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

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

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

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

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

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

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

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

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

The Learnings- If Any

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

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

Bob Ferrari

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

 


A Path Towards Internet of Things Enabled Service Management- Service Parts Planning Realities

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This blog posting represents the second of a four-part market education series, in collaboration with supply chain planning and service parts technology provider ToolsGroup.

 In our initial posting in this series, we declared that one of the most promising line-of-business areas that will benefit from Internet of Things (IoT) enabled technologies applied to supply chain management will be equipment services management, especially service and spare parts management.  Planning 3 shutterstock 394279114 300x184 A Path Towards Internet of Things Enabled Service Management  Service Parts Planning Realities

A longstanding challenge in service or replenishment parts planning and management has always been the ability to forecast item-level demand when such demand is sporadic or sudden.  Now consider the opportunities to have demand-driven or predictive failure data and information emanating directly from the physical equipment.

But with any major business transformation, there are always foundational capabilities that come first. In the specific area of IoT enabled equipment and services management, a foundational capability is usually the need for a robust, responsive, and analytically-driven service parts planning (SPP) capability.

Yet an unfortunate reality is that many manufacturing and services organizations with lower levels of process maturity have not recognized the differing process and decision-making needs required for responsive and effective SPP.  Considering a leap to an IoT enabled service management business model will likely expose this weakness.

 

What Makes Service Parts Planning Different?

Three fundamental differences often found in SPP are the following:

  • Contracted service levels and customer contracts determine the overall parts distribution and required service response network. When there is either equipment downtime, caused by a failing part, or when equipment consumables are suddenly out-of-stock, equipment is no longer generating value for end-customers. There is very little tolerance for inventory back-orders since non-performing equipment results in downtime costs that can far outweigh the cost of the replacement part.

 

  • Service parts component demand is often manifested in intermittent or lumpy demand signals, caused by actual equipment operational conditions or changes in operating environment. That means planning in an environment of long-tail demand, parts that exhibit larger numbers of variability, lumpy or seasonality focused demand patterns. Traditional forecasting or demand planning techniques are often ineffective in planning parts demand in such environments. That’s because SPP is far more concentrated in individual item-level planning as contrasted to product family or aggregated planning techniques. SPP planning models feature higher stock keeping unit (SKU) counts and associated long-tail demand planning computations than traditional supply chain planning models. Algorithms that capture actual parts demand, or plan for future demand need to be far more sophisticated in item level and shipping location mathematical modeling.

 

  • Service parts networks require the need for multi-echelon and multi-tiered inventory stocking strategies tied to more predictive parts demand. Long-tail demand can be best managed by planning that factors item level and shipping location simultaneously. SPP must therefore be able to effectively manage and optimize inventory within such multi-echelon stocking environments.

 

A Path to the Future

Three to five years from today, even more equipment will be acquired by “services by the hour” payment methods, saving on front-end capital equipment costs for equipment operators. Physical objects such as complex equipment, engines, motor vehicles and other forms of equipment will be communicating operational performance and service needs via IoT enabled data and information flows. For equipment manufacturers, the opportunities are new lines-of-business and incremental multi-year top-line revenues flowing from such models.

The good news for IoT enabled service management processes is that the equipment itself can provide more proactive or prescriptive indications of when a part is scheduled to fail, as well as actual maintenance data related to parts failure. Such capabilities will provide added intelligence and more accurate parts demand information that will provide additional service uptime and operational cost savings for customers and service parts providers. In addition, the ability to link the physical equipment and operational data related to equipment with a robust SPP environment adds important benefits in the ability to capture and plan more accurate, and more predictive information related to service parts or consumable parts needs and requirements across a service management network.

However, the savviest businesses recognize that the end-goal is not IoT per-se, but in building the foundational people, process and technology capabilities that can best leverage the digitization of supply chain management and decision-making processes. An IoT front end isn’t much good without an equally responsive back end planning system.

