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Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains- Part Two

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Just before the start of the New Year, the Ferrari Consulting and Research Group and the Supply Chain Matters Blog share our annual ten predictions concerning industry and global supply chains for the coming year. We have maintained this tradition since the founding of this blog in 2008 and it continues to be quite popular with our readers and clients.  Supply Chain Matters Blog

These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, as well as helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas. Predictions are sourced from synthesizing developments and trends that are occurring in supply chain business, process and technology dimensions, researching various economic, industry and other forecasting data, along with input from clients, thought leaders and global supply chain observers.

We take predictions seriously and align our research and blog commentaries to focus on specific prediction areas throughout the coming year.  Supply Chain Matters will revisit each of our annual predictions at the end of the year to ascertain how close or how far each fared.

Part One of this posting series outlined our first five predictions for 2015.  In this Part Two posting, we share our remaining five predictions.

 

2015 Prediction Six: A Stalling of Big Data and Predictive Analytics in Favor of Alternative Application Focused Strategies

We anticipate that the promise of Big Data and Predictive Analytics technology in enabling more insightful and predictive decision-making stalls in 2015 because of certain technology and organizational constraints. The promises in capabilities to analyze terabyte streams of enterprise structured and unstructured data related to customers, products, suppliers and equipment are dependent on software and database capabilities that can accommodate large data streams and simultaneous user inquiries.  The term Big Data itself is a symptom of a far more perplexing problem, namely that enterprises, organizations and industry supply chains are currently overwhelmed by collecting too much extraneous data.  The challenge at-hand is collecting and harvesting “smarter data”.

Database applications such as Hardoop provide the promise of smarter data, but for the time being, such applications need to be designed with more focused managed scope needs and requirements.

On the organizational side, one of the highest in-demand skills is that of a data scientist and the forces of demand far outpacing current supply has made these specialists quite expensive. Once more, what companies seek is more than just data analysis and interpretation skills but knowledge of customers, markets and business processes. That implies leveraging, building or training such skills among existing experienced teams, those with intimate understanding of the firms end-to-end supply chain.  A further organizational challenge is addressing inherent concerns focused on security and governance of the mission critical sensitive data inherent in managing business operations.

Because of the above noted constraints, in 2015, IT leaders will influence line of business and supply chain functional teams to narrow the scope of these initiatives within certain supply chain process areas.  For technology support, look for more supply chain, procurement and  S&OP focused applications to be augmented with embedded predictive analytics and machine learning capabilities. Supply chain planning applications that include predictive analytics and/or augmented simulation will continue to lead in this effort. Expect similar efforts for cloud-based B2B supply chain network application and services. This will accommodate line-of-business needs for shorter-term, narrowed scope initiatives for smarter data and more predictive or prescriptive capabilities to respond to specific supply chain related business challenges.. We anticipate that best-of-breed technology vendors will lead with innovation in these areas while larger ERP and enterprise services providers will continue to communicate longer timetables for such functionality.

Narrowing current smarter data and predictive analytics within supply chain focused applications provides more likelihood for timelier benefits and will be a likely continuing trend in 2015 as broader streaming data efforts are re-focused and organizational challenges are resolved.

 

2015 Prediction Seven: A Turbulent Year in Global Transportation

Expect a turbulent 2015 involving competitive market, regulatory and business realities impacting global transportation, railroads and contracted logistics services.

These include the continuing shake-out of excess capacity among ocean container shipping lines and the re-sizing of global transportation and airfreight fleets. The reality of more super-sized container ships calling on ports not equipped for timely unloading and loading has made its presence. The “perfect storm” of dysfunction among U.S. west coast ports in the latter half of 2014 will have implications in how shippers, exporters and retailers route future shipments destined for the United States and global markets. Canada’s west coast ports will likely benefit along with U.S. Gulf and east coast ports.  More importantly, the issues uncovered in labor contract negotiations, independent trucking’s driver contracts, the leasing and 3rd party deployment of tractor-trailer carriages to transport containers must be addressed by transportation industry and labor union players to avoid a repeat of what occurred in 2014. As we noted in our previous predictions in 2014, the desire for carriers or logistics providers to be asset light invariably leads to implications for having assets and equipment positioned for shipper vs. industry benefits.

