Technology Forecasters, Inc.
Strategic Environmental and Manufacturing Consulting
By Pamela Wiseman, TFI Senior Operations / Supply Chain Consultant
Now that the economy is reportedly on the upswing, manufacturers are readying to boost production in anticipation of seeing business pick up. But operations executives are experiencing a chicken-and-egg situation concerning their fragile supply chains.
They ask, “How and when do we dip our toe in the water and expand capacity, labor, and inventory?” We know that whoever acts first may have an edge, but those acting too fast will suffer from anemic cash flow. And whoever acts last will miss the window and lose critical advantage. So, how does one “read the tea leaves” with confidence about an upswing in orders, and boost operations accordingly?
Crossed signals about when orders will pick up
Operations executives wonder, will the industry build and ship product “like we used to” or are today’s off-balance supply-and-demand conditions creating a lasting tug-of-war? It’s understandable why they are perplexed. Last week I read a difficult-to- believe study suggesting that 1 in 4 manufacturers felt no impact of the recession (I don’t know any of these manufacturers; do you?). The next article I read noted that unemployment rose in December in 43 USA states. I am an optimist, but even I am still compelled to be neutral at best about the pace of the recovery.
Lengthened lead times
One major risk lies with lengthening lead times. If no one is holding inventory, are we really working in an environment of cold starts–starting from scratch? Suppliers, OEMs, distributors…none is holding inventory that isn’t supported by a commitment, if they can help it. And what about the service parts on which customers depend — 24-hour turn-around promised with stocking levels based on past consumption? How do we walk this tightrope when consumption has been at an all-time low and could turn on a dime any minute now? I wrestle with these decisions every day.
Over the past year, sales-and-operations planning (S&OP) processes have been battered. What is a demand forecast anyway, when there is little certainty behind potential bookings figures? Pull systems, build-to-order, vendor-managed inventory – how do our lean-materials management systems work when no one will carry inventory and the demand is so uncertain? Ultimately, clients ask this key question: “Should we switch manufacturing strategies to buy-and-build-to-order instead of driving material to an S&OP build plan? If we buy-to-order to conserve our cash for actual customer orders, will our lead times grow and cause us to lose these same potential orders to a more aggressive or cash-rich competitor?”
The Best Counsel for Now
In my 20 years of operations management experience, I haven’t experienced such a “perfect storm” as we have now. But it actually creates a window of opportunity to gain insight enabling more certain decisions.
I see only one real answer: customers, OEMs and suppliers all need to work together as a united supply chain, sharing information to reduce risk more than ever to get through this transition period and prepare to take maximum advantage of an increase in business. And the “perfect storm” actually gives us greater opportunity than ever to gain inter-supply-chain-partner cooperation. We’ve found that right now in the business cycle, the best externally focused tool is plain and simple – increasing the level of direct communication with customers and suppliers and listening carefully for the clues.
We start internally — by helping our clients discern: Do they have significant numbers of customers and suppliers both on credit hold? Are they rationing cash? Is it possible that they, our client companies, may be on credit hold with some suppliers? And we immediately assemble a senior-executive-driven, cross-functional (comprising Sales, Operations (Manufacturing, Supply Chain), and Marketing) internal forum to drive S&OP process, balance risk, and make optimal choices right now. Then, talk more openly than ever with customers and suppliers, who themselves are needing insight just as much or more than your company does.
How is your company coping with supply-chain uncertainty? Would you be more willing than usual to engage in frank, cross-company discussions to strengthen supply-chain predictability?
By Jonathan Gilbert, TFI Logistics Consultant
2009 is finally over
It’s hard to imagine that we have been in the downturn long enough now that year-on-year measures are actually starting to look good in the transport sector. While demand shrank, deep capacity cuts in nearly all modes helped to prop up pricing as we closed out 2009 and moved into 2010. Despite these cuts, carrier profits remain dismally low, and in some sectors, non-existent. Ocean freight has been a particularly difficult market.
