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General Motors Attempts to Turn to a New Chapter of Growth, Customer Loyalty and Supply Chain Practices

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The public relations teams supporting General Motors have been in high gear these past weeks for obvious reasons.  Lapses in product design and quality management practices, and what has been billed by business and general mediaas the worst U.S. product safety crisis in recent memory has led to a series of product recalls among multiple GM brands involving upwards of 2.6 million vehicles.

GM desperately needs to move beyond its current state and restore confidence in its brands and in its business management model.  Suppliers and partners associated with supporting this U.S. based OEM need to also move on to more collaborative and win-win relationships, but that requires a different GM perspective.

When Mary Barra was appointed CEO of General Motors, this author communicated our Supply Chain Matters elation for this announcement. Our enthusiasm came from the dual fact that not only was Barra the first senior female executive ever to lead a global automobile manufacturer, but more importantly, because her 35 year background included plant management, manufacturing, product design and development leadership experience. She is also an engineer by training. Barra likely understands the elements of producing high quality cars and trucks and the important contribution of the GM supply chain ecosystem in achieving that goal.

If readers want to gain a candid perspective on Mary Barra’s current challenges in transforming GM, we recommend the recently published Time article, Mary Barra’s Bumpy Ride at the Wheel of GM. Author Rana Foroohar pens an insightful perspective on Barra’s management style and her efforts to change a rather in-bred corporate culture built around functional fiefdoms and little accountability. She describes Barra as the consummate “outsider-insider” with a far different style from most of her CEO predecessors. She has been put in charge to become the change agent and apparently has the support of many of GM’s employees in that task.  In our previous commentary in December 2013, we called attention to the Wall Street Journal characterizing Barra as “having a reputation for speaking her mind, a trait that hasn’t always been appreciated in GM’s executive suite.”

This week, business and general media are featuring reports of GM’s latest earnings announcement. The WSJ reported that after nine months, Barra wants to switch gears towards a multi-year strategy to deliver increased revenues and profits while restoring consumer trust. She explained to a group of GM’s top 300 executives that the company must do what it takes to be the “world’s most valued automotive company”.  The going forward strategy leans heavily on reliance on planned new models expected to come to market, many of which were shepherded under the leadership of Barra when she previously led new product development. A goal is to have 47 percent of global sales to be fueled by these new models by 2019. It further includes market expansion and growth within China through investing in five additional auto assembly plants and he introduction of nine new Cadillac models in that country.

GM will further focus on the broader supply chain’s contribution to its renewed business goals.

According to a recent WSJ report, there is an internal belief that GM pays more than its competitors for materials and technology because the company bases parts purchases on unrealistically high forecasts that burden suppliers with high fixed costs when ultimate demand falls short. Our community is more blunt in such an explanation: it is lousy forecasting predicated on achieving functional stovepiped goals. The WSJ quotes some analysts as indicating that the automaker could save upwards of $1 billion a year with smarter purchasing practices, which as we know, is a typical Wall Street short-term perspective these days. Squeeze those suppliers!

GM’s existing product development chief, Mark Reuss, actually met with executives representing 700 suppliers indicating that the company is ready to share more financial risks if sales projections are high. At that same meeting, GM’s purchasing boss, Grace Lieblein indicated that the supplier base will likely need to add capacity to support growth plans. In a Detroit Free Press published report, she is quoted as stating: “we just have to be cautious and strategic about how we add that capacity and not move too fast.” Lieblein further communicated that an important strategy is convincing suppliers to locate closer to GM assembly plants to reduce transportation costs.

Obviously that’s a tall order for suppliers since transportation cost savings do not necessarily weight themselves to the benefit of the supplier. Adding production capacity to support additional volume and spreading that capacity further across the globe requires a significant financial investment. Add some history of throwing suppliers “under the bus” when quality plans go south because of component design flaws, well, you get the picture of legacy trust.

The new era of GM obviously requires what Barra has described as bold thinking and leadership. What this author was hoping to read is that goal of GM’s supply chain going forward is to support continued product innovation while controlling costs and accelerating productivity. Perhaps that will be articulated in the coming months.

