Here are some examples of electronics-manufacturing moves in recent history, by region:

Europe: Elcoteq opens a plant in Estonia, Nokia Siemens lays off 450 employees in Finland.
India: Jabil opens a plant in Chennai 2007; closes it in 2009.
North America: Celestica closes a plant in USA (Nashville); Foxconn expands in Mexico for Dell
China: CEC Telecom lays off a quarter of its China employees; Flextronics develops new facility in Suzhou (Wuzhong)

–Confused about which regions are hot and which are not? Let’s look at this strategically: in general, the hottest regions in which to manufacture are those where end customers reside. Regional manufacturing strategies can be best for bottom-line performance by allowing greater efficiencies in logistics, reducing costs and carbon emissions, decreasing supply-chain risk (through reduced lead times and improved responsiveness), and reducing total cost of ownership (when distance and risk overshadow lower labor rates).

Close-to-the-customer thinking also applies when the customers are product designers. It’s wise for electronics contract manufacturers to set up prototype facilities and for component companies to establish sales centers near electronic-product companies’ designers. (Our clients in sales and marketing have been trying to convince their management of this for years.)

In the mid-1990s when writing one of TFI’s Contract Manufacturing from a Global Perspective reports, my team and I debated whether Greenland would be the next hot region for electronics manufacturing. It was mostly in jest to underscore how far-flung manufacturing locations were becoming. Of course, with regional-manufacturing thinking, we don’t recommend setting up manufacturing in areas for only 55,000 potential customers (which is the population there).

What are your thoughts about regional manufacturing? Are you willing to eschew manufacturing where few if any customers reside?

Many companies have begun working on environmental initiatives within their own four walls by increasing energy efficiency and reducing waste. It seems that everyone’s favorite these days is to remove single-use cups with forever-use ones. This internal focus is natural because it is where managers exert the most control, and it is where clear metrics can be established. (Let us know if you’d like to receive our new data supporting that ceramic cups are best for reducing costs and environmental impact.)

Going much deeper into the supply chain
But companies are interactive entities, part of a larger system. Sustainability managers quickly discover that fulfilling environmental objectives – especially in the areas of product design, distribution, or procurement – means working with suppliers and customers. A seemingly simple task such as reducing the packaging on a component can involve lengthy communications and negotiations with a surprising number of people both inside and outside the company. (We recently helped a client create an efficient packaging solution when the prior method used four times the packaging necessary!)

Sustainability in the supply chain is increasingly important because of regulations also. For instance, the REACH Directive requires companies to know (and register) the chemical contents of their products in far greater detail than ever before. They are reaching back into their supply chains for basic information, which can lead to collaborative product redesigns to avoid harmful chemicals.

Insights from the CDP
The folks at the Carbon Disclosure Project have been working to ease the transition to sustainable supply-chain operations by creating a network of member companies called the CDP Supply Chain. As stated in the flagship 2010 Supply Chain Report, “The CDP Supply Chain is a collaboration of global corporations who have extended their climate change and carbon management strategies beyond their direct corporate boundaries to engage with their suppliers via CDP’s annual Information Request. …This year, 44 member companies reached out to 1,402 of their suppliers, and 710 (51%) responded to the request.”

The report summarizes the findings. Members of the CDP Supply Chain are intent on reducing the carbon emissions from their supply chains, and are working on the challenges that currently hinder progress. Some challenges involve education of suppliers, who are generally at an earlier stage of sustainability planning than members; 56% intend to deselect suppliers who fail to meet carbon management criteria in the future. Some challenges will improve with clearer communication. Collaboration and sharing of best practices is a key priority at this time.

Although the CDP work involves manufacturing supply chains, there are other efforts afoot in the world of sustainable supply chains also. The first-ever Forest Footprint Disclosure report looked carefully at forest practices among companies in that industry. Ceres issued a report on corporate water-risk management based on disclosure data from 100 large companies. And other groups (ForestEthics, Earthworks, and OxFam America) are beginning to ask questions about “dirty resources” – raw materials like metals and minerals that are often acquired at considerable environmental and human expense.

