When a report directly impacting supply chain strategy is featured as a front page article in The Wall Street Journal, we are certainly going to bring it to Supply Chain Matters reader attention. When that report correlates with other related reports, namely supplier squeeze or bullying tactics, rest assured we will bring it to greater industry supply chain visibility.
We have previously featured reports of supplier bullying strategies involving certain consumer product goods supply chains, and quite recently, supplier squeeze tactics among certain commercial aerospace supply chains.
Today’s WSJ report (paid subscription or free metered view) indicates that last month, Wal-Mart began an effort to place increasing pressure on its North America based suppliers to cut the cost of their products. According to the report, the retailer is telling suppliers involved in a wide range of purchased categories to forgo any additional investments in joint marketing and focus the savings on lower prices to Wal-Mart. Apparently new executive leadership is embracing the concept of supplier squeeze in order to lower existing prices at retail stores. Wal-Mart recently raised salaries for store associates which have added a new cost burden. Further reported is that this effort has already caused renewed supplier tensions among suppliers who are already attuned to the retailer’s relentless focus on inbound cost. The new tensions for suppliers are that they potentially have less control on the way their individual branded products are marketed to Wal-Mart consumers.
This new WSJ report revisits a previous report of Wal-Mart’s current dealings with well- known consumer products goods provider Procter & Gamble and its cash cow product, Tide laundry detergent. The retailer recently began merchandising Henkel’s Persil laundry detergent directly aside of Tide in a move that the WSJ now clearly declares was an attempt to pressure P&G to lower the price of its market-leading laundry detergent.
Yesterday, Amazon released the news of a Dash Button, a physical version of its 1-click ordering. An Amazon Prime member sets up the device to correspond to a certain product and places the physical device in a convenient place (perhaps inside the cupboard or cabinet where household products are stored). When the supply runs low, the user can press the button to order more of that product, which directly communicates with Amazon via a Wi-Fi connection. It is literally an electronic Kanban replenishment system in a B2C setting. A total of 255 products from 18 brands are reported as being available through the Dash Button program and surprise-surprise, P&G and its Tide detergent is noted as a participant. That may well be another motivation for Wal-Mart to place direct pressure on its most longstanding and loyal supplier partner. This is also not the first time that P&G and Wal-Mart have openly sparred over P&G’s collaborative efforts with Amazon.
As survey methodology often depicts, a single data point is an observation, a second similar data point is of interest and a third data point within a short period of time is the early indication of a building trend.
Supplier squeeze tactics are often prevalent in times of significant economic stress when preservation of cash is a critical corporate objective. Industry supply chains experienced many forms of such tactics during the great recession that began in 2008-2009 and some suppliers actually succumbed to bankruptcy as a result. Today, global supply chain activity and output as manifested in the J.P. Morgan Global Manufacturing PMI Index has recorded 27 months of consecutive expansion. Thus, motivations for current supplier squeeze tactics have taken on different motivation, perhaps more related to short-term Wall Street and consequent stockholder expectations. In any case, it is by our lens, a concerning trend with the potential to provide setbacks to efforts towards deeper collaboration and/or partnerships with suppliers. Consider that Wal-Mart has embarked on a multi-billion dollar initiative to influence suppliers to source more products within the United States. Wal-Mart gives, and then takes-away.
A short-term business outcomes perspective can permeate across the many levels of the value-chain and procurement teams and financial senior executives need to be reminded of the consequences for longer term supplier partnerships directed at product, process and customer fulfillment innovation. Focus on the P&G dynamics with Wal-Mart, both rather savvy and determined business partners who have experience in good and not so good times, and in the savvy of push-back. Many suppliers, particularly smaller scope suppliers do not have the leverage of a P&G, and thus, there resides the current risks in supplier management.
© 2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters® blog. All rights reserved.
Supply Chain Matters has featured significant prior commentary focused on aerospace and commercial aircraft focused supply chains. A lot of our focus was on the OEM tier, namely global producers Airbus and Boeing, along with mid-tier OEM’s such as Bombardier, Embraer and CMAC. While we have featured commentary or highlighted developments on various larger-scale suppliers, candidly, we should have provided more in-depth perspectives of various other tiered suppliers.
What has prompted us to this candid conclusion was last week’s published Seattle Times article, Low Wages for Aerospace Workers Despite Tax Breaks for Employers. After analysis of Washington state data, the Seattle Times reports: “In 2013, outside of Boeing, a third of production workers at local aerospace parts manufacturers- companies that get tax breaks intended to preserve good jobs in the state- earned between $10 and $15 per hour.” That level, equivalent to $31,200 annually, represents the minimum wage level for Seattle. Once more, the report reminds readers that aerospace companies in the state of Washington are entitled to a 40 percent reduction in taxes on corporate revenues for the intention of “providing jobs with good wages and benefits.”
