Electronics Manufacturing Workers at Bright Manufacturing in Mexico

For several years now, TFI has written about the harsh conditions of electronics manufacturing workers, including those leading to the Foxconn worker suicides, forced labor, poisoning of EMS workers, and the egregious state of back-yard e-waste operations. This week I had the pleasure of presenting at the UC Berkeley Roundtable on Social Impacts of the Electronics Industry, sponsored by Executive-in-Residence Tony Kingsbury, Sustainable Products & Solutions Program. Along with several TFI clients and colleagues from the industry (including Intel, one of the companies featured in my book Lean and Green), attendees included UC Berkeley professors, graduate students, and a few NGOs.

I opened the Roundtable with Social Impacts in the Electronics Sector: How We Got Here, tracing the transformation of the electronics industry from local manufacturing (1940-1980s) to the move towards outsourcing (beginning in the 1970s). I described how as companies competed for faster time to market and lower prices, outsourcing moved manufacturing progressively farther away from North America and Europe to China, and how e-waste was sent to China and Africa for treatment in mostly unhealthy conditions. Today, most electronic products are processed by people whose working, living, and environmental conditions are unknown to people buying the products.

What can be done to personalize worker conditions so that “seeing the faces” prompt corporate buyers and consumers to choose products whose supply chains are the most responsible? Speaker Vivienne Riggio, Fair Labor Compliance at REI, pointed to the work by Mike Daisey who traveled to China to interview Foxconn workers, after he noticed photos of Chinese workers on his new iPhone. Attendee Heather Franzese, director of Good World Solutions, described how workers are surveyed through their cell phones (so far in India and Peru) on real-time working and living conditions (Cisco donates to this organization). Catherine Benoit, VP Social Responsibility at New Earth, is using her academic research (22 social themes and 113 metrics) to dispel the myth that economic development fosters social development. “Now after about 70 years, we know that this is not the case. Economic development doesn’t happen without social development—fostering thriving and well-being.”

I gave two solutions: (1) manufacture products close to customers — to reduce risk, get to market faster, reduce carbon emissions, and connect workers to markets, and (2) design products for reduce, reuse, and certified responsible recycling, to reduce costs, extract fewer conflict or rare-earth minerals, reduce power requirements, and create safe conditions for recycling workers.

Have you (or your company) found ways to stay connected to the people who make your products? If you have thoughts on how the electronics industry can increase worker safety and dignity, share them here.

Example of data center designed with sustainability in mind

Applying a sustainability lens to business has resulted in strange bedfellows: the Facilities and IT departments. These two groups have not traditionally worked together, but more and more, they find themselves in the same meetings with a need to collaborate, especially as tight budgets require coordinated efforts to save energy and optimize usage of capital.

The relationship between Facilities and IT is at an early stage. Facilities folks leverage their IT colleagues when learning to use automated systems with IP connectivity and dashboard control for energy and water consumption, and the LEED certification system has required taking a holistic view of building management. On the IT side, some folks remain attached to maximizing equipment up-time before even considering efficiency, but mandates for cost and carbon reductions have raised IT managers’ awareness about reducing power and cooling.

The story of the “convergence” of facilities and IT could be told from the IT side. IT is becoming a driver of business operations through its integration of analytics and control into convenient dashboards. And the sophistication of most IT industry platforms far surpasses that of building automation software. IBM has partnered with Johnson Controls to market a “Smart Building Solution” (initially targeted at the government and education sectors). It seems natural that IT would move to incorporate facilities into its portfolio.

But not so fast – experience shows that the marriage between facilities and IT is more complex than a simple takeover by IT. During 2011, Cisco, Microsoft, and Google all exited the building management market. And from the facilities side, Schenider Electric acquired Viridity’s EnergyCenter 2.0 platform.

Why are the supposedly less-tech-savvy facilities groups leading the integration of IT into building management despite the greater skill and financial resources of the IT group? There are likely a number of reasons. Here are two key ones:

1. People. The facilities department has always worked with the human factor – buildings are kept warm, well-lit, and comfortable so that the people who work in them are happier as well as more productive. The hard analytics of many IT solutions do not as readily account for humans – and data centers are not exactly optimized for people, either.
2. Top-level control. Many office buildings house a number of businesses who lease the space. In such situations, the highest level of integration occurs with the building owner, who then works with the various businesses, including their individual facilities and IT departments. Software providers take note: this is where the bulk of the market lies for those selling software solutions that integrate facilities and data center management – they will need their products to be understandable by building owners before data center managers.

In the world of sustainability and energy efficiency, both facilities managers and IT managers are critical, with the former playing a surprisingly key role in the adoption of new technology platforms.

How is it at your organization? What contributions have Facilities and IT made in your efficiency efforts, and to what degree do they collaborate toward common solutions? Post a comment.

SIPLACE machines similar to those in Zollner's new Silicon Valley location

Thus far we’ve conducted the exercise with 10 CEOs and other senior executives at contract manufacturers and OEMs who outsource manufacturing. We’ve found that their top priorities are (1) improving life cycle processes, (2) being proactive during economic uncertainty, and (3) staying on top of compliance. Note: For the exercise, we define “sustainable profitability” as maximizing revenues, reducing expenses, and benefiting employees, customers, the environment, and society at large. (And during the exercise we even tie into the equation the executives’ all-important personal goals and check the synergies with corporate goals, but more on those insights later.)

