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More Definitive News on Pending Foxconn Investment in the United States

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In late January, we alerted our Supply Chain Matters blog readers of a published report from The Wall Street Journal indicating that global contract manufacturer Foxconn, (Hon Hai Precision Corp.) new parent of Sharp Corp. was evaluating a $7 billion in new LCD manufacturing facility in the United States. Our takeaway from this report was that if this investment did indeed occur, it would represent a significant milestone for the high-tech and consumer electronics supply chains. We believed that the plant investment would further have a linkage to Apple’s production needs.  Foxconn 300x201 More Definitive News on Pending Foxconn Investment in the United States

Since that time, there have been various reports indicating on and off again negotiations with individual U.S. states. Last week, the Associated Press, citing an informed source, indicated that Foxconn’s proposed U.S. factory might have a Wisconsin address and that active negotiations with state officials was occurring. The report indicated that the state of Michigan was also a possibility.

Today, the investment advisory site Seeking Alpha, Reuters and other news outlets are now indicating that a final decision is expected in July.

According to Seeking Alpha, the total investment is $10 billion across the United States, beginning with a $7 billion LCD factory. The July decision will likely determine whether Wisconsin or Michigan are the likely site for the factory.

Foxconn CEO Terry Gou has indicated that five other states are under consideration for Foxconn investments including Ohio, Pennsylvania, Illinois, Indiana, and Texas.

Reuters reports that Gau indicated to shareholders:

This time we go to America, it’s not just to build a factory, but to move our entire supply chain there.

Prior reports were indicating that Gau was playing hardball in his ongoing negotiations with individual states, in-essence threatening to continue the process until favorable terms to Foxconn were evident. In the latest Reuters report, Cau is now quoted as indicating he has been favorably impressed, beyond imagination, with the sincerity and confidence by individual state governors to attract investment.

If readers are noting a subtle political tone to these events, you are not alone. Many of the states noted under consideration, including the two finalists voted favorably for President Trump is the last election. The final announcement, when made, will resonate well with “Make America Great Again” voters.

Politics aside, make no mistake that this is a very big deal for high-tech and consumer electronics supply chains, specifically Apple’s supply chain, along with that of U.S. Based automotive brand owners that increasingly feature more high-tech electronics, autonomous driving features and visual displays in future automobile models.

A very big deal indeed.

 

Bob Ferrari

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


Mitigating Supply Chain Risk- How a Supplier Quality Management System (SQMS) Helps Minimize Supply Chain Deviations

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The following is a Supply Chain Matters Guest Posting is contributed by Alex Butler, Medical Device Product Manager, MasterControl

 The increase in international sourcing of drug production continues to rise in pharmaceutical manufacturing. With this increase, the FDA continues to document issues with supply chain breakdowns, errors, material quality and numerous other critical issues surrounding these activities. Supply chain issues have been further magnified in recent years as various to the degree that U.S. congressional committees have questioned the FDA in several instances in an attempt to uncover the root cause of these breakdowns.

Supply chain management for regulated companies is historically fraught with challenges, including many catastrophic instances impacting consumers. In 1937, more than 100 people, including many children, died from ingesting Elixir Sulfanilamide, which contained the deadly poison diethylene glycol. This caused President Franklin D. Roosevelt and the U.S. Congress to pass the Federal Food, Drug, and Cosmetic Act (FD&C Act) as an effort to prevent future catastrophes.

Leap forward to 2011, when the FDA produced a report titled, “Pathway to Global Product Safety and Quality,” and later, the European Medicines Agency (EMA) tightened their Good Distribution Practice (GDP) Guidelines and the Falsified Medicines Directive to improve supply chain management and minimize risk. At an earlier congressional meeting, the Principal Deputy Commissioner, Joshua M. Sharfstein, M.D., discussed the safety of the drug supply. He said, “Protecting Americans from unsafe or contaminated drugs is not just an important responsibility of the FDA—it is our core charge. Drug safety was the primary reason for the passage of our guiding statute.”[iii]

While problems that arose in the past may have been minimized by regulatory enforcement and the adoption of extensive quality control systems by responsible pharmaceutical companies, the industry is now experiencing a new era of quality-related dilemmas rising in the supply chain. Today, supply chain deviations have become a global threat not only to pharmaceutical companies, but potentially to healthcare professionals and public consumers as well, primarily due to the lack of the establishment of a quality culture in pharmaceutical supply chains.