Quoted in Logistics Management, Edward Zaninelli, VP Transpacific westbound trade for ocean carrier Orient Overseas Container Line, says that “Revenue is below cost in all trade lanes, and the recovery is just beginning.” Another recent article in the Journal of Commerce stated that “The world’s top 22 ocean container carriers lost some $11 billion in the first nine months of [2009].”
Service and reliability implications
TFI’s forecast is for slowly improving market conditions; we see shippers being generally more optimistic about 2010 volumes. We expect that the gradual strengthening of economic fundamentals will continue through 2010. Unfortunately, these modest gains may not be enough to prop up all service providers. Similar situations exist in the domestic truckload and less-than-truckload markets, as well as in international airfreight. Some of the weaker players may not survive through this year.
Faced with these difficult market conditions, ocean carriers are using “slow steaming” operations as a way to constrain capacity and reduce operating costs. Rather than idling ships outright, carriers are opting to run certain lanes at reduced speeds to save on fuel and reduce costs. Others are avoiding expensive transits of the Panama Canal by steaming around Cape Horn.
Slow steaming can reduce operating costs by as much as 5% to 7%, but the increased transit time, as much as 33% longer, may be problematic for time-sensitive shippers.
Bottlenecks forecast
Improving economic conditions could lead to bottlenecks in transportation as constrained capacity and carrier bankruptcies collide with growing demand. Spot market container rates are rising quickly in some lanes, reflecting this shift in supply and demand balance. In fact, small shortages in ocean liner capacity occurred in late 2009 just before the holidays, and we expect this to recur in January/early February 2010, driven by preparations for Chinese New Year factory shutdowns.
What to do next
Proactive shippers are carefully watching their carriers and aligning with strong, well-financed partners in all transport modes. Savvy buyers are making the best of bad market conditions and getting good pricing where possible, while still managing risk.
To avoid supply-chain interruptions, supply-chain managers should proactively review ocean transit times and communicate changes inside their organizations. Slower ocean transit times also call for reassessing the cost of capital for in-transit inventories and reviewing the total cost differential between airfreight and ocean shipping options.
Finally, supply-chain managers should actively analyze transportation-related risks and develop contingency plans to deal with service interruptions due to ongoing carrier financial stress and/or upticks in demand.
What are you doing to manage risk, control costs, and drive transportation innovation at your company? Let us know if you are curious how TFI’s experts help clients improve supply chains and better manage transportation.
Let’s face it: changing organizations can be hard work. People with better ideas for achieving results face not only personal resistance to change but also sometimes a sluggish organizational pace. In my experience, the most competitive strategy for improving processes is to leap-frog from the status quo to four-to-five levels beyond. Here are some examples — the first from an electronics manufacturing services (EMS) company and the second from a name-brand electronics company (OEM).
Celestica, in response to the Montreal Protocol phasing out ozone-depleting substances was the first electronics contract manufacturer to leap-frog from cleaning printed-circuit-board assemblies with CFC (ozone-depleting) solvents to the no-clean process. In doing so, Celestica leaped over the aqueous-cleaning technique requiring costly capital equipment, floor space and power for the equipment, labor hours, and disposal of heavy-metal water with permits and treatments. I interviewed the parties responsible for this change a few years afterward (for my book Lean and Green: Profit for Your Workplace and the Environment), and the smarts behind the leap-frog move were motivated by environmental conservation and competitive savings of time, cost, real estate, and more.
HP, anteing up for a package-reduction challenge by Walmart, did not do as most of its competitors did — incrementally or even substantively reducing the size and weight of the packaging surrounding the products. One HP employee had the idea to make the packaging part of the product itself. The notebook computers, cables, and accessories were packed in attractive over-the-shoulder “messenger” bags — three to a cardboard shipping box without any other packaging material. In one fell swoop, this leap-frog move resulted in 97% reduction of packaging, conservation of fuel, and reduction of CO2 emissions by removing the equivalent of one out of every four trucks previously needed to deliver the notebooks to Walmart and Sam’s Clubs around the USA.
