Yesterday, a fire broke out at an Apple facility located in Mesa Arizona, just outside of Phoenix, which initially made lots of news. According to a video report from a local news channel, the fire spread rather fast and was believed to have been ignited by solar panels on the roof of this facility. Various news reports indicate that a dozen people were evacuated from the facility, and it took 35 minutes for the fire department to put out the flames. The Deputy Chief of the Mesa Fire Department is quoted as indicating that the fire spread rather rapidly at the 1.3 million-square-foot plant but was confined to a section of the roof over a loading dock.
What is somewhat significant is that this facility was previously designated by former supplier GT Advanced Technologies to be a high volume plant for the production of sapphire glass. That plan was abandoned with the sudden bankruptcy of GT Advanced and Apple has since taken possession of the facility. In February, Apple announced that it would instead convert the Mesa facility into a world class, sustainable data center. At the time, Supply Chain Matters voiced its disappointment that Apple did not consider sourcing more manufacturing at this facility.
Such an incident involving an Apple facility was assured to garner both traditional and social media coverage. As we pen this posting, Google had indexed nearly 100 different reports related to yesterday’s fire. Apple stock also took a hit yesterday on the news.
It is not likely that this incident will be of any major concern to Apple’s supply chain teams but perhaps Apple’s facility teams will seek an in-depth investigation as to whether the solar panels contributed to the cause of the blaze. Investing in the most modern, state-of-art energy and sustainably efficient mega data center probably needs assurances that solar panels will not erupt into flames.
Lumber Liquidators, one of the largest and fastest growing retailers of hardwood and laminate flooring in North America, announced this week that it is suspending all of its China sourced laminate flooring products. The announcement comes after the 60 Minutes investigative news television program turned a public light on suspected high levels of formaldehyde from certain China based flooring offered by this retailer. In our prior Supply Chain Matters commentary related to this incident, we expressed little doubt that the situation would continue to reverberate among business headlines, and so it has.
In its latest announcement, the retailer indicates:
“Based on the review to date, it appears that the Company’s Chinese laminate flooring suppliers have sold product to the Company that the suppliers have certified and labeled as compliant with California formaldehyde standards. However, the Company is further reviewing the underlying certification and labeling processes and practices of its suppliers.”
The retailer further indicates that a Special Committee composed of independent directors, with the assistance of third party advisors, has been conducting an ongoing review of allegations regarding laminate flooring sourced from China. That body has now engaged a former FBI director and his firm to review the retailer’s product sourcing practices and to serve as an independent compliance advisor.
Since the March disclosure by the 60 Minutes program, Lumber Liquidators began voluntarily offering free indoor air quality screening to certain of its flooring customers, predominately those who had purchased laminate flooring sourced from China. Home air test kits were selected as a quick means to measure the total level of formaldehyde in indoor air from all sources, not just from the flooring. This week’s release further indicates:
“From early March through May 1, 2015, BHC sent approximately 26,000 testing kits to nearly 15,000 Lumber Liquidators customers and approximately 11,000 of those testing kits were returned. As of May 1, 2015, over 3,400 testing kits from approximately 2,600 households with laminate flooring sourced from China had been reviewed and analyzed. Of those households, over 97% had indicated indoor air concentrations of formaldehyde that were within the guidelines set by the World Health Organization as protective against sensory irritation and long-term health effects.”
Lumber Liquidator’s swift actions and response are laudable, but as a supply chain and procurement community we all know, consumers will undoubtedly have their own impressions regarding the safety of flooring sourced from China. Thus, the action to temporarily suspend all sourcing of China based supply, pending a total independent review, makes practical and timely business sense.
To reiterate, beyond the Wall Street, shareholder and legal messiness, this incident is yet another example of the needs for transparency across the global supply chain, particularly when an individual country’s or state’s product safety standards are cited. As business media such as The Wall Street Journal is now reporting, there is no recognized national U.S. standard for indoor formaldehyde concentrations and global wide standards vary among agencies. Interpretation of standards can tend to take on a different lens from different suppliers and thus the need for vigilant and consistent supplier monitoring and risk awareness.
Today, The Wall Street Journal announced the launching of an editorial vertical to be termed WSJ Logistics Report, with the prime sponsor being global package delivery provider UPS whom will supplement this site’s dedicated subject-matter coverage with sponsored content, (supposedly to be cleared labeled). The fact that our broad-based supply chain management community will have a business media resource destination for dedicated logistics and transportation news and editorials is a noteworthy step.
We at Supply Chain Matters will continue to do our part in insuring that readers are alerted to noteworthy news and editorials and that such content represents what we consider to be a balanced view of developments.
To kick off reader interest in the topic, today’s U.S. printed edition of the WSJ featured a front page article, Bigger Ships Snarl U.S. Ports. (Paid subscription or free metered view) This article reinforces what you have perhaps already experienced within your supply chain or read on this blog, namely that the introduction of far larger container ships into operational service is adding increased logistical challenges and congestion among many U.S. ports.