To improve life cycle processes (from new-product introduction to manufacturing, distribution, and products’ “end of life,”) the CEOs are seeking to discover best practices — and then make high-ROI investments in robust/updated software, capital equipment, and training. One contract manufacturer CEO identified a priority to “hone all processes that efficiently benefit growth and available capital.” Challenges to overcome in 2012 include “not always knowing the ideal processes,” and the ever-present “time and money.” This CEO will likely need to invest in software, training, and perhaps equipment that meet his ROI targets.

The executives’ strategies for succeeding during economic uncertainty include improving (sometimes centralizing) sales efforts, winning back lost business/market share, reducing costs, honing their marketing/brand, and increasing competitiveness through certifications/compliance, new facilities, better equipment, technology, and training. Three of the supplier CEOs’ growth strategies are working so well that their companies are adding new buildings — along with equipment — in their existing North American locations. A Sr. VP of Operations that deploys contract manufacturers plans for his company’s growth by “optimally building the company for scale: people, process, and policy infrastructure.”

To stay on top of compliance (e.g., conflict minerals, RoHS recast, REACH, Transparency in Supply Chains Act), initiatives for new processes and information tools were listed. One name-brand electronics client said the first step to gaining budget approval for these priorities is to “better socialize compliance issues with executive teams.” Another identified “Prepare for Supplier Transparency Act” as a key priority.

Think of our prediction for 2012 success for electronics suppliers not as a guaranty, but as a challenge: to develop strategic solutions demonstrating quantitatively attractive ROI as executives improve processes, grow revenues, and comply profitably. Good luck!

ROHS Recast: June 8th’s Directive 2011/65/EU, otherwise known as RoHS Recast, has fundamentally changed the “due diligence” requirements necessary to support proof of RoHS compliance.

Our take: We see this as a mostly positive change: closing some loopholes and clarifying product categories covered. Ken Stanwick of TFI partner-firm Design Chain Associates says, “This was a very significant and positive step for our industry and the environment. With the addition of CE marking there will be harmonized requirements, consistent inspection and enforcement actions across the 27 EU member states and the EEA.”

Fukushima Disaster: March 11th’s Japan earthquake, tsunami, and nuclear disaster and its detriments to the environment, human health, electronics manufacturing in the region, and the subsequent supply-chain disruption globally.

Our take: Aside from the devastation wreaked on the country and economy, the Fukushima disaster highlighted a supply chain sustainability issue: electronics companies need to do a better job of knowing where their parts come from. As we posted days after the catastrophe, supply chain disruptions can be shortest when managers immediately know the source of their components / materials and take swift back-up action.

“Social” Supply Chain Legislation: California’s Transparency in Supply Chains Act becomes effective Jan 1, 2012, and in 2011 tech (and other industry) manufacturers and retailers—at least those who knew about this new anti-slavery law—have had to prepare for compliance. Kudos to TFI client Tellabs for preparing early for this SB 657 and addressing it head on.)

Our take: SB 657 is an earnest attempt to raise consumers’ awareness about human trafficking and slavery used to produce materials we buy. One of my favorite all time quotes is “It is not upon you to complete the task, but neither are you free to desist from it” (Pirkei Avot). (Here’s a helpful interview on what companies are affected by SB 657.) Another reason why it’s good to be aware of your supply chain—this act might be a harbinger of more “social” sustainability legislation to come.

Sustainable Companies Attract Investors: In August the Univ. of Michigan and Tulane Univ. published Environmental Disclosure: Evidence from Newsweek’s Green Companies Rankings, pointing to shareholder value gain for high-ranking companies.

Our take: Though the shareholder gain is modest, it does indicate preferences for investing in more sustainable companies. It makes sense, too: having an effective, performance-driven sustainability plan is the hallmark of a successful organization. In today’s competitive environment, this kind of boost can mean a lot—and that’s good news for sustainability.

What do you think are the top sustainability stories of 2011?

By now, the benefits of social media for B2C marketing are clear — fostering intense brand loyalty, gaining valuable customer insights, and generating buzz. But in B2B marketing, particularly for electronics manufacturers supporting brand-name customers, it’s been more of a puzzle. What does social media have to offer component distributors, solder-paste makers, and contract manufacturers? Read on — if you look beyond viral videos, Facebook contests, and celebrity Tweets, the answer is “plenty.”

Today companies as varied as Newark, Indium, Creation Technologies, and Brocade are using social media to expand their networks and influence, troubleshoot product and process issues, serve customers, recruit employees and partners, attract business, and support positive brand awareness.

Online communities have been highly successful social media channels in the electronics industry, with LinkedIn seeing an explosion of company profiles and professional groups (like IEEE). TFI’s recent study on electronic design engineers found that online communities serve an important role in helping engineers to source and evaluate components. Companies that foster these communities see a positive return. Component distributor Newark’s element14 is a case in point — since launching element14 in 2009, their site engagement (a key metric that can include user activity such as posts, replies, and time on site) increased 47%.

Solder-manufacturer Indium Corporation’s blog shows another way of establishing credibility and effective customer outreach. With experts blogging on an array of topics, they attract a wide range of potential customers to their website. As Indium Product Manager Tim Jensen says, “We have a lot of customized products for which there may be only 3 or 4 people seeking a particular configuration. Social media fosters different sets of information; so when a customer looks for a wacky application, they may find us. Without social networking tools, that customer would never come in contact with us.”

