The Wall Street Journal is reporting (paid subscription or free metered view) that Boeing and a key supplier, Mitsubishi Heavy Industries, are inspecting the wing assemblies of 43 yet to be delivered 787 Dreamliner aircraft after discovering hairline cracks caused by a manufacturing process.
According to the report, the supplier informed Boeing that a change in its manufacturing process may have caused the cracks. Inspections are being carried out at Boeing assembly facilities near Seattle and Charleston South Carolina. Boeing indicated to the WSJ that none of the 123 Dreamliners delivered to-date are affected by this wing issue.
The WSJ quotes sources as indicating that the latest problem stems from fasteners use to connect shear ties to the carbon composite wing panel. Boeing indicates that it will take 1-2 weeks to inspect and correct this situation on the impacted production aircraft. Boeing further indicated to the WSJ that it fully expects to maintain its schedule for customer delivery of 110 787’s this year although Q1 shipments could slip beyond March.
The saga of the 787 supply chain glitches continues.
Supply Chain Matters provides an update to our previous commentary concerning the latest citations from the U.S. Food and Drug Administration (FDA) concerning India based generic pharmaceuticals producer Ranbaxy. In addition to Ranbaxy, India based producers Wockhardt and Strides have also been cited for failures in compliance to good manufacturing practices.
Last week on her first visit to India, FDA commissioner Margaret Hamburg declared on her blog that lapses by a few select drug makers within India have clouded good manufacturing practices followed by other producers in the country. The commissioner noted: “Ensuring that the products distributed in the United States meet our requirements for product safety and quality is among my top priorities as Commissioner. Unfortunately the many Indian companies that understand good manufacturing and quality processes have been overshadowed by recent lapses in quality at a handful of pharmaceutical firms.” Dr. Hamburg further indicated that officials at India’s Ministry of Health and Family Welfare share this goal and both agencies plan to collectively work together, including a first ever, statement of intent, to improve the lines of communication and work diligently to ensure that the products being exported from India are safe and of high quality.
Dr. Hamburg’s visit was well timed and garnered significant press coverage within India, including The Economic Times. India’s legislative and regulatory leaders have hopefully internalized the need for stepping-up standards in drug manufacturing among the chosen few who reflect negative perceptions on the remainder of drug producers across the country.
If you have been a loyal follower of our Supply Chain Matters commentaries and predictions concerning Aerospace supply chains, you would be aware of the difficult position these value-chain ecosystems currently find themselves in. Once more, you would have had awareness to these challenges three year ago.
Thus we were somewhat amused to stumble upon this week’s Bloomberg Businessweek article, With Epic Backlogs at Boeing and Airbus, Can Business Be Too Good?
The article poses a fundamental question. With over 10,600 of firm orders for new aircraft among both Airbus and Boeing- When is order backlog too big?
In a July 2011 commentary, Aerospace Supply Chain Are Now Stressed, we observed that the building multi-year backlog comes amid an industry track record of not so stellar performance in operational consistency, two-way communication and predictability. Over two years later, although some progress has been made, many of the same challenges remain.
The question posed by Bloomberg, and indeed the Wall Street investor community, is indeed the appropriate question. As the article points out, if a wait for a new airplane stretches out over too many years, it can fundamentally impact the business model strategies of airline customers. Some of those dynamics are already occurring surrounding the continued undelivered backlog of Boeing’s new 787 aircraft. It further can motivate these same customers to consider alternative aircraft deployment or procurement strategies.
Another important consideration are the quickly changing economic environments that often drive demand for airline travel. Airlines from emerging markets are estimated to make-up at least a third of the current order backlog. Current concerns surrounding former booming developing markets are becoming evident in global equity markets as foreign currency tensions, devaluation and and other local economic factors impact business growth within these markets. There will certainly be increased airline travel within emerging economies but this demand needs to be balanced with economic up and down cycles.
In a meeting with Wall Street analysts this week, the CEO of Boeing reported strong earnings for the recent fical quarter but raised some warning signs for 2014 regarding earnings growth. Investors responded by driving Boeing stock down by over 5 percent.
Boeing’s 2014 operational plans call for increasing aircraft deliveries by 10 percent, roughly 715-725 aircraft amid a backlog of 5100 aircraft orders. By the end of the year, Boeing expects to be delivering two new 737 aircraft every day, yet only 10 new 787 Dreamliners monthly. Airbus remains operationally upbeat, empowering localized operational decision-making, yet the realities of a near decade of backlog is hauting.
The new reality is that investors are now becoming aware of the flip side of euphoria- you have to deliver the goods according to customer desires and expectations, and you have to be able to assure required operational on-time performance at customer ship time.
In our most recent commentary regarding Aerospace supply chains, we opined that agility and responsiveness are indeed going to be very important industry differentiators along with on-time and consistent performance for new product development milestones.
An enviable industry position awash with order backlog does not condone business-as-usual. Rather dynamic and responsive capacity management, end-to-end value chain visibility, enhanced supplier collaboration and goal-sharing all come into play.
