It is not that often that one reads about a key supplier that has elected to dismiss a major customer, let alone a customer that has high consumer and industry appeal. Thus the indication published by The Wall Street Journal today reporting that Mobileye, a key supplier of autopilot technology has elected to part ways with Tesla Motors.(Paid subscription required)
According to the report, the supplier will no longer provide its auto pilot computer chips after the current supply agreement ends because of disagreements about how the technology was deployed. The WSJ report points to the recent tragic accident involving a driver in Florida whose Tesla autopilot failed to recognize a turning tractor-trailer vehicle, causing a fatal crash. The supplier indicated to the publication that its current system was not designed to always detect vehicles cutting in-front, and that a new software release scheduled for 2018 would be able to do so. The report quotes Mobileye’s Chief Technology Officer indicating that in a partnership, the supplier needs to be there regarding all aspects on how the technology is being utilized.
According to the report, Israel based Mobileye is a current supplier to more than a dozen separate auto producers and that Tesla sales account for about one percent of its current revenues.
Tesla’s CEO Elon Musk indicated in an email to the WSJ that the split would not affect the company’s plan to develop more advanced versions of its Autopilot system and further indicated that the move was expected. Yesterday, the disclosure by Mobileye pushed its stock into a reported decline of 8 percent at the day’ close.
One could certainly speculate whether this announcement is either directly related to pending litigation or whether the partnership was straining for other reasons related to development timetables. However, it is noteworthy when a supplier takes the bold initiative to walk away from one of the most visible automotive industry companies on a global basis, one that is gearing-up to produce upwards of 500,000 electric powered vehicles in the coming few years.
As noted and observed in our prior and most recent Supply Chain Matters commentaries related to Tesla, it adds yet another challenge on the need to develop and nurture a supplier base that can provide continued leading-edge technology and volume requirements that can match Tesla’s timetables and aggressive product development and deployment needs.
© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.
This blog commentary is a side note to our prior Supply Chain Matters published commentary related to first-half delivery performance for both Airbus and Boeing reflecting continued supply chain challenges.
A secondary competing competitor in the single aisle commercial aircraft program category has been Bombardier’s C-Series aircraft which has been challenged by extended financial, program and supply chain setbacks. A major milestone has finally occurred with the recent announcement that the first CS100 entered operational service at Swiss International Airlines.
The maiden commercial flight of the CS100 was a Zurich to Paris flight. During the first-half of 2016, Bombardier secured firm orders for 127 C Series aircraft. Transport Canada has further awarded type certification to the larger CS300 model aircraft and the delivery of this model to airBaltic is currently scheduled for Q4.
What caught our attention was a Business Insider blog posting titled: Airbus and Boeing’s greatest threat just arrived. That posting observes:
“Over the next few years, several manufacturers from around the world will launch aircraft aimed to compete with Airbus and Boeing. But Bombardier is the first to enter service and the only one that will compete head-to-head within one of their most important market segments.. Not since the demise of McDonnell Douglas and its MD-80 and MD-90 in the late ’90s has there been a third major player to challenge the Airbus-Boeing duopoly.”
“What Bombardier has going for it is the fact that the C-Series is widely viewed as a great plane — receiving critical acclaim for its fuel efficiency, range, and advanced technology.”
If readers have been following our stream of Supply Chain Matters commentaries related to the C-Series program for the past few years, you would have discerned another important advantage from a supply chain perspective. To provide readers just two examples, you can view our original commentary published in 2010 and a subsequent 2013 commentary posing the question: can a disruptor compete with giants. If the program had not encountered such setbacks from its original goal to enter the market in 2013, it would have entered operational service much earlier and provided evidence to major airline carriers that it could be a viable alternative to current extended delivery schedules for single aisle aircraft. Now, Bombardier will likely have to deal with the industry-wide supply chain constraints that exist, including availability of the newly designed Pratt & Whitney PurePower® PW1500G engine.
One could classify this as opportunity lost, but then again, only time will tell the ultimate determinant.
For airline and leasing customers, it is indeed good to have choices and options for new commercial aircraft. Both Airbus and Boeing sales teams have been rather aggressive in insuring that airline customers would not consider such an alternative option. But now, when the industry as a whole is constrained, than the most innovative program and supply chain management processes and consequent decision-making can well become the ultimate differentiator as to what airline customer elect to do in their buying choices.