Focus Questions for VP Operations & Supply Chain
TFI recommends that VP Operations / Supply Chain as well as Sustainability Executives ask themselves these five questions, toward creating supply-chain sustainability strategies:

o Where are the potential hot spots in our supply chain for illegal or unethical labor practices, or for irresponsible treatment of electronic waste (e-waste) and emissions to air, soil, or water?
o Which of my contract manufacturers (electronics manufacturing services (EMS) and original design manufacturers (ODM)) have made visible to us as much information about their suppliers’ labor and environmental practices as we need to reduce risk of being complicit in violations and bad publicity?
o Have we reduced the mass (weight, bill of materials, unnecessary components) of our products and packaging sufficiently for economic and environmental advantage, and which of our suppliers have been most proactive in this continuous Design-for-Environment (DfE) improvement?
o How are our internal supply-chain managers and buyers rewarded – through cost savings alone or also for reducing the company’s risk from associating ourselves with suppliers violating law or engaged in unethical labor and environmental practices?
o How many times do our products circle the globe from raw materials through product usage through end of life? Have we measured the wasted time, expense, CO2 emissions, and risk in transport, compared to a using a regional-manufacturing, logistics-efficient strategy?

How prepared are you to discuss these deeper levels of your supply chain? And what do you still need to understand in order to make it more sustainable?

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.

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)?

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?

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.)

This week I had the pleasure of meeting a CEO whose vision is driving him to move manufacturing from Southeast Asia to Midwest USA. But this was no shock to his COO (sitting with us at the coffee house), because this company — Vista International — is founded on CEO Johan Smith’s bold vision to power a cleaner world and to “Reducing carbon footprint one step at a time” (trademarked). Vista, headquartered near Denver, Colorado, is a technology holding company in the renewable energy industry. During the past 20 years the company has acquired technologies as diverse as energy-efficient lighting for facilities, converting waste to high-octane fuels, high-efficiency wind and hydro turbines, and higher-BTU coal with less pollutants.

Though Smith has lived and worked in several countries and has advised government officials in China, Mexico, St. Lucia (Caribbean), Bulgaria, and Israel, he wants to build the company’s largest-yet production facility in the Midwest USA, serving both domestic and international customers. He mentioned tactfully that he is not entirely comfortable with manufacturing in China. It’s likely also that the energy-efficiency investment portion of the American Recovery and Reinvestment Act of 2009 strengthens his decision.

The return to regional manufacturing — making products close to customers — is a strategy TFI has been recommending to clients brave enough to counter a trend. The benefits include meeting regional customers’ requirements more quickly and precisely, mitigating risk compounded across multiple national borders, and reducing carbon footprint — the latter being more visible these days to investors and corporate customers. The CEO must share this vision because an operational shift this far-reaching is rarely championed by a singular manager outside the executive suite.

The electronics contract manufacturing industry is full of CEO visionaries who dictated manufacturing locations: former Flextronics CEO Michael Marks envisioned complete supply-chain campuses in Mexico and Eastern Europe to serve customers on those continents. Former Sparton Electronics CEO David Hockenbrocht foresaw that keeping manufacturing in North America would appeal best to his regulated-industry customers; then in the last years of his tenure he pioneered (amongst his EMS peers) the building of a facility in Vietnam (when I asked why, he spoke about the comparatively high education and low labor rates there; I always wondered if his reasons came from his values as well).

I invite you to comment (below): Has your company’s CEO been instrumental in determining manufacturing locations? Does your company’s manufacturing-location strategy prioritize cheap labor rates or a regional strategy emphasizing customer responsiveness, risk mitigation, and smaller carbon footprint?

If you have not yet heard the term “enterprise carbon accounting” you can rest assured that — as with financial accounting — the smarter the tools and more automated the approach the easier it is to collect, analyze, and make decisions based on the data. Our client wants to work with sustainability champions at a handful of mid-sized-to-large electronics companies who aim to reduce environmental footprint in operations, facilities, product design, supply chain, and logistics.

If you work for an electronics contract manufacturer, electronic-product company, or component supplier (annual revenues of $500 million or more) and you are up to playing a sustainability-pioneer role, I look forward to hearing from you (PGordon@TFIenvironment.com).

Our clients generously call us thought leaders–in an industry where rules, like budgets, frequently change and competitive stakes are high. I thought you might like to know which books have influenced us. This is our first annotated book list, with picks by 6 of the 20 TFI and TFI Environment consultants.

