Today, Supply Chain Matters joined over three hundred attendees for the The Future of U.S. Manufacturing Conference, jointly sponsored by the MIT Leaders for Global Operations, MIT Industrial Liaison Program, and MIT Forum for Supply Chain Innovation.  The day one agenda was rather jam packed and featured some interesting perspectives.

Some common themes were brought forward in many presentations while some other questions remained unaddressed.  As an example, Jeffrey Turner, President and CEO of Spirit AeroSystems, a major supplier for Boeing and other aerospace manufacturers brought forward the critical importance of having an experienced and well trained workforce supporting manufacturing. Mr. Turner described this as “tapping the reservoir of incredible human power” and offered the audience ample evidence in describing how Spirit’s workforce rallied to overcome the after effects of a recent devastating tornado that damaged much of its Wichita manufacturing facilities, with the potential to have significant business impact. He further described how Spirit was able to negotiate a partnership and performance based variable compensation plan with its predominate union based workforce.

Many subsequent presenters concurred with the need for a more skilled manufacturing workforce. Diana Tremblay, Global Chief Manufacturing Officer at General Motors also pointed to the need for both highly and broadly skilled employees, and praised United Auto Worker union members for demonstrating more awareness and flexibility in labor agreements during GM’s post-bankruptcy recovery. Ms. Tremblay also identified the need for vocational training to include more leadership skills training, including the ability to work in self-improvement and innovation teams.

The afternoon speakers and panel discussions brought forward the influence that governmental incentives in investment, research and tax policy aide in developing a vibrant manufacturing presence for the U.S..  Many speakers stated that manufacturing absolutely matters in corporate capabilities, but were more inclined to favor a geographic based strategy that can support multiple global and/or regional markets.

Our highlight for today one was a closing panel discussion on the theme of Innovation in Manufacturing, was moderated by Tana Utley, Vice President, Product Development and Global Technology Division for Caterpillar, Inc.  Ms. Utley led a pointed and informative discussion of important topics related to manufacturing, some of which required some candor from panelists.  This panel featured:

• Tim Copes, Vice President, Manufacturing and Quality, Boeing Commercial Airplanes
• John Hayden, Executive Vice President and Global Head, Phillips Group Operations
• Martin Mrugal, Head of Manufacturing Industries and Sectors, SAP America
• Professor Martin Schmidt, Associate Provost, Director, MEMS@MIT Center

Discussions involved the experiences of Boeing in introducing its innovative, carbon fiber based 787 jetliner that included both engineering, materials and supply chain sourcing challenges. Another discussion involved efforts to drive common product platforms and process-centric initiatives at Phillips. Martin Mrugal stressed how SAP has learned from its own product development and market strategies, and how this technology provider is working with companies such as Boeing to support needs for mobility based computing on the factory floor or assembly line. Most of the panelists concurred that manufacturing has an “image” problem, that young graduates do not view manufacturing as a challenging or rewarding career.  Interesting enough, we have noted in this blog, on many occasions that supply chain career paths also suffer from this same image problem. Tim Copes noted how governmental agencies in South Carolina greatly assisted in developing educational partnerships among industry and academia to address vocational and technical training needs. Other panelists pointed to programs in Singapore and Ireland as world class benchmarks in this area.

Day two of the conference also has a packed agenda of speakers and in our later commentaries, we will provide some summation of overall themes and messages brought forward.

Bob Ferrari

Aerospace industry blogger and writer Jon Ostrower  authored a Wall Street Journal article (paid subscription or free metered view) one week ago citing the significance of  the first ever completion and customer shipment of a Boeing 787 jetliner from Boeing’s new North Charleston, South Carolina facility.  (Note Boeing photo).

This brand new Dreamliner was decked out and on its way to customer Air India.

In his article, Ostrower cites many important “firsts”.  “The first commercial jet built on the East Coast and the first assembled by a nonunion workforce. The 240-acre site here includes the first new jetliner assembly campus in the U.S. in more than four decades and Boeing’s first outside Washington State.”

