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Boeing Considers Commercial Aircraft Production Cutbacks

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Reuters reports that at an investor conference held last week, the aerospace manufacturer’s CFO indicated that will not increase 787 output and could further cut 777 product output levels unless sales of both jets improve.  Boeing 787 production line

Last November, a report indicated that Boeing was planning to deliver a total of 140 new 787’s to customers in 2016. That averages out to roughly 12 aircraft per month among the two designated final assembly facilities in Seattle and Charlestown South Carolina. Boeing’s plans were to increase the monthly production rate of completed 787’s from the current 2016 level of 12 to 14 per month in 2017. Last week’s statement would indicate that Boeing is now re-evaluating that decision in the light of softening customer demands to take delivery of 787 orders as well as general resource cutbacks to boost the manufacturer’s near-term profitability.

An earlier posting appearing on the ALL Things 787 blog indicates that: “near term deliveries of the 787 look to slow down due to unspecified issues with the thrust reversers affecting both GE and Rolls Royce powered aircraft.” The issue affects certain models or variants of the aircraft. The posting further indicates that just when followers of the 787 program thought that the program starting to emerge from the financial black hole that was created, it was sucked right back in with Boeing’s announcement of an incredibly high charge of $847 million against second-quarter 2016 earnings.

The blog indicates that with the 14 deliveries accomplished in July, Boeing has delivered 82 787’s this year through the end of July.   That would imply that 58 remain to be delivered to meet the prior 2016 production goal. A subsequent blog posting noted that Boeing’s South Carolina facility will shut down for about 11 days (between August 22 and September 2nd) to allow suppliers to retool for 787-10 production that will start later this year., which could reduce August total output numbers.

Regarding the 777, Reuters re-iterates the 777 is slated to be replaced with the new 777X.  As we have noted in our prior Supply Chain Matters commentaries, Boeing has been offering sales incentives for the 777 model to certain airlines in order to maintain production and capacity levels prior to ramp-up of the newest model. The fact that Boeing is re-visiting a production cutback may well be an indication that airline customers are differing any buying decisions until the newer model is released.

Finally, Boeing also indicated that it will soon entirely phase-out the iconic four engine 747 model because of slumping demand. Apparently orders for new replacements of U.S. Presidential jet Air Force One have been the only real highlight of that program.

 


Supply Chain Matters Profile of Powerlinx- A Business Partner Matching Technology

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From time to time, Supply Chain Matters will highlight what we believe our technology and services providers that are providing unique or differentiating technology approaches in supporting business process needs. In this commentary, we profile Powerlinx, a technology that supports the ability of companies to quickly search out potential strategic partners.

VentureBeat describes this provider as “the eHarmony of business”, providing a technology that can more quickly identify potential partners utilizing advanced data discovery methods. In essence, the technology is similar to that utilized by prominent social media sites such as Facebook or Linked-In that leverage graph data discovery methods. The twist is the application to search out potential partners such as new suppliers, advanced technology providers, industry expertise or to be discovered by other firms for specific capabilities and traits. Thus, it can avoid the need for hiring business advisers and consultants to engage in a time consuming search activities.

The firm was founded in 2012 by former Dun and Bradstreet executives and dedicated its first two years towards developing what is now described as the proprietary PowerScore platform utilizing text mining and natural language conversion techniques, This platform recently went live in March of this year, and we were informed that it is currently populated with 85 million potential partners spanning 165 countries. The technology provider is also now discovering its value to manufacturers and supply chain management teams.

To populate this data store, developers scanned available primary sources such as company web sites, news releases, media mentions and other sources. A proprietary PowerScore™ algorithm analyzes a wide variety of metrics to provide a quantitative measure of a company’s compatibility with a potential partner.

Inferences are drawn among various data store partners regarding areas such as stated objectives, current or past relationships, successful relationships or other known strategic partners. Partners further have the ability to control which matches that would like to approve or be displayed. Our briefer, Yoni Cohen, Head of Product, was quick to point out that the data store is sensitive to any proprietary information and will protect such information. Partners’ in-turn have the ability to also limit any sensitive information.

To springboard customer adoption, Powerlinx currently offers a three-tiered pricing model to appeal to various user groups. The no-cost entry level Basic plan was designed for companies looking to grow, finance or exit a business and places a defined limit on the number of searches that can be conducted while providing the opportunity to respond to inbound opportunities identified by the platform. The two other tiers, Professional and Power provide support for unlimited matches with added hands-on Powerlinx consultant services. Pricing is rather attractive; a Professional subscription is currently priced at $100 per month or $1000 pre-paid for an entire year. A Power subscription is priced at $500 per month; $5000 annual pre-paid and comes with a dedicated analyst and premium services such as advanced privacy options and active promotional services.