It is this author’s view that such thinking can benefit by a broader and deeper perspective by GM’s executive leaders on how more modernized supply chain business practices, new product introduction (NPI) practices incorporated to supply chain impacts, more collaborative based inventory and supply chain planning practices  have led to benefits among other industries as well as other automotive OEM’s. Today’s supply chain and B2B business network technology capabilities can further link the global end-to-end supply chain with more granular levels of planning and supply chain execution synchronization.  

The business practices and enabling technology are available but it requires a good dose of change management infusion before real benefits can flow. We trust GM will hence forth nurture the leadership to set such perspectives.

Bob Ferrari

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


First Airbus A320neo Completes Important Maiden Flight

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This week, a significant milestone occurred for the global supply chain ecosystem of the new generation Airbus A320 aircraft. The first Airbus A320neo completed its maiden flight at 2:22pm local time yesterday after its two-and-a-half test run flown by Airbus’s experimental test pilots over southern France. The maiden flight comes weeks ahead of prior program expectations. Video and a complete program overview can be viewed via the Airbus web site

Airbus A320neo

The Neo (new engine option) of the workhorse A320 includes newly designed more fuel-efficient aircraft engines with incremental innovations in aerodynamics and updated cabin features. That aside, the most significant customer feature for the Neo and its promised, more enhanced fuel burning efficiency expected to be upwards of 20 percent more efficient. The A320neo family will consist of A319 and A321 variants as well, the latter offering seating up to 240 passengers. Airbus touts the A320 as the globe’s best-selling single aisle aircraft and thus the program stakes are especially high. To date, the A320neo has garnered 3200 orders involving 60 customers and thus more innovative, stepped-up production cadence will be an important requirement for the end-to-end supply chain.

The aircraft for the maiden voyage was powered by two of the newest Pratt and Whitney PW1100G-JM engines which features that supplier’s new geared-turbofan technology. According to Pratt, the engine successfully completed its first development flight in May of last year and has completed 11,000 hours of testing across the supplier’s PurePower engine family. The stakes for Pratt are additionally high with its newest innovative geared turbofan technology. The Neo is also offered with CFM International’s LEAP-1A power plant as an airline customer option. The LEAP-1B engine was selected as the prime power plant for Boeing’s planned 737 MAX aircraft, which is the prime competitive offering in contrast to the A320neo. According to CFM, there are already orders amounting to 6770 LEAP family engines.

This maiden flight milestone kicks-off 3000 hours of rigorous flight test process involving upwards of eight aircraft with various options and engine options. As Supply Chain Matters has noted in many prior aerospace industry highlighted commentaries, many things can be discovered in the flight testing process, some with reverberations up and down the supply chain. The A320neo with Pratt engines is currently planned to enter service in the fourth quarter of 2015, with the first airline customer being Qatar Airways.

Supply Chain Matters Tip of the Hat AwardOnce again, we tip our hat to the entire Airbus A320 supply chain ecosystem and team members for reaching this significant milestone.

 


Germany’s ZF to Acquire TRW Automotive for Product Innovation Leveraging

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The current waves of industry acquisition frenzy continue as cheap money remains available, and as usual, industry supply chains are impacted.

Today’s business headlines include a massive deal involving two global automobile systems, components and parts suppliers.  ZF Friedrichshafen AG announced its intent to acquire TRW Automotive Holdings in a reported all-cash deal that is estimated to be in excess of $11 billion.  According to reports, this deal would form an industry supplier with combined annual revenues near $41 billion, rivaling the size of other major global industry suppliers Robert Bosch and Denso. Under the deal, TRW would become an integrated but separate operating unit of ZF. The combined research and development investment portfolio exceeds $2 billion. This transaction requires several closing conditions and the approval of TRW stockholders, and is expected to close in the first-half of 2015.

