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Kinaxis- A New Named Sponsor for Supply Chain Matters in 2015

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We are pleased to announce to our global based Supply Chain Matters readership audience that Kinaxis has returned to be a Named sponsor of this blog in 2015. Kinaxis was one of the very first sponsors of this blog upon our founding in 2008, and we look forward to a renewed relationship during the coming year.  KinaxisRegLogo-jpg-large

With origins that date back to 1984, and with its founding in 1995, Kinaxis and its flagship RapidResponse supply chain planning and rapid response technology has been adopted by industry-leading companies across multiple industry verticals, including aerospace & defense, automotive, high tech, industrial, and life sciences. Kinaxis delivers a collection of highly-configurable cloud S&OP and supply chain applications which are at the very heart of supply chain planning and decision making for large manufacturing companies with complex supply chains and volatile business environments. Kinaxis recently completed a successful initial public offering and is now a public company listed on the Toronto Stock Exchange.

As part of this new sponsorship arrangement, this author will be featured as a periodic guest blogger on the Kinaxis 21st Century Supply Chain blog where I will be contributing thought leadership on timely topics. Supply Chain Matters will additionally feature periodic thought leadership provided by select Kinaxis executives.

Join me in welcoming Kinaxis as our new Named sponsor of Supply Chain Matters.

For further information regarding Kinaxis and its technology capabilities, click on the logo included in our Named sponsor panel.

Bob Ferrari, Founder and Executive Editor

 


Crisis Among CPG Producers and Their Associated Supply Chains Continue: Three Important Strategies

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Supply Chain Matters continues in our efforts to update readers on the extraordinary market challenges and headwinds impacting large consumer goods packaged food producers. In August of 2014, we called attention to a profound week of statements and blunt reality impacting this industry and specifically, blunt statements from the CEO’s of prominent packaged foods producers. In our predictions for this year, we again cited this sector for continued industry supply chain turbulence.

Unfortunately, the challenges and the implications have once again become rather visible.

Today’s published edition of The Wall Street Journal again reports (paid subscription or free metered view) that several top U.S. based food producers served up grim financial and operating news this week. Once again, all is attributed to the industry’s abilities to adapt to fundamental shifts in consumer tastes.  However, there is far more at-play.

The wave of bad news has battered the stock of Kellogg and Kraft Foods but the news was not all that optimistic from Campbell Soup, ConAgra Foods and Mondelez International.

Kraft, which recently replaced its CEO, indicated that its CFO and a senior R&D development manager were leaving the company. The new CEO of Kraft indicated that his company was not moving fast enough to shift its business to cater to consumer needs for healthier, less processed foods. It was reported that Kraft lost market share in 40 percent of its food businesses in 2014.

Kellogg reported a 7.7 percent drop in comparable U.S. breakfast related sales while its U.S. snacks segment fell by 3.1 percent. Kellogg has subsequently reduced its long-term revenue growth by two percentage points, which is significant for this sector.

Campbell’s has now indicated that it may have to once again reshape its brand portfolio in favor of more organic choices. ConAgra recently indicated to Wall Street that increased market competition, lower prices and customer service issues with its prior acquisition of private-label food producer Ralcorp has motivated that company to lower expectations for the current year.

Supply Chain Matters has further provided reader attention to business challenges at industry stalwarts Procter & Gamble and General Mills, each of which has had cascading impacts related to each of their supply chains.

As noted in our earlier commentary, foreign currency headwinds and specifically the strong U.S. dollar have become an added challenge for U.S. based companies. One of the most stark aspects of this challenge came from Mondelez which reported this week that foreign currency headwinds delivered a $149 million hit to its operating income in it prior quarter, in spite of recently rising prices across the board.  Operating income dropped 42 percent. The WSJ reported that Mondelez currently garners 80 percent of its revenues in currencies not pegged to the dollar, and has further attributed its challenges to increasing commodity costs. Mondelez’s supply chain production and manufacturing resources are much more globally-focused which raises additional concerns. The global convenience foods producer continues with efforts directed at reducing operating costs by $1.5 billion by 2018, incremental to previous wide-spread cost savings including those directly related to its global supply chain. From our lens, Mondelez may well be another candidate for a subsequent CEO change.