In the wake of the proposed February settlement of labor contract talks involving U.S. West Coast ports, Supply Chain Matters has posted advisories to industry supply chain teams to not assume that the logistical challenges and port gridlock that were amplified last fall would not happen again. Today’s WSJ article succinctly reinforces that message.
Reported is that congestion is becoming increasingly common among both U.S. West and now East coast ports, and according to the article authors: “ … a problem that could have profound implications for the $900 billion worth of goods transported to and from the U.S. each year by container ships.”
Increasingly larger container carrying vessels are overwhelming ports that were not designed nor equipped to handle such volumes carried by a single vessel. The WSJ cites American Association of Port Authorities data indicating that of the 10 busiest U.S. ports by container volume, at least seven are struggling with daily congestion. The effect is much more time required to unload and load vessels with extraordinarily longer waiting times for trucks to unload and load containers at port facilities. The WSJ cites specific examples occurring of late at the Port of Newark and Port of Virginia. In March, rising container volume and backups exacerbated by frequent winter storms reportedly pushed the Virginia International Gateway (Port of Portsmouth) beyond capacity prompting the need for overtime work, only to have to clear a subsequent backlog caused by the subsequent arrival of a single mega-ship.
Just this week, hundreds of frustrated truck drivers serving the Ports of Long Beach and Los Angeles went on strike, refusing to service the ports citing wage theft grievances. Four of the largest trucking firms servicing these ports classify truckers as independent contractors and thus drivers incur financial penalties with excessive wait times since payment is predicated on deliveries vs. an hourly compensation.
Compounding the problem are misplacement and/or unavailability of container chassis required for on-road travel. And as many industry experts have noted, the situation will only get worse without concerted industry actions and added investments in port automation. The WSJ quotes a retail industry strategist at Kurt Salmon indicating that shipping delays could reach $7 billion this year and climb as high as $37 billion by 2016.
That is a significant quantification of a multi-industry problem that requires resolution.
The problem itself stems from a combination of economic and industry forces on many sides. Ocean container lines, plagued by overcapacity and high costs, elected to invest in the larger vessels to save on operating costs. Larger ships and lower shipping volumes compounded into the need for multiple shipping lines to form capacity alliances with the implication that a single mega-ship will carry containers representing multiple shipping lines with different administrative and logistical processes.
While many industry supply chain teams are now re-evaluating shipment routing and logistics flows in the wake of the U.S. West Coast ports crisis these past months, the realty they are facing is that U.S. east coast ports are subject to the same logistical challenges and perhaps work stoppages.
The takeaway from our Supply Chain Matters lens is that while all of the industry is focused on solving ever increasing logistical challenges among U.S. ports, there appears to be little concerted industry and government actions related to long-term resolution. Carriers, ports, organized labor and transportation carriers are each addressing their specific business and financial agendas with little consideration of the overall global logistics implications being unanswered and unaddressed. Perhaps the assumption is that governments, public agencies, consumers and taxpayers will each have to determine and fund a resolution. That is not feasible.
In closing our commentary, we urge industry wide forums, legislative leaders, publications and media such as the WSJ Logistics Report to shed more light, attention and resolve toward required efforts among all stakeholders to address the root causes and required remedies of U.S. port congestion.
We concur that there are considerable industry supply chain impacts, both financial and operational at-stake.
From a supply chain disruption perspective, this week has proven to be a rather concerning one for food related supply chains within the United States. And, there may well be added implications in the weeks to come.
Two developments have dominated business and general media; a widespread outbreak of a strain of bird flu that is currently spreading across upper U.S. Midwest states, and a listeria outbreak that has forced a well-known branded producer to suspend sales of its entire product line-up.
Avian Influenza Outbreak
An Iowa chicken farm raising upwards of 3 million chickens is the latest to suffer the effects of what is being described as sharp escalation of bird flu that, according to one report, is rattling the U.S. poultry industry. Iowa is reportedly the largest producing state for egg production. The latest outbreak reported yesterday brings the estimated total number of chickens and turkeys affected by avian bird flu to nearly 8 million.
The largest two turkey producers, Butterball and Hormel Foods have each reported significant supply chain challenges as outbreaks occurring in Minnesota and Wisconsin are where turkeys are predominantly raised.
To mitigate the further spread of the virus, farmers must destroy all birds confirmed to have the virus. The Governor of Wisconsin declared a state of emergency earlier this week authorizing state officials to issue quarantine directives related to feed and poultry.
The states impacted thus far include Arkansas, Iowa, Minnesota, Missouri and Wisconsin. No human cases of avian influenza have been detected and U.S. health officials indicate the current outbreak poses no human health risk. None the less, consumers are obviously rattled and concerned by the news. Farmers and meat processors are on high alert and are taking measures to monitor stocks as well as visitors to farms.
Listeria Related Product Recall
The other important development concerns Texas based Blue Bell Creameries which on Monday, widened a series of voluntary recalls to now include all of its branded ice cream, frozen yogurt, sherbet and frozen snacks branded products distributed among 23 states and various international locations. The recall was prompted after samples of chocolate chip cookie dough ice cream tested positive for the potentially deadly disease, listeria. Thus far, health officials have traced 8 reported illnesses amounting to three deaths which have been linked to contaminated ice cream, but active investigations continue. According to an FDA advisory and a Blue Bell press release, the illness was tracked by health officials to a Blue Bell production line in Texas, and later to another production line in Oklahoma. Consumers are warned not to eat the recall products and throw away or return any purchased product.
