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Reflecting on the Application of Social Enabled Supply Chain Processes- Bob Ferrari Guest Commentary

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In March of 2011, I had the opportunity to join two fellow supply chain management bloggers in a thought-leadership webcast focusing on the potential of the social supply chain. Four years ago, the concept of the social supply chain was relatively new, not well understood, and lacking many specific examples to cite.

Indeed after much market education and early adopter successes, leveraging social supply chain applications to enhance business processes has far more meaning and applied uses.  That is especially pertinent to today’s reality of increasingly complex and fast moving globally based supply chain networks.

On the 21st Century Supply Chain blog I provide a guest posting reflecting on what has occurred in this area and how the power and potential of many is being increasingly leveraged within supply chain business processes.

Have a read and share your perspectives and views regarding what has transpired regarding this area of technology.

Bob Ferrari, Founder and Executive Editor

 


The Tianjin Warehouse Explosion and Disaster Has Obvious Industry Supply Chain Implications

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Last week, while on our two-week summer break, we took the time to alert Supply Chain Matters readers to the reports of severe explosions that occurred last Wednesday at the major Chinese logistics center at Tianjin.  The reports and video images alone implied to this author that this was a concerning event.

Since that time, the scope and implications of this tragedy continue to evolve.

Reports now indicate that this tragedy has taken 112 lives with upwards of 700 people injured as a result of the two massive explosions. According to media reports, 95 people, mostly firefighters, are still missing. Supply Chain Matters expresses our condolences and concerns for all of the victims of this tragedy.

The video and visual footage of the wide-scale destruction is sobering to view. The China Earthquake Networks Centre indicated the initial explosion had a power equivalent to three tonnes of TNT, while the second was the equivalent of 21 tonnes. The blast zone extended in excess of 2 kilometers.

Yesterday, authorities confirmed reports that hundreds of tons of the highly toxic chemical sodium cyanide were present in the warehouse involved in the initial explosion. A BBC report indicates that the warehouse stored other chemicals including calcium carbide, sodium cyanide, potassium nitrate, ammonium nitrate and sodium nitrate. The warehouse itself was operated by Ruihai International Logistics Co. and questions have been raised as to how much of the chemical was authorized for storage. Chinese media indicates that at least one member of staff from Tianjin Dongjiang Port Ruihai International Logistics, which owns the warehouse, has been arrested.

When burned, sodium cyanide releases hydrogen cyanide gas which is now the overriding concern for residents throughout the Tianjin area as the clean-up efforts continue.  According to published reports from the BBC and The Wall Street Journal, criminal prosecutors are vowing to conduct an extensive probe amid a growing concern that regulators often turn a blind eye to enforcement of regulations.

Chinese Premier Li Keqiang has visited the scene and has met with the victims of this major disaster and has indicated that regulators will act in transparency regarding readings of current air, water and soil quality within the area. Nearly 3000 troops with chemical protection equipment are reportedly combing areas outside of the 2 kilometer blast zone for possible hazardous chemicals that were ejected by the explosions.

This disaster occurred in the logistics zone serving Beijing, and one of the busiest ports in China and perhaps the world. The port is a major trading center for commodities and metals and a gateway to the industrial northern regions of China. Reports indicate that shipping containers were tossed into the air like matchsticks and were crumpled by the blasts and a logistics park containing several thousand cars was incinerated by the fireball. Renault indicates that some 1,500 of its cars were lost, while Hyundai indicated that around 4,000 cars on the site may have been lost as well.

While the port remains partially open, operations are noted as restrictive due to continued investigations and checks within the area. Toyota announced that it was closing production lines at its factories near Tianjin until the end of Wednesday, while agricultural machinery maker John Deere suspended work indefinitely. Both saw some of their workers injured by the blasts.

For industry supply chain teams, the implications of the Tianjin disaster will likely continue in the coming weeks or months. As the building tide of widespread sentiment reflecting that regulators have turned a blind eye to industrial safety, there will likely be increased scrutiny of manufacturing and logistics operations, particularly those involving forms of hazardous or industrial materials. Already, China has ordered a nationwide check on dangerous chemicals and explosives.

Similar to the 2013 tragedy involving the Rana Plaza explosion in Bangladesh, the 2015 Tianjin explosion could well be a watershed event concerning industrial safety standards. Anticipate that individual firms and industry groups will be motivated to become more active and involved in assuring international standards of warehouse and factory safety, particularly in areas adjacent to high population areas.

The Tianjin disaster could well turn out to be one that either defines improved safety standards or one that places certain industry supply chains with heightened challenges to assure and attest to individual worker and industrial safety standards.  Social responsibility practices will likely again be tested against product margin needs.  The final outcome is one yet to be determined, but one that reflects the realities that China needs to maintain its export volumes and global competitiveness.

Bob Ferrari

 


Country of Origin Legislative Actions for Food Has Broader Industry Supply Chain Implications

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In June, The United States House of Representatives voted to repeal country-of-origin labeling (COOL) for beef, pork, and chicken and social media commentary regarding the move continues to dominate as an ongoing trending topic.  The reasons are obvious- consumers demand and expect knowledge as to the specific sourcing origins of food products. Consumers are right to be concerned and watchful, and the impact of these actions continue to impact food, beverage and consumer product goods focused supply chains.

