subscribe: Posts | Comments | Email

More Information Disclosed Relative to Tesla’s Model 3 Ramp-Up

1 comment

This Supply Chain Matters blog is a supplemental update which adds additional information to our prior blog commentary- Tesla Conducts Model 3 Customer Handover Event.

It concerns this week’s formal briefing of Q2 2017 financial performance by Tesla’s senior management team, where more information was shared regarding the planned ramp-up of the company’s new and innovative Model 3 sedan.  Tesla model 3 side profile Sized 300x118 More Information Disclosed Relative to Teslas Model 3 Ramp Up

In our prior posting, we stated that we know less about how Tesla will manage the huge planned production and supply chain ramp-up of the Model 3. That question resonated among Wall Street equity analysts to the extent that CEO Elon Musk fielded a lot of questions related to ongoing Model 3 supply chain and manufacturing strategy.

In the briefing, Musk reiterated that when he indicated the term “manufacturing hell,” he really meant it. He further provided an explanation of the manufacturing S curve, a trend quite familiar to our manufacturing and supply chain readers, a curve that essentially depicts the series of plateau constraints that can occur with any product ramp-up. Situations such as supplier shortfalls or production machinery that does not support ramp-up volumes, for example. His message to Wall Street analysts and investors was to not fixate on individual snafu’s but on the target milestone for full production volume levels in 2018.

Nice try- Elon!  Tesla is way-too visible a company to not have multiple eyeballs focused on any snafu.

Further communicated was that Tesla has turned to its major suppliers to assist in achieving both required cash flow and product margin goals. This strategy has a way too familiar ring. However, Musk was quick to praise what he described as the “A-level” collaborative effort and expertise extended by suppliers to prepare for the ongoing production ramp-up.

Tesla has negotiated what the automaker considers better payment terms with suppliers, extending payments out to an average of 60 days. Since the Model 3 consists of less component parts, and can supposedly be manufactured faster than other prior Tesla models, such a goal is the strategy initially adapted by Dell Computer, namely to get paid by the customer before paying all suppliers for the components. Musk’s statement to analysts was on-average, the industry average combined time of production, distribution, and actual sale to end-customer averages 70-90 days. (In today’s sales environment- much higher) Since Tesla owns and controls its own distribution and customer delivery processes, the goal for the Model 3 is an order-to-cash strategy of under 60 days.

From our lens, it’s a great strategy, but as we all know, there are many moving parts to such a strategy, especially in automotive manufacturing that presents a steep production ramp-up phase. This is an area worth monitoring.

Supply Chain Scale-up

CEO Musk acknowledged that Tesla would eventually need to invest in added battery production capacity, particularly for other geographic regions. Acknowledged was the added expense for shipping batteries and completed cars across oceans to fulfill international demand. We believe that this represents a public acknowledgement that Tesla must eventually consider added manufacturing and supply chain presence beyond just the U.S. Musk communicated to equity analysts to expect some further announcements before the end of this year.

Sales Strategy

In our prior blog, we estimated the Model 3 outstanding order reservations to be in the range of 400,000 – 500,000 vehicles, which was candidly an educated guess on our part. In this week’s briefing, Musk clarified the real numbers after queering the automaker’s sales teams. Noted was 518,000 gross reservations and 450,000 existing net reservations for the Model 3 after factoring ongoing customer cancellations. Consider that number for a moment, nearly a half-million customers lined-up with money deposited to secure a Model 3. That is clearly an incredible and enviable position for any automotive or other manufacturer to be in from a customer demand perspective. In fact, Musk noted that his teams can easily drive the current Model 3 customer demand higher with little effort, but cautioned that there would be little point if actual delivery times extend for many additional months. The analogy was waiting an hour-and-a-half for a hamburger to be served. So much for quoting a 2018 delivery date on the Tesla website for new Model 3 orders.

We cannot close without highlighting what we believe was a very positive depiction of cross organizational alignment and collaborative strategy among the extended supply chain management team and senior Tesla management. It concerns the termed Model X, which is the internal depiction of the planned compact SUV iteration of the Model 3.

