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Apple Supply Chain Supports Spectacular iPhone Fulfillment Results

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Throughout the summer and especially in September of 2014, we featured a number of Supply Chain Matters commentaries reflecting on yet another series of Apple supply chain product Apple Logointroduction ramp-ups, and specifically whether the Apple supply chain ecosystem and its internal supply chain teams could yet again pull rabbits out the hat proverbial hat and deliver on business expectations for the all-important holiday fulfillment quarter.

Specifically in our mid-September commentary we noted:

“Over the coming weeks, as the marketing and sales machine cranks-up consumer motivations to buy, the supply chain will deal with the realities of limited supply, production hiccups and product allocation conflicts among various channels that invariably come up in such situations.”

We further declared:

While some supply chains are challenged with collaborating with sales and marketing on stimulating and shaping product demand, Apple has the current challenge of meeting very high expectations involving an outsourced supply network with many moving parts.  They have pulled miracles in the past, and the stakes get even higher.”

Yesterday after the stock market close, Apple announced financial results for its fiscal first quarter ending in December, and the results were staggering, along with the business headlines.  The Wall Street Journal headline story today was titled: Apple Delivers Quarter for the Ages.

Apple reported net income of $18 billion for the quarter, was described as more than 435 of the companies within the S&P 500 Index each made in total profits. But the supply chain headline was fulfilling all-time record customer demand for 74.5 million new iPhones. This was up 46 percent from the same holiday fulfillment quarter a year ago, reflecting a lot of pent-up upgrade demand for the new iPhone6 models. In its reporting, the WSJ equated such volume output to more than 34,000 phones per hour, around the clock.

Gross margin was reported as 39.9 percent, nearly two percentage points higher than last year’s similar period. Once more, average sale volume for the iPhone increased to $687, nearly $50 higher than a year ago.

Apple also managed to double its iPhone sales volumes within China during the quarter despite delayed availability slipping to mid-October from the scheduled simultaneous September product launch.

Readers who followed our Apple commentaries should recall that the iPhone6 incurred its own set of production ramp-up challenges including a last-minute design change involving its larger screen displays. There was the usual production yield challenges associated with the fingerprint scanner and with the LCD displays themselves. We called attention to a TechCrunch report that cited sources in September indicating that Apple had already contracted air freight capacity anticipating to flood channels with last-minute shipments.

All was not spectacular news regarding Apple’s latest performance. Sales of the iPad were reported to be down 18 percent from the year ago period. The long-anticipated iWatch availability has now slipped to April of this year. However, these do not take away from the extraordinary performance of the Apple supplier ecosystem, and in particular, its contract manufacturers who had to successfully support the four month production and fulfillment ramp amidst the production challenges.

The Apple supply chain did indeed again pull rabbits out the hat. It performed to enable an expected business outcome, despite operational challenges.

Supply Chain Matters Tip of the Hat Award

 

 

We extend our Supply Chain Matters Tip-of-the Hat recognition for such performance.  Let’s hope that the supply chain ecosystem will share in similar financial rewards.

 

Bob Ferrari

 

 


Yet Another Acquisition for OpenText

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Last week, Enterprise Information Management technology provider OpenText continued with its track record of acquisitions, this time announcing the completion of its acquisition of Actuate Corporation, a technology provider of personalized embedded analytics and visualization tools for customer facing applications. The announcement indicates that the merger was completed without a vote of Actuate’s stockholders pursuant to Section 251(h) of the Delaware General Corporation Law with Actuate surviving the merger as a wholly owned subsidiary of OpenText. Thus, pinning the overall cost of this acquisition is probably pre-mature at this point.

Supply Chain Matters readers may recall our prior November 2013 commentary related to OpenText’s acquisition of B2B technology platform provider GXS.

According to posting authored by Mark Barrenechea on the OpenText CEO Blog: “Actuate brings powerful analytics to the OpenText portfolio of products that enable customers to analyze and visualize a broad range of structured, semi-structured, and unstructured data.” The posting declares that more than 3.5 million developers and OEM’s currently utilize Actuate to deliver personalized analytics and analytics and further indicates that Actuate will continue to serve the embedded analytics market while being integrated across the entire OpenText EIM product suite.

