On Sunday, this author flew to Nashville Tennessee to both attend and moderate a panel discussion at the annual Supply Chain World North America and Global Member Meeting 2014 conference sponsored by the Supply Chain Council. Supply Chain Matters will share highlights from that conference in an upcoming commentary. Flying provides the opportunity to catch-up on reading, and for this author, my prior unread issues of The Economist magazine. Two specific articles with a common theme captured my interest and I wanted to share such observations with you in this commentary.
At the many industry conferences I get the opportunity to attend, I often hear supply chain leaders speak to accelerated clock-speed of product innovation, and how that can add additional challenges and potential havoc for the end-to-end supply chain, particularly when that supply chain is significantly outsourced. For a supply chain that is primarily supporting product innovation, a major industry product shift has significant implications.
The April 5th edition of the The Economist featured the article: General Motors’ woes: What do you recall? (paid print and digital subscription) The article notes that automobile design has become far more complex with thousands of mechanical and electronic parts. If you have acquired a new vehicle in the past three years, you probably have experienced the availability of so many new electronic-based systems such as in-car navigation, satellite radio, in-car diagnostics, and powered operational components and, of course, prompted service reminders. Couple the increased product innovation with supply chain and manufacturing strategies that leverage common global platforms sharing common parts components, and the potential effects of a product recall can be significantly magnified. In the specific case of General Motors, the article states that what appeared at the surface to be a routine recall of 800,000 older models due to a faulty ignition switch has turned out to be anything but. As many of you have been reading in business and mass media, that initial product recall has increased to upwards of 26 million vehicles because the ignition design was shared within so many other models. The Economist authors opine that despite a growing list of reported crashes and human injury, a part that likely costs a few dollars at most now involves significant potential monetary expense for GM. Further stated: “A small part can do great harm if bad publicity leads to reputational corrosion, lost sales and litigation, which in America can include hefty punitive damages.” The article authors point out that carmakers need to spot trends in warranty repairs across global regions in far more timely manner and be able to more quickly respond to these indicators. While the terms of GM’s exit from bankruptcy provided immunity to lawsuits involving products produced prior to bankruptcy, GM will likely have to compensate injured parties to avoid a reputational impact to its product brands.
As noted in a previous Supply Chain Matters commentary related to the GM ignition switch recall, another industry backdrop concerns the Toyota agreement to pony-up a $1.2 billion criminal penalty settlement with the United States Justice Department after acknowledging that it misled consumers regarding unintended acceleration problems (SUA) that occurred from 2009 through 2011. That in the view of many will force automakers to be even quicker to declare a product recall for fear of punitive consequences.
A second article concerning a different industry provides yet another edge to product innovation and its impact on an industry supply chain. Many first-time global-wide smartphone consumers care less about brands and more about price. The Economist article titled: The rise of the cheap smartphone, points out that because the cost of making smartphones has declined so quickly, newer or existing market players can now acquires standardized processors and other components to offer smartphones priced below $80. Some of the brands mentioned are France based Wiko, Micromax and Karbonn in India and Symphony in Bangladesh. The article cites an analyst at IDC indicating that shipments of smartphones priced below $80 more than quintupled, and devices priced under $100 make up one-sixth of the current market. “Two years ago, while the median price of a smartphone was $325. Last year it was $250. This year it may be $200.”
With Apple and Samsung are noted as the only market providers making money, the implication is how long will this continue. Then, there has to consideration to last weekend’s announcement from Amazon indicating that it will enter the market with its own branded competitively priced smartphone. That has set-off additional industry tremors.
If your supply chain exists in this segment, these quickly changing dynamics have implications for supply chain strategy, specifically how the supply chain will be called upon to either differentiate the brand, or drive even more scale and volume efficiencies.
The reading of both of these timely articles reinforced for this author that the linkages from product design and management directly to the manufacturing floor and the broader multi-tiered B2B value-chain network have got to be stronger than ever because the clock speed of industry change requires less information latency and more responsiveness. Stay tuned for an upcoming announcement regarding my participation in a webinar addressing this area in more detail.