By Kim Allen, PhD, and Pamela J. Gordon
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?)
By Jonathan Gilbert, TFI Logistics Consultant
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?
For both budgetary and environment benefits, we have been encouraging our clients to travel less and use technology more — even when learning best practices and getting expert consultation from us at TFI!
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!
Telecommuting – working from your home office using the phone and internet—is popular not only with many employees but also with CFOs. Done well, it’s one in a bundle of Lean and Green strategies to reduce costs and reduce environmental impact.
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?
By Kent Romanoff,TFI Environment Strategic Business Advisor
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?
Posted by Jon Gilbert and Pamela J. Gordon
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?
Our clients are particularly yearning for innovation these days. This summer demand has surged for our supply-chain, logistics, and environmental strategy and research. After all, the tech industry wouldn’t be the tech industry without continued innovation. (The same goes for the apparel, medical, and other industries.)
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.)
For one of the sessions at the TFI Quarterly Forum in April we asked the members to break into groups and discuss regionalization and whether a regionalization model for their product manufacturing would make sense.
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 many reasons, Technology Forecasters has been predicting a return to the regional sourcing strategy that was the hallmark of electronics manufacturing before Y2K and the rush to build anything and everything in China.
(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.
With all the emphasis on outsourced manufacturing, the electronics industry should also be looking at other parts of the supply chain as candidates for outsourcing. For example, since oil prices are driving up transportation costs, OEMs need to consider not only how far flung they want their supply chains to be, but take a hard look at whether outsourcing transportation and logistics is more cost effective.
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.
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