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Another Program Delay for Airbus

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For the commercial aircraft industry and its respective supply chains, a consistent track record of new aircraft development and production release program delays unfortunately remains the same.

To add to its other program woes, Airbus announced this week that initial delivery of its planned A350-1000 model long-range aircraft will slip another year. The initial test flight, originally scheduled for about this time, is now not expected until after September. Indications are that initial deliveries of this new aircraft to launch customer Qatar Airways are not expected until the second-half of 2017.  A350-1000_United

In a statement, Airbus indicated: “.”We have adapted the A350-1000 schedule to ensure we fully satisfy our customers’ requirements for a mature aircraft from day one.” The manufacturer further added that it would put adequate resources in place to achieve program milestones.

According to business media reports, the first three test aircraft are currently in the final assembly stage. From that fact alone, we suspect that delays have more to do with the readiness of the supply chain to be able to scale to initial productions levels. To date, Airbus has reportedly booked 181 orders from 10 airline customers for this new model, the largest long-range aircraft offering for Airbus.

The 1000 model is the longest-fuselage version of Airbus’ new A350 family of wide-body jetliners. With this design and configuration, the aircraft can accommodate a range of from 366-440 passengers, which means lots of seat per plane.  An ongoing constraint in wide-body supply chains has been availability of airline seats in-volume. Powering the A350-1000 will be a higher-thrust Rolls Royce Trent XWB engines from which will allow this largest model to attain even greater levels of fuel efficiency. Newer models of more technologically advanced aircraft engines have had their share of ongoing ramp-up problems as-well.

The program itself has had its ups and downs including in December of 2014, an announcement of a last-minute sudden delay in the initial delivery to launch customer Qatar Airways only to change that two days later. Since that time, the European based aircraft producer has experienced continual delays in its ability to support planned volume production of this model. As noted in a related posting last week, subsequent deliveries of new A350 model aircraft remain impacted due to adequate supply of cabin seating and interior equipment. Plans called for delivery of a total of 50 aircraft in 2016, but Airbus has managed to deliver only 10 so far this year due to the supply delays. There are a reported 40 of this aircraft in various stages of final assembly and Airbus has augmented production with added work stations to get late delivered cabin equipment installed as quickly as possible.

The ongoing tense customer relationship among Airbus and Qatar that dates back to the scheduled initial delivery of the A350 family now takes on more dimensions since Qatar had contracted for initial deliveries of the 1000 model starting this month. No doubt, Qatar’s candid and direct CEO will have the last word regarding this latest delay announcement.

While the latest Airbus program delay was probably motivated by prudence in assuring complete readiness of the supply chain, it does reflect and industry track record of continually underestimating the scope of program and supply chain challenges. With more and more major system components being outsourced to global based suppliers, aerospace supply chains seem to constant underestimate the ramifications and added requirements for increased design and production process coordination with major suppliers. What has not helped is an industry environment where booked orders far exceed available capacity placing more pressure of suppliers to meet aggressive milestones from multiple global manufacturers. Add to that, increased pressures for reduced costs and higher efficiencies and you get the picture of conflicted goals and priorities.

The A350 situation does not currently compare with the ongoing delivery delays with Boeing’s 787 Dreamliner program that has now amassed a reported $28 billion in ‘deferred production costs” because of continued multi-year delays in customer deliveries. None the less, the track record of missed program milestones and lack of supply chain readiness continues across most manufacturers.

Bob Ferrari


Gartner 2016 Top 25 Supply Chain Rankings- Supply Chain Matters Initial Impressions

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Today, industry analyst firm Gartner announced the findings from its annual Supply Chain Top 25 rankings, an annual event that comes with the usual fanfare held at the Gartner SCM Executive Conference.

As has been our previous posture, Supply Chain Matters is providing its social media voice of observation and comment and not an endorsement of any analyst firm rankings of supply chains.  Our previous annual commentaries have well reflected our beliefs that such ranking criteria can be misconstrued, especially when ranking criteria would tend to favor supply chains that avoid major ownership of assets and inventory, or tend to weight other criteria lower, such as sustainability and social responsibility practices. We will, however complement Gartner for finally including much more transparency in disclosing the individual ranking scores in its press release announcement.

First and foremost, Supply Chain Matters once again extends our congratulations to those supply chain organizations cited in the 2016 Supply Chain Top 25 rankings. Such recognition often reflects a lot of hard work and responsiveness to changing business needs, especially in today’s fast-changing industry environments.

