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Fortune Global 500 Rankings Provide Weighting of Global Influence


This month’s edition of Fortune includes the latest ranking of the world’s largest Global 500 corporations. We find this ranking much more meaningful, since it factors a global presence, which is the reality of today’s multi-industry supply chains. Fortune indicates that the Global 500 reside in 36 countries and based in 224 global based cities. Keep in mind that this ranking is by revenue size, not necessarily profitability. The 2014 rankings further provide certain realities.

The first is one related to geographic revenue share. For the 2014 ranking, the revenue share includes the reality that the bulk of the largest Global 500 reside in Asia based countries:

Asia                                 35.2 percent (China represents 19.8 percent)

Europe                            31.4 percent

North America               29.8 percent

South America               2.1 percent

All Other                         1.5 percent

Asia based growth has been steadily increasing since 2010. Revenues for European based Global 500 companies, on the other hand, have decline 6 percent since their peak in 2009, because of two significant recessions.

Of the top 25 listed ranking of the Fortune Global 500, retailer Wal-Mart continues to hold the number one ranking with a reported $485 billion in 2014 revenues. According to its 2014 Annual Report, the retailer now operates over 6100 retail units in 26 countries. Other noteworthy retailers appearing include CVS Health (#30), Costco Wholesale (#52), Kroger (#54), Tesco (#62), Carrefour (#64) Amazon (#88), Walgreens (#114) and Target (#117).

Global manufacturers within the top 25 ranked include four global automotive and parts companies, Volkswagen (#8), Toyota (#9), Daimler (#17) and General Motors (#21). Two consumer electronics, Samsung Electronics (#13), Apple (#15), and one diversified manufacturer: General Electric (#24), are further included.

Medical and pharmaceutical products distributor McKesson raised its ranking to #16, from a 2013 ranking of #29. Rival distributors AmeriSource Bergen were ranked #46, Cardinal Health (#84) and Walgreens Boots Alliance (#114).

Taiwan and China based contract and diversified manufacturing services provider Hon Hai Precision (aka Foxconn Electronics) was ranked #31 with reported revenues of $139 billion, rising one slot from 2013. Other CMS providers ranked include Pegatron (#355) and Flextronics (#453), reflecting a wide gap.

Commercial aerospace manufacturer Boeing was ranked #85, from #90 in 2013, while rival Airbus was ranked #106, from #103 in 2013. Major supplier United Technologies ranked #149.

Global-based consumer product goods corporate rankings highlights include Nestle (#70), Procter and Gamble (#100), Pepsico (#141), Unilever (#153) and Mondelez International (#348). Most have slipped since 2013 reflecting the impact of an industry with significant challenges. It is interesting to observe that certain retailers rank higher in terms of revenue.

High tech firms’ rankings for 2014 included Hewlett Packard (#53), Panasonic (#131), LG Electronics (#175), Intel (3182), Cisco Systems (#225), Lenovo Group (#231) and EMC (#487).

Among component manufacturers entering the Fortune 500 Global are Compal Electronics (#423), China Aerospace and Technology (#437), Taiwan Semiconductor Manufacturing (TSMC) (#472), Alcoa (#495).

In the global logistics and transport sector, Deutsche Post (owner of DHL Group) was ranked #111, UPS (#168), U.S. Postal Service (#137), A.P, Moeller-Maersk Group (owner of Maersk Lines)(#208) and FedEx (#238). We continued consolidation and M&A activity continuing to occur in this sector, we suspect the rankings of certain dominant firms within in this sector will rise further in the coming years.

Our business and supporting supply chain world has indeed become more internationally based and more influenced outside of North America. While certain top supply chain rankings may differ because of the added weighting of profitability and return-on-assets, the Fortune Global 500 provides the perspective of global influence and scale.

Bob Ferrari

Some Quantification of the Potential Impact of the Tianjin Port Warehouse Explosions


There has been much reporting within social and business media regarding the potential industry supply chain disruptive effects of the recent massive warehouse explosions that affected the facilities adjacent to the Port of Tianjin.

It is rather important and crucial that industry supply chain and sales and operations team obtain meaningful and insightful information regarding what is happening on the ground as well as the potential short or long-term supply chain impacts, if any.

We at Supply Chain Matters are disappointed to observe that certain technology and service providers are attempting to utilize this tragic incident as a backdrop to product marketing outreach campaigns. Neither should technology providers suddenly become news outlets.

Not good ideas by our lens.

Supply chain technology providers should instead continue to educate on the benefits of the technology they provide and allow industry supply chain teams to receive clear, unfiltered and unbiased insights and information from informed and educated sources.

