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Supply Chain Matters News Capsule for July 17; UPS, Foxconn, Mondelez, Typhoon Rammasun

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It’s the end of the calendar work and this commentary is our running news capsule of developments related to previous Supply Chain Matters posted commentaries or news.

In this capsule commentary, we include the following topics:

  • UPS Memphis Facility Expansion
  • Foxconn Plans for New Plant in China’s Guizhou Province
  • Mondelez Continued Re-Structuring,
  • A New SCRM Standard,
  • Typhoon Impacts the Philippines

 

UPS Kicks Off Expansion of Memphis Facility

Global transportation and parcel giant UPS indicated this week that the services provider has kicked off construction related to the expansion of its Memphis Tennessee package distribution facility. According to the announcement, the expansion will add an additional 140,000 square-feet of building space with an estimated cost of $70 million. The UPS Memphis facility controls processing of air and ground gateway hub operations processing and reports further indicate that UPS is leasing upwards of 27 acres from the Memphis Airport Authority to support an 80 percent expansion in package processing. Early improvements are expected to be operational by November, to accommodate expected holiday peak shipment volumes.

Readers will recall that on the day before last year’s Christmas holiday, UPS was thrown under the bus for its admission that its network was overwhelmed and unable to deliver all of parcels in time for the holiday.  While the Worldport facility was the prime focus at the time, the announced expansion in Memphis is an obvious response to have more capacity in place for the upcoming peak holiday shipping period.

 

Foxconn to Build New Environmentally Friendly Production Facility in Interior China

Global contract manufacturer Foxconn Technology has disclosed plans to build a new environmentally friendly production complex in one of China’s most rural and pristine provinces. According to a published Bloomberg BusinessWeek report, a 500 acre park will be built in the province of Guizhou, on the outskirts of the provincial capital, Guiyang.

Plans call for an environmentally focused facility to produce smartphones, large-screen televisions and other products that will employ upwards of 12,000 workers. Production processes within this new plant will include new methods for mold based painting, carbon nanotube film for touchscreens and other innovations. The facility will also include a 2160 square-meter state-of-the-art data center that will be cooled by prevailing natural winds. Bloomberg makes no mention of advanced robotics for assembly but we suspect that may also be included.

This facility will also be constructed from 100 percent recycled steel and include patent protected heat-reflective glass that was designed by Foxconn. The plant is scheduled to be operational by March of 2015.

 

Mondelez to Separate European Cheese and Grocery Unit

In late January, we noted in a commentary that an activist investor was granted a board seat a global snacks and foods provider Mondelez.  The Wall Street Journal reported at that time that Mondelez management agreed to this move to quell public criticism of the company as well as avoid a public proxy fight. Having a board seat, activist investor Nelson Peltz could escalate his calls for added profit margins.

Last Friday, the company announced that it would separate its European cheese and grocery products groups into separate business units as it prepares to jettison its coffee business into a new company. Rumors among the Wall Street community reflected on eventual sale of the European grocery and cheese businesses as well. According to reports, both European groups represented 3.9 percent of total sales.

 

ASIS Releases New Supply Chain Risk Management Standard

ASIS International, a society of global security professionals released a new supply chain risk management standard to assist organizations to address operational risks within their supply chains. This standard was developed by a global cross-disciplinary team in partnership with the Supply Chain Security Council. An Executive Summary of this new standard can be viewed at this web link.

 

Typhoon Strikes the Philippines

Typhoon Rammasun barreled across the Philippines this week, killing at least 38 people and leaving the capital city of Manila without power most of Thursday.  The eye of the storm passed just south of Manila after impacting the island of Luzon.  The storm was reported to have destroyed about 7,000 houses and damaged 19,000, with more than 530,000 being evacuated. Offices and commerce were expected to reopen by late week.

Meanwhile, southern China and Northern Vietnam are bracing for the arrival of the Typhoon on Friday, with wind gusts expected to surpass 140 kilometres per hour.


Supply Chain Matters News Capsule July 11: Google Shopping Express, Typhoon Neoguri, Accellos and High Jump Software Merger

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It’s the end of the calendar work week and we continue with our news update series related to previous Supply Chain Matters posted commentaries or news developments. In this capsule commentary, we include the following topics: Google Shopping Express, Typhoon Impacts Japan, Accellos and High Jump Software Merge.

