Boeing has announced the results of new commercial aircraft delivered in the first quarter, declaring the deliveries rose 18 percent from year earlier results. That headline seems to be somewhat of a misnomer.
First quarter 2014 deliveries included 161 commercial aircraft compared with 137 in Q1 of 2013. The misnomer is that all operational and in production 787 aircraft were in a grounded condition a year ago pending FAA investigation of suspected lithium ion battery fires, thus a comparison to last year’s Q1 has little meaning. Boeing re-started 787 deliveries in early May of last year.
Boeing delivered 18 new 787’s in Q1, a shortfall of the company’s planned 10 aircraft per month goal. That compares to 25 new 787’s delivered in Q4 and a continued sign of production and other supply-chain problems associated with the Dreamliner. On the positive side, Boeing delivered an incredible 115 new Next Generation 737 aircraft in Q1.
Supply chain glitches or issues involving the 787 have been ongoing. In early March, there were reports that inspections were being conducted for suspected hairline cracks on 43 yet to be delivered Dreamliner’s because of potential flaws in a manufacturing process concerning supplier Mitsubishi Heavy Industries. In late March, the FAA issued its fourth airworthiness directive involving the 787-8 model, ordering an immediate fix to aircraft containing certain General Electric power plants where a suspected software glitch could cause the engine to lose thrust when close to landing. There have been other reports indicating that Boeing has experienced some difficulties in ramping-up overall production volumes at its Charleston South Carolina final assembly facility, prompting a hiring surge to augment the existing workforce there.
Currently operational 787’s with GE engines are cautioned not to fly through severe thunderstorms after reports of some ice build-up incidents. In early February there was a report that Boeing was continuing to pressure suppliers for cost concessions and one major supplier, Sprit Aero Systems reported significant pretax charges for the final three months of 2013, including $385 million directly related to work performed on the 787.
Boeing’s stated goal for 2014 is to deliver 110 long overdue Dreamliner’s to airline and leasing companies, roughly 27-28 per quarter. Q1 was obviously not what the 787 supply chain ecosystem wanted in performance and bar has risen for Q2 and the remainder of the year.
In an era of high customer expectations and pay for operational performance, Boeing needs to quickly shift its 787 supply chain objectives from cost control to achieving and maintaining reliable delivery and operational performance for airline customers.
A Supply Chain Matters Guest Posting
By: Mickey North Rizza, BravoSolution
Supply Chain Matters is thrilled to feature the following guest contribution from Mickey North Rizza, recently voted Top Female Supply Chain Executive 2013.
We’re almost through the first quarter of the year, can you believe how time flies? It seems like just yesterday we were making our new year’s resolutions and sifting through predictions of what 2014 would hold for us. I won’t ask about your commitment to the gym, but I did want to check-in on your resolutions for your procurement team.
Have you fallen back into your old habits? Maybe you’re like many of the procurement teams I work with, and you’re just not sure where to start. If so, here are three areas to focus on this year, which if done successfully, will bring about measurable improvements, move you up the maturity curve, and put you ahead of your competitors.
1. Work Hand-in-hand with CFO’s
On a scale of 1 to 10, how would you rank your business relationship with your company’s CFO? If it’s anything less than an 8, it’s time to take a step back and find out why.
According to a recent survey of CPOs and CFOs from Ernst and Young, 70 percent of CFOs say their relationship with CPOs has become more collaborative over the past three years. This alone demonstrates that finance teams see the financial impact that procurement can have, and that developing a strong tie between the two departments can only help. The same study also found that when a strong business partnership between the CFO and the supply chain leaders exists, companies report stronger alignment with the broader business strategy and improved supply chain visibility.
Often times this “stronger alignment” doesn’t come from a sudden increase in savings, or spend under management; rather it’s a matter of finding the best way to communicate success. As procurement works closer with finance, they become more familiar with financial metrics and see that they can measure themselves against the same KPIs.
Standardizing the language used across departments makes it easier for stakeholders to get a snapshot of the company’s health, as well as dig into how each department is contributing to the company success. Of course, it’s important to remember that it’s not just the language that you’re using – it’s also what you’re telling your stakeholders, and how to communicate its importance.
