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Additional Perspective on Amazon-Whole Foods Acquisition Implications

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Regarding the announcement from Amazon on the online retailer’s intent to acquire Whole Foods, Supply Chain Matters committed to feature a number of follow-up opinion commentaries, both from this blog as well as external sources.  Whole Foods Austin Additional Perspective on Amazon Whole Foods Acquisition Implications

We would like to call reader attention to the report: Amazon may face limits in cutting Whole Foods prices, published in Supermarket News this week. The reporter, Mark Hamstra, does a great job of uncovering potential impacts to branded natural foods and organic suppliers that may or may not benefit from Amazon’s subsequent integration strategies.

This author had the opportunity to provide added perspectives from a supply chain cost and distribution perspective. Namely, that both companies will need to focus at first on integration of practices, decision-making, technologies and other matters before they tackle the distribution piece.

Enjoy.


Why the Supply Chain is So Important for Regulated Industry Environments- A Contributed Guest Posting

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Supply Chain Matters founder and Executive Editor Bob Ferrari recently provided a guest blog commentary hosted on the MasterControl Compliance Accelerated blog.

Within this commentary, Ferrari argues that there is little doubt that pharmaceutical, life sciences and healthcare related supply chains are unique in their combined mission to manage adherence to regulatory processes, insuring that the highest quality of products are delivered to healthcare providers, and to position supply chain capabilities and decision-making to support expected line-of-business and financial outcomes.  The role of the supply chain has moved beyond transactional to one of mitigation of risk as well as key business outcome enabler. The mission is now one of insuring agility, resiliency and more timely and successful business outcomes.

To perform this mission, industry supply chain teams need to provide a keen focus on fundamental core competencies that can support multiple missions. Outlined is a dedicated focus on five key supply chain competencies, which serves as a reminder to our Supply Chain Matters readership as well.

This was part of a series of exchanged guest postings on both this blog and that of MasterControl. In late June, Alex Butler, Medical Device Product Manager, Master Control, pointed out to our Supply Chain Matters reading audience, why a supplier quality management system helps to minimize supply chain deviations.

Both of our guest postings are an effort to provide broader education and awareness to the increased importance of supply chain business process and decision-making within regulated industry environments.

 

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


American Airlines Closer to Cloud Platform Adoption

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The 4th of July holiday traditionally kicks-off the summer vacationing season for many in the United States, a time to take pause from the day-to-day stresses of work. Likewise, Canada Day is a kickoff to summer activities for Canadians.

Some readers may painfully recall that there were a series of multi-airline system-wide outages that subsequently frustrated many hundreds of airline travelers hoping to get-away to vacation destinations only to delayed or stranded by systems that failed.

Very shortly, American Airlines will be converting its customer-facing web site and passenger check-in services to an enterprise Cloud platform to alleviate last year’s disruptions.  American Airlines Plane American Airlines Closer to Cloud Platform Adoption

Last year’s systems outages impacted multiple airlines, including American, Delta, Southwest and United. The explosion of online travel booking, major business changes caused by industry mergers and acquisitions, along with passenger needs for real-time information on any device including smartphones, literally taxed the performance of the industry’s legacy systems, many of which had origins in the mainframe computing era.

Last October, American Airlines successfully consolidated its internal operational systems allowing both merged U.S. Airways and American operations to be controlled and managed on a single system. The effort was described as a major undertaking, involving upwards of 500 applications, requiring a large amount of pre-planning. At the time, the CIO of American Airlines indicated to the Dallas Morning News that 1.3 million hours of IT staff time was invested in the conversion effort. As Supply Chain Matters reinforced in October, there is little tolerance for taking down airline operational and customer-facing systems that literally must operate around-the-clock, every day.  Many supply chain management mission-critical systems share such a challenge.

Also in October, American disclosed plans to move major portions of its customer-facing systems, including aa.com and airport check-in kiosks to a Cloud based deployment model. In November, the airline announced the selection of IBM’s Cloud platform over market competitors.

Nine months since that decision, the conversion to Cloud is about to begin.

A posting appearing on Business Insider, American Airlines looks to the IBM Cloud to end travel hell, indicates that the airline is now starting to move its online services to IBM’s Cloud platform. American has apparently declined to indicate when such changes will take effect for customers, indicating instead that development efforts are underway and will go-live soon.  That is an indication that planning and operational stress testing is probably underway. The Insider report does indicate that the airline still has legacy and third-party applications still in operation that will stay in-place on the backend, after the front-end systems move to the Cloud. That is another similarity to today’s supply chain systems landscape.

One item of interest for supply chain management IT support teams was American’s preference for a Cloud system featuring an open source platform that would allow the managing of multiple Cloud-based systems. Supply Chain Matters has previously pointed out that this has become a rather important consideration in efforts to integrate supply chain B2B business networks that involve many different Cloud-based applications such as procurement, planning, customer fulfillment, transportation and logistics. In the light of this week’s global cyberattack that impacted multiple systems including those of the world’s largest container shipping line, selecting an enterprise vendor as a principle customer-facing Cloud platform provides some assurances that information security and systems patches are always up to date.

