Today marks a product milestone for Tesla Motors, namely the public debut and availability of the new Model 3 SUV targeted for a broader customer base. In shades of Apple product availability events, Tesla’s PR team insures that photos of prospective customers camped out overnight at Tesla outlets are spread throughout media channels.
The hype cycle is on but the real test will be Tesla’s supply chain and product management flawless execution in the coming months.
In a prior Tesla commentary published in January, Supply Chain Matters noted that while Tesla met its internal goal to deliver more than 50,000 total vehicles in 2015, customers who made deposits as far back as three years ago to secure the new Model 3 remained disappointed. The model, which was supposedly designed to be built for a lower price point and with higher output volumes, has undergone a series of repeated delays making the overall program almost two years later than originally planned for market availability. Of course, such a delay has provided industry competitors such as General Motors ad Toyota the opportunity to bring to market electric powered models that can compete with the Model 3.
Tesla’s founder Elon Musk has characterized the Model 3 as “The hardest car to build in the world.” We interpreted that statement to mean the most sophisticated engineered vehicle but not necessarily one designed for higher volume manufacturing. Its falcon wing doors and air filtering system are examples of noteworthy engineering accomplishments but call into question needs related to design for higher volume manufacturing. Luxury seat manufacturing was recently moved from a supplier, in-house to Tesla’s production facilities because of quality and volume needs. Another ongoing open question is whether the planned Gigafactory designed to produce lithium-ion batteries in-volume will be ready to meet production ramp-up needs.
According to the latest update on the Tesla web site, general reservations begin today on a worldwide basis with a different order queue planned for each geographic region. Existing Tesla customers will also get a priority in the queue, which at first blush, somewhat defeats the objective of a car produced for new customers. Volume production of the new model is noted as beginning in late 2017 with deliveries initially targeted for North America. While those expectations might change during tonight’s scheduled Model 3 unveil, it does set muted expectations as to when large numbers of global consumers can expect to be driving the new Model 3.
It would appear that this is another classic case of product marketing meets the hard realities of supply chain ramp-up execution of a product in high demand. As in the case of Apple, be careful as to marketing hype when supply chain is the real determinant of customer fulfillment.
© 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Last week, The Wall Street Journal featured a novel but rather important article (Paid subscription required) reflecting on the importance of knowing your product, your supplier management and oversight practices along with supporting your core product marketing strategies.
The article reflects on actress Jessica Alba’s co-founded company, the Honest Company, whose company has soared to a reported $1.7 billion in private valuation in less than four years. The stated core mission of this consumer goods company is to offer cleaning products that do not knowingly contain harsh chemicals found in mainstream marketed and sold products.
One of the harmful compounds of question is that of sodium lauryl sulfate, referred to as SLS. The Honest Company’s claims to consumers are that its products are free of SLS. However, in its report, the WSJ indicates that it commissioned two independent testing labs to analyze Honest’s liquid laundry detergent only to determine that it contained significant amounts of the chemical.
Honest naturally disputes such findings. The firm indicated to the WSJ that its manufacturing partners and suppliers have provided assurances that its products do not contain SLS other than trace amounts, and indeed provided a document from the laundry detergent supplier, Earth Friendly Products indicating there was no SLS content in its product. Earth Friendly indicated its document that it relied on its own chemical supplier, Trichromatic West, to test and certify that there was no SLS content. That’s when this story gets interesting since the lower-tiered supply chain chemical supplier told the WSJ that its certificate was not based on any testing and that there was a “misunderstanding” with the detergent maker, its customer. Further indicated was that SLS content was listed as zero because the chemical supplier did not add any SLS to the material it provided.
Honest reportedly claims to utilize an alternative cleanser in its products that is termed sodium coco sulfate or SCS. The WSJ goes further in its research for its report, interviewing a reported dozen scientists on how SCS itself is produced. It turns out the substance is: “made from palm or coconut oil, as a mixture of various cleaning agents that includes a significant amount of SLS.” The Journal indicates that one of the country’s largest suppliers of SLS and SCS acknowledged that SCS indeed contains SLS.
Our readers can indeed read the entire WSJ report as to the back and forth communications the publication had with the Honest Company regarding the semantics of what is included in its laundry detergent product.
For Supply Chain Matters readers, particularly those of sourcing and procurement roles, the reported incident is yet another reminder of the importance of auditing and monitoring suppliers on a regular basis. It provides a further reminder in the need to have an active two-way relationship with product management and with associated product management teams to insure that the entire value-chain of a product conforms to important specifications.
Your firm can assume that the primary supplier is the sole source of product conformance to specifications and/or purpose. Many procurement teams have since discovered that in today’s complex web of value-chain stops, it is important to insure that all players clearly understand product and manufacturing process specifications, especially when supporting consumer product offerings.