Musk indicated that his prior communicated goal was to unveil a totally-new architecture for this planned model. The CEO than received council from the executive team (and no doubt product engineering and supply chain focused executives) that incorporating substantial carryover platform features of the Model 3 would facilitate a lower technical and production risk with a faster time-to-market, allowing Tesla to tap a larger existing small SUV market much faster than with a complete new platform.

Musk publicly thanked his team “who reeled me back from the cliffs of insanity

 

We highlight all the above for readers to reinforce the notions that supply chain and manufacturing strategy does indeed matter in achieving desired business outcomes. In the specific case of Tesla’s Q2 briefing of financial performance, it was the essence of a briefing on detailed manufacturing and supply chain strategies. We observe much more of this occurring in financial performance briefings with every passing quarter.

Supply Chains indeed matter.

 

Bob Ferrari

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

 


A Guest Viewpoint- Procurement Impact of the Amazon-Whole Foods Acquisition

0 comments

The following Supply Chain Matters guest blog is contributed by  Jim Wetekamp, Chief Executive Officer of BravoSolution. This is part of a series of invited guest commentaries relative to the acquisition announcement from Amazon regarding intent to acquire Whole Foods.

 

The Amazon-Whole Foods acquisition is arguably the biggest, most ground-breaking deal of 2017. It will change the retail game as we know it today, and spark a tremendous shift for procurement and supply chain teams.

The reasons Amazon bought Whole Foods for $13.7B are clear: the vertical integration establishes a brick-and-mortar presence for the eCommerce giant, expands its distribution network, and finally breaks Amazon into the grocery market – a long-time pursuit for CEO Jeff Bezos. For Whole Foods, access to new technologies that will modernize the in-store grocery shopping experience and accelerate supply chain efficiencies will likely have measurable impact on the bottom-line. Think warehouse robots that can move inventory to where it needs to go much faster, and Amazon Go type checkouts that make the purchase process instant and digital for consumers. Whole Foods Austin A Guest Viewpoint  Procurement Impact of the Amazon Whole Foods Acquisition

Though the extent of the integration between the two entities is still very unclear, we can assert the acquisition will inevitably transform the first and last miles of the grocery supply chain.

Three areas of impact for procurement

 Backend technology will become much more sophisticated across the entire supply chain industry. The acquisition will likely be a trigger for additional investment into Amazon’s procurement technology. Between AI-enabled online ordering with Echo and Dot for industrial procurement, Dash goods ordering services with single item push-button replenishment, and improved inventory tracking with Internet of Things (IoT) enabled logistics — including smart-containers and drone technology — there is a long runway for Amazon to work with from a technology perspective. The procurement and supply chain space will benefit from the windfall of this innovation, getting a glimpse of what is possible and having a successful model to reference, which will propel the industry forward in digitization.

The health and organic food market will also change. Consumer demand for healthy, natural and organic food offerings has skyrocketed and many grocery stores have been giving Whole Foods a run for its money by offering healthy options at prices that won’t break the bank. The scale and efficiencies offered by Amazon’s ownership and technological expertise will likely help Whole Foods capture new cost savings and pass the benefit onto consumers in the form of lower prices. Grocery procurement teams need to be cognizant of this and identify strategies that will help them keep pace with these efficiency gains and lower costs structures so they can continue to compete on price. Amazon was already a big threat to both traditional retailers and online ordering platforms such as Instacart and Peapod, and this acquisition is poised to help it gain even more ground.

Amazon’s previous investments in aircraft and tractor trailer leasing coupled with  ocean freight booking also pave the way for a continued transformation of inventory management, logistics, and distribution. With leadership in the online shopping experience, proven capability for order fulfillment and an established home delivery network, many believe there’s no stopping Amazon from solidifying its position as an envied supply chain leader. This could have positive implications for the entire supply chain industry.

As Amazon expands its grocery delivery capabilities, it will face the same challenges the industry has been grappling with for a while now, such how to safely, affordably and reliably deliver perishables, and may end up finding a solution that others can adopt. This would open an entirely new realm of possibilities for all players – it’s an issue all grocery brands care about and a development everyone will be paying attention to in the fallout of the acquisition.

