Supply chain management ‘critical to success’ going forward
March 11th, 2010
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An article summarizing the keynote speech of Glen Hodgson, senior vice-president, and chief economist at The Conference Board of Canada is available here: Supply chain management ‘critical to success’ going forward, says Conference Board of Canada’s chief economist.
From the article
Technically, he said, while economic growth has returned in the US, reaching 5.7 % in the last quarter, Hodgson said there has yet been no strong recovery in private investment and consumer consumption.
The US will pay a high price for the heavy government investment that has taken place to boost the economy, he said.
and,
“At the peak of the housing bust in the US, one third of mortgages were subprime, ‘NINJA’ mortgages, i.e. no-income, no-job mortgages. The one piece of the US financial workout that’s not yet been settled is the housing market. There’s no true stability,” said Hodgson.
While there is still a significant overstock of housing inventory in the US, the supply is down to six months, and housing starts are predicted to rise but not at a great rate, he said.
About a year ago, the supply of homes was closer to nine months and so it is good news that some of that excess has been worked off. However, that in itself doesn’t mean much because homes are not yet affordable relative to income. Furthermore, unemployment still persists.
Going forward, Glen Hodgson predicts
“US consumers make up 70% of US GDP, and 15 % of the worlds, so a drop in consumer confidence is significant. China will eventually take this over as Chinese consumers move from saving 42 % of their income and gain access to credit. Americans are actually saving again-about 5 % of their actual paycheck,” said Hodgson, who predicted a ‘temperate recovery and consumption’ for the US, which is now borrowing about 1.5 billion dollars annually, a hole that represents about 10 % of GDP.
“They will have to have a serious debate about taxation,” he said.
The US will grow at about 2.8 % this year but the balance of ‘too much government’ is wrong, and represents what Hodgson called a ‘ U-shaped recovery’. He said the US won’t experience sustainable growth before 2012.
So that’s the take on the current situation as well as general forecast going forward. But why is Supply Chain Management critical to success going forward? The reasons don’t change even if the circumstances may:
In five to fifteen years, the rise of India and China, an aging demographic within the industrial world, and integrative trade and global value chains will be additional factors to deal with.
Supply chain management becomes ‘critical to success’, said Hodgson, who noted that firms having an international strategy “built around integrative trade will be in better shape.”
This is precious little to chew on for supply chain practitioners. However, I think we have known about this shift that will take place which is a fundamental driver of economic growth - a consumption hungry population (and a huge one to boot) that is getting to binge on credit.
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Runaway Prius hits 90 mph before stopping with aid of CHP
March 9th, 2010
This has all the makings of a disaster and from the looks of it Toyota Corp has the deer in the headlights look. This has all the makings of a PR disaster minus the PR.
The driver of a Toyota Prius who called 911 on Monday to report his accelerator was stuck finally got the car stopped after about 20 minutes with the help of the California Highway Patrol, officers said.
"He was reaching speeds over 90 miles per hour," CHP Officer Larry Landeros said of the driver, James Sikes.
A Toyota spokesman said Monday evening that the company, which has recalled millions of vehicles because of reports of unintended acceleration, was sending a representative to investigate the cause of the incident.
Here’s the video of the story:
I think the situation is reaching the point of breaking and if Toyota designers cannot find the root cause quickly and/or implement a safe workaround until creating a final fix - It does look like Toyota’s reputation notwithstanding TPS is about to careen off a cliff.
But the company was unsure whether Sikes took his car into a Toyota dealer to comply with the recall, Lyons said.
Why? The driver may not have but the company is unsure?