According to the press release and statements from ZF’s CEO, the prime motivation for this combination is combining of product innovation resources applied to markets in electro-mobility and autonomous driving.  TRW Automotive is a supplier of automotive integrated safety electronics, sensors, steering, suspension and integrated braking systems. TRW’s production and supply chain resources are global in scope and include support for major automotive production regions of United States, Europe, Asia and Latin America. ZF is a closely-held global supplier in transmission driveline, axle and chassis technology with 122 facilities in 26 countries and is a major supplier to German based mainline and premium model OEMS’s including Volkswagen. Combined, both suppliers will more than double revenues in support of major regions of China and the United States, and be able to support a fairly broad area of automotive and truck component system supply needs. With its combination with TRW, ZF has the opportunity to significantly increase its revenues and presence in the U.S. market.

The talks between these two automotive industry suppliers have been percolating for some time, and according to a published report from The Wall Street Journal, other suppliers such as Delphi Automotive, BorgWarner and AutoLiv have each expressed interest in “bulking up through acquisitions” in order to have sufficient scale to further stay ahead of product innovation needs to support various global automotive OEM’s. OEM’s have a desire to move forward in electric drivetrains and autonomous driving systems but prefer that system component innovation come from Tier One and other suppliers.

This wave of acquisitions involves other industry as well. Business headlines today include reports of a percolating massive mega-deal between Anheuser-Busch InBev and SAB Miller that could involve upwards of $122 billion. That would involve the combination of two of the world’s largest brewers and according to the WSJ, put control of nearly one-third of global beer supply under one company, and a wide range of brands.

The beat goes on and industry supply chains will have to continue to deal with the opportunities and/or consequences.

Bob Ferrari

 


The Day of the Big Apple Product Announcements- Will the Supply Chain Deliver on High Expectations?

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In a few short hours, Apple will once again announce a new set of innovative products to the global community amid a flurry of social and business media posts, streaming commentary and headlines. Announcements are expected on the new iPhone 6 models that will include more elegant physical design, innovative materials such as sapphire-based screens, as well as new functionality. Pundits further expect the long-awaited announcement of the wearable iWatch along with a new iPad model that features a super large screen version.

As we have noted in prior Supply Chain Matters commentary, the one certain thing at the end of today is that Apple’s supply chain ecosystem remains under the gun to deliver on the collection of high expectations. There are continued reports of big bets on expected shipments to be supported for the upcoming holiday period, production yield challenges associated with last-minute design change involving the larger screen displays of the iPhone 6, as well as reports of a simultaneous and the unpredicted Q1 introduction of the rumored 12.9 inch iPad in conjunction with the announced Apple-IBM alliance focused on business applications enablement.

TechCrunch recently posted a commentary citing sources indicating that Apple is already tying up air freight capacity out of China for the forthcoming months as it floods channels with last-minute shipments, which is reportedly causing some delays for other manufacturers. Whether that’s true or not, it reflects a certain state. The scramble is in high gear and all hands are expected to be on-deck on a global-wide basis in the coming weeks awaiting input from Apple’s Sales and Operations Planning (S&OP) process.

Every year at this point, we have noted that Apple’s supply chain is about to be put to the ultimate test. Every year, the stakes seem to get higher and more complex.  Like all of our readers, we await the forthcoming chapter in this saga. Can the number one rated supply chain ecosystem repeat in meeting the high expectations and business outcomes of its demanding business partners? Will other high tech and consumer electronics supply chains feel additional impacts?

We will all know the results and the implications in Q1.

Bob Ferrari

 


Connecting the Supply Chain to Corporate Performance and Successful Business Outcomes

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At Supply Chain Matters, we relish when elements of the Wall Street community recognize the critical link of supply chain performance and responsiveness with supporting positive product brand and business outcomes.  Thus we were attracted to this week’s posting by Motley Fool concerning what is often rated as the number one supply chain: Is Apple’s Supply Chain a Risk to the Company?  

The overall concerns raised in this commentary should not be new news to our community, especially those that often follow Supply Chain Matters.  The commentary observes that the supply chain is more difficult than it appears (really!), even though the definition of what is incorporated in supply chain is somewhat simplistic.  More importantly is this commentary’s linkage of a corporate culture that is product innovation driven, and how that impacts supply chain responsiveness. 

