and customers were not affected. This was reported to be the second work stoppage incident thus far in 2014.

The issue involves an ongoing dispute as to whether temporary or full-time workers at Amazon’s German facilities should be classified as retail and catalog workers, which garners a higher pay scale in Germany. German labor union Verdi has been targeting Amazon, and had previously organized a number of other work stoppages in 2013 which included four continuous weeks of work stoppages that occurred in mid-June. Verdi has since garnered solidarity support from a number of U.S. labor unions in this ongoing protest effort.

In early January, the first-ever union election was held among technical workers at an Amazon warehouse in Middletown Delaware, but was unsuccessful when election ballots were counted.

As we have previously opined, labor unions continue to target high visibility global B2C retail customer fulfillment firms such as Amazon or Wal-Mart. During the highly promoted 2013 Thanksgiving and Black Friday shopping days, workers at a number of U.S. based Wal-Mart retail stores staged an organized protest.

Because these firms operate within high volume, dynamic and seasonality driven environments labor requirements are often flexed based on volume, while a core group of workers is retained to support defined steady-state fulfillment needs. Supply chain operations and fulfillment teams in these B2C environments seek maximum flexibility in labor costs and workers are increasingly becoming more interested in seeking a more influential voice in such compensation and hiring practices. At the same time, Amazon’s reported initiatives in developing and deploying advanced robotics within fulfillment centers along with drones for delivery does not help in calming such agitation. That continues to attract the attention of organized labor and these types of incidents targeted to the most visible industry players will obviously continue.  At some point, there will have to be a meeting of minds since a pure anti-union stance does not bode well in today’s era of social media amplification of headlines.

The “Amazon effect” has many faceted dimensions.

Bob Ferrari


India Based Ranbaxy Laboratories Acquired- Quality Conformance Remains an Issue

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Supply Chain Matters has featured multiple commentaries citing India based generic drug producer Ranbaxy Laboratories. Our latest commentaries were in a specific posting in late January and in an India based industry regulatory commentary published in February.

Thus, we were not at all surprised with this week’s announcement that Japan based Daiichi Sanko Co. the parent of Ranbaxy, has agreed to sell the generic drug manufacturer to India based Sun Pharmaceutical Industries Ltd. in a deal reported to be valued at $3.2 billion in a mostly stock-based deal. This transaction is expected to be completed by the end of the year.

The U.S. market accounts for a significant amount of Ranbaxy’s current revenues, while the U.S. Food and Drug Administration (FDA) currently bars imports from four out of five Ranbaxy production facilities in India due to inspectional findings. According to a report published by the Wall Street Journal, after a five year effort, Daiichi Sanko retreated from the expensive efforts to attempt to fix Ranbaxy’s drug-producing processes. Daiichi acquired Ranbaxy in 2008 for $4.6 billion. FDA warnings and citing’s continued throughout this entire period. The CEO of Daiichi indicated to the WSJ: “The deal will help accelerate a solution to the series of problems at Ranbaxy.”

A reflection on the broader picture, however, remains on the issue of production conditions across India based pharmaceutical facilities.  A report published by Reuters points out that India’s drug inspectors are hard pressed to oversee current drug production facilities. An India based drug official indicates to the Reuters reporters that there are 1500 inspectors responsible for more than 15,000 drug manufacturing facilities. Inspectors lack vehicles to travel to sites with reports that some inspectional practices are ignored. A study carried out two years ago concluded that one in every twenty-two locally made samples was of sub-standard quality. According to the Reuters report, about 40 percent of generic and over-the-counter medicines sold in the United States originate at over 500 India based production facilities. While facilities are barred by the FDA from shipping to the U.S., they typically ship to other global locations.

A follow-up report published by the Wall Street Journal (paid subscription) quotes workers and former employees of Ranbaxy as indicating “they received little training and were instructed to keep production going, even if that meant cutting corners.” One former maintenance technician at Ranbaxy’s Toansa plant indicated that he often signed blank documents which were filled in with information later to appear that equipment has been inspected. However, the WSJ cites former and current FDA officials as indicating that Mumbai based Sun Pharmaceutical has a better reputation for quality. However, in March, the FDA barred imports from a Sun API plant in Gujarat.

On her visit to India in February of this year, FDA Commissioner Margaret Hamburg was diplomatic, indicating that a few India based drug manufacturers have been overshadowed by recent lapses in quality at a handful of pharmaceutical firms. The Reuters report seems to dispute that statement. Dr. Hamburg further indicated that officials at India’s Ministry of Health and Family Welfare share this goal and both agencies plan to work together to improve lines of communication and diligently work to ensure drug products exported from India are safe and of high quality.