I encourage you to take advantage of the New Year to use leap-frog thinking — in your companies’ manufacturing strategies, supply-chain and logistics designs, Lean programs, sustainability programs, and every other aspect of your workplaces. Make it easier for yourself! Raise up your company’s efficacy 4-5 steps at once instead of inching upward — facing organizational resistance to change each time. Leave the arduous step-by-step improvements to your competitors, who will arrive at the finish line much later and with far more cost.
Will you face more organizational resistance to this one leap-frog improvement than to a more routine change? Perhaps yes. But if you are like me, one of the reasons you get up in the morning and head to your desk is to make your organization and the world better places.
Do you want to try on some leap-frog ideas with the TFI and TFI Environment consultants and/or community (reply below)?
by Pamela Wiseman
Senior Operations / Supply Chain Consultant
It’s typical during challenging economic times for corporate executives to focus internally — especially on costs and cash. Many subscribe to a survival plan mandating full attention to internal metrics, to the extent that they are more willing to play tug-of-war with customers to cut inventory, slow payments to suppliers, and protect cash. Plus, the executives find it even more difficult than usual to predict customers’ moves, so they focus on the internal metrics they can control. This is the way to survive, right?
Wrong answer! Putting the customer at the forefront and satisfying their requirements should never take the backseat to singular attention on internal operational metrics. The latter is surely the path to decline and gives an advantage to competitors who keep a steady eye on pleasing the customer.
In the electronics manufacturing services (EMS) business especially, it’s important to reflect regularly on the fact customers are never 100% dependent on your services. Having managed outsourced manufacturing for electronics companies for 9 years, and now managing TFI Customer Retention for Business Growth programs, I have seen first hand the end result of EMS companies who were inwardly focused.
One time, at an instrumentation OEM, we were counting on the quarterly cost-reduction program that our new EMS highly advertised would deliver savings. Their “aggressive cost-down program” was one of the reasons we had chosen them. After not receiving any updates early in the relationship, we quickly learned that the EMS was really working from a Pareto of ALL customer material spend, and our parts did not make their top 10%. As a result we were quite dissappointed and needed to micromanage the situation ourselves to get attention for our account.
When dissatisfied, the customer can switch to another EMS or even bring the manufacturing back under their direct control in-house. The only reason customers use the supplier’s services is to add more value than they can produce internally. So if suppliers do not proactively view customers’ operational challenges as their own, the suppliers get off track and miss key intelligence that will benefit their own bottom line.
I advise EMS clients to take a look at how they are working with customers. Are they… (1) Proactively collecting and analyzing quality data? (2) Continually looking for purchased-part cost reductions and sharing benefit? (3) Suggesting design and process changes to reduce cost? (4) Reinventing themselves to deliver more value to customers? Or, instead, are the suppliers causing customers pain with parts shortages, average or worse-than-average costs on materials, delivery snafus, poor inventory management, and other sub-par results? Of course, the EMS needs to make a profit, but if they are truly adding value, the profits and increased market share will follow.
We would never encourage an EMS management team to accept a customer’s rules and conditions that would critically deplete the EMS company’s margins. One of my program managers showed me a Service Level Agreement that outlined the amount of forecast change that the EMS could support. We knew that the EMS would end up holding inventory and would eventually try to back out. So, we revised the agreement to be more of a win-win. It’s always best when the EMS and OEM can donate resources to a project team and build a sense of team spirit.
But I remind our EMS clients that their companies exist for one reason only: making customers more competitive and successful than they would be without them. Metrics should be aligned to eliminate debate. Strong open communication is key. Adding value, both strategically and tactically, and being proactive — soliciting feedback and suggesting where to team will — sets suppliers apart. EMS companies that strongly enable customers to reach higher levels of performance in quality, cost, and delivery for the benefit of their mutual ultimate end customer, can parry other EMS companies out of the way.