The “white elephant” that the pharmaceutical industry is reluctant to address is counterfeit medications. Counterfeiting has become a massive issue worldwide. Detection and enforcement efforts are on the rise, and officials, regulatory bodies and watchdog organizations are not necessarily unified on best enforcement practices. Although there are many ways and reasons for why and how counterfeit materials and medicines are breaching the industry, one of the most troubling issues is when materials and ingredients are swapped with materials that are either inert or toxic. In some instances, these have made their way through the supply chain, resulting in harm and even death to patients. To date, these incidents are most commonly occurring in geographic locations like China and India. Because border agents and supply chain managers can’t always tell what’s been tampered with, regulators and governments are demanding tighter controls on the global supply, manufacturing, movement and storage of goods.

One thing is clear: it is the responsibility of pharmaceutical organizations to assume a leadership position in addressing and conquering the issue of counterfeit medicines and the challenges plaguing supply chain management. As the FDA states, the issue of managing a supply chain rests with the manufacturer, regardless of where deviations are generated in the supply chain.[iv]

The FDA’s Focus Shift

Historically, the FDA has focused its enforcement activities, including warning letters, seizures, injunction actions, consent decrees, criminal prosecution and so on, at U.S. facilities. However, recently the FDA’s enforcement focus has included facilities in other countries. This has resulted in a large increase in investigations into high-production countries such as China and India.

The pharmaceutical supply chain represents a new frontier for international enforcement activities. The FDA is beginning to increase its headcount in several countries, which signifies an increased emphasis on enforcement worldwide. Overall, the number of inspections has remained flat, but the investigators are being more thorough and are issuing more violations. Moving forward, we can expect to see continued enforcement against pharmaceutical companies with this heightened supply chain focus.

Supplier Quality Management System (SQMS) Software Solutions Can Help

Quality takes on different dimensions depending on the country in which a product is manufactured. Although nothing can take the place of a staff of quality professionals who are familiar with the regulations and the nuances of supply chain quality management and are well trained on the processes involved, the implementation of an SQMS software solution can be helpful.  An automated SQMS can help standardize vendor management processes and can provide efficiencies that give supply chain quality professionals more time—and a standardized process—to minimize the risk of supply chain issues that are breaching the borders and walls of pharmaceutical companies  and prevent problems before they arise.

Many organizations manage their supplier quality management processes using a paper-based or hybrid-electronic system.  While this system may be adequate and in accordance with FDA compliance requirements, it leaves room for significant errors and substantial inefficiencies.

Top Benefits of Implementing an Electronic SQMS

Although most leading pharmaceutical organizations have transitioned to using a software- or cloud-based SQMS, the majority do not. With the tremendous growth happening in the pharmaceutical industry, small and midsize businesses (SMB) have new opportunities to secure previously unforeseen or unavailable shares of the market with their proprietary drugs, generic drugs and advancements. Unfortunately, the inability to capitalize on these new market shares is often due to the fact that the SMBs have not yet shifted over to a software- or cloud-based SQMS. Here are some of the most mission critical ways that a software- or cloud-based SQMS can mitigate or prevent supply chain problems that commonly lead pharmaceutical companies to deliver or accept counterfeit medicines:

  1. Maintain All Supplier Quality Data in a Centralized Location: A repository for automating, maintaining and controlling all supplier quality data and documentation – from non-conforming material reports and audit observations to contracts and service level agreements – is an essential component of maintaining security and compliance. A secure, centrally-accessible storehouse allows pharmaceutical companies to more easily and efficiently manage and monitor supplier statuses and ratings, records, corrective actions and approved vendor lists (AVLs).
  2. Smoother Internal and External Audits: An SQMS can automatically track and store information derived from supplier management audits to help ensure that regulatory guidelines are followed. With an electronic SQMS, pharmaceutical companies can securely store and maintain all information related to supplier management audits, including audit approval statuses, recent data derived from supplier audits and links to quality assurance auditing and analytics reports.
  3. Improved Communication and Collaboration: All departments involved in supplier management—including authorized external parties—can stay connected across geographically dispersed locations, which facilitates better communication and collaboration with vendors and minimizes complications relating to specifications and materials. In this manner, pharmaceutical companies can gain greater visibility into supplier quality, reduce errors caused by miscommunication and, ultimately, receive higher-quality materials or parts.

