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Reports that U.S. Volkswagen Dealers are Growing Restless Regarding the Ongoing Diesel Emissions Scandal Fixes

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The ongoing brand crisis involving Volkswagen and specifically its customers and dealers over the diesel engine emissions alteration admission continues to take on new dimensions.

Last week, The Wall Street Journal reported that VW dealers across the U.S. are fuming regarding the receipt of specific guidance  regarding the estimated 12,000 diesel powered autos that they are not allowed to sell. These unsold and currently prohibited stop-sale vehicles have been sitting in lots for over 10 months while VW and U.S. regulators traverse a legal process for determining next steps. According to this report, U.S. VW dealers are now sitting on approximately 107 days of finished goods inventory of which 12 percent represent currently non-saleable models.

Not wanting unsellable inventory to be clearly visible, many dealers have reverted to moving stop-sale inventory onto adjacent or off-site storage lots. While VW is currently compensating dealers for additional financing and needs for periodic servicing of this large amount of unsold and un-positioned inventory, dealers are not apparently making up the difference in new sales volume because of a lack of new saleable inventory. The long awaited family-sized sport-utility vehicle is not expected to be introduced in the U.S. until early 2017 while anew Alltrack small station wagon is due to be introduced in the next several months adding to dealer frustrations for more models to sell. Plans are very unclear as to whether the new family-sized SUV model will be offered with any diesel powered options as previously planned.

Last week, California regulators rejected a proposed VW fix for cars with the larger 3.0 liter diesel power plant. VW executives indicate that they have a fix related to the 2.0 liter diesel engines but regulators also need to approve this process as well.

In its report, the WSJ quotes one specific VW dealer executive as indicating that the scandal, compounded by the current glut of unsaleable inventory has soured his view of VW senior management. This executive further indicates that VW should take the unsold diesel vehicles back to Germany or some other location in the world where they can comply with emission standards.

On Friday, VW U.S. executives met with 150 Northeast U.S. dealers to review what was termed as a TDI Settlement Program, and pledged  additional compensation to dealers. While the details of such restitution still are not known it was the first time that VW indicated that the dealers themselves will receive direct compensation.

A detailed timeline was reportedly outlined regarding the proposed buyback and repair program across the U.S., one that is expected to extend through the end of 2018.  According to a subsequent report from the WSJ, a software fix would be made available for third-generation diesels by October, followed by a combination hardware and software fix for first-generation diesels beginning in January 2017, and a software update for second-generation diesel powered vehicles in February 2017. VW further indicated that it expects to have a hardware fix ready for third-generation diesels by October 2017.

This overall timeline, if approved by U.S. regulators will affect the nearly 500,000 existing diesel powered vehicles now on U.S. roads in addition to the unsold inventory of 12,000 vehicles.  Thus, it is more than likely that U.S. VW dealer service teams will be very, very busy over the coming months and years. However, VW continues to decline media outlets regarding any specifics related to overall time lines or specific restitution for its dealers. The WSJ report also indicates that for consumers electing to sell their vehicles back to VW, a “third-party settlement specialist” would be inserted to act as an intermediary and direct communicator with dealers.

There is little doubt that U.S. VW dealers face a service management crisis, one that will tax both aftermarket and pre-sales service business segments.

As noted in previous commentaries, VW continues to experience painful lessons regarding its ongoing emissions scandal. A company noted for a somewhat tops-down management style and an engineering-driven culture and among one of the two top global producers will learn some tough lessons as a result of this scandal. The most important when all the dust settles, will be more sensitivity to customer, market and dealer network needs along with implications of being afoul to governmental emission standards.

Once again, all of these challenges in the months to come demand that VW executives move decision-making beyond the halls of Wolfsburg with more emphasis on major geographic based leadership such as VW U.S. The supply chain implications alone place a major emphasis on service management and responsiveness or risk even more erosion to the brand and to customer loyalty. VW needs to think more boldly and more creatively to address fixing the current challenges with non-conforming diesel powered vehicles including the need for augmented resources.

Bob Ferrari

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


A Significant Announcement Related to Internet of Things Technology

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There has been quite a significant announcement related to Internet of Things (IoT) and Industrial Internet technologies, one that line of business, product management and manufacturing focused teams should pay close attention to.