2. Place equal importance on savings and sales
Too often, procurement has a narrow focus on cost savings, creating a perception that they’re a back-office function doing a tactical role.
Of course, you and I know that is far from the truth. And even though cost savings will probably always be important – it’s becoming increasingly challenging, and requires more strategic thinking than ever. In fact, last year 60 percent of procurement teams delivered 10 percent or less in savings, according to a survey from the Institute for Supply Management. Delivering marginal savings is a major red flag and a trigger for procurement teams to reevaluate the effectiveness of what they’re doing and whether they’re in need for a change.
If you feel that it’s a lack of resources or other internal obstacles that are holding you back from realizing significant cost savings, I’d recommend developing a business case that demonstrates why savings are equally as important as sales. Look beyond the amount of money that you hope to save, and instead demonstrate how those savings will impact the business. For example, instead of just saying that with more resources you’d be able to save X amount on office supplies, explain how this money could be invested into other business initiatives like research and development or infrastructure improvements.
Once you’re confident that your organization is supporting your efforts, it’s time to look outward at your suppliers and see where there’s room for improvement.
3. Give control back to suppliers
Imagine if you had an industry expert at your disposal, who knew the technical aspects of your business and well as the larger initiatives that you were working towards. Now what if I told you that you already do?
There is a huge strategic opportunity available to you with each of your suppliers, and it all starts with the selection process. Rather than just going through the motions of an RFP, agreeing on a bid and contract requirements, ask them how they’d solve a problem that you’ve been facing. Doing so will provide you with more information than just product specs – it’ll tell you if they can be your partner.
Moving forward, invite your suppliers to join your planning meetings, introduce them to your R&D team and share with them the pressures that you’re facing. The suppliers that you’ll want to work with will vie to be your go-to resource. Why not let them?
Undergoing a transformation can be overwhelming and confusing. I hope that these three initiatives: developing a business relationship with your CFO, improving cost savings, and working strategically with your suppliers give you with the necessary framework for your most successful year yet.
About the Author:
Mickey North Rizza is the Vice President of Strategic Services at BravoSolution. She is a key member of BravoSolution assisting companies accelerate procurement performance, increasing strategic value contribution, driving more spend under management and increasing technology adoption. Mickey has over 25 years of senior-level procurement, sourcing and supply management experience.
In our Supply Chain Matters 2014 Predictions Research Report (full research report available for complimentary downloading in our Research Center) we specifically addressed consumer product goods supply chains where combinations of external forces are providing unique challenges. These forces include, among others, contraction of global growth rates and margins from previously expanding emerging markets, a certain group of activist investors demanding more cash value, and now, increases in key commodity costs.
While we have already provided a previous specific CPG supply chain commentary, an event held last week provided stronger evidence for additional thoughts.
One of the premiere events for consumer product goods companies is the Consumer Analyst Group of New York (CAGNY) Annual Conference, traditionally held in February. For those unfamiliar with CAGNY, it represents an organization of Wall Street analysts, investment bankers and others whose focus is specifically on CPG industry investment and performance. The conference which was held last week, is where a number of CPG senior executives provide a detailed business overview of their companies’ strategic goals.
Since 2008, Supply Chain Matters has utilized the content presented at this conference as reliable indicators for the upcoming challenges for CPG supply chains, and this year was no exception.
Thus far, we have reviewed presentations from Campbell Soup, Mondelez International, The Hershey Company and PepsiCo. We elected this initial grouping because these firms are exercising product growth strategies predicated on higher growth and margin businesses such as snacks, and because this grouping represents differences of corporate size, culture, as well as different perspectives, positive or otherwise, on supply chain challenges, capabilities or accomplishments.
Our initial analysis was to screen for common messaging regarding industry challenges and required business outcomes. That was not difficult, at all.
Mondelez, which has its sole business focus on a global snacks business, addressed the potential of a $1.2 trillion global snacks market, yet has experienced some realities of declining growth rates among snack categories in 2013. Hershey, a company that traditionally has been grounded in North American markets addressed a growth plank indicating that geographic expansion will be the key to growth and become Hershey’s #2 market by 2017. Campbell Soup, a company demonstrating positive results of late, stated its goals as growing faster in snacks and healthy beverages and expanding international presence.
