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?

Quite a few years ago I had the pleasure of living in Europe, Asia, and the United Arab Emirates. My work took me to the offices and boardrooms of some of the largest companies in the world, many with annual revenues larger than those of some countries.

Each day I interviewed managing directors and presidents about their company policies and economic outlook. Often, I was greatly impressed with their overall vision and their ability to lead large groups of people toward a common goal. However, in many cases I was disheartened at the responses from these business leaders when I asked about their company’s manufacturing policies — particularly the social and environmental elements. During the course of these visits, I also toured the factories, met with some of the workers, and analyzed the network of distributors, suppliers, retailers, and wholesalers that helped bring their products to market. Some companies implemented impeccable processes. Sadly, I also witnessed subpar standards that had me question many of these companies’ practices.

It was then that I realized that the best way for the world to change was for business to change. As a result, I began to direct all of my efforts and energy to create awareness for more sustainable business practices, including supply chains.

Since the days of my global CEO meetings and factory tours, I completed an MBA at the Presidio School of Management, a traditional business school that threads sustainable values into every aspect of the curriculum. Additionally, three years ago I co-founded a company called EcoTuesday, which brings sustainable business leaders together in cities across the USA. I now am honored to work with Fortune 500 companies, start-ups, and non-profit organizations by developing strategic plans and coordinating teams to reach specific, measurable goals. It’s great meeting more and more of TFI’s clients and witnessing their clear understanding between sustainable supply-chain practices and robust company performance.

My international business experience and the formal education I received at the Presidio have provided me with the tools needed to help TFI clients transform their businesses by increasing efficiency, decreasing waste, and saving money within all points of their supply chains. I look forward to using my skills and insights to support our clients in being financially successful and highly competitive in their industries. Additionally, it is important to me that all of our clients are in compliance with applicable product-and-manufacturing regulations and that all of their stakeholders are in alignment with the company’s vision.

Do you believe any business could truly transform without a thorough examination of its own supply chain? (Please reply at the bottom of the blog.)

Now that the economy is reportedly on the upswing, manufacturers are readying to boost production in anticipation of seeing business pick up. But operations executives are experiencing a chicken-and-egg situation concerning their fragile supply chains.

They ask, “How and when do we dip our toe in the water and expand capacity, labor, and inventory?” We know that whoever acts first may have an edge, but those acting too fast will suffer from anemic cash flow. And whoever acts last will miss the window and lose critical advantage. So, how does one “read the tea leaves” with confidence about an upswing in orders, and boost operations accordingly?

Crossed signals about when orders will pick up
Operations executives wonder, will the industry build and ship product “like we used to” or are today’s off-balance supply-and-demand conditions creating a lasting tug-of-war? It’s understandable why they are perplexed. Last week I read a difficult-to- believe study suggesting that 1 in 4 manufacturers felt no impact of the recession (I don’t know any of these manufacturers; do you?). The next article I read noted that unemployment rose in December in 43 USA states. I am an optimist, but even I am still compelled to be neutral at best about the pace of the recovery.

Lengthened lead times
One major risk lies with lengthening lead times. If no one is holding inventory, are we really working in an environment of cold starts–starting from scratch? Suppliers, OEMs, distributors…none is holding inventory that isn’t supported by a commitment, if they can help it. And what about the service parts on which customers depend — 24-hour turn-around promised with stocking levels based on past consumption? How do we walk this tightrope when consumption has been at an all-time low and could turn on a dime any minute now? I wrestle with these decisions every day.

Over the past year, sales-and-operations planning (S&OP) processes have been battered. What is a demand forecast anyway, when there is little certainty behind potential bookings figures? Pull systems, build-to-order, vendor-managed inventory – how do our lean-materials management systems work when no one will carry inventory and the demand is so uncertain? Ultimately, clients ask this key question: “Should we switch manufacturing strategies to buy-and-build-to-order instead of driving material to an S&OP build plan? If we buy-to-order to conserve our cash for actual customer orders, will our lead times grow and cause us to lose these same potential orders to a more aggressive or cash-rich competitor?”