General Electric announced that it will partner with Microsoft in uniting their Cloud computing and analytics technologies in a partnership that will bring GE’s Predix platform for the Industrial Internet to businesses running on Microsoft Azure. The parties indicate in the joint announcement that the combination of Predix with Azure will bridge GE’s industrial equipment and digital expertise in industry and manufacturing, and Microsoft’s forte in information technology. From the lens of this analyst, there are far more implications related to the all-important selection of a technology platform to power IoT initiatives.

This latest announcement bears significance because of selection of Microsoft itself. It is no secret that Microsoft technology has over the years become a dominant integrating technology within and across factory floors. Therefore, from my lens, the potential is the ability to link not only physical objects to business and supply chain business processes but further to connect the shop floor and manufacturing applications with operating assets as well. GE engineers and executives do due diligence very well and they are increasingly acted like an information technology provider with deep domain expertise in industrial equipment and expensive physical assets.

SAP focused readers may recall that at the recent SAP Sapphire conference, Microsoft and SAP also announced a strategic alliance to leverage Azure in the future development of more desktop and mobile applications as well as to provide extensibility of SAP applications to desktop, mobile, Cloud and analytics needs.

We believe that readers should view both of these alliance announcements as a strategy by Microsoft via its Azure platform to become a far more pertinent player as an IoT information and analytics platform. It further opens IoT efforts for the scope of mid-market equipment manufacturers where Microsoft technology is dominant.

In prior Supply Chain Matters commentaries we have called attention to GE as a manufacturer that is both a dominant player and first mover in IoT, but also a significant influencer as to which technology players will ultimately be key IoT participants. By recently opening up its Predix platform in its Digital Alliance program, GE is striving for Predix to become the Industrial Internet platform of choice. In our most recent blog related to GE Predix, I have stated:

Make no mistake, the expanded (GE) Digital Alliance program is a wide swath initiative to build extensive influence and critical technology and development mass in the IoT marketspace.”

This week’s GE-Microsoft announcement adds far more credence to this intent. It is sure to invoke other responses from competing enterprise information, business applications and infrastructure technology providers. The announcement is indeed a big deal and this partnership merits lots of visibility and scrutiny over the coming months.

We will do our part to keep readers informed and in helping to connect events and implications. While the IoT focused industry remains in the early stages of more widespread IoT deployments, current actions center on how major enterprise, supply chain, industrial equipment and platform vendors converge on approach, since the current strategy is one of fostering platform and technology dominance.

This is great theatre one that will keep technology analysts busy and engaged in advisory modes. Insure that you acquire multiple opinions and viewpoints to determine how to position your organization or line of business perspectives related to planned  IoT initiatives. Give us a call or send us an email if you require further assistance.

Bob Ferrari

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


Volkswagen’s Initial Settlement with U.S. Regulators- More Challenges Remain

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Today marks the initial formal settlement by Volkswagen with U.S. based regulators regarding approximately 500,000 U.S. vehicle owners of two liter diesel engines as a result of the emissions cheating scandal. The financial settlement amounting to more than $15 billion, ranks as one of the highest ever incurred on an automotive manufacturer, a new industry milestone. It further represents what could be one of the largest vehicle buyback offers in U.S. history, one that we believe will test reverse supply chain processes.

Today’s settlement adds additional challenges for VW in its efforts to move beyond this emissions scandal. They include continued damage to brands because some consumers feel deceived and continued heartburn for existing VW dealers and retailers in selling what remains of existing gasoline powered vehicles.

Of the $15 billion total, a little over $10 billion is set aside in a civil settlement to offer vehicle buybacks and additional cash settlements to owners of existing vehicles that were implicated in the software manipulation of diesel powered emissions while $5 billion in allocated to offset excess diesel emissions and eventually boost efforts for new green energy and zero emissions vehicles by VW.

Yet remaining to be eventually settled is the issue of 85,000 4.0 liter diesel powered vehicles involving other primarily Audi and Porsche brands.

According to various published reports, existing owners of 2009-2015 affected vehicles will receive direct compensation of at least $5000 along with the estimated cash value of the impacted vehicles. Prior owners are expected to receive half the compensation of current owners while leased vehicles will also be included in some form of financial settlement. Buybacks are not expected to begin until October at the earliest, pending final judicial approvals of the settlements.

The company faces other fines involving governmental or civil settlements both in the U.S. and other countries as a result of the incident. According to Reuters, regulators will not immediately approve fixes for all three generations of polluting 2009-2015 vehicles. There are still open questions as to whether these vehicles can be economically and logistically repaired.  That opens the potential for a significant reverse supply chain challenge to move such vehicles to recycling or environmentally safe disposal channels.