The CEO’s of CPG as well as other industry manufacturers are currently caught in an incredible vice. On the one hand, dramatic changes in consumer tastes and a collection of smaller, emerging industry disruptors leveraging advanced technology and more efficient cost structures are rapidly impacting the industry landscape. Activist investors have surrounded industries such consumer packaged goods extracting demands for more short-term stockholder financial benefits, vis-à-vis aggressive stock buyback, higher dividend or increased merger and acquisition efforts. An earnings crisis brings on more activist or short-term oriented investors looking for market opportunities.

Obviously, the ongoing implication to associated supply chain organizations is immense and often painful. On the one-hand strategies to spur revenue and profitability growth in untapped global markets extracts a toll of shuddering U.S. based production or distribution facilities and staff.  The new strength of the U.S. dollar and other currency movements dilutes revenues from overseas operations causing additional pressures for increased profitability and reduced costs. The cycle can often become disabling.

While every company certainly has its own unique challenges, the takeaway for CPG supply chain teams is three-fold.  Rapidly shifting industry markets and consumer preferences imply a critical need for increased product innovation and quicker introduction of new products. These capabilities need to be obviously enhanced, in spite of continued pressures to reduce costs.

Volatile and rapidly changing global markets requires that Sales and Operations Planning (S&OP) teams be more responsive and anticipate such changes.  The focus clearly turns toward an outside-in perspective, allowing the supply chain to respond as quickly as possible to market opportunities or threats.

Finally, supply chain segmentation strategies, those that orient supply chain resources to the most influential customers, most profitable market segments or highest customer growth opportunities are now ever more essential.

Supply chain leaders should insure they educate senior management to these important priorities including the current new wave of CEO’s.

We provide a final editorial note. Our observation is that on many current occasions within today’s CPG industry landscape, new or changed leadership stems from leaders coming from consumer goods financial or sales and marketing backgrounds.  That stands to reason given that in times of business crisis, corporate boards favor such leadership skills. However, as the adage often goes, crisis can present opportunity for new thinking and fresh perspectives brought by those with other backgrounds. By our lens, that would include those with an operational, supply chain and advanced technology backgrounds who understand customer, business and technology investments, tradeoffs and/or rewards.

Bob Ferrari

© 2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.


Tesla Motors Operating Results Indicate Some Supply Chain Strains

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This week, Tesla Motors reported both fourth quarter and full 2014 financial operating results with indications of certain supply chain strains and perhaps growing pains.  Telsa Motors Model S

For the fourth quarter, the company’s loss widened to $108 million and reflected a shortfall in the delivery of 1400 vehicles along with described manufacturing inefficiencies related to the recently introduced Model S P85D as well as Autopilot functionality. Currency headwinds reflected by the current strong value of the U.S. dollar further weighted on earnings. The bulk of Tesla’s manufacturing supply chain is within the U.S.

Revenues in the quarter increased to nearly $957 million from $615 million recorded in the year earlier quarter.  The electric car company sold 9834 vehicles vs. 6892 in the year earlier quarter. Operating expenses nearly doubled.

During the fourth quarter, production increased to a record 11,627 vehicles, meeting its target to produce 35,000 vehicles in 2014. However, deliveries in the quarter amounted to 9834 vehicles. Tesla has adopted a rather industry-unique finished goods distribution model electing to take more end-customer orders directly online and delivering new cars direct to consumers, shunning the need for a vast dealer network. As a result, Tesla could not deliver 1400 vehicles because of challenges described as either customers being on-vacation, severe winter weather and termed shipping problems.  According to its 8K report, the 1400 vehicles have since been delivered in the current quarter, but weighed on revenues in Q4. Keep in mind that Tesla has invested in advanced technology to provide deeper visibility to overall delivery and customer fulfillment needs.

For the full year, Tesla recorded nearly $3.2 billion in revenues and an operating loss of $294 million, roughly three times the losses recorded for 2013. Inventories increased nearly $613 million. According to its SEC filing, about 55 percent of new Model S vehicles were delivered to North America customers while 30 percent were delivered in Europe and 15 percent were delivered to Asia Pacific customers. More vehicles were directed into Asia Pacific markets to support the initial year of deliveries for that region.