As each CFO addressed his or her company’s segment it was clear that current signs of slowing growth among emerging markets has placed a pointed emphasis on improved operating margin and cost savings. Once more, such savings are to be re-purposed into product innovation, acquisition and/or increased sales and marketing initiatives to accelerate consumer demand. A clear common message was increasing stockholder value and operating cash flow, the obvious response to activist investors circling the industry. As examples: Mondelez expects to deliver an additional $3 billion in gross productivity savings, $1.5 billion in net productivity, and $1 billion in incremental cash; Campbell Soup stated its restructuring programs have yielded $160 million in annualized savings.
That leads to the stated priorities for each company’s supply chain.
Mondelez addressed four current supply chain priorities:
- Step change in leadership talent and capabilities, articulated as changing 40 of 115 key leadership roles;
- Transform global manufacturing platforms with an emphasis on new biscuit, chocolate and gum platforms across a global presence;
- Redesign the supply chain network- with 30 plants already “streamlined”, closed or sold and 3000 FTE’s reduced; and
- Drive additional productivity and margin improvement programs to fuel growth.
Hershey, which has demonstrated positive supply chain successes to-date, addressed its supply chain goals as:
- End-to-end supplier integration focused on increased on-shelf availability, improved freshness, and localized regional production;
- Strategic procurement partnerships for product innovation, sustainability and cost control;
- Insights-driven supply and value-chain stressing deeper analytics; and
- Global shared-services
Campbell Soup and Pepsico similarly articulate expansion of on-shelf availability, innovative direct-store delivery programs, leveraging direct online commerce and expansion in faster growing markets as supply chain priorities.
We highlight CPG industry challenges because our industry readers need to quickly internalize the implications, both for their organizations and for their careers.
CPG supply chains have always been driven by sales and marketing, along with efficiency and responsiveness. That is not, obviously, going to change. What is changing is the need for bolder leadership skills which is now articulated by talent management being ranked as a top goal. There are many implications to talent management, too many to articulate in this singular commentary. Suffice to state, it implies a far broader set of management skills that span international business markets, translating required business outcomes for margin improvement into prioritized strategies, and in-depth understanding of what is required to be both market and business outcomes driven.
Emerging CPG supply chain leaders will require more depth in the tradeoffs of incremental business process improvement with cost-conscious information technology investments that enable the best end-to-end network response capabilities grounded in more predictive insights as to what to expect. They will now have to manage with less fixed capital and resources, with no choice but to have more reliance on partners and suppliers, including third-party logistics providers. That unfortunately, will lead to the dynamic of passing more cost and risk burden lower into the supply chain. We maintain that this will require total visibility to what’s occurring across the global supply chain, and that implies an end-to-end B2B platform integrating suppliers, contractors, trading partners and other key value-chain participants.
The notions of striving for product forecasting accuracy, driving incremental improvements in business performance based on historic metrics, or elongating timetables for achieving certain levels of supply chain maturity no longer make the cut, and are a relic of the past.
We, as thought leaders and/or consultants, need to stop feeding these fallacies and deliver more straight talk on what skills and competencies supply chain leaders, and their teams, need to be more successful in their efforts, keep teams motivated as well as enjoy coming to work every day. Technology vendors need to stop the endless re-purposing of supply chain visibility or competency acronyms and get to the essence of supporting CPG supply chains with more cost-effective and responsive solutions to immediate needs.
Finally, CPG firms themselves in need to quickly come to the realization that the supply chain leaders and individuals they require, today and in the future are indeed scarce, and be willing to recognize such leadership and technology savvy skills in compensation, incentives and management development and mentoring opportunities.
Throughout 2014, Supply Chain Matters will do our part in hard-hitting straight-talk commentary.
© 2014, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog, All rights reserved.