As noted in our Supply Chain Matters commentary last September, Volkswagen runs the risk of losing the trust and loyalty of its U.S. and global customers if this crisis is not proactively managed. Thus far, it would seem that VW management is trying to move forward in settlements and in executive leadership changes but much more work remains. Many other ongoing supply chain and product related challenges remain as well.

One relates to the inventory of unsold diesel cars that now have had their U.S. and European sales suspended. That adds to the recycling and reverse supply chain challenges. If VW elects to repair or refit some of the diesel powered fleet, there are challenges related to who performs these services, how will compensation be administers and where the refits will be performed.

It is no secret that Volkswagen has struggled with its vehicle line-up for the U.S. market, including a market competitive and fuel efficient mid-sized SUV which was initially promised for 2016 market entry. That model availability problem has become much more complicated and may force VW to reach out to other manufacturers to fill-in holes in the model line-up.

VW continues to learn financially painful lessons regarding its ongoing emissions scandal. A company noted for a somewhat tops-down management style and an engineering-driven culture and among one of the two top global producers will learn some tough lessons as a result of this scandal. The most important when all the dust settles, will be more sensitivity to customer and market needs along with implications of being afoul to governmental emission standards. Now, more than ever in the company’s history, VW needs to take an industry leadership role in alternative powered and green energy powered vehicles.

All of these present a difficult set of challenges in the months to come, when that demands that VW executives move beyond the halls of Wolfsburg.

Bob Ferrari

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

 


GE Digital Provides a Report of Progress on Digital Industrial Efforts

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This week, General Electric, specifically the company’s GE Digital group, hosted a group of Wall Street equity analysts at its campus in Silicon Valley to present a report of progress. Division CEO Bill Ruh predicted that GE is delivering the winning formula in efforts to leverage industrial networks and the Internet of Things (IoT) in assisting businesses to enable new industrial outcomes concerning asset management.

As Supply Chain Matters has pointed out in previous commentaries, GE has invested significant dollars and resources into the growth of its new digital business since its founding in 2011. Upon listening to the webcast of this briefing, it was clear to this author that GE intends to leverage its perceived first mover market advantage in enable the notions of industrial networks.

Development efforts surrounding the core GE Predix operating system began in 2012 as an internal effort to connect the vast amount of sensor data generated by equipment products. By 2013, GE began to analyze data among fleets of machines and equipment to discover important analytics related to operational performance and maintenance needs. Operating units began to correlate certain operating environments with performance outliers and needs for unplanned maintenance. It was then that GE executives began to view Predix as a data and analytics platform tailored for the unique and demanding requirements of many forms of equipment networks made up of aircraft engines, turbines, wind mills or sophisticated medical equipment. That includes collecting very significant volumes of real-time data and harnessing that data into more predictive analytical insights into asset up-time and reliable performance.

In this week’s update, Ruh indicated to analysts GE’s forecast of over $6 billion in revenues for this unit this year, with a goal of over $15 billion in revenues by 2020. That 2020 revenue forecast is now lower than previous estimates indicated earlier this year. As we have noted in our other IoT focused commentary, there is still a lot of market education and maturation required.

He outlined four pillars to support this level of growth:

  • A keen focus on customer outcomes particularly in business services growth.
  • Support of incremental productivity needs of customer.
  • The launching of “killer’ applications
  • The leveraging of GE’s Predix operating system in the enabling of the Industrial Internet ecosystem. Ruh indicated that by the end of this year, there will be 20,000 developers working on Predix enabled applications.

What makes GE’s approach to IoT enablement unique is its current ability to leverage both advanced digital technologies as well as the deep vertical industrial equipment domain knowledge that exists across GE’s industry verticals. With a strong presence in transportation, commercial and military aircraft, alternative energy, and medical equipment sectors, there are a lot of potential opportunities to leverage. From an organizational perspective, GE currently leverages both a business horizontal and business unit vertical leadership structure surrounding GE Digital.

From a broader go-to-market strategy perspective, executives placed emphasis on ongoing efforts to open the Predix platform environment to more developers and partners and building out a richer ecosystem surrounding the platform. Other efforts are directed at building solid customer references in both traditional and outcome based pricing deals, building digital commercial scale among different key industry verticals.

