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Tesla Reports Q2-2017 Vehicle Production and Delivery Performance- Supply Chain Cracks Continue to Show


Just before the 4th of July holiday in the United States, Tesla announced vehicle production and delivery performance numbers for Q2 while CEO Elon Musk took to Twitter to announce the start of ramp-up production for the new Model 3 vehicle.

While Tesla emphasized a positive spin on recent quarter operational performance, there continues to be weak link challenges that need to be tackled on many fronts, the most obvious being overall battery supply and Model 3 production ramp-up.

The electric automaker reported that 25,708 vehicles were produced in the recent quarter, bringing first-half production performance to just over 51,000 vehicles. That number was just over the 50,000 first-half commitments to Wall Street. However, just over 22,000 vehicles were delivered in Q2, representing the automakers continued hockey-stick challenge of skewing final output towards the last month of the quarter, which implies that completed vehicles remain either in-transit or await final customer delivery sign-off. As a comparison, just over 25,000 vehicles were delivered in the March-ending quarter.

The more concerning news for Q2 was the indication was what is described as a severe production shortfall of 100 kWh lithium-ion batteries packs. According to the release, production averaged 40 percent below planned supply up until early June.

CEO Musk is now indicating a need to open as many as three new battery factories as well as active consideration for opening a second automobile production facility, perhaps in China. These are all indicators of scale-up challenges, and imply the use of added capital to fund such investments.

Regarding the highly anticipated Model 3 mass production car, Tesla indicates that the initial certified production car will be completed this week with handover of roughly 30 customer cars by the end of July, to be celebrated in a “handover party” at Tesla’s Fremont California Tesla Mod3 Padman 300x225 Tesla Reports Q2 2017 Vehicle Production and Delivery Performance  Supply Chain Cracks Continue to Showproduction facility. On Twitter, Musk indicate that Model 3 production numbers of 300 in August 1500 in September, ramping to 20,000 per month by December.

On a positive note, in its recent Q1 performance report, Tesla management acknowledged that production quality and operation reliability of the Model X four-wheel drive sedan have dramatically improved and publicly acknowledged that initial customer criticism was fair.  How many times have readers read of such an open acknowledgement from other well-known auto brands.

As noted in our Supply Chain Matters commentary related to Tesla’s Q1 operational performance, which each passing quarter, there will be far more scrutiny surrounding Tesla’s operational performance as well as the underlying supply chain processes and management systems. While Tesla stock valuations continue to reflect a perception of being a more valuable company than perhaps Ford Motor Company or General Motors, we continue to submit the broader determinant is overall consistent supply chain performance and scalability. Up to this point, the sheer dedication, stamina, and creativity of individual Tesla employees has helped to deliver expected performance numbers. At some point, energy levels will succumb to the sheer scale of what remains to be accomplished.


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

This Week’s Paris Air Show- More About Product Development and Supplier Tensions


The Paris Air Show is being held this week representing an important sales and marketing event for aerospace and commercial aircraft manufacturers and supply chain participants. Thus far, two dominant themes appear; one being efforts by Boeing to premiere or hint of new aircraft as well as added services, the other by aircraft engine producers and key suppliers, exercising influence as the critical link in commercial aircraft supply chains.

Boeing has focused this week’s event as the formal market launch of the newest version of the 737-aircraft family, that being the 737 Max 10. This latest model of the 737 can seat upwards of 230 passengers and has a reported list price of upwards of $125 million, but customers more than often acquire aircraft at discounted price levels. Industry watchers position the 737-10 as a market response to Airbus’s rather popular A320 neo series Boeing began the week by announcing 135 new orders for the aircraft, and thus far, visibility to individual airline or aircraft leasing companies have come forth, including a United Airlines order for 100 of the aircraft. The aircraft manufacturer expects to book orders of upwards of 240-250 aircraft. The 737-10 is expected to enter operational service in the 2020 timeframe.  Boeing 737Max Tail 300x200 This Weeks Paris Air Show  More About Product Development and Supplier Tensions

