Supply Chain Matters has in the past cited Andrew Liveris, Chairmen and CEO of Dow Chemical Company for his understanding and appreciation for the value and contribution of manufacturing and supply chain capability to business outcomes. Besides his current leadership of Dow, Mr. Liveris is an author and U.S. Presidential advisor on manufacturing competitiveness. In a September 2013 commentary, we highlighted his keynote delivered to the MIT Production in the Innovation Economy (PIE) Conference which unveiled results of MIT’s study on U.S. manufacturing competiveness.
Thus we were pleased to be alerted to a commentary appearing in the online version of Chief Executive Magazine where Mr. Liveris shares his winning formula for manufacturing success with other chief executives. His prime messages was for manufacturers to rethink the role in evolving global supply chains and actively address workforce training and development needs for today and the future.
One of the more powerful statements brought out in this interview article deserves highlighting:
“Entrepreneurial action and its ability to pivot, according to the world we face, is one of America’s greatest attributes. Manufacturers, for far too long, did not really display agility when global competition disrupted supply chains. We are in a different world. We’re traveling at the speed of flight. We are so connected to the information age without realizing that we’re still at the dawn of it. The smarter companies have figured out their place in the global supply chain and have adjusted their service and product models accordingly.”
Those statements are rather powerful when considering that they come from a CEO. They reflect the new awareness to supply chain’s contribution. Within his own industry, Mr. Liveris points out that of the top 20 global chemical manufacturers in 1990, 17 disappeared by 2010. Dow prevailed because of its ability to pivot to dramatic market changes.
A further pearl of wisdom:
“Manufacturing today means you’ve got to innovate faster than they commoditize you.”
On the all-important skills challenge:
“The biggest issue we have is training a new skilled workforce to deploy against that value add, and for me, that is the key topic in manufacturing today. We need technically trained people at the German skill level, in automation, robotics and fine-precision manufacturing. This is the world that we’re in today and we’ve got to adjust to it, and frankly that’s what I spend my time on.”
From our lens, there needs to be many more global manufacturing firm CEO’s possessing the wisdom of Andrew Liveris, one’s that understand that supply chains and manufacturing capabilities do matter.
In a previous Supply Chain Matters commentary focusing on aerospace focused supply chains, we brought forward how the voice of commercial aircraft customers is growing ever larger. Influential customers and industry observers are increasingly indicating that both Airbus and Boeing should be focusing more on delivery commitments on existing new aircraft rather than indicating intentions to develop even newer technology-laden aircraft models. Among strategic plans for both of these aerospace global leaders are efforts towards added investments in supply chain capabilities including long-term strategic supply or added production capacity.
A recent published report by Reuters featured on Yahoo Business provides the perspective of Boeing’s chief of airplane production programs on efforts underway to ramp-up production specifically that related to Boeing’s cash cow, the iconic 737 aircraft family. This specific single-aisle aircraft is especially important since it is today’s workhorse of the termed lower-cost, budget airlines such as Ryanair or Southwest Airlines, that are growing faster than long established carriers.
In the article, Pat Shanahan, Boeing’s Senior Vice President for Airplane Programs indicates that his company is not only well positioned to scale-up 737 production rates, but learning from past mistakes. He further points to needs for an integrated plan that includes not only internal manufacturing but the broader supply chain. An important quote: “When I think about the mistakes we made back then (referring to 1997), we didn’t have an integrated plan that included the supply chain.”
In 2014, Boeing increased 737 model production to the rate of 42 aircraft per month, which was up from the 38 per month level experienced in 2013. Current plans call for production of this popular single-aisle aircraft to ramp to a rate of 52 per month by 2018, along with a transition to a the newer 737 MAX model version. Besides the 737 family, Boeing has additional plans to ramp-up monthly production volumes of the 787 family from the current level of 10 per month. The Charleston South Carolina facility now serves as a second production facility for the 787.
Boeing is not alone in these efforts.
Airbus who produces the rival A320 aircraft currently matches the 737 output of 42 aircraft per month has ramp output to 46 per month this year, and 50 per month by 2017.
Within the article, Mr. Shanahan outlines a risk-based approach for evaluating the readiness of the integrated supply chain. Unfortunately, there are not a lot of specifics related to people, process and information technology enablement specifics being addressed, but that seems to be par for the course when two high-profile, highly competitive aerospace companies attempt to outpace themselves in product development and operational execution capabilities. In some cases, both of these producers share common suppliers of components and technologies.
