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Apple Declares a Long-Term Commitment Toward a Closed-Loop Materials Supply Chain

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In its 2017 Environmental Responsibility Report released this week, global consumer electronics provider Apple has declared a goal towards implementing a closed-loop supply chain. This report includes a pledge to end the company’s reliance on mined materials from the earth, and to one day, make its products, including the iPhone, totally from renewable or recycled materials.  Apple Logo Apple Declares a Long Term Commitment Toward a Closed Loop Materials Supply Chain

The section titled Finite Resources includes the following statement:

Traditional supply chains are linear. Materials are mined, manufactured as products, and often end up in landfills after use. Then the process starts over and more materials are extracted from the earth for new products. We believe our goal should be a closed-loop supply chain, where products are built using only renewable resources or recycled material.

Apple is also realistic in acknowledging that a closed supply chain is indeed an ambitious goal for a high-tech and consumer electronics manufacturer. The company’s Vice President of Environmental Affairs, Lisa Jackson, told business network CNBC that while Apple does not currently know how the full objective will be achieved, it will require many years of collaboration across multiple internal teams, component suppliers, and specialty recyclers- but work efforts are already under way. She further indicated that the company is embarking on something it rarely does, establishing a goal before all the elements are completely figured out.

Current efforts include the encouraging customers to return end-of-life products through the Apple Renew recycling program. This program is piloting innovative new recycling techniques that include a line of disassembly robots that helps to reclaim materials from used smartphones and other electronics products. The company has further prioritized which materials to tackle first by creating Material Risk Profiles for 44 elements within products. These profiles identify global environmental, social, and supply risk factors spanning the life of each material.

Describing the need for high quality aluminum material free from defects found in mass level recycling programs Apple has begun a pilot proof-of-concept program using reclaimed aluminum from recycled phones to build new devices. The aluminum enclosures recovered from iPhone are melted and reused to create Mac mini computer enclosures.

What forward thinking companies are continuing to demonstrate is that supply chain sustainability efforts are good for business and they are equally good for the supply chain.  Increasingly customers based their buying decisions on a company’s commitment and demonstrated efforts in sustainability. In our current year predictions for industry supply chains, we have re-iterated that there is literally too-much momentum and positive business benefits to motivate senior executives to derail such efforts. Apple has been one of other early adopters of a supply chain sustainability commitment and this latest declaration of a closed-loop supply chain is indeed, an added manifestation of a sustainable business model, one that assures a continuous supply of product value-chain components at a more controlled cost with assured availability. We also like the emphasis on leveraging new technologies to address such needs.

Supply Chain Matters commends Apple for its declaration and commitment toward manifesting a closed-loop supply chain.

Well done and keep up this good work.

Bob Ferrari

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


Vital Link in the Global Apparel Supply Chain- Third-Party Refurbishers

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The following is a contributed Supply Chain Matters Guest Contribution from Jeff Glassman, CEO of Darn It! Inc, a third-party refurbisher specializing in apparel and general merchandise inspection, repair, cleaning, kitting, and warehousing.

 

The apparel industry’s supply chain crisscrosses the globe. In concept, that’s pretty exciting. In reality, it’s fraught with complications. Glitches can occur, errors can be made and consistent communication can be at-times, be challenging.

The supply chain can be interrupted due to all kinds of issues – some can be quite surprising!

Often, quality issues in apparel supply chains stem from a few key factors:

  • As retailers pressure offshore manufacturers to meet tight timeframes, an overwhelmed factory may subcontract work. This is a prime opportunity for a breakdown in communication, resulting in garments that don’t meet specifications.
  • When a retailer begins working with a new supplier, it can take time before the factory fully understands the retailer’s quality expectations.
  • If offshore manufacturers seek to increase profit margins, they may substitute inferior fabric or trim.

As a third-party apparel refurbisher, my company often receives frantic calls from apparel manufacturers, distributors, and retailers in the midst of a supply chain crisis. They have received a problematic shipment and need help getting first-quality garments on the shelves and online.