Unlike previous years, the 2016 rankings feature a healthy complement of movement as well as new entrants, which is good. As has been our practice in prior commentaries, we reflect below the history of Gartner Supply Chain Top 25 dating back to 2010.  We believe that providing this broader context is more pertinent for contrasting usual players vs. those supply chains on a transformative journey.

 

Gartner_top_25_2016

For the first time, Unilever garnered a well- deserved number one 2016 ranking, having climbed from Number 25 in 2010.  Rounding out the 2016 top five rankings were McDonalds, Amazon, Intel and H&M Hennes & Mauritz. Nestle’s 2016 ranking as #10 from last year’s #17 ranking is noteworthy and well-deserved.

Amazon’s drop from being number one in 2015, to the number three ranking in 2016 was somewhat a surprise, since it garnered by far the highest peer opinion votes. What might have led to such drop was Amazon’s current heavy investment in added supply chain capabilities in customer distribution centers, direct leasing of air freight and trucking fleet. We suspect that as this current last mile customer fulfillment strategy continues to manifest itself in the months to come, that peer vote will indeed be perceptive.

The five new entrants to the Top 25 Supply Chains were BASF, BMW, GlaxoSmithKline, HP and Schneider Electric. From our lens, HP was somewhat of a surprise given its corporate split as well as the magnitude of cost and headcount cuts that have occurred. HP being ranked higher than Lenovo (#25) is perplexing given what the latter has accomplished in three-year weighted global revenue growth and inventory turns.

In its announcement, Gartner cites an increasing emphasis on corporate social responsibility as an emerging competency. This author just returned from the ISM 2016 annual conference where I had the opportunity to view a presentation by PepsiCo on its efforts in this area. I walked away very impressed with PepsiCo’s far-reaching efforts that manifest not just supply chain focused sustainability practices, but overall business sustainability tenets that include social, environmental and business tenets.  I was therefore disappointed in the 4.00 CSR Component Score attributed to PepsiCo, especially in the light of other food and beverage firms.

As noted in our Supply Chain Matters posting reflecting on the 2015 rankings, some supply chain teams along with their ecosystems will be pleased and others rather disappointed after lots of hard work. Industry peers may also be surprised. There is no pleasing in any form of ranking and consistency of objectivity based measures and process remains essential.

Once again, congratulations to all supply chain teams included in the Gartner 2016 Supply Chain Top 25.

Bob Ferrari


Candid Admission from Tesla Provides the Importance of Design for Supply Chain Practices

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Supply Chain Matters provides an additional update relative to our previous commentary regarding the Tesla Motors Model 3 Product Unveil that occurred several days ago.

Yesterday, Tesla delivered an update relative to its Q1 FY16 operational and delivery performance.  The update indicates, among other items that the electric powered automotive provider delivered a total of 14,820 completed vehicles in Q1 consisting of 12,420 Model S and 2,400 Model X automobiles. While the statement indicates that Q1 operational performance was almost 50 percent more than the year earlier period, equity analysts were expecting an output number of upwards of 16000 vehicles. Tesla Model X SUV

Tesla further indicates that it is on-track to deliver 80,000 to 90,000 new vehicles in 2016.

The statement further indicates that deliveries were impacted by severe Model X supplier parts shortages in January and February that extended longer than planned. According to the update, build rates for the Model X in March rose to 750 vehicles per week once the parts shortages were resolved, but many of the vehicles were built too late to be delivered to owners before the end of the quarter.

Of more interest was a candid admission that the root causes of the parts shortages was:

Tesla’s hubris in adding far too much new technology to the Model X in version 1, insufficient supplier capability validation, and Tesla not having broad enough internal capability to manufacture the parts in-house.”

First and foremost, Supply Chain Matters applauds Tesla for its direct candor.

There are very few automotive manufacturers, and for that sake, other industry manufacturers that would publically state such candor even though internal operations was well aware of the challenges that were encountered and the efforts required to make the numbers. Tesla clearly indicates that the operational details disclosed for Q1 were provided because of: “unusual circumstances of this quarter and will not typically be provided in quarterly delivery releases going forward.”

We none the less, applaud this action because it provides the broader industry supply chain community another important learning relative to the importance of design for supply chain practices, where product design and product management teams work collaboratively with supplier sourcing, procurement and manufacturing operations teams to insure that product design and manufacturing specifications can adequately meet production volume scalability requirements. Obviously there is learning relative to supply chain risk mitigation, having back-up contingency plans in-place to account for supplier snafus or shortcomings.

Supply Chain Matters continues to admire Tesla’s boldness and embrace of modern supply chain and manufacturing practices and such public lessons are indeed learning that even the best can encounter a snafu.