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Toyota this and Toyota that…
February 17th, 2010
What happens when Toyota falls flat? The price of success is hubris and there is for the hangers on a measure of schadenfraude to be had. To put it delicately, hot water is a kind description for the fabled auto manufacturer - there is even a website that I found that tracks issues with various Toyota models : Toyotoproblems.com
Logistics Management has an article on Toyota’s problems: Supply chain: Analysts weigh in on Toyota recall. The summary of that article is as follows:
.two analysts who spoke to SCMR today can confirm one thing: Toyota dropped the ball when it came to analyzing reports of problems in the past, reports that might have helped the company avoid such a dangerous and costly issue. Both analysts agreed that the chief lesson here for Toyota, and any other company looking to avoid similar problems, is to have tighter, more efficient analytics to better spot problems in advance.
and
Joe Barkai, practice director at marketing intelligence and advisory firm IDC, cited a 2008 report by the National Highway Transportation Authority, the government body that controls recalls in America. That report, he said, includes internal Toyota documents dating back to 2003, where the automaker detected an "unintended acceleration issue," which at the time had been attributed to floor mats which were not properly anchored.
This is clear proof, Barkai said, that Toyota has had problems for a long time with acceleration, but has failed to act.
"This recent Toyota incident is definitely not new," he said.
Michael Burkett, vice president of research at AMR Research, came to the same conclusion, citing the same documentation. There is clear evidence, he said, that Toyota was not processing the data from accidents and service reports properly.
"They were having difficulty correlating that information," he said. "It doesn’t appear that they detected problems were arising until it came to a head."
A key component in this fiasco seems to be the following that Joe Barkai points out:
Barkai suggested one factor in the size of the recall is the very design of Toyota vehicles, which in this case, may have been too efficient for the company’s own good.
"The cars are very, very similar," he said. "They use the same parts. They use the same suppliers."
As a result, Barkai said, even a minor parts-related issue could easily affect millions of cars at once. Of course, Barkai added, this same factor should have allowed Toyota to see the problem a lot sooner.
Taking the above observation along with the mistaken conclusion of the root cause analysis of “unintended acceleration issue” which was improperly anchored floor mats - the issue of the sticky accelerator pedal becomes a little clearer. Is that hubris, cutting corners or something else - some time in the near future, I think, the answer and solution will become clearer.
As you will observe, there is a feedback loop in place (falling back into Control theory terminology). What happens when the feedback loop input is not being correctly valued? The suggestion made in the article above is for better analytics in order to sift through the incoming data for yet another look. This is the role of the Observer in Control Theory. Then we get into the proper design of observers and their many inputs and the output - but it still comes down to resolving the feedback more than having an observer in the loop.
After a little more digging, I looked at some design related news about the same problem - sticky pedals. The article is from Design News: Toyota’s Problem Was Unforeseeable.
Toyota’s sticking gas pedal was an almost-unforeseeable problem, experts say, and the best course of action now is for engineers to ensure that drivers can handle the failure if it happens again.
"This is one of those horrifying nightmare problems that will occasionally occur, no matter how hard you try," said David Cole, chairman of the Center for Automotive Research.
Automotive experts said this week that predicting the problem would have been nearly impossible during design and test, especially given the kind of accelerated testing that is typically used to evaluate components which may have to last from 10 to 15 years. Making it even more difficult was the fact that the gas pedals didn’t appear to fail by themselves, but rather, by interaction with other components, such as heaters or floor mats.
"It’s not that they didn’t design a good accelerator pedal or linkage or floor mat or heater," said Steven D. Eppinger, professor of Management Science and Engineering Systems at Massachusetts Institute of Technology (MIT). "They designed them each quite well. But the most difficult problems always relate to interactions between components and other systems."
Although Toyota now appears to be coming close to a repair for the gas pedal problem, many questions still remain about its genesis. The giant automaker has gone through a succession of theories about the problem’s cause, including interaction with floor mats, materials in the accelerator’s friction lever, and condensation and corrosion from heaters. During the two-year course of problems, Toyota has examined its floor mats, shortened its pedals, lengthened the friction lever and changed its linkage materials. This morning, the company reportedly said it will add a "spacer" that will increase the tension in a spring that would keep the pedal from sticking.
Still, experts say that one of the best fixes is one that helps drivers deal with the problem when it happens. "The takeaway is that it’s less about durability testing and accelerated testing, and more about designing for failure," said Jake Fisher, senior automotive engineer for Consumer Reports.
