Adhering to One’s Declared Standards for Quality: Chipotle Mexican Grill Suspends Regional Pork Supplier
In today’s restaurant and fast food industry, consumer impressions about one’s brand are more and more governed by the quality and standards of the food supply chain. Chipotle Mexican Grill has incurred explosive market growth because of its branding emphasis on “food with integrity” translating to higher quality, ethically based food ingredients served at its various restaurants.
Thus, business and general media were quick to feature the headline that on Friday, Chipotle suspended the use of pork sourced from an unnamed regionally based pork supplier. According to Chipotle, a routine audit discovered that the supplier violated declared humane-based standards for the housing of pigs with access to the outdoors. The restaurant chain, which was decisive in its decision to stop supply, indicated that this was the first time it had suspended supplies because of a violation of standards. A spokesperson indicated to media outlets: “This is fundamentally an animal welfare decision, and is rooted in our unwillingness to compromise our standards where animal welfare is concerned.”
The result is that an estimated one-third of its current 1700 restaurants now feature signs indicating that the Carnitas menu item is temporarily suspended due to a shortage of supply. This evening, this author visited a suburban Boston area outlet and witnessed such a sign, along with a very long line of queued patrons.
One has to admire a company that is willing to adhere to its supply standards in spite of the consequences, especially in the light of the realities of mass food production and of Wall Street’s short-term focus on profits. A published report from Reuters indicates that move could possibly hurt the chain’s first-quarter results. The report indicates that the move underscores the clash among the U.S. agriculture industry, commodity brokers and food companies as consumers continue to become increasingly concerned about the sources and practices of food supply. One equity analyst has already cut first quarter earnings expectations for the chain. Readers may recall that global restaurant chain McDonalds recently terminated the Chinese subsidiary of a long established beef supplier after discovering the altering of food expiration date labeling.
For its part, Chipotle is now hard at work seeking added supply from other existing suppliers. One AP syndicated report indicates that Niman Ranch, Chipotle’s oldest and largest pork supplier insists that it is not the supplier in question. Instead, it is working to get additional supply to fill-in for the current shortages.
We often are reminded on today’s realities that consumers and customer have more power and influence in buying decisions. This development concerning Chipotle Mexican Grill is certainly a testament to the meaning of such power.
Throughout 2014, Supply Chain Matters has provided a number of insights related to the increased importance of B2B business networks among multiple industry settings. We were thus rather pleased to read of the top ten supply chain “E” lessons of the year from the lens of Elemica, a process industry focused B2B supply chain network technology provider. The lessons were assimilated from real customer experiences and Elemica’s involvement to help businesses move forward in the New Year.
Included in these 2014 lessons learned are observations that supply chains are becoming more of an ecosystem, rather than disparate parts and that an outside-in perspective that integrates and synchronizes product, demand, and supply networks to optimize joint value have become important alignment objectives. Other lessons included are the movement away from a sole manufacturing, to more of a supply chain view linking end-to-end supply and demand visibility. From our lens, that is a rather noteworthy important learning among process based manufacturers.
Other noted lessons include building better relationships with B2B social collaboration methods, more emphasis on predictive and prescriptive analytics and a concentrated effort toward a single view of business via unified master data management (MDM).
Automotive Service Networks Response to Crisis: Update Three- Expanded Recall Involving Suspected Defective Air Bag Inflators
Supply Chain Matters provides another update to the ongoing crisis involving the automotive industry as unprecedented levels of product recalls continue to stress auto aftermarket service supply chains to their limits. In our last commentary, we noted the colliding forces of regulatory, political, and capacity-restrained automotive replacement spare parts networks may well continue for many more months, and that appears to be exactly what continues to unfold. Once more, when the dust settles, we believe that the industry needs to take a hard look at lessons learned.
This week, there were further significant developments related to recalls of alleged defective airbag inflators produced by Japan based supplier Takata. After undergoing additional scrutiny from U.S. regulators, Takata refused to broaden the scope of the defective inflators recall beyond a select number of U.S. States with high humidity concerns. That action forced OEM Honda, to expand its U.S. recall of suspected defective airbag inflators to all 50 U.S. states. Once more, Honda further indicated to U.S. regulators that the company is in discussions with other air bag suppliers to add augmented capacity of replacement parts. According to published reports, Honda is in discussion with suppliers AutoLiv and Daicel Corp. for supplementing supplies of required repair parts. In testimony this week, a Honda executive confirmed what Supply Chain Matters indicated several weeks ago, that the shortage of repair replacement parts would continue for quite some time.