From our Supply Chain Matters lens observing both of these aerospace giants for the past eight years, it is clear that efforts towards major global supplier-based product development, outsourcing and supply chain risk mitigation have brought painful, but important learning on the importance of total supply chain wide visibility and fulfillment synchronization. We recall the vivid images of multiple fabricated 737 fuselages sitting on the banks of a river after a rail derailment.
Both now take a far broader view of operational capabilities that umbrella both internal manufacturing and the global, end-to-end supply chain.
A recent commentary appearing on the investor site, The Motley Fool, Are Boeing and Airbus Building Too Many Jets, calls to question the delicate balance for investing in too much production capacity if a bust in airline demand occurs sometime in the next few years. This commentary cites Boeing’s 2014 Current Market Outlook projecting existing demand for over 25 thousand single-aisle aircraft over the next 20 years. That is obviously a lot of airplanes and accordingly works out to and annual sales and production rate of over 1200 aircraft per year for all manufacturers. Noted in the commentary is that within a few years, Airbus and Boeing will likely be producing close to or exceeding this average volume. Hence, there is fear by investors of potential overcapacity.
As noted in our prior commentary, senior management at both of these major aerospace firms cannot rest on the laurels and enviable position of having 8-10 years of product demand backlog. A very delicate balance involving even more product development, investing in supply chain and production capability and satisfying today’s Wall Street’s more short-term focused investor expectations, has such executives, and their supply chain and manufacturing teams, constantly challenged.
Customers require new aircraft orders be delivered on-time to meet business growth, efficiency and productivity needs while investors require higher investment returns and profitability. We all know that in a ten or even twenty year horizon, many business and market assumptions can change, sometimes dramatically. Who would have believed five years ago that the price of crude oil would drop below $50 per barrel?
It is a delicate balance and aerospace supply chain ecosystems and internal supply chain and product development teams sit in the middle of this dynamic.
A Sudden CEO Leadership Change at Honda and Another Reinforcement of the New Product and Operations Grounded CEO
In the wake of continued challenges involving quality glitches and mass product recalls, Honda Motor Company announced today that is current CEO will step-down in June to make way for a new breed of leadership.
Takahiro Hachigo, a trained engineer and currently a managing officer within China, will replace Takanobu Ito as president and CEO in late June. Mr. Ito has led Honda since 2009, at the height of the global recession.
According to reporting from The Wall Street Journal, this executive leadership change comes at a critical juncture for Honda, which is being challenged by Nissan Motor for the number three brand leadership for the U.S. market, and amid continued product recall actions involving airbag inflators produced by supplier Takata Corporation. Honda has been one of the brands most affected by the defective airbag inflator quality crisis, and in October, top executives took on salary cuts to demonstrate responsibility for quality problems.
Reportedly, company insiders were taken by surprise by the timing of this announcement, and the choice of a younger executive promoted over those executives expected to be considered as the next Honda CEO. The global auto company further indicated that several directors who ranked higher than Mr. Hachingo would retire. In a released statement, Mr. Ito stated: “Honda is ready to make a new leap forward. To do this, Honda needs to be led by a new, younger team.”
Mr. Hachigo’s experience includes stints in product design, production operations, and procurement, which provides yet another example of a trend for new senior management appointments involving executives with product and supply chain management prowess. According to Honda’s announcement, Mr. Hachigo’s previous experience includes roles as a vice-president of Honda Motor Technology- China, representative of development, purchasing and production- China, president and director of R&D in Europe, general manager of the Suzuka manufacturing facility production operations , general manager of purchasing and vice-president of R&D in the Americas.
This resume adds further evidence of the new importance of global-based experience, including operational experience within China.
In December of 2014, BMW appointed new replacement CEO Harold Kruger, with a background in operations, engineering and manufacturing. A year earlier, General Motors rocked the global automotive industry by appointing the first ever female CEO, Mary Barra, who had risen through the GM ranks in roles in manufacturing, engineering, product design and other leadership positions. Mrs. Barra has since experienced a baptism of fire involved in GM’s massive product recall incidents.
This trend extends beyond the automotive industry, with product management and supply chain experience in the current CEO’s of Apple, Home Depot, McCormack Foods and other firms large and small.