Canada and U.S. based railroads will likewise encounter turbulence in industry shipping needs for accommodating higher volumes of crude-oil shipments under existing regulatory speed and safety constants while resolving additional multi-country regulatory requirements for upgrading thousands of tank cars to new safety standards. The Railway Supply Institute, a railcar industry trade group has argued that there is not enough tank car retrofit existing capacity to meet proposed regulatory deadlines for upgrading nearly 17,000 tank cars to new safety standards.  This will lead to more industry and regulatory dynamics in 2015. Agricultural and bulk commodity shippers are caught in the middle of this dynamic as service levels continue to erode, leading to additional pressures by regulators on railroads to accommodate this important economic segment. Already, the share of Canadian based wheat exports to the U.S. has reached a six year low because of these dynamics.  This balancing act is likely to spur higher rates and added transport dynamics in 2015.

The plunging cost of crude oil prices which is  forecasted to continue in 2015 will add to turbulence involving existing fuel surcharges affixed to transport rate structures. Carriers and parcel shipment firms will likely attempt to drag out the suspension of fuel surcharges to protect or sustain ongoing margins. Carriers with a strong reliance on fuel surcharges for margins may find themselves in financial difficulty.

Finally, the implications of omni-channel commerce in B2C and B2B markets will face a number of important tests.  Carriers FedEx and UPS implementation of dimensional pricing rates in 2015, causing the transportation rates of bulky but lower value shipments to be far higher will likely motivate consumers and procurement teams to revise shopping practices and place additional pressures on online providers to adsorb such costs.  Amazon and Google have been positioning to control broader aspects of logistics and parcel delivery, and 2015 could well feature additional acquisition announcements from either or both players. Amidst further global-wide governmental and legislative pushback, ride-sharing services firm Uber may well alter its business strategy to focus more on priority package delivery vs. people.

The added complexities and service needs for omni-channel and industry-specific logistics needs continue to spur more service and technology requirements by customers on third-party logistics providers (3PL’s). Individual 3Pl’s must therefore invest in broader technological and systems capabilities and scale, or risk losing business to larger more versatile providers.  The acquisition announcement by FedEx of GENCO this month portends this dynamic in the coming months.

 

2015 Prediction Eight: Sales and Operations Planning transitions to broader scope information management connectivity augmented by what-if and simulation capabilities

In order to more proactively respond to today’s constantly changing and complex business requirements, we predict that select industry sales and operations planning (S&OP) processes will begin efforts to transition toward inclusion of broader aspects of  internal and external business planning, response management and predictive decision-making capabilities. This will most likely include deeper, cross-application information connections to product demand pipelines, augmented with traditional and social media based demand sensing. We further anticipate more-timely information connections with external or outsourced suppliers along with key customers, leveraging cloud-based planning and fulfillment synchronization networks.  In those industries with more rapid new product introduction (NPI) cycles such as high tech, telecommunications, consumer products and electronics, the two-way flow of new product introduction (NPI), product management and program milestone information will be a consideration as well.

Because of these needs, expect B2B supply chain business network providers, including ERP players, to deepen their support for broader integrated business planning needs by leveraging cloud-based platforms or networks. Again, best-of-breed vendors have the ability to lead in this innovation. ERP provider SAP has already declared its intent to enhance its existing S&OP focused application towards more external integrated business planning elements.

Existing supply chain planning providers will have to deepen their connectivity to external cloud-based networks or risk being displaced by broader cloud-based network capabilities that synchronize planning, collaboration as well as execution information.  In that light, we anticipate additional M&A or strategic alliance activity among best-of-breed planning and cloud-based platform providers in 2015. Similarly, 2015 entrants to the supply chain and enterprise technology arena will leverage Salesforce.com and other cloud-based platforms to broaden end-to-end supply chain visibility, deeper collaboration and more informed decision-making. One particular ERP player will have to make some major moves in this space.