From Chief Economist Matt Chanoff is Predictably Irrational, by Dan Ariely. Ariely is an economics professor at MIT, but reading him isn’t like reading any other economist. His insights into how people place value on goods are well researched, quirky, entertaining, and often mind bending. Each chapter offers the entrepreneurial reader a whole new business model.

TFI Environment Consultant Dr. Kim Allen points to The Ecology of Commerce, by Paul Hawken. Because he refused to accept that business and the environment were a tradeoff, Hawken was a radical among environmentalists 20 years ago. And yet his ideas also push into the realm of truly creative and disruptive business. The Ecology of Commerce offers a daring vision of 21st century business, full of both challenge and hope.

Senior Supply-Chain Consultant Douglas Kent admires how Supply Chain Excellence, by Peter Bolstorff, delivers a 17-week process for diagnosing the health of a company’s supply chain. The handbook is easy to follow and has served as a reference tool for companies in numerous industries.

I recommend Agenda for a New Economy, by David C. Korten. Korten wrote this book, with the cooperation of my book publisher Berrett-Koehler, immediately following the Wall Street implosion in 2008 and the failure of the subsequent bailout effort. The book proposes sane alternatives to the same-old USA market structure, and after having lived in EMEA for a year (back in the USA August 2009) I am more open to these smart departures from the norm.

Logistics Consultant Jon Gilbert chose Collapse, by Jarod Diamond. It’s an eye-opening book about what happens when societies lose track of sustainability. Diamond writes about the end of well-known past societies and the root causes behind their downfalls– the over consumption of scarce resources and lack of attention to environmental degradation. Collapse can spark discussion amongst executives and green teams about business sustainability as well.

Senior Consultant Mike Kirschner not only recommends but also was quoted in Exposed, by Mark Schapiro. The subtitle says it all: “The Toxic Chemistry of Everyday Products and What’s at Stake for American Power.”

Finally, with his second contribution to this list, Matt makes a case for why electronics industry executives would benefit from reading a biography of a Medieval tribal leader. Genghis Khan and the Making of the Modern World, by Jack Weatherford, entertains us while showing how Genghis conquered more land, people, nations, and wealth in his lifetime than did the Romans in four centuries of expansion. His secret to building an empire that endured for centuries was to combine fair mindedness and cold-eyed pragmatism. Rather than imposing his own primitive culture on the nations he conquered, Genghis took the best from each and incorporated it into a nearly global empire, with freedom of religion, rule of law that even he was subject to, better security, freer trade, more prosperity than that part of the world had ever seen, and transportation, communications, and logistics systems that operated over vast distances and trumped every foe. Matt says to read this book for insight into a guy who might well have been the greatest leader humankind has yet produced.

What books have you read that you predict will benefit today’s electronics-industry executives? (If you buy a lot of books, do as many of our clients and I have done: invest in an Amazon Kindle, for convenient, and lower-carbon-footprint reading.)

Here is a priority topic for almost everyone (even optimists). Following our recent webinar, called “Managing through the Downturn,” we had an exchange with participants about signs indicating that a company is overreacting in a downturn-economic environment. We also talked about best practices that can be leveraged to overcome these adverse overreactions.

A common overreaction, which can have negative long-term effects on companies, is making across-the-board decisions to reduce investments, compensation, and head count by the same percentage—in all divisions and functions. Our interviews last quarter revealed a number of corporate-wide directives to reduce expenses or headcount without consideration for the performance of a business unit. There is no denying that cost reductions are necessary and this broad-brush tactic may be an expedient way to achieve a corporate target, but they can be damaging to technology roadmaps and employee commitment–both critical to innovation. Overreactions are also evident when companies take steps that contradict their own long-term strategy. For example, if the strategy is differentiation, then price discounting in the short term could be dangerous.

I believe that overreactions have a few common characteristics. They typically are driven by a person or small group within the company, rather than by a cross-functional team better equipped to consider the wider implications. Overreactions are often based on external input that may be incorrect, or by framing an issue from a biased view. For example, it can be tempting to pattern expense reduction after competitors’ tactics, but instead it may be the perfect opportunity to boldly contradict prevailing trends and demonstrate a long-term commitment to the market and team.