When product design boldness outpaces the realities of the current supply chain, something will give. Apple, among other supply chain leaders, have previously stumbled in new product releases because of design for supply chain factors not addressed in the initial product launch and release cycle.

Tesla indicates that it is addressing root causes to insure that these mistakes are not repeated in the Model 3 launch. We raised that possibility in our prior commentary.

Time will eventually tell the final outcome.

Earlier this week, Tesla indicated that customer reservation orders for the new Model 3 had surpassed 276,000 orders. At current production rates of the Model X of 750 vehicles per week, that order backlog is the equivalent of 368 weeks or roughly 7.36 years of production at current volumes. That gap alone represents the critical tensions of elegant or leading-edge product design contrasted to customer delivery and experience expectations. The end-to-end supply chain becomes the important difference in meeting such expectations.

Bob Ferrari

© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


Supply Chain Matters Highlights from the MIT Crossroads 2016 Conference

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Supply Chain Matters had the opportunity to attend the 2016 Crossroads Conference hosted by the Massachusetts Institute of Technology (MIT) Center for Transportation and Logistics (CTL). Crossroads is an annual event that began 12 years ago for the benefit of MIT CTL corporate sponsors, and each year the conference brings together leading-edge industry and global supply chain trends and insights developed by MIT and external academic focused research. This Editor has been fortunate to be invited to this event for many prior years, and this year was no exception.

The agenda included a presentation by Sertac Karaman, MIT Assistant Professor of Aeronautics and Astronautics on the timely topic: Autonomous Vehicles: Driving Change in Logistics Networks. In the talk, Professor Karaman traced the recent history of self-driving cars after Google developed the first autonomous vehicle. What was most interesting was his predictions for what’s next in this area, which he indicated would be broader deployment of autonomous vehicles operating in distribution and logistics centers within the next two years, and within what he described as suburban focused driving environments within the next six years. One of the remaining challenges to be addressed, according to Karaman, was urban delivery and logistics requirement. Here, he referenced efforts underway from UK based Starship Technologies directed at a specialized autonomous delivery vehicle that can navigate urban landscapes. The summary conclusion is that there has been substantial technological advancement in autonomous vehicles over the past decade and the forthcoming two-year immediate impacts in supply chain environments will be in low-speed, low complexity environments in existing distribution centers and warehouses. Beyond that, there are many other opportunities as technology advances continue.

A presentation by Matthias Winkenbach, Director of the MIT Megacity Logistics Lab at CTL addressed the topic: Big Data and the Journey to a More Efficient Last Mile. Winkenbach reminded the audience that 60 percent of future GDP growth will emanate from 600 global cities, and that the logistics industry must tackle the current huge density of retail outlets that exist in mega city landscapes through more advanced use of big data integration techniques involving geographic, delivery requirements, physical sensor and other pertinent data sources. By combining publically available data such as income demographics, density of commercial establishments, road network density and capacity, with transactional data related to orders, MIT researches have been able to plot and simulate logistics needs for the delivery of food and beverage deliveries in some of the world’s most dense mega-city complexes. The integration of this data was described as the ability to correlate customer stops with special delivery services, to optimally identify delivery person walking time needs (off-vehicle operations) along with providing drivers information on optimal parking locations or congestion points to avoid at certain times.

A rather interesting insight from the Q&A session of this presentation was actual audience polling that revealed that a lot of data is actually being collected by organizations but is not being currently leveraged because of a number of challenges related to data accuracy, understanding, size and complexity as well as technical competence.

A fascinating but very concerning presentation came from Retsef Levi, Professor of Operations Management, MIT Sloan School of Management whose topic was: Adulteration Risks in Global Food Supply Chains Emanating from China. He addressed MIT research spanning over two years which was funded by the U.S. Food and Drug Administration. Observed was that imports of food shipments into the United States have dramatically expanded to include upwards of 80 percent of seafood, 70 percent of honey and other basic food commodities. The FDA sponsored Food Safety Modernization Act signed into law in 2011 was passed to prevent food safety problems rather than regulatory agencies having to merely react and respond to growing incidents. The act clearly shifted the responsibility and accountability for food safety with the industry, including validation of the food supply chain. MIT assembled a cross-departmental research team to address how does the structure of the food supply chain impact risk?  Because of the FDA sensitivities related to this research, we will refrain from sharing more of details. Suffice to note to our readers that the research identifies compelling risk drivers that include unmonitored stakeholders, overall dispersion of food supply chains, regulatory strength and the targeting of key strategic commodities that are common to many food products.