There is an adage that one data point is interesting, two consistent data points are more interesting and three or more consistent data points is obviously a sign of a trend. For the global automotive industry, the new trend for senior management is showing a common denominator for sensitivity and grounding in product design, operations and global supply chain management leadership.
The year 2015 may well be a watershed year as this new generation of product design and operations background CEO’s continue to take the leadership helm. For global supply chain ecosystems across the automotive industry, these are, by our Supply Chain Matters lens, encouraging signs.
© 2015, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.
In the previous Supply Chain Matters commentary, we called attention to Procter & Gamble’s latest challenges related to strong currency headwinds and the need for more agile business and supply chain strategies. Today, the Wall Street Journal published an added byline article related to P&G’s ongoing challenges, specifically David Taylor, the reported senior executive who has emerged as the top contender for the ultimate CEO position at P&G. As we have pointed out in other commentaries, this path to the CEO role includes a background of supply chain operational experience.
According to the article, Taylor began his 34 year career at P&G as a production manager that produced diapers and sanitary napkins. By his early thirties, he was a plant manager. Then there was a career twist. Sensing the P&G corporate culture, Taylor ascertained that the road to broader P&G leadership responsibilities needed to include sales and marketing experience. Taylor elected to abandon his plant manager role, and opted to an entry-level assistant brand manager for the Pampers brand.
The rest is obviously a stellar executive track record rising in the ranks of marketing. In 1998, Taylor departed for China to oversee haircare, tissue and paper towel business along with antic-counterfeiting initiatives. In 2001, he assumed a Vice President role in Geneva overseeing P&G’s family care brands. In 2003, he returned as Vice President of family care for North America and by 2005 was running the global business. Taylor is credited with making the rather difficult decision to shed P&G’s pet food business.
On February 1, Taylor will assume leadership for P&G’s overall beauty businesses and according to the WSJ, will become responsible for 43 percent of P&G’s overall sales and nearly half of its profits.
We however want to highlight for our readers, the most revealing portion of this WSJ article:
“Current and former colleagues say the complicated balancing act of managing the machinery and employees inside manufacturing plants has given Mr. Taylor superior leadership and interpersonal skills”
The takeaway for our readers, especially young aspiring students, is that even if a corporate culture values the path toward senior leadership primarily from a background in sales, marketing or even engineering, operational and supply chain focused leadership skills do indeed provide important competencies. If Mr. Taylor ultimately is chosen as P&G’s next CEO, he will bring such skills and understanding of supply chain to that leadership role.
We have noted such supply chain experience in the current or soon to be CEO’s of Apple, BMW, Home Depot, McCormack Foods and other firms large and small. Supply chain experience can indeed provide a path to top. Skills developed either in baseline leadership, cross-functional and cross-business leadership, operations, supplier or product management lend themselves to broader management skillsets, particularly when such experience spans multiple global assignments.
Thus, for our student readers, take comfort in the continual evidence that skills acquired in supply chain focused roles do matter for career progression.
Throughout the summer and especially in September of 2014, we featured a number of Supply Chain Matters commentaries reflecting on yet another series of Apple supply chain product introduction ramp-ups, and specifically whether the Apple supply chain ecosystem and its internal supply chain teams could yet again pull rabbits out the hat proverbial hat and deliver on business expectations for the all-important holiday fulfillment quarter.
Specifically in our mid-September commentary we noted:
“Over the coming weeks, as the marketing and sales machine cranks-up consumer motivations to buy, the supply chain will deal with the realities of limited supply, production hiccups and product allocation conflicts among various channels that invariably come up in such situations.”
We further declared:
“While some supply chains are challenged with collaborating with sales and marketing on stimulating and shaping product demand, Apple has the current challenge of meeting very high expectations involving an outsourced supply network with many moving parts. They have pulled miracles in the past, and the stakes get even higher.”
Yesterday after the stock market close, Apple announced financial results for its fiscal first quarter ending in December, and the results were staggering, along with the business headlines. The Wall Street Journal headline story today was titled: Apple Delivers Quarter for the Ages.
Apple reported net income of $18 billion for the quarter, was described as more than 435 of the companies within the S&P 500 Index each made in total profits. But the supply chain headline was fulfilling all-time record customer demand for 74.5 million new iPhones. This was up 46 percent from the same holiday fulfillment quarter a year ago, reflecting a lot of pent-up upgrade demand for the new iPhone6 models. In its reporting, the WSJ equated such volume output to more than 34,000 phones per hour, around the clock.
