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Video of How the Supply Chain Indeed Matters in Today’s Commercial Aircraft Industry Ramp-up

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Supply Chain Matters has featured a number of blog commentaries highlighting the various supply chain management accomplishments and challenges related to the commercial aircraft industry. Current unprecedented, multi-year customer order backlogs for new aircraft are having an effect on the entire aerospace industry supply chain ecosystem. Click on the search term Aerospace Supply Chain on our right-hand Categories panel and you will get quite a sampling of current and future challenges.

Wired Magazine had the opportunity to visit Boeing’s Renton Washington Production Facility, where workers build a new 737 aircraft in just nine days. The factory, currently produces new aircraft at the current rate of 42 aircraft per month, with plans to plans to expand this build rate to 47 per month next year, and up to 57 in 2019.

Boeing claims the 1.1-million-square-foot facility is most efficient airplane factory in the world. Arch rival Airbus, has its own multi-year backlog for new single-aisle commercial aircraft and this manufacturer is also investing in manufacturing automation, technology and broader supply chain wide visibility to meet its more aggressive production and supply chain ramp-up challenges.

Video often provides us powerful images of how the supply chain comes together and makes the difference for meeting customer fulfillment needs. Therefore, we invite our readers to view Wired’s recent feature: How Boeing Builds a 737 Aircraft in Just Nine Days.

A couple of caveats related to the video.

You will notice some video clips are of Boeing’s brand new 737 Max being assembled. That aircraft model is still in early production ramp-up and has not met the current cadence rate of 42 aircraft per month.  The Wired editor declares that the Renton facility is the most automated aircraft production facility in the world.  We believe that rival Airbus would take exception to that statement.

Overall, the most important takeaway is that when you consider Boeing, Airbus and other commercial aircraft manufacturers combined, the overall industry supply chain has its own unique challenges and opportunities. Respective Sales and  Operations Planning s well as supply chain leadership teams a all tiers of the industry supply chain are constantly balancing and responding to demand and supply changes or challenges.

And, after all of these new aircraft enter operational service with respective airlines, the service lifecycle management and service parts supply chain kicks into support mode to insure that service parts and components are also available when and where needed.

The supply chain is indeed the lifeblood of an industry.

Bob Ferrari


Pratt and Whitney Publically Discloses Supply Chain Challenges and Production Shortfalls

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Previously and again last week, we alerted Supply Chain Matters readers to the increasing visibility to noteworthy supply challenges occurring at Pratt and Whitney related to its newly developed geared-turbofan aircraft engines.  The development is significant since just was we anticipated, the weakest link in commercial aircraft supply chain ramp-up production cadence is indeed turning out to be Pratt.

Late last week, the United Technologies CEO, parent to Pratt warned the company’s investment community that Pratt will likely miss its 2016 customer engine delivery goals by 25 percent, amounting to a shortfall of 50 engines for aircraft manufacturers.  The obvious question is which manufacturer will take the bulk of the impact.

CEO Gregory Haynes indicated the obvious in that Pratt’s airline customers were not happy with the news.  Neither were UA stockholders who initiated an initial 2 percent sell-off in UA stock. This development represents yet another real-world example of significant supply chain glitches directly impacting stockholder perceptions.

Mr. Haynes further indicated that: ‘five parts are causing us pain this year”, due to supplier challenges in meeting Pratt’s current volume production and quality needs. There are approximately 800 parts for the high level bill of material for this new Pratt engine. The challenges are expected to extend into 2017.

A particular problem is the heart of this new engine, its newly designed aluminum titanium composite fan blades.  Further indicated is that he has personally visited the shop where these blades are produced, an obvious indication of the high levels of management visibility being exhibited on the current supply challenges. Haynes indicated that today: “it takes 60 days of cycle time to build these blades and the through the shop and it needs to get to 30 days.” Obviously, that is a significant challenge for a highly engineered component, a doubling of production cycle time.

In 2014, aluminum metals provider Alcoa and Pratt announced a 10 year $1.1 billion agreement to supply state-of-the-art engine jet engine components. That included the forging of the new aluminum-titanium fan blade along with a proprietary manufacturing process. Pratt’s engineering design is different than that of GE Aircraft and its partners Snecma and CFM International.  Whereas the latter has invested in carbon-fiber and ceramic composites for materials and manufacturing automation, Pratt has bet on a revolutionary new gearbox and aluminum-titanium composites to allow the engine to burn cooler, with fewer parts and more fuel efficient technologies. Supply chain design and deployment strategy is different along with approaches to manufacturing automation as well. There further exists a fierce competitiveness among existing aircraft engine manufacturers to demonstrate their new fuel saving gains and build ongoing customer loyalty and long-term commitments to each supplier’s new engine designs

Mr. Haynes assured investors that Pratt has a well-defined plan identified to address the current supply chain ramp-up challenges. Obviously, that should provide some assurances.