An industry focused presentation came from Joel LaFrance, Supply Chain Visibility Lead at General Mills. The day before the Crossroads conference, a group of CTL corporate members identified supply chain visibility as their most important and compelling challenge. That theme was addressed as LaFrance addressed the importance of defining supply chain visibility lexicon, as contrasted with transparency and traceability. He described the new influences impacting General Mills supply chains including unprecedented complexity and volatility as well as the convergence of physical and digital processes. The consumer goods producer started it supply chain visibility journey nearly 18 months deploying a series of use cases and initiatives directed at supporting line-of-business needs. Further shared were top four learnings that included realization that connected data is critical, that insuring end-to-end supply chain visibility changes that way work is performed, along with prioritizing end-to-end visibility needs as opposed to targeting specific functional needs.

This author had to cut-short his attendance for the full agenda, because of a previously scheduled client commitment. However, we did obtain a copy of CTL Executive Director Chris Caplice’s presentation: Transforming Professional education: An Update from the Front Line. Addressed was MIT’s ground breaking efforts in delivering an online ‘Micro-Master’s’ Program for Supply Chain Management that features open enrollment, online certification and no admissions criteria. While the program is characterized as not an MIT degree program, it does provide a faster path towards a degree. The curriculum will include courses such as Supply Chain Fundamentals, Supply Chain Analytics, Supply Chain Design and Technology. The online learning experience includes on-demand, ‘bite-sized’ video segments of 3-9 minutes coupled with quick reinforcing questions and extensive practice problems after each section. Current enrollment in this online program now exceeds 28,000 and includes student representation from 181 countries which is quite a testament to the global interest levels in acquiring supply chain management skills. This innovative program was described as helping organization’s to identify supply chain talent because MicroMasters provide a proxy for grit. It further helps to recognize and foster high-potential achievers by recognition.

This was another informative Crossroads conference one providing broader perspectives on the direction of supply chain management.

Bob Ferrari

© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.

 


Both China and U.S. Production and Supply Chain Activity Reflect Cause for Concern

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In an early December 2015 Supply Chain Matters published our commentary, Both China and the U.S. PMI Levels at the Same Values: Should This Be a Concern?  In our posting we called reader attention to both the ISM PMI, the reflection of U.S. based supply chain activity, and the Caixin China PMI had recorded the exact same value of 48.6, a sign of troubling supply chain and production activity contraction. We elected to publish this commentary as a reference point, a time when the world’s two largest economies and engines of supply chain activity both reported similar PMI readings. While negative changes surrounding China’s PMI garners immediate business headlines, we opined that attention should be pointed to what’s going on in the U.S. as well.

As we pen this posting on the first Monday of 2016, the exact similar development has occurred, but this time, global equity markets are responding rather negatively to this news.

Today, stocks in China plunged nearly seven percent, triggering an emergency trading suspension after release of December’s manufacturing activity data. The Caixin China General Manufacturing PMI for December was reported as a value of 48.2 in December, down from 48.6 in November.  The headline for this China PMI report was that December reflected the seventh time in the past eight months that production levels had fallen. According to the report authors, total new work continues to fall while new export orders declined for the first time in three months.  With January traditionally being a slow production period because of the week-long celebrations and factory shutdowns related to the Lunar New Year, there is obvious cause for concern.

This morning, the ISM PMI, a reflection of U.S. production and supply chain activity was also reported as a value of 48.2. While the New Orders and Production indices registered higher readings than November, they each remain at contraction levels. Ten out of eighteen manufacturing industries reported contraction in December activity with an indication that contraction is faster.  As we pen this commentary about two hours before the close of trading, the Dow Jones Industrial Index is down over 390 points, a reflection of both the China and U.S. supply chain news.

With the two largest economies reflecting continued manufacturing and supply chain contraction, the response at this point is even more pronounced. Events and growing tensions in the Middle East have further added to widespread concerns. The 4th quarter is traditionally one of robust activity as manufacturers close out the year with holiday and other end-of-year related orders, and now with two consecutive months of notable measured contraction, global investors have now taken pointed notice. Both of the globe’s largest economies face a greater risk of weakening economies and multi-industry supply chains are encountering the consequences.

The first of our 2016 Predictions for Industry and Global Supply Chains, available for complimentary downloading in our Research Center, predicts that industry supply chains should anticipate a year of slow or declining growth, with high uncertainty in planning product demand and supply needs.  So far, the New Year is tracking toward such uncertainty, and once again, the two largest global supply chain hubs are reflecting another month indicating additional cause for concern.

Later in January, our Supply Chain Matters Quarterly Newsletter, sent to registered subscribers of this blog, will further analyze trends across broader global supply chain regional indices.


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