In late August of 2011, three of Japan’s liquid crystal display (LCD) component producers, Sony Corporation, Toshiba Corporation and Hitachi Ltd. merged their, at the time, money-losing LCD manufacturing operations to form a single company that was named Japan Display. Each of the former suppliers could not financially afford to continue to compete with the likes of other industry competitors such as Samsung Electronics and Sharp Corp., who were major suppliers to Apple and some other consumer electronics OEM’s. This new venture was financed primarily by $2.6 billion in funding by The Innovation Network of Japan, a government backed agency with strong industry influences. Each of the merging companies was reported to hold 10 percent ownership in the new venture while the government agency held 70 percent ownership. The goal at the time was to position Japan Display and its technology in strategic markets related to small and mid-sized LCD displays, and to have the new company operating as an independent entity by early 2016.
This week, Japan Display announced its intent to raise upwards of $4 billion in an initial public stock offering (IPO) which the Wall Street Journal characterized (paid subscription) as the largest IPO from Asia this year. The WSJ further noted that if successful, it would represent a rare turnaround for Japan’s manufacturing industry. The report indicates that Japan Display currently supplies LCD displays for Apple’s iPhone 5S and iPhone 5C and its customer list now includes other top Asian and U.S. smartphone makers. The supplier has been skillful in improving the overall energy efficiencies of its LCD products while integrating touch sensors directly into the display, eliminating the need for a separate touch screen layer. Japan Display also appears on Apple’s 2013 listing of its top suppliers, and according to the WSJ report, garners up to a third of its current revenues from supply agreements with Apple.
While Japan Display made a small profit for its fiscal year ending in March 2013, it has not indicated to business media what its profit figures are for the current fiscal year. That information should presumably come with the IPO disclosures.
Reports indicate that $1.7 billion of the IPO proceeds will be utilized to enhance production capacity and develop new technologies. The remaining proceeds will be directed at current investing shareholders who will be unloading their stakes
With this announcement, it would appear that the timetable for Japan Display to become an independent operating company may be accelerating. Then again, with current favorable basis of Japan’s currency, the IPO may have more to do with opportunistic timing.
In either case, this IPO marks a significant positive milestone in resurrecting previous un-competitive LCD suppliers in Japan into a singular entity that is now holding its own. It represents another positive indicator that industry and government came come together to resurrect a supply eco-system, similar to what has occurred in Europe and the U.S.. It provides a reference model for other suppliers and supply ecosystems as well.
Consumer electronics leader Apple has released its 2014 Supplier Responsibility Report with declarations of better working conditions and tougher standards for those suppliers fortunate to be a part of Apple’s value-chain and supply eco-system. This year’s report is the eighth since annual reporting was initiated by Apple, and by our lens, continues to provide industry leadership and transparency in areas that require continuous industry attention.
Noted highlights of the 2014 report include:
- Increased efforts directed at social responsibility practices by publically releasing for the first time, more than 100 pages of declared Social Responsibility Standards.
- The education and training of 1.5 million people on their worker rights, and the weekly tracking of hours worked for over one million workers. Apple indicates that its suppliers have achieved 95 percent compliance with adherence to a standard maximum of no more than a 60-hour work week and with workers voluntarily agreeing to work such hours.
- A 51 percent increase in supplier audits at all levels of the supply chain amounting to 451 audits in 2013, averaging more than one per day.
- Continuing to seek out abuses of migrant workers by conducted 33 specific audits requiring certain suppliers to reimburse foreign workers $3.9 million in excessive fees paid to labor brokers.
- Enrolling 240 supplier participants in an Environmental Health and Safety (EHS) Academy covering 270,000 workers across China and other geographic regions.
- A declaration that as of January 2014, all active, identified tantalum material smelters in the Apple supply chain were verified as utilizing conflict-free materials.
In numerous previous Supply Chain Matters commentaries, we have both praised and taken Apple to task for certain social responsibility practices across its supply chain. The latest was the introduction of newest contract manufacturer Pegatron and the unexplained deaths of alleged underage workers.
We all know that Apple has experienced its share of incidents and unsavory practices among its supplier base. Being chosen or remaining to be a supplier to Apple comes with significant rewards in terms of volume scale and revenue potential. Apple extracts performance and scale capabilities that can tax suppliers and provide motivations to turn a blind eye to certain responsible labor practices.
