By Timothy | Published: February 20, 2007 – 8:47 pm

There was an article in the Wall Street Journal last week “Top Universities Put Instruction on the Web” (by Anne Marie Chaker, WSJ February 15, 2007) that I recommend. The article, as the title implies, discusses the efforts by several well known universities to post on the web instructional material taught at these universities. It would appear that through the various technologies used, the general public has access to course material and lectures from some of the university’s best professors. In addition to identifying several educational institutions that are posting lectures, the article discusses the different formats used (video clips, iPod casts, MP3 files, …) and an idea of the variety of topics that are available.

What I found particularly interesting were the rationales given for giving away what is essentially their product. Some postings are a result of grants from a well known philanthropic foundation. Some universities consider this effort a marketing tool, where potential future students have an opportunity to view courses before making the decision to attend. The most elusive and egalitarian rationale is “ – democratizing education – “.

The real question is the eventual impact.

Will this mean that future students will attend university for what is essentially free? I do not believe so … certainly not enough material will be posted to constitute a complete university education. Besides, I believe that a university education is more then attending lectures.

Will this attract the best and most intellectually active students to these universities?? Possibly …

What I would hope will happen, is that the universities with weaker teaching staffs will use this material to improve their course material, perhaps raising the level of instruction across the board. Taking the best and propagating those concepts and ideas throughout the whole is basic to improved efficiency and productivity.

TC

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By Timothy | Published: January 23, 2007 – 6:37 pm

I have managed Materials organizations for most of my working career. For those of you who are not familiar with their organizational duties, the Materials organization within a manufacturing environment; manages the manufacturing schedule, plans and procures the components used in the manufacturing process and combines the finished products to fulfill the customer order.

The fundamental challenge that faces every Materials organization is that the total lead time to manufacture a product (e.g. component procurement and manufacturing process time) normally exceeds the amount of time your customer is willing to wait to receive the product or the lead time your competitors are willing to offer your customer. The implication is that someone, somewhere in the Materials organization has to predict future requirements, placing procurements ahead of actual customer orders.

Probably one of the best examples of this dichotomy is a fast food burger restaurant. The customer walks in, chooses a “burger combination” and expects to walk out with his/her order within a brief period of time measured in seconds. The restaurant certainly does not have time to order the raw materials or cook the meal to order.

During my career I have been asked many times why we could not put together an accurate forecast of future requirements. My response has been that “…if I could accurately predict the future, I would now be on some huge sail boat, sailing in a warm climate …”. I think that you get the gist of my thoughts.

We all know the down side of predicting requirements that the customer does not want … obsolete inventory, inventory write-offs, reduced profits!.

So what are the strategies that can make this work?? Early in the science of materials planning, the concept was to stratify the inventory into A – B – C classifications. The principle was that based upon daily dollar usage (component value times daily usage), the organization would focus on the small number of critical part numbers (e.g. A’s) and use a semi-automatic restocking strategy for the low daily dollar usage/ low cost part numbers (e.g. C’s). When the Materials group is managing 1,000’s of part numbers, there is no other choice. The disadvantages of this approach are using past usage history to predict the future, no usage history for new products/ components and a finished product can not be shipped even if it is 99.99% complete … that $0.01 part has to be there.

Current material planning science incorporates the concept of supply chain management. In essence the principle is that the greatest gain can be obtained by improving the efficiency of the entire supply chain. The entire supply chain starts from the lowest component (the farmer that raised the cow and grew the wheat in the burger example), to the next level until the final sale to the consumer (the burger restaurant). By constantly supplying usage/ consumption data to the next lower level, in near real time, that supplier has the opportunity to adjust their forecasted requirements to their manufacturing operation and suppliers. Conceptually supply chain management, reduces obsolete inventory and inventory write-offs at all levels.

So what does this have to do with globalization?? Remember my definition of globalization is “demand seeking the most efficient resource”. The word efficient does not necessarily imply lowest price! Depending on the market, efficient may mean close proximity to your customer, highly efficient Information Technology abilities, the flexibility to adjust to changing requirements without resorting to “Why can’t you provide an accurate forecast?.