 

2015 Prediction Nine: Industry supply chain step-up efforts towards supply chain vertical integration and modular product platform strategies with impacts on contract manufacturing sourcing models.

For the past three years, we have observed and highlighted on Supply Chain Matters, a number of manufacturing focused supply chains moving more towards various forms of supply vertical integration.  The automotive industry has clearly been on this path while some high-tech manufacturers have embarked on initiatives as well. The newer, more technology laden  versions of new models Airbus and Being commercial aircraft are demonstrating these strategies. The models varied by industry setting but the shift was discerning.  This year, after reviewing data within SCM World’s published Chief Supply Chain Officer Report 2014 , we became even more convinced that industry or company specific vertical integration and modular product platform strategies would begin to accelerate in 2015. This movement comes from the realization that more and more products share common parts and components and that modular manufacturing design and deployment strategies make sense because they can facilitate more flexibility in geographical and individual customer fulfillment as well as product differentiation for various market channels while providing added protections for risk.

This strategy shift will begin to have impacts on contract manufacturing models in the latter-half of 2015, or even 2016, since these strategies involve a good portion of manufacturing value-added moving back to internal manufacturing. Since contract manufacturing arrangements for the most part stem from multi-year contracts, the impacts will be felt at contract renewal time.  Many contract manufacturers currently operate on very slim product margins and symptoms of the evidence of these shifts will be reflected in even more deteriorating margins. We expect some contract manufacturers such as Foxconn, continuing to move upstream or downstream in an industry value chain to leverage the ability to either be considered a more strategic component player or eventually manufacture individually branded end-products. Likewise, key retailers and 3PL’s will asked to implement more production focused final assembly of finished goods postponement strategies at time of customer fulfillment.

Because of these strategy shifts, or perhaps anticipating such shifts, we would not all be surprised by active M&A activity among the impacted industry players noted above.

 

2015 Prediction Ten: Service supply chains garner increased attention and new investment interest.

We predict that in 2015 multiple equipment manufacturers and services providers will place added emphasis in evaluating their service focused supply chains.  This includes after-market business process services, service parts, service delivery supply and demand networks. There will be two distinct motivations for increased investment and we anticipate that lines-of-business will be the prime investment leaders.

In the light of increasing incidents and broader occurrence of product recalls brought about by tighter global regulation, manufacturers have no choice but to protect the brand and customer retention.  Service focused supply chains are the response mechanism that provide timely resolution to product quality or malfunction issues while root-cause defect areas are traced and investigated across the extended supply chain. Too often, there has been a “throw it over the wall” mentality involving service beyond product sale and thus the after-market service supply chain has lagged in process modernization and investment. Automotive industry services focused supply chains are the obvious prospect in 2015 along with industrial and medical equipment providers.

As noted in Prediction Four, IoT coupled to connectivity networks has the potential to drive new, more innovative, predictive focused product as a service platforms where connected machines and equipment serve as the demand sensing signal for maintenance, repair or consumable parts. Thus, the other investment motivator for service networks is enabling newer augmented line-of-business service revenue models that leverage IoT networks. We expect firms such as General Electric and Tesla Motors to serve as a benchmark in this area, but others will follow in the coming year.

 

This concludes the unveiling of Supply Chain Matters 2015 Predictions for Industry and Global Supply Chains.

How did we fare? Have these Predictions resonated for you and your organization? Did we miss an important prediction for the coming year?

Let us know either via Comments to this series or email feedback: info@supply-chain-matters <dot> com .

In early January, the complete listing of 2015 Predictions will be made available in a research report available for complimentary downloading.

Once extend we extend best wishes for the holiday season and the upcoming New Year.

