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Global Consulting and Research for Outsourcing and the Environment
If you need it, here’s more evidence that it is time to get on the bandwagon and develop a roadmap to reduce your company’s environmental impact. The most recent report on quarterly venture capital investment from Dow Jones Financial Services shows that, while VC investing in general was down quarter to quarter over last year, investing in clean technologies matched last year’s first quarter pace.
That’s good news because last year saw a record level of VC investment in “cleantech,” as Dow Jones calls it. A total of $3 billion of VC investing went to cleantech startups in 2007, a 43 percent increase over the previous year.
Dow Jones explains: “Although ‘cleantech’ cuts across all industries, the majority of these companies can be found in the energy, agriculture, and advanced specialty chemicals and materials segments.”
The individual technology matters less than the bigger message implicit in this high-risk investing. VC investors often see the handwriting on the wall before others do. Although these investors take a shotgun approach – recognizing that many bets will fail and a few will pay off big– their investments are a leading indicator of technological trends.
If VC investors are more interested in clean and green than ever, then it can be argued that it is time for companies to confront reality and develop plans for more environmentally sustainable processes and products. OEMs, EMS providers and ODMs that wait to develop roadmaps to reduce their environmental impact risk remaining behind the curve.
As TFI Environment has shown in the past and will continue to show, green (sustainability) can be green (profitable). OEMs and others that have not done the analysis on their processes and products to see where clean/green can also be profitable, are hurting themselves and their shareholders by continuing to lag this growing trend.
As always, we’re interested in your thoughts.
I’ve used this blog more than once to warn that low-cost labor is not always what it seems from a distance. One of the biggest mistakes an electronics OEM can make is to move manufacturing to some remote region just because labor costs appear low. As I’ve stated before, this is not always the best thing to do.
Now, with five years of data collected as part of my Outsourcing Navigator Series, I have an analysis to underpin that argument. I’ll present my analysis, and its implications for sourcing decisions, at next week’s Quarterly Forum. If you’re not attending, we’ll post more of this material on the Web site after the Forum – watch this space.
Just to tease you a bit, here are some general conclusions, based on my data:
Labor costs in all geographies are going up; while lower purchase price is attractive it is not the only price that’s paid; costs above purchase price increase as the supply solution becomes progressively remote; there’s a tipping-point between the capabilities of a supply solution and the requirements of an OEM which — if reached — results in a catastrophic failure. Also, no matter what your personal beliefs are about global climate change, corporate social responsibility or today’s geopolitical situation, the probability of business continuing as usual is zero.
In many cases, outsourcing will ultimately shift back to same-hemisphere solutions, a trend that’s inevitable and beneficial, not only to the planet, but also to our industry and its regional communities. Cross-hemispheric solutions are not going to be tolerated as the standard course-of-business in the future (if for no other reason than the price and consequences of petroleum-based fuels).
For more facts and figures to bolster these arguments, watch this space – or attend next week’s Quaterly Forum. There’s still time to register.
Two weeks ago I wrote about Nokia’s efforts to reduce its environmental impact as presented at the Green Manufacturing Expo, a conference I chaired in Anaheim, Calif. I promised one more report from the event: This one on Hewlett-Packard.
During the conference, HP announced an engineering development that allows it to use post-consumer recycled plastics to make new Original HP inkjet print cartridges. As of the announcement, more than 200 million cartridges had been manufactured with the process. HP says it used more than 5 million pounds of recycled plastic in its inkjet cartridges last year, and the company is committed to using twice as much in 2008.
What the press release doesn’t tell you is how H-P makes breakthroughs like this happen. Its internal processes were explained in a presentation by Jay Celorie, a manager of HP’s social and environmental responsibility efforts. More than most companies, HP understands that environmental responsibility starts at the top of the organization and must be nurtured throughout. It will not happen without specific goals, objectives and commitment to attain them.