Tim C

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By Timothy | Published: October 16, 2006 – 11:48 pm

Globalization can be defined to be requirements seeking the most efficient resource. What is important to understand is that efficient does not necessarily simply imply the least cost. There are a host of factors (including cost) which contribute to being the most efficient resource. For example, a supplier that has the lowest price but supplies products that in any given shipment only 60% meet acceptable product quality standards is not efficient. What are these factors?

• Product quality – the supplier’s goal would be to meet product specifications with each product delivered to the customer, yielding 100%.
• Delivery lead time/ responsiveness to the customer’s schedule change – this is the essence of just in time materials management. Delivery of exactly the product required when it is required.
• Product price – .competitive pricing, evaluated based upon the other factors.

“One Company, Two Factories” is the title of an article that I recently read in Fortune magazine (18Sep2006) by Alex Taylor III. The subject of the article is the comparison of two factories making similar products for the same multi-national company; one in Michigan, USA and the other in Shanghai, China.

The comparison between the two is rather stark. Both have roughly the same number of employees, though the factory in Michigan produces roughly more than 3 times the number of units as the factory in Shanghai.

Labor in the factory in Shanghai is younger, less prone to absenteeism and costs roughly 10% of the labor cost in Michigan. The factory in Michigan has a higher degree of automation, an older labor force with relatively low turn over, that is very focused on constant productivity improvement.

The article goes on the say that while the factory in Michigan is very profitable and the employees earn a very good middle class income, they are pessimistic about their future. Whereas the factory in Shanghai has acceptable profitability levels with employees that are very optimistic about their individual future. What is not said, though I suspect is true, because labor is so relatively inexpensive, the attitude in the Shanghai plant is that little attention/ priority is given to “first pass yields” and product quality.

Both factories supply product to the automotive manufacturing sector. In China exists a growing automotive manufacturing sector. The USA, however, represents a more mature, stable or decreasing automotive manufacturing sector, due to the increase in foreign imports and the maturity of the market.

What is key to the success of the Michigan factory is high productivity, consistent emphasis on/ measurement of product quality and its’ location. That is correct, location. In today’s business environment, supply chain management is of critical importance. Customers want and expect vendor supplied material to be delivered when they need it, only as much as is needed, based upon a constantly changing requirements schedule which matches the actual customer demands. In other words, being physically located close to your customer’s factory can be a competitive advantage when determining efficiency of a resource.

In summary, the Michigan factory has much higher labor costs (due to labor rate and absenteeism) which are a disadvantage when competing on a global basis. However, these are offset by higher productivity (automation and focus on constant improvement/ first pass yields) and a physical location close to their customer base. In order to offer middle class level incomes to our employees, a firm must offer superior levels of product quality and customer responsiveness, yielding an efficient resource on a global basis.

TC

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By Timothy | Published: September 6, 2006 – 6:59 pm

I recently read an article by David Lawder (Reuters) titled “Hometown boy who made good is feted“.The story is about the US Federal Reserve Board Chairman Ben Bernanke returning to his hometown of Dillon, North Carolina … population 6,800. The article describes how Mr. Bernanke taught himself subjects beyond those offered by the local schools, eventually earning degrees from Harvard University and a PhD from Massachusetts Institute of Technology.

The article goes on to describe the current economic condition of the town; hard hit by the closure of the major textile mills, high unemployment rate, low tax base. The current mayor is quoted as stating that the lack of investment over the recent years in the local schools has left them unable to train “a labor force with the basic skills needed by modern employers”.

How does a town reinvent itself?? If currently they have little to offer employers that offer middle class level pay checks and they are not preparing for the future by properly educating their children, does this town have a future beyond subsistence?? Mr. Bernanke was able to rise above the limitations of their school system, but he also chose to follow a career somewhere else. Is it reasonable to assume that the current generation of school children can emulate his example and will be willing to stay in the town of Dillon?

I do not believe that there are any easy answers. The subject has to be approached as any large, multi-year project is approached.

• What do we wish to accomplish? Economic vitality that offers middle class level employment opportunities to the citizens of the community.
• What are the community’s strengths/ assets?? Location?? Trainable work force?
• What are the community’s weaknesses?? Location?? Trainable work force?
• How do we get from here to there??