One of the better Tianjin perspectives Supply Chain Matters has reviewed to-date ia a published white paper: The Aftermath of the Tianjin Explosions: A Global Supply Chain Impact Analysis, authored by supply chain risk management provider Resilinc.

While this 24 page white paper does include some product marketing, along with requiring registration, the bulk of the report provides meaningful and insightful information related to potential immediate, near-term, medium and longer term supply chain impacts.

The paper concludes that the less apparent ripple effects of the warehouse explosions will be felt weeks, months and even years to come.

The paper provides meaningful background information regarding this vital logistics and manufacturing hub, which services industry needs of automotive, commercial aerospace, high-tech, petrochemical and general industrial manufacturing supply chains, among others. It further outlines important mapping of industrial manufacturing and supplier concentrations within close proximity of the explosions, based on a mapping of over 30 sites in a 2-10 mile radius of the blast.  Four large industrial zone districts are adjacent to the port, with the port serving as what is described as the largest free trade zone in northern China, and the second largest Vehicle Processing Center for importing and exporting of automobiles.

On the topic of near-term ripple effects, the Resilinc analysis predicts that extensive delays can be expected for most companies and sites moving products through Chinese ports as government agencies deal with the after-effects of a regulatory environment needing extra attention.

There are predictions that Tianjin port operations will only begin to resume normal operations by approximately mid-September, and that any containers now at the port will be inaccessible for the next two months, even if they are intact. Resilinc indicates that for any suppliers located within 2-15 miles of the explosions, companies may presume 12-16 weeks of delays.

Long-term impacts outlined related to the ripple effects of increased regulatory actions impacting certain industry sectors including the location and storage of goods near large population centers.

Regarding potential long-term impacts, the paper cites Chinese media as indicating the economic cost of Tianjin crisis could be as high as $8 billion.

If your organization is dependent on operations, logistics partners, suppliers or service providers in the Tianjin area, we recommend you review this report which can be accessed at the following Resilinc web link. (Some personal registration information required)

Bob Ferrari

More Evidence of a Changed High Tech Contract Manufacturing Business Model


As far back as 2011, this analyst began to share observations on a growing reality of a changed model of contract manufacturing services (CMS) among high tech and consumer electronics supply chains. The reasons were obvious five years ago, and far more obvious today. The ability to continually experience a mere one to two percent in operating margins, regardless of volume scale, was unsustainable in a strategic window. Once more, with direct labor costs increasing in major manufacturing hubs across China and other areas, and with technology cycles changing more quickly, the need for constant capital infusion in investments in the newest technologies and automation further requires an increased return for such investments. Remember that the CMS model evolved from a need by OEM’s to avoid the need to invest in manufacturing assets and process automation.

CMS firms such as Hon Hai Precision (Foxconn Technology) have been steadily executing a diversification strategy. In the case of Foxconn, the world’s largest contract manufacturer, it includes entry into consumer component and electronics, as well as service sectors serving China’s and greater Asia’s growing middle class. In our last published Supply Chain Matters commentary, we highlighted a report that Hon Hai may well be on the verge of a tie-in with Sharp’s LCD flat screen unit, opening the door for broader high tech value chain integration.

We now call reader attention to this week’s edition of Bloomberg BusinessWeek, that includes the article: The Foxconn of Bathroom Scales. This article describes how Flextronics, now renamed Flex, after spending in excess of 40 years as a low-margin CMS, is re-making itself as a leading manufacturer in a new ecosystem Internet Of Things (IoT) enabled products.

The article astutely observes: “Building stuff for startups and non-tech companies is a lot more profitable than trying to satisfy giants such as Apple and Cisco, which have squeezed contract manufacturers’ margins to 2 percent.”

Flex’s mission is to become to go-to manufacturer for connected products. That would include products ranging from sneaker mounted wireless charges, clothing embedded with sensors that monitor all sorts of body functions, to driverless farm equipment or smart shelves for retail outlets. Its Innovation unit has opened 23 R&D labs where startups and up and coming companies can work with designers and utilize 3D printers and manufacturing equipment to develop new product prototypes. Flex’s design teams have created a library of 130 reusable component designs to help start-up companies to develop IoT related products more quickly and move these products to volume manufacturing and/or service needs.

Bloomberg observes that Flex’s business is growing with clients such as Ford, Fitbit, Johnson & Johnson, and Whirlpool, but perhaps not fast enough to avoid getting crushed by other large manufacturers. The report ends with a quote from a consultant: “If you aren’t getting 50 percent of your revenues outside of traditional electronics, please contact us, and we’ll help you liquidate your assets.”

While a rather blunt and self-serving statement, it does reflect that the traditional CMS model within the high-tech industry will change.

