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Another Quarter and Ongoing Financial Setbacks for a Noted Restaurant Chain


Supply Chain Matters has provided ongoing commentary and has pledged to keep our readers updated regarding the ongoing brand and supply chain related challenges that have impacted Chipotle Mexican Grill. Specifically, we refer to the past series of food related illnesses including E-coli, salmonella and norovirus that date back to 2015.

This week, the restaurant chain announced its September-ending financial performance and, according to financial media sub-headlines, the effects of the prior food safety breakouts that sickened restaurant patrons appear to be still evident.  Chipotle logo

On the financial side, the restaurant chain reported that same-store sales fell by a worse-than-expected 21.9 percent in the third quarter. Profitability dropped by 95 percent, yet that is better than previous bottom-line results.

The chain’s Co-CEO indicated on the briefing call: “. while we are on the road to recovery, we’re not satisfied and we’ll continue to work extremely hard to make the necessary adjustments necessary to restore our business and deliver results as quickly as possible.”

Further indicated: We are focused on delivering a safe and extraordinary guest experience in every restaurant, restoring trust and building sales, restoring our economic model and enhancing the guest experience through innovation.”

Announced were several new initiatives directed at broadening menu options, fulfilling online orders including mobile ordering technology, along with consideration for airing more television commercials.

To further efforts in improving food safety in restaurants and supply chain, the chain’s CFO pointed to an established an independent Food Safety Advisory Council made up of some of the country’s foremost experts in food safety and food microbiology. This advisory council is charged with continuously reviewing food safety programs and looking for opportunities to strengthen them even more. Further indicated was significantly expanded training, food safety inspections, third-party and internal audits of individual restaurants. However, there were statements related to need for local restaurant management to maintain “high throughput.”

On the positive side, there were indications that the chain is adding to regional executive leadership to help improve staff training and the individual guest experience. However, there was another statement: “we are keenly aware that safe food alone will not bring people into our restaurants. Instead, they come for delicious food and an excellent guest experience.” Reiterated was a commitment to serving the best tasting food that is made with ingredients that are raised with respect to the environment, animals and the people that produce them.

Our sense is that sales and marketing efforts still prevail over visible efforts directed at improved food safety and quality. To add that impression, the chain’s Vice President of Marketing was part of the financial performance briefing team, somewhat of an unusual occurrence in these types of events.  This executive took the opportunity to outline three major marketing campaigns that occurred during the quarter, each with different but complementary objectives. The first was a food safety advancements campaign designed to communicate what has been done to ensure the safety of the chain’s food. The other two campaigns were directed at love of Chipotle and on the quality of its ingredients. Food giveaway coupons were further part of such campaigns. The chain’s marketing executive further pointed to paid research of loyal patrons indicating a 90 percent sentiment that the chain has appropriately addressed the food safety issues, and that trust has risen to pre-crisis levels.                                                                                                                                                                                                                                                                       In our February blog commentary, we observed that the restaurant chain had entered what we believed was a new critical phase, one focused in rebuilding its brand integrity along with assuring that food safety practices were re-addressed across the supply chain and within its individual restaurants. We had consistently perceived that perhaps the chain was more focused on emphasizing broadened sales and marketing focused initiatives to bring previous loyal patrons back as opposed to efforts at expanding food safety practices across the supply chain. That now appears to be changing somewhat.

One fact remains with Chipotle.  Neither U.S. government regulators nor Chipotle ever definitively identified the specific root causes of the prior disease outbreaks. That is the irony and the ongoing challenge since many suspicions were identified that included food sourcing with the chain’s supply chain. While there have been no subsequent incidents, we continue with the view that prior loyal patrons are obviously either unconvinced or have moved on to other experiences. This author for one, remains of that view,

We all know that supply chain snafus, especially those related to food safety, can and will have a lasting effect for businesses. In the specific case of Chipotle, that effect continues and so does the rebuilding of brand and supply chain food safety trust.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

Rockwell Collins Announced Acquisition of B/E Aerospace is About Supplier Leverage


This weekend featured some significant news directly focused towards aerospace and commercial aircraft supply chain dynamics. The first is the announced acquisition by Rockwell Collins to acquire B/E Aerospace, and the other was the announcement of another round of significant headcount reductions at Bombardier, which will be highlighted in a subsequent posting.