The author also points out certain risks as well, a largely untested non-unionized workforce, some of which are a mix of those previously skilled in building the Space Shuttle, and some trainees with no previous aerospace experience.  Readers will recall that Boeing’s attempts to open a second assembly facility were side tracked by National Labor Relations Board actions imposed by its labor unions.  The NLRB dropped its objection after both sides agreed to build Boeing’s next generation 737 aircraft at the unionized facility in Renton Washington.

Another risk, shared with Boeing’s prime 787 assembly facility in Washington State is the unprecedented 40 percent ramp-up of 787 production volumes. Plans call for build rates to ramp to upwards of 10 787 Dreamliners per month by the end of 2013. Three of those aircraft must come from the Charleston complex.

In the article, Boeing Commercial Airplanes President Jim Albaugh is quoted as indicating that Charleston employees have “exceeded all our expectations.”

Supply Chain Matters extends a “thumbs-up” to Boeing and all of its employees at the North Charlestown facility for achieving this first customer ship milestone.

Perhaps Boeing will be a bit more open-minded and extend invitations to recognized blogs such as ours to visit the facility at some point.

Bob Ferrari

Lately, there have not been a lot of positive stories related to overcoming major supply chain disruption, so when one comes along, credit should be given.

On Sunday, April 15, after a series of 97 tornadoes impacted the state of Kansas causing widespread damage, Spirit AeroSystems, a major airframe subcontractor and high profile supplier to Boeing, had to suspend operations at its Wichita Kansas facility. Spirit CEO Jeff Turner initially indicated that most, if not all, of the company’s buildings located across its production campus were damaged.  Fortunately, there were no fatalities and only one reported worker injury.As initially reported in the Wichita Business Journal, the company suffered a complete suspension of power and gas, with the consequence of the interruption of all phone and computer connectivity preventing any off-site coordination of response.  Spirit employees utilized personal cell phones and emails to communicate with one another. Initial assessments indicated that while there was much structural building damage, product equipment and inventory appeared to be undamaged.  A Boeing defense facility just east of the Spirit complex also sustained damage from the storm, forcing Boeing to suspend operations.

Among other products, Spirit was producing upwards of two Boeing 737 barrel fuselages per day, supporting a Boeing production rate of thirty five  737 aircraft per month. Initial speculation was that production plans could be impacted for a few weeks.

Two days after the incident, Seattle PI cited CEO Turner as indicating by a series of Twitter feeds that after completed assessments, overall damage was not as bad as initially feared. Turner’s indication was that getting production restarted would involve clearing debris and making sure everything was safe.  The SeattlePI posting provides an actual photo of one of the main production assembly facilities. One of the CEO’s Twitter feeds indicated “We are gaining confidence hour by hour”. Last Friday, The Wichita Eagle featured an article that noted that over 1000 construction workers were marshaled from across the country by Eby Construction to make immediate repairs.  There are photos and  a video that readers can view that highlights actual damage recovery activity.

Yesterday, Spirit reported that it has resumed normal production operations roughly 10 days after the major incident.  Coincidently on the same day, Boeing formally reported its first quarter operating results and Boeing CEO Jim McNerney was quick to note that the impact from Spirit was “manageable”.

Supply Chain Matters sends its congratulations and best wishes to the entire Spirit AeroSystems production and operations teams for their outstanding proactive response to the tragedy, and for a praiseworthy demonstration of around the clock supply chain disruption response.  We also praise CEO Turner for his leveraged use of social media tools to communicate timely status and a can-do perspective for both customers and employees.  Spirit seemed to have a response plan that started with executive leadership with access to many required levels of information in a timely manner.

This is indeed a positive outcome that could have been far different given the uncontrollable forces of the unprecedented storms that have impacted the U.S. Midwest these past few years.