This week, IT media publications are running the headline that in the last quarter of 2014, Apple edged out Samsung in smartphone sales. While the Q4 smartphone numbers would indicate such an obvious eye-grapping headline, both of these smartphone producers, along with their respective supply chain ecosystems, should be more concerned with the implications of the total unit sales volumes in 2014.
Media is actually reporting the latest shipment numbers provided by research firm Gartner. While Apple sold 74.8 million smartphones in Q4, vs. the 73 million sold by Samsung, a review of the full 2014 data provided in a Giga posting provides more concerning trending. According to Gartner’s analysis, 1.24 billion smartphones were sold to consumers in 2014. That represents a lot of production, supply chain, LCD and semiconductor component capability.
Both Samsung and Apple lost market share in 2014 by Gartner’s estimates, albeit Samsung took the brunt with a 6.2 point drop in market share. However in overall unit volumes for all of 2014, Samsung sold over 307 million smartphones, far outpacing Apple’s 191 million. From a supply chain scale and volume perspective, Samsung appears to stand tall, and yet, its supply chain does not garner the accolades that Apple garners.
Market share gains came from Lenovo, Huawei and a broad category grouped as “Others”. Readers might recall that Lenovo recently acquired the Motorola brand of smartphones and that Lenovo has strong market share within China. That “Others” category, which supposedly consists of brands such as China based Xiaomi as well as India based producers, gained over 5 points in global market share. These producers are garnering increased consumer attention across emerging and developing markets, offering far more cost affordable features and options. Their momentum is collectively rising.
As consumer electronics and telecommunications focused supply chains know very well, the most important trend to focus on is overall scale, namely how many installed smartphones exist to generate more profitable and recurring electronic content sales. The 1.2 billion added smartphones in 2014 provides ample evidence of that potential.
From our lens, the most staggering statistical trend for global product development and supply chain teams to dwell on is that according to Gartner, Google’s Andriod operating system now powers upwards of a billion phones, up from 761 million recorded in 2013.
The takeaway is one that many a supply chain or product management planner should know all too well. Rather than a shorter-term focus on the latest quarter, the more meaningful analysis is to focus on bigger picture market insights and individual geographic country data reflecting on market shifting.
The desired business outcome for smartphone focused supply chains is not so much the profitability and margin of the hardware, but rather the time-to-market and scale of installed devices.
General Motors Attempts to Turn to a New Chapter of Growth, Customer Loyalty and Supply Chain Practices
The public relations teams supporting General Motors have been in high gear these past weeks for obvious reasons. Lapses in product design and quality management practices, and what has been billed by business and general mediaas the worst U.S. product safety crisis in recent memory has led to a series of product recalls among multiple GM brands involving upwards of 2.6 million vehicles.
GM desperately needs to move beyond its current state and restore confidence in its brands and in its business management model. Suppliers and partners associated with supporting this U.S. based OEM need to also move on to more collaborative and win-win relationships, but that requires a different GM perspective.
When Mary Barra was appointed CEO of General Motors, this author communicated our Supply Chain Matters elation for this announcement. Our enthusiasm came from the dual fact that not only was Barra the first senior female executive ever to lead a global automobile manufacturer, but more importantly, because her 35 year background included plant management, manufacturing, product design and development leadership experience. She is also an engineer by training. Barra likely understands the elements of producing high quality cars and trucks and the important contribution of the GM supply chain ecosystem in achieving that goal.
If readers want to gain a candid perspective on Mary Barra’s current challenges in transforming GM, we recommend the recently published Time article, Mary Barra’s Bumpy Ride at the Wheel of GM. Author Rana Foroohar pens an insightful perspective on Barra’s management style and her efforts to change a rather in-bred corporate culture built around functional fiefdoms and little accountability. She describes Barra as the consummate “outsider-insider” with a far different style from most of her CEO predecessors. She has been put in charge to become the change agent and apparently has the support of many of GM’s employees in that task. In our previous commentary in December 2013, we called attention to the Wall Street Journal characterizing Barra as “having a reputation for speaking her mind, a trait that hasn’t always been appreciated in GM’s executive suite.”
This week, business and general media are featuring reports of GM’s latest earnings announcement. The WSJ reported that after nine months, Barra wants to switch gears towards a multi-year strategy to deliver increased revenues and profits while restoring consumer trust. She explained to a group of GM’s top 300 executives that the company must do what it takes to be the “world’s most valued automotive company”. The going forward strategy leans heavily on reliance on planned new models expected to come to market, many of which were shepherded under the leadership of Barra when she previously led new product development. A goal is to have 47 percent of global sales to be fueled by these new models by 2019. It further includes market expansion and growth within China through investing in five additional auto assembly plants and he introduction of nine new Cadillac models in that country.
GM will further focus on the broader supply chain’s contribution to its renewed business goals.
