In our previous published commentary, we reflected on the recently held Farnborough Air Show and the new order activity generated for aerospace industry supply chains by this trade show.
One other report from this trade show caught our attention. Boeing indicated that the reliability to-date of the more than 160 787 Dreamliners that are operating among global carriers is averaging about 98 percent. The OEM’s chief 787 test pilot flatly indicated: “that number is not where we would like it to be, we were expecting it to increase.” The industry sets reliability benchmarks for aircraft, particularly newly introduce models that must meet higher customer expectations. According to reporting from the Wall Street Journal, Boeing pegs reliability of new aircraft to that of the previous generation 777 fleet at comparable times of product rollout and fleet operating time. The “triple seven” has been widely recognized as one of the most reliable.
Thus far, 787’s have logged more than 490,000 hours of service, but a series of various ongoing snafu’s or malfunctions have caused some setbacks with both production volumes of new aircraft as well as operation of existing aircraft. However, Boeing officials report that the situation is improving. With its latest new “dash nine” variant of the 787, Boeing has further taken on more design management to insure overall reliability of system components.
The report itself provides yet another reminder of the very high overall reliability standards that today’s more advanced and technology laden aircraft must meet. It is also a reinforcement to the overall criticality of integration of product design with physical and software performance. Not many industries with such a complex hardware, software and bill-of-materials complexity can meet the standards of 98 percent reliability let alone even higher levels.
Government IT: A One Billion ERP and Logistics Systems Failure Still in the Light and Has Anything Been Learned?
In December of 2012, Supply Chain Matters featured a commentary: A Billion Dollar Failed-Software Implementation-Why?. Our commentary at the time was a response to a published New York Times article describing the failed attempts of the United States Air Force to implement a new and long overdue modernized logistics system. The system was named Expeditionary Combat Support System (ECSS) and was targeted to implement commercial off-the-shelf ERP software. The Air Force eventually cancelled its six year long effort to implement the new software system after spending more than $1 billion dollars of taxpayer money and determining that it would take an additional billion to implement a workable system. At the time of our commentary, we were very frustrated at the news since the situation described was one of a classic systems failure.
Earlier this week, the United States Senate finally got around to completing its investigation of the Air Force system effort and issued a report that lambastes the U.S. Air Force for poorly managing the acquisition and attempted implementation of the ERP logistics management system. The Senate report, which can be easily downloaded, classifies the system failure “As a waste of $1.1 billion in taxpayer money, a loss of eight years of effort, the same old inadequate logistics system far inferior to the promise of ECSS, and a major setback to the Air Force’s attempt to transform how it does business.”
The comedy and/or tragedy of this week’s Senate report is that it took roughly 18 months for the Senate to get to the investigation and set of recommendations. Its investigation places majority of blame on the Air Force without addressing in-depth, a government systems acquisition environment or an overall organizational culture that might have contributed to the failure. That alone is a testament to the bureaucracy and inefficiency of federal agencies when it comes to IT systems implementation. The high visibility of the initial failures of healthcare.gov is yet another testament to an inherent problem.
With Internet based information discovery being what is today, a simple Google search yields a lot more learning and perspectives relative to the specific ECSS debacle.
Here is a sample:
Sanjiv Karani in a commentary on the Cincom ERP site outlined the full scope of the effort:
“The scope of the ECSS ERP project included: advanced planning and scheduling; material management, contracting and logistics finance; configuration and bill of material; repair and maintenance; product lifecycle management; customer relationship management; order management; distribution and transportation; decision support; facilities management; quality control; document management and budgeting. ECSS would have replaced the capability of approximately 400 or so legacy IT logistics systems with Oracle’s integrated IT suite of modules comprised of product support & engineering, supply chain management, expeditionary logistics C2, and maintenance, repair and overhaul.”
Obviously, the systems scope was rather large.
The Federal Times web site provides a download of the ECSS Acquisition Incident Review Team Final Report. This comprehensive report outlines the background and contributing causes to the systems failure. Key highlights include:
The Air Force’s strategy was to acquire commercial off-the-shelf ERP software with a provision for “bolt-on” applications. A systems integrator was to be tasked with both implementations of standard ERP and bolt-on applications, along with the other program implementation needs. In late 2005, Oracle E-Business suite was elected along with two bolt-ons: Click Commerce for planning and Industrial and Financial Systems for maintenance process support. In 2009, a major restructuring of the program addressed the need for product lifecycle management and logistics financials. The Oracle contract was modified to include an Oracle only footprint including PLM and other needs. A restructured systems integrator contract with CSC outlined four releases with six pilots.