Bob Ferrari

©2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved

 


Automotive Service Networks Response to Crisis: Update Three- Expanded Recall Involving Suspected Defective Air Bag Inflators

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Supply Chain Matters provides another update to the ongoing crisis involving the automotive industry as unprecedented levels of product recalls continue to stress auto aftermarket service supply chains to their limits. In our last commentary, we noted the colliding forces of regulatory, political, and capacity-restrained automotive replacement spare parts networks may well continue for many more months, and that appears to be exactly what continues to unfold. Once more, when the dust settles, we believe that the industry needs to take a hard look at lessons learned.

This week, there were further significant developments related to recalls of alleged defective airbag inflators produced by Japan based supplier Takata. After undergoing additional scrutiny from U.S. regulators, Takata refused to broaden the scope of the defective inflators recall beyond a select number of U.S. States with high humidity concerns.  That action forced OEM Honda, to expand its U.S. recall of suspected defective airbag inflators to all 50 U.S. states. Once more, Honda further indicated to U.S. regulators that the company is in discussions with other air bag suppliers to add augmented capacity of replacement parts. According to published reports, Honda is in discussion with suppliers AutoLiv and Daicel Corp. for supplementing supplies of required repair parts. In testimony this week, a Honda executive confirmed what Supply Chain Matters indicated several weeks ago, that the shortage of repair replacement parts would continue for quite some time.

U.S. regulators continue to pressure OEM’s BMW, Chrysler, Ford and Mazda to expand their driver-side air bag recall campaigns to include all 50 states. These actions have been prompted by additional information disclosed this week by the U.S. National Highway Traffic Safety Administration (NHTSA) indicating that prior incidents of premature exploding airbags are not just occurring in high-humidity areas. That is new information not brought forward previously. If these other OEM’s expand their campaigns to include all U.S. states, that will of-course add even more concerns to the ultimate availability of replacement parts.

According to a published report by The Wall Street Journal, earlier in the week Takata issued a letter to the NHTSA challenging the authority of that agency to compel a parts supplier to initiate a recall, arguing that the U.S. regulator authority is limited only to actual OEM’s that produce automobiles. From the lens of Supply Chain Matters, that argument is tantamount to a supplier throwing its major automotive OEM customers under the proverbial bus.

There should be little doubt among automotive line of business and supply chain leaders that these past few years of unprecedented product recalls are cause to revisit product quality imperatives. There has been a lengthy industry debate as to whether the quest for volume and profitability growth sacrifices quality conformance across the end-to-end supply chain. On the positive side, Hyundai recently scaled-back its volume growth plans when indicators of slipping quality motivated senior leadership to cut-back growth plans and endorse added quality measures.  The fact that Honda, which has prided itself in the quality image of its products is now front and center in the media is a symptom. In contrast, reports in business media of late question whether Toyota or General Motors have been chasing volume and profitability growth with quality and brand image as a casualty.

Evidence of common defective parts among multiple OEM brands and models point to shortfalls in quality monitors and component sourcing strategies that balance quality conformance risks. At the surface, these developments are perhaps a further indication that teams are not collecting or monitoring correct data as to component failure trends along with predictive indicators of broader manufacturing or material issues. The industry needs to take a hard look at supply-chain-wide quality conformance and feedback mechanisms.

Bob Ferrari


Revelation That GM Ordered Replacement Ignition Switches Weeks Before Formal Product Recall

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In our ongoing observations of global business developments and the linkages to the areas where supply chains do matter, this editor has been amused as to how equity analysts and business media now hone-in on a company’s supply chain information leaks to uncover information on a particular firm.  To cite an example, Apple’s supply chain across Asia has had numerous information leaks regarding potential new products or supply chain glitches related to Apple.

Supply Chain Matters readers have most likely been following our ongoing commentaries relative to the current crisis that has impacted aftermarket service supply chains within the automotive industry. An explosion of various automotive model recalls has cascaded to unprecedented levels. Beyond the current air bag deflator issues surrounding supplier Takada, lest we forget the incidents of faulty ignition switches leading to a multitude of product recalls involving multiple models of General Motors vehicles.