HP has been a pioneer in environmental and other socially responsibility. According to the environmental sustainability segment on its web site, HP launched product recycling in 1987, and launched product design for environment in 1992. HP’s approach is worth studying by companies genuinely committed to the greening of their practices. And it is also worth remembering that even HP – and it would acknowledge this – is just part way along the journey to the kind of environmental sustainability the industry needs.
According to Celorie, HP manages its impact by adopting environmentally responsible practices in product development, operations and supply chain. When it begins to design products, it systematically considers the energy efficiency of the design, the materials that will have a lower impact, and how the device and its components can be recycled at end of life. It establishes goals, just as it does for sales. And it monitors and audits progress toward those goals, including the efforts its suppliers make toward choosing and producing environmentally sustainable parts and materials.
These practices follow the same roadmap TFI Environment uses to support our clients. Does your company have a compass to guide you toward environmental sustainability?
I’ll be chairing the next Green Manufacturing Expo, organized by Canon Communications, on September 22 and 23 in Rosemont, Ill. If you’re interested in attending, please write to Melanie.Cruz@CanCom.com.
I recently attended two presentations by electronics companies at the Green Manufacturing Expo, a conference I chaired in Anaheim, Calif., that ought to inspire even those who are most skeptical that green can be profitable.
In one, a Nokia manager explained how it had reduced its environmental impact by down-sizing cell phone packaging. In the other, a Hewlett Packard manager discussed its product stewardship initiative. I’ll report on Nokia today and on HP in a future post.
Two years ago, Nokia reduced by half the size of the box for its cell phone. According to David Conrad, head of environment for Nokia North America, about 250 million phones – half the total sold from February 2006 to the end of 2007 – have been shipped in the new box, for a savings of $150 million in materials and transportation.
Nokia can put 1,100 new boxes on a shipping pallet, compared with 480 old boxes, which results in 5,000 fewer tractor trailers on the road. The new packaging, made entirely of recycled paperboard stock containing 55 percent post-consumer recycled content, has saved about 855 trees, eliminated nearly 5,000 pounds of waterborne waste, and diverted more than 77,000 pounds of landfill waste – to name just some of the environmental advantages to date.
Conrad said the only way to have a substantial environmental impact is to challenge convention. Nokia had to get diverse thinking involved in the process. For example, whatever marketing people might lack technically, they more than make up for with creativity. “You have to challenge convention, re-ask questions that have been answered again and again, to make people rethink the way products can be designed, manufactured, and packaged,” he said.
Nokia has been a leader in the green movement in other bold ways. For example, it recently released a cell phone with a case made of plant-based plastic, not petroleum based. Conrad explained the reason for Nokia’s commitment: “Corporate sustainability and environmental sustainability are not mutually exclusive or mutually agreeable; they are mutually dependent.”
That’s exactly the point we’ve been making for 10 years at Technology Forecasters. How do you see it? Do you want to make corporate sustainability and environmental sustainability mutually dependent at your company?
Another Green Manufacturing Expo, organized by Canon Communications, is scheduled for September 23 and 24 in Rosemont, Ill. Let me know if you are interested in attending.
For a number of years, I’ve been predicting how the path to greener electronic products and facilities would unfold through the next decade. We’ve published TFI’s “Electronics Industry Environmental Timeline” on our web site to give clients context about key directives and other regulatory events since the 1970s, and to forecast environmental trends above and beyond the imposition of any single compliance standard.
For example, by 2010 I expect we will see moderate use of alternative, non- or less toxic materials throughout the electronics, and that this trend will accelerate to widespread use by 2015. Some of this will be compliance driven and some of it will be driven by the fact that electronics companies will come to see that using fewer and non-oil-dependent materials can be profitable.
I elaborated on these projections in a recent podcast with Design News.
Though the European Union’s Restriction of Hazardous Substances (RoHS) Directive loomed large for the industry in recent years, even RoHS will be nearly forgotten in time.
What will be remembered is how the electronics industry seized this moment to make bold and significant changes in the way it designs and manufactures products using drastically reduced carbon footprint, with fewer toxic chemicals, and wasting virtually nothing – using or recycling everything from the raw materials except the squeal (as the meat industry used to say about pigs).