Businesses that recognized the critical differences in more effective service parts management and made the initial foundational investment in more responsive SPP process capabilities will be far better positioned to harvest the benefits of smarter and more efficient network wide inventory levels, more timely decision-making and most important of all, more responsive service and satisfaction levels for equipment customers.

 

Bob Ferrari

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

 


Market Education Series- A Path Towards Internet of Things Enabled Service Management

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Supply Chain Matters kicks-off the first of a new market education series- A Path Towards Internet of Things Enabled Service Management, in collaboration with supply chain planning and service parts technology provider ToolsGroup.

This supply chain industry analyst is not alone in communicating the long-term implications and benefits of Internet of Things (IoT) technologies applied to multi-industry supply chain business processes.

When I speak to audiences on the future of industry supply chain capabilities, I often context that in over my 30 years of experiences and observations, what I always considered to be the “holy-grail” of our profession was the ability to connect the physical and digital components of various supply chain business processes. That vision is becoming much more of a reality as supply chain teams begin to leverage IoT data and information into planning and customer fulfillment decision-making. From my view, that reality is not the far away.  Planning 3 shutterstock 394279114 300x184 Market Education Series  A Path Towards Internet of Things Enabled Service Management

One of the most promising line-of-business areas that will benefit from IoT enabled technologies applied to supply chain will be equipment services management, especially service and spare parts management. Consider the possibilities when physical objects such as engines, motor vehicles, capital, and other forms of equipment, proactively communicate needs for required maintenance services, replenishment, or repair parts.

Consider the possibilities of far more knowledgeable insights into item-level service or spare parts product demand, more efficient and less costly multi-tier service echelon inventory management, and a more responsive services management process for your customers. A longstanding challenge in service or replenishment parts planning and management has always been the ability to forecast item-level demand when such demand is sporadic or sudden.  Now consider the opportunities to have demand-driven or predictive failure data and information emanating directly from the physical equipment.

Three to five years from today, equipment manufacturers will be communicating to investors about many of these new top-line revenue business growth areas where physical and digital interact in a more predictive service management business capability. Such capabilities insure maximum uptime for customers, supported with a super-efficient supply chain planning and resource management capability connects the physical with the digital.

This is all very possible. However, with any solid business model, there are requirements for foundational process and decision-making capabilities.  If your business or enterprise is considering such business models, now is the time to consider investments in fundamental decision-making support capabilities that can best take advantage of the implications of physical and digital coming together.

We submit one of the most fundamental investments to consider is that of a robust service parts planning and fulfillment process that leverages today’s more advanced capabilities of in-memory computing, machine learning and analytics to support automated decision-making and resource balancing. IoT married to machine learning and more predictive analytics pays near-term dividends for current service management processes as well as future, more robust business models.

In our four-part Supply Chain Matters market education series, A Path Towards Internet of Things Enabled Service Management, in collaboration with supply chain planning and service parts technology provider ToolsGroup, we will help readers to understand and be able to articulate the following:

  • The current state of service and spare parts planning processes and why tailored service parts planning capabilities so different than other forms of supply chain planning? Why is it increasingly becoming fundamental to any service management process and why are so many equipment manufacturers currently investing in this capability?
  • How does a robust service parts planning capability play a foundational role in an Internet of Things (IoT) enabled environment? How does such capabilities, augmented by new advanced technologies, enhancing the effectiveness of an overall IoT integrated process?
  • What are the overall benefits for customers and to the business, and what are some current-day examples? How is this best articulated to the C-Suite? Why equipment manufacturers and services providers are already on this path?

Join us over the coming weeks as we dive deeper into each of these topical areas reflecting on how to build the foundations for both a robust, more efficient, and less costly service parts planning capability as well as laying the critical foundation for new IoT enabled service management business models.

Bob Ferrari

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

 


Supply Chain Matters Highlights of Connected Things 2017 Conference

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This supply chain management industry analyst recently had the opportunity to attend the Connected Things 2017- Accelerating the Adoption & impact of IoT for People, Places & Things conference, sponsored by the MIT Enterprise Forum of Cambridge.  This Supply Chain Matters posting shares key highlights, observations, and insights this author gained from the various sessions.