Each of the major aerospace OEM’s can certainly boast of record performance in 2013, but the real challenges remain as each supply chain ecosystem responds to unprecedented requirements for development and execution. They will each put to the test the real meaning for agile and resilient supply chains.
India based generic pharmaceuticals producer Ranbaxy is once again under U.S. Federal Drug Administration (FDA) scrutiny after a visit inspection of a northwestern India production facility. The FDA banned from the U.S. market the use of drug ingredients originating from Ranbaxy’s Toansa India facility.
Readers residing in pharmaceutical supply chains are probably quite familiar with Ranbaxy and its ongoing challenges in insuring adherence to good manufacturing practices. As far back as 2008 the FDA of more than 30 generic type drugs manufactured by the India based drug maker, one of the world’s significant producers of generics. In 2012, the FDA initiated increased regulatory powers forcing Ranbaxy to halt production of the generic of the highly prescribed cholesterol drug Lipitor while it investigated tiny glass particles found in production batches and other discrepancies. That resulted in a consent decree involving the U.S. Justice Department requiring the company to take steps to insure the integrity of production at three production plants within India.
Now there are reports that on a recent FDA inspection visit, Ranbaxy workers at the Toansa India facility were discovered to be repeatedly altering test results to make it appear that active pharmaceutical ingredients (API) met required standards when they didn’t. According to a Wall Street Journal report, FDA inspectors discovered workers retesting “until acceptable results are obtained” and “deleting evidence of failed tests.” Inspectors were also reported as finding significant disrepair at the plant’s analytical and microbiology laboratories with windows that could not close and a sample preparation room laden with flies. Inspectors also reported to have found evidence of backdating lab results.
The WSJ also characterized this latest action as a serious blow since the Toansa facility supplies many critical ingredients used in Ranbaxy’s generic drug manufacturing including fenofibrate, a drug used to reduce fatty acids in blood to boost good cholesterol as well as valacyclovir which is used to treat shingles and genital herpes. Japanese drug maker Daiichi Sankyo, which now owns upwards of 60 percent of Ranbaxy has dispatched experts to India to help in determining a solution to the ongoing situation.
While these latest actions add more challenges for Ranbaxy and its new owner Daiichi Sankyo, it could add further impacts to already stressed generic drug supply chains. Increased health insurance scrutiny and subsequent regulations on the part of multiple governments has added increased pressures on the industry and generic drug manufacturers, under constant pressure for reduced pricing and more supply.
The glitches surrounding operation Boeing 787 Dreamliner aircraft have once again landed in media. An underside body panel apparently fell off a 787 Dreamliner operated by Air India as it made a landing on Saturday, the latest glitch for the high-tech jetliner. According to officials, an eight foot by four foot (2.4 meters by 1.2 meters) section of fuselage fell from the underside of the jet as it landed landed within the perimeter at India’s Bangalore airport.
According to a posting from the Times of India, the aircraft was enroute from Delhi to Bangalore with 148 passengers on-board when this incident occurred. The aircraft itself was the ninth delivered to Air India and according to the Times report, had just recently entered service. The article includes a picture of the gaping hole which is described as the AC bay. However, by our view on just glancing at the picture, it would seem that a whole lot of fasteners would have let go. The Times article makes further mention that Air India had experienced problems with the interior electric ovens used for food preparation.
Both Boeing and Air India have indicated there was no safety risk for the passengers while Boeing continues to investigate this incident.
If supply chain or product management teams overseeing business activities in China had any doubts regarding what impacts that the compounding effects of business complacency, a significant product recall, compounded by social media amplification, can have on a business, then take a moment to read an article published today by the Wall Street Journal.
The article, Yum Brands Details China Missteps (paid subscription or free metered view) details how one of the most successful foreign businesses conducting business in China has stumbled because of certain missteps. Having been one of the first foreign based restaurant chains to invest in China, Yum’s KFC and Pizza Hut outlets were on a roll in China for many years. In 2012, operations in China contributed to half of the chain’s revues and 44 percent of profits.
Yum Brands just reported that its third-quarter profit declined by 68 percent. Sales within its China outlets declined by 11 percent, contributing to a slump that has lasted nearly a year.
Late last year, a Chinese state media report disclosed a government probe on the improper use of antibiotics among chicken suppliers to KFC outlets in the country. Whether this foreign based chain was purposely targeted for the probe is certainly cause for speculation. That incident was followed by an avian flu outbreak in the spring that caused China’s consumers to shy away from chicken. The series of unfortunate events was amplified by social media which kept negative impressions alive. During this same slump period, new and fresh restaurant brands have entered China’s offering broader and newer choices for diners. Again, the amplification of “dull” or “non-healthy” by social media did not apparently help.
By our view, the key takeaway is that of complacency, applied to the firm’s market, its supply chain quality standards, operating facilities, and under estimating the impact that negative social media impressions can have on a firm’s business, especially in China.