More companies are discovering that this type of targeted outreach holds greater potential for profitability than traditional marketing channels such as advertising and trade shows. Janelle Urchenko, Marketing and Special Projects Manager at mid-sized EMS Creation Technologies says, “We’re embracing the possibilities of building relationships through avenues like our Twitter and LinkedIn accounts, as well as the upcoming launch of our company blog.” She appreciates support from the top for this initiative: Creation’s CEO Arthur Tymos launched his own blog in early 2011.

B2B OEMs have seen this coming for a long time. Brocade hosts a robust social media site with successful Twitter feeds, Facebook pages, blogs, online forums and more. Senior Manager of Corporate Affairs Jeff Rangel says about Twitter alone, “…with thousands of followers on Twitter, it has been a valuable vehicle in sharing ideas and directing stakeholders to additional resources such as the company Blog, Facebook, and more.” He adds “As a suite of tools, social media platforms are a must do.”

This is not to say that you should ditch trade shows or any other traditional marketing channels completely. Most people we’ve talked to see social media as a great adjunct but not a full substitute for traditional marketing. And keep in mind if you’re fostering an open forum for discussion, you’ll need to invest in monitoring it.

Think about your audience — do they need a trustworthy forum for sharing issues and ideas (LinkedIn and other online communities)? Timely updates on urgent industry or product issues (Twitter)? A place to get empathy for industry issues (Twitter, Facebook, and online forums)?

What are your thoughts on social media for the electronics manufacturing industry? What do you think is effective and what not so effective? Post a comment.

Why are so many tech companies taken by surprise? A few of our contacts outside California and in Europe told us that at first they didn’t think the law applied to their companies, then just recently their legal departments determined it did. For others, they’ve been so focused on product content (removing hazardous substances) that they hadn’t widened their view to other supply-chain issues such as slavery and human trafficking.

Electronics manufacturers and retailers that meet the minimum size will have to abide by these elements of the law: evaluating product supply chains to determine and address risks of human trafficking and slavery, auditing suppliers (disclosing if audits are not conducted by third-parties), training supply-chain management and employees, and establishing policies, procedures, and accountability.

Former Governor Schwartzenegger signed California State Bill 657 into law in 2010, saying, “Human trafficking is a terrible crime that goes against basic human rights and everything our country stands for. I am proud that in California, we have enacted some of the toughest laws to punish human traffickers and protect their victims. This legislation will increase transparency, allow consumers to make better, more informed choices, and motivate businesses to ensure humane practices through the supply chain.”

We predict that other regions will follow California’s lead.

What do you think? Is this approach part of the answer to bring to an end slavery and human trafficking? If not, what alternative approaches would work better? Post a comment.

Q. Why have I heard so much about contracting of software development and help lines in India but not electronics contract manufacturing?
A. You are not alone. Electronics CMs in India number a fraction of the non-hardware contractors; in part due to a more difficult infrastructure for moving physical components and finished products into, around, and out of India. One reason the Indian CM industry is smaller, and therefore less visible, is that Indian policy early on focused on textiles, diamonds, and pharmaceuticals instead of electronics exports. Back then the public sector consumed most of the electronics and lacked motivation to innovate and reduce costs.

Q. How do labor rates and economic growth in India compare with China?
A. With appreciation in the Chinese yuan and increasing salaries in China, India is becoming a more lucrative option for electronic assemblies. Amit Mittal at India-CM MKM Technologies Pvt. Ltd. reports that monthly salaries in India for semi-skilled electronics-assembly workers average US$200, and $300 for skilled workers; he says that salaries in Shenzhen, China, can be as high as US$400 to $550 (mkm@mkmtech.com). TFI Chief Economist Matt Chanoff points to an Ernst & Young forecast that by 2013 the Indian economy will be growing slightly faster than the Chinese economy. Much of this growth is fueled by manufacturing, according to a OECD report, citing government reforms, low inflation, resolution of the infrastructure bottlenecks noted above, and other factors.

Q. What about environmental responsibility in India?
A. Leading Indian electronics companies have implemented efficient manufacturing processes, recycling, waste management programs, and resource efficiency in buildings. Because of intense traffic congestion in cities such as Bangalore, tech companies are using creative ways to reduce employee commutes — which also benefits the environment. TFI Environment consultants have been impressed with the Lean and Green commitment coming from employees at clients’ India locations.

Q. And safety?
A. Though the 1984 Bhopal Gas Tragedy will never be forgotten, in the tech industry worker treatment is generally better in India than in China. An exception is that last year 250 Foxconn employees in Chennai were poisoned by pesticide. These incidents are not widespread, however; for example, GreenTech has trained Indian companies in worker and environmental safety since 1999. The greater issue is the treatment of Indian citizens working in neighboring countries such as Malaysia, but improvements are being discussed.

Q. Which electronic products do India-based CMs make?
A. Nearly all categories of electronic equipment (automotive, communications, consumer, industrial, instrumentation, and military/aerospace) are made in India by dozens of indigenous mid-sized and smaller companies. For example, MKM Technologies, an ISO 9001: 2008 certified company with sites in New Delhi and Jammu, manufactures electronic products in the automotive, telecommunication, air-conditioning, LED lighting, process automation, industrial controls, and power supplies segments.