The planned first release dragged on into late 2010 prompting the Department of Defense to conduct a technical risk assessment. Both Air Force teams and CSC attempted to implement a “recovery plan” but the report indicates that it became apparent the plan was failing to meet its objectives. A series of Air Force leadership “deep dives” concluded that significant shortcomings in program progress had not been remedied. A side note- we take that to mean that Air Force leadership was not getting what it perceived it wanted. Eventually by 2012, the Air Force recommended cancellation of the program when discovering that Release 1 was pushed back to fiscal year 2017.
The Air Force Incident Review Team described contributing causes to the failure as follows:
- Governance- described as confusing and, at times, ineffectual governance structure evident throughout the program. Noted in the report: “There lacked coherent leadership guidance and coordination from process ‘owners” on how to seamlessly mesh and implement the intermingled methodologies , thereby driving needless delay, frustration, uncertainty, and labor burden on the program office.” The above statement should resonate with our IT and systems consulting readers since active governance this is a fundamental tenant for success.
Other contributing factors were described as;
- The lack of effective change management made worse with a lack of successful implementation progress, in effect, signaling that “the program was not worth supporting.”
- Program leadership management churn that included six program manager changes in eight years along with five program executive officers over six years.
- A lack of understanding by the Air Force of all of its data along with the “as-is’ or “to be” architectures, coupled with a transition plan for resolving differences between the two states. Even though the Air Force determined that no single, stand-alone commercial system could satisfy its needs, there was apparently no singular specific articulation of the “to-be” state. The report notes that this was compounded by the addition of multiple subject matter experts with no single vision as to how a transition would occur.
- An unrealistic development environment, one that did not mirror the reality of the required operational environments.
As noted in our prior 2012 Supply Chain Matters commentary, more disturbing is that multiple U.S. military and government agencies are in need of modern logistics processes and yet the track record for software and change management implementation efforts is marginal at best. The latest reports of the Senate investigation makes mention of an additional Defense Enterprise Accounting and Management System that is in a similar mess, upwards of $1.7 billion over budget and considerably behind schedule. Another report makes mention of the Air Force’s F-35 Joint Strike Fighter aircraft program, an aircraft that requires 24 million lines of code to operate which has experienced multiple development setbacks.
Private industry has garnered its share of previous painful learning regarding multi-million dollar big-bang software implementation projects that ultimately failed to see the light of original scope or intent. Some brought businesses to their knees, with painful consequences. Yet, the technology successes of Amazon, Google, Facebook, and Linked-In, to mention but a few, are testaments that technology is no longer the sole obstacle. That learning is available to any implementation team today, including U.S. government agencies.
We seriously doubt that the watered down recommendations from the Senate and other agencies will get to the heart of badly needed the government IT modernization efforts. It is clearly time for U.S. government to seriously consider the adoption of business transformation practices of private industry that include:
- Establishing clear vision of future state needs that are not, business as usual which favors continued existence of added complexity and bureaucracy?
- Avoiding huge-scope big-bang systems efforts in favor of incremental steps of manageable projects
- Senior agency leadership singularly accountable and responsible for program success.
- The recruitment of IT and CIO leadership with proven private industry track records provided with the organizational clout and support to get things done.
Finally, the Congressional toxic political environment being what it is today, requires that political leaders stop thinking in the context of blame and retribution, especially when the process drags on for years. The federal government needs both visionary agency leaders and legislators who can think outside the box of bureaucracy.
Whether any of this happens in our lifetimes is certainly food for thought and constructive debate.
Supply Chain Mattershad the opportunity to review PwC’s 17th Annual Global CEO Survey which provides some important observations and considerations for supply chain, B2B Business Network and IT professionals.
The survey incorporates the viewpoints of over 1300 CEO’s among 68 countries and was conducted in the period of early September to December 2013. The majority of the data collected in this PwC survey, 54 percent, was collected in qualitative interviews. The full PDF copy of this survey can be downloaded at this web link.
Uncertainty remains an overarching theme including industry global markets and regulatory policies. According to the survey authors: “the number of CEO’s who believe that the global economy will improve over the next 12 months has double to 44 %, compared to the previous year.”