At stake is the ongoing production ramp-up of the Airbus A320 neo which first certified with the new Pratt engine.  Certification of the neo version with CFM International engines is in-process, and with the current visible challenges for Pratt, Airbus production operations teams must now deal with the option of whether to shift current backlog order fulfillment more to CFM powered versions to insure attainment of Airbus’s 2016 and perhaps 2017 production commitments for the overall market. There is obviously a lot of market visibility on Airbus right now from its A320 customers.

Bombardier, developer and manufacturer of the new C-Series single-aisle aircraft have placed a current singular bet on the Pratt fuel efficient design, and thus have already had to warn its investors of a production cutback.

While a buffering effect has been the current historically lower-cost of aviation fuel, airlines, particularly lower-fare startups want to gain a market advantage in lower operating costs.

Commercial aircraft supply chains will indeed be one of the dominant headlines stories for the weeks and months to come. A significant theme will be the classic trade-offs of product design and design for supply chain scalability.

Stay tuned since further developments are likely.

Bob Ferrari

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

 

 

 

 


Oracle’s Latest Quarterly Financial Performance Boosted by Cloud Product Strategy

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Yesterday at the close of the stock market, Oracle reported its FY17-Q1 financial performance results. The enterprise technology provider’s headline was another quarter of strong sales gains related to its Cloud computing based product lineup. Oracle’s three senior most executives described the quarter as very solid performance in terms of strategic Cloud based product uptake but Wall Street and associated investors had a mixed reaction. The company said its latest quarter was also weighed down by a strong dollar, which reduced revenue from various businesses by 1 to 3 percent.

The financial performance included:

  • Total revenues up 2 percent in U.S. dollars and up 3 percent in constant currency, both of which were reported by business media as missing analyst expectations.
  • Cloud plus On-Premise software revenues up 5 percent in U.S. dollars and up 6 percent in constant currency.
  • Cloud software-as-service (SaaS) and platform as-a-service (PaaS) were up 77 percent in U.S. dollars and up 79 percent in constant currency.
  • Operating income and operating margin at 31 percent
  • Non-GAPP operating income was $3.4 billion and non-GAPP operating margin was 31 percent.
  • Oracle closed the quarter with a $68 billion cash position.

Like many enterprise software providers, Oracle continues an aggressive pivot toward offering the market more Cloud based software applications, services and IT infrastructure. This includes a completely Cloud-based ERP offering. Last year, Oracle was the first technology provider to announce a complete public Cloud based SCM suite.

As Supply Chain Matters and others continually point out, a shift to Cloud based computing platforms can financially be beneficial for enterprises and supply chain teams but costlier for technology providers if the shunning of traditional licensing model exceeds the Cloud adoption rate. Providers earn more revenue on a longer term basis with Cloud licensing coupled with the opportunity to provide additional services.  However, the transition can be difficult to manage from the notions of financial expectations, margin performance and guidance. That is indeed what has been happening for major ERP providers such as Oracle and SAP.  While Oracle’s new software license sales fell by nearly 11 percent, we continue to believe that Oracle is deploying a far broader Cloud computing and applications deployment strategy providing customers with a number of flexible options in direction setting.  Once more, Oracle’s supply chain and product lifecycle management applications offerings remain very competitive.

At last night’s earnings briefing, executives pointed to the 7th consecutive quarter of revenue growth with ERP related revenues growing 70 percent, quarter over quarter. During the recently completed quarter, executives pointed to wins for 776 new SaaS along with 2032 new PaaS customers. Most of this activity was described as net new customers adopting the Cloud model while the bulk of Oracle’s existing applications and database customers are just beginning to make the transition.

Since the closing of Oracle’s latest fiscal quarter, the company has also announced the planned $9.3 billion acquisition of Cloud based ERP provider NetSuite as well as the intent to acquire supply chain execution and WMS systems provider LogFire.