I suspect that the path to improved economic vitality is the same as has been used by millions of immigrants to this country for centuries … improved the level of education of the children and if possible the adults.

To quote Mr. Bernanke;
“If the recent gains in productivity growth are to be sustained, ensuring that we have a work force that is comfortable with and adaptable to new technologies will be essential.”

Improvements in productivity are what has given this country the highest standard of living in the world. Unfortunately, we can not rest (since the rest of the world will not), but must continue to seek incremental improvements. Communities such as Dillon that are already behind must evolve at an even faster rate to become and remain competitive in the future.

TC

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By Timothy | Published: August 8, 2006 – 5:46 pm

A definition that can be given for the term “Globalization” is demand seeking the most efficient resource anywhere in the world. The implication of the use of the adjective “efficient” is that it is not all about the lowest $$ purchase price.

Granted there may be advantages to be gained from the labor arbitrage, however, the greater gains are achieved through the careful selection of global partners that enable the business to gain;
• Shorter time to market for new products,
• Higher productivity/ efficiency (e.g. 24/7 service),
• Consistent high quality,
• More efficient utilization of capital.

Early in this century the business strategy was vertical integration. This gave rise to such examples as the Ford River Rouge facility outside of Detroit, Michigan. This giant facility took in raw material (iron ore, coal, etc.) and processed them into finished automobiles.

Later in the century, the shift was to “contract engineering/ manufacturing”. The shifting of work to third party businesses that specialize in specific types of engineering and/or manufacturing disciplines. An example is the early IBM personal computer. All of the sub-assemblies from printed circuit boards, to enclosure fabrication, to software operating system were performed by others. Design engineering, final integration and test were performed by IBM.

Globalization is an extension of that shift with the added implication of establishing partnerships or alliances. Instead of the traditional “arms length” relationships, strategic alliances which share core capabilities will achieve greater competitiveness. These alliances, which leverage global talent, will be able to transform their businesses and the markets they serve.

Summary: In today’s rapidly evolving markets, it is no longer possible for a business to do it all successfully. Expanding the strategic thinking to in compass global partners with complementary core capabilities, offers the ability to offer the customer superior price, performance, and time to market.

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By Timothy | Published: April 14, 2006 – 1:25 am

I attended a conferenced sponsored by the World Trade Center – Tacoma and the US Chamber of Commerce. The topic of the conference was trading with India. The presenters ranged from US and India government trade officials, corporations that are involved in trade between the US and India and investors that make major investments.

We were treated to a broad range of statistics (for example over 50% of the population is under the age of 25) and a range of opinions on the future opportunities/ future potentials/ issues that must be resolved.

One speaker did address the issue that we have all heard about, joked about, worried about … will all the good jobs move East??

While the movement of well paying white collar jobs is undeniable, the question is how much will be shifted?? Will all of the jobs move, 50%, 25%?? If our experience in the manufacturing sector is any indication, the answer is somewhere in between. As an example, consider the case of Toyota. We recently all read that Toyota has overtaken Ford as the second largest seller of vehicles in North America. Yet in the same breath, foreign automobile manufacturers have been announcing the construction of new manufacturing facilities in North America. How does this make sense? On the one hand the domestic automobile manufacturers are struggling, yet foreign automobile manufacturers are doing well using North American manufacturing facilities. It would appear that cheap foreign labor is not the panacea that we are all led to believe. I believe that the answer to this conundrum is the elementary marketing mantra … having the right products at the right time.

The foreign automobile manufacturers have built facilities in North America to be closer to the major North American market. They have organized themselves in manner which is able to respond more quickly than the domestic manufacturers to shifting market requirements. Several years ago, they missed the shift to SUV type vehicles. They responded quickly, introducing equivalent products. Currently, they are in a favorable position to respond to higher oil prices with hybrids and more fuel efficient engine designs.

I suspect that the answer is that white collar work which is capable of being specified in great detail will shift to the most economic resource. The talent to identify market changes and respond accordingly will remain close to that market.