The solution put forth there is to implement throttle-by-wire systems
Toyota’s throttle-by-wire systems, already in place on most or all of the affected vehicles, will soon contain additional software commands that will interrupt the flow of gasoline to the engine if a driver hits the brake pedal. Such software could go a long way toward preventing fatalities, since most drivers instinctively step on the brake pedal when the gas pedal sticks. Many competing automakers already incorporate those software commands in their electronic throttle bodies.
Whatever the root cause of the problem and the solution for it, there is little doubt in anyone’s mind that Toyota has stumbled and stumbled badly. What has been even more damning has been the sluggishness of the corporate response over and above the engineering, sourcing and manufacturing issues that may be at the heart of the problem. For that a heavy price must be paid.
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A decade in Supply Chain Timeline
January 26th, 2010
SC Digest has a recent article: A decade in Supply Chain Timeline illustrating a decade in the supply chain timeline. What astonishes me about the decade is how quickly the mighty have fallen. Or rather how quickly some of the no-brainer trends seem to go quite limp.
The stars from the report in my opinion are:
1. Blue jeans icon Levi’s announces it is shuttering all its US production and moving to Asia - as do others throughout the decade.
If anything this move has probably been one of the most important signals of the decade.
2. Yellow Freight announces plans to buy Roadway express, its larger LTL rival. That plus other acquisitions soon bring financial trouble to new YRC Worldwide.
A telling example of how the golden boys gamble and fail.
3. Walmart announces plans for RFID tag mandate, later says it expects all vendor pallets and cases will be tagged within a few years
and later towards the end of 2009
Walmart’s RFID program seems to go into total limbo.
Now, that’s an example of how the go it alone mandate may not be the best way to introduce far reaching changes in the supply chain. Is that also a signal that the supply chain has exhausted ways of making things cheaper and in the next decade of inflation and rising commodity prices, these costs are going to find their way through the supply chain directly to the consumer.
4. Mattel becomes poster child for concerns about offshoring generally and product safety for goods made in China specifically as it has to recall millions of toys due to lead in paint and other issues.
An idea of the true costs of offshoring begins to emerge as unit cost is balanced by risk related costs and soaring transportation costs. No free lunch indeed.
5. Independent truckers going out of businesses by the thousands as slowing freight volumes and soaring fuel prices take their toll.
The driver shortage reported by American Trucking Association earlier in 2005 was most likely filled by independent truckers capitalizing on the shortfall. But the onset of the recession rearranges the marketplace again.
And the cake on the icing:
6. Dell pulls big surprise by announcing in April (2007) quarterly earnings call presentation that it is entering the retail market and largely abandoning its legendary build-to-order supply chain model, saying it is too costly.
If you survey the history of manufacturing management, you’d obtain a sort of cycle that comes and goes. The form of the cycle is centralization and de-centralization of the operations ostensibly for cost savings and better efficiencies and what not. Ergo, it behooves me to make the obvious prediction that Dell would go back to the make to order business before the end of this decade. But that is predicated on a recovery in the general economy.
7. Factory utilization reaches post-Depression low of 65% in the US.
After a decade of outsourcing and offshoring and, thus climbing up the value chain, we begin to appreciate that the perch up the value chain can only accommodate a few and the rest have to be paid for my debasing the medium of value i..e money. Fortunately and unfortunately, this game can only go so far.
And finally,
8. Everyone looks forward to 2010 - perhaps most difficult year to forecast in decades.
Au contraire mes amis, this is the easiest decade to forecast let alone year. This decade is going to be the lost decade - perhaps, I should wait at least until the first year is out. Maybe not.
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A Happy New Year
December 31st, 2009
Here’s wishing you and yours a Happy New Year ahead. It promises to be an interesting year indeed.
Cheers!!!