Prevention of the pain triggered by the examples above is somewhat intuitive. While cross-functional decisions–requiring some degree of debate and consensus–take more time, they should defend against overreaction. This of course assumes the company is not suffering from group think as well. Employ thoughtful decision process, according to a disciplined set of criteria, to help guard against this reaction. In an era of vulnerability, even the corporate and operating strategies that establish our market position can be at risk. Communication that reinforces the company’s commitment to these strategies along with the discipline to resist short-term decisions that dilute or contradict them is the optimal response in a downturn or anytime.

At last month’s Green Manufacturing Conference in the UK, led by my colleague Pamela Gordon, a discussion ensued about making investments in both product R&D and operations processes during the downturn. This response makes sense in some instances, because this investment can be a leverage point that will catapult these proactive companies to competitive advantage by the time the down turns up.

What is your company doing during the downturn that will increase competitiveness? How are you combating overreactions?

In the mid-1990s TFI conducted a study for Electronic Buyers’ News about promising new teamwork between engineering and purchasing. Now in 2009 we’ve uncovered a whole new level of collaboration amongst not only these two traditional “silos” but also marketing, R&D, facilities, human resources, compliance, IT, logistics, and other functions. It could be the best answer yet to many an executive’s dream that through teamwork, employees’ decisions would lead to company-wide benefit, beyond that of a particular function.

Today’s organizations are responding to calls from many fronts for sustainability. Regulators are requiring carbon and resource accountability, investors want to know how companies are cutting energy costs, consumers and corporate customers are asking for green products, and employees question why their companies are not composting like they do at home. Suddenly, the abilities to track data across functional departments and share ideas company-wide moves from a dream to an imperative.

Fortunately, more companies are discovering the pleasant surprise that the very nature of environmental and sustainability programs brings about not only cost and resource savings, but also extensive cross-company collaboration. When employees are united in their support of the environment, they begin communicating with people in the company with whom otherwise they would have no contact.

TFI has observed the emergence of this collaboration in its environmental partnership programs. We’ve recently co-written a white paper called “Collective ‘Green’ Wisdom: Environmental Initiatives Evoke Unprecedented Multifunctional Collaboration,” which offers a detailed case study of this phenomenon, along with key success factors in forming a multifunctional “Green Team” and ways to avoid the most common pitfalls.

The client profiled in our white paper expects to save more than US$4 million and 4,000 metric tons of CO2 equivalent during fiscal years 2009 and 2010, which only came about because of multifunctional collaboration. In this time of simultaneous financial challenge and sustainability directives, such an advantage is even more valuable.

What inter-functional, inter-regional collaboration has been fostered by your company’s Green Team? (If your company does not yet have a Green Team, why not?)

With all of the recent bad economic news, it’s sometimes hard to think of positive effects from all the disruption we’re seeing. Just last week, Dell announced plans to close its largest manufacturing facility outside of the US, a plant in Limerick, Ireland. Most media coverage (such as an article in TimesOnline) focused mainly on the downside and loss of Irish jobs. (More on Dell’s recent troubles.)

What wasn’t mentioned in the stories about Limerick is that there are a lot of folks also applauding the plant closure. That’s because production is moving to Lodz, Poland, in search of lower labor costs and more efficient distribution of products for all of EMEA. The Poles are understandably happy, and so is Dell.

The lesson in all of this is that tough times bring challenges as well as opportunities. We need to be focused on what’s coming up and prepare. For Supply Chain managers, the current worldwide slowdown presents some unique opportunities. Good ideas that might have been tabled in prior years are now of much greater interest. We are currently working on Supply Chain models for several TFI clients, and we see substantial savings and environmental benefits coming from streamlining the flow of finished goods.

The opportunity to consolidate production and shipping at a single European facility must have been a compelling business case for Dell even before the downturn. Hard times made what was just a good idea into a necessary course of action. The end result at Dell will be a much leaner supply chain in EMEA.

More good news for manufacturers is that soft demand has led to reductions in transportation costs. This will allow supply chain managers to retain low-cost manufacturing solutions over the short-term horizon. As an example, ocean carrier Maersk Line recently cut Asia to US West Coast rates by 25%. Other sources stated that Asia to Europe container costs have decreased by as much as an astounding 66%. Air Cargo, Trucking, and Rail have all seen volume reductions, and in some cases similar changes in pricing.

