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Recall Fallout: Investments in Automotive Parts Traceability and Service Supply Chains

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Prediction Ten of our 2015 Predictions for Industry and Global Supply Chains declares that service focused supply chains will garner increased attention and new investment interest. We noted two prime motivations, protecting the brand especially in the light of continuing massive amounts of product recall activity as well as taking advantage of the new opportunities brought forward with connected devices.

This week, in conjunction with the annual North American International Auto Show being held in Detroit, The Wall Street Journal featured an article, Massive Recalls Force Part Makers to Track Defects (Paid subscription of free metered view). The article observes that auto parts makers such as air bag inflator supplier Daicel are investing millions of dollars to improve tracing and lot identifiers of component parts. There are mentions of parts suppliers Aisin Selkl, and Jtekt Corp. significantly investing in parts traceability. Observed is while automotive OEM’s and their associated brands take the bulk of the consumer and regulatory heat around product recalls, quality defects more often reside within parts suppliers. OEM’s are now influencing parts suppliers to amp-up quality measures including easier means to identify production lots and trace parts history. The CEO of NHK Spring, who is also the chairmen of Japan Auto Parts Industries Association is quoted: “Now that supplier names are being mentioned widely, the range of responsibilities that we face is expanding. Not only do we need to face auto makers but also consumers.”  In other words, brand risk has taken on new dimensions in the lower tier of automotive supply chains.

It struck us that such efforts focused on supply practices need to be further complimented by increased capabilities by OEM’s to analyze such quality tracking and tracing data at a far more timely pace.  Providing more prescriptive tagging to such data is  a further consideration.

The takeaway is that indeed, service supply chains are indeed ripe for investment, but require coordinated efforts to leverage input, output and prescriptive information insights that insure more timely identification and response to parts quality or design defects.

Bob Ferrari


Adhering to One’s Declared Standards for Quality: Chipotle Mexican Grill Suspends Regional Pork Supplier

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In today’s restaurant and fast food industry, consumer impressions about one’s brand are more and more governed by the quality and standards of the food supply chain.  Chipotle Mexican Grill has incurred explosive market growth because of its branding emphasis on “food with integrityChipotle logotranslating to higher quality, ethically based food ingredients served at its various restaurants.

Thus, business and general media were quick to feature the headline that on Friday, Chipotle suspended the use of pork sourced from an unnamed regionally based pork supplier. According to Chipotle, a routine audit discovered that the supplier violated declared humane-based standards for the housing of pigs with access to the outdoors.  The restaurant chain, which was decisive in its decision to stop supply, indicated that this was the first time it had suspended supplies because of a violation of standards. A spokesperson indicated to media outlets: “This is fundamentally an animal welfare decision, and is rooted in our unwillingness to compromise our standards where animal welfare is concerned.

The result is that an estimated one-third of its current 1700 restaurants now feature signs indicating that the Carnitas menu item is temporarily suspended due to a shortage of supply.  This evening, this author visited a suburban Boston area outlet and witnessed such a sign, along with a very long line of queued patrons.

One has to admire a company that is willing to adhere to its supply standards in spite of the consequences, especially in the light of the realities of mass food production and of Wall Street’s short-term focus on profits. A published report from Reuters indicates that move could possibly hurt the chain’s first-quarter results. The report indicates that the move underscores the clash among the U.S. agriculture industry, commodity brokers and food companies as consumers continue to become increasingly concerned about the sources and practices of food supply. One equity analyst has already cut first quarter earnings expectations for the chain. Readers may recall that global restaurant chain McDonalds recently terminated the Chinese subsidiary of a long established beef supplier after discovering the altering of  food expiration date labeling.

For its part, Chipotle is now hard at work seeking added supply from other existing suppliers. One AP syndicated report indicates that Niman Ranch, Chipotle’s oldest and largest pork supplier insists that it is not the supplier in question. Instead, it is working to get additional supply to fill-in for the current shortages.

We often are reminded on today’s realities that consumers and customer have more power and influence in buying decisions. This development concerning Chipotle Mexican Grill is certainly a testament to the meaning of such power.

Bob Ferrari

 

 


Automotive OEM’s Hightened Sensitvity to Value Chain Quality and Service Networks

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Prediction Ten of our Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains calls for increased attention and new investment interest for service focused supply chains in the coming year. This includes after-market business process services, service parts and service delivery supply and demand business processes.

The obvious reasons are the unprecedented increases in occurrence of product recalls that add large amounts of consumer negativity towards a brand, especially in the U.S. automotive sector.  Too often, there has been a “throw it over the wall” mentality involving service beyond product sale and thus the after-market service supply chain has lagged in process modernization and investment.

Yesterday, the New York Times published an article, Auto Industry Galvanized After Record Recall Year (paid subscription but complimentary metered view with sign-up).  This article reminds readers that about 700 individual recall announcements involving more than 60 million motor vehicles occurred in 2014 across the United States, double the previous record logged in 2004. The rate of recalls was the equivalent of one in five vehicles currently in the road.  Many of our readers can probably attest to the current situation.

