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Next Week- Supply Chain Matters Attending ISM2017

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Next week, Supply Chain Matters in the presence of Founder and Executive Editor Bob Ferrari will be attending ISM2017 the annual conference of the Institute for Supply Management (ISM).ISM2017 logo 002 Next Week  Supply Chain Matters Attending ISM2017

This conference brings together a cross-section of global sourcing, procurement and supply management professionals in educational sessions and workshops. We attended this conference last year and we look forward to this year’s sessions. Our highlights from last year can be accessed here.

In readers are attending this conference, please seek out Bob in any of the networking or other sessions.  We certainly would be interested in hearing about your individual organization’s efforts in supply management efforts.

Stay tuned to Supply Chain Matters for Bob’s impressions and observations of this year’s conference.


Report Indicating the Assembly of the First iPhone in India

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In late January, we alerted our Supply Chain Matters readers to a report indicating that global smartphone and consumer electronics provider Apple was nearing a deal to manufacture its products locally in India. In March, we updated readers to a report from The Wall Street Journal that production could begin in a matter of 4-6 weeksiPhone 6 und 6 Plus 324 267 300x253 Report Indicating the Assembly of the First iPhone in India

The WSJ reports today that initial trail-run pilot production of the Apple iPhone SE model has now begun in Bangalore. (Paid subscription required) with devices scheduled to ship to customers across India this month.

Taiwanese contract manufacturing services provider Wistron is reportedly managing local manufacturing of iPhone6 and 6S smartphones from an existing production facility located in Bangalore, and longer-term plans include a production facility to be in the southern state of Karnataka. The report cites market research data indicating the smartphone ships across India grew 18 percent annually compared to 3 percent globally, thus making the country a very attractive growth market.

According to the latest report, domestic pricing for the iPhone SE still remains unclear, with speculation that Apple would want to maintain its gross margins.  Government officials in India are apparently pressuring for a lower domestic price.

The report again notes that the government of India is very supportive of an Apple manufacturing presence in the country, noting that it represents a sense of great pride for its citizens. Officials in the state of Karnataka are reported as eagerly cooperating to ensure that the future domestic manufacturing site means Apple’s needs.

We view Apple’s manufacturing strategy concerning India to be quite savvy, one that when completed, can provide a lot of market and supply chain benefits down the road. The key however, as always, will be Apple’s pricing and distribution strategy for smartphones managed in this country.

Bob Ferrari

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


Profile of the Airbus U.S. Commercial Aircraft Assembly Facility

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The New York Times Money Issue recently featured a profile of the Airbus factory in Mobile Alabama, complete with some stunning photo and video images produced with Samsung technology.

This profile provides evidence of Airbus’s extended global value-chain along with the overall logistics and transportation required to supply the relatively new U.S. aircraft assembly plant. As an example, completed major Airbus A321 aircraft components are loaded on a ship for transit to the Port of Mobile.

The profile provides other important observations, namely:

  • Airbus saves little money by assembling commercial aircraft in the U.S.- the move is more about competing in large markets where the planes are sold and in the notion of demonstrating to the U.S. government a commitment to the economy.
  • Lower wage rates across the Southern U.S. helped in the decision to source the plant in Alabama.
  • Airbus reportedly secured $158 million in state and local incentive benefits regarding the U.S. commercial aircraft facility including publicly funded training of factory workers.
  • Upwards of 20 Airbus suppliers have reportedly opened offices near the Alabama facility.

We highlight this interesting profile for the benefit and enjoyment of our Supply Chain Matters readers.

 


Apple’s iPhone Supply Chain Begins Ramp-up for the Big Release

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Several published reports are indicating that Apple’s supply chain is now gearing-up for the release of the new family of iPhone models later this year.

Asia based DigiTimes recently reported that semiconductor fab producer TSMC has received orders from Apple for production of the next generation 10nm A11 processor chip that will be included in the new models. The report cites sources as indicating that production was once affected by issues involving stacking components in the backend integrated fan-out packaging process, but have subsequently been resolved. The open question is when TSMC will be able to support full-scale chip production. Citi analyst Roland Shu has indicated that volume production is expected by July.

The South China Morning Post reports that Foxconn has been designated by Apple to be the sole contract manufacturer for the planned top-of-line model also due out  later this year. This most expensive and full-featured iPhone Pro model is reported my multiple sources to include a 5.8-inch light-emitting diode (OLED) touch screen, 3D facial recognition, front and back glass casing and augmented reality applications. There are indications that the Pro model could retail in the $1000 range.  According to the report, Foxconn was selected as prime manufacturer for the Pro because of its demonstrated experience in this CM’s ability to ramp-up Apple’s more complex new products.

The MacRumors site features a chronicle of all three of the rumored iPhone 8 models, including features and functions.

Other CM’s mentioned for the other planned model variations are Pegatron and Wistron respectively.  Supply Chain Matters is of the belief that this upcoming iPhone 8 model cycle will the largest test to-date of Apple’s supply chain segmentation strategy, specifically the three CM’s and the suppliers feeding component parts.