Here’s a sampling of just three situations that have interrupted our customers’ supply chain:

 

  1. Cartons of clothing had soaked in salt water – Due to a storm at port, a retailer’s shipping container with 20,000 pairs of pants had been submerged in salt water. (This is not your typical supply chain challenge!) We conducted an ozone shock treatment to remove mold and mildew, then pressed, re-ticketed, and repackaged the pants – all in time for the company’s big promotion.

 

  1. Correcting 56,000 mislabeled t-shirts – A retailer’s entire shipment of t-shirts arrived from the overseas manufacturer with the wrong size screen-printed on the shirts. After completing an inspection to determine correct sizes, we used a cover-up heat transfer label to overlay the correct size.

 

  1. 43,000 stuck zippers put $2 million in sales at risk – Beyond broken buttons, apparel often requires a variety of sewing repairs. In one case, we repaired the zippers on 43,000 sweatshirts (the zippers had the wrong slider). In another case, we replaced the red drawcord on 8,000 pajama bottoms (the dye was bleeding and staining the pajamas). In another example, the retailer’s durability test uncovered an issue with 5,000 men’s sleeveless shirts – the armholes needed to be repaired and properly reinforced. In yet another example, we repaired 16,000 lady’s wool pants with inseams that were randomly too long or too short; clearly, the garment measurements didn’t match the original factory specifications.

 

Mistakes are made from time to time – it’s a fact-of-life. Combine this with the notions that many retailers have implemented just-in-time inventory strategies. As a result, when apparel is produced offshore but doesn’t meet quality specs, it’s too time-consuming and costly to ship the product back.\

Unfortunately, apparel refurbishment services are an inevitable reality of today’s globally extended apparel supply chain.

Who bears the cost of refurbishment?

Depending on the contractual relationship, the retailer may charge the cost back to the original manufacturer. What if the specs were unclear? Retailers prize their relationship with quality apparel manufacturers so, in some cases, the retailer and offshore factory may share the cost.

A U.S. or domestic based refurbisher can help to minimize fall-out rate, avoid consumer returns, and return garments to first-quality condition. An experienced third-party refurbisher is an important link in the apparel supply chain, helping to ensure manufacturers, distributors, and retailers can quickly get products into customers’ hands.


Jeff can be contacted at Jeff@darnit.com .

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

 


Airbus and Boeing Report Q1-2017 Delivery and Order Booking Performance

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One of our more popular blog postings tends to be our updates on either the quarterly or annual operational performance numbers for the two dominant commercial aerospace manufacturers, Airbus, and Boeing. The interest levels extend not only from supply chain participants in each of these manufacturers but across their global supply chain ecosystems.  Boeing 787 Production Line 300x200 Airbus and Boeing Report Q1 2017 Delivery and Order Booking Performance

Thus, this posting updates on the latest Q1-2017 operational data.

Overall, the operational numbers would indicate that Boeing had a relative excellent Q1 while Airbus experienced an unusual slower than expected start to 2017.

Airbus

We begin with Airbus, which reported a total of 136 commercial aircraft deliveries in the March-ending quarter. That compares with 125 total deliveries in Q1-2016. The Q1-2017 breakout includes:

107 single aisle aircraft (A320ceo, A320neo, A321ceo)

13- A330

13- A350

3- A380

In an operational review conducted in February 2015, Airbus made supply-chain wide plans to target a production rate of 50 A320’s per month by early 2017.  Thus, among the closely-watched numbers are the deliveries of the A320ceo and A320neo (new engine option). At the close of Q1, the single aisle grouping has a rather significant 5547 of backlog orders from airlines with high expectations related to improved and more fuel-efficient performance.  The Q1 report indicates that a total of 36 A320ceo and 26 A320neos were delivered in Q1. Our sense is that Airbus would have preferred these numbers to be reversed.

The new engine option (neo) features an airline choice of two available, new fuel efficient aircraft engines, either the Pratt & Whitney geared turbofan (GTF) engines or the CFM International alliance of General Electric and Safran LEAP engines. The Pratt engine was added to production in Q3-2016 while the CFM International engine has been incorporated in the recently completed quarter.