This breathing room will give companies with foresight more time to continue their regionalization efforts, bringing production closer to demand over the longer term. We can view this as an opportunity to “get things right” and set up proper new infrastructure in advance of the eventual rise in transportation costs, rather than doing it quickly and perhaps less effectively in the face of sharply rising transport rates.

While it’s easy to get mired in pessimistic thinking, we must always remember that opportunities arise out of challenges.

Let’s compare notes: What efficiencies have you designed recently to reduce supply chain and logistics costs?

We help by holding conferences in diverse regions of the world, combining client visits with public presentations, placing our consultants in numerous countries, and delivering consulting and insights through web-conferencing and teleconferencing. This goes for our consulting and research on manufacturing strategies, supply-chain and logistics efficiencies, and Lean and Green environmental consultations.

I invite you to visit our list of events throughout the year, to see when we will be in a region near you or reaching you via the web. See you soon!

Sun Microsystems’ Open Work program saved the company US$64 million in real estate by saving (or avoiding) 6,600 seats. Nearly 15,000 “flexible-location workers” participated (46% of the workforce). Together with use of the company’s SunRay thin-client PC alternative, Sun’s estimate for annual carbon-emission reductions was 30,000 tons. (From “Eco-Responsibility at Sun,” presented by David Towne, at TFI’s Design-for-Environment Workshop, February 2007.)

The topic of telecommuting tends to evoke strong emotions: Employees yearn for the freedom to earn a good living without being “slaves” to long work days in the office plus 2-hour daily commutes. Managers fear that their employees would—sight unseen–abandon their deliverables and leave the manager holding the corporate objectives. Employees whose functions require on-site presence envy colleagues who could remain in their jammies all day.

Consider this rational approach from an experienced manager of telecommuting employees (and a telecommuter myself): Employees who demonstrate fiscal responsibility earn budgets. Employees who accomplish escalating levels of tasks earn promotions. Employees who consistently follow through on commitments earn the right to telecommute—perhaps starting with a day or two a week, then increasing based on managers’ evaluation of results achieved.

Then there’s the clearing of the air and loosening of traffic congestion when employees commute less frequently. I advise our clients never to underestimate their employees’ awareness of and passion about the environment. A sound telecommuting policy typically boosts employees’ job satisfaction as they get to (1) breathe and be creative when otherwise they’d be on the road, (2) get a running chance at establishing work/life balance, and (3) have a manager who trusts them and cares—like they do—about a healthy environment.

And with web-conferencing, videoconferencing, interactive electronic whiteboards, blogs, and other web-based discussion tools, it’s easier and easier to be effective when not face to face.

As your company grows (positive thinking during uncertain economic times), I challenge you to leverage a savvy telecommuting policy instead of adding new offices. Your company will avoid costs not only for the real estate, but also for furniture, supplies, cafeterias, cleaning services, landscaping, and other overhead. And with each of these categories of cost avoidance comes reduced environmental footprint.

What experiences have you had with telecommuting? Do your employees telecommute? How much is too much telecommuting?

Most of you are probably familiar with the term Profit Sharing, and a few may even have heard of Gain Sharing, but there is something new on the horizon you should know about — Success Sharing. Like so many other things, TFI Environment is at the forefront of this new approach. But more about that later. First let’s explore what Success Sharing is, and how it works.

Every year, the struggle to conduct business in the increasingly complex world of international commerce intensifies for high-tech companies. The labyrinth of confusing and often conflicting laws, regulations, and tax schemes–coupled with an atmosphere of financial instability and political uncertainly–have settled like a thick fog on today’s companies, making it hard to chart a clear course and increasing the risk of a nasty collision that might sink the business.

In response, more and more companies are getting back to basics, shedding business units that do not contribute directly to their core operations. They are focusing on what they do best, and forming alliances and partnerships with experts in other companies who can provide much needed support in specialty areas.

This alliance strategy presents its own special challenges. When you depend on another business to provide operation-critical products and services, the risk of failure is intensified by the inherent lack of control. How can you be sure your partner will deliver? How can you be sure where they are prioritizing your needs relative to those of their other partners? The answer lies in your ability to align your interests. This is where Success Sharing comes in.

