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Supply Chain Matters Earth Day Commentary- 2015

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Today is Earth Day, the celebration of preserving our planet and its resources.

Any blog with a focus on the broad umbrella of manufacturing, supply chain and product management is compelled to acknowledge that supply chains and their actions have a lot to contribute to preserving our planet, its resources and its air. The good news, we feel, is that a lot has been accomplished in sustainability and green supply chain initiatives across multiple industry sectors. However, much more work remains, particularly in low-cost manufacturing regions such as Bangladesh, China, Cambodia, Vietnam and other countries.

Led by many multi-national manufacturers, sustainability efforts directed at reduced use of water, natural resources and packaging have both added creditability to brands as well as saved money for businesses. Likewise, food producers have invested in more organic and ethical supply chains. Producers such as Procter & Gamble, Nestle and Unilever and others are recognized for their wide reaching efforts for incorporating sustainability in business strategy. Consumers have in-turn, continued to actively support brands that demonstrate a commitment to sustainability and preserving our planet. Indeed consumers are the most important stakeholders in influencing the way in which corporations manage and respond to societal expectations. Our commentaries and observations of today’s consumer product goods industry reflect how consumer expectations are radically changing former processed foods business practices. Likewise, suppliers have an ever more important contribution to make in these efforts.

However, supply chains that have high consumption of water, chemicals, and resource intensive energy have far more work to do. Today they predominately reside in low-cost manufacturing regions where governments and businesses sometimes look the other way when it comes to active commitments to curb abuses to the environment. Recent reports indicate that China senior leaders are getting more serious about pollution and environmental abuses, which is long overdue.  We have read reports of gross pollution and waste in countries such as Bangladesh.  While multinationals such as Apple, Cisco, Hewlett Packard, H&M and others are actively establishing, monitoring and enforcing sustainability goals across their extended supply chains, too many others have turned a blind eye, perhaps far more concerned with lower costs. Supply Chain Matters recently highlighted National Resource Defense Council’s ongoing efforts in the greening of China’s textile and apparel producers, helping suppliers to cost justify more sustainable practices.

There is a lot more to do, and supply chain leaders and teams need to be actively supporting additional green and sustainability efforts. The good news is that our up and coming millennials, the leaders of tomorrow, are very tuned into sustainability of the earth’s resources as well as innovative ideas to make a difference.

These efforts are good for business as well as the environment.

We congratulate all that are demonstrating commitment and we urge others in our community to add their continued influence.

Bob Ferrari


The Greening of China Based Textile and Apparel Producers

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Recent postings appearing on the Natural Resources Defense Council (NRDC) and Mother Jones note that the industrial processes used to make our jeans and sweatshirts require loads of water, dirty energy, and chemicals, which often get dumped into the rivers and air surrounding factories in developing countries. China of course, is a major global source of fabric production. According to the NRDC, almost 20 percent of the world’s industrial water pollution comes from the textile industry, and China’s textile factories, which produce half of the clothes bought in the United States, emit 3 billion tons of soot a year.

NRDC recently hosted an award ceremony in Shanghai to recognize 33 Chinese textile mills which completed NRDC’s Clean By Design program in 2014.  Four prominent apparel retailers and brands, Target, Gap Inc., Levi Strauss and Co., and H&M participated in the program, handing out certificates of achievement and inducting some star mills into a newly created Clean by Design Hall of Fame.

The effort to get to this point is described as starting five years ago under the umbrella of green supply chain initiatives, providing practical tools to reduce production and environment impact while saving money. Today, NRDC’s Ten Best Practices provides what are described as practical improvements, low cost and offering quick payback for producers.

In terms of results, NRDC indicates that its Clean By Design practices delivered, on average, savings of $440,000 in the first year, with the top five mills saving more than $880,000 – with a payback time (return on investment) of only 14 months.

The NRDC blog posting further describes efforts underway to increase awareness to broader amount of skeptical fabric and textile mills in China as well as to involve more global based buyer brands as sponsors.

Supply Chain Matters Tip of the Hat AwardSince getting the word out is important to this effort, Supply Chain Matters is pleased to spread awareness of this program to our global and China based readers. We also extend our Tip of the Hat to those retailers who are actively supporting these current efforts.

 

Bob Ferrari


A Blunt Statement from Airbus’s CEO Regarding Cabin Equipment Suppliers

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In a mid-December posting, Supply Chain Matters called attention to a media report indicating that a component shortage within the commercial aerospace sector that was suspected of causing delayed shipments of brand new Airbus and Boeing airplanes. According to this Bloomberg report, France based Zodiac Aerospace, a supplier of upscale lie-flat airline seats was struggling to meet its delivery requirements for such premium aircraft seats. A month-long labor stoppage within a Texas production facility that ended in late October coupled with backlogged engineering teams working with airlines for final seat design approvals have led up to these late deliveries.

