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Posts Tagged ‘Supply Chain Risk’

Here is an interesting factoid for you: 24% of all the vehicles manufactured right now are built on just ten platforms. What’s more, by the end of the decade that number is expected to grow to 30%. The number comes from an Automotive News article that looks at some of the consequences of the trend (With the push for standard parts, quality is key, Aug 6).

First, why automakers are trying to move in this direction is clear. Being able to build multiple model off one basic platform saves a ton of money in product development as well as tooling and build manufacturing facilities. Further, they benefit from a bit of risk pooling; if one model is not selling particularly well, that may be offset by another that can be built at the same plant. Thus, even if a model slumps, all that expensive capacity is till being used. (See this post from last fall on how Ford is cutting its number of platforms from 15 to 9.) Globalization also plays a part in this. What kinds of vehicles sell well might vary across different continents, but if European, Asian and North American models can all be built on the same platforms, manufacturers with a global footprint can be ever more cost competitive.

But what about suppliers? With purchased components making up a significant chunk of the cost of a vehicle, car makers would like standardization there. In a perfect world, you would have the same break system on every model built on a platform, but that brings challenges.

“The requirement that we face is clearly to develop products from the outset in such a way that they can be used in all the platform derivatives without the expense of making changes,” said Sabine Woytowicz, regional quality director at Valeo in Germany.

But with mass standardization, a part with a quality problem can now be supplied to millions of vehicles. That puts a premium on quality. …

Martin Thier, director of corporate quality management at the Mahle Group, said: “When obtaining an order, we check its feasibility for both product development and manufacturing even more closely.”

It comes down to “knowing precisely what you do, what you can do and how good you are at it.”

For example, he said, there is now a more intense interest in investigating how an inconsequential error in one part would produce an effect in a different component.

(more…)

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So how many different radiator models does a global car company need? Clearly it needs enough to accommodate different sized engines and cars. A big pick up with an over-sized cylinder eight-engine is going to need something different from a subcompact with an under-sized four-cylinder engine. But does that translate to twenty-something radiator designs or ninety-something?

Bloomberg reports Toyota has been thinking about this question for radiators and other car parts (Toyota Airbag Cuts Create Opening for Overseas Suppliers, Jun 10).

In one of President Akio Toyoda’s biggest initiatives since taking over in 2009, the carmaker is winnowing the number of parts it uses and increasing common components across models. The plan will cut both the time and cost for creating new models by as much as 30 percent, according to estimates from Toyota. …

In the past, Toyota focused on developing custom parts. It needed 50 types of knee-level airbags because seats for various models had different profiles. By standardizing “hip heights,” as the automaker calls it, across models, Toyota says it can reduce knee airbag variants by 80 percent.

As of last year, the automaker had slashed radiators to 21 models from about 100, according to Shinichi Sasaki, Toyota’s global purchasing chief. And the company is reducing the number of cylinder sizes in its engines to six from more than 18 by 2016, the Nikkan Kogyo newspaper reported June 4. Toyota declined to comment on the report.

“From now on, Toyota will seek the compatibility of certain parts it uses with standard parts used by many automakers globally,” the company said in a statement outlining its Toyota New Global Architecture, or TNGA, in March.

Some of the anticipated benefits here are fairly obvious. For example, the article mentions that standardizing parts like radiators that customers don’t care much about (beyond knowing that the car has one) will free up engineering time to work on body or cockpit design that customers do care about. Similarly, many of the implementation challenges (such as standardizing hip height) are fairly clear. Customers may not care about knee-level airbags per se, but standardizing those means standardizing some aspect of the interior design. Customer may or may not notice.

The most interesting part of this to me is its implications for supply chain risk. (more…)

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A dollar today is worth more than a dollar tomorrow so it is not surprising that firms would prefer to defer paying suppliers for as long as possible. As the Wall Street Journal tells it, many large firms like Procter & Gamble and DuPont are working to redefine “as long as possible” when it comes accounts payable (P&G, Big Companies Pinch Suppliers on Payments, Apr 16).

What began as a way to preserve cash when markets dried up a few years ago has become a means of freeing up money to fund expansions, buy back stock and support dividend payouts at a time of lackluster sales growth and shrinking profit margins.

P&G is actually late to this game. It currently pays its bills on average within 45 days, faster than the 60 to 100 days that other consumer products makers and large companies in other industries generally take, according to industry experts. The company is looking to move its payment terms to 75 days and recently started negotiations with suppliers, people familiar with the matter said.

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An interesting story from today’s Wall Street Journal (Companies Seek to Avoid China New Year Hangover, Feb 21). Basically, the Chinese New Year is complicating supply chain management.

For toymaker The Bridge Direct, Easter now begins in August.

