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Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains- Part One

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Once a year, just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog provide our annual ten predictions concerning industry and global supply chains for the coming year. We have maintained this tradition since the founding of this blog in 2008 and it continues to be quite popular with our readers and clients.

These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, as well as helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the upcoming year. Predictions are sourced from synthesizing developments and trends that are occurring in supply chain business, process and technology dimensions, researching various economic, industry and other forecasting data, along with input from clients, thought leaders and global supply chain observers. We take predictions seriously and align our research and blog commentaries to focus on each specific prediction area throughout the coming year.

Supply Chain Matters will revisit each of our annual predictions at the end of the year to ascertain how close or how far each fared.  The report card regarding our 2014 Predictions can be re-visited at the below web links:

2014 Predictions Report Card- Part One

2014 Predictions Report Card- Part Two

2014 Predictions Report Card- Part Three

2014 Predictions Report Card- Part Four

2014 Predictions Report Card- Part Five

 

We continue to believe that industry analysts should openly state their insight and opinion of what to expect in the coming year without the need for a paid subscription.  Readers therefore have the opportunity to compare and contrast various sources of predictions.

As in the past, all ten of these 2015 predictions will be included in a more detailed research report which will be made available for no-cost downloads in our Research Center in January. Readers will be able to register to download a copy or can email us directly.  More details regarding that process will come later.

In this Part One posting, we outline our first five predictions for 2015.

Drum roll please …..

 

2015 Prediction One: More optimistic global economic growth with the usual caveats and uncertainties

Forecasts point to an optimistic global economic outlook for 2015 with continued cautions and unknowns for industry supply chains.  The bright spots will continue to be the United States and Mexico.

The October 2014 forecast from the International Monetary Fund (IMF) predicts 3.8 percent global growth vs. 3.3 percent in 2014. Advanced Economies are predicted to grow 2.3 percent vs. 1.8 percent in 2014. World trade growth is expected to expand 5 percent in dollar terms.

The most concern resides for the Eurozone, where tepid growth and deflation remains an identified and concerning risk.

China’s growth is predicted to be 7.1 percent vs projected 7.4 percent in 2014. China’s economic planners will be caught in a difficult balancing act to manage growth but deal with high levels of debt. We have read of more pessimistic forecasts foretelling of broader setbacks ahead for China’s economic growth, with concerns for a stumble.  Then again, China’s economic leaders were adroit in avoiding a stumble in 2014.

According to the IMF, developing economies are predicted to grow 5.0 percent vs. 4.4 percent in 2014.  A significant surprise will be India which is expected to grow 6.4 percent vs. 5.6 percent in 2014. Growth is expected to accelerate in Latin America with Brazil and Mexico leading the charge. Argentina remains an ongoing concern.

The IMF expects resurgence of U.S. economy to continue at 2.3 percent vs. projected 1.8 percent in 2014. However a poll of 50 economists conducted by The Wall Street Journal in September indicates closer to 3 percent U.S. GDP growth in 2015. For the United States, the ISM PMI Index in November was reported as 58.7, a significant 7.4 percentage points higher than the value recorded in January.

The J.P. Morgan Global Manufacturing PMI Index, a composite index and recognized benchmark of composite global supply chain and production activity provided mixed signals by November of 2014. An overall value of 51.8 was recorded in November reflecting expansion of manufacturing production for the 25th consecutive month, but the rate of expansion eased to its lowest level since August 2013. Growth in new orders was recorded as a 16-month low with the trend in international trade volumes stagnated. North America continues to be reported as a key growth region while concerns were expressed for stagnation in China and further subdued growth for the Eurozone sector.

Another area of concern is fluctuations or shifts in global currency, particularly Asian currencies and the Chinese yuan. As we pen these predictions, the currency of Russia has been impacted by significant de-valuation.

The takeaway for industry supply chains and their sales and operations (S&OP) processes is to anticipate another year of needs to be able to predict supply chain demand and supply needs on an individual geographic region or country basis. Generalized planning no longer suffices and industry supply chain teams will need the means to be able to respond to short-term market opportunities or sudden changing trends.

2015 Prediction Two: General Moderation and Reduction of Commodity Costs with Industry Exceptions

Expect a continued overall moderation trend for the cost of commodities with certain industry specific exceptions.  Dramatically lower oil prices in 2015 will be the biggest headline driving commodity and pricing trends in 2015.

As of mid-December, the Standard & Poors GSCI Index of broad based commodities is projecting a 27 percent decrease in overall commodity prices over the next twelve months.

