This author had the opportunity to attend the Kinaxis Kinexions customer conference last week. Among the customer presentations there was a rather insightful talk from a supply chain executive at Ford Motor Company. This presentation delivered by David Thomas, Director of Global Capacity Planning at Ford was titled, Creating Global Standards Across Regional Sites, provided important insights on building and adopting global-wide data and business process standards without the use of traditional waterfall based program and change management methodologies. This technology effort underway at Ford is so different and novel, and conference attendees were citing this presentation as noteworthy and insightful. Thus are we sharing the highlights with our broader multi-industry cross-functional supply chain readership community.
Since the global financial crisis of 2008-2009, the Ford Motor Company has been focused on “One Ford”, a series of foundational initiatives directed at overhauling unaligned management and business processes. This umbrella initiative was designed to address Ford’s internal tendencies toward regionally-based independence in P&L, product development and product value-chain strategies. Rather than operating as a single global based company, the emphasis was more toward disparate, top-heavy independent operating divisions. As was the case with many other manufacturing companies, the “near-death” experiences of the financial crisis provided the wake-up call to the requirement that Ford had to change.
Indeed, Ford was able to quickly bounce back from the financial crisis but Thomas described hitting another wall by 2011. Unforeseen global capacity restrictions were hindering growth. The major supply disruptions brought on by the devastating tsunami that impacted Northern Japan, and the major floods that effected Thailand’s automotive sector were another reminder that the company’s overall sales and operations planning was not globally aligned for capacity and resource based decision-making. That prompted the need for a global capacity planning initiative that would be able to coordinate global response to capacity and supply alignment needs based on singular planning data.
This global capacity planning team soon concluded that there were no existing global standards related to product and capacity data across Ford. Spreadsheets were the dominant planning mechanism, with differing dimensions of data and information that hindered any global perspectives to dimension problems or to assess resolution actions. Thomas described the prior dominant atmosphere as being described internally as “dumpster diving for data.” The team quickly came to the conclusion that a global-wide set of data standards supported by a single global planning system had to be initiated as quickly as possible. However, the initial goal was to provide consequential evidence that global-wide data standards would result in far more effective capacity and resource planning.
Rather than traditional system program management, the steering team elected to focus on a faster innovation cadence, that of two-month development processes. A total of 14 cycles of fast innovation focused at building management credibility on the business value of a globally aligned data supporting a common S&OP framework. Thomas described the selection of a pilot development window as a purposeful effort to uncover needs and provide more positive evidence to the business value for global data and information standards to improve decision-making. These efforts included painful methods directed at mapping data tables and building simplified Excel based extraction tools. Eventually, a cobbled together single view of global and capacity that included all regions, markets and major components was developed, enough to convince senior management of the value of a singular, authored, S&OP framework. Thomas described this pilot phase as advocating that a lot of little adjustments with improved visibility can save hundreds of millions of dollars.
This initial pilot effort provided the impetus to secure formal approval to move forward in the development of a global-based S&OP systems support initiative that remains underway across Ford. It is being designed to move away from a current monthly planning process to more agile, better-informed and more predictive planning.
For the subsequent phase of off-the-shelf application selection and implementation, the steering team again avoided a big-bang, multi-year waterfall planning effort that would involve as-is and to-be state analysis, and instead elected to go with a tops-down approach. Thomas indicated that the steering team avoided waterfall global workshops to depict future state needs because: “nobody would ever agree.” Thomas’s described a viewpoint that people are often conditioned by the tools they currently utilize to perform their jobs. Instead the effort was directed at the expectation that Ford will have a global S&OP system framework that would launch on-time without major business disruption.
The agile development approach carried over, and development teams now work to what was described as continuous two-week development milestones. Rather than assemble and allocate on a full-time basis a dedicated global team of Ford employees to manage overall implementation, a decision was made to utilize dedicated externally based experts, those that were not anchored in Ford’s past practices. The people who will ultimately utilized the global system work alongside the external team during the review phases. The current effort is described as including 9 dedicated resources from Kinaxis along with resources from Deloitte, Prana Consulting and Ford’s internal IT staff. Efforts are now underway to build full data transparency across all product demand and supply, along with provisions for regionally-based S&OP efforts that are collectively based on a more timely, global based planning data.