The president of Boeing Commercial Airplanes indicated to attending press that customers wanted the aircraft producer to build the single-aisle 737 bigger, and with more operating range.  From our lens, that is reflection of airlines being primarily-driven by financial metrics vs. customer comfort factors.  Anyone who has had to endure a 5-6-hour flight on a packed 737 with few amenities including lavatories likely know what we mean by customer comfort.  Welcome to the new world of airline travel, where efficiency trumps any sense of overall customer experience. But, we digress.

From a product development perspective, because of existing iterations of the 737, incremental product development and manufacturing costs for the larger model are relatively modest by comparison, boosting product margins for Boeing.  The supply chain is already in-place and ramping-up production of all models of the 737 family.

Industry media including Aviation Week report that airlines in general have a mixed view of the 737-10, mostly because of market timing and overall claimed capabilities. Boeing is therefore taking the opportunity to leverage this week’s event as a sounding board for the development of a new, smaller twin-aisle “middle-of-the-market’ aircraft with the designated name of the 797 series.

The conceptual 797 would by some accounts, be positioned between the 737, and the 787 Dreamliner, providing airlines more options in operating U.S. coast-to-coast or transatlantic flights airlines. Many in the industry view this model as a successor to the very popular 757 series.

For Boeing, the 797 series would be a test of quicker-time-to-market since by some accounts, airlines have expressed enthusiastic response to initial paper designs. A further critical design decision would be the selection of the aircraft’s available engines. Thus far, we have read indications that existing 737 MAX and A320 neo engine providers CFM International and Pratt & Whitney would be potential suppliers as well as Rolls Royce, which has up to this point, concentrated its product strategy on the larger twin-aisle segment. However, we read one show report indicating that executives from General Electric and CFM International have no interest in sharing a supplier arrangement with Boeing’s 797 series. Instead that are bidding to be the sole engine provider to assure a timely market introduction.

On the subject of aircraft engines, this week’s event has manufacturers in this segment touting their new engine orders. As an example, GE and CFM expect to book $15 billion in new business, both in hardware and services. GE Aviation indicated that its engine order backlog now exceeds $150 billion.

Beyond the marketing, as we have noted in our most recent Supply Chain Matters commentaries focused on commercial aircraft supply chains, engine manufacturers are currently the critical weak-link in the supply chains for both the A320 neo and the 787-MAX.  Pratt continues to deal with initial engine component design and manufacturing deficiencies related to its new geared turbo-fan (GTF) engines requiring the planning of whole engine spares to keep existing operational aircraft flying to schedule.  Engine supplier CFM International, the joint venture of GE Aerospace and Safran, producers of the new LEAP series engines experienced an initial quality problem in a turbine disc within operating engines of the first 737-MAX. At this week’s event, CFM International management indicated confidence in discovering root cause of the turbine disc flaw and expressed further confidence in meeting the targeted delivery of 500 LEAP engines by the end of this year.

Finally, industry and business press is highlighting the July start-up of Boeing’s newly announced Global Services Business Unit.  This week, Boeing management indicated expectations to garner much more of the estimated 8 percent of business services existing Boeing operational aircraft representing billions of dollars in potential added revenues and profits. The goal is to double annual services revenues to $50 billion in five years. Boeing management acknowledged the potential of a “healthy tension” with major suppliers, including engine producers, since many key suppliers rely on services revenues to boost their financial performance. Some engine producers are currently threatening to invest less in product innovation if Boeing insists on taking more market-share in services. That threat includes the currently contemplated 797 aircraft.  For Boeing to accomplish its business goals for services growth, it will need to convince major suppliers to give-up intellectual property as well as spare parts distribution rights. That is a tall order that is bound to lead to added supplier tensions. A further battleground will be the area of Internet-of-Things enabled service models where both aircraft manufacturers and suppliers are expected to clash on whom owns and controls customer-focused operational and services data. This is an area that bears quite a lot of observation in the months to come.