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Continuous Improvement from my book in progress
November 13th, 2009
I’m writing a book and I’ve put up one of the chapters from that book aptly titled Supply Chain Heresies (for now). The chapter that I’ve completed is called Continuous Improvement. Download it and send me critiques if you’d be so kind and so inclined.
Have a great weekend.
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The end of the Great Recession
November 5th, 2009
The Great Recession is finally over. So says Mark Zandi in his testimony before the Joint Economic Committee: The Impact of the Recovery Act on Economic Growth.
From that report,
This downturn will go into the record books as the longest, broadest and most severe since the Great Depression (see Table 1). The recession was twice the length of the average economic contraction, and it dragged down nearly every industry and region in the country. Its final toll in terms of increased unemployment and falling real GDP will be greater than that seen during any other recession on record.
What was interesting to me is this little tidbit from the report,
Retailers and manufacturers have also worked hard to reduce bloated inventories. The plunge in inventories in the second quarter was the largest on record and came after a year of steady destocking. Inventories are now so thin that manufacturing production is picking up quickly, as otherwise stores will not have enough on their shelves and in warehouses to meet demand even at currently depressed levels.
This suggests to me the effect of outsourcing/offshoring that inventories were unnaturally high post bust and then the plunge in inventories as the pipeline and finished goods inventories were depleted. Now a few months after the bust, manufacturing production has to be ramped up based on the expectations of a recovery going forward - a classic case of the bullwhip effect, perhaps?
Also pay attention to Table 2, where in Zandi breaks out the $175.8 billion already spent (from a total $359.3 billion available). The bulk of stimulus payments (~ 100 billion) go towards “obligations” of the government meaning extending unemployment benefits, food stamps, Medicaid etc. I mean these are obligations that the government took on regardless of the economic-business cycle but is paying for by bringing forward future tax receipts. As for providing actual infrastructure building, that amounts to a paltry $14.4 billion and tax cuts $59.3 billion.
Zandi notes,
Workers who lose their jobs before the end of 2009 can temporarily receive more UI, food stamps, and help with health insurance payments. Without this extra help, laid-off workers and their families would be slashing their own spending, leading to the loss of even more jobs.
“.leading to the loss of even more jobs” - whose jobs are these? The problem with such assertions ought to be obvious: How does one verify such statements? The same logic is everywhere:
Arguments that tax cuts in the stimulus program are not supporting consumer spending are incorrect.vii Although spending has not rebounded sharply, without the stimulus, it would still be declining.
and,
But although the exact number of additional jobs that would have been lost without the fiscal stimulus will never be known, it is clear that the number is significant.
The icing on the cake,
Although the recession is over, the economy is struggling. Job losses have slowed significantly since the beginning of the year, but payrolls are still shrinking, and unemployment is still rising. The nation’s jobless rate will top 10% in coming months-higher than the Obama administration forecast when it was trying to get the stimulus passed early in the year. That fact, however, says nothing about the program’s efficacy. If anything, it suggests the $787 billion stimulus was too small.
If you read the report, you would be hard-pressed to find any stimulus spending (unless you count the paltry $14 billion spent on infrastructure) going towards actual job creation. That’s an efficiency ratio of 14/787 = 1.7% as of now. When all the infrastructure spending is accounted for, that would stand at 11.5%. As you can very well imagine, the economists are now realizing that the stimulus was too small. Or in other words, the stimulus has not succeeded because it was too small to succeed. Or if you prefer the truth, spending 12% of the total outlay on actual job creation was a disastrous policy that will show up in the unemployment figures in the not so distant future.
Hence, the trial balloon for a new round of “targeted” stimulus: Locke Was ‘Imprecise’ in Comments on Second Stimulus
“If there is to be another stimulus — and that’s being hotly discussed and very seriously considered within the administration as well as members of Congress — it needs to be very targeted, very specific and we need to be very mindful of the deficit as well.”
That quickly went nowhere as the reactions to this trial balloon quickly popped it. But that’s where we’re heading - Stimulus #3 is coming for sure.
Also, take a gander at the risks that are outlined for the economy going forward - nothing has changed there.
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