This blog commentary is a side note to our prior Supply Chain Matters published commentary related to first-half delivery performance for both Airbus and Boeing reflecting continued supply chain challenges.
A secondary competing competitor in the single aisle commercial aircraft program category has been Bombardier’s C-Series aircraft which has been challenged by extended financial, program and supply chain setbacks. A major milestone has finally occurred with the recent announcement that the first CS100 entered operational service at Swiss International Airlines.
The maiden commercial flight of the CS100 was a Zurich to Paris flight. During the first-half of 2016, Bombardier secured firm orders for 127 C Series aircraft. Transport Canada has further awarded type certification to the larger CS300 model aircraft and the delivery of this model to airBaltic is currently scheduled for Q4.
What caught our attention was a Business Insider blog posting titled: Airbus and Boeing’s greatest threat just arrived. That posting observes:
“Over the next few years, several manufacturers from around the world will launch aircraft aimed to compete with Airbus and Boeing. But Bombardier is the first to enter service and the only one that will compete head-to-head within one of their most important market segments.. Not since the demise of McDonnell Douglas and its MD-80 and MD-90 in the late ’90s has there been a third major player to challenge the Airbus-Boeing duopoly.”
“What Bombardier has going for it is the fact that the C-Series is widely viewed as a great plane — receiving critical acclaim for its fuel efficiency, range, and advanced technology.”
If readers have been following our stream of Supply Chain Matters commentaries related to the C-Series program for the past few years, you would have discerned another important advantage from a supply chain perspective. To provide readers just two examples, you can view our original commentary published in 2010 and a subsequent 2013 commentary posing the question: can a disruptor compete with giants. If the program had not encountered such setbacks from its original goal to enter the market in 2013, it would have entered operational service much earlier and provided evidence to major airline carriers that it could be a viable alternative to current extended delivery schedules for single aisle aircraft. Now, Bombardier will likely have to deal with the industry-wide supply chain constraints that exist, including availability of the newly designed Pratt & Whitney PurePower® PW1500G engine.
One could classify this as opportunity lost, but then again, only time will tell the ultimate determinant.
For airline and leasing customers, it is indeed good to have choices and options for new commercial aircraft. Both Airbus and Boeing sales teams have been rather aggressive in insuring that airline customers would not consider such an alternative option. But now, when the industry as a whole is constrained, than the most innovative program and supply chain management processes and consequent decision-making can well become the ultimate differentiator as to what airline customer elect to do in their buying choices.
We welcome additional reader viewpoints as well.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved
First-Half 2016 Delivery Performance for Airbus and Boeing Reflect Continued Supply Chain Challenges
As the commercial aircraft industry moves into the second-half of 2016, it is time for our usual Supply Chain Matters six month industry review of performance. Reflecting on delivery performance thus far, there are continued signs of industry supply chain supply challenges.
Let’s begin with Airbus which reported the booking of a total of 227 confirmed orders in the first six months of the year. That number may be somewhat understated since at the industry’s recently completed Farnborough Air Show, Airbus achieved bragging rights for announcing orders and commitments for 279 commercial aircraft, more than half originating from a single airline customer, that being AirAsia who ordered 100 A320neos.
Airbus recorded the delivery of a total of 298 aircraft in the first-half, which consisted of the following:
- 160- Single aisle aircraft (Variants of A319, A320, A321)
- 38- A330’s
- 27- A350’s
- 2- A380’s
In the above, tell –tale signs of supply disruption are reflected in two key aircraft. There were only 8 completed deliveries of the brand new A320neo, no doubt reflecting the ongoing catch-up in delivery of the brand new Pratt & Whitney geared turbofan engines. Airbus had delivered just 5 A320neos in Q1 meaning that just 3 were delivered in Q2. As noted in our prior commentary, nearly a dozen of completed A320neos have been reported as lined-up on factory adjacent runways and parking areas awaiting Pratt to deliver completed engines. The exiting delay is associated with fixing the engine’s cooling design through a combination of software and component modifications. Pratt engine deliveries were not expected to catch-up until after June and there are continued reports that Pratt’s supply chain remains strained. The other new engine offering, the new LEAP model from CFM International is expected to be available in the second-half of this year as-well. With a stated target to have a production level of 50 A320neo’s per month by 2017, there is a lot more planning and execution remaining.
A further problematic area acknowledged by Airbus has been supply and bottleneck challenges associated with newest model A350 production, and first-half completion of 27 reflects that ongoing challenge. Supply challenges have been noted as interior seating and structures and Airbus senior management has expressed public frustration regarding ongoing supply glitches.
Turning to Boeing, the aircraft producer reported the booking of a total of 321 orders in the first-half. At the completion of the Farnborough event in July, Boeing was able to announce orders and commitments for 182 aircraft but just 20 actual new firm orders.
Boeing further recorded the delivery of a total of 298 aircraft reflecting its previously announced scaled-down expectations for delivery cadence this year. The breakdown was:
- 3- 747’s
- 5- 767’s
- 51- 777’s
- 68- 787 Dreamliners
In the above, a challenged area remains completed deliveries of Dreamliners although the cadence has improved slightly beyond 10 per month. There is still a long way to go in ramp-up and lots of internal pressures remain since the program remains cash negative until delivery performance dramatically improves. Both Boeing’s Seattle and South Carolina assembly facilities are now producing completed Dreamliners.
With current order backlogs of nearly ten years for Airbus and over seven years for Boeing at current production cadence levels, both manufacturers have been concentrating on increased production automation and longer-term strategic supplier agreements. In June, key suppliers urged both manufacturers to move cautiously on demand noting that there are definitive restrictions on the ability to ramp-up the industry supply chain to expected volume output cadence. Another growing concern is the ability of aircraft engine producers to be able to support higher output volumes given the increased technical sophistication of the new generation engines. Pratt alone is in the midst of managing five different new engine models and with both commercial aircraft dominant manufacturers continuing to book further orders and explore newer model introduction, the pressure builds.