As we pen our 2015 predictions, the prices of crude oil have plunged to their lowest levels in five years after the International Energy Agency (IEA) cut its forecast for global oil demand on the fifth occasion in six months. The news has added volatility among global equity markets as investors become increasingly concerned about the implications. Global oil prices have consequently plunged from the peak of $110 per barrel to a range of $60-$70. Some forecasts now peg 2015 oil prices as low as $50 per barrel.

Global and industry supply chain strategies are driven by the forces related to oil prices and the cost of energy and thus this commodity trend looms large for broader implications in 2015. The open question is whether the trend is permanent or short-lived.

Purchasing and commodity teams can therefore anticipate inbound cost savings in the coming year with the usual exceptions related to unforeseen weather or risk events.

 

2015 Prediction Three: Momentum for U.S. and North America Based Manufacturing Sourcing Continues but Motivates Broader Needs

We predict that the momentum for U.S. and North America based manufacturing will continue in 2015 with discernable benefits for certain industries. The need to broaden investments in certain industry supply ecosystems and U.S. logistics and transportation infrastructure will continue to dominate business headlines and industry agenda.

Throughout 2014, U.S. and North America based supply chain related activity continued at a steady state.  As of October, 16 of the total 18 tracked industries within ISM’s PMI indices were reporting growth momentum.

The continued growth of U.S. and North America manufacturing comes from a number of factors not the least of which have been the ongoing double-digit increases of labor costs in China, increased positive momentum of the U.S. economy and more attractive energy costs throughout North America. Specific efforts by Wal-Mart, other retailers and manufacturers concerning significant long-term commitments for sourcing products in the region have helped immensely.

In August of 2014, the Boston Consulting Group noted in its report, Shifting Economics of Global Manufacturing, that in some cases, the shifts in relative costs of manufacturing among China and North America have placed Mexico as the cheaper low-cost manufacturing alternative.

However, the sourcing of U.S. and North America based manufacturing continues to uncover gaps in globally competitive component supply chain networks, many of which still reside in Asia or China. This is especially the case in high tech and consumer electronics, footwear, apparel and other industries. Continued momentum is thus increasingly dependent on further re-building of global cost competitive North America based supply ecosystems among multi-industry supply chains.

A caveat for 2015 stems from the plunging price of oil and energy outlined in Prediction Two which could influence some manufacturers to remain concentrated in an Asia or Eastern Europe based sourcing strategy.

 

2015 Prediction Four: Internet of Things (IoT) Continues to Attract Wide Multi-Industry Interest But Certain Challenges Need to be Purposely Addressed

Cross-industry interest levels and momentum surrounding B2B products and services leveraging Internet of Things (IoT) coupling sensor-based based technologies will continue to attract wide multi-industry interest. IoT provides a new era of interconnected and intelligent physical devices and/or machines that will revolutionize supply chain processes related to production, transportation, logistics and service management. We expect more technology vendors to jump into this area along with heightened M&A activity as these vendors position for industry needs and requirements.

IoT will further drive a convergence among product and service focused supply chain planning and execution processes as well as certain product lifecycle management information integration needs. PLM and SLM provider PTC is a current example of this dimension but other vendors will be attracted to this business model.

The realities in the lack of consistent or conflicting global-wide standards, overcoming data security concerns and scalability of networks will provide more visible challenges for broader industry deployments.  We have recently indicated a feeling of de-ja -vu for the replay of early RFID efforts, as vendors tended to ignore certain realities of the technology. Vendors will need to step-up efforts to address current challenges and individual industry needs.

 

2015 Prediction Five: Noted Industry Specific Supply Chain Challenges

Noted industry specific supply chain challenges will remain in B2C-Retail, Aerospace and Consumer Product Goods (CPG) sectors.  Automotive manufacturers will have to address continued shifting trends in global market demand and a renewed imperative for corporate-wide product and vehicle platform quality conformance measures.

B2C and Retail

Global retailers continue to be challenged in emerging and traditional markets and in permanent shifts in consumer shopping behaviors. In 2014, retailers encountered the realities of lower margins for online fulfillment, the needs to invest in enhanced inventory management, distrusted fulfillment and order management capabilities, and the perfect-storm presence of developments that resulted in dysfunctional west coast ports.

Retail sales in China, Asia and Australia are expected to surpass that in North America, but China’s efforts in greater scrutiny of foreign-based retailers and service firms will likely continue to impact growth expectations in the coming year. According to industry and business media, retailers are expected to instead target the other so-termed MINI countries (Mexico, Indonesia, Nigeria, Turkey) for growth prospects in 2015.