Overall, we had not run into this type of technology prior to our briefing, and wanted to pass on visibility to our readers. We further garnered the impression that this is an energetic start-up with a mission, passion and purpose as well as a somewhat attractive pricing model.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group LLC and the Supply Chain Matters® blog. All rights reserved.

Disclosure: We have no current client of business relationship with Powerlinx or its investors.


Apple’s Fiscal Third Quarter Performance Provides Added Concerns and Heightened Expectations

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Yesterday, Apple reported its fiscal third quarter financial performance for the period that ended in June and the results were somewhat concerning from both a financial and supply chain strategy perspective.  Apple Logo

On the financial side, the business media headlines reflected the first prolonged slump in iPhone sales since that product was introduced in 2007. That is especially concerning since the iPhone is the prime revenue and profit generator for this prominent consumer electronics producer. Total revenues declined 14.6 percent while net income decreased nearly 27 percent or $2.9 billion from the year-earlier quarter. Gross margin for the recent came in lower at 38 percent, primarily attributed to the introduction of the lower-priced Apple iPhone SE model. The average selling price for the company’s iPhone lineup dropped to $595 from $662 in the year earlier quarter.

From a supply chain volume perspective, the company indicated it sold 40.4 million iPhones and close to 10 million iPads in the quarter.  Regarding the former, CEO Tim Cooke indicated that sales interest in iPhones was higher but was constrained by a decision to reduce four million units of overall iPhone inventory in its various retail channels. Regarding the latter, iPad volume has now dropped for 10 consecutive quarters with the latest 9 percent volume decline. From a global perspective, more concerning was a 33 percent drop in sales within Greater China that includes Hong Kong and Taiwan in addition to the mainland. Smartphone sales in this region continue to increase and have benefitted other domestic and foreign producers.

In its reporting, The Wall Street Journal opined that the company’s main hardware products remain in decline and that new products are not successful enough to pick-up the slack. Further indicated is a concern that Apple may have lost its innovative touch.

Thus, Apple’s current new product development and product release phase looms even larger to convince investors and the market as a whole that Apple will retain its innovative edge.  Once again, the Apple supply chain must deliver on both higher expectations and now, new pressures to reduce costs along with smarter management of overall inventories. With a continued decline of the company’s traditional hardware products added to what is likely to be highly optimistic forecasts and expectations for pending new products, Longer-term, expectations remain high for Apple’s entry into other markets such as electric powered vehicles.

Apple’s sales and operations team members have yet another challenging 6 months in planning for the all-important year-end holiday period where sales and profitability needs are so important. Compounding this problem is yet another shift in supplier strategies and constant information leaks across the supply chain.

Indeed, Apple has reached an interesting crossroads. The again, there could well be other interesting developments in the weeks to come given Apple’s massive cash balance and propensity to generate considerable profits. We should all not be surprised by other strategic moves.

Bob Ferrari

© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.


Tesla’s Revised Master Plan Provides More Product Engineering and Supply Chain Implications

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Last week, Tesla founder and CEO Elon Musk penned a blog posting that essentially updated the master plan for the company that called for a broader product development thrust into hybrid trucks and buses. This places a far broader emphasis on the firm’s supply chain ramp-up challenges, one with the implication that Tesla will, by our view, have to seriously consider adding to existing final assembly production capacity beyond its current Fremont California facility.Tesla ModelX_Live

The commentary itself not only provides an argument for why the electric car company must merge with SolarCity, but a further expansion of the master plan that includes:

  • Create stunning solar roofs with seamlessly integrated battery storage
  • Expand the electric vehicle product line to address all major segments
  • Develop a self-driving capability that is 10X safer than manual via massive fleet learning
  • Enable your car to make money for you when you aren’t using it

New product offerings were described as a new form of pick-up truck, and beyond the consumer vehicles market, an innovative heavy-duty trucks and high passenger density urban transport vehicle. Regarding the latter, Musk envisions a smaller footprint of urban busses with a transition from the role of individual bus driver to one of fleet manager. Both are noted as in the early stages of development at Tesla and should be available for unveiling next year, and will follow the availability of the more affordable Model 3 currently due in 2017.

Supply Chain Matters previously highlighted efforts of truck maker Nicola Motor Company in developing a Class 8, 2000 horsepower electric powered semi-tractor truck that will be named the Nicola One. This manufacturer has to-date booked 7000 reservations, each accompanied by a $1500 deposit, totaling more than $2.3 billion in cash to secure a reservation for this new vehicle, hence the sense of urgency for Tesla to enter such a market.