A final note for supply chain and operations executive readers. Have you thought about what your organizational response plan will be when a disaster severely impacts your production operations? Have you thought about the possibility that one of your largest suppliers could be impacted?

Suppliers like Spirit truly demonstrate positive supplier responsiveness.

Bob Ferrari

When major capital equipment is three years late to anticipated delivery, customers can tend to get extremely annoyed.  In the aerospace industry, where operating costs and fuel efficiency are a very big deal, that can often lead to seeking some form of compensation from the manufacturer.

That is the dilemma of Boeing and its 787 Dreamliner program which promises to bring significant operating efficiencies to airline customers.  That is, of course, when they actually receive delivery of their shiny new Dreamliners.

The issue came to light last week in a very public way.  Air India Ltd. has outstanding orders for 27 Dreamliners and was one of the initial designated airlines scheduled to take delivery in the initial wave of the program. The government of India, which oversees state-owned Air India, publically announced last week that it met with Boeing and agreed to customer payment from Boeing in the amount of $500 million. Actually, the government expected to be compensated in the amount of $840 million and is now asking for even more cash compensation. Air India apparently expected delivery of its initial Dreamliner in February, but issues of fuselage shims and other setbacks have postponed initial delivery until May.

The public dispute caused Boeing to deviate from its previous policy of silence on the issue of customer compensation. In a Bloomberg article reporting on the incident,  Jim Albaugh, the chief executive of Boeing’s commercial aircraft business unit is quoted: “I think if we settled for $500 million, somebody would have told me. We don’t comment on deals that we’ve done, but I can tell you that we’re not writing anybody a check for $500 million.” That quote seems emphatic but it also directly counters the impressions of Indian government authorities, a key influential customer.

Both sides have certain stakeholder interests in mind.  As the Bloomberg article points out, Air India has recently had to rely on large amounts of government bailout funds because of unprofitable operations. The airline needs to cut costs, and without the 787 in its fleet, any infusion of cash is obviously welcomed.

Boeing has huge financial exposure with the overall 787 program, both with overdue customers as well as major suppliers who have borne additional unplanned program expenses. Publically, the company has always indicated that if would provide delayed customers with different forms of compensation such as discounts on future orders or flexibility in delivery schedules. If the practice of overt cash compensation gathers steam, it could get extremely expensive for Boeing with break-even a very distant milestone. India itself represents a lucrative market segment, with three other airlines besides Air India all competing for a lucrative long-term market. It represents a market segment that any aerospace provider seeks to keep in good standing.

All of these developments continue to place additional pressures on the 787 program supply chain.  As the delivery program ramps-up over the coming months and years, there is little tolerance for any more unplanned delays or unforeseen supply disruptions.

Bob Ferrari

Today marks a significant announcement concerning service management and service parts planning software technology. Service Lifecycle Management provider Servigistics today announced that it has completed a merger with MCA Solutions, a provider of service parts optimization technology.  Some readers may argue whether this is a merger or a takeover, but regardless, the deal is done.

Both companies are private and obviously no financial details have been disclosed regarding this merger. Obviously, the investors behind MCA were looking to execute an exit strategy.

The other headline related to this news is that it was no secret that both of these vendors were previously fierce competitors in the market, with different cultures.

According to statements in the press release and a Q&A document provided on both companies’ web sites, Servigistics plans to integrate various existing MCA’s software offerings into the existing Service Lifecycle Management portfolio provided by Servigistics.  The original founders of MCA, both Dr. Morris Cohen, a member of the faculty at The Wharton School at the University of Pennsylvania, And Dr. Vipul Agrawal will remain with the combined company.