Thomas indicated that Ford is about 6-9 months away from global launch of its singular S&OP process framework. It was described as a big-change for thousands of people who do not really want their existing jobs to change but do want their jobs to be easier in the needs for gathering common, more insightful and meaningful supply-chain wide data that can provide for more informed decision-making relative to line-of-business and functional supply chain goals. Then again, a continuous development cycle is already providing the evidence of the benefits of a singular planning data model along with the value of managed scope efforts that stream continuous economic benefits for the business. Gone are the days of big-bang implementations that risk business disruption and significant added costs of change management and implementation.
Supply Chain Matters extends praise to Ford’s ongoing transformational planning efforts and we look forward to learning more about the post implementation results.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Last week, Tesla founder and CEO Elon Musk penned a blog posting that essentially updated the master plan for the company that called for a broader product development thrust into hybrid trucks and buses. This places a far broader emphasis on the firm’s supply chain ramp-up challenges, one with the implication that Tesla will, by our view, have to seriously consider adding to existing final assembly production capacity beyond its current Fremont California facility.
The commentary itself not only provides an argument for why the electric car company must merge with SolarCity, but a further expansion of the master plan that includes:
- Create stunning solar roofs with seamlessly integrated battery storage
- Expand the electric vehicle product line to address all major segments
- Develop a self-driving capability that is 10X safer than manual via massive fleet learning
- Enable your car to make money for you when you aren’t using it
New product offerings were described as a new form of pick-up truck, and beyond the consumer vehicles market, an innovative heavy-duty trucks and high passenger density urban transport vehicle. Regarding the latter, Musk envisions a smaller footprint of urban busses with a transition from the role of individual bus driver to one of fleet manager. Both are noted as in the early stages of development at Tesla and should be available for unveiling next year, and will follow the availability of the more affordable Model 3 currently due in 2017.
Supply Chain Matters previously highlighted efforts of truck maker Nicola Motor Company in developing a Class 8, 2000 horsepower electric powered semi-tractor truck that will be named the Nicola One. This manufacturer has to-date booked 7000 reservations, each accompanied by a $1500 deposit, totaling more than $2.3 billion in cash to secure a reservation for this new vehicle, hence the sense of urgency for Tesla to enter such a market.
To state that the latest master plan is audacious or ambitious is an understatement. It places a far more concentrated focus on whether product development and the supply chain can rise to the challenge in such a short timeframe.
As noted, our last Supply Chain Matters commentary on Tesla concluded that the company remains challenged by supply chain ramp-up issues as it strives to meet aggressive short and long-term production and supply chain needs of existing announced vehicles. Musk has literally accelerated by two years, his goal to have the California final assembly facility output 500,000 vehicles per year. In his latest blog post, Musk once again re-iterated that this will be addressed as a function of engineering:
“What really matters to accelerate a sustainable future is being able to scale up production volume as quickly as possible. That is why Tesla engineering has transitioned to focus heavily on designing the machine that makes the machine — turning the factory itself into a product.”
The adding of commercial vehicles with more innovative hardware and software designs implies no choice but to accelerate capacity, strategic commodity and supply chain wide resources. Just today, The Wall Street Journal reports (Paid subscription required) that Tesla’s new $5 billion “gigafactory” near Sparks Nevada to produce the combined company’s battery component needs is currently one-sixth of its planned future footprint. Currently, 1000 construction workers are working two shifts per day, seven days per week to prepare for 2017 needs in the output of lithium-ion cells. Primary battery supplier Panasonic admits to the current challenges of finding qualified production workers, and with the addition of even more models of transport vehicles, the scale of the battery plant’s capability become crucial. But so does final assembly and distribution as well, in an area that is noted for rather expensive real estate and distribution space.
Thus, any experienced or even entry level supply chain and manufacturing professionals that enjoy an environment of fast-paced innovation and creativity in business process and physical supply chain processes best route your resumes to Tesla. We anticipate a razor-like focus that harnesses the fusion of engineering, product development and supply chain management into a kaleidoscope of expansion that will test current norms and thinking.