Bob Ferrari

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

3M Supplier Survey Brings Forth Important Insights for Increased Supplier Collaboration


Diversified products manufacturer 3M recently conducted a survey among supply chain suppliers to hone in on current challenges related to the notions of supplier collaboration. While the survey population was small, the results caught our attention because they uncover important challenges that remain for procurement and supply chain teams.

The purpose of the survey- Driving growth and innovation through supplier partnerships, was designed to uncover insights (not specific to 3M) on the most urgent trends, opportunities and challenges facing suppliers today. Upon review, Supply Chain Matters noted a number of noteworthy findings.

Technology’s Impact Becoming More Important

On a positive note, and further validation of our Ferrari Research and Consulting Group’s 2017 prediction of increased investments in supply chain focused technology, 60 percent of the suppliers surveyed by 3M indicated they are in the process of making major changes and upgrades to their systems and technology to become more digitally connected. That from our lens is encouraging news.

Nearly all suppliers surveyed, ninety-five percent, reported being at least somewhat empowered and encouraged to innovate and make suggestions for improvement for the customers they supply. Yet only 43 percent of suppliers’ report feeling fully empowered to collaborate with their key customers. The survey evaluators indicate that the challenge of collaboration and joint innovation may not lie in lack of incentive and customer openness, but because the organizations they supply lack systems and technology that make collaboration more efficient. Seventy percent of suppliers indicated at least half of the customers they supply do not have a strong system and process in place for buyer and supplier collaboration. A similar theme of discussion emanated from our attendance at this year’s annual conference of the Institute for Supply Management (ISM).

Again, from our lens, that finding may reflect differences fostered in ongoing supply chain segmentation strategies that place major emphasis on key customers and suppliers vs. all trading partners.  Regardless, the finding reinforces that procurement teams need to step-up their technology deployment strategies as well as to re-double efforts to foster various forms of process and product innovation. We suspect that hidden in the numbers are supplier needs to have incentives to want to broaden collaboration. That trend was brought out by the survey authors who indicated that nearly half of the suppliers surveyed have held back from making a strategic recommendation due to lack of incentive or customer openness.



The 3M survey validated that suppliers are facing an unpredictable risk landscape in 2017. The majority, 61 percent, identified volatile commodity and supply prices as their primary concern related to risk. Respondents listed their other concerns as the following:

Uncertain policies of the new U.S. administration- 8 percent

Regulatory compliance- 7 percent

The performance of tier two and tier three suppliers- 6 percent

Natural disasters and supply disruptions- 3 percent

Cybersecurity- 3 percent

Cost concerns remain by far the biggest risk

Here again, suppliers may need to broaden their perspectives of risk, especially since all the other rated categories have increased incidents across multi-industry supply chains.


Widespread Consensus

The area of widespread consensus was reported to be that of sustainability and social responsibility, both of which the survey authors point to as core focus areas in 2017. Nearly 76 percent of suppliers identified the biggest motivator for operating in a more sustainable fashion are positive business outcomes. The next biggest drivers for sustainability is noted as suppliers’ desire to create a more socially responsible supply chain (69 percent), compliance (64 percent) and brand reputation (62 percent).


Supply Chain Matters thanks 3M and its associated supply chain and public relations team for bringing this survey to the attention of our blog readers.

Our readers can review the full PDF version of the 3M supplier survey at this web link.


Bob Ferrari

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


A Growing Need for Responsive and Skilled Procurement Leaders- Consider Attending ISM 2017

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As has been noted in prior Supply Chain Matters blogs and our predictions for the current year, the role of procurement leaders, both in large and smaller enterprises, will further evolve in 2017 to include more strategic advisor skills. Such skills will include analyzing the impacts to a rapidly changing global supply chain sourcing picture, added supply chain risk factors, and needs for higher levels of joint product and process innovation among suppliers, trading partners and services providers.