Q. For which regions do the Indian companies manufacture electronics?
A. Again — a broad range: North America, Europe, Japan, Brazil, Middle East, and local customers in India. For example, Nokia mobile phones are manufactured in India (along with other global locations) for exports worldwide.

Q. I have never seen a “Made in India” label, other than on clothing and other goods. Why isn’t the Indian electronics manufacturing industry better publicized?
A. Indian CMs typically have small marketing budgets; it’s an uphill battle for them to shine alongside the much bigger, better-known Indian software / services industry. This may change as more and more multinational CMs are locating in India.

What additional questions (or answers) would you like to share?

When asked the right questions, executives can identify and prioritize initiatives that yield corporate profitability and also well-being for employees, suppliers’ employees, and the environment. Having a roadmap that spans the next 12 months to ten years, our clients report feelings of confidence and enthusiasm about accomplishing these goals.

This week, a general manager at a USA-based contract manufacturer set and prioritized initiatives with us, and was surprised to discover that his most important and urgent business initiative also had numerous corporate responsibility benefits. With this realization, we could witness how some of the weight he was bearing regarding this business challenge lightened. Now he can consciously further the business, employee, and environmental benefits of this daunting initiative in an integrated way, and in the process of doing so inspire others.

Another executive, Joe Zaccari, who heads up Strategic Partnerships at prototype-house Screaming Circuits, said that prioritizing initiatives for profitable sustainability “could make a real difference for a company’s future. I came away feeling positive and motivated about what I’m doing.”

Finally, prioritizing initiatives for sustainable profitability should incorporate executives’ personal and career goals. Executives are people, first and foremost, and to ignore or subjugate the effect of their own values and dreams is to undermine long-term efficacy at work.

We have found that the Sustainable Profitability Exercise―our year-end gift to TFI’s clients―takes as little as 30 to 60 minutes and produces surprises, confidence, and an actionable roadmap.

How about you? Do 2012 and the years beyond look muddled or clear regarding prioritizing and executing on strategic steps toward sustaining your company’s profitability and sustaining the well-being of your employees, suppliers, and the environment?

Few brand-owner companies (OEMs) enjoy the influence of industry giants like HP, Ericsson, or Sony, who can easily convince their large manufacturing suppliers to try something new. Most of our OEM clients are in the mid-size range, where normally it’s a struggle to get large suppliers to accelerate time to market, reduce cost of goods sold, and soften risks through innovative new practices. We recommend these steps for operations executives to maximize their muscle with larger manufacturing suppliers:

(1) Avoid choosing manufacturing suppliers whose revenues exceed twice your revenues. You’re more likely to get prioritized attention. But find the right balance – it’s risky to depend on a contract manufacturer for whom your products account for >30% of their revenues.

(2) As an alternative to using large Original Design Manufacturers (ODMs), choose a local design firm and contract manufacturer who work well together. If you don’t know design firms that specialize in your area, ask TFI. In fact, many smaller CMs are adding design services to provide a design-through-manufacturing solution for OEM customers.

(3) If you must use a large ODM, use creative measures to reserve more of its bandwidth. My colleague Dave Kichar describes a time that he inherited an OEM company model that was stuck using ODMs in Taiwan (because of the design), and managed to overcome being a small fish in big pond. “It used to be that I had to fly over there and sit on the factory floor to see that our products were shipped,” Dave says. Then he sought out what made the ODM tick. He proposed to have his company’s products manufactured the first month of each quarter — to avoid larger customers’ end-of-quarter crunch, negotiated for extended payment terms, and got his CEO’s approval to take product shipments each quarter’s first month. “Yes, it was a little bit of a risk,” says Dave, “but you can circumvent risk or at least soften the blow.”

Dave adds, “For many OEMs, the ODM model can be dangerous — you lose your leverage and there is a chance that your IP (or a close version of it) could spread out in other global markets.” But he notes the perks of creatively meeting the needs of the ODM. “By changing our strategy, the ODM was more open to working with us.”

On the Supply Side
Here’s a flip-side thought based on TFI’s experience serving both the OEM and contract manufacturers since 1987: Suppliers that cultivate relationships with small / midsize companies increase their opportunities and build their customer base. Having a strong base can protect the supplier from large customers’ “pull out’s” as well as get in with “rising stars” on the ground floor. Suppliers that take a chance on these prospectively big customers gain in the long run. Understanding the needs of both companies, and developing strategies together is a win for all – remember, HP, Ericsson, and Sony did not always have their current weight.

What have you tried to get gorilla-sized leverage with your manufacturing suppliers? Which of the above suggestions do you agree with or not?

The top three challenges during the design process are 1) Just not enough time, 2) Incomplete information, and 3) Difficult to compare options and alternatives.

To combat these challenges, engineers spend half their time looking for information and tools online — approaching 60% for engineers 35 and younger. As one engineer (who was, coincidentally, not in the younger set) told me, “Now that there’s the Internet, you just Google this and that. You don’t need the data books; I used to have shelves full before the Internet. Just Google things and it’s like magic half the time.”

Online forums are growing in popularity: 73% of the study’s web survey respondents reported that they visit forums, blogs, and engineering communities. More young engineers (66%) than older ones (35%) use these sites at least weekly. One young engineer in India told us, “I go to the forums if I can’t find technical information. I ask questions as well as read others’ answers. Many of the members reply to me, and the answers are reliable and useful.”

