The Supply Chain Matters blog pens its first blog of 2023 with added evidence that Supply Chain Do Matter for Successful Business Outcomes.

 

First of all, Happy New Year and best wishes for all our readers in the coming new year.

Throughout 2022, this blog provided a continuous chronicle of business and associated supply chain developments that reinforced how important a firm’s supply chain strategies and capabilities are to business strategies, actions and outcomes.

Let’s reflect on a few specific examples.

Apple

Likely one of the globe’s most profitable and highly followed companies from both a customer as well as an investor perspective is Apple. This icon of product innovation has delivered billions in revenues and investor benefits. Yet, this company was not immune to disruptive events that occurred across China’s major high tech manufacturing regions in 2022, especially during the last three months.

Wall Street’s most sobering headline at the end of 2022 was that Apple’s shares closed at their lowest level since June 2021. Both Bloomberg and The Wall Street Journal pointed to the news of production suspensions and consequent worker unrest at Foxconn’s massive Zhengzhou “iPhone City” facility impacting production daily volumes of various models of the newly released iPhone 14 .

We highlighted a Wall Street Journal exclusive report indicating that Foxconn Founder and former CEO Terry Gou, was compelled to write a letter to Chinese leaders in early November to: “warn that strict Covid-19 controls  would threaten China’s central position in global supply chains and demanded more transparency into restrictions on the company’s workers.”

In mid-December, CEO Tim Cook acknowledged that upwards of 60 percent supply network reliance in one country is too much, which signaled that the company will likely step-up efforts in China Plus sourcing for components as well as assembly of its most sophisticated smartphones.

While reports circulated in the final week of 2022 that that the Zhengzhou facility had restored a reported upwards of 70 percent of its former daily production volumes, it remains to seen how much the shortfall of new iPhones will impact Apple’s financial performance in the critical holiday fulfillment quarter, and in subsequent quarters.

For Foxconn and the company’s component suppliers located in China, strategies must now focus on insuring worker safety given the country’s reported high Covid infection rates which as estimated to be in the millions over the coming weeks.

Commercial Aircraft Industry

An industry that was significantly impacted by the global-wide Covid-19 virus was commercial aircraft production, both from a product demand and supply network perspective. In 2020, there were dire predictions regarding how much of an impact the pandemic would have on the airline industry’s demand of ordered new aircraft, and the viability of the industry’s two dominant supply networks.

Early on, European based Airbus SE made efforts to preserve production levels as best it could despite airlines suspending of a significant portion of air travel due to lockdown and worker safety concerns. The company’s CEO openly stated that commitment.

U>S. based aircraft producer Boeing was still trying to recover from the two year global grounding of its 737 MAX single aisle aircraft in 2020, and the global pandemic added to much broader supply network and aircraft assembly challenges.

In a posting in late October, we contrasted the financial performance of both manufacturers. Airbus delivered a solid nine-month performance in a complex environment in what was described as an ongoing “fragile supply chain.” The Q3-2022 results were headlined with a 65 percent increase in total company net income of € 667 million euros while total revenues grew 27 percent to € 13.2 billion.  For this manufacturer’s commercial aircraft sector, total quarterly revenues were € 9.2 billion, an increase of 34 percent, while EBIT increased 37 percent to € 973 million euros. We highlighted a report from Bloomberg Business indicating that plane maker was able to secure 18-month extensions to key engine supply contracts involving Safran SA and General Electric, along with MTU Aero Engines, a supplier of a rival Pratt & Whitney geared turbofan engine also utilized to power the A320/A321 single aisle aircraft.

The European plane maker’s outlook for 2023 was the goal to deliver 700 commercial aircraft deliveries, but that goal had to be revised in late November because of ongoing supply network challenges.

Rival Boeing’s third quarter financial performance was headlined by a reported loss of $3.3 billion, principally weighed down by $2.8 billion in additional charges related to military and space aircraft fixed price development programs, in addition to ongoing supply network challenges in delivering commercial aircraft to airline customers, including the backlog of 737 MAX aircraft to be delivered.  The ability to resume airline customer deliveries of the twin aisle, wide body Boeing 787 Dreamliner aircraft had resumed in August after upwards of two years of manufacturing and regulatory challenges and reportedly helped in revenue performance.