CMS providers have no choice but to move their services models either further up the electronics value-chain, within our consumer service areas, or virtual engineering and manufacturing support and services in areas beyond today’s traditional consumer electronics areas.

For the CMS sector, change is a definite factor. The question will be which firm makes the most successful transition. Meanwhile, high-tech OEM buyers and strategic sourcing teams should best be thinking of the consequences, and the implications.

Bob Ferrari


Report that Sharp is Once Again in Talks with Hon Hai Precision Related to LCD Unit


Our high tech and consumer electronics supply chain readers may recall that Japan’s Sharp Corp., and specifically its LCD screen business unit has had months of financial struggle. One of the important significant factors related to Sharp is that it serves as one of the four Liquid Crystal Display (LCD) and flat panel screen suppliers to Apple, including screen supplier for the iPhone. Sharp has had a track record of innovation in LCD technology but a rather rocky financial history as well

This week, Reuters is reporting that its informed sources indicate that tie-up talks involving contract manufacturer Hon Hai Precision (aka Foxconn Technology) are now in-progress.  The Financial Times also published a similar report.  Hon Hai declined any request for comment by Reuters and FT.

Initial talks between Hon Hai and Sharp actually began in 2011, after both firms had established a joint technology partnership. In 2012, there were many business and social media reports indicating that Hon Hai was prepared to take an equity stake in Sharp’s LCD development and factory operations, but with implications that Hon Hai would become Sharp’s largest shareholder and have the ability to assume some strategic management control of Sharp.  A further implication was that Apple, through its relationship with Hon Hai and Foxconn, was willing to invest in Sharp’s longer term supply, but that component strategies would cede to Hon Hai.  The Hon Hai investment did not occur in 2012, because of Sharp’s deteriorating stock price and the threat of too much outside control.

During that same period, Japan’s Sony Corporation, Toshiba Corporation, and Hitachi Ltd. together merged their money-losing small LCD display operations to form a single company, Japan Display, backed by $2.6 billion of funding from Innovation Network Corp. of Japan, a government backed agency. Japan Display is currently another of the LCD component suppliers to Apple, and the combined operations and infusion of significant new capital likely cemented that relationship.

According to this week’s Reuters report, the latest proposed tie-up would spin-off Sharp’s display unit and possibly includes additional cash injections from other outside entities such as the state-directed Innovation Network Corp.

The two firms continue to jointly operate the advanced large LCD production facility located in Western Japan.

Interesting enough, in 2012, Apple rival Samsung opted to provide a $110 million lifeline investment for Sharp. The deal was reported to provide Samsung with a 3 percent stake, along with gaining access to leading-edge IGZO display and other technology. Business media reports at the time speculated that Samsung’s investment was an attempt to stem Apple’s strategic influence on Sharp.

In late June, Supply Chain Matters called attention to a published report from The Wall Street Journal indicating that Sharp senior management had struck a last-minute deal with the firm’s bankers to provide an additional $1 billion plus lifeline, the second in three years, in exchange for restructuring measures that included exiting the North American television market and a 10 percent workforce reduction. Also noted were the market prices for LCD panels remain in significant decline as other suppliers turn more to China based smartphone manufacturers for revenue needs. The WSJ cited data stemming from market research firm IHS indicating that 5 inch HD smartphone panel components prices have dropped nearly 60 percent from Q1 2013 through mid-year.

This legacy of Sharp represents the perils for being a leading-edge LCD technology provider in today’s high tech and consumer electronics sector.  Product OEM’s such as Apple and others demand the latest breakthroughs in technology and more automated manufacturing processes, in return for orders representing volume scale.  However, in a technology area where multiple suppliers fiercely compete for the same high-volume OEM business, and a cutthroat environment where severe amplitudes of supply and demand imbalances force prices to dive quickly, the need for constant capital becomes paramount.  That may be the legacy of Sharp’s LCD unit.

If this reported tie-up were to occur, it would provide another significant milestone in Hon Hai’s prior strategic plan to move away from a sole focus on the slim margins of contract manufacturing, and more towards a supply chain vertically integrated high-tech and consumer products manufacturer that can control multiple key component supply tiers.

Bob Ferrari

Key Component Part Challenge Identified for Boeing 737 MAX Program


Many observers of commercial aerospace supply chains including Supply Chain Matters were anticipating forms of supply disruption and now we have a visible indication.

The Wall Street Journal reported today (paid subscription required) that a key supplier within Boeing’s 737 MAX program is wrestling with production ramp-up supply issues related to an engine thrust reverser. Difficulties in consistently manufacturing this part are apparently been flagged by Boeing as a significant development challenge for its commercial aircraft business.  737 MAX8

According to the report, supplier GKN PLC will not be able to produce quantities of the new engine thrust reverser to support the ramp-up production needs of the newest version 737 MAX.

