A significant shoutout is in order regarding today’s announcement on the appointment of Mary Barra as the new CEO of General Motors. This appointment represents a milestone of the first senior female executive ever to lead a global automobile manufacturer, and the significance is not unnoticed.
The appointment is part of a far-reaching re-organization of GM management and includes the announcement that current CEO Dan Akerson will exit the company next month due to personal reasons. Akerson advanced his succession plan by several months after his wife was recently diagnosed with an advanced stage of cancer.
Ms. Barra has spent her entire working career at GM. The daughter of a tool and die maker at the Pontiac division, she starting in 1980 as a co-op student and risen through the ranks in roles in manufacturing, engineering and other leadership positions. Her most senior roles include Vice President of Human Resources and most recently Vice President for Global Product Development. As head of global development, additional responsibilities were added as global director of procurement. According to GM’s announcement along with other business media reporting, Ms. Barra is credited with the bulk of the current turnaround in company’s line up of new vehicles.
News reports indicate that Ms. Barra has demonstrated a bias for action and for getting things done. Under her product development leadership, GM introduced the new Chevrolet Cruze and Chevrolet Impala models, both of which have had market success. In its reporting, the Wall Street Journal characterized Ms. Barra has “having a reputation for speaking her mind, a trait that hasn’t always been appreciated in GM’s executive suite.”
Supply Chain Matters views that as a positive connotation, one that has the potential to move GM into an even bolder direction. Her grounding in manufacturing operations and procurement would indicate an awareness to global supply chain needs, including how the supply chain contributes to strategic business outcomes.
Much more will be written and spoken regarding this landmark announcement, along with GM’s other new leadership appointments. For the time being, due recognition is warranted to GM’s Board and to Dan Akerson for this bold and landmark appointment.
Report that Boeing has Initiated RFP’s for 777x Production Sites
This is a brief follow-up commentary associated with Boeing’s current efforts in exploring a production site for the newly announced 777x aircraft which is being developed and planned to transport upwards of 400 passengers. Our last specific commentary related to the new 777x noted Boeing’s threat to source design engineering and perhaps production outside of Seattle unless the company could get a supplemental longer-term agreement from its labor unions on wage and benefit costs. Reports further indicated that lobby efforts with the State of Washington resulted in a package of tax and other incentives valued at $9 billion through 2040 in order to keep the bulk of the 777x program activities in the state Washington.
We were reviewing our various Internet focused content alerts earlier in the week and ran across an Associated Press syndicated report that indicates that the Governor of the state of Missouri is calling back legislators to consider additional governmental incentives in hopes of persuading Boeing to source 777x production in that state. The report indicates that the state faces a December 10 deadline to submit its proposals to Boeing. Obviously other states are bidding for the same massive prize, and the AP article quotes a Boeing spokesperson as indicating that requests for proposals were sent to a dozen locations. The states of Alabama, California, South Carolina, Texas and Utah are among states reported as having discussed efforts to recruit Boeing. The process kind of smacks of an auction, namely who will provide the most lucrative cost incentives.
Another irony is that the majority of the states mentioned already have a significant presence from Boeing, including Missouri, which is where portions of defense related production reside. A previous report from the Wall Street Journal cited Huntsville Alabama, Long Beach California, Charlstown South Carolina and St. Louis Missouri, among two other locations as designated design engineering sites for the new 777x program. That list seems to correlate with the listing of potential states bidding for production, thus co-location of design engineering and production appears to be under consideration.
One of messy and perhaps bitter aspects of the 787 Dreamliner program was Boeing’s decision to open a second production facility in Charlstown South Carolina because of needs to dramatically step-up production in a three year delayed program. Upon the announcement, Boeing’s principle Seattle based labor unions filed a petition with the National Labor Relations Board (NLRB) alleging that Boeing was sourcing to avoid a union workforce and collective bargaining. The NLRB later ruled in favor of union arguments and that apparently remains as an overhang of tensions among both parties.
Let’s hope that this type of scenario does not again play out with the 777x. In any case, the drama as to what the supply chain of 777x turns out to ultimately be has many chapters to follow.
An important milestone for the U.S. automotive industry will occur this month. The United States Treasury announced that it plans to sell its remaining 31.1 million shares of General Motors stock sometime before the end of the year. The move hopefully represents the final chapter in the 2008-2009 government bailout of General Motors and indeed, the U.S automotive supply chain.
According to business media reporting, the U.S. government initially invested $50 billion in GM, and thus far has recouped $38.4 billion of that investment. The planned final sale could bring in an additional $1.2 billion, based on the current value of GM stock, making the final net cost to taxpayers of $10.4 billion. In addition, asset sales have helped the U.S. government to recoup over $12 billion of the $16 billion invested in GM’s automotive finance arm. More importantly, the U.S. automotive industry and its associated supply chains have rebounded from the certain brink of disaster.