Auto manufacturers have been forced to clean-up years of defects that were either undetected or ignored amidst heightened regulatory scrutiny.

The result is obvious, service supply chains swamped with requirements for numerous replacement parts and service networks buffeted by consumer rage as to why their perceived unsafe vehicles cannot be immediately repaired.  In the care of the massive recalls involving airbag inflators sourced from supplier Takata, product recalls are prioritized for warm region sensitivity along with broader U.S. wide needs.

The Times article observes that sending out notification letters does not suffice, requiring more direct interaction with consumers. That, by our lens, implies more timely information and visibility as to the prioritization of repair campaigns and availability of required repair parts for specific regions.  The article further hints to underreporting of potential product defects or failures.

OEM’s such as Toyota are overhauling safety and product recall practices as well as processes incorporated within its service networks.  Supply Chain Matters has previously highlighted General Motors new brand survival emphasis on up-front product quality and more responsive tracking and detection of potential product problems.  Social media will play a very important role in these new methods including the transmission of product recall information directly to consumers and their individual vehicles.   Legislators continue utilizing the big-stick of criminal prosecution of executives and a means to motivate automotive OEM’s to be more responsive to product quality and overall vehicle safety.

Crisis often brings opportunity, and in the case of service networks, the opportunity is the ability to leverage today’s more advanced technologies related to vehicle sensors, predictive analytics, advanced simulation and scheduling, demand sensing and item-level B2B business network wide visibility among service focused supply chains.

The forces are indeed in motion for greater attention to service supply chain capabilities in the New Year.

Bob Ferrari


New EBook: The Case for Tightly Integrating New Product Introduction and Supply Chain Management

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The business-to-business (B2B) network has become the new opportunity for fostering stronger supply chain and product business relationships with suppliers. More often today, this includes integrating new product management and introduction (NPI) with product design, collaborative manufacturing design and supply chain fulfillment.

Recently, Supply Chain Matters has highlighted a number of current day examples of the critical importance of these relationships. We highlighted recent accident investigation findings from previous Boeing 787 Dreamliner lithium ion battery fires along with findings from a joint FAA and Boeing study published in March which reviewed the broader 787 build program.  Among report findings was added credence to the reality that globally extended aerospace and complex equipment supply chains need to consider more timely two-way integration of product lifecycle management (PLM) and manufacturing process test information across B2B supply chain networks.

In the high tech and consumer electronics sector, product lifecycles are far shorter and NPI cycles occur more frequently. The recent unexpected bankruptcy of a prototype Apple supplier of sapphire glass provided yet another example. Apple’s peak and valley tendencies for extraordinary new product ramp-up and corresponding large-scale production volume surges that correlate with condensed product release cycles place enormous pressures on suppliers and any last-minute product design changes can be a disaster without timely two-way information integration and change assessment. Within automotive supply chains, recent unprecedented levels of product recalls are a reflection of the exposure of common product platform strategies, where common component design is leveraged across multiple models or brands. Many if not all of these multi-industry examples point to the product and production information alignment disconnect.

Under sponsorship of E2open Inc., our research parent The Ferrari Consulting and Research Group recently published an E-Book, The Case for Tightly Integrating New Product Introduction and Supply Chain Management. This document identifies the new opportunity for leveraging the end-to-end supply chain business networks not only for synchronizing planning and fulfillment execution but the new opportunities for incorporating two-way NPI process information as well. Certain B2B networks provide the ability to support a hub-and-spoke, federated data model that spans these broader process areas and bridge the gap in existing PLM and ERP systems for integrating broader forms of process information across extended supply and demand networks.

The E-book is available for complimentary downloading with registration at the following E2open web link. Later this month, we will also feature this E-book in the complimentary section of the Research Center associated with this site.

Bob Ferrari

Disclosure: E2open, Inc. is both a Named Sponsor of Supply Chain Matters and a client of the Ferrari Consulting and Research Group.


Automotive Service Networks Response to Crisis: Update Three- Expanded Recall Involving Suspected Defective Air Bag Inflators

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Supply Chain Matters provides another update to the ongoing crisis involving the automotive industry as unprecedented levels of product recalls continue to stress auto aftermarket service supply chains to their limits. In our last commentary, we noted the colliding forces of regulatory, political, and capacity-restrained automotive replacement spare parts networks may well continue for many more months, and that appears to be exactly what continues to unfold. Once more, when the dust settles, we believe that the industry needs to take a hard look at lessons learned.

