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Apple Declares a Long-Term Commitment Toward a Closed-Loop Materials Supply Chain

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In its 2017 Environmental Responsibility Report released this week, global consumer electronics provider Apple has declared a goal towards implementing a closed-loop supply chain. This report includes a pledge to end the company’s reliance on mined materials from the earth, and to one day, make its products, including the iPhone, totally from renewable or recycled materials.  Apple Logo Apple Declares a Long Term Commitment Toward a Closed Loop Materials Supply Chain

The section titled Finite Resources includes the following statement:

Traditional supply chains are linear. Materials are mined, manufactured as products, and often end up in landfills after use. Then the process starts over and more materials are extracted from the earth for new products. We believe our goal should be a closed-loop supply chain, where products are built using only renewable resources or recycled material.

Apple is also realistic in acknowledging that a closed supply chain is indeed an ambitious goal for a high-tech and consumer electronics manufacturer. The company’s Vice President of Environmental Affairs, Lisa Jackson, told business network CNBC that while Apple does not currently know how the full objective will be achieved, it will require many years of collaboration across multiple internal teams, component suppliers, and specialty recyclers- but work efforts are already under way. She further indicated that the company is embarking on something it rarely does, establishing a goal before all the elements are completely figured out.

Current efforts include the encouraging customers to return end-of-life products through the Apple Renew recycling program. This program is piloting innovative new recycling techniques that include a line of disassembly robots that helps to reclaim materials from used smartphones and other electronics products. The company has further prioritized which materials to tackle first by creating Material Risk Profiles for 44 elements within products. These profiles identify global environmental, social, and supply risk factors spanning the life of each material.

Describing the need for high quality aluminum material free from defects found in mass level recycling programs Apple has begun a pilot proof-of-concept program using reclaimed aluminum from recycled phones to build new devices. The aluminum enclosures recovered from iPhone are melted and reused to create Mac mini computer enclosures.

What forward thinking companies are continuing to demonstrate is that supply chain sustainability efforts are good for business and they are equally good for the supply chain.  Increasingly customers based their buying decisions on a company’s commitment and demonstrated efforts in sustainability. In our current year predictions for industry supply chains, we have re-iterated that there is literally too-much momentum and positive business benefits to motivate senior executives to derail such efforts. Apple has been one of other early adopters of a supply chain sustainability commitment and this latest declaration of a closed-loop supply chain is indeed, an added manifestation of a sustainable business model, one that assures a continuous supply of product value-chain components at a more controlled cost with assured availability. We also like the emphasis on leveraging new technologies to address such needs.

Supply Chain Matters commends Apple for its declaration and commitment toward manifesting a closed-loop supply chain.

Well done and keep up this good work.

Bob Ferrari

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


Airbus and Boeing Report Q1-2017 Delivery and Order Booking Performance

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One of our more popular blog postings tends to be our updates on either the quarterly or annual operational performance numbers for the two dominant commercial aerospace manufacturers, Airbus, and Boeing. The interest levels extend not only from supply chain participants in each of these manufacturers but across their global supply chain ecosystems.  Boeing 787 Production Line 300x200 Airbus and Boeing Report Q1 2017 Delivery and Order Booking Performance

Thus, this posting updates on the latest Q1-2017 operational data.

Overall, the operational numbers would indicate that Boeing had a relative excellent Q1 while Airbus experienced an unusual slower than expected start to 2017.

Airbus

We begin with Airbus, which reported a total of 136 commercial aircraft deliveries in the March-ending quarter. That compares with 125 total deliveries in Q1-2016. The Q1-2017 breakout includes:

107 single aisle aircraft (A320ceo, A320neo, A321ceo)

13- A330

13- A350

3- A380

In an operational review conducted in February 2015, Airbus made supply-chain wide plans to target a production rate of 50 A320’s per month by early 2017.  Thus, among the closely-watched numbers are the deliveries of the A320ceo and A320neo (new engine option). At the close of Q1, the single aisle grouping has a rather significant 5547 of backlog orders from airlines with high expectations related to improved and more fuel-efficient performance.  The Q1 report indicates that a total of 36 A320ceo and 26 A320neos were delivered in Q1. Our sense is that Airbus would have preferred these numbers to be reversed.