GE Digital executives went to great lengths to point out their belief that industrial based IoT applications and network opportunities will be a far larger market segments that consumer focused IoT applications, pegging the latter segment as greater than $225 billion by 2020. That stated, during open Q&A, executives indicated a belief the 2017-18 timeframe will be the point of industry inflection in IoT enabled efforts. From this author’s lens, that is fairly consistent with comments and observations we’ve heard from other IoT focused technology and services providers.

One other area we wanted to highlight for our readers was that of GE’s stated approach, namely this this is an ongoing race, and that came across quite clearly in executive level presentations and open Q&A. This is an industrial company that is fostering a software industry type culture of fast innovation and maintaining market dominance.  As a further point of reference, GE itself elected to begin efforts to move its corporate headquarters from pastoral central Connecticut to Boston’s seaport tech district principally to foster an overall culture of fast innovation. In March, Jeff Immelt took to the stage to tell Boston’s business leaders just how important their city is in his grand plan to redefine the industrial conglomerate- I want people that are down in the Seaport, I want them to walk out of our office every day and be terrified. I want to be in the sea of ideas so paranoia reigns supreme.”

That is indeed a different corporate culture for a diversified industrial manufacturer.

GE is in a race among other enterprise technology providers, systems integrators and industry platform providers a race that presents differing roles of partner, co-developer and perhaps key competitor.

Like previous market inflection points such as Client-Server, ERP, RFID, Cloud and now IoT, the race is on, and rather than a sprint, it is a marathon that features many hills and valleys and environmental changes along the route. Only this time, the make-up now includes some very interesting new players, one’s that live, breathe and practice industrial networks, equipment, services and understanding of asset management.

Let the race continue.

Bob Ferrari

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


Supply Chain Matters Conversation with Tego- A Different Architectural Approach to Internet of Things Deployment

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When this industry analyst attends technology and industry conferences, I attempt as time permits, to seek out what I believe our technology vendors that are providing unique or different technology approaches to business process needs. In our next two Supply Chain Matters postings, I will touch upon two such providers.

While attending the PTC LiveWorx 2016 Internet of Things Technology (IoT) conference in Boston, I had the opportunity to briefly speak with Tego, Inc.

One of the current considerations for business and IT teams in evaluating an IoT technology initiative is the overall architectural approach.  Consideration can be given toward investment in a broad-based IoT network connectivity and supporting applications platform, essentially a predominant focus on a system-wide approach. However, some organizations that want to start on smaller, more manageable proof-of-concept or service management type initiatives will often find the platform approach somewhat beyond budget resources.  That was the prime topic of conversation that I had with Tim Butler, the Founder and CEO of Tego.

Based in the innovation hub of Boston, and working with clients around the world, this provider’s original mission was in providing high-memory RFID tags along with the supporting technology to transmit data from tagged items. That has migrated to an RF-enabled platform to bring intelligence to assets. Initial efforts have been focused in aerospace and other industry settings where monitored equipment and assets include items such airplane seats, navigational systems, medical and other equipment.  Tego’s efforts in aerospace alone have resulted in a supplier relationship with Airbus in the tagging of important serviceable assets such as life vests and seats for new aircraft such as the Airbus A350. Such assets have service lifecycles that extend from 3 to upwards of 20 years and it is important to be able to capture key service information throughout that lifecycle.

This provider offers an integrated and configurable platform consisting of multi-functional TegoChips, ruggedized TegoTags, and Tego OS software platform. The approach is essentially a reverse flow, namely allowing the physical asset to communicate and exchange key information with a database or business application. Butler is clearly passionate about Tego’s different approach and indicated that the firm has encountered many customer prospects with current limited budgets and resources, but has a need to make certain assets and equipment smarter and more interactive with other processes.

Tego’s smart asset approach can further allow businesses to bring intelligence to physical assets that exist beyond the reach of the Internet. As its web site points out, industrial assets don’t necessarily exist in climate-controlled environments bathed in WiFi signals. In the real world, objects can be found in geosynchronous orbit, at the ocean floor, exposed to gamma and x-ray radiation, or boiled in autoclaves. They may only rarely have the opportunity to upload or download data. Tego’s stated mission is to make every asset a smart one.

During our conversation, we also touched upon the topic of information security involving connected devices. Butler provided a compelling argument that his firm’s architectural approach can insure data security. He is not shy in declaring that Tego is setting a standard for new levels of intelligence and insights using a next-generation platform that unites high-capacity memory with unparalleled ruggedness and security.

We found this technology approach to be one that we wanted to make visible to our readers who may be seeking a different option in IoT or connected assets deployment.

Bob Ferrari

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

 


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