Google Shopping Express

While there is lots of attention being directed at Amazon, Wal-Mart and other online retailer same-day delivery capabilities, Google is about to invest serious money to provide its own capabilities.

A posting on ReCode.net: Inside Google’s Big Plan to Race Amazon to Your Door, Jason Del Ray writes that the Google Shopping Express service has been piloting in select cities and is about to receive some serious investment money from Google. He writes that the search provider who has been displaying local shopping results is now coupling a same-day delivery capability.

Rather than operating a network of physical fulfillment centers, Google will rely on inventory from local retail outlets. Rather than compete directly with retailers, Google’s thrust is to become an ally and complement a retailer’s local brick and mortar presence. Shoppers in select cities visit a dedicated web site and select the goods such as groceries, clothing or consumer staples, that they desire to purchase.  A network of local couriers is then marshalled to pick-up the goods at local retailers and delivers them. Del Rey indicates initial retail partners are Costco, Target, Toys ‘R” Us and Whole Foods.  For its efforts Google charges retailers a transaction fee while consumers pay a $4.99 delivery charge. Eventually, Google plans to charge shoppers a flat membership fee, similar to Amazon Prime. Retailers themselves are reported to be taking a cautious approach to the service for fear that that Google may assume more of the direct consumer connection including the mining of valuable shopping trends.

The posting cites a source familiar with the company’s plans indicating that Google executives have set aside upwards of $500 million to expand the service nationwide.  That obviously, is some serious money when one considers that the model does not require inventory or warehouse investments. This will be an important area to watch for B2C online fulfillment.

 

Typhoon Neoguri Continues to Impact Japan

After slamming the southern islands island of Okinawa, Typhoon Neoguri has continued on a path across the main island areas of Japan and is being classified as the most severe storm to have impacted the country in the past 15 years.  While the storm was recently downgraded to a tropical storm, there remains a concern for very heavy rains and subsequent flooding. According to the latest media reports, this storm is likely to reach areas near the tsunami-crippled Fukushima nuclear power plant sometime today.

Neoguri impacted the mainland yesterday near Akune City on the southern main island of Kyushu, which is home to 13 million people. Kyushi lies next to the country’s biggest island of Honshu where major cities including Tokyo and Osaka are located which could also be impacted by the storm.  The storm’s strength weakened somewhat overnight, packing gusts of up to 126 kilometres (80 miles) per hour as it moved east. Latest reports indicate that the storm passed just to the southeast of Tokyo but concerns remain for torrential rains and landslides across the country.

Although the storm does not represent the massive supply chain impacts that occurred from the 2011 earthquake and subsequent tsunami that impacted the country, there could be some impacts depending on the amount of flooding, landslides or other damage to factories or transportation infrastructure.

The next few months represent the monsoon season across eastern and coastal Asia and this may just be the beginning of other super storms.

 

High Jump Software Acquired by Accellos

Warehouse and logistics management software providers Accellos Software and  High Jump Software have announced a merger, but that appears very much like an acquisition.  According to the announcement, “the combination of the two companies creates a product portfolio that is uniquely positioned to meet the advancing needs of retailers, distributors, manufacturers, and logistics service providers to manage complex order fulfillment cycles and collaborate with supply chain partners.” The merged company will operate under the name HighJump and continue to use the Accellos brand for midmarket supply chain execution technology.  Accellos founder and CEO Michael Cornell was appointed CEO of the merged company. Terms of this merger have not been disclosed.

A posting on the Minnesota based StarTribune news site headlines the merger as an acquisition. It notes that the merger is driven in large part by the need among retailers for added online fulfillment process flexibilities including the ability to deliver goods quickly from a warehouse, as an online-only retailer would, if such goods are not available in a store. Both High Jump and Accellos have backing from respective private equity partners which implies that this was an engineered marriage.


Unplanned Disruption for Boeing’s Supply Chain

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The news from the July 4th weekend included a significant supply chain focused news item, which the Wall Street Journal characterized as “upsetting a finely tuned supply chain.”