There’s also the obvious impact on suppliers. As the in-store and online experiences get better for shoppers, so do sales figures, which benefits both the buying organization and the suppliers that sell into them. More sales means more revenue, and more profit and business opportunities for both parties. Additionally, the acquisition may spark even more demand for organics and sustainable food items by opening up access to more consumers. For suppliers, this means more emphasis on sustainability, quality and transparency.

It’s tough to say for certain what the specific implications of this acquisition are for grocery and retail procurement teams at this point, but the residual impact will be game-changing. As Amazon vertically integrates and its supply chain gets even bigger, it will shake up even more industries and cause major shifts in how procurement teams act and innovate.

 

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

 


The Supply Chain Matters Blog Returns

0 comments

We want to alert our readers that Supply Chain Matters has returned from two weeks of summer holiday.  Supply Chain Matters Blog 350 100 J The Supply Chain Matters Blog Returns

Industry supply chains take little pause in ongoing developments and events, and that has certainly been the case during our brief hiatus. Catching up on events, we noted:

Costco Shipping’s Controlling Interest in OOCL

Another consolidation effort in ocean container shipping with the July 8th announcement by China’s Cosco Shipping Holdings intent to acquire a reported $6.3 billion controlling interest in Hong-Kong based Orient Overseas International (OOCL). The deal, if consummated and approved by global maritime regulators, would result in Cosco being recognized as the third largest container shipping firm in terms of capacity, behind industry leader Maersk and Mediterranean Shipping Co. (MSC). Also with the approval of Costco’s move, the top six ocean container shipping lines would in-essence, control three-quarters of all ocean transportation. That has implications for global shippers and industry supply chains.

More Apple Supply Chain Rumors

Continued rumors abounding as to what is no-doubt, the globe’s most visible supply chain. Various reports indicate that Apple’s planned introduction and shipment of its new line of smartphones, including the hyped 10th Anniversary edition, is reportedly behind schedule due to various production start-up or other delays. Such rumors and speculation are nothing new, and some argue are orchestrated to create a frenzy of demand among Apple’s loyal customer base eager to get hands on the latest model. As to what really is occurring is a matter of time and continual observation, especially considering the financial stakes among Apple’s supplier ecosystem.

Sears Teams-up with Amazon on Kitchen Appliance Offerings

The retail industry is buzzing over the announcement of an agreement among Sears Holdings and Amazon indicating that Sears will sell its Kenmore line of refrigerators and kitchen appliances on the Fulfilled by Amazon online fulfillment platform. The move thrusts Amazon much deeper into hard-goods retailing and distribution, a segment yet to be penetrated. From our lens, the more interesting twist to this development is a large retailer, on literal financial life-support, taking a gamble with one of the most-savvy online retailers. There may well be more to this new partnership in the coming months.

On the similar theme of Amazon, business news network CNBC reports that to boost its online catalog of offered merchandise, the online retailer has introduced a new program offering retailers the opportunity to have Amazon buy inventory at full price from third-party merchants while offering to sell such goods on the Fulfilled by Amazon portal. According to this report, in some cases, Amazon has approached third-party merchants after specific end-item manufacturers have specific contract clauses prohibiting the distribution of that manufacturer’s products on the Amazon platform.  This has the potential to place certain merchants in contract violation with a specific manufacturer or goods producer.

Wal-Mart Gears-Up for OTIF Hipping Enforcement

Beginning in August, Wal-Mart will operationalize its “On-Time, In-Full” program, holding suppliers accountable for shipments to be delivered exactly to schedule. The program applies to full-truckload shipments of fast-moving items to the global retailer’s vast network of store distribution and customer fulfillment centers. According to Wal-Mart, goods must be delivered as ordered 100 percent in full, and must arrive on the firm delivery date 75 percent of the time. Items that are late or missing during a one-month period will incur a fine of 3 percent of the goods value. Thus, suppliers will be held to stricter delivery scheduling and stand to be penalized for nay shipments arriving later or even earlier that the planned delivery date. According to a report by Bloomberg, OTIF is one of the hottest discussion topics in retail as suppliers prepare for supporting this new program. Wal-Mart is reportedly playing hardball as well, indicating that if a supplier is determined to be at-fault for not delivering goods on the specified day, the delivery fine will be enforced and is according to the retailer, non-negotiable. From our lens, this will provide rather interesting dynamics among suppliers and their third-party logistics providers contracted to deliver to Wall-Mart.  Who pares the burden of the fine when the 3PL is deemed at-fault?

