In our previous published commentary, we reflected on the recently held Farnborough Air Show and the new order activity generated for aerospace industry supply chains by this trade show.
One other report from this trade show caught our attention. Boeing indicated that the reliability to-date of the more than 160 787 Dreamliners that are operating among global carriers is averaging about 98 percent. The OEM’s chief 787 test pilot flatly indicated: “that number is not where we would like it to be, we were expecting it to increase.” The industry sets reliability benchmarks for aircraft, particularly newly introduce models that must meet higher customer expectations. According to reporting from the Wall Street Journal, Boeing pegs reliability of new aircraft to that of the previous generation 777 fleet at comparable times of product rollout and fleet operating time. The “triple seven” has been widely recognized as one of the most reliable.
Thus far, 787’s have logged more than 490,000 hours of service, but a series of various ongoing snafu’s or malfunctions have caused some setbacks with both production volumes of new aircraft as well as operation of existing aircraft. However, Boeing officials report that the situation is improving. With its latest new “dash nine” variant of the 787, Boeing has further taken on more design management to insure overall reliability of system components.
The report itself provides yet another reminder of the very high overall reliability standards that today’s more advanced and technology laden aircraft must meet. It is also a reinforcement to the overall criticality of integration of product design with physical and software performance. Not many industries with such a complex hardware, software and bill-of-materials complexity can meet the standards of 98 percent reliability let alone even higher levels.
Across the United States, besides the U.S. team’s accomplishments in the World Cup competition, another dominant traditional and social media based news headline reflects of the incredible number of automobiles and trucks being subject to product recall.
The primary story focuses on General Motors, which after intense scrutiny from U.S. regulators and legislators regarding faulty ignition switches among multiple models, is recalling all sorts of models that are believed to have been exposed to a component design problem, faulty ignition or otherwise. Thus far in 2014, GM has announced 44 product recalls involving nearly 18 million previously sold vehicles. Today’s social and business media buzz blares that the vehicles been recalled thus far is more than the total number sold in the U.S. in 2013.
In a previous Supply Chain Matters commentary, we called attention to product recalls involving airbags supplied by Japan based Takata Corp. that were expected to expand and involve millions of affected vehicles. Today, both Honda and Nissan recalled close to an additional 3 million vehicles worldwide to repair the subject airbag problem, bringing the total number involved with the airbag defect to roughly 5 million vehicles.
An article syndicated by the Washington Post News Service features the headline: More than 1 in every 10 vehicles on the road has been recalled since January. That articles notes that the defects range from rather serious (faulty ignition switches, overheating exhaust parts, power steering problems) to other problems where automakers are now highly sensitized to any potential liability problem. This article goes on to note that in the spirit of crisis bringing opportunity, that there may be an upside of this extraordinary situation: “ … meaning that dealers get to have their old customers back in the showroom. There, they can show off the new models and, at minimum, be in a position to sell drivers on some repairs they previously were not considering.”
This author, for one, was completely floored by the above statement. Are you kidding me! One in every ten vehicle owners being inconvenienced to have to make a service appointment and bring their vehicles for service, and dealers have the “blank” to try an upsell these consumers?
Beyond the lunacy of such statements, there is a parallel and very critical challenge about to happen.
Automotive service focused supply chains are going to be exercised to their biggest stress test, ever. All of the subject recalled vehicles will require some form of a repair part, one that has hopefully, been correctly modified to remediate a suspected problem. The sheer numbers imply that some inventory will have to be re-allocated from those destined to support ongoing production schedules for newer vehicles. In some cases, necessary repair parts will not be able to meet overall demand, and dealers will have to be very careful in scheduling service appointments and setting customer expectations. During Toyota’s past product recall crisis process involving unattended sudden acceleration, Toyota worked directly with its dealer network to coordinate extended service hours for consumers, including nights and weekends. Coordinated round-the-clock efforts among certain component suppliers and respective dealers were directed at insuring repair parts were adequately distributed and vehicles were scheduled for repair based on availability of necessary parts.
In short, the folks that do necessarily receive all the hero badges, those directly supporting service focused supply chains will be called upon in the coming weeks to literally save brand focused reputations.
Last week, Supply Chain Matters was invited to attend the PTC Live Global 2014 customer conference held in Boston. One of PTC’s product suites is technology focused on Service Lifecycle Management (SLM) which has been amassed from previous acquisitions of vendors such as Servigistics, MCA, Kaidera, Xelus and others. In one of the sessions, PTC executives noted that expectations have never been higher on the customer and business side of service management. Yet, service management tends to suffer from immature business processes, not from a lack of dedication and effort, but rather a lack of broader understanding to the importance of service management. Mingling in the hallways and networking sessions, we once again had an immediate sense of how dedicated these people are, and also how unappreciated and frustrating their efforts can sometimes be.