The report describes what is termed the “Boeing squeeze”, that being constant pressure to reduce the cost of component parts. A spokesperson of the Pacific Northwest Aerospace Alliance (PNAA), a trade group of local suppliers indicated to the Times that passing higher wage costs up the line “would encourage Boeing to take the work elsewhere.” Once more, suppliers seem divided on dealing with such a situation, with some indicating that the skills and education required for such production jobs do not warrant higher pay. This report highlights specific conditions and/or examples (pro and con) among local suppliers:
Aviation Technical Services (ATS)
Carlisle Interconnect Technologies (CIT)
Zodiac Cabin & Structures Support
In previous Supply Chain Matters commentaries we have highlighted reports of industry supplier bullying. While many would like to believe that certain supply chains have moved away moved away from squeezing the cost-reduction burden down the value-chain, these types of reports continue to indicate that such practices linger. Once more, having participants within a multi-billion dollar industry in the enviable position of having in-demand and technology innovative products resulting in upwards of ten years of unfulfilled customer orders would continue to practice squeeze tactics on suppliers would seem to indicate that supplier partnerships and collaboration remain a one-way lens. Why are so many production workers being asked to live and raise families on a minimum wage?
Shame on us for not paying closer attention to developments within all of the tiers of aerospace supply chains. We will do our part to change that including reaching out and researching more mid-market suppliers.
We however would suggest that the large OEM’s would take a similar perspective and examine how supplier practices impact the entire value chain, particularly those involving and setting a role model for social responsibility.
In January of 2013, during the National Retail Federation’s annual conference held in New York, Wal-Mart made a significant and noteworthy announcement. Bill Simon, the former head of Wal-Mart’s U.S. group announced plans to buy an additional $50 billion in U.S. sourced products over the next ten years.
Since that time, Wal-Mart has continued on a broad strategy to encourage its existing or new suppliers to source more products within the United States. The retailer also broadened its monetary commitment. Such efforts have included hosting open supplier summits where suppliers can learn from one another while pitching new product ideas to Wal-Mart buyers.
Last week, Chain Store Age featured a posting indicating that this global retailer is now in the process of planning for another supplier event to be held in early July. In the report, Cindi Marsiglio, Vice-President of U.S. manufacturing indicated before a meeting of targeted suppliers: “Second to price, customers care where their products come from. Our customers want to buy products closest to their communities.” Categories being singled out include baby and infants, food and consumables as well as pet care.
The Wal-Mart U.S. Manufacturing event is currently planned for July 7-8 in Bentonville Arkansas. Event details are still being worked out with registration expected to be opened in April. More information can be garnered at the following Wal-Mart web link.
Supply Chain Matters continues to applaud Wal-Mart for both its large monetary commitment and far-reaching efforts to promote further sourcing of U.S. manufactured products. We urge current or perspective U.S. suppliers to take advantage of such a program.
Last week. The Wall Street Journal reported that there is: “a war bubbling up in laundry aisles of Wal-Mart” (paid subscription of free metered view), and it involves two global giants in the consumer product and household goods area, namely Procter & Gamble and Henkel and their respective premium-priced laundry detergent branded products. This story is yet another example of how Wal-Mart can leverage the power of any supplier, even one with a long-lasting and presumed highly collaborative relationship.
Wal-Mart recently decided to stock and feature Henkel’s Persil laundry detergent along-side the iconic Tide branded detergent. According to the report, Tide currently accounts for 60 percent of all U.S. sales of laundry detergent along with an estimated 85 percent of the profits. The brand received a prior sales boost with the introduction of Tide Pods in 2012, but that came after an uncharacteristic and visible supply stumble involving the product’s initial introduction.
Persil itself has generated over a billion dollars in annual sales and is available in 60 countries. However, the brand was not featured in the U.S., at least not till Wal-Mart’s recent actions. Last year, to drive more revenue and profitability, P&G elected to raise the consumer price of Tide while reducing the amount of detergent and number of loads per container.
The WSJ cites as spokesperson for Wal-Mart as indicating that the stocking of Persil provides U.S. customers another laundry detergent option and that the brand is already stocked in the retailer’s other global based stores. Another spokesperson indicated to the WSJ that competition is good for the category and good for consumers. Who can argue with that.
However this new development involving the marketing and availability of laundry detergent is from our lens, a clear “shot across the bow” among two previous strong collaborators. It is therefore keen to keep abreast of how this U.S. laundry detergent war eventually turns-out.
If there was any supplier more experienced in working with and collaborating with Wal-Mart, it was P&G. Their collaboration in joint marketing, supply chain stocking and promotional initiatives was the basis of many a consumer product goods marketing case study in win-win. Now that relationship may have suffered a setback. However, Henkel and its Persil brand stands to gain a rather powerful U.S. presence, one that can be leveraged to other retailers down the road.