As a side note, we must also remember that China, India, etc. have huge disadvantages in infrastructure, large populations that are very poor, and only a few educational institutions that offer human resource development that is competitive on a global basis (Why else do their best students come to North America to study?).

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By Timothy | Published: March 1, 2006 – 11:27 pm

I have a habit of mulling over what I have read recently while doing mundane tasks such as swimming laps (trying to maintain my health). The interesting article that I talked about in my last BLOG post (The Economist – “Partners in wealth”, January 19, 2006) is one of those. The gist of the article is that the evolving business organization of the future is a constant reconfiguration of both internal and external partners. “… made up of a number of strategically aligned businesses ‘linked closely where there are opportunities to create value by leveraging shared capabilities, but only loosely where the greater value lies in differentiated focus’.”

One of the examples given is how Boeing has organized the development of the future 787 commercial aircraft. Rather than performing the entire design, development and manufacture in-house, they have selected partners that are responsible for entire portions of the future aircraft. These partners are selected based upon their exceptional design and manufacturing capability for specific areas of aircraft design. The objective is to be able to offer better value to their customers in their global competition with Airbus.

What occurred to me is that for years the concept of globalization meant the out sourcing the day to day mundane tasks to low labor rate regions. Bank transaction processing is a prime example. The article alludes to the fact that some banking institution have discovered that they are giving up a prime opportunity to mine the transaction data for leads to market/ sell other bank products. The example that came to my mind was data relating to the source of the transaction. Knowing that the customer is making their payment from a money market account offers the bank a target market for bank financial services … e.g. those individuals that are currently using those types of services.

Our firm recently established a similar partnership with a North American customer. Based upon the customer’s early design documentation (schematic and enclosure layout drawing), we have partnered to complete the engineering design (BOM, PCB layout, dimensioned drawings), develop production tooling and manufacture in volume the complete product. The customer has relied upon our expertise in the design and manufacture of power supplies to achieve;

• Shorter time to market,
• Lower product cost,
• Improved cash flow.

The other interesting concept that I found in the article is that “out sourcing” is not necessarily permanent. A business case can be made to “in source” certain functions, even though in-house processing may be more expensive in the short term. The concept is that by “out sourcing” certain mundane transaction processes, the business gives up the ability to mine the transactions for new business opportunities. The example that was given was the outsourcing of the processing of payments by banks. The banks have begun to realize that by aggressively data mining the transactions they may develop leads to sell other bank products. After thinking about this idea for a few minutes, I thought of the idea of capturing the source of the funds used by the customer to make the payment. For example, if the customer uses a money market investment account, this might be a lead for the sale of the bank’s investment account service.

Food for thought.

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By Timothy | Published: February 10, 2006 – 11:19 pm

“Partners in Wealth – The ins and outs of collaboration” (The Economist, January 21st-27th 2006) is the title of an article that I found very intriguing. This article was part of a section in that issue of The Economist entitled “The new organization”.

The article quotes from a paper entitled “The Strategic Enterprise: Rethinking the Design of Complex Organizations” by Mercer Delta. In the paper is a description of “… its vision of the organizational architecture of the future, made up of a number of strategically aligned business ‘linked closely where there are opportunities to create value by leveraging shared capabilities, but only loosely where the greater value lies in differentiated focus.’ In other words, close and loose relationships will exist within the same organization.”

I believe that the point is that the differentiation between “We” (those of us within the organization) and “Them” (those outside our organization such as suppliers, vendors, customers(?), …) has become blurred.

“One of the most contentious of these new relationships is outsourcing – the handing over to others of what were once considered to be core functions of the company.”

The article makes the point that outsourcing is a fluid activity … that what makes business sense today, may not make business sense tomorrow. At sometime in the future, it may make strategic business sense to bring that particular function back in-house. The example that the article gives is the handling of payment processing. This activity would appear to be a natural choice for outsourcing to a low cost labor market. Apparently banks have begun to realize that by outsourcing this activity, they have given up a valuable information source. With available data mining applications, they have discovered that they are able to identify new products and/ or markets.