In what we can best described as “oh crap” news, The Wall Street Journal disclosed this past weekend (paid subscription required) that GM placed an order for a half-million replacement ignition switches almost two months before alerting U.S. safety regulators. The publication cites its source as emails viewed between a GM contract worker and supplier Delphi Automotive, and where the supplier was asked to develop an aggressive plan of action to produce and ship these replacement parts. The article further cites communication among a GM contract worker at Menlo Worldwide Logistics in-turn, seeking a plan from Delphi regarding the build and ship plan for the replacement switches. The report further indicates that it took Delphi about a month to outline a parts shipping plan.

The publication notes that the timing “is sure to give fodder to lawyers suing GM and looking to poke holes in a timetable the auto maker gave for its recall of 2.5 million vehicles. Readers can certainly review the entire WSJ published article which addresses a multitude of implications. However, we feel compelled to add a supply chain planning perspective.

Supporting a product recall of such magnitude requires the coordinated planning of a rather complex spare parts and service management network. Automotive manufacturers know all too well that proper up-front planning and synchronization of parts and dealer servicing resources is required as much as possible, before notifying consumers of the product recall. However, regulatory reporting requirements can foil attempts for proper planning.

Consumers expect to have specific information as to the defective part and when their vehicle will be repaired.  A product recall of the size of 2 million or more vehicles requires urgency to planning and it seems rather plausible that GM would issue such a spare parts order with requirements for aggressive production. It also places supplier Delphi in a rather difficult situation in having to coordinate revised product design specifications within existing production, allocate supplemental resources and generate volumes of parts over and above prior planned spare or production parts schedules.

The sum total of this commentary is perhaps two-fold. First, supply chain information leaks and security is an obvious growing problem. The utilization of emails or spreadsheets to plan or initiate supplier orders adds to the potential of information leaks.

Second, manufacturers often overlook the critical aspects of their service management supply networks, which can often support higher margins than product management value-chains. Just as product supply chains have to manage in the new normal of supply chin complexity while being more responsive to constantly changing events, service supply chains have even more complex challenges. They often represent the most current touch point and customer perception of your brand.

Bob Ferrari

 


Supply Chain Matters Update Two: Automotive Service and Spare Parts Networks Respond to Crisis

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Supply Chain Matters provides another update to the ongoing crisis involving aftermarket spare parts and service management supply chains within the Automotive sector as unprecedented levels of product recalls stress the system to its limits. U.S. automakers alone Airbaghave recalled more than 30 million vehicles this year as a result of a heightened regulatory environment that has prompted auto makers to issue a recall out of an Abundance of caution and legal protection.

Regarding the product recalls related to the airbag inflators produced by Takata Corrp., this has been a rather busy week of finger-pointing and consternation.

Last week, U.S. regulators nearly doubled the estimate of vehicles subject to recall. Reports have come to light that auto makers and regulators were aware of Takata air bag inflator problems for several years. The Manhattan U.S. attorney’s office that led the investigation and $1.2 billion fine on Toyota to settle a previous incident related to unintended acceleration of vehicles is now reported to have launched a preliminary investigation of the ongoing Takata inflator incident. On the political front, Congressional leaders in Washington are threatening more probes of the National Highway Safety and Traffic Administration (NHSTA) for its handling on the ongoing air bag inflator incidents, a sure sign of more political pressures and maneuvering.

On Tuesday, the CEO of AutoNation, the largest auto retailer in the U.S. indicated that he has instructed his dealerships to halt the sales of 400 used cars that are subject to the airbag inflator recall. He further urged regulators to get control of an “incoherent response”.

Yesterday, NHSTA gave inflator supplier Takata a deadline of December 1 to supply added documents and respond under oath to additional questions.

