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.
In early July, Supply Chain Matters called reader attention to two contrasting examples of how supply chain process capabilities matter. One of the examples was that of U.S. automotive manufacturer Chrysler and challenges and setbacks related to the production ramp-up and market release of its new midsized model Jeep Cherokee model. This innovative new model SUV is crucial to the company’s 2013 revenue and profitability plans in a highly competitive automotive segment. The new Cherokee was originally planned to be introduced to dealers in May, then it pushed to June, and then to September.
Two weeks ago, the Wall Street Journal reported some further specifics including one of the prime causes of the delay. The new Cherokee includes the first application of a nine-speed transmission mated to two new engines and three complex 4-wheel drive systems. Apparently there were calibration problems related to the shifting of the transmission which involved applying some software engineering fixes which are now reported as being resolved. Chrysler actually asked some of its workers on temporary layoff to drive the vehicles to ensure that the transmission were shifting properly at different speeds and driving conditions. By our view, that qualifies for an innovative and team-based solution.
Chrysler actually began pre-build in June and about 10,000 new Cherokee’s were produced off the line before required software fixes were determined. The plan now calls for workers to plug hand-held computers into each of the produced vehicles and upload the new software changes, along with incorporating the revised transmission control software into current production.
A spokesperson told the WSJ that Chrysler management will only introduce a vehicle when teams are completely satisfied. The President of the United Auto Workers (UAW) local chapter is also quoted as indicating that that the production team does not desire to release a car and find out six months later that there is a problem.
In our original posting we speculated how dynamic the conversations within the Chrysler S&OP team may have been during this process of high visibility and expectations. Now that we have more of a view as to what could have been occurring behind the scenes, Chrysler has demonstrated something praiseworthy, putting quality and the customer before arbitrarily checking-off a product introduction milestone. They have demonstrated a hierarchy of goal attainment, something very refreshing in today’s business and supply chain climate.
Supply chain process capabilities do matter, and in times of crisis or business challenge, adhering to stated management principles and beliefs, demonstrating cross-functional and cross-organizational teamwork matters even more. Many auto manufacturers have come to learn that with today’s more modern vehicles including far more software and advanced technology elements, marrying mechanical and software engineering and process capabilities in lock step are very important as well as challenging.
We trust Chrysler will successfully complete its product introduction of the Jeep Cherokee, albeit late from the original goal, because of demonstrated teamwork and adhering to the principle of quality comes first.
About 15 percent of the food supply of the United States is imported from other global sources, including half of all fresh fruit and 20 percent of all vegetables. At the same time, incidents of food contamination continue to increase while more and more, little of this foreign based food is inspected for safety due to a lack of governmental resources.
A Bloomberg BusinessWeek article syndicated on the SFGate.com web site calls attention to new rules proposed by the U.S. Food and Drug Administration (FDA) for food originating outside the U.S. to be inspected at the source of export. This article reminds us that 48 million Americans get sick from food-borne diseases each year and that U.S. officials continue to be concerned about the levels of food-borne disease outbreaks and consequent product recalls.
In essence, the FDA is seeking to “outsource” inspection activities by way of importers who have food-sourcing operations in non-U.S. countries. Importers would need to ensure that foreign suppliers comply with existing FDA safety standards or local in-country standards meet U.S. requirements. The measures additionally outline accreditation procedures for third-party auditors who be designated to inspect foreign food suppliers. These newly proposed FDA standards to not apply to imported seafood or juices, which are governed by other federal agency standards.
The article points out that the FDA has come to the realization that it does not have sufficient resources to inspect the multitude of today’s foreign sources of food. While food producers pay the FDA for inspection services, the growth of external sourcing in food supply chains has hampered the FDA’s ability to hire and sustain additional inspectors. In the article, an import industry trade association executive indicates that what is less clear, is how smaller food industry players, who lack the resources and infrastructure of the major food importers, will be able to comply with these proposed regulations. Public comments remain opens for the next 90 days.
Some food industry executives are quick to point-out the burdens of increased regulation and how that negatively impacts supply chain. Supply Chain Matters applauds these latest efforts by the FDA and encourages food industry supply chain players to positively support these measures in the spirit of finding a more collaborative private and public approach for ensuring food safety. At the same time, we believe that there needs to be some teeth in these new guidelines to punish abusers who attempt to implement shallow inspectional practices or rubber-stamp inspections.
Dedicated readers of Supply Chain Matters are very aware of the many commentaries we have posted over the last three years regarding Johnson and Johnson. A series of multiple product recalls dating back to 2009 involving a significant amount of the company’s over-the-counter medicines uncovered what appeared to be systemic process and other issues that reflect directly on its supply chain. It also forced the temporary closure of an entire production facility and the company being slapped with a number of consent decree findings from the U.S. Food and Drug Administration. Readers can refresh their knowledge by reviewing some select Supply Chain Matters postings:
Much has occurred in this period, and yesterday, during the J&J’s formal earnings briefing with equity analysts, a lot more behind the scenes details were shared regarding efforts to address J&J’s supply chain business process and information technology challenges.