On Sunday, the company will kick off the company’s 2016 Oracle OpenWorld Conference in San Francisco. There are a lot of expectations as well as implications to this year’s event including new and prospective customers, partners and systems integrators

Once again as in the number of previous years, Supply Chain Matters, in the presence of this industry analyst, has been invited to attend this year’s OpenWorld. We will be publishing continuous commentaries regarding event briefings, interactions and customer presentations beginning early next week.

Stay tuned and connected.

Bob Ferrari

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

Disclosure: Oracle is a current client of the Ferrari consulting and Research Group.


The Samsung Smartphone Product Recall Crisis Bears Important Similarities and Learning

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We previously alerted our Supply Chain Matters readers to the stunning and somewhat embarrassing news that Samsung initiated on its own, a global recall of its newly announced Galaxy Note 7® smartphones due to reports of battery fires. It is now becoming much more evident that Samsung has created additional customer creditability and market perception challenges by attempting to manage its ongoing faulty battery issues on its own, without timely notification to product safety regulators. Yet, once again, there exists other multi-industry supply chain learning regarding needs to closely coordinate potential product or equipment safety issues with governmental regulatory agencies. Learning that other manufacturers and their respective suppliers have painfully encountered.  Recalled Samsung Galaxy Note 7

As of this week, Samsung has received 92 reports of the batteries overheating in the U.S., including 26 reports of burns and 55 reports of property damage, including fires in cars and a garage. And that is just for the U.S. The consumer electronics provider itself has been reluctant to share details relative to which supplier batteries are suspected (there are multiple battery suppliers) and why the uncontrollable thermal events are occurring. We came across a well written analysis commentary penned by Brian Morin on Seeking Alpha that points to overheating of a battery cell as a result of anode-to-cathode shorting caused by flawed separators as a potential cause. This analysis raises speculation that the problem may not just concern Samsung but other smartphone manufacturers as well, depending on the specific supplier involved. Again, Samsung has yet to identify the specific battery supplier involved in the recall, or whether the battery performance issue extends to other models.

Samsung launched the top-of-the line Galaxy Note 7 on August 17 in an effort to announce the new model prior to Apple’s expected iPhone 7 product launch. Approximately two weeks later, reports surfaced as to occurrences of faulty batteries that were exploding during the recharging process. Now as the hubris of Apple’s iPhone 7 permeates media channels, Samsung must deal with effects and visuals of battery fires among its smartphones.

Today, a published report by The Wall Street Journal, coupled with other business media reports all seem to conclude that Samsung has fumbled this recall because of attempts to singularly investigate and respond to the occurrences of faulty lithium-ion batteries that were causing unexpected explosions and fires. Global wide telecommunications carriers as the principle distributors of the Note 7 were caught in the middle of this situation, receiving conflicting information from the manufacturer and from consumers, while unable to act without a formal product recall notice.  It still remains unclear as to whether the problem can be corrected by a different battery, and when supplies of that different battery are made available. Meanwhile, individual consumers and business customers are reluctant to suspend using their new smartphones without having a replacement in-hand.

This week. The United States Consumer Product Safety Commission (CPSC) was obligated to take direct control of the ongoing issues with the occurrence of some overheating batteries by issuing a formal and immediate product recall notice. The notice urges consumers to “immediately stop using and power down the recalled Galaxy Note 7 devices purchased before September 15, 2016.”  They are further instructed “to contact the wireless carrier, retail outlet or Samsung.com where they purchased the device to receive free of charge a new smartphone with a different battery, a refund, or a new replacement device.” The latter statement is of course what will obviously lead to other confusion but the timing and the urgency left little choice.

According to U.S. law, the CPSC must be notified within 24 hours after a product safety risk has been identified.  The agency did not issue a statement until a week after Samsung’s initial announcement. The chairman of the CPSC indicated to the WSJ that for a company to go out on its own is not a recipe for a successful product recall, and in other media interviews, was somewhat blunter in his remarks.

This 24-hour notification was initiated as a result of the aftereffects of the prior sudden unattended vehicle acceleration and other perceived vehicle safety issues that impacted Toyota during the period from 2009-2010. Three years later, Toyota was still dealing with the after effects and U.S. legislators collectively called for stricter controls related to product safety. Today the automotive industry as a whole continues to deal with the challenges of faulty air bag inflators and other product safety related recalls that have now exceeded all previous records for total number of recalled automobiles.  The 24-hour threshold coupled with the potential for significant financial and litigation implications related to the mere potential of product safety concerns has led automotive producers to err on the side of caution and engage regulators much earlier in the process and issue a product recall. Currently it seems that not a week can go by without news of some major recall involving an automotive brand.

