Bob Ferrari

Happy Holidays

Posted by Bob Ferrari Dec 20, 2011

I would like to extend to the entire Supply Chain Expert Community sincere best wishes from Supply Chain Matters for the upcoming holidays across the globe. This has been a rather challenging year for supply chain management professionals and many teams of individuals had to rise to task of highly dynamic markets and global supply chain disruption.  The holidays should bring a time for getting together with families to share peace and joy.

 

May you all experience a productive and rewarding New Year.

 

Rest-up and enjoy family, friends and warm friendship.

 

If you are need of a chuckle or two, you are welcomed to view and contribute to our original  2010 Holiday Wish List for Supply Chain Technology

 

It is our spoof on the endless use of technology acronyms.

 

Happy Holidays!

 

Bob Ferrari, Founder and Executive Editor

 

Much has been stated and written noting the fact that global enterprises compete not only on the differentiation of offered products and services, but also on the differentiated capabilities of individual supply chains.  There are many industry case studies, but one that continues to evolve is the global automotive industry.

 

The global automotive industry has experienced a post-recessionary comeback from the depths of the 2008-2009 global financial crises. Growth markets have been in Eastern Europe, China, Latin and North America. There is, however, a strong possibility that the top three players including Toyota, will shift in ranking status because of a series of quality, supply chain disruption and economic setbacks.  Some industry watchers are predicting that Volkswagen will surpass both Toyota and General Motors for the top global spot.

 

The Financial Times (paid subscription or free metered view) has been featuring a series of running commentaries related to Volkswagen.  This auto maker is current on-track to sell 8 million vehicles on a global basis in 2011, and deploys a supply chain presence involving more than 90 manufacturing plants, over $80 billion in procurement activities supporting the building of 200 different vehicle models.  Revenues have increased 26 percent in the latest quarter with profits surpassing 13.6 billion euros. More importantly, the Times points out that industry competitors view VW as the benchmark for manufacturing efficiency and profitability, a competency that was once the sole purview of Toyota. VW was one of the first auto makers to invest in China, choosing a partnership strategy with existing Chinese producers SAIC and FAW.  Today, VW brands have the number one market status within China, followed by GM and Hyundai.

 

What is important to keep in mind relative to VW is its diversity of 10 car and truck brands, from low-cost to ultra- premium, its emphasis on integrating product engineering with production and global supply strategy needs, and a ruthless focus of product quality that stems from senior management. While various brands adhere to autonomy in vehicle design and pricing, areas of procurement and production focus on global supply chain leverage.  The more expensive Audi  and lower-cost VW brands are often produced with the same underlying platforms sharing similar supply components. Of late, various brands have customized vehicle features to accommodate local market needs and desires. 

 

The competitive strategy among global automotive players is having the ability to leverage large volumes of vehicle production leveraging just a few vehicle platforms. We recently penned a Supply Chain Expert Community commentary Chrysler-Fiat Continues its Journey Towards Synergistic Supply Chain and Manufacturing Vision and Strategy Execution.

 

Another evolving strategy has been a renewed emphasis on vertical integration of supply, for instance, the ability to customize specialty steel designs.  Supply Chain Matters recently penned a commentary on Hyundai’s efforts in this area.

 

VW has been hard at work consolidating underlying product platforms to just two basic architectures, engine in transverse position, and engine in a longitudinal position. Engine and drivetrain production is shared among brands, and each Volkswagen-owned factory features the same processes and controls across the globe. VW is in the process of rolling out a “modular toolbox” manufacturing system that allows for platform sharing on a global-wide scale.

 

VW also believes in leveraged investment in IT technologies to streamline information flows, increase productivity among procurement and supply chain teams as well as enabling sense and respond capabilities to enhance local and global-wide decision-making.

 

But as the FT article rightfully points out, vast scale and commonality in procurement of components can lead to increased exposure to risk, as Toyota and other Japanese car makers discovered with the effects of the 2011 Japan tsunami and Thailand monsoon related floods. This places a renewed emphasis on risk mitigation and response management as important supply chain capability differentiators.  Recent reports indicate that Nissan may overtake Honda in global ranking, primarily because it was able to overcome recent natural disaster impacts more quickly.  For its part, VW management is reported to have been closely observing the effects that supply chain disruption can have to the overall business, along with the need for geographical redundancy of parts and production capability.

 

The global automotive industry ranking may well be different in the coming months and years, and the differentiators in our view, will be the seamless integration of product platform design, procurement sourcing, consistency in manufacturing and agility in global supply chain response capabilities.

 

Bob Ferrari

 

©2011, The Ferrari Consulting and Research Group LLC and Supply Chain Matters, All rights reserved.