Rockwell Collins and B/E Aerospace, yesterday announced that they have entered a definitive agreement under which Rockwell Collins will acquire B/E Aerospace for approximately $6.4 billion in cash and stock, plus the assumption of $1.9 billion in net debt.

The announcement notes that this transaction combines Rockwell Collins’ capabilities in flight deck avionics, cabin electronics, mission communications, simulation and training, and information management systems with B/E Aerospace’s range of cabin interior products, which include seating, food and beverage preparation and storage equipment, lighting and oxygen systems, modular galley and lavatory systems for commercial airliners and business jets.   rockwell_collins_display

This cash and stock deal will obviously require approval from global regulators and represents a reported 22 percent premium to the closing price of B/E stock on Friday. From the lens of Supply Chain Matters, the deal further represents an evolving trend of key suppliers attempting to gain greater leverage in strategic product design and supply arrangements among global aircraft manufacturers.

In our ongoing multi-year coverage of commercial aircraft supply chain related developments, we have continually pointed out the extraordinary circumstances of an industry that has designed and manufactured a new generation of more technology laden, far more fuel efficient new aircraft. This has led to the enviable position of having order backlogs of upwards of $1.5 trillion that extend outwards of ten years. At the same time, an industry with a track record of prior challenges in its ability to more rapidly scale-up overall aircraft production levels are clashing with the industry dynamics of both Airbus and Boeing in their desire to deliver higher margins, profitability and more timely shareholder returns.  Smack in the middle of these dynamics are relationships among suppliers, who need to continue to invest in higher capacity and capability, but whom of-late have had to respond to key customer requirements for larger cost and productivity savings. Further at-stake are the opportunities for benefiting from multiple years of service parts and service focused revenues and margins related to ongoing aircraft operating maintenance needs along with desires to upgrade older aircraft with more Internet connected entertainment and business services.

Yesterday’s announcement indicates that this proposed acquisition significantly increases Rockwell Collins’ scale and diversifies its product portfolio, customer mix and geographic presence. Rockwell Collins CEO Kelly Ortberg indicated to The Wall Street Journal that the combination offered substantial cost synergies and the ability to cross-sell electronics and plane fittings, and positions the combined companies to lead in the development of “smart” aircraft. The latter can be interpreted to mean more connected aircraft in relation to passenger entertainment along with more predictive maintenance and services.

The proposed acquisition further provides more negotiating power and leverage. Readers may recall that in a Supply Chain Matters prior commentary, we highlighted a development in late July when Rockwell Collins issued a public statement directed at Boeing, indicating that the commercial aircraft producer owed Rockwell $30-$40 million in overdue supplier payments representing a breach of contractual supply agreements between the two companies. Rockwell supplies cockpit avionics displays for the Boeing 787 and newly developed 737 MAX aircraft. The CEO of Rockwell openly indicated in his firm’s report of financial performance that Boeing had contributed to Rockwell’s reported financial shortfalls. We interpreted this development as a trend of more aggressiveness among key suppliers.

Similarly, our ongoing commentaries related to the industry have noted that current production shortfalls for new aircraft have come down to more timely availability of interior cabin components such as seats and lavatory outfitting components. This has become a more visible challenge to produce larger, dual aisle aircraft such as the Airbus A350 and Boeing 787.

The announcement points to the additional benefits of the cost synergies among the two companies, indicating the generation of run-rate cost synergies of approximately $160 million ($125 million after tax) over a six-year period.  More than likely, that will reflect elements of both companies’ manufacturing and supply chain related activities.