No system, paper-based or software-based, is foolproof.  However, pharmaceutical companies that implement SQMS software solutions, are seeing meaningful improvements in supplier and supply chain quality issues, significantly mitigating supplier risks, and gaining a higher return on investment for their efforts.

 

MasterControl Inc. produces enterprise software solutions that enable life science and other regulated companies to deliver life-improving products to more people sooner.

 

 


This Week’s Paris Air Show- More About Product Development and Supplier Tensions

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The Paris Air Show is being held this week representing an important sales and marketing event for aerospace and commercial aircraft manufacturers and supply chain participants. Thus far, two dominant themes appear; one being efforts by Boeing to premiere or hint of new aircraft as well as added services, the other by aircraft engine producers and key suppliers, exercising influence as the critical link in commercial aircraft supply chains.

Boeing has focused this week’s event as the formal market launch of the newest version of the 737-aircraft family, that being the 737 Max 10. This latest model of the 737 can seat upwards of 230 passengers and has a reported list price of upwards of $125 million, but customers more than often acquire aircraft at discounted price levels. Industry watchers position the 737-10 as a market response to Airbus’s rather popular A320 neo series Boeing began the week by announcing 135 new orders for the aircraft, and thus far, visibility to individual airline or aircraft leasing companies have come forth, including a United Airlines order for 100 of the aircraft. The aircraft manufacturer expects to book orders of upwards of 240-250 aircraft. The 737-10 is expected to enter operational service in the 2020 timeframe.  Boeing 737Max Tail 300x200 This Weeks Paris Air Show  More About Product Development and Supplier Tensions

The president of Boeing Commercial Airplanes indicated to attending press that customers wanted the aircraft producer to build the single-aisle 737 bigger, and with more operating range.  From our lens, that is reflection of airlines being primarily-driven by financial metrics vs. customer comfort factors.  Anyone who has had to endure a 5-6-hour flight on a packed 737 with few amenities including lavatories likely know what we mean by customer comfort.  Welcome to the new world of airline travel, where efficiency trumps any sense of overall customer experience. But, we digress.

From a product development perspective, because of existing iterations of the 737, incremental product development and manufacturing costs for the larger model are relatively modest by comparison, boosting product margins for Boeing.  The supply chain is already in-place and ramping-up production of all models of the 737 family.

Industry media including Aviation Week report that airlines in general have a mixed view of the 737-10, mostly because of market timing and overall claimed capabilities. Boeing is therefore taking the opportunity to leverage this week’s event as a sounding board for the development of a new, smaller twin-aisle “middle-of-the-market’ aircraft with the designated name of the 797 series.

The conceptual 797 would by some accounts, be positioned between the 737, and the 787 Dreamliner, providing airlines more options in operating U.S. coast-to-coast or transatlantic flights airlines. Many in the industry view this model as a successor to the very popular 757 series.

For Boeing, the 797 series would be a test of quicker-time-to-market since by some accounts, airlines have expressed enthusiastic response to initial paper designs. A further critical design decision would be the selection of the aircraft’s available engines. Thus far, we have read indications that existing 737 MAX and A320 neo engine providers CFM International and Pratt & Whitney would be potential suppliers as well as Rolls Royce, which has up to this point, concentrated its product strategy on the larger twin-aisle segment. However, we read one show report indicating that executives from General Electric and CFM International have no interest in sharing a supplier arrangement with Boeing’s 797 series. Instead that are bidding to be the sole engine provider to assure a timely market introduction.

On the subject of aircraft engines, this week’s event has manufacturers in this segment touting their new engine orders. As an example, GE and CFM expect to book $15 billion in new business, both in hardware and services. GE Aviation indicated that its engine order backlog now exceeds $150 billion.

Beyond the marketing, as we have noted in our most recent Supply Chain Matters commentaries focused on commercial aircraft supply chains, engine manufacturers are currently the critical weak-link in the supply chains for both the A320 neo and the 787-MAX.  Pratt continues to deal with initial engine component design and manufacturing deficiencies related to its new geared turbo-fan (GTF) engines requiring the planning of whole engine spares to keep existing operational aircraft flying to schedule.  Engine supplier CFM International, the joint venture of GE Aerospace and Safran, producers of the new LEAP series engines experienced an initial quality problem in a turbine disc within operating engines of the first 737-MAX. At this week’s event, CFM International management indicated confidence in discovering root cause of the turbine disc flaw and expressed further confidence in meeting the targeted delivery of 500 LEAP engines by the end of this year.