The new engine option (neo) features an airline choice of two available, new fuel efficient aircraft engines, either the Pratt & Whitney geared turbofan (GTF) engines or the CFM International alliance of General Electric and Safran LEAP engines. The Pratt engine was added to production in Q3-2016 while the CFM International engine has been incorporated in the recently completed quarter.

During 2016, Supply Chain Matters highlighted some significant challenges related to delayed deliveries of the new Pratt GTF engine featured on the neo model, which both significantly impacted Q3-2016 and to a lesser extent, Q4-2016 deliveries to airline customers. The GTF became a rather visible broken-link in the A320 supply chain because of ongoing issues related to operational performance in high heat or humid climatic conditions such as that reflected in certain Asia or Middle East environments. Qatar Airways has been especially vocal regarding the performance of the GTF powered A320neo. Both Bloomberg and Aviation Week have recently reported that while the new Pratt GTF engines are meeting promised 15-20 percent fuel savings, combustion chamber and bearing distress glitches continue with engines operating in certain climates. Bloomberg reported that as of the end of February, as many as 42 GTF engines had to be taken off-wing prematurely, most in environments in India, which currently has the largest fleet of operational A320neo’s.  Pratt has been responsive to operating airlines, but the new engine spares are likely coming from engines destined to support new production.  Modifications to the combustor and additional upgrades are due by the end of the third quarter.  For Airbus, the fallback is concentrating A320neo production on allocated Pratt CFM engines or the new CFM International engine which thus far is showing no signs of glitches.

Turning to new orders, Airbus reported a rather lackluster total of 6 net aircraft orders in Q1, after experiencing several cancellations during the quarter including 8 A320neo’s and 2 A380 jumbo aircraft. Total gross orders were 26 aircraft in the quarter. None the less, the traditional rule of thumb in commercial aerospace is to book more orders than actual deliveries.  As we have noted in this year’s predictions, that period may be ending.

 

Boeing

Boeing reported a total of 169 aircraft delivered in the quarter. Late last year, Boeing announced to its investors that is was going to scale-down deliveries in 2017. Boeing’s Q1-2016 deliveries were a total of 176 aircraft. The breakout for Q1-2017 included:

113-single-aisle 737’s

32-787

21-777

2-767

1-747

 

Boeing’s most critical delivery number also relates to its single-aisle 737. The more fuel efficient 737 MAX is still in the final stages of flight certification and is thus not reflected in Q1 deliveries. There are, from our lens, two positive notes from this latest quarterly report of deliveries. The first is the 32 reported deliveries of the 787 Dreamliner, an indication that prior production glitches and consequent shortfalls are likely resolved.  The 787 is produced by two separate Boeing final assembly production facilities. The other is 777 family- with the newer more fuel-efficient and technically advanced 777X family announced to the market, Boeing has done a good job of filling production slots for the now legacy 777 model.

For new orders, Boeing reported a total of 198 net new orders in Q1, a rather stunning performance considering Airbus’s Q1 order performance. This number was far ahead of the 121 net orders logged in the first quarter of 2016. The breakdown included:

167- 737’s

11- 787’s

15- 767

9-777

As our commercial aerospace readers are aware, net order performance can vary in any given quarter, with announcements tied to specific events such as major air shows or investor conferences. That stated, Airbus has several challenges to address in the coming months, both on the inbound orders flow and in addressing A320neo production glitches. Regarding the latter, we surmise that Airbus’s patience for added glitches or supply shortfalls may be on the edge.

 

Bob Ferrari

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


Report that Foxconn Offered $27 Billion for Toshiba’s Chip Business

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Supply Chain Matters provides some follow-up news to our earlier posting regarding the world’s largest global contract manufacturing services provider Foxconn (Hon Hai Precision Industry Co.) and its recent revenue decline.

Citing informed sources, The Wall Street Journal reported this afternoon (Paid subscription required) that Foxconn has offered upwards of $27 billion to acquire Toshiba Corp.’s computer chip business, in yet another bold move to acquire a Japanese high-tech company.