According to a recent WSJ report, there is an internal belief that GM pays more than its competitors for materials and technology because the company bases parts purchases on unrealistically high forecasts that burden suppliers with high fixed costs when ultimate demand falls short. Our community is more blunt in such an explanation: it is lousy forecasting predicated on achieving functional stovepiped goals. The WSJ quotes some analysts as indicating that the automaker could save upwards of $1 billion a year with smarter purchasing practices, which as we know, is a typical Wall Street short-term perspective these days. Squeeze those suppliers!
GM’s existing product development chief, Mark Reuss, actually met with executives representing 700 suppliers indicating that the company is ready to share more financial risks if sales projections are high. At that same meeting, GM’s purchasing boss, Grace Lieblein indicated that the supplier base will likely need to add capacity to support growth plans. In a Detroit Free Press published report, she is quoted as stating: “we just have to be cautious and strategic about how we add that capacity and not move too fast.” Lieblein further communicated that an important strategy is convincing suppliers to locate closer to GM assembly plants to reduce transportation costs.
Obviously that’s a tall order for suppliers since transportation cost savings do not necessarily weight themselves to the benefit of the supplier. Adding production capacity to support additional volume and spreading that capacity further across the globe requires a significant financial investment. Add some history of throwing suppliers “under the bus” when quality plans go south because of component design flaws, well, you get the picture of legacy trust.
The new era of GM obviously requires what Barra has described as bold thinking and leadership. What this author was hoping to read is that goal of GM’s supply chain going forward is to support continued product innovation while controlling costs and accelerating productivity. Perhaps that will be articulated in the coming months.
It is this author’s view that such thinking can benefit by a broader and deeper perspective by GM’s executive leaders on how more modernized supply chain business practices, new product introduction (NPI) practices incorporated to supply chain impacts, more collaborative based inventory and supply chain planning practices have led to benefits among other industries as well as other automotive OEM’s. Today’s supply chain and B2B business network technology capabilities can further link the global end-to-end supply chain with more granular levels of planning and supply chain execution synchronization.
The business practices and enabling technology are available but it requires a good dose of change management infusion before real benefits can flow. We trust GM will hence forth nurture the leadership to set such perspectives.
© 2014 The Ferrari Consulting and Research Group LLC and Supply Chain Matters. All rights reserved.
Today marks simultaneous but select global-wide product availability release of Apple’s latest announced iPhone 6 models, and as noted in our previous Supply Chain Matters commentary, the supply chain is again being again put to the test in assuring customer fulfillment expectations. Consumers from Hong Kong, select European countries and the U.S. now have the opportunity to get their hands on the new models.
The Apple marketing gods pay special attention in hyping sales in the first weekend of iPhone availability. It adds to the optics of long lines of consumers queuing-up to get their hands on the latest and greatest smartphones and motivating consumers to buy now, while there is still some in-stock. Like other consumer focused companies, revenues in the upcoming holiday quarter can account for a substantial portion of expected financial results.
Thus far, published product reviews concerning the new models have been positive, which adds to positive consumer perceptions. At this same time last year, Apple set a record of 9 million iPhone 5 smartphones being sold on the initial full weekend. That performance came in the midst of ongoing production yield challenges with the premium iPhone 5s model, which demonstrated the highest consumer demand. In 2012, 5 million iPhones were sold on the initial weekend. Wall Street analysts are floating a number indicating an expectation of 10 million as the bogey for iPhone 6 sales in the first weekend. The bar of expectations grows ever higher.
Earlier this week Apple reported that it had more than 4 million preorders in-hand among the new iPhone 6 and iPhone 6 Plus models during the first 24 hours since the product launch event. Apple also indicated that many of these pre-orders will be delivered in October, a sign of setting proper supply chain realities. Indeed, smartphone carriers such as AT&T, Sprint and Verizon are quoting October availability with the U.S., with the Plus model being especially stretched-up for availability.
One rather critical difference this year is that Apple has not been able to extend planned availability of the new model iPhone within China. Last year, China was included in first weekend sales availability. A published article in the New York Times last week (paid subscription or free metered view) reported that Apple communicated a last-minute decision to delay availability to the three state-owned mobile service providers even though these carriers had already queued advertising and launch campaigns. Increased speculation across Wall Street and business media corridors is that China’s regulators are still voicing concerns regarding national security associated with the iPhone itself. No specifics as to when these concerns will be alleviated has led to added speculation that a grey market for both the new iPhone 6 and older iPhone 5 models will become rampart during the weeks leading up to the end of the year.
However, if Apple’s supply chain planners had factored availability of new models for China on weekend launch, they well may be scrambling to re-configure that inventory to satisfy pent-up demand in adjacent regional markets.
As a community, we often commiserate on the dynamic tensions and often conflicting goals among sales and marketing and supply chain teams which often manifests itself in the S&OP process. Apple’s supply chain teams are not immune to such tension. 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. Air freight capacity is already allocated and we can all look for the clear signs of scramble and response.
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.
Stay tuned for updates.