The American Airlines Cloud conversion will no-doubt, be watched very carefully but both airline industry and other industry business and IT technology executives. There is obviously a lot at stake in terms of an airline’s and a major enterprise tech vendor’s brand images. An operational or system disruption will be closely monitored, but then again, airline passengers are not shy in sharing their frustrations on social media.

For supply chain management and line-of-business teams, what is underway in the airline industry will provide important learning relative to proper planning, conversion of mission-critical systems, and the benefits promised from Cloud platform adoption.

 

We take this opportunity to wish all of our U.S. and other Supply Chain Matters readers a wonderful and safe 4th of July holiday along with a restful summer vacation free of travel stresses.

Enjoy.

 

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


The Saga of Supplier Takata Reaches a Sad Conclusion- What Has Been Learned?

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This week marks a sad milestone for an 80-year-old automobile components supplier with deep history.

Japan based Takata Corp., the company that has made unprecedented product recall headlines has filed for bankruptcy protection both in Japan and the United States. The move comes after the supplier faced reported claims and liabilities estimated to be in the billions of dollars owed to auto makers who were forced to shoulder the burden of unprecedented numbers of product recalls and associated costs.Airbag 300x168 The Saga of Supplier Takata Reaches a Sad Conclusion  What Has Been Learned?

Under the bankruptcy agreement, much of the supplier’s business interests will pass to rival Key Safety Systems for an estimated $1.6 billion. However, a reorganized Takata will have to assume liabilities not contracted in the bankruptcy sale, which includes continued production of replacement air bag inflators to complete outstanding repair parts requirements for many more months to come.

In January, a U.S. federal grand jury indicted three former Takata Corp. executives, overseeing air bag product management and engineering. charging them with conspiring to provide auto makers with misleading test reports on rupture-prone air bag inflators.  Takata separately pleaded guilty to criminal wire fraud and agreed to pay $1 billion to resolve a two-year long U.S. Justice Department probe of the supplier’s handling of rupture-prone air bags. Thus far, faulty air bag inflators from the supplier have been linked to 16 deaths and upwards of 180 injury reports globally.

According to estimates from The Wall Street Journal, there are currently 54 million defective air bags that still need replacement in the U.S. alone. These recalls affect roughly 16 percent of the 260 million vehicles still operating on U.S. roads, or roughly one in five vehicles. In some cases, replacement parts are required in lieu of other replacement parts. The supplier’s first and most trusted customer, Honda Motor, elected to drop the supplier in 2015, no longer willing to tolerate a supplier with such a track record of product design snafus and cover-ups.

As we opined in earlier Supply Chain Matters commentaries, replacement parts supply is expected to extend for several more years, making some vehicles even more susceptible to premature airbag inflation explosions that injure drivers and passengers. Auto makers thus remain dependent on a financially smaller and hobbled Takata to meet global demand of replacement inflators.

We noted in January that product and quality management incidents across the automotive industry have taken on more difficult dimensions that expose corporate cultures that favor cover-ups. In addition to Takata, there were the unprecedented numbers of Volkswagen diesel-powered vehicles that were secretly outfitted with emissions altering software. In a plea agreement, VW admitted that its supervisors and employees agreed to deceive regulators and customers regarding actual emissions. Estimates of VW’s ultimate liabilities range in the $15 -$20 billion range when the recall process completes itself over subsequent months. Fortunate for VW is that increased global vehicle sales and profits have helped to buffer the overall financial impact.

With each passing year, the scope and implications of product design and quality incidents have grown to unprecedented dimensions. Product and quality management professionals are placed in precarious roles to make problems go-way during intense pressures that business goals and performance bonuses are met. Doing the right thing for the ultimate customer seems to be a fading requirement. And now, corporations, executives and individuals are collectively being held criminally accountable for their specific actions.

The Learnings- If Any

If there is one of many takeaway learnings from these incidents is that in this digital age, product and process specifications and management actions are stored in digital files available for internal and external review. Transparency has new meaning along with resolve to do the right thing for customers and employees.

In many cases, employees often believe in doing the right things for customers, but sadly, management and business pressures overcome such zeal, and reward mechanisms value those who are creative in gaming the process. All of this, in the end, has a quantified cost, far exceeding the cost to have fixed a defect in the first place.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


This Week’s Paris Air Show- More About Product Development and Supplier Tensions

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The Paris Air Show is being held this week representing an important sales and marketing event for aerospace and commercial aircraft manufacturers and supply chain participants. Thus far, two dominant themes appear; one being efforts by Boeing to premiere or hint of new aircraft as well as added services, the other by aircraft engine producers and key suppliers, exercising influence as the critical link in commercial aircraft supply chains.