This week brings a new and even more noteworthy development. According to a published Reuters report, the head of Airbus’s passenger jet business called attention to suppliers of cabin equipment, indicating their failure to get to grips with chronic production delays was “unacceptable”.  A320_Vueling_Cabin

Here is the quote to a group of industry journalists:

I think the cabin equipment suppliers would do well to have an equivalent level of industrial maturity to that of aircraft manufacturers. They are big industrial companies now, they are not small companies, so they must put in place measures to meet their obligations. It is becoming unacceptable”

While Fabrice Bregier, the CEO of Airbus’s passenger jet division reportedly did not single out any one supplier, he was apparently responding to a question about French seat maker Zodiac, according to Reuters. Further noted is that both Airbus and Boeing have now positioned more people in Zodiac factories to help overcome the delays, and are insisting on vetting Zodiac seat sales as an ‘exception’ to their catalogs, according to industry sources.

As our supply chain community well knows, when frustration levels regarding the reliability of a supplier reaches the CEO level in a public lambasting, the crap has hit the fan and frustration levels have probably reached the boiling point.

Perhaps we can speculate that the CEO of a certain supplier, or multiple suppliers have been on the phone and in the air attempting to perform damage control and make assurances that all outstanding and future commitments will be performed to expectations.

Not a pleasant situation to be in, particularly in an industry with multiple years of backlogged customer orders for completed airplanes. It’s a slippery slope when a preferred vendor effects actions that are deemed “not acceptable to a level of industrial maturity.”

Bob Ferrari

 


More Clear Signs of Turmoil and Changes for CPG Producers and Their Supply Chains

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The turmoil among consumer product goods focused supply chains promises to increase with the implication of today’s business media headlines concerning Nestle and Unilever. These implications relate to ongoing merger and acquisition developments and the continuing effects of foreign currency headwinds, which are negatively affecting U.S. producers while positively impacting European based firms.

While speaking at its Annual Meeting this week, Nestle’s Chairmen acknowledged that the combination of H.J. Heinz and Kraft Foods, being orchestrated by 3G Capital Partners and Berkshire Hathaway would create a formidable competitor, particularly in the United States. Because of this, the global CPG provider indicated to shareholders that it will accelerate its shedding of marginal performing businesses.

Readers may recall that CPG industry icon Procter & Gamble is similarly involved in a shedding of non-performing or non-core businesses.

According to a report published by The Wall Street Journal, Nestle Board Chairmen and former CEO Peter Brabeck-Letmathe indicated that Berkshire Hathaway and 3G have “pulverized” the food industry.

The CPG company has already sold off ice cream and water related businesses, has struck deals to sell the bulk of its Jenny Craig diet business as well as an ice cream business and is reported to be in talks to sell its frozen food business. The CEO further indicated that Nestle needs to better leverage its global scale more effectively. According to the WSJ, that could imply even more added pressure on suppliers for better buying terms.

Earlier today, Nestle announced its operating results for the March-ending quarter. Those results included an overall 4.4 percent organic growth of which 2.5 percent was attributed to pricing moves. Sales increased a mere 0.5 percent with the effects of negative foreign exchange attributed to 4.5 percent. In its full-year outlook, the company remained committed to achieve organic growth of around 5 percent while improving margins.

That level of sales growth challenges many of today’s large global CPG producers.

The positive or not so positive shadow of foreign currency effects was further evident in the operating results of Unilever, whose first-quarter total sales rose 12 percent largely due to the effects of a stronger valued U.S. dollar, amounting to a 10.6 percent boost. Once more, Unilever indicated that factoring current exchange rates, its full-year earnings growth would be in the 7-8 percent range.

On the flip side, U.S. headquartered CPG producer Colgate Palmolive indicated a 9 percent negative impact on sales while Procter and Gamble indicated in January that it was anticipating currency swings to curb profit by as much as 12 percent.

Thus the pending Heinz-Kraft combination coupled with the current foreign currency shifts is indeed precipitating more industry turmoil. Many CPG businesses are being pitched for sale and/or consolidation.

When penning our Supply Chain Matters commentary related to the Heinz-Kraft announcement we opined that a clear message was now sent to consumer product goods supply chains that business-as-usual was no longer acceptable, and that further industry changes and developments were inevitable.

Add the current effects of currency and those in the industry negatively impacted may well initiate changes in product sourcing, promotion and distribution to help offset currency effects. Meanwhile, product innovation in more natural and less processed foods remains the key to longer term growth, whether by acquisition or by supply chain sourcing and development.

There is literally a new playbook for global based CPG firms and their respective supply chain teams, and be prepared for constant change in the months to come.

Bob Ferrari

 


First 3D Printed Commercial Jet Engine Part Certified for Operational Use

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This week featured a significant announcement from General Electric, namely that the U.S. Federal Aviation Administration (FAA) certified a 3D-printed manufactured part to operate within certain GE commercial jet engines.