 

Another Chipotle Mexican Grill Illness Incident

There was another reported norovirus incident involving a Chipotle Mexican Grill restaurant, this one being an outlet located in that state of Virginia, where upwards of 100 patrons were sickened. Preliminary indications are that the contamination did not originate from the food supply chain, but none the less, the incident casts yet another shadow of scrutiny for the restaurant chain’s food safety practices. Wall Street is now awakening to the realization that more consumers will shun the Chipotle brand and that the chain’s aggressive efforts to convince consumers that its food safety mitigation efforts had been addressed.

 

June Cyberattack Impacts FedEx

Weeks after the late June Petya cyberattack that impacted numerous businesses across Europe, FedEx’s TNT Express unit reportedly is still experiencing the aftereffects. Some recent securities filing by the company indicates that TNT shipping hubs and facilities remain operational but are being operated with manual processes. FedEx indicates it cannot estimate at this time when full computerized operations will be restored and that the cyberattack will likely have a financial impact on its operations for the quarter. Further disclosed was that FedEx does not have business insurance to compensate for the effects of a cyberattack.

 

Indeed, the supply chain universe continues to overcome business challenges and Supply Chain Matters will continue to provide our readers the essential insights as to what to expect and how to prepare.

Stay tuned for continued multi-industry coverage and insights.

 

Bob Ferrari

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

 


The Saga of Supplier Takata Reaches a Sad Conclusion- What Has Been Learned?

0 comments

This week marks a sad milestone for an 80-year-old automobile components supplier with deep history.

Japan based Takata Corp., the company that has made unprecedented product recall headlines has filed for bankruptcy protection both in Japan and the United States. The move comes after the supplier faced reported claims and liabilities estimated to be in the billions of dollars owed to auto makers who were forced to shoulder the burden of unprecedented numbers of product recalls and associated costs.Airbag 300x168 The Saga of Supplier Takata Reaches a Sad Conclusion  What Has Been Learned?

Under the bankruptcy agreement, much of the supplier’s business interests will pass to rival Key Safety Systems for an estimated $1.6 billion. However, a reorganized Takata will have to assume liabilities not contracted in the bankruptcy sale, which includes continued production of replacement air bag inflators to complete outstanding repair parts requirements for many more months to come.

In January, a U.S. federal grand jury indicted three former Takata Corp. executives, overseeing air bag product management and engineering. charging them with conspiring to provide auto makers with misleading test reports on rupture-prone air bag inflators.  Takata separately pleaded guilty to criminal wire fraud and agreed to pay $1 billion to resolve a two-year long U.S. Justice Department probe of the supplier’s handling of rupture-prone air bags. Thus far, faulty air bag inflators from the supplier have been linked to 16 deaths and upwards of 180 injury reports globally.

According to estimates from The Wall Street Journal, there are currently 54 million defective air bags that still need replacement in the U.S. alone. These recalls affect roughly 16 percent of the 260 million vehicles still operating on U.S. roads, or roughly one in five vehicles. In some cases, replacement parts are required in lieu of other replacement parts. The supplier’s first and most trusted customer, Honda Motor, elected to drop the supplier in 2015, no longer willing to tolerate a supplier with such a track record of product design snafus and cover-ups.

As we opined in earlier Supply Chain Matters commentaries, replacement parts supply is expected to extend for several more years, making some vehicles even more susceptible to premature airbag inflation explosions that injure drivers and passengers. Auto makers thus remain dependent on a financially smaller and hobbled Takata to meet global demand of replacement inflators.