Looking toward 2015, Tesla faces a number of added supply chain challenges in order to support its global sales goal of 55,000 vehicles. A number of added investments in expanded manufacturing capacity are planned to increase production volume to 2000 vehicles per week by the end of 2015. Tesla entered 2015 with over 10,000 orders for its Model S and nearly 20,000 customer reservations for its new Model X, which is expected to begin customer deliveries in Q3 of this year. G&A expense growth is expected to be more modest with a particular emphasis on increased operational efficiency.

Added production capacity investments include a new state-of-the art automated casting and machining operation for various aluminum components and increased production volume investments to meet expected demand for All-Wheel Drive Dual Motor product demand. A new paint shop operation is further planned for combined painting of Model S and Model X models. Tesla additionally plans to further increase its sales and service resources in all existing markets including China.

One rather positive note is Tesla’s indication that steel fabrication is underway at the planned battery manufacturing Gigafactory near Reno Nevada.  That new facility, being constructed in partnership with major battery supplier Panasonic, is reported as on plan to begin equipment installation later in 2015 and battery production in 2016.

Thus while showing some supply chain strains at the end of 2014, even more challenges remain for Tesla’s supply chain in 2015. Tesla has often demonstrated the effective use of advanced technology applied to manufacturing and supply chain business processes, and 2015 will be no exception to that trend.

Bob Ferrari


A Timely Call for Better Measures of Supply Chain Rankings and Success

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On Linked-In Pulse, noted MIT supply chain thought leader, author and fonder of the MIT Center for Transportation and Logistics (CTL),  Yossi Sheffi penned a timely and well-articulated editorial calling for better measures of supply chain success, particularly when it concerns ratings of certain industry supply chains. We wanted to call Supply Chain Matters reader attention to this insightful editorial because it is long overdue in our supply chain community.  It further echoes some of the very concerns and frustrations that this particular editor has been penning in prior Supply Chain Matters commentary.

Professor Sheffi makes specific mention that Gartner’s Top 25 supply chain ranking is one of the most followed indices but questions if it really provides meaningful assessments of the best performing supply chains. He argues that the assessment criteria may be flawed, and that supply chain teams get a false impression of what it takes to build and sustain excellent supply chains in particular business sectors. As Dr. Sheffi observes: “some supply chain leaders may get undeserved kudos while others receive criticism despite achieving strong performances.” Various industry supply chains have far different needs and requirements in supporting business objectives and outcomes.

Dr. Sheffi’s other pearl of wisdom is directed at peer ranking. He opines: “Apportioning more than approximately 10% of a company’s overall score to peer reviews is excessive and not reflective of reality, unless the peers are from the same industry or similar industries.”

We will not take away from the full impact of Professor Sheffi’s arguments and conclusions and encourage our readers as well as specific industry analyst firms that publish rankings to thoroughly read and absorb this well-timed editorial.

As noted in our Supply Chain Matters commentary in May of 2013, too often; these ranking exercises have far too much weighting towards specific financial metrics that depict outsourcing of supply chain assets and resources in a favorable context. Apple’s supply chain strategy and consequent top ranking is the best example, while Apple’s prime contract manufacturers or key suppliers hardly receive any prominent ranking. Heavy dependence on financial metrics of performance precludes noteworthy turnarounds in performance, overall supply chain process innovation and abilities to rise to a challenge in rather difficult industry settings. Privately-held companies and those from emerging markets are often precluded from rankings that place the majority of emphasis on financial metrics.

One wonders if certain retailers had not taken the risk to accelerate inventory investments in anticipation of a possible west coast port disruption, or bit the bullet to airfreight inventory at the last minute in order to achieve customer holiday fulfillment goals. While there certainly was consideration for financial impacts, customer responsiveness and grand loyalty was another weighted criteria.

Bravo to Professor Sheffi for once again challenging existing thought processes and criteria for how our community should measure supply chain success.

Bob Ferrari


Airbus and Boeing Both Declare Another Year of Outstanding Operational Performance in 2014

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In the commercial aerospace sector, both Airbus and Boeing both declared that they each exceeded operational targets for 2014.  However, the supply chain ecosystems for each of these manufacturers have continual challenges to perform even better in the months to come.

Today, Airbus announced that it achieved a new record of 629 aircraft deliveries in 2014, representing an increase for the 13th consecutive year. That compares to the 626 aircraft delivered during 2013.