The original COOL legislation had good intent, requiring meat products sold in supermarkets and grocery stores to specifically indicate where the animal was born, raised and slaughtered.  Reports indicate that the original law was prompted by the lobbying of U.S. ranchers who compete with the Canadian cattle industry, and later garnered the interest of consumer watchdog interests.

But this current ongoing process now involves the political and economic implications of other supply chains, in addition to food.

The broader issue involves the World Trade Organization (WTO) which after the initial U.S. legislation was passed, ruled that the labels regarding animal origin would have a discriminatory impact against the two U.S. border countries, Canada and Mexico, and thus a barrier to free trade.  Both border countries indicate that the law requires that animals be segregated by country of origin, a costly process that has U.S. wholesale buyers avoiding the buying of export origin meat products.

Both countries are seeking permission to impose what is described as billions of dollars in added tariffs on U.S. goods in retaliation.  And there lies the supply chain impact which threatens to change the existing economics and stakeholder interests of cross-border trade.

U.S. legislators are thus caught in what is described as a damned if you do, or damned if you do not conundrum regarding the existing COOL repeal legislation which has now moved to the U.S. Senate for consideration.

In order to seek additional insights regarding the implications of COOL, Supply Chain Matters had the opportunity to recently speak with Candace Sider, vice-president of regulatory affairs, Canada, at international trade compliance services provider Livingston International. Ms. Sider has a significant background in understanding Canada’s regulatory processes involving interaction with federal and provincial officials, regulatory agencies and policymakers.

She explained that Canada viewed the original U.S. COOL labeling requirements as having a $3 billion impact on that country’s cattle and hog industry.  During the current arbitration period, decisions are expected to be made as to what commodities would remain on the original impacted list. If the surtax were to be implemented, importation from the U.S. of the subject products could ultimately passed on to consumers. The U.S. government has indicated to the WTO that it disputes Canada’s figures.  However, Canada is preparing to lift tariffs on U.S. imports that include in excess of 100 different commodities including products such as range and refrigerator parts, wine, and yes, chocolates.

The WTO is not expected to rule on the U.S.’s latest appeal to the threatened tariff increases until early August, or possibly September. Meanwhile, the implication of the ongoing dispute actually impacts more than just meat-focused supply chains.

Livingston is currently advising its clients to prepare for a number of potential scenarios involving the ongoing trade dispute process invoked by COOL.

Where all of this eventually ends-up is subject to many viewpoints.  After all, this is very much a process driven by economic, multi-industry and lobbyist forces.

However, one aspect is clear. The complexity of today’s globally based supply chains takes on many different dimensions and implications.  While you might have perceived that legislation affecting packaging disclosure of meat products has little to do with service parts, chocolates and wine, it indeed does. The takeaway is to nurture contacts and resources that can alert your team to ever changing developments and multi-industry implications.

Bob Ferrari

 


Major Blast Occurs at Zodiac Aerospace Fabricated Material Plant

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Supply chain risk management and Sales and Operations planning teams for both Airbus, Boeing and other commercial aerospace aircraft producers are likely hard at work today after news of the powerful explosion at the Zodiac Aerospace factory located in Washington State last night.

According to various news reports, the explosion that occurred at Zodiac’s Newport Washington plant was felt miles away, injured at least seven persons, and prompted the evacuation of surrounding homes and businesses due to strong chemical odors. At least one person was reported to be in critical condition. A report indicates that that the power of the explosion lifted an entire floor off its foundation, caused multiple areas to collapse and toppled large pieces of machinery. Thirty people were reported to be working at the plant at the time of the explosion.

According to a published Reuters report, the plant itself produces resin-impregnated honeycomb core and composite panels used by various other Zodiac production facilities to produce aircraft lavatories, galleys, overhead bins and other structures. Zodiac serves as one of the largest suppliers of aircraft interiors for multiple commercial aircraft producers.

In a mid-December posting, Supply Chain Matters called attention to a media report indicating that a component shortage involving new lie-flat airline seats occurring at Zodiac was suspected of causing delayed shipments of brand new Airbus and Boeing airplanes. Three months ago, the head of Airbus’s passenger jet business called attention to suppliers of cabin equipment, speculated to include Zodiac, indicating their failure to get to grips with chronic production delays was “unacceptable”. Thus the pressure on this supplier to step-up and meet production requirements might have been high.

This incident will, in all likelihood, continue to be of concern to commercial aircraft producers for the coming weeks as Zodiac assesses and communicates the potential impact on current and future interior equipment supply commitments.

Stay tuned.

Bob Ferrari

 


Report Indicating the Profit Power of Apple

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A firm’s supply chain exists to support and enable specific business outcomes.  Such outcomes might include increased profits, broader product selection or higher levels of customer satisfaction and service. Supply chain strategy setting can often stumble when specific outcomes are not clearly defined or outcomes become conflicted. Consider the notion that a strategy driven to overall supply chain cost efficiency can sometime hinder needs for more agile response to market opportunities.