We have brought forward that dimension in many of our Apple supply chain commentaries, the most frequent addressing how last-minute product design changes on the pending iPhone 6 impacted ramp-up production schedules or the current aggressive plan to introduce a new 12.9 inch iPad in Q1 .

A somewhat novel aspect to this commentary is calling attention to the fact that Apple CEO Tim Cook, having come from a background in supply chain, should have been aware of supply chain risks.  Our response is: Of course he is aware, and he, in-turn has obvious high expectations in his supply chain partner network to rise to challenge, as they have before.

There is speculation among Wall Street investors as to the scope and breadth Apple’s pending product announcements scheduled next week, along with the market availability of these products in the upcoming holiday focused quarter. In its conclusion, the Motley Fool commentary kind of throws supply chain ‘under the bus’:

As Apple continues to bring new and exciting technologies to its products, at times there will be delays in both supply and manufacturing processes. In addition, Apple’s going to take its time bringing a cohesive, end-user-focused, product to market. It isn’t always fast, but it’s worth waiting for.” 

Supply Chain Matters and many of our community would most likely have a different perspective.  A supply chain supporting innovative products as its prime business outcome must be designed to support agility, flexibility and responsiveness to constant product changes and new product introduction cycles.  It is not a supply chain driven solely by lowest cost dimensions, but rather scale and responsiveness dimensions.

The good news is that once in a while, Wall Street can appreciate supply chain capability, even as some activist investors constantly strive to destroy years of investment and resources in supply chain capability.

Bob Ferrari


Report Indicates Apple iPad New Product Ramp-up Adding to NPI Pressures

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Three weeks ago, Supply Chain Matters commented on the effort underway among Apple’s ecosystem of suppliers and manufacturing partners to prepare for the upcoming product launch and distribution of the new model iPhone. Our commentary made note of reports indicating a number of moving milestones and potential challenges related to new product production ramp-up and product yield. Besides the next generation of the iPhone, there were additional published reports indicating that Taiwan’s Quanta Computer would begin mass production of Apple’s new smartwatch in July, with the planned product launch coming as early as October.

Today, Bloomberg, citing sources with knowledge, is reporting that Apple suppliers have also begun initial manufacturing of the planned new models of the iPad. According to the report, volume production of the next generation full-sized 9.7 inch version of the new model iPadAir is underway, with a newer version of the 7.9 inch iPadmini now entering production with general availability expected by the end of the year. The product introduction announcement is reported to be either at the end of Q3 or early Q4, but many Apple watchers are betting on the month of October, since other next generation products are scheduled for market introduction in that month. In any case, the NPI and volume production scenarios for iPad and iPhone are both pressing towards critical windows for required availability.

The latest quarterly financial results for Apple reflected a marked decline in iPad sales volumes, declining by over 13 million units, thus the upcoming new product introduction cycle is crucial.  Timing is critical since there must be inventory available when consumers elect to make their end-of-year holiday purchases.

Like all things related to Apple’s product innovation cycles, design engineers introduce last-minute component features that would challenge any high volume focused supply chain. In our previous iPhone6 commentary, we highlighted reports of yield challenges with the larger LCD screen, the rumored inclusion of sapphire based screens and continued challenges for higher-volume production of fingerprint scanners. The next generation iPad Air is strongly rumored to include more innovative anti-reflective coating as well as a fingerprint sensor.

A separate report from the Associated Press further indicates that Apple’s sapphire glass provider, GT Advanced Technologies, indicated this week that its production facility is close to starting production, but does not expect to reach full operational production until early 2015. That is not an encouraging report for Apple’s supply chain planners and will likely lead to further tough decisions in the weeks to come.

Apple supply chain teams indeed important challenges is the coming 12 weeks with many simultaneous moving milestones impacting multiple product management plans.  It is a consummate example of changing information in constant motion. Integration of NPI and supply chain information coupled with multi-tier response planning will invariably be put to the test.

Bob Ferrari


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