This was a one-day conference designed to exchange the latest thought leadership and information exchange regarding the current state of Internet of Things (IoT) technology strategy and deployment. The conference, as noted in the dedicated conference web page, included a format of keynote presentations from senior technology executives and market influencers along with seven different panel discussions directed at key IoT challenges and topics. MIT Connect Things 2017 2 300x169 Supply Chain Matters Highlights of Connected Things 2017 Conference

From this author’s lens, the content was outstanding and very timely, and brought forward consistent themes related to this growing area of technology interest. Judging from the overflow crowd of conference attendees traveling from different regions and just before a forecasted major snowstorm across the New England region, IoT is obviously a top-of-mind topic within many an industry setting, including industry supply chains.

The opening keynote delivered by Harel Kodesh, Vice President, Predix and CTO, GE Digital provided a very timely context for how a manufacturing company such as General Electric is aggressively moving toward a journey to be an Industrial Internet and digital transformation company. This blog has provided several prior commentaries related to GE Digital and its development and rollout of the Predix operating system, and Kadesh’s keynote brought this all together. As an example, GE declares that it will have upwards of 68,000 of its jet engines and 10,000 turbines connected by Predix in three years. Another GE Digital initiative looks to railway locomotives serving as a “data center on wheels” in areas of data sharing not only on equipment and train operation but on the sensing and reporting of rail right of way data, such as the condition of agricultural farms and fields. An important key message reinforced by GE is that upwards of up to 40 percent of operational performance data generated by equipment is spurious, subject to cleansing or deletion. That reinforces the need for the Edge level, or as GE refers to the Digital Twin system, to serve as an actual data rationalization compute mode. We view this as a very important consideration for any form of supply chain or service management focused IoT digital transformation initiative.

The keynote from David Friend, CEO of BlueArchive, and former founder of Cloud storage provider Carbonite, provided clear reinforcement that Cloud based data storage will indeed transform to a utility model in the not too distance future. The current impediment is a generally accepted standard data exchange API for IoT driven processes to integrate with.  Friend’s remarks further reinforced the need for operational data cleansing at the Edge layer, along with today’s overriding concerns for increased data security standards as well as increased data speeds across all the levels involved in an IoT deployment. As an example, Carbonite today manages 500 million storage requests daily.

SAP executive Alan Southall, Vice President and Head of SAP IoT Predictive Maintenance, reinforced that engineers currently do not trust raw data emanating from an asset, and that SAP recently launched SAP Leonardo to be an IoT platform data management system to manage and mitigate semantic data flows from the physical asset to actual business applications. (This analyst recently received an SAP briefing regarding SAP Leonardo design and capabilities) SAP is further working with pilot customers on areas such as machine learning, as well as automated analytics. Southhall also reinforced the message that Edge systems require military grade data security.

We managed to sit-in on three separate panel discussions including one focused on IoT Analytics, Industry 4.0 impacts on legacy industries and the all-important, physical, and cyber security viewpoints.

Regarding an IoT analytics framework, we sensed a consensus viewpoint outlining a tiered analytics strategy, with smart assets and connected devices managing local processing and Cloud-based platforms serving as additional data aggregators and insights engine at high levels of more predictive event context. Regarding the long-term impact of analytics, panelists concurred that industry transitions are already underway but additional challenges need to be addressed in how to better automate data consolidation and aggregation, and yes, the need for more comprehensive network-wide data security practices and standards. Noted was that a lot of industry development right now is focused on Edge systems, namely decisions needing to be made at the machine or manufacturing layer, an initial step in helping organizations to be prepared for later enterprise-wide, IoT digital transformation efforts. A reality remains that most machine-level data resides in industrial environments primarily protected behind-the-firewall.

We were very pleased to hear one panelist declare: “Don’t give me more data- give me smarter data.”