The Best Counsel for Now
In my 20 years of operations management experience, I haven’t experienced such a “perfect storm” as we have now. But it actually creates a window of opportunity to gain insight enabling more certain decisions.

I see only one real answer: customers, OEMs and suppliers all need to work together as a united supply chain, sharing information to reduce risk more than ever to get through this transition period and prepare to take maximum advantage of an increase in business. And the “perfect storm” actually gives us greater opportunity than ever to gain inter-supply-chain-partner cooperation. We’ve found that right now in the business cycle, the best externally focused tool is plain and simple – increasing the level of direct communication with customers and suppliers and listening carefully for the clues.

We start internally — by helping our clients discern: Do they have significant numbers of customers and suppliers both on credit hold? Are they rationing cash? Is it possible that they, our client companies, may be on credit hold with some suppliers? And we immediately assemble a senior-executive-driven, cross-functional (comprising Sales, Operations (Manufacturing, Supply Chain), and Marketing) internal forum to drive S&OP process, balance risk, and make optimal choices right now. Then, talk more openly than ever with customers and suppliers, who themselves are needing insight just as much or more than your company does.

How is your company coping with supply-chain uncertainty? Would you be more willing than usual to engage in frank, cross-company discussions to strengthen supply-chain predictability?

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)?

It’s typical during challenging economic times for corporate executives to focus internally — especially on costs and cash. Many subscribe to a survival plan mandating full attention to internal metrics, to the extent that they are more willing to play tug-of-war with customers to cut inventory, slow payments to suppliers, and protect cash. Plus, the executives find it even more difficult than usual to predict customers’ moves, so they focus on the internal metrics they can control. This is the way to survive, right?

Wrong answer! Putting the customer at the forefront and satisfying their requirements should never take the backseat to singular attention on internal operational metrics. The latter is surely the path to decline and gives an advantage to competitors who keep a steady eye on pleasing the customer.

In the electronics manufacturing services (EMS) business especially, it’s important to reflect regularly on the fact customers are never 100% dependent on your services. Having managed outsourced manufacturing for electronics companies for 9 years, and now managing TFI Customer Retention for Business Growth programs, I have seen first hand the end result of EMS companies who were inwardly focused.

One time, at an instrumentation OEM, we were counting on the quarterly cost-reduction program that our new EMS highly advertised would deliver savings. Their “aggressive cost-down program” was one of the reasons we had chosen them. After not receiving any updates early in the relationship, we quickly learned that the EMS was really working from a Pareto of ALL customer material spend, and our parts did not make their top 10%. As a result we were quite dissappointed and needed to micromanage the situation ourselves to get attention for our account.

When dissatisfied, the customer can switch to another EMS or even bring the manufacturing back under their direct control in-house. The only reason customers use the supplier’s services is to add more value than they can produce internally. So if suppliers do not proactively view customers’ operational challenges as their own, the suppliers get off track and miss key intelligence that will benefit their own bottom line.

I advise EMS clients to take a look at how they are working with customers. Are they… (1) Proactively collecting and analyzing quality data? (2) Continually looking for purchased-part cost reductions and sharing benefit? (3) Suggesting design and process changes to reduce cost? (4) Reinventing themselves to deliver more value to customers? Or, instead, are the suppliers causing customers pain with parts shortages, average or worse-than-average costs on materials, delivery snafus, poor inventory management, and other sub-par results? Of course, the EMS needs to make a profit, but if they are truly adding value, the profits and increased market share will follow.

We would never encourage an EMS management team to accept a customer’s rules and conditions that would critically deplete the EMS company’s margins. One of my program managers showed me a Service Level Agreement that outlined the amount of forecast change that the EMS could support. We knew that the EMS would end up holding inventory and would eventually try to back out. So, we revised the agreement to be more of a win-win. It’s always best when the EMS and OEM can donate resources to a project team and build a sense of team spirit.