Simply put, Success Sharing is a financial arrangement whereby the business that has been engaged to provide a mission-critical product or service shares the risk of failure (and the benefits of success) with the company that is purchasing these services. Unlike traditional fee-for-service arrangements, Success Sharing ensures that both partners have skin in the game.

Check out the four-step Success Sharing process and three key issues to watch for.>

TFI Environment is in active discussions right now with clients considering Success Sharing partnerships. For businesses interested in reducing their environmental footprint while simultaneously increasing their profit and reducing their cost, this is an excellent approach. Especially in the current economic climate where they may not have a lot of up front cash to spend on the effort.

What do you think about dividing costs, spreading risks, and sharing success when it comes to cost savings in operations, supply-chain, and waste-reduction / green strategies?

It was a novel idea in the late 1980s, when TFI started consulting to the electronics contract manufacturing industry: Have your contract manufacturers assemble the boards, conduct final assembly and test, then ship the product not back to you but instead directly to the end-customer (or to customer-distribution points). You save the cost of having your products make an unnecessary trip and the product gets into the hands of the customer more quickly.

In those days, cost reduction and “time to market” were the two primary drivers for OEMs having their contract manufacturers ship products directly to customers. Today, there are two additional drivers—(1) the cost of transportation is rising sharply once again after more than 30 years of declines in real, inflation-adjusted pricing — largely due to the price of oil having nearly doubled in the last 3 years, and (2) companies everywhere are trying to reduce their carbon footprint—half of which, in some cases, is attributable to product movement around the world.

Direct-ship practices can be spotted all over the world. This week in Israel I toured contract-manufacturer Nistec Group’s new facility in the north—Nistec Zafon—and noticed built, tested, and boxed telecom products addressed to the end customer in Sri Lanka. Many OEMs never actually see their finished products, and why would they want to do so when they choose a trustworthy manufacturing supplier with clear requirements for quality, testing, and shipping?

Yet, we still come across OEMs who either continue to choose to “touch” their products between the contract manufacturer and the customer, or who wish to reduce time, money, and carbon footprint through direct ship but cannot find the right contract manufacturer and/or 3PLs in the right locations to execute direct ship well.

For some networks, an intermediate stop may still make sense, especially if country-specific customization requirements are highly complex. Additionally, for OEMs who are using manufacturing sites far from demand, combining shipments and moving in bulk may be more efficient. This allows for lower-cost ocean shipping on the long haul. Final distribution via air is only used for only the last, and much shorter leg of the route.

So we’d like to know, TFI community: If you work for an OEM that is not deploying direct ship from the contract manufacturer or ODM—either by the manufacturers’ own transit or by carriers—why not? If you work for a contract manufacturer, why do some of your OEM customers not have you ship finished, tested product directly to customers? What excellent alternatives have you found?

To help clients competitively innovate for Leaner and Greener products, processes, and strategic corporate decisions, I encourage them to “leap frog” over sequential steps, and to think laterally for an entirely different and superior idea. Frogs leap 20 to 100 times their height to escape predators and catch lunch. Sidewinder snakes’ rapid sideways locomotion takes everyone by surprise (including hikers in the US Southwest).

Here’s an example of lateral thinking, of a low-tech variety. This week my husband asked our vegetarian, eco-minded neighbor. “Where do you get really good, water-treated, organic, shade-grown decaf coffee?” You see, being health and environmentally conscious, we have moved incrementally from drinking coffee to drinking decaf, then water-treated, then organic, and when possible shade-grown coffee. But our neighbor didn’t say a word. Instead, he yanked out of his garden a sprout of small, tapered green leaves. Then he said to my husband, “Why drink coffee when you can have delicious, fresh mint tea?”

It dawned on us: we had been taking sequential steps to mitigate a process fraught with inefficiency and environmental degradation. Our neighbor woke us up to thinking laterally: the point is that we want a healthy, hot, delicious beverage–why not drink a fresh, tasty “locally grown” alternative?

To help our clients with “leap and lateral” innovation, we lead two exercises called “Re-Think Products” and “What Comes Before?” We run these exercises within workshops for product designers, multifunctional/multiregional teams, and executives. The feedback we receive is that these exercises forever change the way participants make nearly every business decision, resulting in lower costs, use of fewer resources, and competitive distinction.