U.S. regulators continue to pressure OEM’s BMW, Chrysler, Ford and Mazda to expand their driver-side air bag recall campaigns to include all 50 states. These actions have been prompted by additional information disclosed this week by the U.S. National Highway Traffic Safety Administration (NHTSA) indicating that prior incidents of premature exploding airbags are not just occurring in high-humidity areas. That is new information not brought forward previously. If these other OEM’s expand their campaigns to include all U.S. states, that will of-course add even more concerns to the ultimate availability of replacement parts.
According to a published report by The Wall Street Journal, earlier in the week Takata issued a letter to the NHTSA challenging the authority of that agency to compel a parts supplier to initiate a recall, arguing that the U.S. regulator authority is limited only to actual OEM’s that produce automobiles. From the lens of Supply Chain Matters, that argument is tantamount to a supplier throwing its major automotive OEM customers under the proverbial bus.
There should be little doubt among automotive line of business and supply chain leaders that these past few years of unprecedented product recalls are cause to revisit product quality imperatives. There has been a lengthy industry debate as to whether the quest for volume and profitability growth sacrifices quality conformance across the end-to-end supply chain. On the positive side, Hyundai recently scaled-back its volume growth plans when indicators of slipping quality motivated senior leadership to cut-back growth plans and endorse added quality measures. The fact that Honda, which has prided itself in the quality image of its products is now front and center in the media is a symptom. In contrast, reports in business media of late question whether Toyota or General Motors have been chasing volume and profitability growth with quality and brand image as a casualty.
Evidence of common defective parts among multiple OEM brands and models point to shortfalls in quality monitors and component sourcing strategies that balance quality conformance risks. At the surface, these developments are perhaps a further indication that teams are not collecting or monitoring correct data as to component failure trends along with predictive indicators of broader manufacturing or material issues. The industry needs to take a hard look at supply-chain-wide quality conformance and feedback mechanisms.
In January of 2013 a relatively new Boeing 787 Dreamliner operated by Japan Airlines caught fire while on the ground at Boston’s Logan International Airport. Fortunately, all passengers had deplaned from a 13 hour nonstop flight from Tokyo, while ground crews were making preparations for a return flight. The fire was traced to the aft electrical equipment bay and was believed to originate in the aircraft’s auxiliary power system, where a lithium ion battery later exploded, causing a secondary fire. This was the second incident involving a fire condition with the auxiliary batteries.
That incident triggered a subsequent six month grounding of all existing operational 787 aircraft while government safety agencies and Boeing searched for the cause. At the time, Supply Chain Matters featured a series of ongoing commentaries reporting on subsequent program developments. The aircraft was later approved for service after Boeing initiated a complete redesign of the battery housing unit containing lithium-ion batteries.
Last week, the U.S. National Transportation Safety Board (NTSB) issued its final accident report regarding the 2013 incident. (The investigative actions of government agencies tend to be elongated)
In its report, the NTSB states: “The NTSB determines that the probable cause of this incident was an internal short circuit within a cell of the APU lithium-ion battery, which led to thermal runaway that cascaded to adjacent cells, resulting in the release of smoke and fire. The incident resulted from Boeing’s failure to incorporate design requirements to mitigate the most severe effects of an internal short circuit within an APU battery cell and the FAA’s failure to identify this design deficiency during the type design certification process.”
That conclusion pretty much summarizes what business and other industry media was suspecting all along. The accident report further identified “cell manufacturing defects and oversight of cell manufacturing processes” within lithium-ion battery supplier GS Yuasa’s manufacturing facilities. The NTSB identified several concerns, including “foreign object debris (FOD) generation during cell welding operations and a post assembly inspection process that could not reliably detect manufacturing defects, such as FOD and perturbations (wrinkles) in the cell windings, which could lead to internal short circuiting.” In addition, the NTSB specifically cited the U.S. Federal Aviation Administration’s (FAA) oversight of Boeing and its power sub-systems contractor Thales, oversight of GS Yuasa which did not ensure that the cell manufacturing process was consistent with established industry practices.
The good news is that since Boeing’s re-design of the auxiliary power unit (APU) installation configuration there have been no major additional incidents involving battery short circuiting or thermal runaway. Boeing obviously responded and took appropriate action.