A 19 car Montana Rail Link train carrying major airplane component assemblies bound for Boeing’s final assembly facilities in the state of Washington derailed near Rivulet Montana.   According to media reports, the train was carrying complete 737 aircraft fuselages, fuselage panels for the 777 aircraft and wing parts for the 747 aircraft. Photos of the accident feature 3 complete 737 fuselage bodies that slid down an embankment and into the Clark Fork River, and reports indicate a fourth fuselage may have been torn apart during the derailment.

Most of these components originated from Spirit AeroSystems in Wichita Kansas, Beoeing’s prime airframe supplier. According to a Wall Street Journal report, Boeing contracts with the BNSF Railway to transport these parts from Kansas to Billings Montana, where the Montana Rail Link crews assume transport to Spokane Washington, before switching back to BNSF for the final leg to the Seattle area. These components travel on specialized rail cars developed especially for Boeing’s logistics needs.  Reports indicate that the train was traveling just over 30 miles-per-hour at the time of the derailment which would be an indicator that speed was not a prime factor in the accident. 

Boeing operates its commercial aircraft final assembly operations from a just-in-time flow perspective and supply chain teams are obviously in the process of assessing the situation and any implication of this disruption to ongoing production schedules.

Boeing’s teams have been conditioned to supply chain disruptions. In April of 2012 a series of 97 tornadoes impacted the state of Kansas causing widespread damage, including multiple production facilities of Sprit AeroSystems, including the facility that produces 737 barrel fuselages. Spirit quickly marshalled over 1000 construction workers and was able to resume normal production operations roughly 10 days after that major incident. Readers might recall that in November of 2013, a specially fitted Boeing 747 Dreamlifter cargo plane carrying components parts to Spirit’s Wichita facility landed in the wrong airport. That plane had to be gingerly turned and flown out by a highly specialized crew.

No doubt, Boeing’s supply chain teams will rise to the current disruption challenge.

Bob Ferrari


West Coast Port Labor Talks Continue

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With the expiration of the labor contract among west coast dockworkers and the Pacific Maritime Association (PMA) expiring of July 1, labor contract talks appear to be continuing with no significant port disruptions. From all the various media reports that we have been monitoring, the situation is described as uncertain but hopeful that port operations will continue during extended contract negotiations.

Both parties issued a joint press release earlier this week indicating that while there will be no contract extension, cargo will keep moving, and normal operations will continue at the ports until an agreement can be reached between both sides.

There are high stakes on both sides, both labor union and port operators. The International Longshore Warehouse Union (ILWU) has raised issues related to health and pension benefits, work jurisdictions and facility automation and technology deployment concerns. Meanwhile the port operators remain concerned about increased competition from Canada, Mexico. Gulf and East Coast ports along with needs to increase overall efficiencies and automation levels, particularly concerning the newer mega container ships that have entering or plan to enter service.

On the one hand, shippers can be a bit more hopeful that west coast ports will remain open, at least for now.  With the critical Fall and back-to-school as well as holiday merchandise inbound inventory movements about to surge in next 2-3 months, this uncertain period will add to concerns for reliable shipping scheduling and the need to perhaps augment critical safety stocks. Labor negotiations could drag on for several more weeks. There may be considerations for re-routing container traffic to other than PMA ports, and decision planning periods are fast approaching.

Bob Ferrari

 


A Challenging Upcoming Period in Global Transportation

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Our prior Supply Chain Matters commentary noted today’s stunning development regarding the suspension of the P3 Network among the top three global ocean container shipping lines. Procurement, logistics and transportation teams have to now place serious weight to the implications and potential scenarios of a shipping industry running out of capacity rationalization options and ripe for more consolidation.  Any additional shipping industry moves can well impact shipping assumptions related to tariffs, service levels and routes.

An additional short-term concern relates to a more near-term threat, that of a labor disruption involving 29 U.S. west coast ports over the coming weeks. Negotiations concerning nearly 20,000 dockworkers located among various West Coast ports are approaching expiration of current contract in less than two weeks and the latest reports indicate little progress being made.

While many industry observers are not expecting a prolonged disruption in port activity, these events usually reflect hard ball positioning that usually brings the parties to the brink of contract expiration and beyond.  In the past, U.S. regulatory authorities have been quick to exercise a cooling-off period, when the economic conditions warrant such actions, as is the current case.