We welcome additional reader viewpoints as well.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved
First-Half 2016 Delivery Performance for Airbus and Boeing Reflect Continued Supply Chain Challenges
As the commercial aircraft industry moves into the second-half of 2016, it is time for our usual Supply Chain Matters six month industry review of performance. Reflecting on delivery performance thus far, there are continued signs of industry supply chain supply challenges.
Let’s begin with Airbus which reported the booking of a total of 227 confirmed orders in the first six months of the year. That number may be somewhat understated since at the industry’s recently completed Farnborough Air Show, Airbus achieved bragging rights for announcing orders and commitments for 279 commercial aircraft, more than half originating from a single airline customer, that being AirAsia who ordered 100 A320neos.
Airbus recorded the delivery of a total of 298 aircraft in the first-half, which consisted of the following:
- 160- Single aisle aircraft (Variants of A319, A320, A321)
- 38- A330’s
- 27- A350’s
- 2- A380’s
In the above, tell –tale signs of supply disruption are reflected in two key aircraft. There were only 8 completed deliveries of the brand new A320neo, no doubt reflecting the ongoing catch-up in delivery of the brand new Pratt & Whitney geared turbofan engines. Airbus had delivered just 5 A320neos in Q1 meaning that just 3 were delivered in Q2. As noted in our prior commentary, nearly a dozen of completed A320neos have been reported as lined-up on factory adjacent runways and parking areas awaiting Pratt to deliver completed engines. The exiting delay is associated with fixing the engine’s cooling design through a combination of software and component modifications. Pratt engine deliveries were not expected to catch-up until after June and there are continued reports that Pratt’s supply chain remains strained. The other new engine offering, the new LEAP model from CFM International is expected to be available in the second-half of this year as-well. With a stated target to have a production level of 50 A320neo’s per month by 2017, there is a lot more planning and execution remaining.
A further problematic area acknowledged by Airbus has been supply and bottleneck challenges associated with newest model A350 production, and first-half completion of 27 reflects that ongoing challenge. Supply challenges have been noted as interior seating and structures and Airbus senior management has expressed public frustration regarding ongoing supply glitches.
Turning to Boeing, the aircraft producer reported the booking of a total of 321 orders in the first-half. At the completion of the Farnborough event in July, Boeing was able to announce orders and commitments for 182 aircraft but just 20 actual new firm orders.
Boeing further recorded the delivery of a total of 298 aircraft reflecting its previously announced scaled-down expectations for delivery cadence this year. The breakdown was:
- 3- 747’s
- 5- 767’s
- 51- 777’s
- 68- 787 Dreamliners
In the above, a challenged area remains completed deliveries of Dreamliners although the cadence has improved slightly beyond 10 per month. There is still a long way to go in ramp-up and lots of internal pressures remain since the program remains cash negative until delivery performance dramatically improves. Both Boeing’s Seattle and South Carolina assembly facilities are now producing completed Dreamliners.
With current order backlogs of nearly ten years for Airbus and over seven years for Boeing at current production cadence levels, both manufacturers have been concentrating on increased production automation and longer-term strategic supplier agreements. In June, key suppliers urged both manufacturers to move cautiously on demand noting that there are definitive restrictions on the ability to ramp-up the industry supply chain to expected volume output cadence. Another growing concern is the ability of aircraft engine producers to be able to support higher output volumes given the increased technical sophistication of the new generation engines. Pratt alone is in the midst of managing five different new engine models and with both commercial aircraft dominant manufacturers continuing to book further orders and explore newer model introduction, the pressure builds.
Again, only time will prescribe the course of events in an industry that is clearly reflecting supply chain distress.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved
In supply chain and procurement communities, there is somewhat of a known axiom that any lower-tiered component supplier, even smaller in scope, can cause a significant supply chain and production disruption. That lesson was reaffirmed in the 2011 devastating earthquakes and tsunami that struck Japan when automotive and high tech manufacturers discovered later in the aftermath that important component suppliers suffered major damage in production facilities.
This week, automotive supply chains have yet another reminder.
General Motors indicates that a contract dispute and bankruptcy filing from a key supplier could force it to close all North American assembly plants, potentially causing millions of dollars in losses per day. Clark-Cutler-McDermott Co. is a component supplier for 175 acoustic insulation and interior trim parts that are apparently utilized in nearly every vehicle GM produces in North America.
According to a published report from The Detroit News, the supplier stopped producing parts for GM after shifts on Friday and laid off its workforce. Clark-Cutler-McDermott previously had shut down business operations June 17 and laid off workers until GM was granted a temporary restraining order last month by a U.S. District judge in Detroit, forcing the supplier to temporarily resume production. That order expired Monday. According to a published report by The Wall Street Journal, GM has accused the supplier of using the bankruptcy process and its position as a critical parts supplier to protect personal interests rather than honor contracts.