The four toughest types of information to get are 1) reference designs, 2) application notes / technical papers, 3) simulation models, and 4) component pricing and availability. As an Asia-based engineer said, “Example designs are sometimes restricted. Simulation models are also very difficult: you can’t download most of them because they are restricted.” Another explained, “App notes [are the hardest to get]. Also, on the software side, some of the detailed/esoteric tools — for example those that can help port data from 8-bit machine code to 32-bit higher-level language — are very difficult. It’s hard to get accurate information; companies have the information I need, but they are trying to sell me something.”

To me, the most interesting part of the study was design engineers’ unrestrained pleas for better ways to access the information they need. “I’d like to search by function of the component, or to a lesser degree by application,” said one engineer. “I don’t like application searches because they assume that only particular functional devices pertain to a given application, and it’s too restrictive of my ability to use my imagination and creativity. They might say ‘only this memory is appropriate for automotive.’ Instead, I’d like to see the parameters: size and type of memory, package type, cost, DRAM, SRAM, etc., with check boxes to select the parameters that I’m interested in. By searching for parameters, you can zero in on what you want.”

This type of thinking is where the supply chain begins. For more details on the study, check out TFI Supply Chain’s white paper, “Design with Efficiency.”

How do you think the design process can be streamlined? You are welcome to post a comment here, or join the dialog at element14 — produced by the study’s sponsor Premier Farnell.

A recent MIT Senseable City Lab project, BackTalk, placed small GPS devices in electronic waste (e-waste) to track where our discarded items go for recycling and disposal. The result was so surprising — uncovering such far distances traveled by the e-waste — that the project is currently exhibited in New York’s Museum of Modern Art. Given the high carbon footprint and cost of transportation, today’s e-waste recycling infrastructure could be taxing both profits and the environment. We at TFI think there may be a solution.

MIT’s team examined a concept they called the “removal chain.” One finding was that e-waste often moves via “convoluted” and inefficient paths to recycling centers. A blog in the New York Times stated: “According to Carlo Ratti, director of the Senseable City Lab, the mapping raised some serious questions about the usefulness and net environmental impact of recycling certain electronics.”
Excessive shipping activity is waste, ironically consuming resources for the purpose of recycling physical waste. The most egregious example from MIT showed junk cell phones moving from the Seattle Area all the way to Florida for processing.

We believe that the configuration of the current recycling marketplace causes most of this wasted transportation. As e-waste is sorted into various streams, it is routed to whichever company or region provides the cheapest processing/highest payout to the recycler — or to the few facilities that are certified to process an item. For example, the MIT project noted that only 13 facilities in the world are certified to smelt down and recycle the cathode ray tubes of old television sets, and all are in Asia.

This got us at TFI thinking about how to make the system work better. Beyond the obvious answers of reducing consumption (more virtualization anyone?) and re-using obsolete devices for other purposes, moving recycling activity closer to the origins of the waste streams would help substantially.

One possible way to “move” processing closer to demand would be to trade recycling credits between service providers using an arrangement like tolling. Tolling agreements are the system currently used in the refining and industrial gas industries allowing the trading of credits for the transport/processing/conversion/delivery of various products. This allows the most efficient provider to make or deliver the product regardless of who owns the contract with the customer.

Applying tolling agreements to e-waste recycling services would enable companies to swap capacity where demand is high by exchanging credits, potentially saving costs and the environment in the process. Recyclers would trade capacity with each other, allowing the closest facilities to handle demand in each region.

What do you think?

– Would this new arrangement allow for more efficient e-waste logistics?
– What issues might exist with this plan?

Would you like to talk with us further about this topic? We’re interested in hearing from you.

Change #1: Supply-chain disruptions are costlier than ever. Connect the dots of product delays owing to recent natural disasters: volcanic ash over Europe; tsunami/nuclear catastrophe in Japan; earthquakes (such as in Taiwan and California — perhaps even the USA East Coast?); hurricanes; and more. Have you noticed that customers want their products regardless?
Strategy: If you do not yet have an emergency preparedness plan, create a good one as soon as possible. Many best practices for mitigating the likelihood and degree of production delays are available, so you don’t need to start from scratch. Single-facility manufacturers can find like-minded peers for emergency product transfers, and multi-facility manufacturers can use smart, pre-determined intra-company transfers.
Time to Execute: 6 months.

Change #2: Customers want everything online. They conduct their personal business online, and expect their suppliers to follow suit.
Strategy: Scrutinize each business process according to what can be requested and reported online. This goes beyond quotes and billing, which hopefully by now are paperless. Consider online design advice from designers around the globe; order-online prototype services, speeding time to market; first article examination by videoconferencing, for immediate group input and travel reduction; web-based cost-reduction calculators, for a variety of design, manufacturing, and logistics options; and full product lifecycle tracking, from materials through end of life. For some functions, try thinking “apps.”
Time to Execute: 9 months.

Change #3: Nobody wants to travel anymore. Even those business people who are enamored with flying all over have had their travel budgets sliced.
Strategy: Provide just the right services — design, supply chain, NPI, manufacturing, test, logistics, repair, reuse/recycling — in just the right geographies, according to customers’ levels of convenience and comfort/trust. Survey your customers to determine the most economical and desirable locations for each process and service; you may even uncover some additional services to offer customers.
Time to Execute: 6 months strategy development, 18 months implementation.