In late June of 2014, this author penned his impressions from being invited to a one day OpenText Industry Analyst summit hosted by senior executives. We noted that OpenText’s vertical industry support strategy is broad ranging from manufacturing and retail to financial services, government, public utilities and other industries. This provider primarily targets CIO’s and internal IT groups, but with continual acquisitions, will have to include more line-of-business and cross-functional business teams. In its previous acquisition of B2B platform provider GXS, it was unclear, by this author’s lens, as to the longer-term strategic emphasis on the needs of supporting B2B business network and business process management challenges beyond electronic content or document exchange. This latest acquisition of Actuate frankly causes us more confusion as to what specific industry support areas will be emphasized in short and longer term internal integration planning.  While on the subject of integration, OpenText has added quite a few, and that alone raises questions on the provider’s abilities to digest this level while shielding customers from added burdens of multiple user interfaces, data integration or other needs for increased user productivity.

Thus, we will defer from other insights pending updated briefings with OpenText.

The takeaway for existing GXS platform customers is to ascertain if Actuate technology will be included in future releases, and if so, what specific areas and what specific cost.  This is especially pertinent to GXS customers with an SAP ERP backbone, since OpenText has placed a rather large emphasis on its strategic partnership with SAP which is offering its own HANA based embedded analytics offerings. The impact of Actuate could therefore provide an alternative, but more strategy, pricing and timetable information is obviously required.

Bob Ferrari

©2015, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.


Airbus and Boeing Both Declare Another Year of Outstanding Operational Performance in 2014

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In the commercial aerospace sector, both Airbus and Boeing both declared that they each exceeded operational targets for 2014.  However, the supply chain ecosystems for each of these manufacturers have continual challenges to perform even better in the months to come.

Today, Airbus announced that it achieved a new record of 629 aircraft deliveries in 2014, representing an increase for the 13th consecutive year. That compares to the 626 aircraft delivered during 2013.

The breakdown of deliveries consisted of:

490 A320 model aircraft

108 A330 aircraft

30 A380 super jumbo aircraft

Initial A350 XWB to launch customer Qatar Airways

Airbus was challenged at the last minute in delivery of the launch A350 but overcame issues of customer customized equipment needs to make its 2014 milestone.

On the inbound customer demand side, the aerospace provider booked 1456 net orders from 67 customers making its year-end backlog to be 6386 aircraft valued in excess of $919 billion. If the Airbus supply chain were to continue to support and sustain its current shipment volume performance, the current order book represents in excess of 10 years of production.

Airbus program development highlights in 2014 included the maiden flight of the rather popular A320neo which is currently scheduled for operational certification in Q3, and first customer delivery in Q4 of this year.

Last week, Boeing announced that it had achieved delivery of 723 aircraft, a record for the most commercial aircraft delivered in a single year. That compares to 648 aircraft delivered in 2013. The breakdown of deliveries included:

485 737 program aircraft

99 777 program aircraft

114 787 Dreamliner program aircraft including the first 787-9 launch model.

Similar to Airbus, Boeing was challenged with December deliveries of 787’s and other wide body aircraft because of a supplier shortage of premium seating. All three of Boeing’s final assembly facilities each set new milestones for aircraft delivery volume. On the inbound side, Boeing booked 1432 net orders bringing its year-end backlog to 5789 aircraft, a declared all-time high. The company recorded 1355 net orders in 2013. If the Boeing supply chain were to continue to support current shipment volume, the current order book represents in excess of 8 years of production.

Boeing program development highlights included the launch of the 787-9 in 2014 and the planned assembly of the first 737 MAX scheduled for this year.

No doubt, the supply chain and product management teams and ecosystems of both Airbus and Supply Chain Matters Tip of the Hat AwardBoeing went the extra mile in successfully achieving each of the 2014 operational milestones.  We extend our Supply Chain Matters Tip of the Hat recognition for their efforts, and hopefully, bonus goals were achieved and compensated.