Supply Chain Matters has featured recent commentaries relative to the tectonic market shifts occurring in the consumer goods market, and their associated supply chains. Those shifts are predominantly on the demand and cost pressure side. This latest development involving Wal-Mart and two laundry detergent giants is an indication of perhaps other dynamics involving prior long-standing relationships among key retailers. Then again, we are discussing Wal-Mart, and this global retailer gets to play by its rules.
Just about two weeks ago, this author had the opportunity to be the opening speaker at the Intesource 2015 Innovation Best practices in Sourcing Conference held in Las Vegas. Intesource’s customers generally reside within various tiers of food and beverage supply chains either as retailers, wholesalers or restaurant services providers. Besides addressing significant converging industry, IT and people skill megatrends impacting supply chains, I also addressed the needs for greater levels of multi-tiered visibility and transparency across food supply chains. Consumers now demand quality choices in the food they consume and branded products can no longer stand on just presence but on the composition of the products offered and served by the brand.
I was therefore pleased to read in the Wall Street Journal CIO Blog (paid subscription or complimentary metered viewing) that Bumble Bee Seafoods is planning to launch a website that allows consumers to trace the origins of their tuna utilizing specific codes printed on cans. Information will reportedly consist of where and how the fish was caught and by which fisheries. According to this report, much of the data for this traceability initiative already exists in the company’s procurement and supply chain systems.
The same article makes note that Whole Foods has technology projects underway to provide shoppers with information such as animal welfare ratings, whether a food contains genetically modified products (GMP’s) or modified ingredients.
These are just two examples of how consumers are fundamentally changing the product demand and consumption dynamics of food and beverage supply chains. On Supply Chain Matters, we have called attention to the next wave of smarter item-level tagging that not only traces product identity and movement but monitors the state, genealogy and condition of products. More discerning and informed consumers who are increasing health conscious continue to elicit greater levels of visibility and smart sourcing and sustainability of animal, farm, fishery and food products. I certainly look forward to utilizing such applications when they become available and I suspect that I will not be alone in that effort.
Sourcing and procurement professionals as well as brand and product management teams must continue to be on the forefront of these advanced technology efforts.
In the commercial aerospace sector, both Airbus and Boeing both declared that they each exceeded operational targets for 2014. However, the supply chain ecosystems for each of these manufacturers have continual challenges to perform even better in the months to come.
Today, Airbus announced that it achieved a new record of 629 aircraft deliveries in 2014, representing an increase for the 13th consecutive year. That compares to the 626 aircraft delivered during 2013.
The breakdown of deliveries consisted of:
490 A320 model aircraft
108 A330 aircraft
30 A380 super jumbo aircraft
Initial A350 XWB to launch customer Qatar Airways
Airbus was challenged at the last minute in delivery of the launch A350 but overcame issues of customer customized equipment needs to make its 2014 milestone.
On the inbound customer demand side, the aerospace provider booked 1456 net orders from 67 customers making its year-end backlog to be 6386 aircraft valued in excess of $919 billion. If the Airbus supply chain were to continue to support and sustain its current shipment volume performance, the current order book represents in excess of 10 years of production.
Airbus program development highlights in 2014 included the maiden flight of the rather popular A320neo which is currently scheduled for operational certification in Q3, and first customer delivery in Q4 of this year.
Last week, Boeing announced that it had achieved delivery of 723 aircraft, a record for the most commercial aircraft delivered in a single year. That compares to 648 aircraft delivered in 2013. The breakdown of deliveries included:
485 737 program aircraft
99 777 program aircraft
114 787 Dreamliner program aircraft including the first 787-9 launch model.
Similar to Airbus, Boeing was challenged with December deliveries of 787’s and other wide body aircraft because of a supplier shortage of premium seating. All three of Boeing’s final assembly facilities each set new milestones for aircraft delivery volume. On the inbound side, Boeing booked 1432 net orders bringing its year-end backlog to 5789 aircraft, a declared all-time high. The company recorded 1355 net orders in 2013. If the Boeing supply chain were to continue to support current shipment volume, the current order book represents in excess of 8 years of production.
Boeing program development highlights included the launch of the 787-9 in 2014 and the planned assembly of the first 737 MAX scheduled for this year.
No doubt, the supply chain and product management teams and ecosystems of both Airbus and Boeing went the extra mile in successfully achieving each of the 2014 operational milestones. We extend our Supply Chain Matters Tip of the Hat recognition for their efforts, and hopefully, bonus goals were achieved and compensated.
Moving forward, 2015 brings expectations of even greater operational performance coupled with the needs to scale-up delivery cadence to even higher levels. As noted in a previous commentary, commercial aerospace supply chains exist in good and not so good news realities. All of the current backlogged customer orders need to be delivered to airline customer expectations for timing, anticipated reliability and performance. Once again, there is a very strong reliance on the performance of the extended supply network and in solid operations and risk management.
Congratulations to all.