Gross margin was reported as 39.9 percent, nearly two percentage points higher than last year’s similar period. Once more, average sale volume for the iPhone increased to $687, nearly $50 higher than a year ago.
Apple also managed to double its iPhone sales volumes within China during the quarter despite delayed availability slipping to mid-October from the scheduled simultaneous September product launch.
Readers who followed our Apple commentaries should recall that the iPhone6 incurred its own set of production ramp-up challenges including a last-minute design change involving its larger screen displays. There was the usual production yield challenges associated with the fingerprint scanner and with the LCD displays themselves. We called attention to a TechCrunch report that cited sources in September indicating that Apple had already contracted air freight capacity anticipating to flood channels with last-minute shipments.
All was not spectacular news regarding Apple’s latest performance. Sales of the iPad were reported to be down 18 percent from the year ago period. The long-anticipated iWatch availability has now slipped to April of this year. However, these do not take away from the extraordinary performance of the Apple supplier ecosystem, and in particular, its contract manufacturers who had to successfully support the four month production and fulfillment ramp amidst the production challenges.
The Apple supply chain did indeed again pull rabbits out the hat. It performed to enable an expected business outcome, despite operational challenges.
We extend our Supply Chain Matters Tip-of-the Hat recognition for such performance. Let’s hope that the supply chain ecosystem will share in similar financial rewards.
In the commercial aerospace sector, both Airbus and Boeing both declared that they each exceeded operational targets for 2014. However, the supply chain ecosystems for each of these manufacturers have continual challenges to perform even better in the months to come.
Today, Airbus announced that it achieved a new record of 629 aircraft deliveries in 2014, representing an increase for the 13th consecutive year. That compares to the 626 aircraft delivered during 2013.
The breakdown of deliveries consisted of:
490 A320 model aircraft
108 A330 aircraft
30 A380 super jumbo aircraft
Initial A350 XWB to launch customer Qatar Airways
Airbus was challenged at the last minute in delivery of the launch A350 but overcame issues of customer customized equipment needs to make its 2014 milestone.
On the inbound customer demand side, the aerospace provider booked 1456 net orders from 67 customers making its year-end backlog to be 6386 aircraft valued in excess of $919 billion. If the Airbus supply chain were to continue to support and sustain its current shipment volume performance, the current order book represents in excess of 10 years of production.
Airbus program development highlights in 2014 included the maiden flight of the rather popular A320neo which is currently scheduled for operational certification in Q3, and first customer delivery in Q4 of this year.
Last week, Boeing announced that it had achieved delivery of 723 aircraft, a record for the most commercial aircraft delivered in a single year. That compares to 648 aircraft delivered in 2013. The breakdown of deliveries included:
485 737 program aircraft
99 777 program aircraft
114 787 Dreamliner program aircraft including the first 787-9 launch model.
Similar to Airbus, Boeing was challenged with December deliveries of 787’s and other wide body aircraft because of a supplier shortage of premium seating. All three of Boeing’s final assembly facilities each set new milestones for aircraft delivery volume. On the inbound side, Boeing booked 1432 net orders bringing its year-end backlog to 5789 aircraft, a declared all-time high. The company recorded 1355 net orders in 2013. If the Boeing supply chain were to continue to support current shipment volume, the current order book represents in excess of 8 years of production.
Boeing program development highlights included the launch of the 787-9 in 2014 and the planned assembly of the first 737 MAX scheduled for this year.
No doubt, the supply chain and product management teams and ecosystems of both Airbus and Boeing went the extra mile in successfully achieving each of the 2014 operational milestones. We extend our Supply Chain Matters Tip of the Hat recognition for their efforts, and hopefully, bonus goals were achieved and compensated.
Moving forward, 2015 brings expectations of even greater operational performance coupled with the needs to scale-up delivery cadence to even higher levels. As noted in a previous commentary, commercial aerospace supply chains exist in good and not so good news realities. All of the current backlogged customer orders need to be delivered to airline customer expectations for timing, anticipated reliability and performance. Once again, there is a very strong reliance on the performance of the extended supply network and in solid operations and risk management.
Congratulations to all.