A Sudden CEO Leadership Change at Honda and Another Reinforcement of the New Product and Operations Grounded CEO
In the wake of continued challenges involving quality glitches and mass product recalls, Honda Motor Company announced today that is current CEO will step-down in June to make way for a new breed of leadership.
Takahiro Hachigo, a trained engineer and currently a managing officer within China, will replace Takanobu Ito as president and CEO in late June. Mr. Ito has led Honda since 2009, at the height of the global recession.
According to reporting from The Wall Street Journal, this executive leadership change comes at a critical juncture for Honda, which is being challenged by Nissan Motor for the number three brand leadership for the U.S. market, and amid continued product recall actions involving airbag inflators produced by supplier Takata Corporation. Honda has been one of the brands most affected by the defective airbag inflator quality crisis, and in October, top executives took on salary cuts to demonstrate responsibility for quality problems.
Reportedly, company insiders were taken by surprise by the timing of this announcement, and the choice of a younger executive promoted over those executives expected to be considered as the next Honda CEO. The global auto company further indicated that several directors who ranked higher than Mr. Hachingo would retire. In a released statement, Mr. Ito stated: “Honda is ready to make a new leap forward. To do this, Honda needs to be led by a new, younger team.”
Mr. Hachigo’s experience includes stints in product design, production operations, and procurement, which provides yet another example of a trend for new senior management appointments involving executives with product and supply chain management prowess. According to Honda’s announcement, Mr. Hachigo’s previous experience includes roles as a vice-president of Honda Motor Technology- China, representative of development, purchasing and production- China, president and director of R&D in Europe, general manager of the Suzuka manufacturing facility production operations , general manager of purchasing and vice-president of R&D in the Americas.
This resume adds further evidence of the new importance of global-based experience, including operational experience within China.
In December of 2014, BMW appointed new replacement CEO Harold Kruger, with a background in operations, engineering and manufacturing. A year earlier, General Motors rocked the global automotive industry by appointing the first ever female CEO, Mary Barra, who had risen through the GM ranks in roles in manufacturing, engineering, product design and other leadership positions. Mrs. Barra has since experienced a baptism of fire involved in GM’s massive product recall incidents.
This trend extends beyond the automotive industry, with product management and supply chain experience in the current CEO’s of Apple, Home Depot, McCormack Foods and other firms large and small.
There is an adage that one data point is interesting, two consistent data points are more interesting and three or more consistent data points is obviously a sign of a trend. For the global automotive industry, the new trend for senior management is showing a common denominator for sensitivity and grounding in product design, operations and global supply chain management leadership.
The year 2015 may well be a watershed year as this new generation of product design and operations background CEO’s continue to take the leadership helm. For global supply chain ecosystems across the automotive industry, these are, by our Supply Chain Matters lens, encouraging signs.
© 2015, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.
Last year, in what was billed by business and general media as the worst U.S. product safety crisis in recent memory, a series of large scale product recalls among multiple General Motors brands involving upwards of 2.6 million vehicles brought this company to crisis footing as it attempted to restore consumer confidence and establish a new footing for growth.
The defective ignition switch recalls involving thousands of vehicles triggered consequent increased regulatory and business media scrutiny. An additional response among GM’s product teams was to subsequently review all potentially harmful vehicle safety and parts quality issues and err on the side of caution with even more product recalls involving multiple parts issues.
In conjunction with its earnings reporting in October 2014, CEO Mary Barra assembled the company’s top 300 executives to declare that that the company must do what it takes to be the “world’s most valued automotive company”. That included a renewed more passionate emphasis on quality as well as reliance on an expected crop of 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. The goal is to have 47 percent of global sales to be fueled by these new models by 2019. Supply Chain Matters has also called reader attention to GM’s goal to further focus on the broader supply chain’s contribution to its renewed business goals.
This week, GM reported what is reported as better than expected financial results for the December-ending fourth quarter. While revenues slipped slightly, GM posted a noteworthy 91 percent increase in profit compared with the year prior quarter.
The full-year results also provided quantification of the costs of product recalls. GM reported $2.8 billion in costs associated with product recalls including the ignition-switch related recalls. According to reports, GM will likely pay $9000 in profit-sharing to its upwards of 48,000 U.S. hourly employees, somewhat more than actual North American operating results to compensate for the impact of the product recalls.
Thus, at the conclusion of GM’s fiscal year, there is quantification of the specific financial costs of a previous corporate culture that eluded accountability and fostered functional fiefdoms. In what appears to be an increasing global trend, GM is considering appeasing its stockholders with plowing some profits in stock buy-back or increased dividend actions.