From a service supply chain perspective, NHTSA released details of industry meetings indicating that it will take several months before there are enough spare parts to support the current inflator recall. It appears that most automotive manufacturers are prioritizing the limited supply of replacement inflators to warm and humid regions, which has been identified as the most probable risk for failure and subsequent injury. Reports indicate that BMW, Ford and Mazda are limiting spare replacements to the few identified high-humidity southern U.S. states, Puerto Rico and the U.S. Virgin Islands. Indeed, NHTSA had issued guidelines supporting prioritization of replacement parts to these most at-risk regions, but automobile owners remain confused and frustrated as to what to do.  That continues to add more pressure to automobile dealers and their associated services businesses to be able to respond to consumer fears for driving an unsafe vehicle.  In our conversation with various people this week we have already heard stories from those impacted by recall or service campaign notices.

The colliding forces of regulatory, political, and automotive replacement spare parts networks continue and may well continue for many more months.

Bob Ferrari


Automotive Service Supply Chains Undergo Even More Stress

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In a published Supply Chain Matters commentary in June, Service Supply Chains Put to the Ultimate Stress Test in the Automotive Industry, we focused on General Motors, which Automotive Industry Airbag Inflator Product Recallafter intense scrutiny from U.S. regulators and legislators regarding faulty ignition switches among multiple models, had recalled thousands of vehicles. At that time, GM had announced a cumulative 44 product recalls involving nearly 18 million previously sold vehicles not only for faulty ignition switches but for various other lingering quality problems.

Other Automotive OEM’s have also found themselves under intense regulatory scrutiny, and many elected to err on the side of caution and declare product recalls if there were any concerns regarding vehicle or occupant safety. The result led to a Washington Post headline indicating that one out of every ten vehicles on the road had been subject to a recall notice. That amounts to a lot of motor vehicles.

Beyond the challenge of potential damage to brands and subsequent consumer brand loyalty, our primary concern in June was that automotive service and aftermarket supply chains were about to face their biggest stress test ever. The sheer numbers implied that required replacement part inventories were not going to be able to match expected demand and that inventory would have to be re-allocated or alternate suppliers would have to be sourced.  Dealers and authorized repair facilities had to be very careful in scheduling service appointments and setting customer expectations regarding replacement part availability and concerns for vehicle safety. 

Also included in our June commentary, was reference to reports that product recalls related to defective airbag inflators produced by supplier Takata Corp. were expected to increase after a series of investigations.

Flash forward to today, and now the sheer scope and impact of the unfolding product recalls involving defective Takata airbag inflators is approaching millions of additional vehicles and multiple other brands. U.S. regulatory agencies have raised alarms for the safety of occupants with calls for immediate attention.  Web sites are swapped with consumers seeking the status of their vehicles. Business and general media have not taken the time to get the facts sorted out regarding the largest concern being potential defective airbag inflators operating in warm and humid climates. Instead, consumers from across the U.S. are forced to seek answers and demand attention as to whether their vehicle is safe to operate.

By our lens, automotive aftermarket service and parts networks have now been literally thrown under the proverbial bus. 

It wasn’t their fault.

The events did not allow the planning for adequate replacement parts or analysis to the required capacity of service repair and replacement resources. The problem was thrown over the wall because quality monitoring mechanisms stalled and time had run out for planned response. Organizational interplays and CYA were probably at-play as well.

Already, OEM’s such as Toyota are trying to proactively respond to this defective air bag inflator crisis in the most realistic manner.  Reports indicate that Toyota dealers are being requested to disable the potential defective airbag mechanisms of recalled vehicles and instruct vehicle owners to return when replacement parts are made available.  They are doing so because of the reality of backlogged replacement parts which are substantial. In the meantime, temporary labels affixed on vehicles warn occupants of a safety hazard of not having operating airbags.

How comforting is that?

But, without adequate replacement part inventories, there are little options right now.

Service supply networks will invariably come-up with means to prioritize the most important and time sensitive parts requirements and then move on to the various other replacement part requirements to get through this crisis.