The Toshiba business unit produces flash-memory chips, including NAND flash memory, utilized in smartphones and computer servers. The business is considered strategic to Japan’s high-tech industry. Of-late, Toshiba has been battered by significant cost overruns from another operating division, its nuclear reactor construction business. Westinghouse Electric Co., which is majority owned by Toshiba, filed for U.S. bankruptcy last month and Toshiba expects to book considerable financial losses, which has prompted the proposed sale of its computer chip business. Thus, Toshiba’s prime motivation is reportedly to garner a lucrative price for its chip business.

Like its successful effort to acquire Sharp Corp., Foxconn has reportedly placed a very attracted offer on the table, well beyond what other entities are currently offering.

The WSJ reports that the government of Prime Minister Shinzo Abe is in a tough spot since government officials are hoping to see a Japanese company or a Japanese-U.S. joint venture company assume ownership of the computer chip business. A government official is indicated to the WSJ that Japan would be opposed to any mainland Chinese bidder due to fears that the technology would be leveraged for competitive advantage along with the threat of spyware being placed on the chips themselves. Thus, the process may take on political and national security dimensions, before any final deal is done.

The WSJ cautions that the process has not reached any final stage and bids can change as contenders acquire added knowledge of Toshiba’s chip business.

Both Foxconn or Toshiba declined WSJ’s request for comment.

While the computer chip business can greatly add to Foxconn’s strategic intent to further diversify into the high-tech component product value-chain, this is a business highly dependent on continuous and expensive research and development. The sum of $27 billion is quite hefty burden, especially for a contract manufacturing services provider that has operated in very thin margins. The WSJ opines that these factors may favor bidders already part of the chip manufacturing business.

Needless to state, this process bears watching for high-tech and consumer electronics supply chain and procurement teams. Similar to what occurred with Sharp, it could drag on for months, something that is likely not within Toshiba’s timetable for making a deal.

Bob Ferrari

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


Apparel and Footwear Supply Chain Meets Industry 4.0 Adoption

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The first notions of what is today ‘s prolific global industry supply chain presence began with the apparel and footwear industry. Now this same industry is moving in the direction of Industry 4.0.

A posting by Digiwaxx Media’s TheBlast  observes that German based apparel and footwear manufacturer Adidas will soon start the marketing of shoes manufactured by robots within Germany.

This posting notes:

More than 20 years after Adidas ceased production activities in Germany and moved then to Asia, Adidas unveiled the group’s new prototype “Speedfactory” in Germany.”

The German footwear provider is also planning to operate similar “Speedfactory” in the United States along with one in Western Europe. Both the German and U.S. automated factories are initially being planned to produce upwards of half a million pair of shoes annually, and according to reports, would be priced similarly as those produced in Asia.  Addidas Futurecraft MFG 300x145 Apparel and Footwear Supply Chain Meets Industry 4.0 Adoption

The basis of the supply chain strategy is to produce closest to the major areas of product demand, thus avoiding added global transportation and inventory carrying costs. What has brought this strategy closer to fruition is the combination of higher direct labor costs in high volume manufacturing areas such as China, meeting the technology convergence of faster, more dexterous, and cheaper robots.

In his book, Thank You for Being Late, An Optimist’s Guide to Thriving in the Age of Accelerations, internationally recognized author Thomas Friedman has an entire chapter devoted to what is described as The Supernova. Noted by Friedman:

With each new (computing and technology) platform, the computing power bandwidth and software capabilities all meld together and change the method, cost, or power and speed in which we do things, or pioneer totally new things we can do that we never imagined- and sometimes all of the above. And these leaps are now coming faster and faster, at shorter and shorter intervals.”

Many publications cite the statistic that it took 50 years for the world to install the first million industrial robots while the next million will take only eight years to reach that milestone. That includes the wide-scale adoption of automated assembly techniques within China itself. Thus is the opportunity being provided to apparel and footwear providers, as well as other industry supply chains that have a high sensitivity to direct labor costs within respective products. Noted is an estimate from German robot producer Kuka indicating that a typical indutrial robot can cost in the area of 5 euros an hour to operate.