Boeing has focused this week’s event as the formal market launch of the newest version of the 737-aircraft family, that being the 737 Max 10. This latest model of the 737 can seat upwards of 230 passengers and has a reported list price of upwards of $125 million, but customers more than often acquire aircraft at discounted price levels. Industry watchers position the 737-10 as a market response to Airbus’s rather popular A320 neo series Boeing began the week by announcing 135 new orders for the aircraft, and thus far, visibility to individual airline or aircraft leasing companies have come forth, including a United Airlines order for 100 of the aircraft. The aircraft manufacturer expects to book orders of upwards of 240-250 aircraft. The 737-10 is expected to enter operational service in the 2020 timeframe.  Boeing 737Max Tail 300x200 This Weeks Paris Air Show  More About Product Development and Supplier Tensions

The president of Boeing Commercial Airplanes indicated to attending press that customers wanted the aircraft producer to build the single-aisle 737 bigger, and with more operating range.  From our lens, that is reflection of airlines being primarily-driven by financial metrics vs. customer comfort factors.  Anyone who has had to endure a 5-6-hour flight on a packed 737 with few amenities including lavatories likely know what we mean by customer comfort.  Welcome to the new world of airline travel, where efficiency trumps any sense of overall customer experience. But, we digress.

From a product development perspective, because of existing iterations of the 737, incremental product development and manufacturing costs for the larger model are relatively modest by comparison, boosting product margins for Boeing.  The supply chain is already in-place and ramping-up production of all models of the 737 family.

Industry media including Aviation Week report that airlines in general have a mixed view of the 737-10, mostly because of market timing and overall claimed capabilities. Boeing is therefore taking the opportunity to leverage this week’s event as a sounding board for the development of a new, smaller twin-aisle “middle-of-the-market’ aircraft with the designated name of the 797 series.

The conceptual 797 would by some accounts, be positioned between the 737, and the 787 Dreamliner, providing airlines more options in operating U.S. coast-to-coast or transatlantic flights airlines. Many in the industry view this model as a successor to the very popular 757 series.

For Boeing, the 797 series would be a test of quicker-time-to-market since by some accounts, airlines have expressed enthusiastic response to initial paper designs. A further critical design decision would be the selection of the aircraft’s available engines. Thus far, we have read indications that existing 737 MAX and A320 neo engine providers CFM International and Pratt & Whitney would be potential suppliers as well as Rolls Royce, which has up to this point, concentrated its product strategy on the larger twin-aisle segment. However, we read one show report indicating that executives from General Electric and CFM International have no interest in sharing a supplier arrangement with Boeing’s 797 series. Instead that are bidding to be the sole engine provider to assure a timely market introduction.

On the subject of aircraft engines, this week’s event has manufacturers in this segment touting their new engine orders. As an example, GE and CFM expect to book $15 billion in new business, both in hardware and services. GE Aviation indicated that its engine order backlog now exceeds $150 billion.

Beyond the marketing, as we have noted in our most recent Supply Chain Matters commentaries focused on commercial aircraft supply chains, engine manufacturers are currently the critical weak-link in the supply chains for both the A320 neo and the 787-MAX.  Pratt continues to deal with initial engine component design and manufacturing deficiencies related to its new geared turbo-fan (GTF) engines requiring the planning of whole engine spares to keep existing operational aircraft flying to schedule.  Engine supplier CFM International, the joint venture of GE Aerospace and Safran, producers of the new LEAP series engines experienced an initial quality problem in a turbine disc within operating engines of the first 737-MAX. At this week’s event, CFM International management indicated confidence in discovering root cause of the turbine disc flaw and expressed further confidence in meeting the targeted delivery of 500 LEAP engines by the end of this year.

Finally, industry and business press is highlighting the July start-up of Boeing’s newly announced Global Services Business Unit.  This week, Boeing management indicated expectations to garner much more of the estimated 8 percent of business services existing Boeing operational aircraft representing billions of dollars in potential added revenues and profits. The goal is to double annual services revenues to $50 billion in five years. Boeing management acknowledged the potential of a “healthy tension” with major suppliers, including engine producers, since many key suppliers rely on services revenues to boost their financial performance. Some engine producers are currently threatening to invest less in product innovation if Boeing insists on taking more market-share in services. That threat includes the currently contemplated 797 aircraft.  For Boeing to accomplish its business goals for services growth, it will need to convince major suppliers to give-up intellectual property as well as spare parts distribution rights. That is a tall order that is bound to lead to added supplier tensions. A further battleground will be the area of Internet-of-Things enabled service models where both aircraft manufacturers and suppliers are expected to clash on whom owns and controls customer-focused operational and services data. This is an area that bears quite a lot of observation in the months to come.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


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