What have you done for customers lately?
You’d think that for-profit corporations’ chief financial officers might be the last ones to endorse company-wide strategies for reducing environment impact. Wrong.
When the CFO at furnishings company Herman Miller became the CEO, the director of Environment, Health, and Safety Paul Murray felt nervous. Murray had convinced the CFO to allocate $40,000/month to invest in resource efficiencies for the company. When Brian Walker moved from CFO to CEO, he asked to meet with Murray. At that point, Murray feared that a CFO-turned-CEO would nix the investment altogether. To Murray’s surprise and relief, Walker suggested increasing the monthly investment to $50,000! Walker explained that while he was CFO he witnessed that the return on investment (ROI) from the environmental investments was simply excellent. In fact, Herman Miller ($2 billion in revenues) not only makes smart investments to reduce its own environmental footprint, but also the company is a design-for-environment leader for office chairs (I’m sitting on one) and other furnishings, and – through subsidiary Convia, Inc. — helps to reduce energy consumption of customers’ buildings with energy-management tools. CEO Walker says, “Sustainability is becoming as prevalent in customer requirements as quality was 10 or 15 years ago, and we’re at the tipping point of this movement where our customers, at least, are no longer saying it’s nice to know you do it. It’s a requirement” (Industry Week, Sep. 2009, p. 24). By the way, 20% of Walker’s compensation is based on the company’s environmental performance.
Last month, a CFO-turned-CEO at a TFI electronics-company client reviewed the High-ROI Environmental Roadmap we had prepared in concert with a multifunctional green team. The roadmap listed a half-dozen Lean and Green initiatives along with their financial and environmental benefits (cost reductions, new revenue, carbon emission reductions, and less use of paper, water, and energy). From reviewing both the environmental and financial ROI, the CEO’s response was immediate: he said he’s one-hundred percent behind one-hundred percent of the projects as outlined.
Another high-tech company CFO (not yet a CEO!) uses his sharp focus on ROI to support his company’s environmental program, with this advice: Determine priorities for the environmental initiatives according to greatest reduction of environment impact and the highest monetary ROI. For example, if you had $500,000 to spend, what projects would you choose to most efficiently maximize the environmental and monetary savings? “It’s important to prioritize in this way,” he said, “because the environmental program could be one of 50 initiatives all fighting with each other for resources. List the overhead, capital, and expense investments separately. Get on the executive agenda and carve out the initiative — just like any other business function.” The CFO added that environmental programs – like training – need to be elevated to the executive level for planned investments, because they span all company departments; the executive staff needs to dedicate funding to be appropriated to the departmental budgets in a way in which the funds cannot be “cannibalized.”
So, if you are running (or starting) your company’s strategic environmental initiatives, don’t tippy-toe around your CFO. Enlist him or her in sharpening the ROI and advocating in the executive suites for these surprisingly large-return programs.
All CFOs (and other financially-minded) readers are welcome to weigh in. (Leave a reply at the bottom of the blog.)
The surprised look on the faces of a couple long-time members of the Quarterly Forum prompted me to post this entry.
Last week’s InForum for the Electronics Industry — formerly known as the Quarterly Forum for Electronics Industry Outsourcing and Supply Chain, which TFI started in 1999 – was well attended and full of insights. When a couple of long-time members independently asked me, “What are you up to these days?”, I updated them on TFI’s numerous international manufacturing, supply chain, and logistics research and consulting engagements, as well as our TFI Environment consulting practice.
Their polite surprise owed to their mistaken assumption that when I passed the Quarterly Forum onto Kathleen Geraghty and Douglas Kent’s capable hands, I had also passed along TFI’s consulting and research (not true – TFI divested only the Forum program). Though thankfully that erroneous assumption is not too widely spread – as evidenced by TFI’s thriving consulting and research this year – I would like to share with our readers some examples of TFI’s current consulting and research projects on operations/supply chain and manufacturing relationships:
• Customer Retention for Business Growth program, in which we are interviewing our clients’ corporate customers in Asia, North America, and Europe/Middle East. (Our international scope was bolstered by my working abroad in the past year.)