Change #4: People now care what is in their electronics. –No, not as much as what’s in their food, but corporate buyers and consumers alike are getting increasingly educated and concerned, and this affects their purchasing decisions.
Strategy: You may as well get a good start on ascertaining and disclosing every substance in the products you manufacture, because this is what corporate customers, consumers, and regulators will demand.
Time to Execute: 2-3 years.

What other changes and longer-term strategies would you add to the list?

Whenever a product has to be packaged, new materials enter the supply chain stream. Often times in the electronics industry, these materials are plastics, and usually, the most toxic types of plastics – namely polystyrene. But what are the alternatives? Are there any that electronics companies can responsibly use?

Polystyrene (Styrofoam in peanuts or form-fitting blocks, otherwise known as PS) makes up the bulk of commonly used packaging material for electronics. Electronics are often packaged with PS due to their fragility. Unfortunately PS is difficult and inefficient to recycle, and breaks down to highly toxic materials – and is a big contributor to the 25-30% of our landfill volume that is already clogged by plastics. However, there are alternatives to polystyrene that can provide similar protection without the harmful environmental impact of PS.

One alternative is mushroom based packaging. Made of mushroom roots and agricultural waste, it can be grown into a mold of any shape (a main reason for using polystyrene now). This technology isn’t just a pipe dream; Dell started using it to ship its servers in the spring of 2011. Other creative packaging opportunities are also out there. By shipping computer notebooks in their own messenger bags, HP was able to reduce its packaging by 97%.

Do companies need to entirely eradicate plastics from their packaging like the two previous examples? No, but using less harmful plastics, and less of it, is a start. Air filled cushions provide protection in which air, the most sustainable material of all, is used. The air filled cushions are sometimes made with biodegradable materials, or if not, with low density polyethylene, a less harmful plastic. These options are more sustainable than traditional “bubble wrap,” which has a much higher content of plastic per volume of air, and therefore a higher amount of plastics going to landfill. For other ideas on plastics alternatives in design and packaging, check out our recent article on Design for Environment (DfE) considerations for plastics.

Finding alternatives to PS packaging has become critical. The modern supply chain has more stages than ever, with different packaging accruing in each step. Relying on non-recyclables such as polystyrene for all that packaging is a mistake with far-reaching consequences.

If we were designing from the ground up now, we would never use polystyrene given what we know about it, so isn’t it time to rethink? What other successes in alternative packaging can we achieve – or what is stopping us? Join the discussion and post a comment below the blog.

If you work for a North American or European OEM that is outsourcing electronics manufacturing to China, I’d like to know your experience of the China-based contract manufacturer’s ability to provide engineering support from final product design through full production. Or if you offer new-product engineering services in China (you work for a contract manufacturer), let’s chat. First, some background.

For decades, electronic-product companies’ executives (OEMs) have been re-evaluating and identifying their core competencies in an effort to be more efficient and profitable. This exercise has led executives throughout North America and Europe to outsource more and more functions related to their products—from parts procurement to full production, testing, logistics, repair/warranty, and even reuse/recycling. When OEMs outsource to Original Design Manufacturers, the ODM supplier even provides product design.

But there’s one area that is more art than science, and more communications than “just execute it” – the steps from the time the product has been designed until it’s in full production. It’s during this stage that language and cultural barriers, and lack of “let me come over and look at it” can prolong new-product introduction and/or insert problems that are costly to solve from a great distance.

Our current study will evaluate China-based outsourcing for post-design engineering services until full production. We will look at opportunities, challenges, and the “why or why not” of outsourcing this stage. I am interviewing both OEM and contract manufacturing (EMS and ODM) companies to determine the most effective solutions.

How can you benefit from being interviewed? We will send you a complimentary summary of our findings, and be available to discuss the issues with you.

So, please let me know if you have experience in this area and if I may interview you in the next couple of weeks. Write to me at AFeith@TechForecasters.com, specifying when is a good time to reach you. We value your experience!

(1) Challenge: “Our executives value regulatory compliance, but don’t yet see business benefit of going beyond compliance.”
Strategies: Create a 5- or 10-year high-ROI sustainability roadmap that will grab any fiscally-minded executive’s attention. Point to customers’ beyond-compliance expectations, and to competitors’ sustainability success stories. Nearly all of our clients executing their sustainability roadmaps experience management changes that require re-deployment of this strategy; we’ve had to use these techniques multiple times — convincing new executives and teams.

(2) Challenge: “These goals aren’t feasible at our company.”
Strategies: Address objections with good research — both internally and externally. Conduct internal interviews, such as on how employees have successfully reduced business travel while closing sales, avoided the need to use paper, and telecommuted to boost productivity. For the external research, investigate your competitors’ Lean and Green attributes and how they achieved them.

(3) Challenge: “We have already reduced expenses as far as feasible.”
Strategies: Use a “green lens” for a completely different view of where and how to reduce costs, which today’s employees find to be motivational because it matches their values — not the traditional cost cutting methods that can feel punitive. Find more savings from employees’ ideas, such as our clients do through the Environmental Heroes program. One employee recently analyzed the significant cost-benefits of reducing paper-towel usage throughout the company; another suggested a product-package-reduction idea saving purchase, transport, and storage costs.