In its reporting, the conservative-leaning Wall Street Journal indicates that because of the rescue bailout, companies and communities were saved from possible collapse. The WSJ writes: “The U.S. auto industry has recovered nearly all of jobs lost since the beginning of the financial crisis, is broadly profitable and is expanding again.” A partnership between government and business provided more novel means to expedite restructuring needs and provided .labor with a stake in the end results. The WSJ echoed analysts and indeed Supply Chain Matters declared beliefs that many auto suppliers that relied on the Big Three U.S. automotive OEM’s would have collapsed if the rescue did not occur. It quotes Bureau of Labor Statistics data that indicates the same numbers of people now work in automotive and parts manufacturing as existed in October 2008. Tier One automotive suppliers have also garnered the opportunity to seize on the move toward more technology-laden auto models and are now growing their revenues and profits based on investments in more innovative and fuel efficient features for new models of automobiles. The expression “a rising tide lifts all boats” is alive and well among U.S. focused automotive supply chains. Not only have U.S. brands garnered the benefits but non-U.S. nameplates as well. Today, European, Japanese, Korean and even China based manufacturers are investing in U.S. based automotive manufacturing.
In contrast, the Eurozone countries have endured two long years of economic recession with the European auto industry dealing with similar effects of recession, namely declining sales, gross idle and excess capacity in both manufacturing and dealer networks. Labor unions and indeed individual governments seek to protect jobs and local economies, but decisions seem to linger. Much can be learned from what occurred in the U.S.
The Thanksgiving holiday celebrated this week in the U.S. and other regions is time to reflect and give thanks for blessings in our lives.
Those that contribute to or are indirectly associated with the U.S. automotive industry for their economic livelihood should give thanks that a partnership among government and business actually accomplished its goal to save an industry and its supply chain ecosystem. From our lens, it was a proper and meaningful investment. It could have well had a far different and negative outcome.
Aerospace industry supply chains had a significant event this weekend, one that will resound for years to come. The event was the Dubai Airshow, and there were two significant industry statements that will have long-term industry implications.
The first was a significant statement from certain Middle East’s Gulf airline carriers that they intend to be a dominant force in international airline travel in the coming years. That statement involved the placing of in excess of $150 billion in aircraft purchasing power with aerospace manufacturers. That is indeed a considerable statement of both intent and global customer influence.
Boeing was a major recipient, receiving what is reported to be $100 billion in new aircraft orders from four Middle East Gulf carriers. Boeing utilized the event to formally launch the development of the new 777X aircraft and by booking orders and commitments for 259 of this aircraft. Orders received involve two models of this new long-range aircraft capable of transporting approximately 350 to 400 passengers per plane. The 777x family includes two models: the 777-9X and the 777-8X. Each model of the 777x aircraft has a list price in the range of $350 million -$378 million. The orders came from three Gulf based carriers: Emirates, Etihad, and Qatar Airways. Dubai based Emirates which is already noted as the globe’s largest operator of 777 family aircraft, alone ordered 150 of the new 777x valued to be in the range of $76 billion. The orders were in addition to a previously announced deal for 34 777x planes from German based Lufthansa which was announced in September. In its reporting, the Wall Street Journal tagged the 777x announcement as “the largest product launch in commercial-jetliner history.”
Current plans call for deliveries of the new 777x to begin in seven years, around 2020, even all goes according to schedule.
Boeing further landed an order for 30 additional 787 Dreamliners from Etihad, which is reported to make this carrier the ultimate largest operator of the 787 when all are operational. Budget carrier Flydubai placed an order for 86 new 737 single aisle aircraft.
Airbus was also a recipient, landing orders for 50 of its new A350 aircraft while Emirates announced that it is buying an additional 50 of the gigantic A380 aircraft estimated to be in the range of $23 billion in order value.
Another major benefactor of this weekend’s orders was General Electric and CFM International. The consortium landed commitments for aircraft engines and services value to be $40 billion at list pricing. Among the highlights was an Emirates commitment for 300 GE9X engines valued at approximately $11 billion to power the 777x which GE describes as “the largest ever commercial jet engine award from an airline.” CFM International, the joint venture of GE and France’s Snecma (Safran) was the recipient of orders for 450 of its LEAP engines. Both aircraft engine producers now have a record backlog of orders.
Over and above the flurry of announcements regarding new equipment orders are other important implications which will collectively make up the second significant implication from this year’s Dubai airshow. The Associated Press and Yahoo Finance reported that with almost $78 billion in purchasing commitments, Emirates has cemented itself as Boeing’s and Airbus largest and most influential airline customer for years to come, one that will be favored by each of these aerospace OEM’s. Upon review of the order split among both OEM’s, Supply Chain Matters is of the believe that Emirates is also practicing proactive risk management by splitting its orders for replacing its existing fleet of intercontinental aircraft among both a yet to be designed and delivered 777x from Boeing, and more advanced staged A350 and A380 aircraft from Airbus. The A380 is already a released and operational aircraft while the A350 completed its first maiden flight in June. The industry track record for development and producing an aircraft of the size and technological complexity of the new 777x is fraught with multi-year delays from both of these global OEM’s.