Nike was one of the first shoe manufacturers to pioneer the 3D printed Flynit athletic shoes five years ago and now, Adidas is pioneering its application of automated shoe manufacturing.

In the not too distant future, apparel manufacturers will do the same. Industry disruptors focused on “fast fashion” business strategies have been leveraging supply chain near-shoring strategies to provide far more agile responses to the latest and most prominent fashion trends. Their appeal to higher margin, in-demand fast fashion supports higher pricing and thus flexibilities to support near-shoring of fast production. The key to fast fashion has proven to be more agile supply chain sourcing strategies and such strategies will be enhanced further when robotics is applied to the precision cutting and sewing of fabrics.

Of course, there are many social and workforce implications to these trends, all very important to social responsibility practices. That topic deserves a more detailed blog commentary.

Suffice at this point, to close with the takeaway that an industry that was noted as one of the earliest adopters of global based, low-cost manufacturing outsourcing is now on the verge of adopting Industry 4.0 supply chain practices.

Bob Ferrari

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


Tesla’s Ongoing Financial, Operational and Supply Chain Growing Pains

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If Supply Chain Matters readers have been following along our streams of blogs related to Tesla are probably aware that the global electric automaker has had its share of growth and supply chain scalability challenges. It’s the good news notions of groundbreaking technology and a cult following of loyal customers, fueling demands for vast scalability in supply, manufacturing, and global distribution of completed vehicles.

In addition to producing the increasingly attractive and rather expensive all-electric Model S and Model X sedans, the supply chain is now in the throes of preparing for the ramp-up of volume production of the less expensive, broader market appeal Model 3 sedan targeted at a sales price of $35,000.  The latter vehicle began pilot production in early February with plans to produce upwards of 5000 Model 3 vehicles weekly by the end of this year. That is an aggressive timetable from many supply chain perspectives.

To prepare for Model 3 volume production needs, both the existing “gigafactory” in Nevada that produces lithium-ion batteries, and Tesla’s existing production assembly site in Fremont California have undertaken square footage expansion. The Fremont facility itself will expand by up to 4.6 million square feet, adding upwards of 3100 additional jobs.

As noted in our prior blog commentary at the time of Tesla’s report of Q4 and 2016 financial reporting, the company has amassed upwards of $18 billion in debt with total cash on-hand amounting to $3.4 billion at fiscal year-end. That condition prompted Founder and CEO Elon Musk to call for an additional round of a combination of upwards of $1 billion in bond and equity financing to provide an added cushion for capital investments needed to ramp Model 3 production. As we pen this blog posting, a breaking news report indicates that China based Tencent Holdings has invested a reported $1.8 billion in Tesla, amounting to a 5 percent stake in the company. Tencent acquired its stake in a combination of the added stock offering by Tesla and shares purchased on the open market. While Tencent’s stake is reported to be passive, it does represent that Chinese company as the fifth largest shareholder of Tesla stock. Tencent own’s China’s largest social network, WeChat, and is recognized as the world’s largest electronic games publisher.

Regarding the ongoing scalability challenges of Tesla, the San Jose Mercury Times published an expose commentary in February indicating that long hours and reported unsafe working conditions was causing disgruntled workers to seek out potential external labor union assistance. The report indicates that during November and December, employees worked a minimum of 6-day workweeks to keep-up with production needs. At the same time, the high cost of living within Silicon Valley forces production workers to have a reported reliance on overtime to survive financially. The report further indicates that all Tesla employees were recently asked to sign a supplemental non-disclosure agreement indicating that all observations of work activities, schedules or production plans are confidential information.

As noted in our last Tesla focused commentary, the company still has a long way to go to meet its milestone of producing upwards of 500,000 vehicles across all model lines on an annual basis by 2018. There are many areas all along the supply chain that could prove to be weak links, not to mention the steep ramp-up needs for both the battery gigafactory and the Fremont facility.

The market stakes are high, along with the rewards. In the end, the supply chain, including product management and manufacturing will serve as the critical enablers to Tesla’s bold expansion plans.

 

Bob Ferrari

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

 


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