What leaps have you made or lateral thinking have you have had that you’d like to share and–together with our readers–build upon?

(By the way, though I haven’t yet completely given up my coffee, this garden-fresh mint tea is amazing.)

We defined regionalization as “manufacturing products on the continent on which they are sold.” As Senior Consultant Charlie Barnhart, the session leader, aptly pointed out, regionalization was common practice before the mass migration to China in the last 1990s. Now with higher oil prices and exchange rates that weaken the US dollar, we wanted to know if Forum members – OEMs and Contract Manufacturers – were considering returning to a regional strategy and whether it would become more common practice in the future.

When the nine breakout groups reported back on their discussions, we heard a common refrain: “It depends.” Yes, we are considering/need to consider regionalization and yes, it will become more common in the future. On the “pro” side of regionalization the groups agreed that oil prices and exchange rates were having a major impact on costs, in particular logistics costs. Other benefits include greater customer responsiveness, and faster communication, proximity to developing markets, and environmental considerations.

On the “con” side, the groups agreed that regionalization doesn’t necessarily make sense for high-volume, low-mix production, especially when suppliers are onsite and integrated into the manufacturing process through VMI programs and other supply chain services. And regionalization may lead to higher overhead costs as it necessitates more duplication of effort, and more local management and oversight. Then there are quality concerns – with more manufacturing locations and more complex supply networks, maintaining consistent product quality may become harder.

The consensus was that a hybrid model will emerge. For some products and industry segments, one global manufacturing center makes sense. For others, regionalization is the way to go. It all depends on which way total cost tips the balance.

Let us know what you’re company is considering. Does regionalization make sense, and if so why?

(For example, see the May article by Bruce Rayner, TFI vice president and director of consulting and research, in Manufacturing Business Technology, or the conclusions from my presentation at the Spring Quarterly Forum last month: “Recalibrating the Cost of Outsourcing/The Changing Landscape of Outsourcing.”)

In this context, it is useful to review the assumptions – unfounded it turns out — that led the industry away from the regional strategy. I offered this view at the Spring Quarterly Forum last month. These unfounded assumptions, which became rationalizations to justify the move to China, have mistakenly become imbedded in the industry’s collective perception. A mindset correction is needed.

Here are the ones I encounter repeatedly.

Assumption: Systemic quality problems in Mexico and/or Eastern Europe, or products manufactured in Mexico or Eastern Europe are of poor quality. Fact: No statistically significant data has ever been found to support this assertion.

Assumption: It is always cheaper to manufacture products in China and ship them to their point-of-sale than it is to build them in a higher-cost labor region. Fact: Our Outsourcing Navigator Series modeling has consistently shown that on a TCO basis this isn’t true in all cases — and almost never true if materials are sourced at their point of lowest cost and assembly is done regionally.

Assumption: It is necessary to build in China to penetrate the huge potential market in China. Fact: A review of publicly traded global OEMs financial statements clearly indicate this approach has not come to fruition.

Assumption: Cross-hemispheric strategies (i.e., using emerging, remote lower-cost labor to build electronics) provide social and economic benefit to all parties involved. Fact: Given the state of the environment, the global electronics industry and most of the associated economies this presumption seems questionable at best.

Just because everyone else is doing something (like jumping off a bridge) doesn’t mean it is a good idea. Isn’t that something our mothers taught us?

You might know of other baseless assumptions – or you might disagree with these. Either way, let us hear from you.

One of our Quarterly Forum reports last year examined outsourced logistics. In our study, nearly half of the OEMs reported that logistics were still the primary responsibility of an internal department, but they were keen to outsource it when the providers could prove they were up to the various tasks.

More recently, Technology Forecasters has been commissioned to conduct a benchmark study of the OEM logistics best practices. The client that commissioned the study would like to get as much input from as many OEMs as possible. So, we’re offering you a chance to participate in a survey that will take about 20 minutes.

There’s something in it for you, too, if you take the survey. The client will allow us to send you the executive summary, so you too can learn more about best practices in electronics supply chain logistics. Combined with our study of last year, we think you’ll have a good idea of the state of the art. So, please take some time and click to the survey.