The accelerating trends and implications of Omni-channel and online fulfillment will impact traditional retailers with more casualties recorded in 2015. Amazon, Google and Alibaba will continue to be industry disruptors, movers and shakers in 2015 and Wal-Mart.com may join that list. We would not be surprised if Alibaba concentrates acquisition efforts toward more U.S. and North America online properties to prepare for a presence.

Consumer Product Goods

CPG companies continued to view emerging markets such as China and India as important regions for future growth but experienced the effects a far more complex and risk-laden supply and regulatory networks. The heightened influence and actions of short-term focused activist equity investors, applying dimensions of financial engineering to one or more CPG companies will continue to have special impacts on consumer goods industry supply chains with added, more troublesome cost reduction and consolidation efforts dominating organizational energy and performance objectives. The new winners in CPG will continue to be smaller, more nimble producers who lead in product, supply chain business process and technology innovation.

Aerospace

Industry dominants Airbus and Boeing and their respective supply ecosystems will continue to be challenged with the needs for dramatically stepping-up to make a dent in multi-year order backlogs and in increasing the delivery pace for completed aircraft.  Dramatically lower costs of jet fuel in 2015 will likely present the unique challenges of airline customers easing off on delivery scheduling, but at the same time insuring their competitors do not garner strategic cost advantages in deployment of newer, more fuel efficient and technology laden aircraft. Middle East and Asian based airlines and leasing operators will continue to influence market dynamics and aircraft design needs.

Renewed hostilities involving Ukraine or severe economic or currency crisis within Russia could impact strategic supply of titanium and other metals.  The economic malaise that is expected to continue across the Eurozone region along with expected contraction in China will present 2015 challenges for Airbus and Boeing’s supply ecosystems. Boeing will especially be focused on continuing to influence more cost reduction and productivity efforts among its global suppliers while continuing to address identified issues from regulatory investigations in practicing added supplier oversight for design and production process quality.

 Automotive

In the U.S., an unprecedented and overwhelming level of product recall activity spurred by heightened regulatory compliance pressures will drive product quality and compliance as the overarching corporate-wide imperative. Cascading incidents in 2014 pointed to issues of quality lapses among global suppliers and early-warning of potential component defects. Existing product recall campaigns will most likely extend through the first-half of 2015, placing added strains on aftermarket service dealerships.  Japan based air bag inflator supplier Takada will continue to deal with its creditability crisis and could lose significant new business if it does not step-up and get-ahead of the airbag quality crisis. OEM General Motors will especially be under the looking glass in 2015.

 

This concludes Part One of Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains.  Part Two in this series will unveil our next five predictions.

We encourage readers to share in the Comments section their own predictions on what to expect in 2015.

In the meantime, we extend best wishes for the holiday season and the New year.

Bob Ferrari

©2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved


A Supply Chain Matters Rant Regarding Headline Hype- Offshoring vs. Reshoring

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Throughout 2014, Supply Chain Matters has been tracking and highlighting the significantly increased momentum of U.S. and North America based manufacturing.  Increased U.S. manufacturing momentum was U.S. PMI comparison 2014 vs. 2007included in our predictions for 2014 along with some specific caveats. Throughout the year we have pointed out the obvious needs across certain industry supply chains for rebuilding world class supply and services ecosystems. We continue to believe that the signs are obvious.

Because of the growth potential within emerging up and coming markets across the globe, many manufacturers prioritized manufacturing and supply chain capital investments specifically within these growth regions. In September we highlighted business media reports citing a Morgan Stanley report indicating that the average age of industrial equipment in the U.S. has risen above 10 years. Growth of all types of capital spending by U.S. firms increased 3 percent in 2013, and is forecasted to be 3.8 percent this year, levels far below the historic average of 8 percent. Other commentaries have highlighted reports of manufacturers encountering obstacles in their U.S. sourcing efforts.

This week, this author was befuddled by two separate Wall Street Journal articles directed at the state of U.S. manufacturing.  Some would argue that business media sometimes enters the realm of headline sensationalism to attract eyeballs.  In the case of these two reports, we urge readers to ignore the headlines and focus on the prime takeaway messages.