This latest aerospace and commercial aircraft industry acquisition announcement may, more than likely, motivate additional announcements. It further reinforces our prior advisory for product management, procurement and supply chain teams to best be prepared for the new consequences of added supplier influence and push back via enhanced strategic positioning. The days of one-sided or tops-down supplier management seem to be numbered, especially in industry settings where revenue and growth potential are significant.

A final note relates to smarter machines and service management revenue potential. While original equipment manufacturers are certainly focused on the new business models brought about by more connected machines.   Key component suppliers also understand such potential, and desire their portion of the incremental revenue and profitability benefits, and there lies the next frontier of collaboration and control.


Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Yet Another Airline System-wide Outage- Implications for Supply Chain Backbone Systems Technology Change


Last week, thousands of airline passengers were delayed worldwide after a computer glitch temporarily halted departures at United Airlines, the latest in a series of outages to affect other airlines as well. Last week’s United system glitch was reportedly attributed to the airline’s weight reporting system which calculates and governs an aircraft’s total weight load for takeoff and other needs. According to both general and social media reports, passengers were forced to either wait onboard planes or inside terminals when respective United flights were delayed for several minutes or in some cases hours, disrupting travel plans and schedules.

Last week’s incident represented the third computer glitch to impact United’s operations in recent months.  In June, software needed to dispatch United’s flight plans faltered and in July, flights were disrupted after a computer problem blocked access to reservations records.

In September, a system-wide computer problem at British Airways caused significant delays.  In August, Delta Air Lines was forced to cancel or delay thousands of flights after a power outage impacted its operational computer systems. This blog subsequently praised Delta’s CEO for his public acknowledgement and apology for the systems outage and its impacts for customers. Also in August, a highly visible system outage also impacted Southwest Airlines after a prior system-wide outage in July, prompting the airline’s two major labor unions to demand the removal of that airline’s CEO.

These continuing series of systems related incidents that are impacting the airline industry and its customer service perceptions and ranking have pertinence to multi-industry supply chain and customer fulfillment systems that have not been updated for many, many years.

There are many parallels. let’s briefly explore them.

Older transactional systems implemented twenty, ten or in some cases even five years ago, were specified with different operational and information technology business needs and requirements. These older systems represented the architecture of either centralized computing and data retrieval, or client-server based systems architectures. They were the manifestation that all transactions and data related to customers and operational business processes would be managed and controlled via a central IT backbone system that included lots of redundancy and back-up provisions. During their prior phases, they indeed served that purpose. They were also rather expensive representing millions of dollars of direct investments related to hardware, software, database and network management needs not to mention likewise investments in initial and ongoing systems integration and consulting needs.

But as we know all to-well, today’s business world is one of continuous and constant change, some of which is rather significant.  There are mergers and acquisitions involving other airlines and their respective processes and systems.  New customer revenue service programs have been added that included paid upgrades to premium seating, payment of baggage handling fees and increased needs for regulatory passenger security reporting have all added to systems needs and requirements.  Investors, Wall Street and private equity firms continue to, on-average, have a short-term expectation window for profitability and stockholder value. There seems waning tolerance for any larger-scale, big-bang, multi-year business and systems transformation efforts without the profitability and cash-flow benefits to sustain such efforts.

Similarly, the ongoing needs of online customer empowerment and self-service require the ability of smartphone and other mobile-based applications to inquire, modify and update reservations, check on airline mileage balances or flight status. This is the building conflict of customer needs for total and complete mobile-based enablement with applications and supporting systems that were never initially designed to support such needs and requirements. They are systems designed prior to Cloud based computing, software-driven hardware and in-memory computing technology and analytics driven operational decision-making that have made their presence in today’s technology landscape.

Yet, even though line-of-business and IT teams have become more increasingly knowledgeable in the benefits of these newer technologies, the risk of potential business disruption related to systems changes continues to haunt these teams.