Moving forward, 2015 brings expectations of even greater operational performance coupled with the needs to scale-up delivery cadence to even higher levels. As noted in a previous commentary, commercial aerospace supply chains exist in good and not so good news realities. All of the current backlogged customer orders need to be delivered to airline customer expectations for timing, anticipated reliability and performance.  Once again, there is a very strong reliance on the performance of the extended supply network and in solid operations and risk management.

Congratulations to all.

Bob Ferrari


Another Executive Leadership Change Affecting Bombardier CSeries Program

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In our industry specific coverage of commercial aerospace supply chains, Supply Chain Matters has featured  a number of prior commentaries concerning Bombardier’s CSeries aircraft program, and the program’s efforts to penetrate single-aisle commercial aircraft market with the likes of an Airbus, Embraer or Boeing. Recent setbacks have impacted the CSeries program and yesterday featured an announcement that Bombardier’s senior head of commercial aircraft sales had resigned due to personal reasons.

Bombardier C-Series

Source: Bombardier web site

We have provided a focus on the CSeries for three primary reasons.  First, the program was Bombardier’s attempt to emulate a globally dispersed ecosystem of supply chain of major aircraft components to spawn program innovation and reduce overall program and production costs.  Major components such as fuselage wings and tail are sourced in China, Ireland, Italy, and other countries.  The C-Series continues to be targeted towards operational service among regional airline routes while delivering upwards of 20 percent fuel savings over existing smaller, single-aisle regional aircraft. The goal of the program was to: “revolutionize the economics and network strategies for airline operations in the 100-149-seat commercial market.”

Bombardier is also one of the largest and most prominent manufacturers in Canada, and like other commercial aircraft manufacturers, hosted governments and supply chain partners have a vested interest in product success and increased employment of workers. Thirdly, as we have noted in prior commentaries, the ultimate success of the C-Series was predicated on a very timely and competitive market introduction along with being more nimble than other competing aircraft manufacturers. This aircraft was originally targeted for market entry in 2013.

Yesterday’s announcement is yet another symptomatic indicator of a continued challenged program. The firm’s former head of commercial sales was replaced in December 2013 and business media speculated the 2013 executive sales leadership change implied more aggressive sales tactics to gather more C-Series orders.

A Wall Street Journal front page article published today (paid subscription required) begins to cast doubt on both the product strategy and market competitiveness of the CSeries. The article notes that Airbus and Boeing, along with Embraer have sharpened their competitive responses through more timely development programs updating existing models such as the Airbus A320 neo version and the Boeing 737 Max. According to the article:

Bombardier, its suppliers and governments of Canada and the U.K., where the wings are built, are now on track to plow at least $4.4 billion into the CSeries program- up from the original plan of $3.4 billion and equal to nearly two-thirds of Bombardier’s total market value.”

The WSJ quotes an unnamed Bombardier executive indicating that the aerospace provider was blindsided with competitor’s actions to utilize the same Pratt and Whitney step turbine engine technology in upgrading existing models. Global airlines are thus electing to purchase the upgraded single aisle models from established manufacturers with Airbus having booked than 3400 orders for the A320 neo and Boeing garnering over 2600 orders for the 737 Max. Established fleets and infrastructure services make introduction of a new manufacturer more risky or perhaps most costly.

Unstated but another important development is that the price of oil has currently plunged allowing airlines more time and flexibility to schedule fleet equipment changes.

At this point, after restructuring efforts, the CSeries program reports directly to Bombardier’s CEO, including leadership of commercial sales.  There is a continued belief that the aircraft will ultimately be recognized for its value.  All hands and indeed the CSeries supply chain ecosystem are focused on completion of certification and first customer delivery with the belief that this aircraft family will eventually be recognized for its value and technological features.

For engineering-driven supply chain environments, program design objectives, a pulse of ongoing market dynamics and adherence to time-to-market milestones are all very important, especially in today’s more dynamic global industry landscape. These tenants take on a  special meaning when the program’s objectives are to take on existing larger competitors when first mover advantage becomes a factor.

The CSeries will be a test of all of these principles.