The implication is that industry supply chains with a strong reliance on west coast ports will face a July or August period of high uncertainty as additional labor actions or potential work slowdowns continue to occur. As industry teams are fully aware, this same period represents the initial surge of container shipment movements from China and other Asian posts destined for U.S. west coast ports to fill the logistics and inventory pipeline for the upcoming seasonal U.S. holiday period occurring towards the end of the year. Transportation industry players are well aware of the implications and rest assured contingency planning is already underway.

Disruptions or slowdowns will equate to more pipeline and safety stock inventories which will all have to be adjusted and rationalized in the coming months.

While U.S. consumers are looking forward to upcoming summer vacations, picnics and celebrations, be mindful that logisticians, procurement and supply chain planning teams will be hard at work in responding to a host of challenges in global transportation movements, both short, and longer-term in scope.

Bob Ferrari


Factory Destruction Across Vietnam: Supply Chain Sourcing Flexibility and Resiliency Has Never Been as Important

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In the quest to seek alternative global low-cost manufacturing sourcing across multi-industry supply chains, countries such as Thailand and Vietnam were high on the list.  Both offered relatively attractive direct labor wage rates while offering a highly educated and motivated workforce. Up to this point, that has resulted in a steady flow of foreign investment in these countries including internal supply chain ecosystem capabilities.

All of this is now subject to current re-evaluation because of new political and social unrest that is occurring in these countries.  The most visible has been Vietnam where this week, anti-China related violence has caused widespread rioting across the country, targeting factories and industrial parks that rioters believe are owned by Chinese interests. This rioting began earlier this week and according to various global media reports has resulted in arson and vandalism involving multitudes of factories and businesses owned by Japanese, Malaysian, South Korean and Taiwanese ownership since rioters have not been precise in targeting.

The protests were apparently prompted by Vietnamese citizen outrage over an oil rig that China placed in a disputed part of the South China Sea. We have read reports of some speculation that the core anger may be more broadly directed at accumulated anger against foreign-based exploitation within the country. The government of China is holding the Vietnamese government responsible for not taking more definitive actions to curb the rioting and damage.  A report published by the Wall Street Journal today indicates that upwards of 3000 Taiwanese and 600 Chinese citizens were fleeing the country amid fear of further violence. 

While foreign based business people flee Vietnam for fear of personal safety, a large number of factories have halted production because of either damage or lack of workers. Thus, the potential for significant industry supply chain disruption in the automotive, footwear, high tech, consumer goods and other areas is growing each day. It would appear that many brand owners and foreign interests are looking to the government of Vietnam to curb the current building wave of violence and factory destruction and avoid the current situation from quickly moving from the current bad to a far worse situation.

Meanwhile, continued political unrest across Thailand continues to provide an uneasy environment as violent protests continue sporadically across that country.  Yesterday, there were reports that at least three anti-government protestors were killed and 22 were injured as government authorities fired guns and lobbed grenades at antigovernment protestors.

Supply Chain Matters has previously noted how significant incidents social unrest has led to a new wave of worker protests within China’s low-cost manufacturing sectors such as footwear. Political tensions involving China and Japan over disputed ownership of islands continue and have both supply and product demand impacts to certain Japan based firms.

From our lens, the notions of global sourcing are beginning to take on a new risk management perspective, that being social, national and political unrest along with the longer-term implications of that unrest.  The notions that industry supply chains can continually follow a singular strategy that is solely directed at sourcing in low-cost countries is being challenged, and increasingly requires a re-evaluation. Global sourcing now includes far more considerations beyond the cost of direct labor, and as we have continually noted, are now taking on social, political and employer of choice perception aspects.  The ramifications apply not only to product brand owners, but to industry supply ecosystems. 

We believe that these incidents are not isolated and business and supply chain teams need to focus on much broader trends and their implications in access to foreign markets and supply chain ecosystems. The need for supply chain sourcing flexibility and resiliency has never been as important as it is now becoming. Insure that your firm and its supply chain strategies are prepared to manage among these new challenges and needs.

Bob Ferrari

© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.


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