Finally, industry and business press is highlighting the July start-up of Boeing’s newly announced Global Services Business Unit.  This week, Boeing management indicated expectations to garner much more of the estimated 8 percent of business services existing Boeing operational aircraft representing billions of dollars in potential added revenues and profits. The goal is to double annual services revenues to $50 billion in five years. Boeing management acknowledged the potential of a “healthy tension” with major suppliers, including engine producers, since many key suppliers rely on services revenues to boost their financial performance. Some engine producers are currently threatening to invest less in product innovation if Boeing insists on taking more market-share in services. That threat includes the currently contemplated 797 aircraft.  For Boeing to accomplish its business goals for services growth, it will need to convince major suppliers to give-up intellectual property as well as spare parts distribution rights. That is a tall order that is bound to lead to added supplier tensions. A further battleground will be the area of Internet-of-Things enabled service models where both aircraft manufacturers and suppliers are expected to clash on whom owns and controls customer-focused operational and services data. This is an area that bears quite a lot of observation in the months to come.

Bob Ferrari

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


Can Automotive Industry Supply Chain Strategy Undergo Disruption- Perhaps Yes?

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To state the obvious, this has been a week of significant industry developments mostly all pointing to implications for industry supply chain structural change. Having just published our initial commentary on the thunderbolt developments in traditional grocery retailing, we now add more evidence of building disruption, in this case, for automotive supply chains.

Tim Cook has finally publicly acknowledged that Apple has a formal development effort underway focused on Autonomous Driving Systems. In a published interview on Bloomberg Television, Cook indicated: “It’s a core technology that we view as very important.He likened the effort to “the mother of all AI projects,” saying it’s “probably one of the most difficult AI projects to work on.” Tesla Mod3 Sized 450 Can Automotive Industry Supply Chain Strategy Undergo Disruption  Perhaps Yes?

As Supply Chain Matters and other business focused social media outlets have all previously noted months ago, Apple’s efforts in either autonomous driving or electric vehicle manufacturing, under the umbrella of Project Titan, were an open secret. While the effort itself has had its share of fits, starts and scope changes, Cook’s public acknowledgement is an obvious indication of a purposeful and meaningful business initiative that could soon lead to further announcements. With all things related to Apple, timing of announcements is always a prelude to an evolving marketing or pre-planned corporate communications plan to boost brand and investor interest.

In its summary of the interview, Bloomberg notes that Apple has had upwards of a half-dozen vehicles testing autonomous technology on public roads in and around the San Francisco Bay area for at least a year, citing a source familiar with Project Titan. Of course, Apple itself declined to comment on how long the company has been conducting road tests.

Always having a focus on industry supply chain implications, this Editor searched for other opinion and commentary, and found just that.  In fact, we found an opinion commentary that provides powerful arguments for a pending disruption of automotive industry supply chain, and in notions of automotive and electronics contract manufacturing.

An opinion commentary penned by EnerTuition, and hosted on the Seeking Alpha financial investor platform addressed the question: Can Apple Disrupt Automotive Manufacturing?  Without fringing on content rights, the arguments presented for the affirmative are by our view, powerful and dead-on.

The content makes a strong case that there is little doubt that Apple will enter autonomous car manufacturing, with the primary reason being that Apple never considers itself as just an IP or software components company. There is always the full branding strategy of products and related services.

Further challenged is the conventional industry thinking that “the auto industry cannot be disrupted” because of the capital-intensive nature of this industry. While the statement has meaning for traditional automotive manufacturing that is hardware, metal and sheet metal intensive, the counter argument presented is that autonomous electric vehicles provide a far different product value supply chain profile. That includes batteries as the highest cost-of-goods sold (CAGS) component, followed by vehicle sensors and software systems. The assumption presented, although somewhat future focused by our view, is that there will be no need for human factors such as steering wheel placements and instruments, which opens consideration for a singular global product design and manufacturing process.

The most interesting and profound opportunity for disruption is within the core area of manufacturing.