On Monday, the WSJ headline was Offshoring Outpaces ‘Reshoring”. (paid subscription required) The report highlighted a recent A.T. Kearney study that pointed out the gaps between hopes raised by those advocating ‘reshoring’ and the reality of deteriorating U.S. performance. A highlighted quote from this report states: (Reshoring) “is not what it’s cracked-up to be” An additional quote from a Kearney partner: “There’s basically still more stuff being pushed out than is brought back.” However the Kearney executive acknowledges that the U.S. is on an upward trend and is gradually becoming more competitive.

On Tuesday, the headline was: Manufacturing Output Passes Pre-Recession Level. ”. (paid subscription required) That report notes that the U.S. Federal Reserve reported that factory output in November climbed 1.1 percent, its largest increase since February.  The previous October number was further revised upward. The October number placed manufacturing activity above its previous peak in December 2007. An extracted quote: “And overall industries- a category including manufacturers, utilities and mining- are now working nearer to full capacity than any other point in six years.

Thus are examples of two headline contrasts yet if you dig deeper, the themes are consistent.

The takeaway from this commentary is to ignore the tendencies for headlines and tailor your manufacturing sourcing strategies to where significant customer demand and economic growth originates now and in the future.  China and other emerging economies and markets cannot be ignored but the realities of current regulatory and other obstacles favoring local manufacturers cannot be ignored as well. A global sourcing strategy needs to be balanced for risk, market access, landed costs and other meaningful criteria such as logistics and transportaion.

A strategy that emphasizes added U.S. manufacturing investment should consider the realities that in some cases, supply ecosystems will have to be re-built to global competitiveness, or that certain components will have to remain sourced within other lower cost regions. From everything we have analyzed, the U.S. economy and North America based manufacturing resurgence looks to continue well into 2015.

Bob Ferrari


How a Single Expensive Component Can Inhibit End-of-Year and Customer Fulfillment Goals

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Over the remaining few days of December various supply chain teams will be hard at work supporting end-of-year shipment and revenue milestones. Most supply chain teams are aware that completing key milestones, whether financial, business or management focused, are critically important for compensation and career considerations.

In many cases, singular parts or component assemblies can likely be a cause for multiple end-item shipment delays. We are fairly confident that many of our readers residing in manufacturing, retail or service supply chains can well relate to this situation.

Thus, we were not at all surprised to have run across a Bloomberg published article indicating that Boeing and Airbus production and supply chain teams are working to ensure that 2014 end-of-year and program production and shipment milestone targets are fulfilled.  The December challenge stems from France based Zodiac Aerospace, a supplier of upscale lie-flat airline seats.  Certain deliveries for both the new Airbus A350 and Boeing 787 Dreamliner have requirements for the luxury seats which according to Bloomberg, can cost upwards of $200,000 each because of expensive finishes and complex mechanics. They are described as the “Ferrari” of airline seats.  This author appreciates that analogy.

For Zodiac Aerospace, 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 the current challenges. The supplier is attempting to resolve all late deliveries and return to a normal schedule by mid-2015, but as is often the case, planning teams have been working to move deliveries of other new aircraft that can be completed to December customer delivery.  The article cites American Airlines as an example, who now expects to take delivery of its initial 787 during Q1-2015 rather than this month. American also needs to secure FAA approval to utilize these innovative seats within its new 787 fleet.

The 2014 shipment milestone for the Boeing 787 is 110 aircraft. Airbus encountered a sudden and unexpected delay in delivery of the first A350 to launch customer Qatar Airways because of an unexplained reason. Commercial aerospace supply chain and S&OP teams are thus behind the scenes and hard at work resolving last-minute snafus while working with various customers to move-up or re-schedule deliveries.

When the stakes are high, the individuals and teams that maneuver the various moving parts of the supply chain do matter. While technology can provide helpful tools, in the end, it’s the brainpower, creativity and tenacity of individuals that deliver the bacon.

No doubt all will done to insure December milestones are accomplished.

We share a wise holiday and New Year’s resolution- express your thanks to the planning, execution, procurement and product management professionals that are often called upon to be the last-minute enablers of customer fulfillment.