But I remind our EMS clients that their companies exist for one reason only: making customers more competitive and successful than they would be without them. Metrics should be aligned to eliminate debate. Strong open communication is key. Adding value, both strategically and tactically, and being proactive — soliciting feedback and suggesting where to team will — sets suppliers apart. EMS companies that strongly enable customers to reach higher levels of performance in quality, cost, and delivery for the benefit of their mutual ultimate end customer, can parry other EMS companies out of the way.

What have you done for customers lately?

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?

Let’s start with a small electronics-manufacturing services (EMS) company example. I’ve known Mo Ohady since 1982 — the year he started Digi-Com Electronics down the road from TFI’s headquarters. He’d called to ask questions about an article in which I’d been quoted. We started to meet for lunch every few years, and last month I was delighted to hear that Digi-Com received certification to ISO 9001 (quality management) and ISO-13485 (bio-medical devices).

I asked Mo how he has managed to champion his small electronics contract manufacturing company through numerous economic ups and downs. He said that his tenacity owes in part to his credo: “At the top of our concern is to look for partners that are a good match. Take the right steps at the right time, and resist falling into the traps of ‘anything goes as long as the numbers are there’.” As the economy rebounds and Digi-Com receives an uptick in requests for proposals, Mo will continue to control his company’s growth. “Be well aware of the pitfalls of poor matches or of grabbing too much.” This is good advice for EMS companies small and large alike.

Large-sized EMS companies whose executives best know which customers match their company’s strengths will fare better than those who grasp wildly at opportunities outside their sweet spots. At the same time, though, these executives need to realize that the economic downturn and new trends have changed the thinking of executives at some of their long-held customers.

Several OEM executives I know are planning to redirect manufacturing strategy as orders resume — toward in-house manufacturing, toward ready-designed products by original-design manufacturers (ODMs), toward other OEM companies with platforms they can leverage, and toward manufacturing in customers’ regions. (More examples are in a recent blog by new TFI Senior Operations / Supply Chain Consultant Pamela Wiseman.) Frankly, not all OEM executives are yet thinking holistically enough — systematically weighing all changes from product concept to customer usage and whether these changes will still foster corporate objectives.

Perhaps OEM executives can take a pointer from Digi-Com’s Ohady, who told me he most admires supply-chain partners with these attributes: “Fast responsiveness, no mistakes, and personalized service.” While looking to new manufacturing models, OEM executives will be wise to keep sight of customers’ needs for responsive, accurate, and customized products and services. See that the new manufacturing relationships meet this core business principle at least as much as did previous paths.

What changes to design or manufacturing strategies are you planning to make — either as a supplier or customer — as the economy rebounds? (Please reply below.)

Manufacturing out- and in-sourcing strategies are controversial and lively topics these days. Even people not directly involved in manufacturing discuss these themes in daily conversation, prompted in part by the media being quick to ensure that we all know that Whirlpool will move a portion of its manufacturing from Indiana to Mexico, and that Nokia , NCR, and LeCroy have all decided to reverse their outsourcing trends to bring some manufacturing back in house. The economic downturn has been a catalyst for change and adaptation, prompting executives to reassess and reposition manufacturing strategies.

A Google search for “Nokia outsourcing” yields a 5-year chronology of the company’s decisions. As the market forces ebb and flow, Nokia’s decisions have appeared to be frequent and seemingly fluid and reversible. This flexibility in manufacturing strategy has great value in volatile market environments, where demand — as well as energy and transportation costs — can fluctuate dramatically. Carbon footprint and protectionism are also becoming valid concerns when devising a manufacturing strategy. Both traditional and new variables must be considered, all of which seem to be more difficult to forecast than ever before.

The uncertainty in global economics and politics amplifies the fact that decisions made based on today’s lower demand for production volumes, current energy costs, and other influences will certainly need to be revisited — probably sooner than expected. The more flexible the manufacturing model, the more rapidly a company can respond to changing business dynamics. As global demand recovers it will be key to reassess our manufacturing strategies to build in more flexibility than ever.