Similar to other CEO studies we have reviewed of late, this PwC study reflects that the vast majority of CEO’s, 86 percent, view advancing technologies as transforming their businesses over the next five years. Of further note, 36 percent believe that product and service innovation offer prime opportunities for growth in 2014. In terms of geographic based differences, when asked to cite the main opportunity for growing the business in the next 12 months, 47 percent of German based, 43 percent of China and Hong Kong based vs 36 percent of U.S. based CEO’s cited product/service innovation. A quote from the study: “For many companies, the growth agenda will be centered on new digital ecosystems- the hardware, software, services, and communications infrastructure that make digitization possible.” That statement, by our view, reinforces the stronger alliance among product management and supply chain business network, new product introduction and customer fulfillment processes.
Other important supply chain and customer fulfillment insights brought out in this PwC survey:
- Fewer U.S. based CEO’s view China, India or Brazil are most important for company growth in 2014 with greater expectations reflected from investments in Europe and the United States. The numbers reflect a dramatic decrease in sentiment towards business growth opportunities within India. Deeper details of the findings indicate that more than half of U.S. CEO’s are concerned about current shifts in consumer spending and behaviors along with corresponding customer growth and retention strategies.
- CEO’s are focused more heavily on new products and services along with increased share in existing markets. New geographic markets are only cited by 14 percent of respondents in the PwC findings. Thus the supply chain fulfillment strategy in 2014 is focused on existing geographic markets, primarily in developed countries.
- While CEO’s have gained five years of tough experience in managing profitability, 61 percent of U.S. CEO’s are still focused on cost-cutting efforts. That is down from the 73 percent number reflected in the 2013 survey, which reflects some definitive signs of more optimistic perspectives on business profitability. However, the study authors reflect a statistic that stock buybacks authorized by S&P 500 indexed companies rose to $445.3 billion in the 12 months ending in September 2013. We find that situation rather troublesome since these are monies that could have been invested in process and technology related investments related to business areas, not to mention increased training of the workforce. Instead, financial engineering of stockholder performance rules the board room.
- Regarding the priorities that CEO’s have currently placed on specific areas of technology investment, the PwC survey reflects:
- Business analytics- 44 percent
- Socially enabled business processes- 41 percent
- Mobile customer engagement- 39 percent
- Cybersecurity- 39 percent
- The PwC study reflects that 70 percent of U.S. business leaders remained concerned about the availability of key skills, reflecting a sharp increase from the 2013 findings in this area. Noted by the report authors: “Do more with less” has taken a toll on morale. Business leaders recognize this: just 32 percent of U.S. CEO’s agree that the level of trust with employees has improved in their industry over the last five years.” Nearly 62 percent plan to expand hiring in 2014. The above have significant implications for supply chain talent management strategies.
For supply chain teams, as we enter the second part of 2014, this and other CEO data reflect that investments in enhancing both product and service offerings, business analytics and associated re-skilling or hiring plans should be supported by senior management teams. Customer retention and enhanced service strategies remain a high priority that should receive support in new fiscal year budgets, along with broader efforts directed at enhancing NPI processes across the global supply chain. For IT teams specifically supporting supply chain and B2B initiatives, the priorities of the business are focused on enhancing areas of supply chain business analytics and mobility access. Technology enhancements directed at bringing together product, software and services related information sources would appear to gain senior management funding and support.
Across the United States, besides the U.S. team’s accomplishments in the World Cup competition, another dominant traditional and social media based news headline reflects of the incredible number of automobiles and trucks being subject to product recall.
The primary story focuses on General Motors, which after intense scrutiny from U.S. regulators and legislators regarding faulty ignition switches among multiple models, is recalling all sorts of models that are believed to have been exposed to a component design problem, faulty ignition or otherwise. Thus far in 2014, GM has announced 44 product recalls involving nearly 18 million previously sold vehicles. Today’s social and business media buzz blares that the vehicles been recalled thus far is more than the total number sold in the U.S. in 2013.
In a previous Supply Chain Matters commentary, we called attention to product recalls involving airbags supplied by Japan based Takata Corp. that were expected to expand and involve millions of affected vehicles. Today, both Honda and Nissan recalled close to an additional 3 million vehicles worldwide to repair the subject airbag problem, bringing the total number involved with the airbag defect to roughly 5 million vehicles.