As with previous incidents related to the 787, there are obvious common themes of learning. Earlier this year, the U.S. FAA released the results of its comprehensive joint study of the 787 program. That report concluded that the 787 is soundly designed and that processes exist to identify and correct manufacturing issues. However, the report noted areas that required attention. The most notable was the two-way flow of product design, specification, testing information among various tiers of the global supply chain along with proper oversight of supplier manufacturing processes. At the time of the release of the FAA report Boeing senior executives acknowledged to business media that they lost some control of the manufacturing process because of the nature of the global supply chain, and placing too much reliance on suppliers for the overall quality of 787 components and systems.
From our lens, this latest NTSB accident investigation report adds more credence to the reality that globally extended aerospace and complex equipment supply chains need to consider more timely two-way integration of product lifecycle management (PLM) and manufacturing process test information across B2B supply chain networks. Similar to supply chain planning or execution synchronization, product management information synchronization is equally important.
Last week, Boeing announced that it had initiated the manufacturing of the larger 787-9 (Dash Nine) configuration at its South Carolina assembly facility. The North Charleston, S.C., site joins Boeing’s Everett, Wash., final assembly, which began 787-9 production in May 2013. United Airlines will be the designated customer that takes delivery of the first South Carolina-built 787-9. The overall 787 global supply chain needs to scale-up to meet unfulfilled airline customer orders.
The Dash Nine is designed to be 20 feet longer than the previous 787 models and can accommodate up to 290 passengers. This model was originally due to be delivered in 2010 but its production has been dramatically pushed back due to changes in design, most notably Boeing taking on more responsibility for key major component design and manufacturing.
When it comes to extended global supply chain sourcing of major sub-systems, it often takes time and acquired learning to uncover problem areas. The industry learning is that as commercial aerospace supply chains continue to scale-up to higher volumes of production, network-wide product design and manufacturing process information and oversight is just as crucial as other supply chain business process needs. B2B supply chain business networks include the need for synchronization of PLM information elements.
Supply Chain Matters provides a follow-up to Apple supplier GT Advanced Technologies and the events leading up to its bankruptcy filing. In early October, in a sudden and startling announcement, this developing supplier for new, more durable sapphire glass applications for Apple’s product lineup announced that it had commenced a voluntary filing under Chapter 11 of the Bankruptcy Code as a best means to reorganize and protect that company.
This weekend, The Wall Street Journal, which first identified GT Advanced Technologies as the prime supplier of the new sapphire based material, revealed details previously included but sealed in the bankruptcy filing in October (paid subscription required). On Friday, the bankruptcy judge had ordered the release of this information.
According to the WSJ, GT’s CEO characterized Apple’s efforts as a “classic bait and switch” strategy that caused this supplier to be stuck in what was described as an “an onerous and massively one-sided deal.” The article further indicates that the supplier described constant changes in product specifications without adequate compensation and that Apple had no obligation to buy the material but demanded the supplier restrict the company from selling to other consumer electronics company. In an earlier motion to the court, Apple stated that the filing was intended to “vilify Apple and portray Apple as a coercive bully” and that the CEO’s statements were untrue and defamatory. Apple also invested the sum of $439 million which it must now try to recover.
This Apple supplier relationship has obviously reached a point of no-return. The WSJ quotes GT’s bankruptcy lawyer as indicating: “There are discussions between Apple and the company not about continuing the marriage but rather what I could call a divorce without a custody fight.”
As Supply Chain Matters has noted in many prior commentaries, the perils of being an Apple supplier are those of having the capability of high agility in the wake of what others would view as rather difficult obstacles. That tendency dates back to the era of Steve Jobs who instilled a perfectionist culture for design engineering. Also with Apple come huge scale and the potential for financial reward. In the case of GT Advanced Technologies, the risk-reward strategy has an apparent far different outcome.
Obviously, Apple has no desire to have such a supplier relationship vetted in business and social media but this is a far different era of transparency and openness that sometimes transcends discussions behind closed-doors.
This is today’s mission for high tech and consumer electronics suppliers, namely dealing with whatever is required to make the customer’s business model successful, but sometimes at-peril if a counter-balancing strategies are not pursued. One of the Comments affixed to the WSJ article very pointedly states: “If you cut a deal with Apple, you better know what you’re getting into.” That comment sums it all.