• Reliability benchmarking for networking equipment.
• Failure Modes, Effects and Criticality Analysis (FMECA) training.
• Manufacturing-overhead benchmarking for outsourcing networking/telecom equipment companies. (Let us interview you for this important study, which provides a complimentary summary for all qualified respondents; email AFeith@TechForecasters.com to see if your company qualifies and to schedule your interview.)
• Executive coaching for CEOs of electronics contract manufacturing companies, spanning corporate strategy, marketing, customer identification, and operations.
• Identifying and quantifying innovative markets for components and materials used in the electronics and other industries.
I am delighted to have recently added Pam Wiseman to our consulting team; she was VP Operations at one of our electronics-instrumentation clients for many years, and is proving to be an excellent leader on many of our projects.
It could be the increasing attention received by TFI Environment — an organization within TFI leading teams at OEM, EMS, and supplier companies to increase profits through competitive sustainability programs — played a part in confusing some folks about “what I’m up to.” It’s true that I am immensely enjoying the High-ROI Environmental Partnership program with a growing number of clients, backed by a talented team of TFI Environment consultants and analysts. But catch me on any day and I’ll espouse equal enthusiasm about all the ways we are supporting our clients – with operations/supply chain strategies and with profitable sustainability programs.
So, what have you been up to lately?
Increasing numbers of corporate customers are requesting that their network-equipment suppliers offer more power-efficient products. Of course they are — it saves them money in both electricity costs to power the systems and cooling costs to mitigate heat. Plus, consuming less electricity helps corporate customers to report to investor groups (such as the Carbon Disclosure Project) lower Scope 2 Greenhouse Gas Emissions.
And the networking industry has responded by using more efficient power supplies. But this is an incremental improvement. Significant market growth is available to companies disrupting the way that networking equipment consumes power through alternative designs and innovative power management.
So, this is a call-to-action for network-equipment designers everywhere, as well as to innovative software and parts suppliers serving the networking industry. Let’s discuss ways you’ve considered power reductions and together create a roadmap of likely alternatives for growing up while powering down the networking industry.
Here are some ideas to get us going, so we can discuss these approaches’ benefits from a Design-for-Environment (DfE) perspective and discuss any downsides of using these for standard product operation:
- Solid state drives
- Low Power Dual Quad Core processor and chip set
- A rack that can better manage power efficiency and have the power redundancy at the rack level rather than the system level
- Smart cooling: Fan-less, fewer variable speed fans, liquid cooling, or Pulsed Air Jet Cooling (liquid-cooled racks can reduce the amount of cooling required to keep the environment around the systems at around 25 degrees Celsius)
- Developing an idle mode for systems that currently run 24/7 — while still supporting customers applications and traffic
- Scalable or dynamic power supplies that monitor actual usage and only turns on the power needed
- Active power management with monitoring system vitals
- Use of ultra-capacitors instead of a Lithium button cell batteries
- Modular design for power supplies that grows with additional hardware
And to make our roadmap as Lean and Green as possible, we’ll discuss business questions such as…
- Under which circumstances or application does a power supply with a 90%-and-higher-efficiency rating provide enough savings over a standard 80+ power supply to justify the significantly higher investment cost?
- How do you convince your own company’s management to invest in more efficient designs / components (80+ GOLD power supplies, active power management, solid state drives, de-materialization, fan-less design, etc.) given that it’s the customer and not the OEM that saves money and carbon footprint?
- What are the affects of delivering systems with 1-2 dozen-drive capacity (and power ratings accordingly) initially populated with just a handful of drives from Design for Environment (DfE) perspective, and what alternate techniques can be used to minimize this impact?