We recently highlighted efforts by American Airlines toward a major IT system conversion that consolidated all of its pilots and planes onto what is described as single flight operating system. Such an effort required an immense amount of operational and IT staff pre-planning and preparations, as much as a reported 1.3 million hours of IT staff time alone, since it involved a collection of what was described as more than 500 applications that manage everything from dispatching of crews to movement of aircraft.

At the same time, American is now evaluating whether to move major portions of its customer website, including and other direct web-based customer enablement support applications to a totally Cloud-based deployment model.

There are indeed many implications for systems technology change not only for the airline industry but multi-industry supply chain transactional systems as-well. The increasing needs and expense or supporting Omni-channel and online customer fulfillment needs is taxing existing other systems and applications, some to the break point. Such systems will require bolder vision yet multi-year manifestations of continuous improvements that generate the business expense savings that can fund and add credence to the value of moving forward in the journey.

Cloud computing and other new technologies will add to the economics of IT deployment and ongoing operational cost savings especially when applications and systems become optimized for their respective core missions, be that managing operations, supporting online customer enablement or more informed business results oriented decision-making.

We close this blog commentary with a food analogy.

Mixing large batches of cookie dough for too long creates tougher and less satisfying cookies. Smaller batches, with different variation recipes focused on taste, take less mixing time with a more delightful overall eating experience. Similarly, cooking large batches of various sized spaghetti in one pot yields a pot of unappetizing pasta that is a mass of uniformly cooked and a real mess.

Invest staff and resource time in comprehensive multi-year applications and systems planning focused on specific output needs and requirements. Open your thinking to the benefits of advanced technology but in the context of more managed scope efforts and streaming economic and cash flow benefits for the business.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

American Airlines Pulls Off What Appears to be a Major IT Operational System Conversion


This summer, Supply Chain Matters along with other blogs posted commentaries related to more evidence of the U.S. airline industry’s march to the bottom. More specifically, it was manifested by major IT systems outages that impacted individual airline performance, leaving hundreds of passengers scrambling to either re-schedule cancelled flights or miss important meetings and events.  In early August it was the system outage that impacted Southwest Airlines and over a week later, it was Delta Airline’s turn to be embarrassed while prompting a direct apology from the CEO.

Our takeaway was that It is no secret that the U.S. airline industry as a whole has managed to erode many forms of customer service to the point that constant delays and breakdowns in equipment and services have become the norm.  The entry of low-budget, low fare airlines prompted such a movement as these industry disruptors focused on higher efficiency and lower costs coupled with a differentiated experience for travelers. But alas, even the low-budget airlines are not immune to major disruption. Added to today’s conditions are the results of significant acquisitions among major as well low-budget carriers, prompting the need for IT systems and operational business process consolidation, some of which has not fared very well.

But, to be balanced, we should also call attention to a major IT systems that appears  have occurred smoothly.

This weekend, the newly merged American Airlines conducted a major IT system conversion that consolidated all of its pilots and planes onto what is described as single flight operating system. This effort essentially brought merger partner US Airways pilots onto the American flight operations system, a major step in integrating the two airlines from a flight and crew scheduling perspective. Such an effort required an immense amount of pre-planning since it involved a collection of what is described as more than 500 applications that manage everything from dispatching of crews to movement of aircraft.

As we all know, there is little or no tolerance for taking-down an airline’s backbone system that operates nearly around the clock. Hundreds of IT staff were reportedly deployed throughout the airline’s hubs and operational scheduling centers to assure a smooth transition without major glitches. Last Saturday was chosen to minimize any potential disruption and allow Sunday for needed adjustments. The CIO of American indicated to the Dallas Morning News that 1.3 million hours of IT staff time was invested in the conversion effort. That included a day long test dress rehearsal. Further, the airline’s pilots labor union took on an active involvement after months of warning of potential failure.  However, the union has expressed ongoing concerns for what it describes as a return of “toxic’ labor relations at American.

As of today, American has reported no cancellations or disruptions of flights as a result of this weekend’s systems switchover. For the first time, former US Airways pilots and legacy American pilots can now be scheduled for a singular American flight.