We noted in January that product and quality management incidents across the automotive industry have taken on more difficult dimensions that expose corporate cultures that favor cover-ups. In addition to Takata, there were the unprecedented numbers of Volkswagen diesel-powered vehicles that were secretly outfitted with emissions altering software. In a plea agreement, VW admitted that its supervisors and employees agreed to deceive regulators and customers regarding actual emissions. Estimates of VW’s ultimate liabilities range in the $15 -$20 billion range when the recall process completes itself over subsequent months. Fortunate for VW is that increased global vehicle sales and profits have helped to buffer the overall financial impact.

With each passing year, the scope and implications of product design and quality incidents have grown to unprecedented dimensions. Product and quality management professionals are placed in precarious roles to make problems go-way during intense pressures that business goals and performance bonuses are met. Doing the right thing for the ultimate customer seems to be a fading requirement. And now, corporations, executives and individuals are collectively being held criminally accountable for their specific actions.

The Learnings- If Any

If there is one of many takeaway learnings from these incidents is that in this digital age, product and process specifications and management actions are stored in digital files available for internal and external review. Transparency has new meaning along with resolve to do the right thing for customers and employees.

In many cases, employees often believe in doing the right things for customers, but sadly, management and business pressures overcome such zeal, and reward mechanisms value those who are creative in gaming the process. All of this, in the end, has a quantified cost, far exceeding the cost to have fixed a defect in the first place.

Bob Ferrari

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

 


For Smartphones- Integrated Product Design, Supply Chain and Manufacturing Capabilities Matter

Comments Off on For Smartphones- Integrated Product Design, Supply Chain and Manufacturing Capabilities Matter

A growing tenet in what is today’s broad supply chain management capability umbrella is the ability to be able to integrate product and manufacturing process design with global-wide production capabilities, faster and cheaper than existing competitors. The notions of responding to local customer needs and desires are now often manifested by co-locating or virtually connecting product design with supply chain process capabilities and continue to become important differentiators for industry supply chains, and for industry disruptors.

These notions are now playing out in the global smartphone market with recent revelations that China based industry disruptors are gaining more global market-share by a strategy of a keen focus on local and regional consumer needs, and on a keen dependency on an integrated and demonstrated agile manufacturing region in China.

Information technology and consumer electronics quantitative market analysis firm IDC recently disclosed that a collection of Chinese smartphone manufacturers have now secured more than 40 percent of global smartphone market-share in the first quarter of this year, nearly double the number of five years earlier. That is a remarkable achievement.  A recent published report by The Wall Street Journal (Paid subscription required) brings forward two significant reasons for this achievement.

The first is the willingness of brand providers such as Transsion Holdings, maker of branded Tecno, itel, and Infinix phones, along with BBK Electronics, maker of branded Oppo and Vivo smartphones, to engineer product features of specific interest within local and regional markets. Localized features include dual SIM card slots, differing camera and imaging features that cater to local norms or demographics.

The second noted reason for success was a common dependence on China’s coastal Pearl River Delta high-tech manufacturing region, the original home to many electronics focused contract manufacturers, for deep supply chain process and manufacturing capabilities. More than 20 Chinese smartphone producers now have manufacturing and engineering dependence within this region.

The WSJ report declares: “The fight (among smartphone producers) is all about staying competitive in pricing and features, and Shenzhen is the battleground. Once known as a little more than a hub of contract manufacturing for Western technology giants, the region has given birth to an array of domestic upstarts by marrying low-cost production and high-tech engineering.

In other words, the region has now developed a collection of integrated product value-chain capabilities that are able to respond to market needs in a far quicker manner, and a more competitive product

Interesting enough, as our Supply Chain Matters readers are often aware, Apple has had a similar reliance on the Pearl River region, specifically Foxconn and other contract manufacturers for manufacturing engineering and production capability as well as new product time-to-market needs. Apple elected early on to maintain product design engineering in Cupertino, and to engineer its smartphones for general global user needs. The same could be stated for Samsung, which relies on China and Vietnam as manufacturing centers, but maintains centralized engineering. Both producers have since added local and regional engineering centers to identify local product functionality needs.

Once again, the name chosen as blog nameplate was purposeful, that indeed, supply chain capabilities do matter for successful business outcomes, and in today’s global markets, supply chain represents a far broader collection of functions and capabilities spanning the product value-chain.

Bob Ferrari

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

 


« Previous Entries