Supply Chain Matters provides an update on the ongoing brand and supply chain related challenges that have impacted Chipotle Mexican Grill, specifically a past series of food related illnesses including E-coli and salmonella tied to the chain. Subsequent government investigations could not determine any specific causes of prior multiple outbreaks, which presented a challenge in-itself. Last week, Chipotle reported its latest quarterly financial results and there remains evidence that consumers seek more definitive evidence of food safety responsiveness before they return.
In a previous February commentary, we observed that the restaurant chain had entered what we believed was a new critical phase, one focused in rebuilding its brand integrity along with assuring that food safety practices were re-addressed across the supply chain and within its individual restaurants. In a mid-March commentary, we highlighted reports that seemed to put a different twist to the ongoing crisis. At the time, The Wall Street Journal citing informed sources reported that the restaurant chain considered stepping back from the food safety changes touted back in February. Rather than conduct high-resolution DNA testing on a multiple of inbound supply ingredients, the plan was apparently to test only certain foods. Further reported was that the chain’s beef and produce supplies would be pre-cooked in centralized kitchen facilities to insure that E.coli was eliminated, and then packaged in vacuum-sealed bags and shipped to local outlets where the product could be marinated and grilled. That decision was apparently subsequently changed. In April, we highlighted the financial impacts of the ongoing crisis affecting bottom line results and management attention.
At the core of this ongoing crisis is the time-tested tenet that consumer trust is hard won, and hard to get back when consumers believe that trust has been violated. If there is any question of a lack of food safety practices at any point along the food supply chain, efforts need to be re-doubled to explore and address any and all such issues.
Readers may have sensed frustration in that our perception was the Chipotle senior management was placing too much emphasis in addressing the ongoing crisis as that of a sales and marketing challenge, one of providing consumers economic incentives to return, while taking what we perceived as a more lean expense towards food safety integrity across the supply chain. The chain embarked on new loyalty and incentive programs offering free burritos and chips to lure back previous customers.
Last week, the “food with integrity” chain reported its latest quarterly financial performance for the June-ending quarter that mostly invoked mixed Wall Street expectations. Although the restaurant chain has returned to some profitability, it has not managed to recover a significant portion of its prior loyal customers. Same store sales were reported as down 24 percent. According to a report published by The Wall Street Journal, equity analyst firm JP Morgan cited a recent survey indicating that about 25 percent of the chain’s customers have stopped visiting, or are not visiting as frequently. These same analysts, according to this report, now indicate that a full recovery for Chipotle could take years.
Further disclosed was that full testing for any food pathogens in central kitchens, such as bell peppers, was changed because doing so resulted in lower perceived quality from restaurant patrons. The new food safety expert brought in to address food safety needs has reportedly developed other interventions to identify and eliminate pathogens such as now blanching bell peppers and lettuce at the local restaurant.
For the current year thus far, the decline in the value of the restaurant chain stock is approaching 40 percent. Last week executives indicated that upwards of 30 percent of transactions are now tied to the new customer loyalty program which by our lens may be just as troubling since a new culture of visit dependence can be increasingly tied to availability of monetary promotions as opposed to prior loyalty tenets of food taste, integrity and quality of food.
Last week Chipotle executives stressed that revised marketing efforts will now shift to providing wider visibility on food safety and the chain’s supplier traceability program. We do not know how much monetary and staff resources have been allocated to marketing initiatives as contrasted with supply chain food safety. Perhaps that will be forthcoming. Suffice to state here that this may well be another case of opportunity lost.
What seems to be so prevalent in today’s food industry is this notion that consumers have short memories, and that customer retention equates to smart and innovative brand marketing. Often this is driven by Wall Street’s relentless pressures for near-term stockholder monetary rewards vs. long-term brand integrity. Call us old-fashioned, but we remain in the belief that supply chain wide quality, oversight and responsiveness to consumer needs, particularly when any of these tenets is challenged, matter much more in the allocation of management and organizational-wide attention.
As for our personal household, we remain as previous loyal customers who have suspended our visits to Chipotle pending more definite data on overall food safety and integrity. When any company turns to short-term crisis management and stock recovery vs. systemic root cause, it should be a flag of caution. Convince and prove to consumers that supply chain wide measures have been definitively addressed. While consumer tastes are certainly personal in-nature, speaking individually, this author is willing to trade-off some taste for assurances of safety and quality.
© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.