The breakdown of deliveries consisted of:

490 A320 model aircraft

108 A330 aircraft

30 A380 super jumbo aircraft

Initial A350 XWB to launch customer Qatar Airways

Airbus was challenged at the last minute in delivery of the launch A350 but overcame issues of customer customized equipment needs to make its 2014 milestone.

On the inbound customer demand side, the aerospace provider booked 1456 net orders from 67 customers making its year-end backlog to be 6386 aircraft valued in excess of $919 billion. If the Airbus supply chain were to continue to support and sustain its current shipment volume performance, the current order book represents in excess of 10 years of production.

Airbus program development highlights in 2014 included the maiden flight of the rather popular A320neo which is currently scheduled for operational certification in Q3, and first customer delivery in Q4 of this year.

Last week, Boeing announced that it had achieved delivery of 723 aircraft, a record for the most commercial aircraft delivered in a single year. That compares to 648 aircraft delivered in 2013. The breakdown of deliveries included:

485 737 program aircraft

99 777 program aircraft

114 787 Dreamliner program aircraft including the first 787-9 launch model.

Similar to Airbus, Boeing was challenged with December deliveries of 787’s and other wide body aircraft because of a supplier shortage of premium seating. All three of Boeing’s final assembly facilities each set new milestones for aircraft delivery volume. On the inbound side, Boeing booked 1432 net orders bringing its year-end backlog to 5789 aircraft, a declared all-time high. The company recorded 1355 net orders in 2013. If the Boeing supply chain were to continue to support current shipment volume, the current order book represents in excess of 8 years of production.

Boeing program development highlights included the launch of the 787-9 in 2014 and the planned assembly of the first 737 MAX scheduled for this year.

No doubt, the supply chain and product management teams and ecosystems of both Airbus and Supply Chain Matters Tip of the Hat AwardBoeing went the extra mile in successfully achieving each of the 2014 operational milestones.  We extend our Supply Chain Matters Tip of the Hat recognition for their efforts, and hopefully, bonus goals were achieved and compensated.

Moving forward, 2015 brings expectations of even greater operational performance coupled with the needs to scale-up delivery cadence to even higher levels. As noted in a previous commentary, commercial aerospace supply chains exist in good and not so good news realities. All of the current backlogged customer orders need to be delivered to airline customer expectations for timing, anticipated reliability and performance.  Once again, there is a very strong reliance on the performance of the extended supply network and in solid operations and risk management.

Congratulations to all.

Bob Ferrari


Samsung Counters Apple in a Tactical New Product Introduction Move Concerning China

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Supply Chain Matters has been calling attention to pertinent industry examples of how agile new product development and introduction (NPI) efforts are critically linked to the ability to integrate end-to-end supply chain fulfillment strategies with new product plans.  Samsung Gal_Note_4_Sized

Today brings an important example in consumer electronics, namely the competitive battle among Samsung and Apple in the smartphones arena. 

Readers will recall from our prior update on Apple’s current iPhone 6 product ramp-upand market introduction, that Apple’s prior plans to launch the two new models of smartphones concurrently within China were postponed. Apple communicated this last-minute decision to delay availability to the three state-owned mobile service providers even though these carriers had already queued advertising and launch campaigns. Increased speculation across Wall Street and business media corridors is that China’s regulators are still voicing concerns regarding national security associated with the iPhone itself. 

Today, rival Samsung attempted to take advantage of that situation and announced that its new Galaxy Note 4 smartphone, which features a slightly larger screen, compared to the iPhone 6 Plus will go on sale in China later this month.  According to a report from global business network CNBC, all three Chinese mobile carriers will release the large screen Samsung model smartphone before the end of this month offering Chinese smartphone consumers a potential alternative choice.

Further noted is that the Samsung announcement marks the first time the consumer electronics provider has chosen to release a flagship smartphone in China before other major global markets. As a supply chain community, we can all vision how Samsung’s supply chain planning, fulfillment and product teams had to scramble because of the decision to move the product launch ahead one month and to target China.

It is yet another today example of the increased informational and NPI decision-making dependencies across the extended supply chain, with the ability to ascertain unplanned impacts across the supply chain business network.

Bob Ferrari


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