A blog commentary featured on the GE Reports site indicates that a fist-sized piece of silver metal that houses the compressor inlet temperature sensor inside a jet engine, known as T25, is becoming a symbol of one of the biggest changes sweeping jet engine design. GE Aviation is currently working with Boeing to retrofit more than 400 GE90-94B jet engines with the 3D printed part. This family of engines power Boeing’s 777 commercial aircraft. High resolution photos of these parts are featured in the commentary.

The report further indicates that GE Aircraft has already initiated flight tests for the next-generation LEAP jet engine, produced in a 50-50 consortium with CFM   GE-CFM CFM56 LEAP engineInternational, which will include 19 3D-printed fuel nozzles. The LEAP engine will power Airbus’s newly designed A320neo and Boeing’s 737MAX aircraft models.

The planned GE9X engine will further be developed with 3D-printed fuel nozzles and other parts.

GE was one of the early adopter manufacturer’s that has embraced additive manufacturing methods for nearly a decade. According to GE, additive manufacturing allows design engineers to replace complex assemblies with single parts that are lighter. The use of 3D-printing methods accelerates design development and new product introduction times. Once more, GE is printing parts from materials such a cobalt-chrome alloy. In the case of the GE90 printed nozzle housing, the process from final design to FAA certification and service introduction spans what is described as six months.

In digesting this report, Supply Chain Matters further envisioned that the introduction of such 3D-printed aircraft engine components can significantly benefit both ongoing production as well as operational service parts needs. Instead of stocking global-wide manufacturing or service parts depot inventories, replenishment orders can trigger the printing of an additional part, with considerable inventory cost savings. In some cases, we would envision the part being printed directly at a regional repair and maintenance depot.

Next-generation additive manufacturing methods are indeed beginning to make a presence and the benefits described by global manufacturers such as GE, are indeed described as breakthrough technology.

Bob Ferrari

 


A Shifting of Supplier Relationship Strategy for General Motors

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Supply Chain Matters has provided a series of ongoing commentaries involving fairly recent multiple industry aspects involving escalating pressures being placed on suppliers. Our commentaries have reflected on reports regarding global retailer Wal-Mart ‘s latest efforts of cost cutting and certain Consumer Product Goods producers being driven to bullying or extreme cost-cutting measures. Today, The Wall Street Journal provides a report indicating how one global automotive manufacturer is now trying to reverse course of previous supplier squeeze actions to foster needed collaboration.

This report, GM Wants Long-Term Parts Contracts (paid subscription or complimentary metered view) describes efforts by General Motor’s newest Chief Procurement Officer Steve Keifer to influence extended component parts supplier contracts that extend as much as a decade, in order to support two new vehicle product development programs and subsequent market volume output requirements.  According to the WSJ report: “locking suppliers into longer-term contracts and looping into vehicle designs earlier in the process, the auto maker can expect suppliers to share more innovations and better processes that help save money.”

For some of our readers, that statement would appear to be forward-thinking but keep in-mind that the U.S. automotive industry has had a long history of supplier bullying that has been difficult to change for some manufacturers. While Keifer is described as a GM veteran, he only recently assumed the CPO role at the end of 2014, after serving an executive role at Tier one supplier Delphi Automotive. The report thus hints that this new CPO has brought more of a supplier sensitivity to his role.

That approach is apparently being influenced and supported by GM’s new CEO, Mary Barra, who herself has a manufacturing and product development leadership background. According to the WSJ, Barra has recently implemented a strategy “aimed at improving relationships with suppliers that believed the automaker was overly optimistic in its planning assumptions or too forceful in cost-cutting mandates.”

The report points to the ongoing technology-driven revolution occurring across the automotive industry, and the need to bring even more technology to market at a quicker competitive pace. However, the new CPO has the challenge of undoing decades of poor supplier relationships that curtailed deeper collaboration on areas of innovation. The spur such innovation, GM is reportedly open to consideration of new suppliers from regions such as the U.S. Silicon Valley or Israel.

On this blog we have pointed out the drawbacks of how a short-term business outcomes perspective driven to cost reduction mandates can permeate across the many levels of the value-chain. While such efforts may lead to short-term accolades and performance bonuses, they undermine efforts directed at longer-term needs for product, process and customer fulfillment innovation.  Suppliers themselves need to have heightened sensitivities to the business pressures of key customers, and try to provide a helping hand perspective on short and longer term supplier relationship alternatives.

In the case of this week’s WSJ report concerning General Motors, a changed senior management perspective, driven by both the realities of long-term industry competitiveness through innovation, and a leadership grounding in the importance of suppliers for contributing to such innovation has helped to initiate a changing perspective. That will help in overall change management.

We trust there will be more of the above positive actions rather than the others we have highlighted of-late.

Bob Ferrari

 


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