 

One of the cornerstones of the Supply Chain Matters blog is to track the history of specific supply chain related events involving industries and to help our readers connect the dots in term of strategy and results. In May 2009, we featured a commentary regarding Fiat Group and its unfolding strategy of opportunistic supply chain strategy, specifically its planned acquisition of Chrysler in the U.S..  At the time, this author was impressed with Fiat chairmen Sergio Marchionne and his strategy to make both companies global players in the industry.

 

As we approach the end of 2011, the story of Fiat and Chrysler is much more positive, with an even stronger potential.  We call readers attention to an article published in the December 19 edition of Time, Power Steering- How Chrysler’s Italian boss drives an American auto rival. (paid subscription required) Author Bill Saporito pens a very insightful look at Chrysler, where it was, and what it is becoming, and in particular, the noticeable leadership of its chairmen, Sergio Marchionne. Sergio has a knack for turning around dysfunctional automobile companies along with a keen understanding of operations and value-chain management.

 

The article points out that Fiat’s small-car prowess, engine technology and superior manufacturing capability was a perfect complement to Chrysler’s needs. Fiat which now owns 53.5 percent of Chrysler, has made its impact. Chrysler revenues were up 23 percent in Q3-2011 and could top $55 billion.  Operating profit could reach $5 billion vs. hemorrhaging $1 billion a month in 2009. In May, Chrysler transferred $5.9 billion to the U.S. treasury, paying off its bailout loan six years ahead of schedule.

 

The article goes on to expound on the unique leadership style of Mr. Marchionne, specifically his no-nonsense approach to management, his deep analytical abilities, and attention to the details of all aspects of the business, including manufacturing and value-chain.  He has thus far resized the company, flattened management layers, and overhauled the vehicle line-up in record time. Mr. Marchionne is a strong believer in elimination of management layers and practices promoting people buried in the ranks to higher levels of responsibility, giving such people all that they need to succeed and prove their potential. It is referred to as loose-tight management, a concept which many successful companies have practiced. At the same time, he also holds people accountable for definitive results and is not shy about pulling the plug when results are not forthcoming. The author notes that: “Marchionne has the Steve Jobs gift of absolute focus.” He gets into the details. He also does not choose to have his office within Chrysler’s former executive penthouse, opting instead to locate his office in the engineering department, a visual reinforcement that it is no longer business as usual.

 

As was noted in 2009, Marchionne has a vision that the surviving global automotive OEM’s will need to have sufficient volumes of production to support each of the major world markets, at least one million for each major product platform in order to drive required global production cost efficiency and sustained profitability.  This translates to a combined goal for producing 6 million vehicles among the Fiat and Chrysler brands, with today’s volumes at 4.2 million vehicles. Fiat has become a global leader in efficient, high-volume, robotized production of small displacement engines and there are plans to have a similar focus for V6 engines.  Fiat also excels in small diesel powered engines, and its production facility in Poland recently exceeded a production target of 4 million 1.3 litre, 16 valve MultiJet technology engines. Technology and world class manufacturing knowledge transfer is underway among both companies with a cultural premise that production workers, not engineers, own the quality control process.  A global manufacturing boss has been appointed to oversee both Chrysler and Fiat, and the article points out that Mr. Marchionne has been known to show up from time-to-time at warranty analysis and quality performance meetings. Chrysler itself has not been known to invest in advanced supply chain software technology for planning and business intelligence but that may perhaps change.

 

The first totally new vehicle of the combined Fiat-Chrysler collaboration will debut in 2012 with a C-class Dodge branded vehicle. It will be based on the Fiat platform of the Alfa Romeo Giulietta, adapted for U.S. market requirements. There is a further plan to invest $23 billion to develop new vehicles for Chrysler through 2014, a rather aggressive plan by U.S. automotive industry standards, and all vehicle can be adapted by Fiat for other global sales needs.

 

The Time article concludes with a very characteristic Marchionne quote: “People need to trust you that you’re going to pull them out and that they will follow you when you pull them out.  If they don’t get that comfort, they’re going to drop you. This is true of organizations.  It’s true of countries.

 

We would add that this quote represents a philosophy that is rather important for senior and team focused supply chain management in the coming year and beyond, namely the ability to lead, get into the details, provide people with the means and tools to accomplish their goals, and to foster consistent accountability. 

 

In our 2009 commentary, we closed with the statement that whether the combined force of Fiat and Chrysler was totally successful, we have the opportunity to observe a visionary company with a leader that truly understands the importance of a leveraged global value-chain and integrated supply chain execution.  Two years later, this case study continues to play out with positive potentials. 

