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.
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.
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 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.
© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
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 Managers 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:
- Capacity /resource availability
- 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.
Report Card for Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains- Part Two
Industry supply chain teams continue to drive on achieving and enabling their various 2015 strategic, tactical, and operational line-of-business business and supply chain focused performance objectives. This series of postings is the opportunity for Supply Chain Matters to reflect on our 2015 Predictions for Industry and Global Supply Chains that we published at the start of this year.
Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008. Our approach is to view predictions as an important resource for our clients and readers, thus we do not view them as a light, one-time exercise. Thus, not only do we publish our annualized predictions, but every year in November, look-back and score the predictions that we published for the year. After we conclude the self-rating process, we will then unveil our 2016 predictions for the upcoming year.
As has been our custom, our scoring process will be based on a four point scale. Four will be the highest score, an indicator that we totally nailed the prediction. One is the lowest score, an indicator of, what on earth were we thinking? Ratings in the 2-3 range reflect that we probably had the right intent but events turned out different. Admittedly, our self-rating is subjective and readers are welcomed to add their own assessment of our predictions concerning this year.
In the initial posting of this Predictions Score Card series, we looked back at both Prediction One– global supply chain activity during the year, and Prediction Two– trends in overall commodity and supply chain inbound costs.
In this Part Two posting, we look back at predictions three and four.
2015 Prediction Three: Momentum for U.S. and North America Based Manufacturing Continues and Motivates Broader Investment Needs
Self-Rating: 2.8 (Max Score 4.0)
As we entered 2015, we predicted that the momentum for U.S. and North America based manufacturing would continue with discernible benefits for certain industries and countries. We further pointed to needs to broaden investments in industry supply chain value-chain ecosystems, tiered component supply chains as well as U.S. logistics and transportation infrastructure.
U.S. production and manufacturing activity reflected in the Institute of Supply Management (ISM) PMI Index indicated average growth activity in the first-half of 2015, but somewhat of a declining trend by the second-half of the year. A number of U.S. based manufacturers or brand owners revisited their global production sourcing strategies and re-shored. However, the jury is still out as to whether the trend reflects a substantial rebirth of U.S. manufacturing. Growth however seems to be driven by a smaller number of specialized industries and firms. A strong U.S. dollar created significant headwinds for U.S. based manufacturing costs making areas such as Asia and the Eurozone countries more attractive in raw material and component costs. That has deflected interests in the further building-out of North America based value-chain components.
On the transportation and logistics infrastructure front, in the first-half of this year, manufacturers and retailers continued to feel the effects of the U.S. West Coast port disruption, with holiday related imports and exports flowing in too-late to be sold, and generating lots of consternation on west port infrastructure and labor practices. U.S. East and Gulf Coast ports continued to invest in infrastructure to prepare for the opening of a widened Panama Canal in 2016 allowing more Asia sourced goods to transit direct to East Coast ports.
Manufacturing PMI activity for Mexico averaged 53.17 from 2012 until 2015, reaching an all- time high of 57.1 in December of 2012. In 2015, PMI activity has averaged 53.4 through October which reflects a steady as well as a higher pace than that of the United States. Many global manufacturers continue to invest in Mexico as the lower-cost alternative for satisfying North and Central America based demand. The Boston Consulting Group continues to maintain that the manufacturing costs among China and United States place Mexico as a more attractive alternative for certain direct labor intensive industries.
2015 Prediction Four: Internet of Things (IoT) Continues to Attract Wide Multi-Industry Interest but Challenges Need to be Purposely Addressed.
Self-Rating: 3.8 (Max Score 4.0)
Our prediction was that cross-industry interest levels surrounding products and services leveraging IoT would continue to attract wide multi-industry interest. Indeed, that high level of interest and investment continues, not only across manufacturing focused industries but in the technology industry as well. Research firm Gartner is now estimating that there will be 6.4 billion connected devices in 2016, growing 30 percent from 2015. The one clear testament to this trend was a statement by General Electric Chairmen and CEO Jeff Immelt who declared to his employees: “We went to sleep as a broad based manufacturer and woke-up as a software and analytics company.”
Our prediction further concluded that IoT would drive a further convergence among product and service focused supply chain planning, execution and product lifecycle management processes and that indeed is occurring as well. Many manufacturers continue to explore and deploy product strategies that incorporate both physical products with sensory based services and added intelligence.
Finally, our prediction was that the realities in the lack of consistent global-wide standards addressing data security concerns will provide visible challenges for broader industry deployments. Indeed, the technology vendor community has now recognized these concerns particularly in the light of continued large scale cyber-attacks and associated data thefts throughout 2015. Our recent coverage of this year’s Oracle Open World featured comments from Oracle founder and CTO Larry Ellison as declaring that the technology has not gone far enough in actively addressing data and information security threats and global-wide standards. More efforts will be required in order to insure continued large-scale investments in IoT related strategies and programs.
In our next posting in our look back on 2015, we will review Prediction Five reflecting on certain industry-specific challenges.
In the meantime, please share your own observations and insights regarding momentum in North America based manufacturing and Internet of Things during this year.
©2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.
The Wall Street Journal’s CIO blog (paid subscription) notes that today, the new CIO of General Electric begins work. Jim Fowler, the previous CIO of GE Capital, indicates that his first priority will be focused on helping GE build the Industrial Internet and demonstrate how this global diversified manufacturer has implemented Industrial Internet and Internet of Things (IoT) within its own factories.
GE anticipates that half a million applications will eventually be written for its Predix Industrial Internet platform. Further noted is that Predix based applications will generate more than $5 billion in revenues this year, and GE anticipates that the platform will be a $15 billion business by 2020.