This week, The Council of Supply Chain Management Professionals (CSCMP) with the collaboration of A.T. Kearney, published its 27th Annual State of Logistics Report©. As has been our annual custom, Supply Chain Matters provides our initial impressions of this year’s report.
Before we begin, let’s take a step back.
For the past several years, we have raised a number of concerns and added perspectives regarding the state and overall costs of logistics across the United States. Our chosen editorial commentaries reflecting on the 2012 thru 2014 reports expressed concerns towards a continued trend for increased logistics, transportation and inventory costs and in 2014, we again cited our growing concerns regarding cost and service trends. Regarding the 2015 report, our headline takeaway moved toward action, indicating that industry supply chain teams required to take attentiveness to the implications of what was occurring in various logistics and transportation channels.
We quote one of our Supply Chain Matters key takeaways from last year’s report:
“With the latest (2015) report, we believe that industry supply chain teams to move beyond industry media spin. Pay close attention to the concerning industry trends and their implications, and act proactively to continuing logistics challenges that could prove costly.”
Similarly in our annual predictions for industry supply chains published prior to the beginning of every New Year, we have continually raised awareness to increasing forms of ongoing disruption occurring in various logistics and transportation sectors.
This year’s report was compiled by a different research partner, AT Kearney. Thankfully, the current report authors are finally acknowledging that change is occurring, with the main theme being- Logistics is in Transition. Other sub-headlines and takeaways in this year’s report include:
- The logistics industry is entering a new era of disruptive forces that involve technology investments and operational constraints that will fundamentally change the rules of the game.
- Growth in the parcel and express segment continues to be fueled by the ongoing explosion in online B2C E-commence and Omni-channel retail growth.
- Overcapacity and buyer’s market state conditions continuing in the ocean container, air freight and now the U.S. rail segments.
- Technology continuing to play a key role in the future transformation of the 3PL industry.
Regarding that latter headline, the CSCMP sponsored report indicates:
“The pace and breakthrough nature of technological innovation- and the rate of which it is adopted- will heavily impact supply chain assets, processes and people.”
A further perspective we urge are multi-industry supply chain readers to dwell upon is that according to this latest report, while business inventory growth flattened in 2015, it was countered by a 42 basis point increase in the weighted cost of capital resulting in a 5.1 percent overall increase in inventory carrying costs in 2015. Part of the explanation can be found in the Appendix section of the current report. The new authors elected to modify the calculation of inventory carrying costs because prior reports multiplied the total value of business inventories by a fixed percentage- 19 percent in prior years. The new authors elected to calculate the value by utilizing other matrices more reflecting actual values of weighted cost of capital.
The implication going forward is that pressures to add additional inventory to mitigate risk or respond to customer needs for same-day delivery will come with a stiffer financial cost beyond zero interest rate conditions.
Thus, if you chose not to consider what we have been pointing out in the last 18 months, you now have a renewed industry perspective. Therefore, we need not dwell in broader or different perspectives,, rather we urge our readers and followers to just read and absorb the report for yourself.
The latest report is available for download on the CSCMP web site. Existing CSCMP members can download the report at no-cost, while non-members must pay a publication fee.
A few added comments related to the changes in this year’s report. We applaud CSCMP and AT Kearney for the changed methodology and added internal logistics industry and external multi-industry perspectives and insights brought forward in the new format. We encourage both organizations to continue that effort in future annual reports. Previous reports featured more added color and current data points in the current year and we trust the authors will take that into effect in future reports as well.
We re-iterate our ongoing key Supply Chain Matters takeaways:
The “new normal” of logistics and transportation is reflected in strategies directed at assuring consistency of service, deeper levels of business process collaboration delivered at a competitive cost. The renewed message in the light of continuing data is to insure that the cost, service and inventory benefits derived by contracting or outsourcing logistics and transportation services outweighs the continuing pattern of increasing services costs. As supply chain processes and risk profiles continue to become more complex, especially in light of the demands of online and Omni-channel fulfillment, 3PL’s and total logistics providers will have to invest more in technology and services, adding more motivation to increase fees or institute risk sharing methodologies.
If you require another proof-point- reflect on the actions that Amazon has been taking to take more control of its logistics and transportation capabilities for premium fulfillment services. If your organization spent billions on transportation and logistics, you would probably be just as motivated.