Blue Bell itself has taken relatively swift action by actively removing products from retailers and other food service facilities it serves. A statement from Blue Bell’s CEO Paul Kruse apologizes to consumers along with a firm commitment to fix the problem. Blue Bell is implementing a “test and hold” process for all products made at all of its manufacturing facilities, meaning that all products will be tested first and held for release to the market only after the tests show they are safe. Other actions include daily cleaning and sanitizing of equipment, expanded testing and additional employee training.
As is the usual for these types of recalls, the recall news spreads fast and wide with the amplification of the Internet and social media. At this writing, we performed a Google search of the terms “Blue Bell listeria’ which yielded over 2000 web postings thus far. From our tracking of previous high visibility product recalls, there will likely be more short-term impact to the brand before this situation is resolved.
Supply Chain Matters applauds Blue Bell for taking such prompt and far reaching actions. Not many consumer packaged goods companies would recall the entire product line.
Many of our Supply Chain Matters commentaries related to supply chain disruption and supply chain risk management relate to events that many would not believe would actually happen. This weekend featured the news that even iconic General Electric can be impacted by an unforeseen event, a devastating warehouse fire impacting a massive production facility.
Last Friday, a parts warehouse supporting GE’s home appliance factory complex in Louisville Kentucky was destroyed in a six-alarm fire. Nearly 200 firefighters battled the blaze and as of this writing, local news media reports indicate the hot spots remain. Luckily, there were no injuries since most employees had taken time-off for the Good Friday religious observance. According to media reports, the fire in Building Six raged for hours and required evacuation of the entire 900 acre Appliance Park factory complex. GE has since decided to suspend all production for at least a week while assessment of overall damage to operations and contingency plans are completed.
Appliance Park produces dishwashers, refrigerators, washing machines among other consumer appliances. Already, GE officials have indicated that an alternate space for the Building 6 warehousing operations has been identified and it does not anticipate any disruption for customers. A Wall Street Journal report quotes a labor union spokesperson as indicating that adequate inventory is available at an adjacent distribution center. These are obviously a timely business continuity response.
Ironically, GE had previously agreed to sell its home appliance business to Europe-based Electrolux for a reported $3.3 billion. The deal was expected to close later this year.
Generally, past events of this nature often provide a different picture once full assessments are completed. In the case of this warehouse destruction, assessment will focus on both product manufacturing and service parts supply chain needs. However, manufacturers such as GE have made investments in business continuity response and supply chain risk mitigation.
More news should be forthcoming in the coming weeks.
Global Supply Chain Risk Exposures Report- Continued Reinforcement for More Risk-Balanced Sourcing Decisions
Within its 5th annual Natural Hazards Risk Atlas, risk analytics and advisory firm Verisk Maplecroft calls attention to high profile risk cities that happen to be today’s growing manufacturing and logistics hubs. This atlas assesses the natural hazard exposure of over 1300 global cities, selected for their economic importance in the coming decade. The analysis is somewhat unique in that it not only identifies regions most prone to natural hazards, but further quantifies the socio-economic resilience within these locations. From our Supply Chain Matters lens, it provides a yet another stark indicator that supply chain disruption and risk criteria were most likely not weighted high in past outsourcing or global based manufacturing and strategic sourcing strategies.
According to Verisk Maplecroft: “natural hazards constitute one of the most severe disruptors of business and supply chain continuity, and also threaten economic output and growth in some of the world’s key cities, especially for those located in emerging markets.” Maplecroft indicates that its annual analysis considers the combined risk posed by tropical storms and cyclones, floods, earthquakes, tsunamis, severe storms, wildfires, storm surges, volcanoes and landslides. This report’s executive summary further notes: “Of the 100 cities with the greatest exposure to natural hazards, 21 are located in the Philippines, 16 in China, 11 in Japan and 8 in Bangladesh.”
If you have been following our Supply Chain Matters commentaries related to global supply chain disruptions and risk, these same regions comes up quite often. This blog alone has amassed over 350 commentaries directly related to either supply chain disruption or risk indicators. The Philippines has emerged a hub for semiconductor assembly, high tech production and customer services while Bangladesh continues as the hub for apparel and clothing manufacturing. China and Japan are both major hubs for multi-industry manufacturing and product development. Yet, natural hazards are a more frequent occurrence within specific emerging global supply chain hubs such as Bangladesh, Thailand, Japan, the Philippines and other regions. Such occurrences not only add to major disruption but added insurance and risk mitigation costs.
The continued reinforcement of such risk indices is another important reminder for strategic sourcing teams to actively foster balanced sourcing decision criteria, weighting landed costs with risk profiles. Where higher supply chain risk and disruption indicators are prevalent within certain regions, there obviously needs to be a corresponding alternative sourcing plan in-place.