This week, there were further significant developments related to recalls of alleged defective airbag inflators produced by Japan based supplier Takata. After undergoing additional scrutiny from U.S. regulators, Takata refused to broaden the scope of the defective inflators recall beyond a select number of U.S. States with high humidity concerns.  That action forced OEM Honda, to expand its U.S. recall of suspected defective airbag inflators to all 50 U.S. states. Once more, Honda further indicated to U.S. regulators that the company is in discussions with other air bag suppliers to add augmented capacity of replacement parts. According to published reports, Honda is in discussion with suppliers AutoLiv and Daicel Corp. for supplementing supplies of required repair parts. In testimony this week, a Honda executive confirmed what Supply Chain Matters indicated several weeks ago, that the shortage of repair replacement parts would continue for quite some time.

U.S. regulators continue to pressure OEM’s BMW, Chrysler, Ford and Mazda to expand their driver-side air bag recall campaigns to include all 50 states. These actions have been prompted by additional information disclosed this week by the U.S. National Highway Traffic Safety Administration (NHTSA) indicating that prior incidents of premature exploding airbags are not just occurring in high-humidity areas. That is new information not brought forward previously. If these other OEM’s expand their campaigns to include all U.S. states, that will of-course add even more concerns to the ultimate availability of replacement parts.

According to a published report by The Wall Street Journal, earlier in the week Takata issued a letter to the NHTSA challenging the authority of that agency to compel a parts supplier to initiate a recall, arguing that the U.S. regulator authority is limited only to actual OEM’s that produce automobiles. From the lens of Supply Chain Matters, that argument is tantamount to a supplier throwing its major automotive OEM customers under the proverbial bus.

There should be little doubt among automotive line of business and supply chain leaders that these past few years of unprecedented product recalls are cause to revisit product quality imperatives. There has been a lengthy industry debate as to whether the quest for volume and profitability growth sacrifices quality conformance across the end-to-end supply chain. On the positive side, Hyundai recently scaled-back its volume growth plans when indicators of slipping quality motivated senior leadership to cut-back growth plans and endorse added quality measures.  The fact that Honda, which has prided itself in the quality image of its products is now front and center in the media is a symptom. In contrast, reports in business media of late question whether Toyota or General Motors have been chasing volume and profitability growth with quality and brand image as a casualty.

Evidence of common defective parts among multiple OEM brands and models point to shortfalls in quality monitors and component sourcing strategies that balance quality conformance risks. At the surface, these developments are perhaps a further indication that teams are not collecting or monitoring correct data as to component failure trends along with predictive indicators of broader manufacturing or material issues. The industry needs to take a hard look at supply-chain-wide quality conformance and feedback mechanisms.

Bob Ferrari


Supply Chain Matters Update Two: Automotive Service and Spare Parts Networks Respond to Crisis

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Supply Chain Matters provides another update to the ongoing crisis involving aftermarket spare parts and service management supply chains within the Automotive sector as unprecedented levels of product recalls stress the system to its limits. U.S. automakers alone Airbaghave recalled more than 30 million vehicles this year as a result of a heightened regulatory environment that has prompted auto makers to issue a recall out of an Abundance of caution and legal protection.

Regarding the product recalls related to the airbag inflators produced by Takata Corrp., this has been a rather busy week of finger-pointing and consternation.

Last week, U.S. regulators nearly doubled the estimate of vehicles subject to recall. Reports have come to light that auto makers and regulators were aware of Takata air bag inflator problems for several years. The Manhattan U.S. attorney’s office that led the investigation and $1.2 billion fine on Toyota to settle a previous incident related to unintended acceleration of vehicles is now reported to have launched a preliminary investigation of the ongoing Takata inflator incident. On the political front, Congressional leaders in Washington are threatening more probes of the National Highway Safety and Traffic Administration (NHSTA) for its handling on the ongoing air bag inflator incidents, a sure sign of more political pressures and maneuvering.

On Tuesday, the CEO of AutoNation, the largest auto retailer in the U.S. indicated that he has instructed his dealerships to halt the sales of 400 used cars that are subject to the airbag inflator recall. He further urged regulators to get control of an “incoherent response”.

Yesterday, NHSTA gave inflator supplier Takata a deadline of December 1 to supply added documents and respond under oath to additional questions.

From a service supply chain perspective, NHTSA released details of industry meetings indicating that it will take several months before there are enough spare parts to support the current inflator recall. It appears that most automotive manufacturers are prioritizing the limited supply of replacement inflators to warm and humid regions, which has been identified as the most probable risk for failure and subsequent injury. Reports indicate that BMW, Ford and Mazda are limiting spare replacements to the few identified high-humidity southern U.S. states, Puerto Rico and the U.S. Virgin Islands. Indeed, NHTSA had issued guidelines supporting prioritization of replacement parts to these most at-risk regions, but automobile owners remain confused and frustrated as to what to do.  That continues to add more pressure to automobile dealers and their associated services businesses to be able to respond to consumer fears for driving an unsafe vehicle.  In our conversation with various people this week we have already heard stories from those impacted by recall or service campaign notices.

The colliding forces of regulatory, political, and automotive replacement spare parts networks continue and may well continue for many more months.

Bob Ferrari


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