The argument made is that with most of the value-added of electric powered cars consisting of electronics vs. sheet-metal, and with the change coming so rapidly, manufacturers or industry disruptors will have little choice but to adopt a contract manufacturing strategy. With such a strategy, EnerTuition argues that the supply chain dominants will become emerging automotive component sub-systems and electronics providers, augmented with existing high-tech electronics contract manufacturers. Names such as Foxconn, Flextronics and Jabil are argued to grow more share of contract automotive manufacturing.

The above, ladies and gents, is a rather strong argument to support how Apple can indeed move directly into automotive manufacturing, because of its intimate knowledge and proven capabilities to understand the tenets of supply chain strategy and utilization of contract manufacturing. And, if you tend to dismiss any parts of the above arguments, consider that Apple, with its obscene cash balance, could acquire an electric automobile manufacturer itself. Guess which one- it starts with a “T”.

The reason we are highlighting this Seeking Alpha commentary for our readers is because this Editor and independent supply chain management industry analyst has been observing new and emerging positioning and capability among contract manufacturers and the industry that points toward such technology-driven changes.  Recall that just recently, Ford Motor elected to undergo a CEO change because of the stated need to move faster in technology innovation and in development efforts in autonomous vehicles.

There is ample evidence that disruption is indeed on the horizon soon, and traditional auto manufacturers and their key suppliers may be the deer in headlights if they do not move fast enough with an integrated product development and supply chain support strategy

Bob Ferrari

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


For Smartphones- Integrated Product Design, Supply Chain and Manufacturing Capabilities Matter

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A growing tenet in what is today’s broad supply chain management capability umbrella is the ability to be able to integrate product and manufacturing process design with global-wide production capabilities, faster and cheaper than existing competitors. The notions of responding to local customer needs and desires are now often manifested by co-locating or virtually connecting product design with supply chain process capabilities and continue to become important differentiators for industry supply chains, and for industry disruptors.

These notions are now playing out in the global smartphone market with recent revelations that China based industry disruptors are gaining more global market-share by a strategy of a keen focus on local and regional consumer needs, and on a keen dependency on an integrated and demonstrated agile manufacturing region in China.

Information technology and consumer electronics quantitative market analysis firm IDC recently disclosed that a collection of Chinese smartphone manufacturers have now secured more than 40 percent of global smartphone market-share in the first quarter of this year, nearly double the number of five years earlier. That is a remarkable achievement.  A recent published report by The Wall Street Journal (Paid subscription required) brings forward two significant reasons for this achievement.

The first is the willingness of brand providers such as Transsion Holdings, maker of branded Tecno, itel, and Infinix phones, along with BBK Electronics, maker of branded Oppo and Vivo smartphones, to engineer product features of specific interest within local and regional markets. Localized features include dual SIM card slots, differing camera and imaging features that cater to local norms or demographics.

The second noted reason for success was a common dependence on China’s coastal Pearl River Delta high-tech manufacturing region, the original home to many electronics focused contract manufacturers, for deep supply chain process and manufacturing capabilities. More than 20 Chinese smartphone producers now have manufacturing and engineering dependence within this region.

The WSJ report declares: “The fight (among smartphone producers) is all about staying competitive in pricing and features, and Shenzhen is the battleground. Once known as a little more than a hub of contract manufacturing for Western technology giants, the region has given birth to an array of domestic upstarts by marrying low-cost production and high-tech engineering.

In other words, the region has now developed a collection of integrated product value-chain capabilities that are able to respond to market needs in a far quicker manner, and a more competitive product

Interesting enough, as our Supply Chain Matters readers are often aware, Apple has had a similar reliance on the Pearl River region, specifically Foxconn and other contract manufacturers for manufacturing engineering and production capability as well as new product time-to-market needs. Apple elected early on to maintain product design engineering in Cupertino, and to engineer its smartphones for general global user needs. The same could be stated for Samsung, which relies on China and Vietnam as manufacturing centers, but maintains centralized engineering. Both producers have since added local and regional engineering centers to identify local product functionality needs.

Once again, the name chosen as blog nameplate was purposeful, that indeed, supply chain capabilities do matter for successful business outcomes, and in today’s global markets, supply chain represents a far broader collection of functions and capabilities spanning the product value-chain.

Bob Ferrari

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

 


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