An article syndicated by the Washington Post News Service features the headline: More than 1 in every 10 vehicles on the road has been recalled since January. That articles notes that the defects range from rather serious (faulty ignition switches, overheating exhaust parts, power steering problems) to other problems where automakers are now highly sensitized to any potential liability problem. This article goes on to note that in the spirit of crisis bringing opportunity, that there may be an upside of this extraordinary situation: “ … meaning that dealers get to have their old customers back in the showroom. There, they can show off the new models and, at minimum, be in a position to sell drivers on some repairs they previously were not considering.”
This author, for one, was completely floored by the above statement. Are you kidding me! One in every ten vehicle owners being inconvenienced to have to make a service appointment and bring their vehicles for service, and dealers have the “blank” to try an upsell these consumers?
Beyond the lunacy of such statements, there is a parallel and very critical challenge about to happen.
Automotive service focused supply chains are going to be exercised to their biggest stress test, ever. All of the subject recalled vehicles will require some form of a repair part, one that has hopefully, been correctly modified to remediate a suspected problem. The sheer numbers imply that some inventory will have to be re-allocated from those destined to support ongoing production schedules for newer vehicles. In some cases, necessary repair parts will not be able to meet overall demand, and dealers will have to be very careful in scheduling service appointments and setting customer expectations. During Toyota’s past product recall crisis process involving unattended sudden acceleration, Toyota worked directly with its dealer network to coordinate extended service hours for consumers, including nights and weekends. Coordinated round-the-clock efforts among certain component suppliers and respective dealers were directed at insuring repair parts were adequately distributed and vehicles were scheduled for repair based on availability of necessary parts.
In short, the folks that do necessarily receive all the hero badges, those directly supporting service focused supply chains will be called upon in the coming weeks to literally save brand focused reputations.
Last week, Supply Chain Matters was invited to attend the PTC Live Global 2014 customer conference held in Boston. One of PTC’s product suites is technology focused on Service Lifecycle Management (SLM) which has been amassed from previous acquisitions of vendors such as Servigistics, MCA, Kaidera, Xelus and others. In one of the sessions, PTC executives noted that expectations have never been higher on the customer and business side of service management. Yet, service management tends to suffer from immature business processes, not from a lack of dedication and effort, but rather a lack of broader understanding to the importance of service management. Mingling in the hallways and networking sessions, we once again had an immediate sense of how dedicated these people are, and also how unappreciated and frustrating their efforts can sometimes be.
Across automotive, the service focused supply chain will be put to its largest and most expansive stress test from the scope of sheer numbers of vehicles and information required to coordinate service scheduling needs. Some will rise to the task at hand. Some will not.
One fact is very clear- auto dealers are advised to take-off their sales hats and concentrate on service and customer satisfaction efforts, in all dimensions. That includes a very close, almost intimate relationship with those dedicated professionals who plan, manage and fulfill service parts planning and order fulfillment. Forget for the time being, the algorithms and calculations related to mean time between part failures. It is going to be “all hands on-deck” augmented by information coordination and supply chain intelligence that separates the best in class performers.
Among industry supply chains, two rather important ongoing initiatives involve expanding efforts directed at developing more sustainable products along with greater attention to social responsibility practices involving the global sourcing and production of products.
UL, also known as Underwriters Laboratories has provided a legacy of services directed at compliance and consumer trust. The firm has historically worked with multiple product brands and service providers to assure the compliance of products to known standards and the firm presents itself as a globally independent safety science company. For the past two years, UL has been working to broaden its capabilities for being a broader provider of one-stop services for material, component and product safety insights.
UL announced an expansion of that firm’s Information & Insights (I&I) service offerings directed at assisting supply chain organizations in their efforts to provide more sustainable products an ensure more timely regulatory compliance. According to our Supply Chain Matters discussion with UL spokespersons, these services leverage and expand on UL’s reputation as a known neutrality platform for assurance and safety. The stated goal is to provide the right kind of ‘preventable intelligence’ needed by product designers and product sourcing professionals.
As the announcement indicates, many products are being created with materials that may be dangerous to use, caustic to consume, poisonous for the environment or a threat to workplace safety. Recent Supply Chain Matters commentaries have called attention to products produced or assembled through socially unacceptable practices or nefarious sourcing and third party benefit. The recent filing deadline for industry supply chains to declare potential sources of Conflict Materials has been recent evidence of the difficulty in securing and tracking such information.