With the proposed combination of Sun Pharmaceutical and Ranbaxy, the two India based generic drug producers when combined providing even more global scale, it would seem that the urgency among broader industry and India government regulators should be raised to aggressively address systemic production process issues and support strict adherence to published global Good Manufacturing Practices. Both domestic India drug consumers as well as global drug consumers expect such practices, and the reputation and brand value of India’s drug makers is clearly at stake. The Indian government is not the sole answer, rather India’s collective drug producers as a whole need to step-up their priorities.

 


Supply Chain Matters Highlights of the MIT 2014 Crossroads Conference

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Supply Chain Matters had the opportunity to recently attend the 2014 Crossroads Conference hosted by the Massachusetts Institute of Technology (MIT) Center for Transportation and Logistics (CTL). Crossroads is an event that began 10 years ago, and each year we look forward to attending and hearing about leading-edge trends and developments in MIT supply chain focused research and across industry supply chains.

Each year, the agenda shifts in focus and the 2014 conference featured talks on advanced and emerging research occurring among select MIT faculty members.  The conference was kicked-off with a presentation from MIT Professor Suzanne Berger, principal author of the book, Making in America, From Innovation to Market. Professor Berger summarized the multi-year research conducted by the MIT Task Force on Production and Innovation. Supply Chain Matters has previously posted our summary of last year’s event that reported on the findings from the MIT PIE Task Force. None the less, the messages continue to have meaning.  MIT researchers studied and interviewed over 250 manufacturing start-up firms located in the United States, Germany and China. The principle takeaways summarized by Professor Berger were:

  • Industries do require close ties and integration among R&D, product design and manufacturing.  The MIT researches identified a meaningful pattern of successful firms that demonstrated specialized expertise in physical manufacturing bundled with specific customer-focused services.
  • Of the 250 manufacturing start-ups that were analyzed, most were able to gain funding for initial product design and concept in the first 3 years of the start-up. None were able to scale-up to full volume production in the United States because of the large dollar and process expertise investments required to scale. Industrial ecosystems that were once provided by industrial giants have moved outside of the United States, primarily in Germany and China. While 85 percent of advanced process and material research had roots in an academic institution such as MIT, most migrated to other global areas and according to the researchers and the U.S. continues to lose out on commercialization expertise. Professor Berger joked with the audience that the book could have be renamed to be “Home Alone”.
  • U.S. companies have huge pressures from Wall Street for shedding overall assets and focusing on short-term vs. longer-term focused results.
  • On the positive side, researchers cited existing U.S. public and private consortiums and partnerships as having a rather positive influence in providing needed expertise and infrastructure to sustain innovative manufacturers.

 

A rather sobering presentation, Is Cyber Security the Next Risk, was delivered by Dr. Abel Sanchez, Executive Director of the MIT Geospatial Data Center.  Sobering is probably an understatement because Dr. Sanchez provided mind-blowing examples of how easy it has become for unscrupulous parties to hack corporate systems today. We are not going to cite the specific statistics in our commentary from concern that such data would become more visible.  Suffice to state that the often cited statistic that 50 billion connected devices will exist by 2020 has to be factored against much stronger information security techniques.  Dr. Sanchez noted that an internal experiment was conducted within MIT when a single laptop with no security controls, was connected to the internal network for a 24 hour period. A visualization representation of the specific attacks that occurred from all parts of the globe on that single laptop in just that 24 hour period was sobering. Dr. Sanchez’s observation was that for the most part, corporations are not allocating sufficient attention or resources to address information security. Sanchez further pointed to the recent massive credit card security breach that occurred across Target retail stores as a potential benchmark for ascertaining corporate, government and personal security responsibilities.

Other highlights of the 2014 Crossroads event included a presentation from Professor Julie Shah of the MIT Interactive Robots Group depicting factories of the near-future, where robots and humans will work together interactively on flexible work sequencing and scheduling of assembly tasks.  The next-generation of robots will be responsive to high-level guidance from humans, and Prof. Shah outlined how assembly work can be coordinated among multiple robots in the not too distant future in applications such as aerospace, automotive or consumer electronics assembly manufacturing. MIT Self-Assembly Lab Director Skylar Tibbits provided insights into 4D Printing application concepts, where the emphasis shifts from the printer to essentially programmable, super high density or molecular “smart” materials which form desired shapes based on individual material properties. In his overview, Tibbits described the notion of materials that can assemble or repair themselves in application areas such as aeronautics, medical devices, pharmaceuticals and other area in the coming 5-10 years.

As always, Crossroads was a thought provoking conference focused on the future concepts of supply chain technology and processes.

Bob Ferrari


Boeing Announces Q1 Delivery Performance for Commercial Aircraft: The Good and Not So Good News

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Boeing has announced the results of new commercial aircraft delivered in the first quarter, declaring the deliveries rose 18 percent from year earlier results. That headline seems to be somewhat of a misnomer.