During 2016, Supply Chain Matters highlighted some significant challenges related to delayed deliveries of the new Pratt GTF engine featured on the neo model, which both significantly impacted Q3-2016 and to a lesser extent, Q4-2016 deliveries to airline customers. The GTF became a rather visible broken-link in the A320 supply chain because of ongoing issues related to operational performance in high heat or humid climatic conditions such as that reflected in certain Asia or Middle East environments. Qatar Airways has been especially vocal regarding the performance of the GTF powered A320neo. Both Bloomberg and Aviation Week have recently reported that while the new Pratt GTF engines are meeting promised 15-20 percent fuel savings, combustion chamber and bearing distress glitches continue with engines operating in certain climates. Bloomberg reported that as of the end of February, as many as 42 GTF engines had to be taken off-wing prematurely, most in environments in India, which currently has the largest fleet of operational A320neo’s.  Pratt has been responsive to operating airlines, but the new engine spares are likely coming from engines destined to support new production.  Modifications to the combustor and additional upgrades are due by the end of the third quarter.  For Airbus, the fallback is concentrating A320neo production on allocated Pratt CFM engines or the new CFM International engine which thus far is showing no signs of glitches.

Turning to new orders, Airbus reported a rather lackluster total of 6 net aircraft orders in Q1, after experiencing several cancellations during the quarter including 8 A320neo’s and 2 A380 jumbo aircraft. Total gross orders were 26 aircraft in the quarter. None the less, the traditional rule of thumb in commercial aerospace is to book more orders than actual deliveries.  As we have noted in this year’s predictions, that period may be ending.

 

Boeing

Boeing reported a total of 169 aircraft delivered in the quarter. Late last year, Boeing announced to its investors that is was going to scale-down deliveries in 2017. Boeing’s Q1-2016 deliveries were a total of 176 aircraft. The breakout for Q1-2017 included:

113-single-aisle 737’s

32-787

21-777

2-767

1-747

 

Boeing’s most critical delivery number also relates to its single-aisle 737. The more fuel efficient 737 MAX is still in the final stages of flight certification and is thus not reflected in Q1 deliveries. There are, from our lens, two positive notes from this latest quarterly report of deliveries. The first is the 32 reported deliveries of the 787 Dreamliner, an indication that prior production glitches and consequent shortfalls are likely resolved.  The 787 is produced by two separate Boeing final assembly production facilities. The other is 777 family- with the newer more fuel-efficient and technically advanced 777X family announced to the market, Boeing has done a good job of filling production slots for the now legacy 777 model.

For new orders, Boeing reported a total of 198 net new orders in Q1, a rather stunning performance considering Airbus’s Q1 order performance. This number was far ahead of the 121 net orders logged in the first quarter of 2016. The breakdown included:

167- 737’s

11- 787’s

15- 767

9-777

As our commercial aerospace readers are aware, net order performance can vary in any given quarter, with announcements tied to specific events such as major air shows or investor conferences. That stated, Airbus has several challenges to address in the coming months, both on the inbound orders flow and in addressing A320neo production glitches. Regarding the latter, we surmise that Airbus’s patience for added glitches or supply shortfalls may be on the edge.

 

Bob Ferrari

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


Report that Foxconn Offered $27 Billion for Toshiba’s Chip Business

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Supply Chain Matters provides some follow-up news to our earlier posting regarding the world’s largest global contract manufacturing services provider Foxconn (Hon Hai Precision Industry Co.) and its recent revenue decline.

Citing informed sources, The Wall Street Journal reported this afternoon (Paid subscription required) that Foxconn has offered upwards of $27 billion to acquire Toshiba Corp.’s computer chip business, in yet another bold move to acquire a Japanese high-tech company.

The Toshiba business unit produces flash-memory chips, including NAND flash memory, utilized in smartphones and computer servers. The business is considered strategic to Japan’s high-tech industry. Of-late, Toshiba has been battered by significant cost overruns from another operating division, its nuclear reactor construction business. Westinghouse Electric Co., which is majority owned by Toshiba, filed for U.S. bankruptcy last month and Toshiba expects to book considerable financial losses, which has prompted the proposed sale of its computer chip business. Thus, Toshiba’s prime motivation is reportedly to garner a lucrative price for its chip business.