- How can we influence regulators around the world to develop highly technical-and-cost savvy (e.g., through EuP study groups)?
Reply below or write to me (PGordon@TFIenvironment.com) to let me know you are interested in creating, exploring, and sharing ideas that will help address one of the most pressing issues today and tomorrow for networking equipment — vital to corporate customers, to cost reductions, and of course to reducing global Greenhouse Gas emissions. I look forward to the challenge!
As the economy rebounds and electronic-product companies’ (OEMs’) requests for manufacturing-outsourcing proposals increase once again, some supplier-customer matches will be made haphazardly. This is a concern of executives at small and large contract-manufacturing companies, as well as at the OEM customers.
Let’s start with a small electronics-manufacturing services (EMS) company example. I’ve known Mo Ohady since 1982 — the year he started Digi-Com Electronics down the road from TFI’s headquarters. He’d called to ask questions about an article in which I’d been quoted. We started to meet for lunch every few years, and last month I was delighted to hear that Digi-Com received certification to ISO 9001 (quality management) and ISO-13485 (bio-medical devices).
I asked Mo how he has managed to champion his small electronics contract manufacturing company through numerous economic ups and downs. He said that his tenacity owes in part to his credo: “At the top of our concern is to look for partners that are a good match. Take the right steps at the right time, and resist falling into the traps of ‘anything goes as long as the numbers are there’.” As the economy rebounds and Digi-Com receives an uptick in requests for proposals, Mo will continue to control his company’s growth. “Be well aware of the pitfalls of poor matches or of grabbing too much.” This is good advice for EMS companies small and large alike.
Large-sized EMS companies whose executives best know which customers match their company’s strengths will fare better than those who grasp wildly at opportunities outside their sweet spots. At the same time, though, these executives need to realize that the economic downturn and new trends have changed the thinking of executives at some of their long-held customers.
Several OEM executives I know are planning to redirect manufacturing strategy as orders resume — toward in-house manufacturing, toward ready-designed products by original-design manufacturers (ODMs), toward other OEM companies with platforms they can leverage, and toward manufacturing in customers’ regions. (More examples are in a recent blog by new TFI Senior Operations / Supply Chain Consultant Pamela Wiseman.) Frankly, not all OEM executives are yet thinking holistically enough — systematically weighing all changes from product concept to customer usage and whether these changes will still foster corporate objectives.
Perhaps OEM executives can take a pointer from Digi-Com’s Ohady, who told me he most admires supply-chain partners with these attributes: “Fast responsiveness, no mistakes, and personalized service.” While looking to new manufacturing models, OEM executives will be wise to keep sight of customers’ needs for responsive, accurate, and customized products and services. See that the new manufacturing relationships meet this core business principle at least as much as did previous paths.
What changes to design or manufacturing strategies are you planning to make — either as a supplier or customer — as the economy rebounds? (Please reply below.)
by Kent Romanoff, TFI Leadership Effectiveness Consultant
If you frequent TFI’s Friday Best of Blogs, then you know that we recommend changes to profitably streamline tech companies’ product design, supply chain, product movement, and other operational functions. Our clients know that change is necessary, otherwise they would not have engaged us. But often they need help in overcoming their teams’ or managers’ resistance to change. Organizations have an unfortunate habit of acquiring blockages that impede progress and stymie performance.
Managers can regularly embark on search-and-destroy missions to root out barriers and obliterate them. These barriers can be difficult to find, because they morph into familiar forms and hide in plain sight. If you look carefully, you can uncover these barriers to change:
1. EXCUSES — When you start hearing excuses for why things can’t change, you have encountered a blockage.
2. FEAR — When people get scared, they freeze and plug up everything they are involved in.
3. SECRETS – This is a sure sign of a dysfunctional organization.
4. INSECURITY — When people are in over their head, they know it and their main purpose in life becomes trying to make sure other people don’t figure it out.