First quarter 2014 deliveries included 161 commercial aircraft compared with 137 in Q1 of 2013.  The misnomer is that all operational and in production 787 aircraft were in a grounded condition a year ago pending FAA investigation of suspected lithium ion battery fires, thus a comparison to last year’s Q1 has little meaning. Boeing re-started 787 deliveries in early May of last year. 

Boeing delivered 18 new 787’s in Q1, a shortfall of the company’s planned 10 aircraft per month goal. That compares to 25 new 787’s delivered in Q4 and a continued sign of production and other supply-chain problems associated with the Dreamliner. On the positive side, Boeing delivered an incredible 115 new Next Generation 737 aircraft in Q1.

Supply chain glitches or issues involving the 787 have been ongoing. In early March, there were reports that inspections were being conducted for suspected hairline cracks on 43 yet to be delivered Dreamliner’s because of potential flaws in a manufacturing process concerning supplier Mitsubishi Heavy Industries. In late March, the FAA issued its fourth airworthiness directive involving the 787-8 model, ordering an immediate fix to aircraft containing certain General Electric power plants where a suspected software glitch could cause the engine to lose thrust when close to landing. There have been other reports indicating that Boeing has experienced some difficulties in ramping-up overall production volumes at its Charleston South Carolina final assembly facility, prompting a hiring surge to augment the existing workforce there.

Currently operational 787’s with GE engines are cautioned not to fly through severe thunderstorms after reports of some ice build-up incidents. In early February there was a report that Boeing was continuing to pressure suppliers for cost concessions and one major supplier, Sprit Aero Systems reported significant pretax charges for the final three months of 2013, including $385 million directly related to work performed on the 787.

Boeing’s stated goal for 2014 is to deliver 110 long overdue Dreamliner’s to airline and leasing companies, roughly 27-28 per quarter. Q1 was obviously not what the 787 supply chain ecosystem wanted in performance and bar has risen for Q2 and the remainder of the year.

In an era of high customer expectations and pay for operational performance, Boeing needs to quickly shift its 787 supply chain objectives from cost control to achieving and maintaining reliable delivery and operational performance for airline customers.


FAA Releases its Report on the Boeing 787 Dreamliner- A Consistent Theme

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In January of 2013, The U.S. Federal Aviation Administration (FAA) announced a thorough formal review of Boeing’s 787 Dreamliner aircraft after a series of incidents, including electrical fire incidents in both Boston and Japan occurred. Supply Chain Matters readers are well aware that the 787 has been the subject of multiple commentaries on this blog.

This week, the FAA finally released the results of that study.      

Boeing 787 first ship from South Carolina facility

Source: Boeing Website

 

The review team consisted of a team of engineers and inspectors from both the FAA and Boeing.  The report indicates that the 787 is soundly designed and that processes exist to identify and correct manufacturing issues. Media coverage has cited a specific report statement: “The global fleet’s reliability during the first 16 months of service was comparable to previous new Boeing models.” We suppose you can interpret that statement in a number of ways but from our lens, it does not seem to reference an industry-wide benchmark of reliability metrics for newly introduced aircraft.

Several recommendations and some concerns were also put forward in this report. The FAA was cited for relying too much on Boeing to ensure the safety of the 787 design and manufacturing processes. The Wall Street Journal reported that Boeing senior executives acknowledged that they lost some control of the manufacturing process because of the nature of the global supply chain, and placing too much reliance on suppliers for the overall quality of 787 components and systems.  The most comprehensive coverage we found was a report filed by The Seattle Times which provides broader insights from the FAA report. One statement cited was: “in some cases complete and accurate design requirements did not flow down from Boeing to its primary supplier and then to involved subtier suppliers” resulting in “communication and verification issues along the supply chain.” Boeing’s sometimes ambiguity in stating what was required of partners led suppliers to believe that they had met requirements.

From our lens, that translates to a lack of continuous two-way information linkages from design and product management to manufacturing and value-chain partners.

Another recommendation reported is that the FAA must step-up oversight of foreign and “high-risk” subcontractor facilities to insure that suppliers are fully aware of their responsibilities. 

Hmm… are all the above statements consistent with a theme of throwing suppliers “under the bus”?

Supply Chain Matters has not as yet had the opportunity to dive into the FAA report and we will reserve any other direct observations or viewpoints until we can do so.  However, there seems to be a very consistent pattern from Boeing regarding overall supplier management.

The detailed report can be downloaded from this FAA web link.

We welcome comments from readers residing in multiple tiers of aerospace supply chains on how they perceive these recommendations.

Bob Ferrari


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