The point is to get out in front of the timeline for business benefit. Learn how by attending the Green Manufacturing Expo next week in Southern California (which I am chairing) or by asking me about our high-return environmental and social responsibility partnerships with electronics companies. A good place to start is to take a look at the road map.
As always, we’d like your thoughts here, too.
Has your company made any New Year’s resolutions yet? If you need some ideas, try one of these offered by Technology Forecasters consultants. Or share your own with us.
Think Lean: In 2008, wherever your company is in its adoption of Lean principles, extend them. If one manufacturing site is already Lean, take Lean to other sites. If all plants are Lean; bring Lean to non-manufacturing operations. If you’re 100 percent Lean, globally and every other way, start applying Lean to your supply chain—pick a key supplier or three and Lean the processes among yourselves.
Go Green: Keeping in mind that Green (the environment) is Green (profitable, competitive, etc.), take stock of your State of Green, and establish a five-year roadmap for eliminating waste and becoming more environmentally efficient, including at least three Green goals to accomplish this year. (We’ll have more to say about environmental roadmaps in the months ahead.)
TCO: This one’s especially for OEMs. Location is everything in real estate, but not in electronics manufacturing. Total cost of outsourcing (TCO) is. With the dollar weak and the price of oil high, TCO is a moving target. Resolve to consider each individual outsourcing decision on its own merit, based on TCO. (Need help with TCO? See TFI’s Outsourcing Navigator).
Rising markets: This one’s for EMS companies. Resolve to investigate at least one new market where outsourcing penetration is still relatively low — medical, defense, industrial, instrumentation, etc.
Outreach: Reach out once a week to a customer, supplier or supply chain expert. This regular effort may help with your own supply chain challenges, create an opportunity to help a partner resolve a challenge and build a diverse pipeline of inputs for a stronger supply chain.
If you’ve got your own resolutions, we’d like to hear from you.
Quartz Events recently asked 50 supply chain executives what concerned them most. Three topics were top of mind: Lean, green and visibility.
The informal survey, taken in September to help Quartz determine topics for the supply chain and materials handling trade shows it organizes, verifies what the organization has been hearing for sometime now.
“These are three areas I see consistently challenging supply chain executives as they focus on profitability, efficiency, and conscientiousness of our impact on the environment,” says Toby Harris, event director for Quartz.
Hardly a month passes now without something like Quartz’s survey to confirm that lean, green and visibility are increasingly important strategic thrusts for the electronics industry. Technology Forecasters has been consulting in these areas for years, and many of you know I wrote a book entitled, “Lean and Green.”
Electronics industry executives have a lot on their plates, but I hope they have room (even with Thanksgiving dinner coming) for these three main courses in their strategic thinking: Lean, green, and visibility.
Here’s an offer to our OEM and EMS clients: In March, I will speak at the Supply Chain Operations Private Exposition (SCOPE) East in Philadelphia on the topic of “‘Reduce to Grow’ is the New Imperative: For Profitability and Environmental Gain.” Other presentations will address lean and visibility.
If you already have lean, green, and visibility on your plate or if you think you should, I recommend you attend. SCOPE is by invitation only for senior executives in supply chain management, logistics and operations. As a speaker, I have 10 complimentary passes for our clients and contacts. Go to the SCOPE East site, click on Attendee Registration, and insert this invitation number: SCE1920
You can find out more about the event there, too. The pass includes access to all sessions and the exposition, and complimentary overnight accommodations at the Loews Philadelphia Hotel, plus lunches and a banquet.
How important are lean, green and visibility in your supply chains? Let us know.
Last year, TFI launched the EMS-ODM Report Card program. Our goal was to help OEMs get objective information about leading EMS providers and provide EMS companies with insight into areas for improving customer satisfaction. This year, after receiving valuable feedback from last year’s participants, we’ve expanded the survey to include electronics distributors, fine-tuned the survey, and expanded the base of respondents to get even more useful, targeted information in five critical areas:
As the outsourcing trend continues, OEMs in market segments such as medical and automotive electronics are outsourcing for the first time. At the same time, OEMs with experience in outsourcing are refining their strategies. This research will benefit both sides of the outsourcing equation by uncovering strengths and weaknesses in their relationships. And it will provide TFI will valuable insights to assist these OEMs select and manage relationships with their EMS providers, ODMs, and electronics distributors.
