Perspectives on Various Issues of Interest

When the Shepherd isn't Looking!

Supply Chain Risk Management

A 2008 study by the Boston-based Aberdeen Group (Supply Chain Risk Management: Building a Resilient Global Supply Chain) found that 99 percent of study participants experienced at least one supply chain disruption over the previous year. The disruptions led to financial losses for 58%, loss of market share for 30% and brand reputation damage for 24%. Only 12% of the 138 companies surveyed responded having a risk-resilient global supply chain.

Supply Chain Disruptions - Events occurring over the past 12 months:

- Supplier capacity did not meet our demand: 56%
- Raw material price increases/shortages: 49%
- Unexpected changes in customer demand: 45%
- Shipment delayed/damaged/misdirected: 39%
- Fuel price increases/shortages: 35%

Source: Siegfried, M. "The Resilient Supply Chain," Inside Supply Management, December 2008, Vol. 19, No. 12: 28-30.

Boeing & Airbus

According to some estimates, the 57-day strike by machinists at Boeing might have resulted in ten-week delay of the delivery schedules. This is equivalent to around 90 "lost" planes with an average list price of more than $100m. Another issue that is going to further exacerbate the situation is the mistake by Boeing engineers whereby the fasteners used to attach titanium structures, such as the floor grid, to the composite "barrel" of the fuselage were wrongly located. Approximately, 8000 fasteners will have to be replaced on each of the first dozen 787s before they can be completed. Overall, the production of 787 is now delayed by two years. A spillover of the problem to other programs is also visible at Boeing. Due to the shortage of engineering resources, the deliveries of 747-8, a stretched 747 with an advanced new wing is expected to get delayed by nine months.

Airbus, on the other hand, is witnessing rave reviews for its A380 super-jumbo from both airlines and passengers, although the super-jumbo was also delayed by about two years. Airbus has also moved to "wave 2" production in which the wiring harnesses that triggered the crisis are fitted automatically, instead of laboriously by hand. EADS, the parent company of Airbus, pleasantly surprised investors with third quarter pre-tax earnings of 860m euros ($1.3 billion), having made a loss of 711m euros a year ago. This result is partly due to the "Power8" restructuring plan and partly due to growing strength of dollar against the euro.

Interesting while Airbus has not pinched any orders from Boeing, the over-stretched suppliers who work for both Airbus and Boeing are able to switch deliveries to Airbus, resulting in smooth production lines for Airbus.

Source: "Commercial aviation: Swings and roundabouts," The Economist, November 29th, 2008: 67-68.

Detroit Three - Situation Update

General Motors

Market Capitalization: $2.9 billion
Employees: 252,000
The company lost $38 billion in 2007
Market Share (light vehicles): 22.2% (in 2008); 28.7% (in 2000)

How it got here: A long-term management failure. GM could not adapt its cars and production systems to be consumer-focused and globally efficient.

How to fix it: A new labor agreement will help, as will making plants more flexible. But GM has to make cars people love so that its price per car - and profit - rises.

Best hope for future: Much is riding on the 40-m.p.g. Chevy Volt hybrid electric, but GM models like the Malibu have to produce too.

Ford

Market capitalization: $6.8 billion
Employees: 87,700
The company lost $2.7 billion in 2007
Market share (light vehicles): 15% (in 2008); 23.5% (in 2000)

How it got here: After recasting itself as a greener company, Ford got waylaid by the success of its SUVs in the cheap-gas years. When prices soared, it has no great cars to sell.

How to fix it: Ford's future is pegged to producing small and medium sized cars, including hybrids, that it can design and sell globally. Still strong in pickups.

Best hope for future: The bet is on the 2010 Fiesta, the first product of the One Ford Strategy. Available in Europe, the U.S. version will be strikingly similar.

Chrysler

Privately owned
Employees: 55,000
The company used up $3 billion in cash in its last quarter.

Market share (light vehicles): 11% (in 2008); 14.5% (in 2000)

How it got here: After a disastrous merger with Daimler, the company was sold to private-equity firm Cerebrus. Chrysler's big truck, big power posture got hammered by Big Oil.

How to fix it: Chrysler has contracted with Nissan and VW to make vehicles for them. Perhaps a bigger linkup is in order. It needs a partner to share costs.

Best hope for future: Chrysler's current new car program is focused on a small car that will be built by Nissan and on ENVI, its in-house electric platform.

Source: Saporito, B. "Is this detroit's last winter?" Time, December 15, 2008: 35-41

Internet-enabled Auction Mechanisms in Supply Chains

In a paper that I published in 2005, I assert that in its present state of affair an electronic marketplace would become nothing but a virtual place where the competing firms would be indulged in price wars to maintain their presence. A prolonged spur of activities in this direction would lead to a stalemate where the winners are losers. In the long-run it is important that the decisions associated with electronic auctions must be based on more than bargain-basement price tags. The business intangibles focused on developing a strong buyer-supplier relationship, will determine the quality of the purchase contract.

To survive, many exchanges are already starting to change business strategies, shifting from public auction-type exchanges to private exchanges run exclusively for a specific shipper and its core carriers. Others are transforming themselves into application service providers (ASPs) that rent software solutions online. Many are looking to transform themselves from public exchanges that are open to all comers into private exchanges that provide a platform for a specific company and its trading partners to collaborate on the Internet. A lot of them are migrating to collaborative logistics networks. The focus is moving away from a spot exchange to providing the infrastructure for companies to collaborate with their existing partners.

Source: Nair A. 2005. “Emerging Internet-Enabled Mechanisms in Supply Chain,” Supply Chain Management: An International Journal, Vol. 10, No. 3/4: pp. 162-168.