Joining J&J’s Chairmen and CEO Alex Gorsky on yesterday’s briefing was Sandy Peterson, Group Worldwide Chairman. Ms. Peterson joined J&J seven months ago in December 2012, shortly after Gorsky was appointed CEO of the company. Her prior credentials were chief executive officer of Bayer CropScience AG in Germany and other senior leadership roles in healthcare systems and consumer product goods companies, including leading procurement activities for Nabisco. She was obviously recruited for specific leadership skills.
Readers may recall our previous commentaries related to senior executive changes made at J&J after the initial product recall crisis, particularly those involving the company’s consumer and OTC product businesses. Of major significance, in addition to being the newly appointed head of J&J consumer businesses, Peterson has leadership responsibilities for both company-wide supply chain and information systems efforts. That is a significant change from the prior structure, one that by our view, will help to bring accelerated change efforts for the company.
In the earnings briefing, CEO Gorsky specifically called on Ms. Peterson to update analysts on the progress that has been made in the three areas of her responsibilities. She began her briefing by noting that she has spent considerable time since joining on visiting and speaking with customers and visiting a number of global-wide production and other facilities, including those in emerging markets. She emphatically stated that her organization’s goal is to restore a reliable supply of U.S. OTC products, and by the end of 2013, J&J plans to deliver consistent supply of 75 percent of product brands previously suspended from production.
Of more significance, Ms. Peterson outlined the overall scope of the challenge inherited. Supply chain scope was described as over 120 manufacturing sites, 500 external contract manufacturers and 450 distribution centers. She indicated that there were 60 different ERP systems supporting 275 operating companies. That is a mind-blowing statistic but perhaps common for a global-based pharmaceutical and healthcare company that is vested in aggressive growth via acquisition.
Five priorities were outlined for U.S. OTC products:
1. Deliver on FDA consent decree milestones
2. Ensure reliable supply of OTC products to retailers and consumers
3. Achieve brand leadership
4. Rebuild customer trust including top retail customers
5. Execute a return to market plan for core U.S. brands and SKU’s
In terms of organizational progress, J&J began to centralize its supply chain efforts over three years ago. That effort continues with the new singular leadership model. The company has plans to evolve a supply chain model that will leverage a global network in sourcing, logistics, transportation and distribution management. Best practices are being shared among and across various business entities. Readers who reside in centralized supply chain teams may view the above as a no-brainer, but consider that supply chain best practices are often not the priority of large pharmaceutical and healthcare companies.
In the area of overall quality, the J&J goal is to have one quality and compliance operating model. Teams are incorporating the new quality and compliance operating model across all products and geographies, while strengthening oversight with supplemental internal audits. Thus far, the company continues to deliver on all planned milestones outlined by the FDA. Ms. Peterson described a rigorous review of external suppliers which has led to a consolidation of external manufacturing by a third.
In the systems area, a four year program has been outlined to consolidate the overall systems landscape. Business continuity planning is also being actively addressed, and we witnessed evidence of that in the recently held Supply Chain Council’s Supply Chain North America conference.
One of the core goals of Supply Chain Matters is to provide readers education, not just to a single event or development, but to the continuity of events and the subsequent learning. In the case of J&J, our commentaries have evolved from sharing frustrations related to signs of organizational paralysis and significant evidence of deep systemic supply chain issues, to now being able to comment on meaningful leadership and progress in remediation. An improvement framework addressing People, Process and Technology factors is now defined and ongoing. Make no mistake, significant work remains and active executive leadership and commitment is essential.
The events surrounding J&J these past months will no doubt become the basis of new case study in business schools and supply chain circles. The numerous occurrences of product recalls reflected other significant supply-chain wide issues that needed to be addressed across multiple business units. J&J has obviously reached-out to seek external advice and assistance. The work across J&J will obviously continue and we trust that more positive outcomes will unfold in the coming months.
Readers residing in Pharmaceutical, Medical Products and Life Sciences industry settings should take special note of how a lack of understanding on the overall importance of consistent and reliable supply chain practices can lead to negative business outcomes. Once more, consider the length of time outlined to remediate and transform the existing supply chain. If supply chain cross-functional and IT teams were in need for evidence on the importance of consistent practices and responsive information technology tools, they can cite the ongoing J&J case study.
Supply chains do matter, especially for this regulated industry.
© 2013 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.
Rolls-Royce Continues to Address Extraordinary Supply Chain Business and Service Lifecycle Management Challenges
Frequent Supply Chain Matters readers are well aware of the ongoing and constantly evolving supply chain challenges facing the Aerospace industry and its associated community of suppliers.