The newly launched UL I&I services are reportedly designed to provide supply chain teams and decision-makers with broader information insights into non-sustainable materials. That includes access to UL’s existing network of scientists, an extensive service network for product certifications, onsite audits and trusted product evaluation and safety testing services. Material buyers can request certification documents or engage UL teams in conducting supplier audits. The goal is to help decision makers to enhance sustainability and regulatory monitoring efforts in a broader and more visible context. It has been described as a marriage of science, technology and tech platform infrastructure.
One of the recent acquisitions of UL I&I is a product service known as GoodGuide which has caught the eye of brand owners and major retailers. UL is positioning this service as a B2B platform and centralized repository for information related to the efficacy of products and good practices. According to the UL I&I web site, GoodGuide makes it easy to find safe, ethical and environmentally-friendly products and provides health, environmental and social performance ratings for more than 120,000 food, personal care and household products.
This announcement is rather interesting and adds further credence that efforts directed at assuring supply chain sustainability have broadened and technology providers such as UL are offering enhanced services to serve such needs.
Have you ever considered a supply scenario where a key supplier to multiple industry brands encounters a significant or troubling quality problem?
Could that scenario be greatly magnified with a highly sensitized regulatory environment?
That scenario is currently playing out across certain automotive supply chains and reflects that even the smallest part or component failure has far greater brand implications.
According to an exclusive published report from Reuters, product recalls involving airbags supplied by Japan based Takata Corp. will expand and involve millions of affected vehicles. According to the Reuters report, this week, Toyota recalled an additional 1.6 million previously recalled vehicles outside of Japan, as well as 650,000 within Japan because of a believed Takada manufactured airbag defect that has the potential to cause personal injury due to faulty inflators within these airbags. The additional recalled vehicles brought the total number of Toyota branded vehicles subject to airbag recall to more than 7 million over the last five years.
Reuters further reports that Honda is considering a recall involving more than one million additional vehicles with potentially defective air bags, citing a source familiar with the matter. Last year Honda recalled over a million vehicles because of airbag inflation concerns. The Honda announcement could come by the end of June pending further information from Takata regarding specific inflator component information. The report additionally indicates that U.S. auto industry regulator, the National Highway Traffic Safety Administration (NHTSA) has this week opened a probe involving an estimated one million vehicles made by Nissan, Mazda and Fiat, in addition to Toyota and Honda. That probe is focused on six reported incidents of airbags not deploying properly in Florida and Puerto Rico.
This news comes in the wake of the increasing high visibility being placed on General Motors and its associated brands due a series of prior product defect awareness and recall snafu’s involving certain ignition switches. The initial GM incident has prompted additional product recalls involving a multitude of components and millions of vehicles. The entire industry is now highly sensitive to increased regulatory sensitivity with significant potential monetary fines if known consumer safety issues are not reported on a timely basis. The result has been an explosion of product recall announcements because of such increased scrutiny and regulatory concern with industry supply chains scrambling to provide necessary modified repair parts.
Automotive OEM’s have fostered component product innovation strategies among a key set of lower-tiered component system suppliers, and OEM’s leverage such innovation across multiple vehicle and brand platforms. As an example, prior Toyota airbag related product recalls involved both the Toyota and luxury Lexus brand. GM’s current wave of product recalls involve many of its brands including Cadillac.
These strategies were put in place to foster both faster product innovation cycles as well as to be able to leverage volume supply costs across multiple global platforms. The objective of leveraging lower component costs has never gone away, at least for certain OEM’s.
According to the Takata web site, the firm serves as a supplier of automotive safety systems and products including airbags, seat belts, restraint systems and other safety related components. This supplier operates 56 plants among 20 countries and is obviously a key supplier for many brands in many production geographies.
From our lens, the current mix of developments at play across multiple automotive brand supply chains provides keen reminders for the needs for more early warning awareness related to component failure trends, the ability to sense and share such information across and among both functional and product design teams with the ability to more adequately identify and trace specific components with their production lots.
Certainly within the automotive industry, supplier management and early warning is no longer the sole purview of procurement teams. It is fast become a cross-functional, cross-business responsibility led by procurement with the active support and involvement of product design and management. When all the dust settles concerning GM’s ongoing investigations and response plan, much of this learning will be evident. While automotive has its unique challenges, other industry value-chain teams can also apply similar learning. The product focused and post-sale service focused supply chain are additionally now highly information dependent.
Worst case scenarios involving a product brand and perceptions of quality and safety are not out of the realm of possibility. Speak to procurement, supply chain and product management team members in automotive and you will probably get a clear sense of how distributed product innovation is highly dependent on higher levels of information awareness and product quality measures.
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