To state that the latest master plan is audacious or ambitious is an understatement. It places a far more concentrated focus on whether product development and the supply chain can rise to the challenge in such a short timeframe.

As noted, our last Supply Chain Matters commentary on Tesla concluded that the company remains challenged by supply chain ramp-up issues as it strives to meet aggressive short and long-term production and supply chain needs of existing announced vehicles. Musk has literally accelerated by two years, his goal to have the California final assembly facility output 500,000 vehicles per year. In his latest blog post, Musk once again re-iterated that this will be addressed as a function of engineering:

What really matters to accelerate a sustainable future is being able to scale up production volume as quickly as possible. That is why Tesla engineering has transitioned to focus heavily on designing the machine that makes the machine — turning the factory itself into a product.

The adding of commercial vehicles with more innovative hardware and software designs implies no choice but to accelerate capacity, strategic commodity and supply chain wide resources. Just today, The Wall Street Journal reports (Paid subscription required) that Tesla’s new $5 billion “gigafactory” near Sparks Nevada to produce the combined company’s battery component needs is currently one-sixth of its planned future footprint. Currently, 1000 construction workers are working two shifts per day, seven days per week to prepare for 2017 needs in the output of lithium-ion cells. Primary battery supplier Panasonic admits to the current challenges of finding qualified production workers, and with the addition of even more models of transport vehicles, the scale of the battery plant’s capability become crucial.  But so does final assembly and distribution as well, in an area that is noted for rather expensive real estate and distribution space.

Thus, any experienced or even entry level supply chain and manufacturing professionals that enjoy an environment of fast-paced innovation and creativity in business process and physical supply chain processes best route your resumes to Tesla. We anticipate a razor-like focus that harnesses the fusion of engineering, product development and supply chain management into a kaleidoscope of expansion that will test current norms and thinking.

Bob Ferrari


Bombardier CS100 Enters Operational Service Three Years From Original Milestone

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This blog commentary is a side note to our prior Supply Chain Matters published commentary related to first-half delivery performance for both Airbus and Boeing reflecting continued supply chain challenges.

A secondary competing competitor in the single aisle commercial aircraft program category has been Bombardier’s C-Series aircraft which has been challenged by extended financial, program and Swiss Maiden CS100supply chain setbacks. A major milestone has finally occurred with the recent announcement that the first CS100 entered operational service at Swiss International Airlines.

The maiden commercial flight of the CS100 was a Zurich to Paris flight. During the first-half of 2016, Bombardier secured firm orders for 127 C Series aircraft. Transport Canada has further awarded type certification to the larger CS300 model aircraft and the delivery of this model to airBaltic is currently scheduled for Q4.

What caught our attention was a Business Insider blog posting titled: Airbus and Boeing’s greatest threat just arrived.  That posting observes:

Over the next few years, several manufacturers from around the world will launch aircraft aimed to compete with Airbus and Boeing. But Bombardier is the first to enter service and the only one that will compete head-to-head within one of their most important market segments.. Not since the demise of McDonnell Douglas and its MD-80 and MD-90 in the late ’90s has there been a third major player to challenge the Airbus-Boeing duopoly.”

What Bombardier has going for it is the fact that the C-Series is widely viewed as a great plane — receiving critical acclaim for its fuel efficiency, range, and advanced technology.”

If readers have been following our stream of Supply Chain Matters commentaries related to the C-Series program for the past few years, you would have discerned another important advantage from a supply chain perspective.  To provide readers just two examples, you can view our original commentary published in 2010 and a subsequent 2013 commentary posing the question: can a disruptor compete with giants. If the program had not encountered such setbacks from its original goal to enter the market in 2013, it would have entered operational service much earlier and provided evidence to major airline carriers that it could be a viable alternative to current extended delivery schedules for single aisle aircraft. Now, Bombardier will likely have to deal with the industry-wide supply chain constraints that exist, including availability of the newly designed Pratt & Whitney PurePower® PW1500G engine.

One could classify this as opportunity lost, but then again, only time will tell the ultimate determinant.

For airline and leasing customers, it is indeed good to have choices and options for new commercial aircraft. Both Airbus and Boeing sales teams have been rather aggressive in insuring that airline customers would not consider such an alternative option. But now, when the industry as a whole is constrained, than the most innovative program and supply chain management processes and consequent decision-making can well become the ultimate differentiator as to what airline customer  elect to do in their buying choices.

We welcome additional reader viewpoints as well.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved

 


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