Supply Chain Matters has often praised Apple’s supply chain capabilities, not only from aspects of product and supplier innovation, but in overall agility as well as enhancing product margins. By our lens, few supply chains exhibit such a track record.

That point was driven home by today’s published report from The Wall Street Journal, Apple Gets 92 Percent of Smartphone Profit. (Paid subscription required) The report cites estimates from Canaccord Genuity concluding that in the first quarter: “Apple recoded 92 percent of the total operating income from the world’s top smartphone makers.” That was an increase of 65 percent from a year earlier. According to this report, the combination of Apple and Samsung accounted for more than 100 percent of industry profits since other makers broke even or lost money.

According to the report, what stands out even more regarding this achievement is the fact that Apple sells fewer than 20 percent of total volume, yet manages to garner the highest average prices and occupy the high end of the smartphone market.

Once more, as we have pointed out in our numerous Supply Chain Matters commentaries, Apple has the ability to practice highly agile sales and operations planning, segmented supply risk and multi-channel customer fulfillment while supporting the industry’s highest product margins.

From our lens, a lot of the success of the Apple supply chain stems from the ecosystem of responsive suppliers who can scale with Apple’s relentless requirements. And in fact, some suppliers have succumbed because they could not continue to meet Apple’s requirements while attempting to support individual financial outcomes for profitability.

Some will speculate that Apple’s advantage may eventually succumb to the track record of other high tech or consumer electronics OEM’s that eventually over-saturate their market and are attacked from more innovative producers. For now, however, Apple and its supply chain remain the ‘best of show”.

Bob Ferrari


Do Not Let Your Firm be the Headline for a Supply Chain Systems Failure

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As our U.S. based readers are likely aware, Wednesday of this week was not necessarily a good day for the IT community. In the course of a few hours Wednesday morning, mission critical systems of the New York Stock Exchange, United Airlines and The Wall Street Journal failed, and respective customers were not pleased.

With the cascading breaking headlines on Wednesday, just about everyone’s initial impression was that this was some form of a coordinated cyber-attack.  After quick investigations from various federal agencies, that premise was later negated.

Since Wednesday, the NYSE communicated to its brokerage customers that the outage was likely caused by a planned software upgrade that was underway. The outage resulted in a four hour outage, but remarkably, had little impact on the exchange of stocks because ancillary systems took on the task of transacting trades. According to a report in today’s WSJ, the problem started with a new software program designed to more precisely time-stamp data that was installed during the prior evening.

The WSJ outage was reportedly caused by a volume surge that overwhelmed the publication’s home page. It remains unclear, at this point, as to why the volume surge occurred.

The United Airlines outage, which extended upwards of 90 minutes, causing the cancellation of 60 flights and consequent delays to hundreds of U.S. based flights, was attributed its outage to a failed router in its computer network. As anyone who has flown lately can attest, airlines like United have cut back on airport customer service agents. Thus, system-wide interruptions cause significant passenger disruption, particularly when backup planning is inconsistent. Given United’s continual history of computer failures, schedule interruptions and poor customer service, the Wednesday incident was yet another source of continuous disappointment from United’s long-standing customers. (This author is included in that category).

As a supply chain community who deal with business and mission-critical systems each and every day, Wednesday’s litany of IT incidents provide us poignant reminders.  The first and obvious reminder for IT teams themselves is that no mission-critical system should have a single-point of failure.  While that appears to a simple statement, the existence and complexity of global-wide outsourced systems and/or networks has added new vulnerabilities which must be communicated and addressed.  There is the further theme of complex software upgrades that can precipitate outages.  It is no wonder that IT and business functional teams remain very concerned about the potential risks of complex ERP or supply chain business critical system and applications upgrades.

For functional supply chain and line of business team leaders, the prime takeaway is twofold. First, listen to your IT support teams when they raise concerns regarding system vulnerabilities or needs to invest in IT redundancy in specific business critical systems.  Too often, functional business and supply chain teams become too impatient with planned system maintenance downtime or extra time needed to complete a planned software upgrade.  Better to invest that energy in preparing consistent contingency back-up plans. Insure that there are plans associated with each and every business critical system. Take the time to thank and reward both IT and functional teams for their diligence in planning.

A final message relates to senior executive leaders and their zest for cost control. A theme surrounding Wednesday’s concurrent outages is that larger and more complicated business critical systems require adequate resources to support testing, monitoring and reliability. That includes not only adequate defenses to guard against hacking and cyber-attacks but day-to-day operations as well.

Many years ago, I worked for a very insightful CIO who mastered communications to senior executive management. Often, when he received pressure regarding systems maintenance budgets associated with mission critical business systems such as order fulfillment, he would use an analogy of flying on a jet aircraft.  “Do you expect the pilots to upgrade or change an engine while flying at 30,000 feet.” Of course not, and that is why diligent and timely maintenance and backup plans exist.

Don’t let your firm be the next headline for a supply chain systems failure.

Bob Ferrari


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