One other theme expressed on this blog in multiple prior commentaries, is the belief that, like other data-focused technology automation transformations of the past such as RFID adoption, ultimate ownership of data remains a big challenge yet to be sorted out. For instance, original equipment manufacturers or digital services providers are positioning strategies based on aggregation and ownership of equipment data for business process management or digital transformation business model needs, while data generators of the equipment declare that actual customers already own such data.  One example mentioned by a panelist is within agriculture settings, where seed providers have been collecting vast amounts of data to provide managed services related to crop yields, while not making such data available to the same specific farms without a bundled service.  In our blog commentaries, we have portended similar conflicts yet to play out in industries such as commercial aircraft, where airlines will claim ownership of their own operational performance data.  Obviously, a period of transition and sorting out must evolve.

Again, this was a beneficial and informative conference addressing a transformative but still young technology with more iterations to come.  Conferences such as these helps in cutting through some of the hype, focusing on key challenges and needs, while providing learning from those in multiple roles of moving such transformation forward.

Bob Ferrari

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


Boeing Appoints New Senior Executive for Commercial Aircraft Group

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Boeing made a senior management change this week, recruiting a General Electric Aviation Services executive to be the new head of the Commercial Aircraft division. This executive move, which is effective immediately,  likely has manufacturing, supply chain and services management implications from two perspectives.

Kevin McAllister previously served as the head of GE’s Aviation Services business unit which is the customer support arm of the aircraft engine unit. Thus, McAllister brings an aftermarket services perspective. His background is one of design engineering, having served in roles of engine component development and services sales.

According to statements from Boeing CEO Dennis Muilenberg, the aerospace manufacturer sought an executive with “fresh ideas” to lead in efforts to triple services related revenue over the next decade. In conjunction with this executive change, Boeing further indicated that it plans to centralize management of the service businesses related to defense and space operations as well as commercial aircraft.

Supply Chain Matters believes that the above moves signify intent by Boeing to expand revenue and profitability growth across managed services and such efforts will likely include leveraging of Internet of Things (IoT) and connected devices as technology underpinnings of such efforts.  Boeing had previously announced its intent to leverage more revenues from service parts which decreases revenue opportunities from certain suppliers.

As the new head of Commercial Aircraft, McAllister will oversee all of Boeing’s manufacturing and internal supply chain resources. He represents the first outsider hired for a senior management position since 2005 when former GE executive Jim McNerney was recruited to be CEO. We believe that his prior background in product engineering, services and manufacturing will surely help in the continuing challenge to ramp-up Boeing’s existing aircraft production cadence to meet backlogged product demand. Boeing previously

According to a report published by the Seattle Times, during his tenure, former Commercial Aircraft CEO Ray Connor had precipitated a sharply negative turn in Boeing’s relationships with its various labor unions. Much of this animosity came during plans to source manufacturing and supply chain related strategies for Boeing’s next generation 777X aircraft. In a January 2014 blog commentary, we had highlighted the effects of Boeing’s strong-willed collaboration efforts with the State of Washington, with prospective suppliers, and with Boeing’s labor unions. Other sour relations remain in the shared manufacturing responsibilities for the 787 Dreamliner aircraft among Seattle based, unionized manufacturing workers and predominate non-unionized workforce at its Charleston South Carolina production facility. Mr. McAllister must now direct some of his leadership efforts at addressing these sore areas.

The announcement of this new external executive hire comes after a corporate supply chain management announcement in March. Pat Shanahan, the former head of Commercial Airplane Programs was appointed as Senior Vice President for Supply Chain Management and Operations companywide.  According to that announcement, Shanahan was provided direct responsibility for oversight of manufacturing operations and supplier management functions, including implementation of advanced manufacturing technologies and global supply chain strategies.  At the time of his appointment, Shanahan reported directly to Boeing CEO Dennis Muilenburg. There will obviously be some shared collaboration and leadership with both McAllister and Shanahan moving forward.

Bob Ferrari

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

 

 


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