The problem is associated with the inner wall of the thrust reverser which is composed of a honeycomb titanium design to fit both size restrictions and withstand rather high engine temperatures. Key supplier Spirit AeroSystems transferred responsibility for working with component supplier GKN back to Boeing, because of the technical challenges.

The fact that volume production of the new thrust reverser is being flagged two years before planned first customer ship scheduled for 2017 is a good sign. However, as the article points out, initial prototype production is already underway including the wings, fuselage and new dedicated assembly line.

Boeing currently has firm orders for over 2800 of the new 737 MAX with plans to raise all models of 737 production volumes to 47 per month in 2017 and 52 per month in 2018. The 737 serves as the prime profitability engine for Boeing’s commercial business, hence it garners lots of attention.

The report indicates that Boeing executives have acknowledged the supplier and design challenge but indicate confidence that adequate resources and attention are being applied. A GKN spokeswoman declined comment to the WSJ and referred the question back to Boeing.

More than likely, there will be more supply challenges flagged for both Boeing and Airbus as each manufacturer strives to ramp-up production to unprecedented levels over the coming months and years. As always, the question will remain how each manufacturer responds to these challenges and proactively works with suppliers and design teams to resolve challenges on a timely basis.

Troubling News in Global Ocean Container Capacity Reductions


Every year at just about this time, ocean container shipments inbound from China and other Asian ports begin to surge as retailers ramp-up inventory levels in anticipation of the Thanksgiving and Christmas holiday buying period. Ever year at this time, Supply Chain Matters features commentaries noting how the ramp-up is progressing. 389

Last year, we raised early concerns about potential labor disruptions occurring along U.S. West Coast ports. We all know how that turned out. Multiple industry supply chains encountered long delays and inventory disruption, some at considerable cost.

This year shows signs of different industry dynamics that could once again lead to some disruption, or at the least, the need for very careful and methodical supply chain planning and synchronization.

The Wall Street Journal reports that a combination of tepid growth and a continued sluggish Eurozone economy has now motivated ocean container carriers to significantly cut back on scheduling.  According to the report, the G6 Alliance, consisting of carriers APL, Hyundai Merchant Marine, Mitsui OSK, NYK, Hapag Lloyd and OOCL announced this week the cutback of 12 round-trip sailings from Asia to Europe starting in September. This equates to a one-sixth reduction in capacity for that route. This follows an earlier announcement from the 2M Alliance consisting of Maersk Line and MSC indicating it with withdraw 10 percent of capacity from the Asia to Europe route until further notice.

The timing of these cutbacks, while advantageous to container carriers, is not advantageous to industry supply chains. The open question is whether the removal of this much container capacity heading toward Europe will have any later impacts as we move closer to the holiday season.

It is further another indication of the significant gross overcapacity situation of ocean container fleets. According to the WSJ, freight rates between Shanghai and Rotterdam barely cover carrier operating costs, hence the announced cutbacks. The carriers are significantly reducing capacity to insure higher freight rates, in spite of dramatically reduced fuel costs.

In a related development, industry leader A.P. Moeller Maersk, in reporting its latest financial results, gave strong indications that it will defend and even expand its industry market share position. That raises the likelihood of additional industry cost or capacity cutting moves. The question is timing.

Maersk Lines additionally revised its estimates of global container volume down to a range of 2-4 percent from the previous 3-5 percent growth estimate which is a further acknowledgement of reduced global shipment volumes.

For industry supply chains, especially those that are B2C and retail focused, the timing of these ocean industry cutbacks is troublesome, coming at the time of peak seasonal movement. On the one hand, such cutbacks in scheduling may provide added flexibilities for alliances moving surge container volumes from Asia to North America.  One of the newer mega-container ships can carry lots of last-minute cargo.  On the other hand, the reduction in capacity places added pressures on various procurement and supply chain planning teams to carefully plan remaining inbound movements and required safety-stock levels. The challenges of container chassis availability and the ability of certain ports to be able to efficiently unload and reload the newest mega-container ships remains an open concern.

If any major U.S. or European port were to encounter a disruption or significant backup over the next three months, carriers will likely be reluctant to have ships sitting idle and generating additional operating costs. The open question is how many supply chain teams elected to balance inbound movements among U.S. West and East coast ports, and now, European ports.

Once again, it is going to be a challenging holiday surge period where careful planning will prove to be a key difference. Sales and Operations planning teams need to have a keen eye on supply chain planning and execution along with early-warning mechanisms. The lessons of from 2014 have hopefully translated into enhanced planning and risk mitigation since the turmoil of global transportation continues to play out.

Bob Ferrari

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