Across automotive, the service focused supply chain will be put to its largest and most expansive stress test from the scope of sheer numbers of vehicles and information required to coordinate service scheduling needs. Some will rise to the task at hand. Some will not.
One fact is very clear- auto dealers are advised to take-off their sales hats and concentrate on service and customer satisfaction efforts, in all dimensions. That includes a very close, almost intimate relationship with those dedicated professionals who plan, manage and fulfill service parts planning and order fulfillment. Forget for the time being, the algorithms and calculations related to mean time between part failures. It is going to be “all hands on-deck” augmented by information coordination and supply chain intelligence that separates the best in class performers.
Have you ever considered a supply scenario where a key supplier to multiple industry brands encounters a significant or troubling quality problem?
Could that scenario be greatly magnified with a highly sensitized regulatory environment?
That scenario is currently playing out across certain automotive supply chains and reflects that even the smallest part or component failure has far greater brand implications.
According to an exclusive published report from Reuters, product recalls involving airbags supplied by Japan based Takata Corp. will expand and involve millions of affected vehicles. According to the Reuters report, this week, Toyota recalled an additional 1.6 million previously recalled vehicles outside of Japan, as well as 650,000 within Japan because of a believed Takada manufactured airbag defect that has the potential to cause personal injury due to faulty inflators within these airbags. The additional recalled vehicles brought the total number of Toyota branded vehicles subject to airbag recall to more than 7 million over the last five years.
Reuters further reports that Honda is considering a recall involving more than one million additional vehicles with potentially defective air bags, citing a source familiar with the matter. Last year Honda recalled over a million vehicles because of airbag inflation concerns. The Honda announcement could come by the end of June pending further information from Takata regarding specific inflator component information. The report additionally indicates that U.S. auto industry regulator, the National Highway Traffic Safety Administration (NHTSA) has this week opened a probe involving an estimated one million vehicles made by Nissan, Mazda and Fiat, in addition to Toyota and Honda. That probe is focused on six reported incidents of airbags not deploying properly in Florida and Puerto Rico.
This news comes in the wake of the increasing high visibility being placed on General Motors and its associated brands due a series of prior product defect awareness and recall snafu’s involving certain ignition switches. The initial GM incident has prompted additional product recalls involving a multitude of components and millions of vehicles. The entire industry is now highly sensitive to increased regulatory sensitivity with significant potential monetary fines if known consumer safety issues are not reported on a timely basis. The result has been an explosion of product recall announcements because of such increased scrutiny and regulatory concern with industry supply chains scrambling to provide necessary modified repair parts.
Automotive OEM’s have fostered component product innovation strategies among a key set of lower-tiered component system suppliers, and OEM’s leverage such innovation across multiple vehicle and brand platforms. As an example, prior Toyota airbag related product recalls involved both the Toyota and luxury Lexus brand. GM’s current wave of product recalls involve many of its brands including Cadillac.
These strategies were put in place to foster both faster product innovation cycles as well as to be able to leverage volume supply costs across multiple global platforms. The objective of leveraging lower component costs has never gone away, at least for certain OEM’s.
According to the Takata web site, the firm serves as a supplier of automotive safety systems and products including airbags, seat belts, restraint systems and other safety related components. This supplier operates 56 plants among 20 countries and is obviously a key supplier for many brands in many production geographies.
From our lens, the current mix of developments at play across multiple automotive brand supply chains provides keen reminders for the needs for more early warning awareness related to component failure trends, the ability to sense and share such information across and among both functional and product design teams with the ability to more adequately identify and trace specific components with their production lots.
Certainly within the automotive industry, supplier management and early warning is no longer the sole purview of procurement teams. It is fast become a cross-functional, cross-business responsibility led by procurement with the active support and involvement of product design and management. When all the dust settles concerning GM’s ongoing investigations and response plan, much of this learning will be evident. While automotive has its unique challenges, other industry value-chain teams can also apply similar learning. The product focused and post-sale service focused supply chain are additionally now highly information dependent.
Worst case scenarios involving a product brand and perceptions of quality and safety are not out of the realm of possibility. Speak to procurement, supply chain and product management team members in automotive and you will probably get a clear sense of how distributed product innovation is highly dependent on higher levels of information awareness and product quality measures.
© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog.
All rights reserved.
Join the Upcoming Webinar: The Importance for Tightly Integrating Product and Supply Chain Management
Because of rapid advances in product innovation and advanced technology, products have become more sophisticated and incorporate broader combinations of physical hardware, software and associated services. This invariable adds more challenges for product design and management teams, especially when key aspects of a product’s value-chain are part of a predominately outsourced supply chain. In a Supply Chain Matters commentary published in mid-April, we brought forward current day evidence that the linkages from product design and management directly to the manufacturing floor, and the broader multi-tiered value-chain network have got to be stronger than ever because the clock speed of industry change requires less information latency and more responsiveness.
This author will be the primary speaker in an upcoming webinar sponsored by Serus on Wednesday, May 28 at 11:00am PDT. The title of my presentation is: The Increasing Importance for Tightly Integrating Product Design and Supply Chain Management. This presentation will address converging trends in business, supply chain and manufacturing, as well as IT and will address the new opportunities to leverage product management and timely new product introduction practices on an end-to-end B2B platform.
Questions I will address in this interactive webinar presentation will include:
• What exactly are the converging forces in Product Design and Supply Chain Management for today’s manufacturers?
• What learnings can be derived from the recent Boeing, Toyota, and GM product recalls?
• How should a product brand owner harness today’s converging trends to it’s obtain industry competitive advantage?
There is time allowed for webinar viewers to ask additional questions. Join us in the complimentary no-cost webinar by registering at this designated Serus webinar link.
Bob Ferrari, Founder and Executive Editor
General and business media has provided much amplification of the latest product recall troubles involving General Motors. In the past few weeks GM has recalled upwards of 6.3 million vehicles globally for quality issues related to faulty ignition switches, a sudden loss of electric power-steering assistance and other issues. The incidents have once again raised issues as to why certain automotive manufacturers allow quality conformance issues regarding products to fester until consumers experience the results of such non-conformance, or in some cases suffer personal injury or death. The GM crisis has been billed as the first test of the leadership of newly appointed CEO Mary Barra, who just happens to have a supply chain, product and operations management career background prior to assuming her new top leadership role. Indeed this latest crisis might have been the legacy handed over from previous GM CEO’s. Given Ms. Barra’s background, Supply Chain Matters has confidence that this CEO will eventually insure that GM identifies the root causes that have led to these issues, including product design flaws, organizational culture, supplier related quality conformance, conflicting performance metrics or just plain bureaucracy and overhead.
But alas, GM is not the only automotive OEM that will be skewered by general and social media. Today, Toyota announced that it was recalling upwards of 6.4 million vehicles consisting of five different product recalls. The recalls involve 27 globally based vehicle models and are reportedly prompted by defects involving seat rails, air bag cable connections, engine starters, steering column brackets and windshield wiper motors. Did we mention a repair parts crisis as well?
The latest recalls appear just a few weeks after Toyota agreed to pony-up a $1.2 billion criminal penalty settlement with the United States Justice Department after acknowledging that it misled consumers regarding unintended acceleration problems (SUA) that occurred from 2009 through 2011. In 2012, Toyota had to take a $1.1 billion charge after reaching agreements with customers over liability lawsuits related to the prior SUA incidents.
But the track record of Toyota product recalls continued after the SUA debacle. In October of 2012 Toyota announced the global recall of 7.43 million vehicles, the equivalent number involved in the SUA incidents, this time related to a master power window switch defect. At the time, The Washington Post was quick to note that this flaw “raises questions about whether Toyota Motor Corp. has solved quality and safety issues that embarrassed the company in 2009 and 2010.” Also at the time, The Financial Times indicated in its reporting that Toyota was aware of the master window switch problem as far back as four years prior. It further indicated that Toyota did not respond sooner because it was unable to replicate the root cause. Somewhat of a familiar theme to the current GM ignition switch saga.
Supply Chain Matters readers will further recall that Toyota announced a series of major organizational changes to insure that accountability for quality among its vehicles was more transparent, including the empowerment of geographic based Chief Quality Officers that had the power to investigate and correct any quality issues. Our Supply Chain Matters commentary in January 2013 called into question the cost of Toyota’s anointment as global automotive industry leader. In a Financial Times interview in 2013, Toyota Motor USA CEO Jim Lentz indicated that the company had strengthened its customer care functions and had much greater ability to analyze data related to emerging quality problems. Lentz noted Toyota CEO Akio Toyoda as urging: “Make sure that we still are built on a solid foundation of quality, reliability and value because that is the hallmark of the company.” In essence, that was the declaration of the core business value of the company.