5. POSTURING — When people fixate on their image, you are in the presence of a blockage.
6. ROUTINES — Doing things the same way for too long creates “comfort zones,” which are places where fearful, insecure, posturing people go to avoid detection.
By contrast, positive change thrives in healthy organizations, characterized by:
1. Strong, enlightened, progressive, free-thinking, open-minded LEADERSHIP.
2. An appreciation of the value and importance of SETTING AND ACHIEVING GOALS.
3. An atmosphere of HIGH-ACHIEVEMENT, where good enough is not good enough.
4. FULL DISCLOSURE and a willingness to share virtually all information.
5. Employees who understand WHAT IS EXPECTED and WHAT THEY WILL GAIN when they achieve it.
6. A sense of TEAMWORK where everyone believes they are working for the benefit of all, not enriching the few.
7. The ability to EMBRACE CHANGE and LEARN FROM MISTAKES.
8. The capacity to GET THINGS DONE.
How many organizations truly possess all of these attributes? Precious few. The first step to positive change is creating the right conditions for improvements to exist. Life on earth didn’t emerge until there was an oxygen-rich atmosphere. The Renaissance couldn’t happen until dogma gave way to enlightened thought. And an organization plugged with barriers cannot strategically progress.
We at TFI have succeeded in having upper and middle management and all employees understand the imperative of positive change. How? We gain enthusiastic buy-in through addressing key leaders’ business and budgetary goals, inspire people through real-life examples of other companies’ success, show how it’s good for business, educate about the cost of wasted materials/processes, and tie compensation to results. We use a host of approaches depending on the company’s culture. It’s very rewarding.
How have you removed barriers to change in your company? (Please reply below.)
By Pamela Wiseman, TFI Senior Operations and Supply Chain Consultant
Manufacturing out- and in-sourcing strategies are controversial and lively topics these days. Even people not directly involved in manufacturing discuss these themes in daily conversation, prompted in part by the media being quick to ensure that we all know that Whirlpool will move a portion of its manufacturing from Indiana to Mexico, and that Nokia , NCR, and LeCroy have all decided to reverse their outsourcing trends to bring some manufacturing back in house. The economic downturn has been a catalyst for change and adaptation, prompting executives to reassess and reposition manufacturing strategies.
A Google search for “Nokia outsourcing” yields a 5-year chronology of the company’s decisions. As the market forces ebb and flow, Nokia’s decisions have appeared to be frequent and seemingly fluid and reversible. This flexibility in manufacturing strategy has great value in volatile market environments, where demand — as well as energy and transportation costs — can fluctuate dramatically. Carbon footprint and protectionism are also becoming valid concerns when devising a manufacturing strategy. Both traditional and new variables must be considered, all of which seem to be more difficult to forecast than ever before.
The uncertainty in global economics and politics amplifies the fact that decisions made based on today’s lower demand for production volumes, current energy costs, and other influences will certainly need to be revisited — probably sooner than expected. The more flexible the manufacturing model, the more rapidly a company can respond to changing business dynamics. As global demand recovers it will be key to reassess our manufacturing strategies to build in more flexibility than ever.
Nokia appears to have skillfully devised a hybrid manufacturing strategy and capability that balances outsourcing with in-house manufacturing. Today’s volatile demand is presently associated with the downturn, but — in fact — this demand pattern is also true of products during a typical lifecycle. The hybrid model provides resiliency and options when business forces are changing.
Executives with the capability to outsource when economics are favorable while maintaining in-house proficiency are positioned to optimally respond to the varying cycles. This strategy also protects against the loss of leverage and skills resulting when giving up in-house manufacturing capability. Ultimately, executives will assess the changing forces and align capability to best meet customer demand.
Many questions remain (consider replying below). Do you think this degree of flexibility is practical, in light of possible trade offs for quality, supply chain, logistics? What additional costs come along with flexibility, and will they be offset by the value of potential market responsiveness? Has your company rapidly relocated manufacturing capability with minimal repercussions?
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