However, we continue to praise the company for its continued efforts in openly sharing its declared Supplier Responsibity Standards along with taking a visible industry lead in providing education, support programs and enforced supplier accountability. Not all consumer electronics manufacturers follow such standards and that is not good. We were especially impressed with Apple’s approach to Environmental Health and Safety efforts across China, namely identifying a critical shortage of people trained to understand global standards, and establishing a formal 18 month training program to help increase qualified experts in EHS within the region, a program upon which the entire industry benefits.
High tech and consumer electronics manufacturers know all too well about the challenges and pitfalls of low-cost, high volume manufacturing environments that exist across China and other lower-cost regions. While industry associations and collaborations exist on paper, they do not seem to have the open leadership and teeth that Apple continues to demonstrate. If they do, we certainly want to be educated.
More progress is will obviously be required and other high tech and consumer electronics providers need to step-up and demonstrate their open and transparent efforts directed at social responsibility practices.
This week will feature some noteworthy announcements in the supply chain and B2B network technology arena.
We begin with today’s announcement that Elementum, which describes itself as the first mobile platform for end-to-end supply chain management, formally announced its market launch after 18 months in stealth mode as well as securing $44 million in Series B funding from Lightspeed Ventures.. The actual genesis of this B2B network comes from global contract manufacturer Flextronics, also an investor as well as a primary user. Flextronics has been utilizing the Elementum platform to plan and coordinate aspects of its own global supply chain and is now extending both the platform and the established network connections to other potential customers, including consumer products producer Dyson, also noted as a current customer.
The company’s marketing tag line is: Supply chain made simple, which is perhaps a bit too simplistic in message. It is great for marketing purposes but many of our readers are acutely aware that managing today’s global supply chains is not at all simple.
Supply Chain Matters was briefed on the cloud-based platform and technology stack incorporated within Elementum in early December. The rather interesting aspect is the network’s data management, end user experience and security model. It is described as rather similar to Facebook and Linked-In and indeed that is what we observed. It offers intuitive software primarily targeted at mobile based users providing action-oriented coordination based on evolving events. For our IT based readers, this multi-tenant platform is anchored in massively scalable data management techniques, REST-based API’s and Hardoop data extraction and synthesis. The technology embraces a graph-like network data model providing synthesis and visibility to information associated to activities occurring across the supply chain. It includes both structured and unstructured information sources.
The Elementum marketing team has commissioned a slick You Tube video to demonstrate its mobile-based functionality
Initially available are three applications that are named Perspective, Exposure and Transport.
Perspective is an executive dashboard like mobile based application that helps to monitor and respond to supply chain key performance indicators including supplier performance, cycle times, working capital and some others. In our briefing we were informed that Tom Linton, Chief procurement and Supply Chain Officer at Flextronics is a current mobile user of this particular application. The Exposure app provides real-time monitoring of risk management through an event monitoring center. If an event has significant impact on a particular supply site, the app alerts to that site through calculation of bill of material supply links. The Transport app provides visibility to existing distribution and transport movements and provides predictive alerts to potential late shipments.
Flextronics is not a new comer in the area of software spinoffs. Does anyone remember SimFlex Group a supply chain planning and optimization provider spin-off many years ago along with other B2B supplier management offerings?
On the one hand, prospective customers get the intellectual where with all and experience of a globally-based contract manufacturer with a massive supply base satisfying multiple OEM customers needs. On the other, it is a Flextronics based perspective grounded in high tech and consumer electronics supply chain ecosystem practices.
There are other cloud-based offerings available in today’s B2B connectivity, direct and indirect procurement technology market. Some emphasize supplier management, procurement, deep supply chain planning, B2B messaging or transportation and execution fulfillment. This whole area remains in a state of change with broadening technology footprints and ongoing M&A activity. Our view is that at some point, one or a few of these networks will be closest to enabling true supply chain control tower management capabilities.
In the meantime, $40 million in funding coupled with the best in talent can lead to some interesting potentials down the road, not to mention another B2B network player for consideration.