MCA Solutions, which was founded in 1999, is best described by its concentration on aftermarket service parts planning and optimization. MCA’s software is primary directed at durable manufacturing industry sectors that included aerospace and defense, automotive, high tech, consumer electronics, medical equipment and others.  Existing named customers include among others, Airbus Military, Boeing, Bombardier, Briggs and Stratton, KLA Tencor, Lockheed Martin, Panasonic Avionics, Pratt and Whitney, Rockwell Collins and Tellabs. The software itself originated from the concepts, algorithms and methodologies advocated by its original founders, Dr. Cohen and Agrawal, and are currently offered in both a traditional behind-the-firewall and one-demand platforms.

For one of the most comprehensive overviews of MCA’s capabilities, readers can review the March 2011 profile analysis penned by fellow industry analyst colleague and friend, P.J.Jakovljevic published by Technology Evaluation Centers.

Supply Chain Matters had the opportunity to speak with Mark Vigoroso, Senior Vice President, Global Marketing and Alliances at Servigistics and we were able to ascertain some further background.  General conversations regarding the bringing together of both companies began about 90 days prior but accelerated in the last 30 days.  The intent of this merger is to capitalize on the best of both companies in terms of intellectual property, people and services for customers.

In July of 2009, Supply Chain Matters commented on potential market consolidation within the service parts planning software area.  The catalyst at that time was Marlin’s acquisition of both Servigistics, and three operating units of Click Commerce, which included Service Network Solutions (SNS) and Contract Service and Management (CSM).   The Click SNS business consisted of the aggregation of many former service parts planning providers, the most notable being the former Xelus. Other former names included World Chain and Optum. At the time, Marlin noted that the CSM business would be integrated with Emptoris, a strategic sourcing and procurement vendor that Marlin acquired in December 2008. Emptoris has since been acquired from Marlin by IBM.   Marlin has also orchestrated for Servigistics an acquisition of post-sales service knowledge management vendor Kaidara in April of 2010, and a strategic partnership with Genpact In April 2011, a major business process services provider. That partnership was targeted to combine Servigistics technology with Genpact’s aftermarket services operations expertise.  Our 2009 commentary was premature in timing but that is more of a reflection of the tenaciousness and attractiveness of MCA Solutions in the current market.

This newly announced merger has the potential to add deeper and broader industry coverage and establishes Servigistics as a formidable competitor to existing service parts and management technology offerings being provided by major ERP providers such as SAP and Oracle, or other best of breed vendor Baxter Planning Systems.

As with many of these announced acquisitions, existing MCA customers will have to wait and observe how the two companies actually come together, especially since original buying choices may have opted to not select the Servigistics platform for various considerations.  A concerted outreach communications effort was initiated yesterday by Servigistics senior management to assure existing MCA customers that their existing software will be supported for as long as necessary. For its part, Servigistics is acknowledging an obvious overlap in solution areas and is further communicating that it will combine the strengths of each platform in a future offering.  Over the longer horizon, MCA customers will eventually be offered the option to move toward a broader, more comprehensive Servigistics service management platform. Also being communicated is that existing MCA customers have the opportunity to complement their existing software with other Servigistics offerings if they so choose.

MCA customers can also anticipate an upcoming town hall session, where Servigistics management will address longer-term strategy. This session to be held in conjunction with the annual Servigistics customer conference at the end of April.

These latest developments should also prompt firms who are still seeking or evaluating future implementation of service management and decision support software to evaluate Servigistics capabilities in the context of executing a broader market vision related to comprehensive service management needs.

Regarding the longer term outlook for both of these combined companies, Supply Chain Matters speculates that other future announcements related to Servigistics are still yet to come, given Marlin’s previous history with supply chain technology vendors such as Emptoris.  Marlin and Servigistics are obviously assembling comprehensive software, service management intelligence and business process services capabilities with powerful market leverage and this will capture the interest of many of the existing enterprise IT market players.

Manufacturing and service firms have long discovered the increasing critical importance that aftermarket services contributes to revenue, product and profitability business objectives. The bottom line takeaway from this announcement related to MCA Solutions is that your potential list of technology choices and associated bargaining power has just been narrowed.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.