That is when the Boca Raton, Fla., producer of Inkoos stuffed monsters and Justin Bieber dolls has to file orders with its Chinese suppliers to ensure delivery by the spring holiday. It used to place orders closer to the key selling period, which allowed it to get a sharper sense of demand and better manage its cash. But now the greater concern is making sure it doesn’t get left shorthanded because of China’s New Year holiday.

The company is one of many from the U.S. and other countries that are closely watching China as factory workers slowly return this week from the country’s long Lunar New Year holiday. Every year, millions of China’s 250 million migrant workers leave their factories and travel across the country to visit their families at home. The problem for toy and apparel makers in particular is that fewer and fewer workers are returning to the factories when the break is over.

(more…)

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As I am writing this, Sandy has recently made landfall — which is remarkable given how bad things look even before the storm has really hit. I hope everyone back east is safe and dry.

Given the size of the storm, it seems that the clean up effort is going to be a huge project and for many people that is going to start with a run to their local home improvement store (if they haven’t been there already to get ready for the storm). So how do the likes of Home Depot and Lowe’s get ready for these storms? Here’s what the Wall Street Journal says (Home Depot, Lowe’s Prepare Post-Storm Inventory, Oct 29):

Terry Johnson, a senior vice president of operations at Lowe’s overseeing the Northeast, said in an interview demand has been “incredible” throughout the region. The company has been able to keep up with it for the most part, noting generators in particular are popular.

“We saw this coming, we started early, and we took some calculated risks,” he said, such as pulling in product supply to certain areas before Lowe’s had the path of the storm nailed down. …

Ahead of Sandy’s arrival, both Home Depot and Lowe’s activated their respective disaster-command centers, hubs that coordinate across the companies’ teams and with emergency-response agencies at all levels of government. Both companies’ centers have been working to get products into stores for storm preparation, while simultaneously planning to have inventory staged outside the storm’s path to be deployed once roads are passable again.

Mr. Johnson of Lowe’s said following past disasters like hurricanes, the company has been able to turn itself around to post-storm inventory in about a day.

“Once we’ve identified the need, we’ll have this product put on a truck, if there’s enough to fill it, we’ll release it,” he said. “It’s really important to be efficient, but it’s more important to get the product where it’s needed.”

(more…)

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It’s been a long time since we’ve posted about illicit drugs, so we’re due! The drug in question is methamphetamine. The Wall Street Journal reports that the gangs making the drug have shifted their operations strategy from having small, US-based labs that produce meth from start to finish to having “conversion labs” in the US that turn meth from a liquid or powder form into crystals that have higher value (Business Plan Remakes Meth Market, Sept 14).

What’s behind the change in production networks? Logistics!

In California’s Central Valley, local labs couldn’t produce as cheaply as Mexican counterparts, in part because they had trouble disposing of toxic byproducts, said Manuel Rocha, who heads a multiagency meth task force in Merced County.

Mexican groups that took over the California market tried different strategies, law-enforcement officials said. They sometimes imported crystallized meth, but transportation often crushed the crystals. They sold meth powder in the U.S., but it fetched a lower price than crystals.

Conversion labs were the answer. Producing powder or liquid meth in Mexico creates the toxic waste there. Converting the imported powder to crystal in the U.S. creates little waste but adds maximum value.

Moving final processing close to the consumer meant drug groups could smuggle large quantities of easy-to-conceal meth powder or liquid, often disguised as products such as antifreeze. Once the product arrived in the U.S., organizations could decide whether to sell it raw for wholesale or add value by converting it.

(more…)

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Following last year’s Japanese earthquake and tsunami, there were many articles on how these disasters exposed the fragile nature of modern supply chains. (We have one or two — ok at least three — posts on this as well.) Now there are similar stories appearing about a somewhat less dramatic event that is none the less causing headaches for automakers. An explosion at a German chemical plant is creating an extreme shortage of a resin used in a nylon used in many kinds of auto parts. Here is how the AP explained it (Crises make automakers rethink lean parts supplies, Apr 20, available at Yahoo! News and other places).

One factory now putting automakers at risk is the German chemical plant damaged by last month’s explosion. The plant made at least one-fourth of the world’s PA-12, a nylon component in plastic fuel lines. It also supplied 70 percent of the world’s CDT, a chemical used by other companies that make PA-12, according to UBS analysts.
PA-12, also known as nylon 12, is crucial because it helps the tubes resist deterioration from carrying fuel. It’s also used in seats, and in pipelines and consumer products. No automaker has reported any factories running short of tubes, but industry analysts say that could come within weeks if alternatives aren’t found and tested quickly.