Moving forward in the new fiscal year, GM has to strengthen its supplier relationships and foster a climate of joint innovation and accountability for quality. We trust that such efforts would include more financial consideration toward stronger supplier relationships and an increased emphasis on joint quality management monitoring and remediation practices.
Billions of dollars expended in product recalls is better invested in addressing the root causes of either product design or supplier quality practices.
Yum Brands Challenges Within China Continue: The Importance of Proactive Supplier Quality Management
Supply Chain Matters often provides our readers education on the costs of supplier non-performance or the risks of supply chain globalization efforts. Such efforts take on critical importance in food and food services focused supply chains.
In the summer of 2014 well-known global restaurant brands such as McDonald’s, Yum Brands (operators of Kentucky Fried Chicken, Pizza Hut, Taco Bell) and Burger King were named by both media and Chinese food regulatory agencies for offering expired meat products to customers. The expired chicken and beef meat products were traced by restaurant operators to food supplier Shanghai Husi Food Company, which was affiliated with U.S. based OSI Group, a $6 billion producer of food products. OSI itself had garnered what is reported to be a solid reputation as a quality focused food supplier. Unfortunately however, wide-scale publicity across China and continued regulatory scrutiny hampered efforts to restore consumer confidence.
Since that time Yum Brands as well as McDonalds have attempted to recover from potential damage to their brands by China’s consumers in the wake of this incident.
This week, in conjunction with reporting fourth quarters earnings, Yum Brands who derives almost half of its revenues from China operations, reported an 11 percent sales declines for China with sales for established stores down 16 percent. Revenues for the December-ending quarter fell 4.4 percent and the firm reported a loss of $86 million compared with a year earlier profit of $321 million.
By now, readers are also aware that McDonald’s has initiated a CEO change based on continued disappointing revenues and earnings for both China and U.S. outlets. McDonald’s has since encountered and overcome a shortage of French-fried potatoes within its Japan outlets.
Strategic sourcing and procurement teams are often well aware of the critical importance of proactive supplier quality management. Continued incidents such as those that occurred in China bring that awareness to the executive suite and boardroom.
An interesting news release came across our Supply Chain Matters news feed last week, one that perhaps demonstrates the broad capabilities of certain contract manufacturers within the automotive and truck sector.
Mercedes Benz’s U.S. entity and AM General LLC jointly announced that because of the increasing demand for the Mercedes Benz R-Class luxury vehicle, and the subsequent need for increased capacity, that the luxury sports utility vehicle would now be moved from the Mercedes U.S, Tuscaloosa Alabama facility and instead be manufactured at AM General’s commercial assembly plant in Mishawaka Indiana. Under this multi-year agreement, AM General becomes Mercedes first and only contract manufacturing operator within the United States. The R-Class vehicles manufactured and assembled by AM General are expected to roll-off its assembly lines this summer.
According to its web site, AM General designs, engineers, manufactures supplies and supports specialized vehicles for commercial and military customers. The manufacturer claims more than six decades of experience meeting the changing needs of the defense and automotive industries with a legacy of product innovation. In addition to its manufacturing capabilities, the company further provides support in service parts and integrated logistics as well as supply chain management.
AM General’s business units include three wholly owned subsidiaries, diesel engine manufacturer General Engine Products, automatic transmission manufacturer General Transmission Products, and Mobility Ventures which is the prime recipient of the contract manufacturing agreement. However, this manufacturer would best be known by U.S. and other military veterans as the original designer and manufacturer of the famous HMMWV (Humvee®) troop transport vehicle.
AM General’s Mobility Ventures produces the iconic HUMMER® H1 and H2 branded vehicles, along with specialized wheelchair accessible vehicles for public and private transportation. As a result of the new partnership with Mercedes Benz USA, the manufacturer further announced the hiring of two new senior executives, a new business unit President and an executive vice-president engineering, sales, distribution and dealer support.
The multi-purpose manufacturer claims more than six decades of experience meeting the changing needs of the defense and automotive industries with a legacy of product innovation. In addition to its manufacturing capabilities, the company additionally features specialized support in service parts and integrated logistics as well as supply chain management.
We at Supply Chain Matters could not help but think about the contrasts related to this announcement. Picture the Humvee or H1, (pictured above) the embodiment of rugged, tough and explosive-proof, being produced in the same facility as a luxury SUV with all the driver and passenger creature comforts. That is quite a contrast.
Then again, it could provide a testimonial to the notions that product design integration and contract manufacturing services can co-exist among various purpose-built vehicles.