All participants will receive a copy of the executive summary of the results and all TFI Quarterly Forum members will get access to the complete report.
If you work for an OEM, please take some time now to complete the survey. If you work for an EMS provider, ODM or distributor, please forward this blog to your OEM colleagues. Your participation is greatly appreciated. Thank you.
Some things are just so much common sense that we tend to overlook them. Here’s one piece of such wisdom.
Sparton Corp., a member of Technology Forecasters Quarterly Forum, has been pursuing a quality program it calls Performance Excellence — a combination of Lean, Six Sigma and common sense. For more details, listen to an interview with Spartan CEO David Hockenbrocht on our website.
Among other things, Hockenbrocht says: “When we go after excess costs and drive them down to what we believe is the lowest cost solution in almost anything, several other things happen. First, the quality of the output goes up — and that is very quickly measurable. Secondarily, the speed of delivery also goes up. We get two not so much thought about outcomes when we go after costs: Improved quality and higher speed.”
If you stop to think about it, that equation makes sense, but relatively simple concepts can get lost amid the complexities of the EMS business.
Hockenbrocht also reminds us that successful EMS companies are striving for more collaborative partnerships. Sparton, for example, is extending its Performance Excellence effort to at least one of its OEM customers. Based on a survey conducted earlier this year, Technology Forecasters concluded that adoption of Lean among partners will be the next crucial phase in driving out inefficiencies in supply chains.
Hockenbrocht also sees the sharing of goals as a key to partnerships. He tells how one customer recently invited about three dozen of its most important suppliers, including Sparton, to an event where they got to look at the OEM’s three year business plan in great detail. “I was so impressed with the openness,” Hockenbrocht says. “This is where a business partnership needs to be.”
Collaboration will be crucial to electronics manufacturing success in the years ahead. Kinaxis, a strategic partner of Technology Forecasters, always has interesting thoughts about supply chain collaboration. Its blog posting of October 4 is worth a look.
For obvious reasons, people with waterfront property might care more about global warming than people who live on mountaintops. Likewise, you’d think U.S.-based EMS companies with razor-thin margins might care more about curbing health care costs than industries with profit margins wide enough to absorb this growing expense.
Oddly, that does not seem to be the case. U.S. electronics industry thought leaders who address this problem are the exception, not the rule.
The continued health of the U.S. manufacturing base depends to a great extent on the productivity of American workers. Productivity is a function of input versus output - the cost of workers in wages and benefits versus the value they create. That ratio is heavily impacted by rising health care costs. Reining in these costs through government policy is the key to keeping the productivity of American workers high enough to justify manufacturing domestically.
In its most recent annual study of health care costs, the Kaiser Foundation reported that the average cost of employer-provided family health insurance in the U.S. increased to $12,106 per employee family in 2007. The employee pays about one fourth of the cost and the employer pays the remaining $8,825. To put that number in perspective, it’s enough to pay the fully burdened costs of a semi-skilled worker on an SMT line in China for six months.
According to Kaiser, these insurance costs have risen 78 percent since 2001. This phenomenon is widely remarked on in the automotive industry, where obligations to current and retired workers add nearly $1,500 to the cost of each American-made car.
EMS companies suffer less than automakers from the legacy of large numbers of retired, unionized workers, but in an industry with average after-tax profit margins hovering around 2 percent, an extra $8,825 per employee could make the difference between a production line staying in the U.S. or going overseas, or the difference between winning a contract and making a dime.
Several of the 2008 presidential candidates have now weighed in with health care proposals. The U.S. electronics industry has a major stake in the evolving debate over how to resolve rising health care costs. It is time to pay attention.
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