 

Time will tell if this will become a definitive case study in vision and consistent execution in supply chain management but the scorecard thus far is rather positive.

 

Bob Ferrari

 

© 2011, The Ferrari Consulting and Research Group LLC and Supply Chain Matters.  All rights reserved.

 

There is a developing story that should capture community reading interest because of its supply chain related learning.

 

Chevrolet Volt.jpg

 

One of the current day business news headlines concerns the General Motors developed Chevrolet Volt, the company’s premiere entry into the plug-in hybrid automobile market. The Volt has been highly touted as the future of automotive technology, and aggressive production, marketing and sales goals have been established for 2012. The vehicle currently comes with a rather pricey sticker price, namely $41,000, and GM believes that the innovative features of the futurist car will overcome price concerns.

 

After some months of initial sales, The National Highway Traffic Safety Administration (NHTSA) in its initial testing of the Volt has discovered instances of battery related fires.  Three NHTSA crash tests caused the car’s batteries to catch fire days or weeks after the test, a somewhat unusual occurrence.  While GM is still investigating root cause, suspicion points to a battery cooling system which may have been damaged as a result of the crashes. GM has been quick and proactive to respond to this situation, has placed retail sales on-hold pending further investigation and has offered concerned owners options for either a free loaner car or the opportunity to return the vehicle.  GM however indicates that it remains highly confident of the safety and ultimate consumer acceptance of the Volt, and on resolving the current issues.

 

There is also a broader supply chain voice perspective to this story, one from which senior executives and cross-functional supply chain teams may benefit.

 

In late August, Bloomberg BusinessWeek featured an article; General Motors CEO Dan Akerson is Not a Car Guy.  We had cited this article in a previous Supply Chain Matters commentary. The article itself reflects on GM’s newly appointed CEO, his lack of direct automotive industry experience, and more importantly his mission to change years of previous in-bred management culture at GM.  With the help of a hefty U.S. government financial subsidy and massive re-organization plan, GM is transforming itself to a leaner company.  Thousands of jobs have been shed and the survivors are being asked to be much more productive, agile and out-of-the-box thinkers. The article provides one management perspective quote from Akerson: “It’s not my role to make people comfortable. I don’t know what it was like five years ago, and really I don’t care. We are in a war.”

 

The article, however unintended, perhaps provides us another perspective relative to the current Volt situation. It cites a December 2010 management meeting when the Volt product development team had developed its plans to initially build 45,000 Volts, and assumed that the plan was “baked and ready to go”. Akerson instead challenged the team to come up with a plan to build 120,000 units, under the assumption that someone informed him (perhaps from sales and marketing) that a vehicle needs to sell at least 100,000 units to be successful.  Volt engineering and product development teams however were keenly aware that it took Toyota and its Prius model about seven years to hit the numbers that Akerson was requesting.  The other looming implication was that contracted suppliers would have to quickly nearly triple the volume of the vehicle’s high tech parts, especially its volume supply of lithium-ion batteries. 

 

While readers can take in the rest of the story, we jump ahead to note that the final decision was to set a build plan for 60,000 units, one-third more than the originally recommended plan, but half the Akerson unconstrained challenge plan of 120,000.

 

A recent Wall Street Journal article (paid subscription or free metered view) reflects on the current Volt situation before the fires.   The article also notes that supply was especially short through July, when only 550 of 2600 interested dealers had a Volt to show off to customers. Toward the article’s end, there are comments from GM legend and former Vice Chairman Bob Lutz, the originator of the Volt concept design.  Lutz notes that the car’s main problem is the high expectations it faces, and that this year’s build plan was far too ambitious and the ramp-up was just too slow. Mr. Lutz affirmed his belief in the success of the Volt and described its ultimate success in  baseball analogy  as a “bases-loaded home run “. While we certainly do not profess to know all of the facts and details surrounding the Volt’s product plans and can only speculate what is being written, there is some learning surrounding this evolving story.

 

The point of view of Supply Chain Matters is that CEO’s and senior management have every right to challenge the status quo and encourage innovative thinking.  That stated, there is also the notion that operational and supply chain experience provides a basis of some understanding of what may be realistic plans, given various realities of ramp-up planning, volume production and testing.  Readers may also recall that other hybrids such as the Prius have experienced other problems along the way, such as braking, engine stalling and software issues, which were all overcome. After all, this is new technology.

 

The most innovative design or coolest product can only succeed when all the links in the supply chain operate together, and, when appropriate, the voice and experience of supply chain should trump the needs for bravado.

 

Bob Ferrari

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