Again, only time will prescribe the course of events in an industry that is clearly reflecting supply chain distress.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved
In providing our Supply Chain Matters readership with market landscape education regarding technology supporting B2B business networks process needs, we have provided prior visibility to Canadian based technology services provider OpenText.
Last week, this analyst and executive editor had the opportunity to attend OpenText Enterprise World 2016, this vendor’s annual customer conference and we walked away with rather positive impressions regarding direction and services.
OpenText has now assimilated technology centered on three focused strategic areas which CEO and CTO Mark Barrenechea addressed in the conference opening keynote:
OpenText Enterprise Information Management (EIM) which is just about everything related to document and content management. Many SAP ERP users may or may not be familiar with the brand, but much of the document content exchanged within SAP applications is powered by OpenText including new iterations of SAP HANA and SAP S4HANA applications. Likewise, the vendor supports EIM needs for other ERP systems as well.
OpenText Business Network which is a B2B business network platform that supports EDI messaging, supplier and customer onboarding, purchase-to-pay transactional support and other growing managed services. The gem of this network is the 2013 acquisition of the GXS Trading Grid network with its genesis as the prior General Electric Information Services. In June of 2012 this author declared that GXS was the hidden gem in B2B information transfer and software services and that prediction continues to manifest itself.
OpenText Analytics which is the new evolving area for this provider, one that promises to harness insights and business decision support related to both EIM and Business Network operational and business information flows. This capability has become a new strategic thrust for the company, one that by our view can present a more visible player to the analytics and enterprise technology market.
Regarding the latter, Barrenechea provided two major product announcements in conjunction with the conference. The first was Project Bandaroo, a technology to be focused on the changing nature of work. It was described as bringing together OpenText Core, the vendor’s core Cloud platform for everything related to EIM, with other elements of social communities, channels, bots and project management. An on-stage demo outlined a scenario of working group interactions and discussion forums centered on specific information needs. From our lens, the concept seems interesting but needs more specifics related to actual business challenges. Timetable communicated was the second-half of 2017.
The second announcement related to Project Magellan which is described as a next generation cognitive platform being designed to integrate voice, video, natural language processing and other content. It was outlined as an open systems based platform that would leverage both the Spark Apache platform along with the analytics capabilities of Actuate, OpenText’s most recent acquisition focused on advanced analytics. Barrenechea was not shy in making a direct head-to-head technology comparison with the IBM Watson Cognitive platform and that his company will compete directly as an alternative platform in the market. From this author’s lens, this was a far more newsworthy announcement and one to keep an eye on in the coming months, especially since such technology can be applied to the OpenText Business Network. This capability is also planned for introduction in the second-half of 2017.
Regarding the Business Network, much more strategy and information was shared with conference attendees, information that we garnered from an April industry analyst event. Product managers declared that upwards of $7.4 trillion in commerce, the equivalent of 10 percent of world GDP, along with connections to 65,000 partners are currently supported by this network. Support encompasses 37 data centers across 18 countries and 25 satellites.
In addition to electronic transactional messaging (EDI), support is provided in the process areas of purchase-to-pay (P2P), order and shipment visibility and other business process areas. Evolved capabilities in a series of managed services for specific industries and customers continues to expand with an increase of over 200 customers in this segment alone since the acquisition of GXS. The audience was reminded that OpenText Business Network is currently positioned by Gartner in the Leaders Quadrant for B2B Business Networks.
Our on-site executive briefings not only provided more background to new functionality and services that are enabled by the latest OpenText Suite 16 product release but future capabilities being planned in the all-important area of supply chain wide analytics. Of further interest is the introduction of what is termed as Supply Chain Activity Index, an analytical based aggregate view of the B2B network, with forms of Business Process Management (BPM) support for processes that span the supply and value chain network. These two areas should really peak interest, depending on eventual design and functionality.
There was additional validation that support for SAP Ariba’s efforts to move beyond indirect procurement and support more direct materials procurement processes such as electronic invoicing and messaging will stem from OpenText Managed Network Services.
Our other impressions from this event include:
OpenText is indeed well on the road towards addressing the complex and fast-changing requirements for supporting globally-extended B2B networks beyond electronic messaging and EDI. Unfolding support in specific managed services and analytics areas are very promising as is the unfolding strategy of leveraging analytical capabilities to support network-wide decision-making.
An open question acknowledged by senior management is whether OpenText remains an infrastructure and Cloud services provider or moves more boldly into applications. This will be an area we keep an eye to in the coming months since there are pros and cons to either.
We are of the impression that OpenText senior management now understands the stand-alone nature and business value of OpenText Business Network in terms of an independent marketing persona of that of EIM that includes need for brand recognition within broader supply chain management functional audiences. Anticipate more concentrated efforts and visibility in this area.
Having the opportunity to attend many vendor conferences in any given year, this author can quickly extract a sense of overall management culture. Having now had direct 1:1 interaction with a number of OpenText senior executives at multiple events, we are impressed with their openness, sensitivity to customer and market needs and desire to make good on commitments. That was supported by some select customer interviews conducted. Once more, the company continues to reach out and hire and retain additional experienced talent. As an example, we were impressed with the technical savvy and communication skills of Actuate executives brought forward from that most recent acquisition.
As always, this analyst will provide continued assessment commentaries related to both Open Text and the broader B2B supply chain business network technology landscape. In the meantime, if readers have specific questions, send us an email or call.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
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.
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.
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.
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.