The takeaway from these ongoing unprecedented set of automotive industry product recall events is that if the business situation requires much more responsive, supply-chain wide  quality monitoring  mechanisms and more informed service and aftermarket spare parts networks, than provide the necessary tools and resources required to get the job done.

No doubt, there will be considerable repercussions and learning that come from these events. There will invariable be far more attention paid toward vehicle safety, regulatory safety and reporting and supply chain wide quality adherence.

In the meantime, as automotive consumers, we need to allow the time and patience for the dedicated professionals who plan and fulfill aftermarket parts and service event requirements to adequately respond to the crisis at-hand while more attention is directed toward more responsive quality management.

Bob Ferrari

© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.


More Negative Visibility to Product Recalls and One Supplier in Automotive Supply Chains

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In a June 2014 Supply Chain Matters commentary, Automotive Component Supply Strategy Meets Sensitized Regulatory Environment, we called attention to a published Reuters report indicating that product recalls involving airbags supplied by Japan based Takata Corp. would  expand and involve millions of affected motor vehicles and ensnarl many global brands.

That situation has become ever more visible in a multitude of cascading product recalls and urgent consumer advisories involving many auto brands from entry-level to upscale luxury.

Today, the National Highway Traffic Safety Administration (NHTSA) issued a high visibility consumer advisory, urging owners of over 4.7 million recalled vehicles to act immediately on recall notices and replace defective Takata airbags due to suspected defective air bag inflators.  Brands involve BMW, General Motors, Honda, Mazda and Nissan and the vehicle models date back as far as 2000-2001. While this advisory notes specific urgency for certain U.S. states and regions featuring warm, humid climates that fact seems to be blurred by the blast of Monday news from general media. The other reality is that many vehicle owners may have ignored previous recall notices which could jeopardize the safety of occupants.

Aftermarket service and spare part networks are already stressed by a surge of product recalls issued from an abundance of caution to avoid punitive financial fines. This latest high profile consumer warning related to certain airbag deflator defects will add more stress to overly stressed networks that lack the tools to handle such volumes.

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. 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.

Earlier this month, The Wall Street Journal featured a report (paid subscription or free metered view) indicating that Honda, after a long supplier relationship, is re-evaluating that arrangement with Takada in light of a series of airbag inflator product defects. Reports indicate that defective air bags, some dating back to the early 2000’s, could send metal shrapnel flying upon air bag inflation, posing serious injury risk to drivers and/or passengers. According to reports, Takada utilizes a different propellant than other suppliers, one that is cheaper but more volatile. Rival air bag suppliers that could benefit from the current crisis include Autoliv, DaicelKey Safety Systems and TRW Automotive Holdings, which is being acquired by German based ZF. The WSJ further reported that Toyota and Nissan are also concerned about Takata air bag systems in the light of the current circumstances. But, switching suppliers that support one or several global product platforms is somewhat more challenging from a timing perspective.

The WSJ report provides some in-depth perspective on how Takada has expanded its global just-in-time supplier footprint to accommodate individual OEM platform demand. The report alludes that the product quality problems may have stemmed from a period of rapid growth, testing communication and process discipline among far-flung regional plants. After two years of investigation, Honda and Takata joint quality teams discovered certain machine defects in a plant in Washington state and in process parameters in a Mexican plant. At times, poor record keeping hindered the ability to figure out which cars had defective inflators installed.

Whether Takada can recover from this ongoing and compounding product recall and branding crisis is certainly open to skepticism and speculation.  However, Supply Chain Matters feels that automotive OEM’s face their-own realities related to product development and global product platform cycles.  A global platform strategy supported by component supply agreements has to be balanced with supplier risk. Requiring suppliers to locate just-in-time production across far-flung global regions requires an assessment of rigid process control discipline and conformance. When such controls indicate cause for concern, two-way communication must be forthright and honest and procurement teams need to be proactive in assessing and communicating risk implications.

Today’s overly sensitized regulatory environment requires timely feedback and responsive risk mitigation.

The passenger safety, financial, and brand risks are far higher.

Bob Ferrari


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