Bob Ferrari


Update on Delta Airlines Supply Chain Vertical Integration Strategy

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In the airline industry, the largest cost of services rendered is the cost of aviation fuel followed by direct labor costs. Profitability and overall business financial results are therefore highly dependent on a predictable cost of fuel.  Delta-Air-Lines-McDonnell-Douglas-DC-9_250_81

In May of 2012, Delta Airlines made what Supply Chain Matters viewed as a bold initiative in practicing supply chain vertical integration. At that time, Delta purchased a previously idled Trainer Pennsylvania refinery from Conoco Phillips for $150 million. Plans called for an additional $100 million to retrofit the refinery to optimize its ability to refine jet fuel and Delta would subsequently enter into marketing and sourcing agreements with both Phillips 66 and BP PLC to exchange gasoline, diesel and other refined products additionally produced at this refinery for distribution in other retail markets. Delta’s plan was to eventually reduce its annual jet fuel costs by $300 million, along with having the ability to plan on a reliable source of supply for eastern U.S. operational needs. Airline competitors and industry analysts were very skeptical of this effort and Supply Chain Matters committed to continue to monitor subsequent developments and financial results that concerned this refinery’s contribution to its stated business goal.

We have subsequently published periodic updates, the latest being January 2014 and April 2014.

Last week, Delta indicated to its investors that lower fuel prices would increase its profitability next year but could force the airline to write-off $1.2 billion as a result of prior fuel hedging contracts. The airline expects pre-tax income to jump 11 percent to $5 billion next year, including a net gain of $1.7 billion in cost savings from lower fuel costs. Since June, the cost of jet fuel has dropped by about a third. However, according to reporting from The Wall Street Journal (paid subscription), those savings could have been 70 percent larger without the hedging. Fuel hedging is a common but controversial procurement practice for the airline industry. Even though Delta owns a refinery, it also exercised fuel hedging contracts to protect from being impacted by high spikes in fuel prices.

Delta indicated that in its fiscal fourth quarter, profit of $75 million at its Trainer refinery would offset a roughly $150 million hedging loss in the period. Delta’s CFO indicated that in a period of stable fuel prices, the refinery, hedges and efficient operations allow Delta to save 8 to 10 cents a gallon on fuel. But, partly because of hedges, “during periods of dramatic price swings… our goal is to drive industry parity” on fuel prices. Delta’s president further indicated that its hedges save it 65 cents for every dollar decrease in the price of fuel.

Thus, at this point, Delta’s investment in a refinery continues to contribute short-term financial benefits, but coupled with a longer-term fuel hedging strategy, and current period of dramatically lower cost of jet fuel costs in 2015, whether or not the refinery serves a strategic advantage. Time will tell, along with subsequent financial reporting from other competing airlines.

Supply Chain Matters will continue to monitor these developments.

Bob Ferrari

 


Ex-Apple Procurement Manager Sentenced- Have We Learned Anything?

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In the summer of 2010, a global supply manager at Apple was charged with wire fraud, money laundering and unlawful transactions in an alleged kickback scheme that involved multiple Apple suppliers. In our Supply Chain Matters commentary in August of 2010, we highlighted the alleged scope of the conspiracy along with a report indicating that the kickback scheme was believed to have dated back as far as 2006. The elaborate scheme was believed at the time to have involved at least three Apple suppliers where confidential information would allow such suppliers to negotiate on more favorable terms with Apple.  The suppliers in question provided mechanical parts, tooling and fixtures related to the manufacture of Apple iPads and iPhones. Information allegedly shared included Apple’s planned sales volumes, product specifications, competitors target prices and bids, which in essence provided overall intelligence on how to best bid for Apple’s business.

In late February of 2011, Paul Devine, a now former Apple manager, pleaded guilty to 23 counts of felony fraud and conspiracy charges in connection with this incident.  Mr. Devine admitted receiving kickbacks from six different Asia based suppliers in exchange for Apple related confidential information. Devine was further ordered to turn over $2.3 million in money and property acquired from the conspiracy.

This week provided news that Mr. Devine has now been sentenced to one year in prison, three years of subsequent probation and fined $4.5 million for his role in the former conspiracy. Devine will begin serving his prison term in late February 2015.

The halls of justice indeed run slow.

According to a published report on Computerworld, Devine’s activities were discovered after Apple reviewed personal email messages from his Hotmail and Gmail accounts on his company-provided notebook. The report further speculates that Devine’s relatively light prison sentence “may have been because he cooperated with authorities in their pursuit of others including Chua (Jacky Chua, former managing director of Singapore based Jin Li Mould Manufacturing) and Ang (Andrew Ang, an employee of Jin Li and a relative of Devine by marriage).”

In a separate posting this week on the appleinsider blog, at the time Devine plead guilty in 2011, “he was ordered to forfeit some $2.3 million in property and money. The federal government had seized $150,000 in cash from Devine’s home — which he reportedly stashed in shoe boxes — alongside nearly $1 million from various bank accounts in both his and his wife’s name.” That posting has thus garnered 50 Comments by today’s count, most of which focused on the greed of an individual who worked for a great employer, seemed to be well compensated by that employer, and chose to pursue unsavory business behavior instead. 