One of the largest and perhaps most critical of these suppliers is that of aircraft engine provider Rolls-Royce. This engine-maker is planning to double its production output of wide-body aircraft engines over the next five years.
Among other areas of contracted supply, this manufacturer servers as the sole supplier of aircraft engines for the Airbus A350 and A380 aircraft as well as one of two prime suppliers for Boeing’s 787 Dreamliner aircraft. By some estimates, Rolls holds 54 percent supplier market share among the combined wide-body engine provider programs according to a recent chart featured in The Financial Times.
Rolls has joined other wide-body engine providers such as General Electric in providing aircraft power as a service, allowing airline operators to lease their power requirements by the hour, avoiding huge up-front costs for equipment allowing airline and leasing companies the option for amortizing aircraft engine costs over the life of the engine’s period of use. Aerospace engine providers thus exercise performance-based service lifecycle contracts in their business models.
Within the past two weeks, Rolls-Royce has been featured in global business media from two contrasting perspectives. Readers may recall a November 2010 incident when a fairly new Qantas A380 aircraft carrying over 400 passengers shortly after take-off out of Singapore had to make an emergency landing as a result of an uncontrolled engine explosion that narrowly avoided what could have been a tragic outcome. This aircraft experienced severe damage to its left wing, fuel tank and hydraulic systems and without the skills of a group of five augmented on-board pilots the results could well have been far more tragic. As a result of the incident reports indicated that Rolls-Royce’s total direct costs associated with this incident were $190 million, including nearly $90 million in direct costs incurred by Rolls in dealing and responding to this one incident and a $100 million settlement with Qantas for disruption of operations. Over 40 Trent series engines involving three A380 airline customers had to subsequently taken out of service and repaired causing further customer disruption.
After a thorough post-incident investigation, The Australian Transport Safety Bureau concluded last week that “uncontained engine failure” was caused by oil leaking from a cracked pipe in the affected engine. The Financial Times (paid subscription or free metered view) and other business media reported last week that Rolls admitted “it clearly fell short” of its own safety standards related to the specific manufacturing processes related to the Trent series engine. The manufacturer indicated that the engine component consisting of the failed oil pipe was produced at the Hucknall UK manufacturing facility. FT reported that there several opportunities to identify and fix the problem but were missed for a number of reasons related to non-conformance to quality procedures and specific plant culture. At the end of 2011, Rolls changed the sourcing of the high pressure intermediate hub assembly to its manufacturing site at Bernoldswick UK. The director of engineering and technology at Rolls is quoted by FT as indicating that the A380 related engine failure was a rare event “which we very much regret.” Readers should be astounded at the subsequent monetary implications as to the risks of a leaking oil pipe in one of this engine’s most critical functional areas.
Today’s edition of FT outlines (paid subscription) a second important challenge for Rolls-Royce, that of increasing product margins through reduction of manufacturing and supply chain costs over the coming years. The new head of the civil and defense aerospace business, Tony Wood, indicated to FT that his business was prepared to cope with plans to dramatically increase product rates of Trent series engines while improving operating margins. Current product margins were recorded at 11.3 percent compared with rival GE Aviation margins of 18.7 percent. Previous operating margins at Rolls were 14 percent in 2007, but that was before massive new investments in current engine technology and advanced product capability. The article describes other inflationary price pressures related to price increases in raw materials and how Rolls suppliers are investing in low-cost manufacturing regions including Asia. Rolls recently announced added investment in U.S. manufacturing capability. Mr. Wood declared that the operating unit would work on increasing profitability partly through cost-cutting and leveraging the near doubling of engine output over the next five years.
Thus, Rolls-Royce has taken on a unique set of challenges. The company has strong roots as engineering-centric and engineering-driven. From a business outcomes lens, it must scale-up complex engine product output while balancing and constantly coordinating the complexity of a globally extended supply chain. It must reduce unnecessary manufacturing and supply chain costs and insure that quality and engine reliability is increased. That adds to culture-conflict.
Continued severe economic downturn forces across the Eurozone add to supplier stress in finding cost-effective investment in working capital. There is also the previous learning from OEM experiences from Airbus and Boeing in coordinating a complex, globally-extended supply chain which have led to multiple snafus and operational setbacks in original scheduling.
“Power by the hour” airline customers increasingly expect to pay for engine up-time and long-term reliability, which in reality shifts more operating risk burden to the OEM manufacturer. This makes Roll’s upcoming production, associated supply chain and product management challenges a true balancing of expected business outcome needs with realities of today’s complex supply chain risks.
This will be a company for our community to keep an eye-out in the coming months and years since the right investments in process control, supply-chain wide analytics and intelligence, supplier collaboration and service lifecycle management (SLM) will be crucial.