Candidly, beyond being a prediction, procurement as a trusted business advisor is a statement of compelling need documented by performance studies.

One widely recognized study comes from a collaboration among A.T. Kearney, The Institute for Supply Management (ISM) and the Chartered Institute of Procurement and Supply (CIPS) who since 2009, jointly conduct the Return on Supply Management Assets (ROSMA) Performance Check Study. The latest 2016 report, What Good Looks Like, brings forth a number of findings and insights derived from over 2000 executives from multiple organizational dimensions. The study continues to point toward the existence of wide performance gaps among procurement organizations. A top-quartile group of elite performers consistently deliver more than $1 million in financial benefits per procurement employee and report the highest levels of value creation from advanced sourcing methods. Yet, the study continues to point a widening gap to middle-tier performers that deliver some value, and a far larger group of bottom-quartile performers that add limited value to their organizations.

Highlights of the report’s takeaways note that while principal stakeholders (C-suite, finance, and lines-of-business) are aware of and understand procurement value drivers, performance variance remains large across various cross-industry and organizational size value drivers. In essence, the gaps among top-performing procurement and all other procurement organizations are growing wider, and that compels a need for remediation.

Once more, ongoing business challenges and events continue to evolve at a far more rapid pace. If readers have been keeping-up with business headlines these past weeks, there were many signs of reinforcement.

In the healthcare sector, personalized medicine is poised to disrupt the future of drug manufacturing and the risks associated with a lack of visibility will be compounded as personalized medicine necessitates an even more intricate network of supply chain partners, creating a web of manufacturers and distributors that procurement organizations will need to monitor.

We featured announcements where semiconductor and software companies are increasingly becoming new strategic suppliers to automotive and track producers for innovations in on-board electronics, enhanced safety, autonomous driving, and driver productivity focused technologies. In its 2017 Environmental Update Report, Apple made a commitment toward implementing a closed-loop, totally sustainable materials supply chain predicated on materials and process innovations across the supply chain. For global apparel supply chains, we featured a guest blog posting which described how third-party refurbish services providers assist brands in remediating offshore production glitches or quality snafus. Just this week, in conjunction with reporting its latest financial results, aircraft producer Boeing indicated that over the coming months, it will re-analyze its overall supply chain sourcing strategies to explore further opportunities for added cost savings by bringing some production in-house.

From our lens, the above are just a sampling of events ripped from the headlines that imply that procurement indeed has opportunities to be judged as trusted business advisors.

The question remains, do procurement leaders and their organizations have the broader management skills, cross-functional knowledge, and technology enablement skills to address such needs in a timely manner.

In just a matter of weeks, ISM will be conducting its annual 2017 conference which will be held May 21-24, 2017 at the Disney Coronado Resort in Orlando Florida. Featured keynote speakers will include former UK Prime Minister David Cameron, and former Chairman of the Joint Chiefs of Staff, General Colin L. Powell, USA (Ret.).    ISM2017 logo 002 A Growing Need for Responsive and Skilled  Procurement Leaders  Consider Attending ISM 2017

A total of 73 sessions will be offered based on various skill development levels ranging from fundamental to mastery level. Learning tracts include Economic, Business and Professional segments along with various Experience segments including the very successful Emerging Professionals Experience sessions.

Please consider joining this supply chain industry analyst in attending ISM 2017.

The full agenda and registration information for the ISM 2017 Annual Conference can be obtained by clicking on this dedicated ISM 2017 conference web site link or by clicking on the conference logo appearing in our Upcoming Conferences panel to the right. Readers should take note that if you register before the end of April (in just two days) you can still take advantage of a $200 registration discount, so consider acting sooner than later.