In late 2010, Supply Chain Matters introduced our readers to Paris based Lokad, a rather unique technology services provider which at the time we coined as mathematicians on-demand. After our initial briefing with Founder Joannès Vermorel, we came away with an impression that industry supply chain teams had an interesting and somewhat cost affordable alternative in generating much more sophisticated timely and accurate forecasting techniques.
The company differentiated itself on the sophistication of its staff of highly trained mathematicians who take on challenges reflected in difficult forecasting problems. Customers are provided alternatives in loading product demand data “as it is” via the cloud, leveraging a Microsoft Azure platform, avoiding the need to perform tedious data formatting and pre-analysis. Vermorel and his team described themselves as rather pragmatic in the view that the goal is not to have the most accurate forecast, but rather a more automated means to determine the best response to fulfilling product demand under challenging constraints.
We checked-in with founder Vermorel in 2013 to learn about Lokad’s diversification efforts in quantile forecasting services and supporting software. As opposed to deterministic or mean-driven forecasts where respective forecast weighting are averaged, quantile forecasts introduce a purposeful bias in the forecasting algorithm and can be viewed as a stochastic method for forecasting. Our 2013 briefing notes reflected that Lokad continued to test its quantile methods on many industry verticals including the production of auto parts, electrical supplies, textile products, spare parts and packaging materials. Lokad consultants work with customers to fully understand their planning needs and develop a more sophisticated planning approach utilizing their cloud-based software platform.
A lot has occurred in advanced supply chain planning methods since 2010, most notably the notions of predictive and/or prescriptive analytics being applied to supply chain product demand and resource needs. The demand for trained individuals in analytics and Big-Data analysis in-fact has become so intense, that we called our readers attention to a Wall Street Journal report in August of last year indicating that one of the hottest jobs in tech was that of a data scientist. The WSJ noted that in certain cases, data scientists were commanding $200,000 – $300,000 annual salaries due to the shortage of such skills. Many supply chain teams as well as business teams would view that full-time expense as expensive or burdensome.
Kicking off 2015, we were thus very eager to include a check-in again with Lokad.
To little surprise, we learned that the company has now positioning itself as “Quantification Optimization for Commerce” and has since moved into offices twice its original size. The technology provider has now amassed hundreds of customers, has branched into a number of quantitative services and has developed its own next generation programming language specifically for supply chain planning and forecasting needs. We were informed of the firm’s first 7 figure engagement and its efforts to dive far deeper into challenging and industry-unique supply chain planning challenges.
What is rather unique and refreshing is that Lokad continues with its model of on-demand mathematicians providing ongoing analytical services for clients periodically during any given year. The Lokad cloud-based forecasting engine generates product forecasts predicated on probabilities and a range of predictions predicated on operational business metrics and/or operational risks. The explosion of Omni-channel commerce in retail sectors has especially fueled such needs and requirements as well as the unique needs of service focused supply chains related to highly sophisticated equipment.
We explored some current observations regarding the state of certain industry forecasting, specifically that Lokad has amassed over hundreds of engagements, The provider continues to observe fixed vs. fluid or more agile focused assumptions related to planning. For instance, top management at some firms has not taken the time to change inputted assumptions related to the cost of capital. A forecasting model for a U.S. firm continued to run with the assumption of a 6 percent cost of capital when cash is available at a far lower rate. Such a rigid assumption can often derail the accuracy of more predictive decision-making methods.
Our briefing included an in-depth discussion on the current state of Big-Data and predictive analytics initiatives across various industry settings. Vermorel apparently shares in our belief and prediction that many initiatives can well be de-railed in the coming months and years because of a lack of proper design. According to Vermorel, they include a “naïve rationalism” and actually fail at truly capturing the true drivers of the business and of the supply chain.
This author was so captivated by these observations that we extended an invitation for a Supply Chain Matters guest posting so that our readers can specifically learn from such observations.
Thus, what follows this updated commentary on Lokad is Founder Joannes Vermorel’s gracious guest posting, The Challenges and Obstacles of Big Data and Analytics Applied in Supply Chain and Commerce Decision Making.
We sincerely thank him for his contribution and insights.
© 2015, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.
This author recently had the opportunity to speak with Lilee Systems, a provider of advanced wired and wireless communication products and services for the transportation industry. Our interest was prompted by learning of a relatively new product termed locomotive messaging and application server (LMS) that provides freight and passenger railroad operators the ability to achieve Positive Train Control (PTC) compliance. Beyond our cool impressions of this technology, our conversations focused on the potential other customer service focused opportunities that such technology can provide not only to railroad operations but other transportation services as well.
