The change in thinking is extraordinary.

Tim Chen

Of course the ratio depends upon the type of product. Highly technical electronic products would have a more favorable American labor content. Products with less technology, such as furniture, would probably have a distribution that not as skewed, thought the furniture designer and all of the support labor to market, sell and distribute would be significant.

The true issue with globalization is that the value add labor in America requires a skilled work force. Americans have benefited significantly from the higher standard of living that has resulted from globalization. We should focus on the real issue, how do we train the next generation of workers so that they have the opportunity to participate in a global economy.

Tim C
tim@tichenassociates.com

I often wonder how the automobile industry has managed to survive with 3 to 4 year development cycles. The recent run-up in gasoline prices last year demonstrated how quickly the market can change. The automobile industry was and is currently faced with products offerings that featured few products that the customer want. I suspect that part of the answer is a culture based upon NIH (Not Invented Here) and an unwillingness to cannibalize existing product markets for greater leverage. The industry has made an effort to move away from a vertical integration mind set (everything is manufactured in-house from raw materials to finished automobiles) touted by Henry Ford in the early 1900′s. They have attempted to spin-off major components as separate business entities (axles, transmissions, etc.). Unfortunately, these spin-offs still bear legacy ties to the original automobile manufacturer which closely tie their future to the original automobile firm.

Take Away Thought: The global market should be thought of as a smorgasbord of products and services. Product planning is a constant evolution based upon close consultation with the firm’s suppliers and customers. Constant product evolution implies a willingness to cannibalize existing products through the introduction of new and better products. An example of those that failed to adapt to change are those firms that made huge profits just 10 to 15 years ago in 35mm SLR cameras and 35mm film. The majority of the market has switched to digital cameras and is gradually switching to using their mobile phones!

PS: Here is a radical thought … rather than supporting the traditional automobile companies with R&D funds for the development of the future alternative power systems, maybe the US Federal government should put their support behind a separate entity that could supply power systems to all manufacturers, domestic and international. Another thought is invest the R&D funds with the traditional automobile companies, but insist that the technology that is developed is “open source” and available to all!

Take away thought: Any business to business transaction can be thought of as globalization. Total vertical business integration is not cost effective, feasible or competitive. Vertical integration is an anathema to robust business flexibility or the ability to shift approaches quickly as the market changes. NIH (not invented here) and the concept of “sunk costs” must be avoided.

Take Away Thought: By leveraging the competitive value add from each partner ( Intel’s microprocessor technology expertise and TSMC’s manufacturing expertise ), their customers have the potential to become more competitive. This ripple effect of improved productivity gains is good for all.

The combination of low cost imported goods (when was the last time anyone purchased a piece of clothing made in the USA??) and high manufacturing productivity has resulted in unprecedented high level standard of living for those who are able to compete. I suggest that rather than a detriment, the world has greatly benefited from globalization.

Take Away Thought: We in the developed economies must share the global economic pie with those who have a lot less. Even with the huge growth in its economy, the Chinese still have a huge population living at a very low subsistence level.

Take away thought: The Internet has significantly enabled efficient resources, physically located anywhere, to have the exposure to a wider potential market. Better products should result.

Take away thought: BRIC … Brazil, Russia, India, China have been identified as the rapidly emerging economies. Each has developed technical expertise in specific disciplines which are competitive in the global market … for example, the USA will probably have to depend upon Russia to deliver our astronauts to the International Space Station for the near future, India has developed a reputation for providing IT support personnel, … The global market is more than lower labor costs, engineering design and development resources may have a more significant long term impact … develop relationships that can be expanded to incorporate these higher level value added capabilities.

Tim C

Take away thought: For a small company, establishing a strong business relationship with a distributor with international resources can help to assure consistency of product quality and supply at attractive global prices.

Tim C

A simple example might help. Manufacturer A is based in North America. They buy a component from Manufacturer B based in a Low Cost Region … say the Far East. In turn B purchases materials and labor from the local market, let us call then C₁, C₂ and C₃. Manufacturer A takes four(4) weeks from the time that the complete material set enters their receiving dock until the finished product leaves the shipping dock. B takes two(2) weeks to manufacture the components from purchase order release to shipping dock and five(5) weeks ocean freight/ customs clearance/ delivery to distribution location. C₁, C₂ and C₃ take two(2) weeks from purchase order release to delivery. All this assumes that negotiations between manufacturers has already taken place, prices have been set, sub-manufacturers are covered with blanket purchase orders, if any (e.g. they have forecasted requirements and have inventory is process). Adding all of this up, in the optimum situation Manufacturer A’s sales force would tell their customers that they can not get product for at least 13 weeks! In other words, Manufacturer A’s production schedule for the next 13 weeks is already committed and firm. Perfect world, everyone has time to do their part of the process with sufficient time. Until your competitor tell your customer that they can deliver a similar product in 5 days!!

What are the implications? Manufacturer A will have to act on a build schedule which is a combination of actual customer orders and a forecast. This schedule will have to be provided all of their sub tier manufacturers for their action.

During training sessions, I would tell the attendees that if I could prepare an accurate forecast … I would be on some huge sail boat in a calm ocean in a warm climate at that very moment!! The gist is that once a forecast is added to the Master Schedule, you can be assured that it will be wrong!

How to resolve this conflict?? Many very successful companies have solved this dilemma. They have solved the dilemma by;

• Close communication with marketing/ sales to identify market shifts,
• Constantly updating the master scheduling information systems,
• Sharing those constantly changing master schedules with their respective sub tier manufacturers, expecting immediate adjustment to their production schedule, and
• Relying on the sub tier manufacturers to pass that schedule down the supply chain, again expecting immediate adjustment to their respective production schedule.

We currently have a situation where we have a customer that only maintains actual customer orders in their production schedule. We are the next tier of suppliers. We have blanket purchase orders for the components we supply. Our total lead time (manufacturing plus ocean freight/ customs) is approximately nine(9) weeks. Guessing that their production process time is two(2) to four(4) weeks, gives a total of 11 to 13 weeks. Does this system work?? Not very well. We are experiencing dramatic increases in certain components and decreases in others. A significant amount of expediting. My guess is that they are accepting production schedule changes within that total lead time. We have past history usage and minimal view of the future usage, most of the time we get visibility of future requirements when they are trying to expedite shipments of product.

What should change? Better and timelier communication with Marketing/ Sales to determine what will be sold and entering a finished product forecast into the Master Schedule. Finished product forecast because a manufacturer can not ship a 99.99% complete product! Forecasting components rarely results in shippable product. The finished product forecast quantity should be adjusted and/or moved out on a periodic basis as the sales environment changes. Remember, until the component inventory actually hits the receiving dock, the manufacturer’s cash investment is zero!

TC