Bob Ferrari

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

Additional Update on B2B Supply Chain Business Network Provider E2open Merger with Steelwedge

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This Supply Chain Matters blog posting serves as an update to our prior mid-February posting regarding supply chain B2B platform provider E2open’s announced merger with sales and operations planning (S&OP) and supply chain planning technology support provider Steelwedge.  This latest deal follows prior acquisitions of icon-scm for supply chain planning simulation technology, Terra Technology for deeper levels of business intelligence and data management, and Orchestro for product demand sensing support.

This week, we had the opportunity to view an online webcast, anchored by E2open CEO Michael Farlekis, which was directed at both customer communities to serve as an update on strategic direction.  e2open 150p Additional Update on B2B Supply Chain Business Network Provider E2open Merger with Steelwedge

Both tech providers come together to serve a combined installed base of 160 customers with some stellar nameplates sw logo e1401973532206 Additional Update on B2B Supply Chain Business Network Provider E2open Merger with Steelwedgeand diverse industry supply chain settings. The E2open side includes Cisco, Dell, HP, Kimberly Clark, Mondelez International, P&G, Unilever, Kraft-Heinz, among others. With the merger of Steelwedge, added industry vertical presence includes Nissan and Land Rover in automotive as well as some common customer among high-tech supply chains.

CEO Farlekis described the combined value proposition as universal cloud connectivity of the extended supply chain supported by a broad offering of applications. He reiterated that scale matters citing a host of numbers related to platform users, countries supported and volumes of transactions and item categories now supported.

With Steelwedge’s S&OP and baseline continuous planning support capabilities, E2open goal is for customers to be able to extend this process to include the inclusion of supply chain partners including key customers, suppliers, and trading partners.

SVP of Product Management and Strategy, Pawan Joshi, outlined the full application and user-centric capabilities of E2net platform and confirmed our prior belief that Steelwedge will provide augmented S&OP support capability, and that the existing technology will be fully integrated into E2open’s technology and platform stack over time, including the E2open Harmony Dashboard.

Plans call for integrating the Steelwedge data model and functionality into that of E2open’s, supported by the current singular platform sign-on and user interfaces. Regarding anticipated integration timelines communicated, initial data interface and user interface integration is expected to occur during 90-day release timelines this year, with full integration and rationalizing of planning functionality expected by early 2018. CEO Farlekis indicated there will be no change in existing support contracts with Steelwedge customers.

Given the above, the presenters declared that all existing Steelwedge customers will have access to the combined product portfolio and that E2open account managers will now serve Steelwedge accounts in their broader end-to-end platform support needs. We have learned that E2open plans to sell Steelwedge as a stand-alone offering until the integration process is completed, but that may present somewhat of a challenge given that prospective customers will want to understand the broader product integration.

There are subsequent individual briefings being planned with existing Steelwedge accounts and it would behoove these customers to seek more specifics regarding access to E2open’s platform capabilities, expected changes in functionality as well as the full integration timeline. Long-time pricing is another consideration, along with E2open’s ongoing efforts to improve its balance sheet.

Our prior observation that Steelwedge clearly needed an infusion of new capital and thought leadership coupled with more savvy marketing and sales execution resources was obviously reinforced by this customer update. Privately-held E2open seems to communicating the flexibility to be able to undertake this effort and hopefully, in an aggressive timeline. With its expanding B2B Business Network platform capabilities supporting procurement replenishment, continuous planning, execution, and collaboration, E2open will likely gain added market attention.

Before closing this commentary, this supply chain industry analyst would like to share an additional thought or two. We have long advocated that an S&OP process should be able to include and support the participation of key external partners in the overall process and in shared decision-making. That stated, such a capability does require some maturity in accurate master data and information management, scenario and what-if planning methods, collaborative based practices, and joint decision-making. With E2open’s platform, the opportunity exists to extend S&OP to extended supply chain partners, but change management and process readiness are important considerations to not overlook.

Supply Chain Matters will feature additional updates on E2open as developments warrant.

Bob Ferrari

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

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