As we have stated in previous commentaries, Supply Chain Matters does not tend to comment on the huge plethora of opinion research studies concerning the discipline and state of global supply chain management unless we feel the research is meaningful and based on sound research practices. By our view, there are too many outlets, beyond experienced analyst anchored firms, producing so called research vs. opinion of the day among a limited set of respondents.
In an October 2013 Supply Chain Matters commentary we highlighted some important findings from the Chief Supply Chain Officer Report conducted and compiled by SCM World. We were impressed with the research approach as well as the key findings. This year, we were able to obtain a copy of The Chief Supply Chain Officer Report 2014, Pulse of the Profession. Our thanks to Supply Chain Matters Sustaining Sponsor E2open for providing us with a copy of the 2014 report. We further had the opportunity to speak with Matt Davis, former Gartner analyst who recently joined SCM World in the role of Senior Vice President of Research.
This year’s report has a reported level of over 1000 cross-industry survey participants responding to over a hundred questions and sub-questions. As was the case last year, the goal of our commentary is not to re-produce the findings but rather to add some of our impressions and takeaways to the findings. SCM World, the authors of the report have done a great job of articulating individual findings.
In the 2013 report supply chain leaders had indicated that they were caught in the middle of rising customer demands and expectations and the global growth ambitions of their firm’s management teams. The conundrum of objectives was directed at continued reductions in costs while helping to grow the business. This year’s report describes 2014 attitudes as increasingly “schizophrenic, with operating cost reduction dominant as ever but closely followed by agility in meeting customer needs.” The authors summarize that supply chains are trying to be all things to all people including areas of enhanced customer service, accelerated NPI and stronger supply relationships. That pretty much tracks with the various supply chain developments Supply Chain Matters has highlighted this year, particularly in the consumer products sector. External pressures for increased, very short-term stockholder value, accelerating structural changes in market and customer behavior, conflict we needs for the supply chain to become more responsive or agile to the rapid industry changes that are occurring. It is a rather difficult challenge that has increasingly manifested itself for many years, challenges that cannot be addressed solely from a focus on financial-based performance outcomes.
A very significant 2014 finding indicates that senior supply chain leaders are intending to move away from the outsourced core competence model of prior years and moved toward more highly vertically integrated strategies in manufacturing and distribution in support of direct-to-customer delivery needs. The forces of Omni-channel commerce are definitely real. What should be of upmost interest to our community is the SCM World conclusion that today, a return to more emphasis on vertical integration and in-house production strategies are clearly underway. A quarter of the SCM World respondents further indicate pursuit of modular push-pull platform strategies managed internally, where final customer demand will be accommodated by a fulfillment network of third-party factories, retailers or partners located closest to customers. There is also a corresponding bombshell statement indicating that supply chain strategies going forward are less likely to depend on contract manufacturing, especially for critical elements of the production process. While we were not surprised by that conclusion, given the many examples that have unfolded this year, some of readers will be.
Other important SCM World findings relate to sourcing procurement strategies. Once again, the findings point to a consolidation of the supply base along with a need for deeper collaborative relationships with suppliers, more sharing of demand plans and deeper levels of collaboration on intellectual property innovation as well as cost savings opportunities. This is obviously another method to try to balance continued needs for cost savings while supporting broader business needs for customer responsiveness and managing important tenets of supply chain risk mitigation. The most attractive markets for growth again point to China, but at the same time, respondents indicate that China is the fifth most likely to be considered “too risky” to operate within.
Finally, no supply chain executive survey these days neglects to manifest the crrent challenges related to supply chain talent management. The 2014 SCM World CSCO respondents pointed to ever more challenges in building and managing supply chain teams over the past two years, nearly double the frustration expressed in 2011. SCM World points to raw recruitment as the most cited problem despite rising interest in supply chain among universities and significant investment in supply chain focused professional organizations. The need for well-rounded generalists possessing broader supply chain functional, business and team collaboration skills seems to remain an important need, with implications for significant job rotation across business areas. This obviously remains a key area of concern among senior industry supply chain leaders and consistent with predictions and findings from other industry analyst firms including the Ferrari Consulting and Research Group. It a challenge requiring far more concerted actions and supporting efforts involving academia, industry, professional organizations and supply chain professionals themselves.
Readers can download a summarized version of SCM World’s Chief Supply Chain Officer 2014 at this web link or view an SCM World blog posting by Kevin O’Marah which highlights the top 10 supply chain facts brought forward from the 2014 report. Alternatively, E2open is providing a download link on its web site Resource Center.