We suppose that these are understandable reactions.

But, as Supply Chain Matters noted in a separate 2010 commentary, this incident should have provided a wake-up call on the state of ethical procurement practices when business pressures and various outside cultures collide.  While some may deflect such remedies toward this being an isolated incident or the moral principles or motivations of the individuals involved, hiring policy has little to do with the underlying root cause of this and other related episodes. It would seem that within today’s business culture, some select firms and individuals within these firms continue with the belief that presumes that all confidential or proprietary information can be had with certain methods.  After all, isn’t business about what is portrayed in today’s reality television programming such as Survivor or the Bachelor?

We should not kid ourselves that such practices exist just in certain financial hedge funds or increased cases of insider stock trading. Once more, information leaks throughout the global supply chain appear to be fair game, and it’s not just a problem solely related to Apple. It is a cross-industry, global-wide problem manifested by different degrees in various geographies.

Firms will continue to scrutinize hiring and procurement business practices and augment such practices with audits and controls.  However, there needs to be heightened visibility and consequences for selling confidential or proprietary information to the highest bidder.

Bob Ferrari

 


Automotive Service Networks Response to Crisis: Update Three- Expanded Recall Involving Suspected Defective Air Bag Inflators

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Supply Chain Matters provides another update to the ongoing crisis involving the automotive industry as unprecedented levels of product recalls continue to stress auto aftermarket service supply chains to their limits. In our last commentary, we noted the colliding forces of regulatory, political, and capacity-restrained automotive replacement spare parts networks may well continue for many more months, and that appears to be exactly what continues to unfold. Once more, when the dust settles, we believe that the industry needs to take a hard look at lessons learned.

This week, there were further significant developments related to recalls of alleged defective airbag inflators produced by Japan based supplier Takata. After undergoing additional scrutiny from U.S. regulators, Takata refused to broaden the scope of the defective inflators recall beyond a select number of U.S. States with high humidity concerns.  That action forced OEM Honda, to expand its U.S. recall of suspected defective airbag inflators to all 50 U.S. states. Once more, Honda further indicated to U.S. regulators that the company is in discussions with other air bag suppliers to add augmented capacity of replacement parts. According to published reports, Honda is in discussion with suppliers AutoLiv and Daicel Corp. for supplementing supplies of required repair parts. In testimony this week, a Honda executive confirmed what Supply Chain Matters indicated several weeks ago, that the shortage of repair replacement parts would continue for quite some time.

U.S. regulators continue to pressure OEM’s BMW, Chrysler, Ford and Mazda to expand their driver-side air bag recall campaigns to include all 50 states. These actions have been prompted by additional information disclosed this week by the U.S. National Highway Traffic Safety Administration (NHTSA) indicating that prior incidents of premature exploding airbags are not just occurring in high-humidity areas. That is new information not brought forward previously. If these other OEM’s expand their campaigns to include all U.S. states, that will of-course add even more concerns to the ultimate availability of replacement parts.

According to a published report by The Wall Street Journal, earlier in the week Takata issued a letter to the NHTSA challenging the authority of that agency to compel a parts supplier to initiate a recall, arguing that the U.S. regulator authority is limited only to actual OEM’s that produce automobiles. From the lens of Supply Chain Matters, that argument is tantamount to a supplier throwing its major automotive OEM customers under the proverbial bus.

There should be little doubt among automotive line of business and supply chain leaders that these past few years of unprecedented product recalls are cause to revisit product quality imperatives. There has been a lengthy industry debate as to whether the quest for volume and profitability growth sacrifices quality conformance across the end-to-end supply chain. On the positive side, Hyundai recently scaled-back its volume growth plans when indicators of slipping quality motivated senior leadership to cut-back growth plans and endorse added quality measures.  The fact that Honda, which has prided itself in the quality image of its products is now front and center in the media is a symptom. In contrast, reports in business media of late question whether Toyota or General Motors have been chasing volume and profitability growth with quality and brand image as a casualty.

Evidence of common defective parts among multiple OEM brands and models point to shortfalls in quality monitors and component sourcing strategies that balance quality conformance risks. At the surface, these developments are perhaps a further indication that teams are not collecting or monitoring correct data as to component failure trends along with predictive indicators of broader manufacturing or material issues. The industry needs to take a hard look at supply-chain-wide quality conformance and feedback mechanisms.

Bob Ferrari


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