There has been a new development regarding the ongoing large number of product recall activities involving suspected automobile defective airbag inflators produced by supplier Takata Corporation.
The Associated Press is reporting that rival Japan based airbag inflator supplier Daicel Corporation announced last week that it will accelerate the building of a second U.S. factory in Arizona to meet the growing demand for alternative capacity for these components. This supplier, responding to specific requests from Honda Motor for an alternative supplier, and expects to start operating the Arizona facility by March of 2016. According to this report, Daicel has further plans to increase production of inflators at its existing factory in Western Japan to supply additional replacement parts later this year.
This is an obvious sign that alternative component supply arrangements are being initiated as Takata continues to struggle in resolution of current component needs.
In late December of 2011, Supply Chain Matters raised awareness to Japan based automotive OEM’s, specifically Honda, with plans to shift a major portion of export production capability from North America instead of from Japan. We have since updated readers on this strategy to include other automotive OEM’s. We did so because for our readers, it provides a valid example of a globally-balanced and flexible global manufacturing sourcing strategy along with proactive supply chain risk mitigation.
Last week, The Wall Street Journal featured a report on 2014 U.S. auto exports, one that confirms rather active evidence that North America auto production continues to be viewed for both domestic as well as global consumption.
The report indicates that U.S. auto exports in 2014 recoded a record for the third consecutive year. In 2014, approximately 2.1 million new cars and trucks were exported to other global regions, an 8 percent increase over that in 2013, according to the U.S. International Trade Association. According to the WSJ, about half of these exports are destined to Canada and Mexico with other countries of mention being China, Saudi Arabia and South Korea. Exported vehicles include brands such as BMW, Fiat-Chrysler, Daimler, Jeep, Ford, Honda, Nissan and Toyota. One cited example was the Jeep brand which shipped upwards of 316,000 of that maker’s Wrangler and Cherokee vehicles to export markets. A 50 percent increase from 2012 levels. BMW has plans to boost U.S. production of its X3 and other SUV line-up by 50 percent over the next two years.
The article further points out that while the U.S. dollar is currently strong, these exports efforts began when the dollar was weaker, and momentum has continued.
As we originally observed, the implication in these shifting manufacturing export trends is that U.S. automotive supply chains now cater to the product-unique needs and product demand strategies of certain export markets and there lies the importance of global product platform development strategies. There is the added need to dynamically plan and respond to constantly changing and different geographic market scenarios. The U.S. automotive supply chain ecosystem therefore benefits and has the continued potential to be globally competitive in margins and consumer fulfillment. The U.S. automotive supply chain further serves as a backup strategy to any major supply chain disruption that might occur in another region.
Whether the growing export trend continues in 2015 is obviously dependent on shifting and highly changing currency trends. However, the strategy and capabilities invested upwards of five years ago appear to be paying off.
Yum Brands Challenges Within China Continue: The Importance of Proactive Supplier Quality Management
Supply Chain Matters often provides our readers education on the costs of supplier non-performance or the risks of supply chain globalization efforts. Such efforts take on critical importance in food and food services focused supply chains.
In the summer of 2014 well-known global restaurant brands such as McDonald’s, Yum Brands (operators of Kentucky Fried Chicken, Pizza Hut, Taco Bell) and Burger King were named by both media and Chinese food regulatory agencies for offering expired meat products to customers. The expired chicken and beef meat products were traced by restaurant operators to food supplier Shanghai Husi Food Company, which was affiliated with U.S. based OSI Group, a $6 billion producer of food products. OSI itself had garnered what is reported to be a solid reputation as a quality focused food supplier. Unfortunately however, wide-scale publicity across China and continued regulatory scrutiny hampered efforts to restore consumer confidence.
Since that time Yum Brands as well as McDonalds have attempted to recover from potential damage to their brands by China’s consumers in the wake of this incident.
This week, in conjunction with reporting fourth quarters earnings, Yum Brands who derives almost half of its revenues from China operations, reported an 11 percent sales declines for China with sales for established stores down 16 percent. Revenues for the December-ending quarter fell 4.4 percent and the firm reported a loss of $86 million compared with a year earlier profit of $321 million.
By now, readers are also aware that McDonald’s has initiated a CEO change based on continued disappointing revenues and earnings for both China and U.S. outlets. McDonald’s has since encountered and overcome a shortage of French-fried potatoes within its Japan outlets.
Strategic sourcing and procurement teams are often well aware of the critical importance of proactive supplier quality management. Continued incidents such as those that occurred in China bring that awareness to the executive suite and boardroom.
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.