The other statement coming from this weekend is what the Wall Street Journal reported (paid subscription or free metered view) as a crucial part of both the Emirates and Etihad 777x deals with Boeing. A joint venture with Mubadala, an Abu Dhabi government-owned conglomerate calls for Boeing to add its technical expertise in making advanced composite materials for jets utilized in the UAE. It is reportedly part of a broader effort to increase the presence of aerospace technology production in the region and add advanced technology manufacturing to existing economies of the region. While specific details are lacking, the effort could lead to added local sourcing of suppliers in this region, the type of deal that Boeing made with crucial Japan based airlines for the 787 Dreamliner program, that led to significant sourcing in that region.
Boeing is already in the midst of a controversial negotiation with its Seattle based labor unions over ultimate engineering and production sourcing of the 777x. The principle labor union in Seattle has already turned-down Boeing’s latest offer for a multiple-year labor agreement extension that could extend for as much as seven years. That leaves the ultimate decisions for engineering and supplier sourcing, along with final assembly up for grabs. As noted in our most recent Supply Chain Matters commentary related to the 777x, current public threats by Boeing to source major design engineering outside of Seattle along with major sourcing decisions related to the production sites provides shades of whether past supply chain related learning of multi-year program delays and snafus with the 787 program have been internalized.
November 2013 is a significant customer related milestone for certain aerospace supply chains. It represents the implications of the emerging prominence of the Middle East Gulf airlines and their growing influence on certain aerospace supply chains for many years to come.
Apple has initiated a supply agreement with GT Advanced Technologies Inc. to supply sapphire based materials to the consumer electronics provider. According to a Bloomberg published report. Merrimack New Hampshire based GT Advanced Technologies has entered into a multi-year supply agreement to provide the furnaces required to produce sapphire based materials. Apple will front-end a $578 million investment for a new plant to be located in Mesa Arizona that will produce these materials. The new plant is expected to generate at least 700 manufacturing-related jobs while an additional 1300 jobs are expected in plant construction. Bloomberg quotes IHS as indicating that Sapphire material was utilized for the camera lens cover in 2012 and currently the home button on the iPhone 5s model.
This investment represents the second new investment in U.S. based manufacturing. The first was the assembly of Apple’s new Mac Pro’s at a facility in Texas.
Speculation indicates that the sapphire based lens material will eventually be utilized in Apple’s line-up of smartphones and electronic tablets, with further speculation that the first application might be Apple’s rumored new smartwatch product rumored to be coming sometime in 2014.
This new announcement is consistent with Apple’s strategic sourcing strategies, namely expending up-front monies to secure strategic multi-year supply agreements for key materials and components along with up-front investment in capital equipment and tooling. Much of Apple’s investments in manufacturing process equipment are held at certain of its outsourcing partners. Apple utilizes this strategy to lock-in supply as well as supplier loyalty in areas such a processor chips, DRAM, LCD displays and other key components. However, the company’s 10K securities filing is quick to note: “Therefore, the Company remains subject to significant risks of supply shortages and price increases that can materially adversely affect its financial condition and operating results.”
There is nothing better than hedging your strategies, both in supply and with investors.
On Supply Chain Matters, our principle goal in the various commentaries we pen regarding global based supply chain developments is to provide insights for our readers. Our intent is not to disparage any single company or organization but to help readers and students of supply chain management relate supply chain, product management and information technology developments to key learning.
If you search our content on the topic of Boeing, you will discover a lot of commentaries. Boeing’s past efforts in outsourcing major portions of product value-chain have resulted in a lot of snafus, or so it seems so. The Boeing 787 Dreamliner program will no doubt serve as a living case study as to lessons in outsourcing.
Thus, it was with some surprise yesterday when we were alerted to a Reuters published article, Boeing to place much of 777X design work outside of Seattle.
Apparently, Boeing senior management has endorsed the decision to source a significant amount of the design work related to the company’s next generation wide-body aircraft in areas outside of Seattle. The 777x is speculated to be able to transport over 400 passengers and Boeing has been reportedly aggressively promoting this aircraft to Asia and Middle East based air carriers.
The designated design sites are to be Charlestown South Carolina, Huntsville Alabama, Long Beach California, Philadelphia Pennsylvania, St. Louis Missouri and Moscow, Russia. What’s interesting about this news is that Boeing indicates that no decisions have been made regarding the involvement of its Puget Sound engineering teams, home to the core design group.
Is this the same group that was marshaled to fix the numerous problems that were encountered on the 787, including the operational grounding?
Boeing has reiterated that no final decisions have been made regarding the sourcing of production operations of the 777X although speculation revolves around the Charlestown facility. One would have surmised that a lesson from the 787 program was the importance of co-locating engineering design with manufacturing, especially during the critical development phases. The Reuters story hints strongly that the engineering design decision was more about migrating work to lower-cost, nonunion states. Reuters further speculates that the timing coincides with efforts to lobby the state of Washington on tax incentives to source 777X design and assembly work in Everett Washington. The Governor of Washington state reportedly only knew of the announcement at the time of the Reuters report.
Boeing re-iterates that it would apply “lessons learned” from the 787 and 747-8 programs, and that bringing skills from across the company will foster more efficient use of engineering resources.
We certainly hope so, but then again, the timing and tone would indicate different motivations.