Other suppliers mentioned in the report include:

  • Samsung Electronics for the OLED panels.
  • Sharp and JDI for LCD panels.
  • AAC Technologies for miniature acoustic systems.
  • ASM Pacific Technology for the alignment bonding system used on camera modules.
  • Luxshare Precision Industry for wireless charging componentry.
  • Corning for glass screens.

 

Given the current streaming information, it would appear that product design has been solidified and the iPhone supply chain is now engaged for manufacturing ramp-up activities.

From our Supply Chain Matters lens, one thing is certain, Apple’s Sales and Operations and supply chain planning teams are going to be very busy in the coming months. If all goes according to plan, the 10th Anniversary of the iPhone will wow aficionados with one of the most expensive and full-featured devices to-date, along with other models at different price points. If any of the usual hiccups or snafus occur, teams will perform their usual response plans to ensure that global channel available meets plan. The biggest challenge will be in planning the proper model-mix plans among all planned three models.  During the last holiday season, the premium iPhone 7 Plus became supply constrained because planners did not initially plan for the actual demand for the full-featured, more expensive model. This year, the stakes are higher, along with the ability to gage and sense expected consumer demand.

It will all be fascinating to observe.

Bob Ferrari

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


Calling the Bottom to the Ocean Container Shipping Market is One of Perspective

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Last week, executives of ocean container industry leader Maersk called a bottom to the container shipping market. Supply Chain Matters submits that the industry is now operating in a changed network model, one that is more closely controlled by carriers. The market forces of supply and demand are now subject to new nuances and declaring a bottom to the market is now a matter of by perspective.  Container Term 300x200 Calling the Bottom to the Ocean Container Shipping Market is One of Perspective

Maersk declared a bottom after observing that shipping demand had outgrown capacity for the second consecutive quarter. In fact, Maersk Line reported that average rates increased 4.4 percent in the first quarter. While, revenues and shipping volumes both increased 10 percent from the year-earlier period, Maersk Line recorded an $80 million loss in the March-ending quarter primarily because of increased fuel costs. That compared to a $155 million loss for Maersk Line in Q4. Maersk executives now anticipate that container demand will increase 4 percent for the full year, with capacity growth at 3.5 percent.

In October of last year, Supply Chain Matters called reader attention to a declaration by Drewry Maritime Research that the global ocean container market had bottomed. At the time, we advised supply chain transportation and logistics teams somewhat cautious on the conclusions that ocean container transportation volumes and rates would bounce back in 2017. That was before we had the opportunity to view the full 2016 ship scrapping rate.

Drewry had qualified its October declaration by stating that pricing would bounce well below the average for 2015. A key unknown for Drewry in October was carrier commercial behavior which was observed as “unpredictable and counterintuitive.”

In early April, we updated teams both on Supply Chain Matters and in our Q1-2017 Quarterly Newsletter noting that reinforcing data reflected a picture of spiking ocean container rates because of capacity shifts. In 2016, ocean container lines scrapped an estimated 3 percent of global tonnage. However, new tonnage in the form of larger capacity, more efficient vessels are forecasted to add an additional 8 percent more capacity this year.

April was also the kickoff of new global routings of the three major shipping alliance networks. The new global alliance networks place more emphasis on scheduling more megaships among the most popular global routes while cutting back on frequency of prior daily or weekly sailings.  A belief among industry observers was that shippers and exporters moved-up shipping plans of the April cutover because of the belief that rates would increase significantly.

Calling the bottom to one of the shipping industry’s worst downturns is therefore one of biased perspectives.  Container lines themselves are desperately anticipating that global container volumes will positively increase enough to offset new capacity scheduled to come into service this year.  Some carriers are also postponing deliveries previously anticipated later this year to next year. At the same time, the scheduling now in-effect under new global alliance networks pools capacity for upwards of 90 percent of major global trade routes. Some lines, such as industry leader Maersk, are weighting port calls to move in and out of owned global port operators to leverage new third-party logistics services, thus competing with existing industry service providers. Thus, some shippers and exporters, such as agricultural commodities may face increased routings and subsequent costs due to different export port routings. Another continuing unknown is whether major ports, such as those spanning the coasts of the United States can effectively unload and load the large container megaships according to carrier’s schedules, especially during peak shipping periods.

The takeaway for industry supply chain, logistics and transportation procurement teams remains one of caution and diligence.  Last week, the World Container Index, a composite of container freight rates on 8 major routes to/from the US, Europe, and Asia, was reported as $1557.38 per 40-foot container, up 40 percent from the same period a year ago. Granted, a year ago, rates were hovering below breakeven for carriers, but the market is changing. Shippers reliant on spot market rates are going to feel the impact of dynamic market forces.

Transportation procurement teams will have to do their homework regarding rate trending and shipping alliance contracts. Logistics teams will no doubt be closely monitoring port throughput performance for signs of container bottleneck delays, including the availability of empty containers for export needs.

The industry is now operating in a changed network model, one that is more closely controlled by carriers. The market forces of supply and demand are now subject to new nuances and declaring a bottom to the market is now a matter of by perspective.

 

Bob Ferrari

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

 


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