(4) Challenge: “We are trying to calculate the carbon footprint of our products and facilities, but have never done this before.”
Strategies: Leverage training for monetary and carbon calculations. Use affordable specialized tools, such as today’s more practical life cycle analysis (LCA) solutions. Then, enter the projected financial and environmental returns for each sustainability initiative on the 5- or 10-year roadmap.

(5) Challenge: “Now that we’ve created this initiative, we’re receiving ideas from employees who are urging us to go further.”
Strategies: This is a good “problem” to have. Calculate the ROI of the ideas submitted and go with the best ones for profit and planet. To avoid turning away employees with passionate ideas for your company’s sustainability programs, designate both core and extended team members, with annual (renewable when appropriate) terms.

(On Tuesday July 19th from noon to 1:00pm Pacific Time, you can learn more about these five challenges, along with ten success factors, by participating in a webinar featuring Rajat Srivastava (VP at Blue Coat Systems) and me; the webinar is sponsored by the National Pollution Prevention Roundtable.)

What challenges has your company faced as it attempts to meet its sustainability goals? What have you tried?

In the current economy, US manufacturing companies are under unprecedented pressure to reduce cost and remain competitive. Top line growth is a standard strategic activity; cost reduction is now viewed as a top priority strategic activity too. For years, OEMs and large CMs defined and executed low cost sourcing strategies to provide customer options. Now, OEMs and fierce competitors are pressuring executives at smaller CMs to offer low-cost manufacturing facilities. Under this intense pressure, small companies are exploring the possibilities of expanding into China to appease OEM customers. But, as you’ll see, starting an operation in China involves more than just buying equipment and hanging a sign.

For small to mid-sized CMs with limited management bandwidth and experience, starting a China operation can be a risky move. To give you an idea of the effort required: in my role as VP Operations for a $160M OEM, I oversaw the outsourcing of a key product to Asia with a CM partner. The resources required to support this endeavor were immense. Two thirds of our manufacturing engineers spent months on-site in Asia preparing our partner for the start up and launch. Setting up all aspects of the launch with our partner required on-site involvement of our key purchasing, quality and Manufacturing Engineer (ME) resources. They also trained operators and supported ramp up during New Product Introduction (NPI) and full production. I personally visited monthly for over a year to develop the relationship and ensure full attention to the product.

This level of effort may explain why I’ve seen many small to mid-sized CMs set up partnerships and make a go of China, only to retrench and focus on Mexico instead. Developing a China presence brings 24×7 responsibilities and communications challenges. In many cases, you may even need a new team to oversee logistics, inventory, sales & operations, supply chain, quality and other critical concerns that need to be addressed first-hand.

In order to minimize the risks stated above, a small CM could begin its journey down a low cost path in the US. Over the past decades, smaller companies in the electronics space have also made the transition to Mexico. These evolutionary steps enable many smaller CMs and their suppliers to acquire, set up and partner to offer low cost operations. Now many are exploring assembly in China likewise through acquisition, green field, or partnership.

Making a commitment to a China strategy is a make or break decision for a small to mid-sized CM. Customers may insist upon this for cost, but if it impacts your ability to deliver quality products on time and to turn on a dime it is not a wise move. If you do decide on a China strategy, mitigation plans and close partnerships are required. It’s not a ‘just add water’ solution. For small CMs, starting with a Mexico operation could be a better alternative.

What experiences have you had with such choices? If you work for or with small CM, what have you experienced?

Your corporate customers have good reasons – ranging from market pressures to operational costs — to approach sustainability more strategically. If you adopt their approach, you’ll soon be walking on solid land.

It’s easy to feel dragged down by on-going regulatory changes: The European Union environmental directives RoHS (reducing hazardous substances in electronics) and WEEE (collecting and treating waste from electronic/electrical products) are being recast, the REACH regulation is restricting more substances annually, exemptions are expiring, laws are covering more electronic-product categories, and disparate global geographies are introducing new regulations. Addressing these myriad regulations is challenging — not only for getting products compliant, but also for having them stay compliant.

Conversely, market leaders’ expectations of their suppliers cover broader classes of improvements — including regulatory compliance, of course, but also emphasizing company-wide carbon-emission reduction reporting, responsible selection and management of manufacturing suppliers, and certification to global (beyond-compliance) standards. Organizing your company around these more strategic initiatives can help you substantially reduce the fire-drills that arise from reacting to each and every regulatory change.

Customers expect nothing less of suppliers sustainability-wise than what they are accomplishing themselves. If anything, customers are looking to their suppliers to boost their own competitive rating on the sustainability scale.

Here is what works for our clients: We rate the environmental sustainability accomplishments and goals for their largest corporate customers. This way, our clients can match their own environmental gains–in products and operations–to corporate customers’ specific sustainability goals, resulting in competitive advantage. Another benefit of this customer-is-always-right exercise is convincing any executive skeptic that environmental responsibility is directly good for business.

Let’s say that you work for a market-leader corporate customer, and you are faced with a choice of buying equally performing electronic products or manufacturing services. In this scenario, one supplier uses general language describing the company’s environmental and social responsibility. The other supplier ticks off numerous features of their products that will measurably address your company’s own carbon-reduction and/or zero-waste-to-landfill goals, and describes specific operational efficiencies and employee/supplier responsibility that meet or exceed your company’s specific expectations. The second supplier had already analyzed your company’s sustainability goals and successfully matched their sustainability accomplishments to your goals.