A final note:
At this year’s annual CSCMP conference being held in late September, this author will be collaborating with The Washington Post in moderating a specific panel discussion related to ongoing logistics and transportation industry trends and how specific industry supply chain organizations are responding to these changes. Stay tuned for further details.
© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Supply Chain Matters recently had the opportunity to speak with contract manufacturing services (CMS) firm Jabil’s, specifically Vice President of Supply Chain Solutions and Global Logistics, Fred Hartung. If readers had any perceptions that certain CMS firms were laggards in advanced technology adoption, our interview led to quite the contrary perception.
Jabil has been featured in supply chain industry headlines these past two weeks. At the recent Gartner SCM Executive Conference, Jabil’s intelligent supply chain capabilities in real-time visualization and advanced analytics resulted in receiving an award as a “Supply Chaininnovator.” Hewlett Packard unveiled what it termed as the first production-ready commercial 3D printing system and Jabil participated in the press conference. At last week’s SAP Sapphire customer conference, SAP and UPS announced a partnership for services related to an on-demand 3D printing network which involves this CMS as well.
Hartung oversees multiple roles including responsibility for advanced supply chain technology, digital supply chain, advanced planning and trade compliance. He additionally heads a team overseeing Jabil’s supply chain global network.
Our discussion touched on a number of business and technology areas.
Regarding the current CMS industry landscape, Hartung described changing global transportation costs, foreign exchange rate volatility and changes in the “value density” of products as all dynamic industry forces.
More manufacturing focused OEM’s now see themselves as incorporating more and more software and technology as major parts of product design and functionality features and that impact spills over to contract manufacturers. OEM customers were further described as increasingly practicing near-shoring manufacturing sourcing practices aligned to major geographic product demand regions with Mexico and Vietnam really taking off along with resurgence towards manufacturing in Malaysia. Hartung indicated Jabil’s belief that 3-D printing will make a big difference in localized manufacturing tied to customer fulfillment. OEM’s are still experimenting with incorporating 3D printing concepts into product strategy and Jabil is assisting by maintaining various labs across Silicon Valley.
We discussed what is often described as the number one multi-industry supply chain decision-support challenge, that being gaining and enabling end-to-end planning and customer fulfillment visibility. Hartung described this challenge in the context of “actionable visibility”, a focus on the most pertinent information supporting business processes along with “in-control” digitized streaming information flow that is anchored in analytics-driven decision-making capabilities. Another Jabil consideration in its use of advanced analytics is directed at managing and mitigating supply chain risk. Nine separate categories of risk are continually tracked ranging from low to higher supply chain disruption and risk factors.
In the area of addressing Internet of Things, machine learning and cognitive computing opportunities, Hartung acknowledged that information security has got to be an area to be taken very seriously, and prominent in the early design process. Jabil views IoT as an enabler of new business models for customers and for Jabil, and here again, leveraging analytics, either prescriptive or predictive, is the important area of concentration. Responding to the question of whether customers ready for these types of initiatives, Hartung indicated that while Jabil is way ahead on the learning curve, customers indicate that they want to hear more.
Besides incorporating advanced supply chain technology and multi-tenancy practices across Jabil’s own extended supply chain, the CMS is increasingly being called upon to assist OEM customers themselves in deployment of such technologies across their extended supply chains as-well. This has been a new area of technology services for some CMS providers.
As a key supply chain partner in many more multi-industry settings, a contract manufacturer must be knowledgeable of the business process and enabling technology competences that make a difference in meeting both customer and internal business and supply chain outcomes. This is an industry that moves in lock-step with its customers, and is constantly challenged with narrow margins to work with.
As a recognized supply chain industry analyst, this author has had the opportunity to view a number of Jabil industry presentations over past years as well as to speak with the firm’s executives. This CMS has consistently demonstrated a willingness to leverage and collaborate with customers on advanced technology use cases across its supply chain management processes. After my recent interview, I am further impressed with the firm’s understanding and practice of leveraging areas where technology enablement can indeed be a facilitator of a more adaptive and resilient supply chain.
© Copyright 2016. The Ferrari Consulting and Research Group LLC and Supply Chain Matters® blog. All rights reserved.