With 2022 coming to a close, Airbus stock was down 4 percent for the year. Boeing’s stock had rallied somewhat amid news of some large new orders for the 737 MAX aircraft with the stock ending the year 13 percent below its 52 week high mark. Overall debt load has risen from $18 billion in 2019, to now over $49 billion. Airbus will again take recognition for delivering the most commercial aircraft in 2022 while Boeing continues to address business and supply network issues, especially concerning timely delivery of aircraft engines.

 

Amazon and the E-commerce Volume Pullback of 2022

As what a report by business broadcasting network CNBC headlined last week: “It was a brutal year for mega-cap tech stocks across the board but 2022 was especially rough for Amazon.”

As our readers are well aware, the pandemic fueled an E-commerce boom in online sales growth as consumers enjoyed the benefits of receiving their shopping needs at their doorsteps. The boom caught many e-tailers unprepared. Amazon’s culture of long-term capacity planning and lighting agility in making business decisions allowed the online platform provider to pull forward warehouse and customer fulfillment capacity planned for five years hence, and thus was able to ride the E-commerce growth wave for financial and investor benefit.

When Andy Jassy took the CEO helm from founder Jeff Bezos in 2021, he began his review and education of all the company’s operating business unit’s including the online retail business.  Then came a series of shockwaves that began in early 2022 with an admission that the planned E-Commerce boom had not materialized, that consumers had shifted their buying needs to other purchasing areas. There was an admission  that retail unit had brought forward too much capacity and hired too many operational workers followed by actions to sub-lease deemed excess space and re-visit future space needs. Subsequent quarters of financial performance reporting were intertwined with news of senior executive departures, cutbacks among various business units and a corporate wide headcount reduction that would unfold in 2022 and 2023. In parallel, the online retailer took actions in addressing active labor union recruitment among certain customer fulfillment facilities, including announced wage increases for customer fulfillment workers and drivers prior to the 2022 holiday surge period.

Amazon stock has reportedly plunged 51 percent in 2022, its biggest decline since 2000, not solely because of missteps, but the market nervousness about over valued tech stocks and concerns for lower E-Commerce growth during the tough economic climate anticipated in 2023. The CNBC report notes that only Tesla, has had a worse year, but for other reasons related to Elon Musk. We will feature added commentary related to Tesla when the company’s 2022 operational performance comes to light.

 

Peloton Interactive

In the home fitness industry, who could not forget the travails of Peloton Interactive.

The company benefitted by tremendous consumer demand for its line-up of in-home fitness equipment, along with its exclusive subscription based instructor led fitness classes delivered virtually on equipment terminals during the bulk of 2020.

What has unfolded in the two years since is that the product demand boom has been a series of supply chain and customer focused strategy turnabouts, from proposing a new manufacturing presence in the U.S. to instill supply network resiliency, to a later abandonment of that strategy. In the second half of 2022, significant business restructuring that included supply chain and customer service support, corporate wide headcount reductions and the announced closing  of the company’s owned North American warehouses and the shedding of field customer support teams occurred. That was followed by an announcement in the second half of 2022 that the company’s hardware fitness products could be purchased on Amazon and other select outlets. At year end, Peloton paid commercials were coy in indicating that 92 percent of customers had not suspended their fitness subscriptions, so do not be the outlier.  One could surmise that a new defense strategy was underway.

Peloton stock was down nearly 78 percent for all of 2022 despite statements from the new CEO that a company turnaround was in sight. This company’s all-time stock price high mark occurred in January 2021 at $167.42 per share. The stock closed at $7.94 at the end of 2022 with a low point of $6.66 during the year. As we noted, Peloton will surely be a subject of case studies among academia and supply chain executive education for many years to come.

 

These are but a few examples with others surely on a more positive note such as Procter & Gamble, a company that has invested heavily in supply chain transformation, agility and transformation that benefited this company during the last three years. This consumer goods producer’s three year stock price performance reflects 17 percent growth, which is noteworthy in the context of supply chain capabilities do matter.

We look forward to shining the light and sharing perspectives on even more supply chain management business strategies, developments and outcomes in the coming year.

Stay tuned, and thanks for your continued loyal readership.

 

Bob Ferrari

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