Two weeks ago, The Wall Street Journal reported that American is also planning to move major portions of its customer website, including as well as other applications to a totally Cloud-based deployment model. A decision on this move is planned “within months” according to the airline’s CIO. The move is designed to be able to leverage more on-demand compute power offered by the Cloud, especially during what is described as burst peak periods of booking and traveling. A proof-of-concept project has already been undertaken.

ken during the last several months to allow developers to rewrite some existing site code. This will be potentially be the next IT focused challenge for the airline.

As we opined in our prior airline industry focused commentaries, it clearly appears that accountants and financial engineering experts call the shots for airlines, an industry that was once customer and operational service focused. Then again, that is a challenge that extends across other industry settings as well.

The most advanced and flexible IT systems are a major operational requirement for airlines and the Cloud computing model may be a viable option to insure faster, more reliable technology that can flex with the overall network. If so, it will represent another major test of operational reliability that can meet cost control needs.


Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


FogHorn Systems Announces Release of Lightening Edge Intelligence Software Platform


After receiving its initial $12 million in Series A funding in July, FogHorn Systems formally announced this week the general availability of its new Lightning software platform for real-time analytics and Internet of Things (IoT) focused applications running on ultra-small edge footprint physical devices. Suffice to indicate that this will not be the only time our blog will provide commentary related to FogHorn along with other innovative IoT technology players that are now emerging to support such needs.

According to the announcement, the technology allows application developers, systems integrators and manufacturing engineers the ability to quickly and easily deploy high-performance edge analytics for industrial operations and industrial IoT use cases.

The name FogHorn may have some familiarity with our Supply Chain Matters readers since a form of this vendor’s technology has been validated as part of General Electric’s Predix® Industrial Internet operating environment. The company’s Series A funding was led by both March Capital and GE Ventures with additional participation by Robert Bosch Venture Capital, Yokogawa Electric Corporation and Darling Ventures. One of GE’s existing “Brilliant Factories” that produces industrial grade electrical products used in power grids is utilizing FogHorn to apply real-time analytics to help maximize manufacturing yields from data emitted by hundreds of assembly line sensors.

Indeed, the best way to describe FogHorn is an emerging provider of edge or “fog computing” intelligence for industrial and commercial IoT applications. This author had the opportunity to speak with some of the senior management team this week and I was impressed on viewing some of the early adoption customer use cases deploying its FogHorn Lightening software platform in areas such as factory yield optimization, locomotive fuel efficiency, industrial pump cavitation alerting and wind energy forecasting.

The differentiator of FogHorn is its powerful miniaturized analytics engine that can run on low footprint machines.  Rather than setting up expensive electronic connections and the passing of huge amounts of detailed machine sensor data to other Cloud-based platforms, FogHorn’s miniaturized complex event processing (CEP) engine coupled with an expressive domain specific language (DSL) to express rules on the incoming sensor data steams allows for the aggregated data to exist at the machine level via an Edge Gateway, passing information to the Cloud only when certain thresholds or operational alerts are encountered. The Edge software stack is responsible for ingesting various data streams from sensors or industrial devices into a high speed data bus as well as executing user-defined analytics expressions on the streaming data to optimize such devices.

The FogHorn platform further includes services that run in the Cloud or behind the firewall to remotely configure and manage edge devices. This week’s announcement indicates availability of two versions of the FogHorn Lightening Edge intelligence software platform. A Lightening® Micro Edition is embeddable software with a very small memory footprint while Lightening Standard Edition includes all of features of the Micro edition with additional support for advanced analytics and edge applications for different languages.

The Lightening software platform is further accessible on the Microsoft Azure Marketplace and FogHorn indicates that it has gained certification as an SAP HANA application solution partner which we believe provides an interesting future perspective as to which direction this provider takes in leveraging more widespread adoption of its technology.

Suffice to indicate that this will not be the only time our blog will provide commentary related to FogHorn along with other innovative IoT technology players that are now emerging to support such needs.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

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