(more…)

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It’s coming down to the wire for UPS and other delivery services as they rush to get presents to where they need to go before the holiday. Getting them there on time is not just about providing good service; it’s also about revenue. The Wall Street Journal reports that UPS takes a hit for late packages even when the cause is a blizzard or some other bad weather beyond their control (Inside UPS’s Weather Machine, Dec 23)

Freight operators generally have to eat the cost when a shipment doesn’t make its delivery on time, so snow, ice, rain, and fog can frost their bottom lines. UPS expects this week to be its busiest of the year, and estimates it will ship 120 million packages, 6% more than in the same week last year. Each late shipment will cost UPS between $5 and $30 in revenue, said spokesman Mike Mangeot.

So how do they cope with a rush of packages and winter weather? For one, they meteorologists and other staff who constantly monitor weather and develop contingencies. But they also have an operational hedge in the form of extra capacity.

A “hot status board” on the wall listed cities and regions where UPS had positioned spare pilots and planes, prepared to “rescue volume,” or packages stuck somewhere because of mechanical problems or visibility that makes it difficult to land.

The company says its “hot spares program” annually rescues more than one million packages that, if late, would cost UPS more than $20 million in revenue.

Near 10 p.m., a call came in from a UPS crew in Wichita, Kan. Heavy rain was affecting the aviation equipment on a jet that was due to take off in a half hour.

The jet, loaded with cargo in Wichita, was slated to travel to Springfield, Ill., where it would pick up more packages, and then continue on to Louisville, arriving at the hub at 1:16 a.m. with time for the packages to make connecting flights.

With some 5,900 packages potentially stranded in Wichita and Springfield, UPS’s contingency team diverted an empty jet that was flying from Laredo, Texas to Louisville to rescue the packages at Wichita, and “sent a hot spare” to Springfield, said Steve Merchant, contingency department manager. By 2 a.m., the packages were in Louisville.

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As Fortune points out, between Thai flooding and Japanese earthquakes, it’s been a tough year to run supply chains (The global supply chain: So very fragile, Dec 12). What became clear from these events is that many big firms were surprised to learn what they didn’t know. Sure major manufacturers knew who they bought from but they didn’t necessarily know whom their suppliers depended on (see, for example, this post). There seems a simple answer to that: Compile a database of who supplies whom. Automotive News reports that an auto industry group is trying to do just that (After disasters, group wants database of subsuppliers to fix bottleneck, Dec 13).

The Automotive Industry Action Group hopes to win the support of automakers and suppliers for the database, which would help its members track the activities of Tier 2, 3 and 4 suppliers. …

AIAG, of suburban Detroit, wants to fix that problem. The organization, which represents 870 automakers and suppliers worldwide, would create a database of component factories. …

Each supplier would volunteer a list of its factories, perhaps with GPS location coordinates. The database also could include each factory’s quality certification, products and other basic data.

The supplier would retain control over who is granted access to the list. In the event of a disaster, the supplier could let its customers see the list to find out whether any key factories were damaged.

In theory, the database would be attractive for suppliers because it could simplify communication with customers, eliminating the need to update each customer separately through the customer’s purchasing portal. That can be time-consuming for a supplier that might have 20 or 30 customers, Sharland says.

(more…)

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Toyota supplier Aisin Seiki famously suffered a fire in 1997. (How famous? The fire has its own Wikipedia entry.) The fire threatened to shut down multiple assembly plants but Toyota’s supply base rallied to the cause. Some suppliers quickly learned to make parts they had never processed before and what could have been a catastrophe for Toyota was ultimately a modest blip in its performance.

Now Automotive News reports on an American story that has a similar feel, all be it on a smaller scale (Competitors help carpet maker after flood, Oct 11). The story concerns Autoneum Holding’s plant in Bloomsburg, PA, which makes carpet for GM and Chrysler. Tropical Storm Lee brought record flooding and ultimately resulted in five feet of water in the plant. The plant was evacuated on September 7th and workers returned four days later. Several days after that, they were ready to re-launch production but not at rate that would keep up with their competitors.

“Our customers have a huge appetite [for carpeting] right now,” [John] Lenga[, CFO of Autoneum's U.S. operations] says. “There was limited capacity, and we were trying to secure as much material as we could for our customers.”

After surveying the damage, Autoneum asked its competitors for help. Dorsett Industries, Lyle Industries Inc. and others agreed to produce some additional carpeting for their rival.

But there was a problem: Those companies could not replicate all of the necessary manufacturing functions – tufting, dyeing and extruding – for production of the raw carpeting before it was converted into a finished product.

International Automotive Components, an interior trim supplier based in Southfield, Mich., near Detroit, could handle those production steps, but the extra workload forced that company to run its carpet factories around the clock.

(more…)

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