Samsung’s faulty battery issues further have some parallels to the 2013 challenges that impacted Boeing’s 787 Dreamliner aircraft as a result of unexplained lithium ion battery fires affecting the aircraft’s own power systems. A series of unexplained battery compartment fire incidents triggered a subsequent six-month grounding of all existing operational 787 aircraft while government safety agencies and Boeing searched for the cause.  The aircraft was later approved for service after Boeing reluctantly initiated a complete redesign of the battery housing unit containing lithium-ion batteries. The incident was very costly or Boeing from both a financial as well as brand reputation basis. Airline flyers began to question the overall safety of the 787.

Boeing’s initial reaction was to push-back on government regulators. An NTSB investigative report later concluded that the probable cause was an internal short circuit within a battery cell which led to a condition of thermal runway. The report also pointed to cell manufacturing defects and oversight of cell manufacturing processes involving the battery manufacturer. Today, there are little incidents of battery issues for operational 787’s but there will also be some concerns on the part of airline travelers as more and more lithium ion battery related fires come to the forefront.  U.S. and other airline safety regulators are considering outright bans on allowing bulk quantities of the batteries to fly in aircraft cargo compartments.

Hence the learning is again that product defects often involve the supply chain, not just your organization, but others as well.  In this specific Galaxy Note 7 issue, Samsung SDI is a supplier, along with other battery suppliers. The open question is whether Samsung was somehow trying to control the broader industry fallout of its battery manufacturing process. We will not likely know the answer to that until later in the investigative process.

Like others, Samsung will eventually garner important learning regarding the control or management of consumer focused product performance data and in trying to control the fallout.  On the one-hand, today’s social media based channels, whether good, or not so good, provide instantaneous feedback and perceptions related to consumer experiences and product performance.  A belief that the fallout can be controlled or buffered by internal control processes has passed. Like any other challenge involving major supply chain disruption or business continuity, there must always exist a set of response plans that include important decision criteria as to what needs to occur at any point. Lawyers, corporate risk and other senior managers will often have their own viewpoints but they must understand that this new world of always-on media and instantaneous information requires the most-timely responses, often with a supply chain purview.

The lesson for all is to look to multi-industry learning from past events and not let internal or external perceptual concerns cloud regulatory requirements, regardless of how your organization views such requirements. In the minds of consumers and customers, product and supply chain component safety trumps all other concerns.

Bob Ferrari

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


OpenText Announces Intent to Acquire EMC’s Enterprise Content Business

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Enterprise Information Management technology provider OpenText continued with its track record of growth by acquisition, this week announcing a definitive agreement of intent to acquire the former enterprise content division of newly merged Dell and EMC, including the addition of Documentum. The announcement comes shortly after Dell and EMC completed their substantial merger to form Dell Technologies.

The all-cash deal is valued at $1.6 billion, and is roughly 2.7 times ECD FY15 revenue of $599M. The agreement further calls for the software, associated services, and employees of ECD to be integrated into OpenText. Management expects the acquisition to clear in 90-120 days, subject to regulatory approvals and customary closing conditions.

The acquisition is expected to deepen OpenText’s EIM offering with a substantial portfolio focused on Enterprise Content Management (ECM) and Information Life Cycle Management. It further includes the acquisition of Dell EMC’s ECD offerings from the Documentum, InfoArchive, and LEAP product families. According to company statements, when combined with existing OpenText products, these offerings will enable customers to manage content across the enterprise securely and compliantly, decommission legacy apps to make information more available for complete analysis and insight, and create new ways to work across any device.

OpenText further declared that the newly acquired technology will be available as on-premise, cloud, or hybrid architectures.

No doubt, this EIM technology provider continues to make substantial investments in acquisitions of related technology, sometimes taking advantage of existing business opportunities. In the fourth fiscal quarter ending in June, other noted acquisitions included:

  • Definitive agreement to acquire Customer Communications Management assets from HP Inc.
  • Definitive agreement to acquire Recommind, Inc.
  • Definitive agreement to acquire and close acquisition of ANXe Business Corporation
  • Definitive agreement to acquire, and close acquisition of certain customer experience software and services assets and liabilities from HP Inc.

At the close of FY16 in June, OpenText’s long-term debt was recorded as $2.1 billion while total revenues were $1.8 billion. The task at-hand is the integration of all of this collective technology within OpenText’s new Cloud-based suite of EIM support.

 

 

 


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