Bob Ferrari

 


Automotive OEM’s Hightened Sensitvity to Value Chain Quality and Service Networks

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Prediction Ten of our Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains calls for increased attention and new investment interest for service focused supply chains in the coming year. This includes after-market business process services, service parts and service delivery supply and demand business processes.

The obvious reasons are the unprecedented increases in occurrence of product recalls that add large amounts of consumer negativity towards a brand, especially in the U.S. automotive sector.  Too often, there has been a “throw it over the wall” mentality involving service beyond product sale and thus the after-market service supply chain has lagged in process modernization and investment.

Yesterday, the New York Times published an article, Auto Industry Galvanized After Record Recall Year (paid subscription but complimentary metered view with sign-up).  This article reminds readers that about 700 individual recall announcements involving more than 60 million motor vehicles occurred in 2014 across the United States, double the previous record logged in 2004. The rate of recalls was the equivalent of one in five vehicles currently in the road.  Many of our readers can probably attest to the current situation.

Auto manufacturers have been forced to clean-up years of defects that were either undetected or ignored amidst heightened regulatory scrutiny.

The result is obvious, service supply chains swamped with requirements for numerous replacement parts and service networks buffeted by consumer rage as to why their perceived unsafe vehicles cannot be immediately repaired.  In the care of the massive recalls involving airbag inflators sourced from supplier Takata, product recalls are prioritized for warm region sensitivity along with broader U.S. wide needs.

The Times article observes that sending out notification letters does not suffice, requiring more direct interaction with consumers. That, by our lens, implies more timely information and visibility as to the prioritization of repair campaigns and availability of required repair parts for specific regions.  The article further hints to underreporting of potential product defects or failures.

OEM’s such as Toyota are overhauling safety and product recall practices as well as processes incorporated within its service networks.  Supply Chain Matters has previously highlighted General Motors new brand survival emphasis on up-front product quality and more responsive tracking and detection of potential product problems.  Social media will play a very important role in these new methods including the transmission of product recall information directly to consumers and their individual vehicles.   Legislators continue utilizing the big-stick of criminal prosecution of executives and a means to motivate automotive OEM’s to be more responsive to product quality and overall vehicle safety.

Crisis often brings opportunity, and in the case of service networks, the opportunity is the ability to leverage today’s more advanced technologies related to vehicle sensors, predictive analytics, advanced simulation and scheduling, demand sensing and item-level B2B business network wide visibility among service focused supply chains.

The forces are indeed in motion for greater attention to service supply chain capabilities in the New Year.

Bob Ferrari


Airbus Does Indeed Deliver the First A350 Aircraft

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Supply Chain Matters provides an update to a previous posting noting the previously reported delayed delivery of the first Airbus A350 XWB to launch customer Qatar Airways. Ten days ago, Qatar suddenly announced that it was delaying delivery of the launch A350 XWB Qatar Airways A350WBaircraft just days before scheduled delivery without citing a specific reason for the postponement.

Today, a published Reuters report now indicates that the aircraft was delivered today, 10 days later than original planned. The report further indicates that Qatar “had last-minute problems with one of the suppliers of the “buyer furnished equipment”- items like seats and galleys that the airline buys directly from third parties.” That report places a different slant on reports that were previously in business media.  The original news of the sudden Qatar delivery delay coupled with speculation regarding the potential termination of the A380 program caused Airbus stock to drop over 10 percent on the Paris exchange immediately after the announcement.

Regarding the A380, Reuters and The Telegraph had previously reported the head of another Airbus influential customer, Emirates, was one very unhappy customer upon hearing speculation that Airbus was considering a potential cancellation of the A380 program without consultation. Today’s Reuters report seems to place previous speculation totally to rest as the CEO of Airbus’s commercial aircraft unit declared earlier today that production of the A380 would continue, including the potential of adding new engines and a larger stretch configuration.

Our last commentary observed that in just one week, Airbus managed to get embroiled in openly communicated unhappiness among its top two most influential long-range, wide body customers, Qatar and Emirates. It seemed that product strategy was relegated to a public forum. Airbus seems to have now put all at-rest with today’s delivery and management statements.

Influential customers do have a very important voice in product development and delivery criteria.


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