Are you fluent in your corporate customers’ sustainability goals? If your company is relatively small, do you think it is wise nonetheless to try to peg your sustainability roadmap to customer expectations?

Before 1985, all of these design-through-manufacturing stages were squarely positioned at the OEMs’ facilities: product concept, electrical and mechanical design, prototype, parts procurement, full production, test, order processing, logistics, and service/warranty. During the years since, nearly every stage has been delegated to electronics manufacturing services (EMS), then to original design manufacturing (ODM) companies. (For the full story, see the Keynote Presentation I gave on “EMS and ODM Vital Roles in Customer’s Sustainability Roadmaps” at the IERCE last week.) This delegation means that contract manufacturers now have an unprecedented level of influence on their OEM customers’ environmental sustainability programs. Today, it’s the contract manufacturers who can help or hinder numerous aspects of OEMs’ 5-year environmental roadmaps (see slide 14 of the Keynote).

For example, savvy ODMs can accelerate design-for-environment of products by proactively managing and reducing hazardous substances, increasing power efficiency, and shrinking package materials. Or they can bog down OEMs’ attempts to be competitive environmentally, by refusing to share product-content information and insisting on old-school logistics arrangements that cost more carbon. Even by insisting on customer travel to cross-ocean facilities, suppliers can thwart OEMs’ travel-reduction initiatives.

If you work for an OEM, does your contract manufacturer have a frightening amount of control over your ability to execute your sustainability roadmap? If you work for a contract manufacturer, are you confident that your senior executives fully realize their competitive position to support and embed themselves into OEMs’ sustainability long-term roadmaps? I invite you to post a comment.

This week TFI released a White Paper comparing and contrasting R2 and e-Stewards — two standards for electronics recycling. I encourage you to share this article with management, suppliers, customers, colleagues, and friends to make informed decisions about the standards that are right for themselves and their organizations. (Many thanks to my two co-contributors on the White Paper Kim Holmes (advocating for R2) and Barbara Kyle (advocating for e-Stewards), and to Electronic Waste Journal for publishing it, along with a summary.)

Read the white paper and comment below — do you think these two (and perhaps other) parallel standards will remain respected and espoused by their stakeholders, or will a harmonized standard develop and be embraced globally?

On another note – one standard that any proponent of responsible electronics recycling can support is that electronics be designed with economical reuse, refurbishment, disassembly, and recycling in mind. These — along with eliminating toxic substances and “dematerializing” hardware — are principles of “Design for Environment.” Consider attending next Wednesday’s Design for Environment Workshop I’m giving at the International Electronics Recycling Conference and Expo to begin to learn or reinforce your understanding of DfE for electronic products. This two-hour workshop is based on TFI’s full-day DfE Workshop at clients’ sites — training dozens of designers and supply-chain managers with hands-on exercises. I hope to see you there!

Cloud computing and virtualization technologies are hot on Wall Street, and gaining ground on Main Street. But what are the supply-chain implications of these trends? And what could they mean for your company?

It’s easy to understand why these concepts are so appealing. Eliminating local infrastructure yields significant savings in capital investment, and reduces the need to maintain and manage physical on-site computing resources. A recent Gartner forecast predicted a growth rate of 16.2% in sales of enterprise “software as a service” applications during 2011.

The first impact of Cloud computing on the supply chain is that the Cloud’s efficiencies reduce the physical goods required. It enables resource sharing across customers; using capacity more effectively because shared resources can more efficiently handle peaks. On-premise hardware by contrast, is composed of fixed resources built to accommodate an individual customer’s peak demand.

Another impact is reduced shipping of hardware: In 2010, the US imported over $55 billion in computer hardware worldwide, with $39 billion from China, and $11 billion from Mexico. Cloud computing has the potential to partially eliminate or at least greatly change the product mix of these imports. Think of the cost savings that accrue from not building and shipping all of this hardware. At an estimated 4% of sales, logistics costs for these items represent $2.2 billion in annual expenditures. Reducing the overall need for new computers by 30% would save nearly $700 million annually in logistics costs alone.

Beyond the supply chain, Cloud computing has another important benefit. Power consumption is greatly reduced compared to on-site models. Chris Thorman, writing for Software Advice, estimated that moving to software as a service could reduce power consumption by as much as 93%.

The lesson in all of this is that value delivery is not the same as product delivery. In fact, delivery as a service can actually be a far better value proposition for your customers.

The era of the physical product may be on the wane. What might the future look like? We are already seeing it in consumer products. A great example is the impact smart phone adoption has had on sales of GPS devices. Rather than buying hardware loaded with specialized databases and software, consumers are opting for smart phone-based navigation today. Mapping data resides on servers, and is downloaded to the phone as needed. Garmin, the recognized leader in GPS navigation, has responded by introducing iPhone and Android apps in response to plummeting sales of dedicated GPS devices.

What does this mean for your company?

– How much of the cost of your product is related to hardware? Software?

– Are there alternative ways to deliver value to your customers that don’t require hardware?

– Are you considering these options in your new product development plans?

– Finally, if you switched to service-based model from the current hardware-based model, what would your new business look like?

We’re interested in hearing from you. Please post a comment.