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.
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 Boeing 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.
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.
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.
Today marks simultaneous but select global-wide product availability release of Apple’s latest announced iPhone 6 models, and as noted in our previous Supply Chain Matters commentary, the supply chain is again being again put to the test in assuring customer fulfillment expectations. Consumers from Hong Kong, select European countries and the U.S. now have the opportunity to get their hands on the new models.
The Apple marketing gods pay special attention in hyping sales in the first weekend of iPhone availability. It adds to the optics of long lines of consumers queuing-up to get their hands on the latest and greatest smartphones and motivating consumers to buy now, while there is still some in-stock. Like other consumer focused companies, revenues in the upcoming holiday quarter can account for a substantial portion of expected financial results.
Thus far, published product reviews concerning the new models have been positive, which adds to positive consumer perceptions. At this same time last year, Apple set a record of 9 million iPhone 5 smartphones being sold on the initial full weekend. That performance came in the midst of ongoing production yield challenges with the premium iPhone 5s model, which demonstrated the highest consumer demand. In 2012, 5 million iPhones were sold on the initial weekend. Wall Street analysts are floating a number indicating an expectation of 10 million as the bogey for iPhone 6 sales in the first weekend. The bar of expectations grows ever higher.
Earlier this week Apple reported that it had more than 4 million preorders in-hand among the new iPhone 6 and iPhone 6 Plus models during the first 24 hours since the product launch event. Apple also indicated that many of these pre-orders will be delivered in October, a sign of setting proper supply chain realities. Indeed, smartphone carriers such as AT&T, Sprint and Verizon are quoting October availability with the U.S., with the Plus model being especially stretched-up for availability.
One rather critical difference this year is that Apple has not been able to extend planned availability of the new model iPhone within China. Last year, China was included in first weekend sales availability. A published article in the New York Times last week (paid subscription or free metered view) reported that Apple communicated a 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. No specifics as to when these concerns will be alleviated has led to added speculation that a grey market for both the new iPhone 6 and older iPhone 5 models will become rampart during the weeks leading up to the end of the year.
However, if Apple’s supply chain planners had factored availability of new models for China on weekend launch, they well may be scrambling to re-configure that inventory to satisfy pent-up demand in adjacent regional markets.
As a community, we often commiserate on the dynamic tensions and often conflicting goals among sales and marketing and supply chain teams which often manifests itself in the S&OP process. Apple’s supply chain teams are not immune to such tension. Over the coming weeks, as the marketing and sales machine cranks-up consumer motivations to buy, the supply chain will deal with the realities of limited supply, production hiccups and product allocation conflicts among various channels that invariably come up in such situations. Air freight capacity is already allocated and we can all look for the clear signs of scramble and response.
While some supply chains are challenged with collaborating with sales and marketing on stimulating and shaping product demand, Apple has the current challenge of meeting very high expectations involving an outsourced supply network with many moving parts. They have pulled miracles in the past, and the stakes get even higher.
Stay tuned for updates.
In a few short hours, Apple will once again announce a new set of innovative products to the global community amid a flurry of social and business media posts, streaming commentary and headlines. Announcements are expected on the new iPhone 6 models that will include more elegant physical design, innovative materials such as sapphire-based screens, as well as new functionality. Pundits further expect the long-awaited announcement of the wearable iWatch along with a new iPad model that features a super large screen version.
As we have noted in prior Supply Chain Matters commentary, the one certain thing at the end of today is that Apple’s supply chain ecosystem remains under the gun to deliver on the collection of high expectations. There are continued reports of big bets on expected shipments to be supported for the upcoming holiday period, production yield challenges associated with last-minute design change involving the larger screen displays of the iPhone 6, as well as reports of a simultaneous and the unpredicted Q1 introduction of the rumored 12.9 inch iPad in conjunction with the announced Apple-IBM alliance focused on business applications enablement.
TechCrunch recently posted a commentary citing sources indicating that Apple is already tying up air freight capacity out of China for the forthcoming months as it floods channels with last-minute shipments, which is reportedly causing some delays for other manufacturers. Whether that’s true or not, it reflects a certain state. The scramble is in high gear and all hands are expected to be on-deck on a global-wide basis in the coming weeks awaiting input from Apple’s Sales and Operations Planning (S&OP) process.
Every year at this point, we have noted that Apple’s supply chain is about to be put to the ultimate test. Every year, the stakes seem to get higher and more complex. Like all of our readers, we await the forthcoming chapter in this saga. Can the number one rated supply chain ecosystem repeat in meeting the high expectations and business outcomes of its demanding business partners? Will other high tech and consumer electronics supply chains feel additional impacts?
We will all know the results and the implications in Q1.
Today, Gartner published its annual regional listing of what the analyst firm considers to be ten of the best supply chains in the Asia-Pacific region. Gartner conducts this ranking as a supplement to its Top 25 Global Supply Chain Rankings that are traditionally announced in the fall. According to Gartner, while most of these regionally-based supply chains still need to elevate their supply chain capabilities to compete on a global level, many have dramatically improved their position.
The published ranking for Asia-Pacific Top Ten supply chains were noted as:
- Samsung Electronics (ranked 6th in 2014 Top 25 global ranking)
- Lenovo Group (ranked 16th in 2014 Top 25 global ranking)
- Toyota (reported to have moved up three places in the top ten Asia-Pacific and up 22 places in global ranking but not in current 2014 Top 25 global ranking)
- LG Electronics
Overall, Supply Chain Matters believes that this ranking reflects how we would have voted if we were part of the external or peer voting panel. Samsung is especially noteworthy since by many accounts its supply chain is supporting more product and perhaps process innovation than that of its arch competitor, Apple. It is quite interesting to note the appearance of three automotive OEM’s in the Asia Pacific ranking while there are no automotive OEM’s ranked in the global Top 25 rankings. We have been especially impressed with Honda’s global manufacturing sourcing strategies that have helped the company overcome currency challenges and better service global product demand.
At least three of the Gartner Asia-Pacific top ten, namely Samsung, Lenovo and Hyundai practice some form of supply chain vertical integration strategies.
However we were somewhat quite taken-back by the appearance of Sony’s in this top ten ranking, given its profitability challenges in the past few years. Sony has also been aggressively outsourcing parts of its television and certain parts of its consumer electronics supply chain to contract manufacturers in order to aggressively reduce costs. Gartner’s own admission is that Sony is lagging behind some of major competitors.
Again, we are shocked with the lack of recognition toward Foxconn Technology (Hon- Hai Precision), the world’s largest contract manufacturer by revenue and output volume. Foxconn is a major supplier and serves as the lead contract manufacturer for Gartner’s consistently ranked number one global supply chain of Apple. This CMS’s ability to respond to Apple’s intense product innovation requirements as well as rapidly scale volume production is highly noteworthy. We remain highly curious as to why Flextronics does not appear in this top ten regional ranking, let alone the global ranking, but then again, social responsibility strategies concerning workers may be a weighting factor. Another supply chain worthy of consideration is that of TSMC, the world’s largest semiconductor manufacturer.
Supply Chain Matters has featured commentaries on many of Gartner’s ranked top ten Asia Pacific supply chains. They can be accessed by utilizing our Search box: i.e. Samsung supply chain.