Which of these two different OEM incidents is the more significant indicator of a systemic process issue?
From our lens, a comparison of GM’s current quality crisis pales in comparison to that of Toyota, since the global industry leader has had more time and singular senior management attention to correct systemic process issues involving product quality, whether they involved the supply chain, or Toyota’s own product design or quality conformance.
Since both of these OEM’s remain in the race for global volume leadership, the price to the brand and of consumer brand loyalty we posed in 2013 is again an open question. Each of their supply chain ecosystems will again be forced to rally and respond to crisis and disruption to insure new and revised parts are made available to dealers, distributors and assembly lines.
The race to the top invariably comes with a price, and at least two automotive supply chain ecosystems will continue to feel the effects of the vortex.
Time for our readers to weigh in: by your view, which of these two ongoing automotive OEM quality crisis developments are the most troublesome for the industry? Share your view in either the Comments area associated to this posting, or if you prefer, email them to info <at> supply-chain-matters <dot> com.
Supply Chain Matters has featured multiple commentaries citing India based generic drug producer Ranbaxy Laboratories. Our latest commentaries were in a specific posting in late January and in an India based industry regulatory commentary published in February.
Thus, we were not at all surprised with this week’s announcement that Japan based Daiichi Sanko Co. the parent of Ranbaxy, has agreed to sell the generic drug manufacturer to India based Sun Pharmaceutical Industries Ltd. in a deal reported to be valued at $3.2 billion in a mostly stock-based deal. This transaction is expected to be completed by the end of the year.
The U.S. market accounts for a significant amount of Ranbaxy’s current revenues, while the U.S. Food and Drug Administration (FDA) currently bars imports from four out of five Ranbaxy production facilities in India due to inspectional findings. According to a report published by the Wall Street Journal, after a five year effort, Daiichi Sanko retreated from the expensive efforts to attempt to fix Ranbaxy’s drug-producing processes. Daiichi acquired Ranbaxy in 2008 for $4.6 billion. FDA warnings and citing’s continued throughout this entire period. The CEO of Daiichi indicated to the WSJ: “The deal will help accelerate a solution to the series of problems at Ranbaxy.”
A reflection on the broader picture, however, remains on the issue of production conditions across India based pharmaceutical facilities. A report published by Reuters points out that India’s drug inspectors are hard pressed to oversee current drug production facilities. An India based drug official indicates to the Reuters reporters that there are 1500 inspectors responsible for more than 15,000 drug manufacturing facilities. Inspectors lack vehicles to travel to sites with reports that some inspectional practices are ignored. A study carried out two years ago concluded that one in every twenty-two locally made samples was of sub-standard quality. According to the Reuters report, about 40 percent of generic and over-the-counter medicines sold in the United States originate at over 500 India based production facilities. While facilities are barred by the FDA from shipping to the U.S., they typically ship to other global locations.
A follow-up report published by the Wall Street Journal (paid subscription) quotes workers and former employees of Ranbaxy as indicating “they received little training and were instructed to keep production going, even if that meant cutting corners.” One former maintenance technician at Ranbaxy’s Toansa plant indicated that he often signed blank documents which were filled in with information later to appear that equipment has been inspected. However, the WSJ cites former and current FDA officials as indicating that Mumbai based Sun Pharmaceutical has a better reputation for quality. However, in March, the FDA barred imports from a Sun API plant in Gujarat.
On her visit to India in February of this year, FDA Commissioner Margaret Hamburg was diplomatic, indicating that a few India based drug manufacturers have been overshadowed by recent lapses in quality at a handful of pharmaceutical firms. The Reuters report seems to dispute that statement. Dr. Hamburg further indicated that officials at India’s Ministry of Health and Family Welfare share this goal and both agencies plan to work together to improve lines of communication and diligently work to ensure drug products exported from India are safe and of high quality.
With the proposed combination of Sun Pharmaceutical and Ranbaxy, the two India based generic drug producers when combined providing even more global scale, it would seem that the urgency among broader industry and India government regulators should be raised to aggressively address systemic production process issues and support strict adherence to published global Good Manufacturing Practices. Both domestic India drug consumers as well as global drug consumers expect such practices, and the reputation and brand value of India’s drug makers is clearly at stake. The Indian government is not the sole answer, rather India’s collective drug producers as a whole need to step-up their priorities.