The example that the article gives for these “close and loose” organizational structures is the design by Boeing of their new 787 model. In a break from past aircraft development projects where the entire design work was performed in-house, Boeing is designing this aircraft with the active participation of its 787 partners in the design process. “The main reason to change, says Mike Blair, head of the 787 development team, was that the company realized it had to trawl the world and find the best suppliers in order to compete with its main rival in the market for commercial aircraft, … it scoured the globe for new partners … some in Europe, some in Japan … in the United States.” The company significantly reduced the number “partners” from previous aircraft development projects and asked “partners (to) share the responsibility for a project.” Each partner is “responsible for all aspects of their piece of the puzzle.” “As Mr. Blair says, ‘it puts a high premium on the choice of partners in the first place.’ “

In summary, I believe the implications are that organizations must remain flexible, constantly reforming the teams that will tackle each business opportunity with the team members (both internal and external partners) that provide the best value to the customer.

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By Timothy | Published: December 12, 2005 – 6:03 pm

I read two articles recently in two different publications that refined the concept of globalization.

The Rise of Central Europe – Deep reserves of educated, ambitious, and affordable workers are driving the region (Business Week – December 12, 2005).

The rise of nearshoring – Ex-communist Europe is grabbing a lucrative niche in the global outsourcing business (The Economist – December 3rd-9th 2005).

First some data (Business Week):

Data: Compiled by Ariba Inc. using national sources

On the surface, one would assume that the price advantages offered by the China/ India competition would overwhelm any attempt by the East European countries to compete in an open market. After all, I occasionally tell of my personal experience while working for a large multi-national U.S. corporation in a fabrication facility in Brazil. The facility was manufacturing products that originated in a U.S. facility, subsequently were moved to Scotland, then to Brazil. The Brazilian facility eventually lost the business to a facility in India because the Brazilian factory workers were paid US$1 per hour and the Indian factory workers were paid US$0.25!

How do you compete?? Proximity … leverage the fact that your are;

• Physically close,
• Perhaps a member of or soon to be member of the European Union,
• Have employees that are fluent in German, French, Italian, Spanish, etc.

In fact these countries are starting to see investments not only from western companies, but from companies based in China, India and Turkey that seek access to the European Union market.

What are the challenges?? Most are hold over’s from the communist controlled economy mentality;

• Stifling bureaucracy, corruption, etc.
• Lack of investment in infrastructure, higher education, etc.
• Complacency (don’t worry we will get it right eventually!)
• Shallow talent pool (e.g. middle managers with customer/ quality focus, …)

The key is does your company offer the best value to your customers??

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By Timothy | Published: December 6, 2005 – 10:11 pm

A definition that is given for the term “Globalization” is demand seeking the most cost efficient resource.

I believe that cost efficient does not necessarily mean the lowest $$ purchase price. In addition to the obvious other costs of shipping expense, importation expense, handling … are the difficult to measure; product quality consistency, delivery consistency, engineering support.

Product Quality Consistency: As an OEM integrator, you would like every component product that is provided to be of equal to or better than, the First Article samples provided for qualification. Anything less impacts your integration manufacturing process, decreasing yields, adding rework expenses. Incoming inspection is the traditional approach to reducing the impact. The better approach which controls WIP (Work In Process) levels and Quality Control costs is to select suppliers dedicated to providing high quality products. (Note that I do not use the concept Quality Assurance. I believe Quality Assurance is total project activity, from the beginning engineering design, to vendor audits, to integration manufacturing audits).

Delivery Consistency: Any OEM integrator that competes in a competitive market employs Just-In-Time materials management principles. WIP inventory represents cash investment, cash costs $$ money. Suppliers must be selected that;
1) Have the capability to be integrated into your materials requirements planning system and have their own systems in place to assure the timely reflection into their materials requirements planning system of all your requirements changes. Give up on the idea of a “Firm Production Schedule” that covers full leadtime. The existence of these schedules are a myth. The only reasonably firm schedule is booked customer orders.
2) Have the quality systems in place to assure consistent yields.

Engineering Support: The manufacturing engineering, industrial engineering, quality engineering resource must be available to handle and resolve the day to day process issues. Nothing continues to work forever without some attention!

In summary, cost efficient does not necessarily mean cheapest.

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