The Franklin Massachusetts-based supplier filed for Chapter 11 bankruptcy last week, and is seeking to sell its business assets because of what it calls unprofitable contracts with GM that have led it to lose $12 million since 2013. Further indicated was that the loss rate of loss had recently accelerated to more than $30,000 a day. The company, which also filed bankruptcy for its subsidiary CCM Automotive Lafayette LLC, says in court records that more than 80 percent of its revenue comes from GM. That is a significant risk for any supplier, especially a smaller one in the nature of a global automotive producer.
A report indicates that GM loaned the supplier millions of dollars to continue operating and also increased prices paid for parts. GM, in court filings, said it told the supplier it would completely fund the sale of the business to another entity.
A U.S. Bankruptcy Court hearing is scheduled to discuss several requests from the supplier and GM. The judge may rule on motions from the supplier to reject GM contracts, give it the authority to pay wages and benefits and obligations, use of collateral cash or GM’s motions that would require the company to deliver inventory to GM and turn over GM tools and equipment or honor its contracts with GM.
Obviously this is a situation that no procurement and supply chain operations team looks forward to and obviously has a lot of GM teams scrambling in back-up contingency planning. The subsequent weeks will be critical in producing back-up supply plans.
Supply Chain Matters recently highlighted a WSJ report of a different focus by GM’s procurement teams, one that allowed 400 U.S. and Canada based component suppliers for GM vehicles being produced in Brazil and Mexico to be able to periodically renegotiate their supply contracts. These suppliers are currently challenged with the effects of a volatile foreign currency environment causing rising material and labor costs. This development was newsworthy because among long time automotive industry watchers, GM developed somewhat of a past reputation as a strict negotiator with what the WSJ describes as “ironclad” contracts with suppliers. Unfortunately, this latest news, coupled what eventually transpires regarding this one supplier, will either add or distract from previous perceptions regarding GM as a customer.
Supply Chain Matters Conversation with ClientLoyalty- Interactive Supplier Performance Management Technology
When this industry analyst attends technology and industry conferences, I attempt as time permits, to seek out what I believe our technology vendors that are providing unique or different technology approaches to business process needs. When attending ISM 2016, the annual conference of the Institute for Supply Management (ISM) held in May, this industry analyst had the opportunity to speak with B2B relationship and supplier performance management technology support provider ClientLoyalty, Inc., specifically Chairman and CEO Kent Barnett.
Essentially, ClientLoyalty technology collects operational metrics, direct feedback and social sentiment information regarding suppliers. After successfully spending over a decade transforming the field of human capital analytics with cloud-based technology, the founders of ClientLoyalty’s turned to developing cloud-based software to improve buyer/supplier relationship management using analytics, benchmarking and credible methodologies.
However, the uniqueness is in the concentration on business or professional services providers. For example it could be marketing services or public relations, consultants, or logistics and transportation services.
Within the software, information is synthesized and benchmarked in the form of alerts, dashboards, and reporting tools to ease the complexities of relationship management using what is described as a practical and pragmatic approach. Users have the option to share non-sensitive data with partners as a part of a transparent service level agreement process while keeping confidential the critical data needed to track and monitor internal supplier relationship management and monitoring needs.
During my visit to the ClientLoyalty booth, I was provided a demonstration of the software.
What impressed me was the breadth and clarity of the information, the flexibility of the software, and the intuitive usability features that should allow any user to be able to quickly come up-to-speed with features. Information on key performance indicators can be collected and inputted plus suppliers themselves are allowed the ability to input information relative to their customer’s actions in the relationship, in-essence, fostering a two-way information lens. That, by my lens, is area that should have more practice by procurement professionals, an understanding that perceptions run in either direction and it’s important to key-in on the ones that could lead to added tensions.
One cool capability was the ability of either party to share videos or photo images, perhaps a photo of the service created or a video of a problem area that needs attention. While such capability can also be done in texting or email, having the ability to tag, archive and log these events can be of-value. There is also the ability to scan social media channels for evidence of positive or negative sentiment. I kidded with my host as to wht6her that included specific Supply Chain Matters commentaries.
Finally, ClientLoyalty is one software company that is willing to share pricing on its web site. The Enterprise version of its software is currently available for $99 per user, per month.
We found ClientLoyalty technology to be one that we wanted to make visible to our readers who may be seeking a different option for managing supplier relationships and performance for business services providers.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.