Like its successful effort to acquire Sharp Corp., Foxconn has reportedly placed a very attracted offer on the table, well beyond what other entities are currently offering.

The WSJ reports that the government of Prime Minister Shinzo Abe is in a tough spot since government officials are hoping to see a Japanese company or a Japanese-U.S. joint venture company assume ownership of the computer chip business. A government official is indicated to the WSJ that Japan would be opposed to any mainland Chinese bidder due to fears that the technology would be leveraged for competitive advantage along with the threat of spyware being placed on the chips themselves. Thus, the process may take on political and national security dimensions, before any final deal is done.

The WSJ cautions that the process has not reached any final stage and bids can change as contenders acquire added knowledge of Toshiba’s chip business.

Both Foxconn or Toshiba declined WSJ’s request for comment.

While the computer chip business can greatly add to Foxconn’s strategic intent to further diversify into the high-tech component product value-chain, this is a business highly dependent on continuous and expensive research and development. The sum of $27 billion is quite hefty burden, especially for a contract manufacturing services provider that has operated in very thin margins. The WSJ opines that these factors may favor bidders already part of the chip manufacturing business.

Needless to state, this process bears watching for high-tech and consumer electronics supply chain and procurement teams. Similar to what occurred with Sharp, it could drag on for months, something that is likely not within Toshiba’s timetable for making a deal.

Bob Ferrari

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


A Not So Attractive Milestone for Foxconn- A First Annual Revenue Decline

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Last week, Asian financial business media featured the headline that global contract manufacturer Foxconn Technology, also referred to as Hon Hai Technology Group,  experienced a significant milestone, its first-ever revenue decline since going public in 1991.

Foxconn is of course well-known as Apple’s prime assembler of iPhonesFoxconn 300x201 A Not So Attractive Milestone for Foxconn  A First Annual Revenue Decline

While total full-year revenues declined 2.8 percent, net profits were up 1.2 percent from 2015, according to a filing with the Taiwan Stock Exchange. That is a testament to rigid cost controls and the application of increased automation in its existing manufacturing operations. A report from the Nikkei News Agency indicates that the contract manufacturer’s December revenues grew 9.76 percent year-on-year although no detailed information related to Q4 was disclosed by Foxconn last week.

High-tech and consumer electronics Industry observers attribute Foxconn’s revenue decline directly to falling iPhone sales along with Apple’s decision to shift iPhone assembly to other contract manufacturers. We recently posted that Apple will begin production of iPhones in India utilizing Wistron as the CMS provider. Pegatron also serves as a CMS for iPhone 7 models.

Nikkei cites Vincent Chen, head of regional research at Yuanta Investment Consulting as indicating that for 2016, iPhone shipments declined to 207 million, from 236 million in the prior year. Chen now predicts that Foxconn’s revenues will increase 5 to 10 percent due the healthier demand generated by this year’s tenth-anniversary iPhone 8 model.

Readers will also recall from our various other Foxconn focused blogs that the company has been actively pursuing a strategic shift away from its primary dependence on Apple and to diversify into other upstream high-tech component areas as well as in branded consumer electronics products of its own. In 2016, the manufacturer completed its acquisition of Sharp Corp., and is now reportedly actively exploring an acquisition of Toshiba Corp’s semiconductor business. Earlier this year there was a report that Foxconn was looking to construct a $7 billion LCD production facility in the United States. Like all things related to Foxconn, it is often an on-again or off-again process.

Not all Apple suppliers have the where with all to pivot away from a high dependence on Apple, and of-late, the consumer electronics giant continues to pursue supply chain segmentation strategies that source lower-cost contract manufacturers and suppliers. However, a larger concern obviously centers on Trump Administration calls U.S. corporate tax reform that features a form of import taxes.  As we all know, Apple’s supply chain is for the most part, highly Asia-centric. If the U.S. Congress were to adopt a form of a value-added tax related to imports, that would be a different impact as-well.

While Foxconn will bounce back from this revenue shortfall model, it will be as a more diversified participant in the high-tech and consumer electronics supply chain value-chain. Contract manufacturing product margins alone are far too challenging not to do otherwise.

Bob Ferrari

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

 


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