On this Friday, the Supply Chain Matters blog provides our global supply chain news capsule follow-up, a revisiting of prior developments related to supply chain management as well as themes that we have highlighted for readers.
EV Start-Up Rivian Encounters Order Fallout From a Price Hike Decision
In January, Supply Chain Matters highlighted an announcement from electric vehicle start-up Rivian Automotive disclosing plans to invest in a second volume manufacturing facility be located near Atlanta, Georgia with production operations being planned for 2024. The company had reportedly accumulated a backlog of 71,000 preorders for its two consumer focused vehicles, the electrically powered RiT model pick-up truck, and the similarly electrically powered RiS sport utility vehicle. The company’s sales strategy is similar to that of Tesla in that customer’s order vehicles directly from Rivian on its website, with no dealer network involved.
In addition to consumer market orders, a prior order from equity investor Amazon for 100,000 electrically powered parcel delivery vans added to the attraction of the company’s recent IPO which subsequently provided a lucrative payout for the retail platform provider. The new plant was to supplement the existing Normal, Illinois assembly facility and was being geared to supplement production for upwards of a further 150,000 vehicles annually, achieving a strategic goal to have a mass market EV line-up similar to Tesla. We further pointed out that company’s CFO, with previous experience in the investment banking sector, told The Wall Street Journal that Rivian would prioritize market growth over profitability in order to achieve mass market status and capability quicker.
Earlier this week the company announced a major price increase for both of its initially planned vehicles, including customers who had pre-orders outstanding. The price hikes were substantial, reportedly averaging $10,000 to $25,000 premiums over original quoted prices. The need for the price increases were attributed to exploding supply chain component and transportation costs.
The immediate effect of the price hike announcement was rage from customers, flooding social media channels, and subsequent mass order cancellations, and a meaningful selloff of the company’s stock.
In the backdrop of this development, reporting by The Wall Street Journal pointed to a lawsuit filed by a former sales and marketing executive alleging concerns that the company was pricing models too low, and that prices would eventually need to be raised after the company’s IPO.
Rivian’s CEO RJ Scaringe has subsequently been compelled to directly apologize to pre-order customers with a statement:
“As we worked to update pricing to reflect these cost increases, we wrongly decided to make these changes apply to all future deliveries, including pre-existing configured pre-orders. While that was the logic, it was wrong and we broke your trust in Rivian.”
Candidly stated by Mr. Scaringe: “I have made a lot of mistakes since starting Rivian more than 12 years ago, but this one has been the most painful.”
That latter statement was candid and revealing to state the least.
Rivian has since adjusted the price increase decision to honor pricing for customers with pre-orders, and apply to price increase to new orders. The hope is that a significant portion of pre-customers will reinstate their orders.
This will be a development that readers may want to continue to monitor. The notion here is that of the forces related to establishing customer loyalty and brand buzz, conflicting with the reality of today’s significant cost inflationary trending. When do customers and businesses decide that price increases are too much, seek alternatives, or just elect not to buy.
Expeditors International Begins Recovery Efforts from Cyberattack
Last week Supply Chain Matters alerted readers to a potentially major cyberattack incident involving a top tier third-party logistics services and global freight forwarding services provider.
Seattle based Expeditors International of Washington acknowledged on February 20 that operational services were shut down as a result of a targeted cyberattack which significantly impacted internal systems.
Industries served by Expeditors include aerospace, automotive, healthcare, manufacturing, retail, among others.
Yesterday, the company indicated in a filing with the U.S. Securities and Exchange Commission (SEC) that the impacts of this attack are expected to have a “material adverse impact” on the company’s finances. Specifically noted: “The company’s workforce is now handling shipments and providing services across most products and expanding recovery across its locations. The company is incurring significant expenses to incorporate business continuity systems and to investigate, remediate and recover from this cyberattack.”
A separate communication indicated that the filing of the company’s 2021 annual financial report will be delayed until full access and timeliness of financial systems can be completed.
Earlier this week, customers were informed that shipment processing services had begun across most service areas as recovery operations continued to be initiated across global wide offices. However, industry media has indicated that the company’s employees continue to have to perform some services or trace shipments by manual means.
Similar to other cyber incidents of this scope, further days will likely be required to fully restore operations. The financial and reputational harm is yet to be assesses. It serves as yet another reminder that cyber incidents can be inevitable and businesses need to have a plan of diligence, response and mitigation.
Toyota Halts Production Operations in Russia
Global automotive industry leader Toyota Motor announced this week that it has suspended auto production operations at the auto maker’s Russian production facility because of “supply chain disruptions” brought about by the ongoing Russian–Ukraine conflict.
The auto maker is considered to be a leading manufacturer in the country, with its manufacturing facility in Saint Petersburg assembling Toyota Camry and RAV 4 SUV badged vehicles for the Russian market.
The Japan based automaker was not the only automaker electing to suspend manufacturing operations, but many others attributed their decision to the significant amount of sanctions being imposed on the Russian Federation, along with the belief that supply network and transport disruptions seem highly likely because of the existing situation.
Last week, Supply Chain Matters highlighted reports that a cyberattack involving a plastic parts supplier resulted in the one-day shutdown of domestic production across the company’s 28 Japan based production lines. The impact is believed to have impacted the automaker’s output of upwards of 13,000 vehicles. It further came as Toyota continues to manage ongoing disruptions involving the global shortage of semiconductor devices utilized in automobiles. In January and February, trucker induced blockade of the border between Canada and the United States interrupted parts flow to the automakers U.S. plants production facilities.
For Toyota, the three months of 2022 have provided literally non-stop global wide disruption and mitigation planning.
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