Our readers may or may not be aware of the term Positive Train Control. Wikipedia cites The American Railway Engineering and Maintenance-of-Way Association (AREMA) as describing Positive Train Control as having the primary characteristics for:
Train separation or collision avoidance
Line speed enforcement
Temporary speed restrictions
Rail worker wayside safety
“A train receives information about its location and where it is allowed to safely travel, also known as movement authorities. Equipment on board the train then enforces this, preventing unsafe movement.”
In September 2008, the United States Congress passed a new rail safety law, The Rail Safety Improvement Act of 2008, which sets a deadline of December 15, 2015, for implementation of Positive Train Control (PTC) technology across most of the U.S. rail network. Thus far, many class 1 U.S. railroads and passenger rail operators have communicated challenges in meeting this December’s deadline for PTC.
Lilee Systems can best be characterized as a silicon valley technology start-up serving a classic, conservative transportation business culture. Lilee was founded in 2009 and its founders feature extensive wireless telecommunications, network and software defined radio backgrounds. Lilee’s customers and partners include 5 of the 7 Class I North American railroads as well as technology partnerships with Cisco, redhat, Siemens, Alstom. Herzog and Parsons.
The bulk of our briefing focused on Lilee’s recently launched TransAir LMS-2450 server developed for enabling PTC compliance at the train level. This hardware’s design goals include long durability, modularity, and scalability with the ability to fit into a small space. Locomotives produced many years ago did not include space considerations for on-board electronics. Today’s newly designed locomotives however include provisions for more extensive on-board electronics.
Any of our readers who have ridden on a train, bus or in a moving car with Wi-Fi or Internet enabled capabilities may have wondered how the technology operates when moving among various cellular or telecom regions. That is where this type of technology emanates from. According to Lilee, some of its technology was piloted among corporate sponsored bus services offered by certain Silicon Valley tech employers, where hour plus commutes need to be productive, and Internet connectivity is mandatory. An extensive on-board communications server afforded the opportunity to add other customer and operator focused services needs.
One of the coolest features of LMS-2450 is that in addition to supporting multiple cellular, telecom and GPS enablement connectivity needs to monitor track status, the product includes an x86 based application server. For non-technical readers, that equates to the ability to support other business or administrative support applications such as helping in communicating a train’s real-time location, expected arrival time or even maintenance status. The technology further supports interconnections of equipment such as trains being able to communicate with one another as well as operations control centers.
In our briefing, I wanted to further explore why railroad operators were having difficulty in establishing plans and resources to meet the year-end PTC conformance deadline. The reasons vary but the common theme often comes down to viewing PTC compliance as yet another, non-revenue producing expense, perhaps one that is viewed as very expensive as well. Railroads themselves have core competencies in operations and managing transportation and not necessarily advanced information technology deployment.
Our interviews with shippers along with observations of both rail and ocean container transportation providers clearly reinforce notions that timely and responsive customer service is currently not a core competency for many such carriers. While today’s Internet-enabled apps allows us to track the arrival or departure status of most any airline flight that is not the case in other commercial transportation segments.
Our takeaway message is therefore directed to executives, operational and organized labor teams of rail operators and other transportation providers. The tendency to context regulatory mandates or requirements as an added burdensome expense or additional work rule for conducting ongoing operations can be viewed in a far different context. It can present an opportunity in the ability to electronically and digitally enable equipment to communicate more proactive customer and shipment focused status information as well as more predictive insights to pending problems. When did a train depart and arrive or what is an expected departure and arrival? What specific railcars are included in a designated train and where are they destined? When will a train crew time-out in hours of service and can that be weighted in track scheduling and shunting?
The return-on-investment now takes on a far different dimension, compliance with regulatory safety requirements as well as infrastructure to enable more proactive customer service and added revenues. Work rules anchored in the pre-Internet era no longer cut-it in today’s online, seven by twenty-four world of supply chain operations and business.
We conclude this commentary with the Wikipedia extract for glass half full:
“Is the glass half empty or half full? is a common expression, generally used rhetorically to indicate that a particular situation could be a cause for optimism (half full) or pessimism (half empty), or as a general litmus test to simply determine an individual’s worldview. The purpose of the question is to demonstrate that the situation may be seen in different ways depending on one’s point of view and that there may be opportunity in the situation as well as trouble.”
Within the broadened horizon of today’s online digital business needs, regulatory compliance should also be viewed as opportunity.
© 2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.