Nokia appears to have skillfully devised a hybrid manufacturing strategy and capability that balances outsourcing with in-house manufacturing. Today’s volatile demand is presently associated with the downturn, but — in fact — this demand pattern is also true of products during a typical lifecycle. The hybrid model provides resiliency and options when business forces are changing.

Executives with the capability to outsource when economics are favorable while maintaining in-house proficiency are positioned to optimally respond to the varying cycles. This strategy also protects against the loss of leverage and skills resulting when giving up in-house manufacturing capability. Ultimately, executives will assess the changing forces and align capability to best meet customer demand.

Many questions remain (consider replying below). Do you think this degree of flexibility is practical, in light of possible trade offs for quality, supply chain, logistics? What additional costs come along with flexibility, and will they be offset by the value of potential market responsiveness? Has your company rapidly relocated manufacturing capability with minimal repercussions?

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?

What is it about EMS companies that has inspired investors to clamor over them despite the industry’s consistent, remarkably low profit margins? How did the “board-stuffing” suppliers – once only whispered about by the name-brand companies that outsourced to them — transform themselves into multibillion dollar international players with star-power executives such as Michael Marks and Tim Main?

From the perspective of having tracked and served the industry since 1985 (2 years before starting Technology Forecasters Inc.) when “board-stuffers” was actually an accurate and not pejorative moniker, I believe that it’s the personalities of the companies themselves that have won them fame (if not also fortune).

It was the people who loved building things who ran these companies originally – before visionaries and financial experts arrived on the scene. They had an earnest desire to build products better than the name-brand (former) product builders. They had the thrill of crossing the Atlantic then Pacific Oceans to open up facilities in Scotland and Ireland, then Singapore and Malaysia, then China and Eastern Europe, then Vietnam and Jordan (I’m projecting, now). Empire builders they were, and we all rooted for them, discussed them like favorite sports teams, and felt badly when they suffered.

So that’s why when we reflect today about these EMS giants and the challenges they face, it’s as if we are speaking about friends whom we wish well — even though mistakes were made (such as Solectron buying C-MAC), bubbles were burst (“I can be a product company if I want to be”), and profitability disappointed all (countless EMS executives dream to work for healthy-margin OEM companies).

Why do you think that the EMS industry has acquired such a high profile? It is sheer size, or something more? (Please leave a reply below.)

Post Note: I dedicate this blog entry to the memory of a real friend from the EMS industry, Scott L. Hudson, who this month while riding his motorcycle was killed by a drunk driver. Scott worked for EMS-company Sanmina-SCI and before then was a TFI Analyst. I will miss Scott as team member, client, and friend (remembering especially his love for sailing, international travel, and modern art). A memorial service will be held in Los Gatos, California, Sunday August 2nd from 4 to 7pm at the Los Gatos History Club.

This month Mark wrote in his newsletter the Marbridge Daily about China’s “Old-for-New” recycling program. In short, residents and organizations can trade in old consumer electronics and receive a 10% subsidy on the selling price of new consumer electronics. The program makes sense to me, and yet in China fashion the regulation is different from those in all other global regions. In fact “Old-for-New” is an even greater departure from the European Union’s WEEE Directive (reuse/recycling) than was China’s substance-labeling program from the EU’s RoHS Directive (substance restriction).

I asked Mark about China’s bold new law, and Mark said, “China is gradually working to improve the environment, both through recycling programs like the ‘Old for New’ program for consumer-electronics recycling, and also through use of more energy-efficient products, like “green” mobile-telephone base stations.”

Then he proceeded to give one person’s view of the impact of these laws, from the streets of Beijing: “We’ve had one of the most hospitable summers in my 7 years here – neither too hot nor humid and more blue skies than I ever thought possible for Beijing. I thought the clearer skies might be due, at least in part, to some improvements in environmental policy, such as replanting of forests between here and the Gobi Desert in the north, and even-odd license plate regulations. But the other day someone reminded me that one potentially major contributing factor is the economic downturn, which has seen a lot of factories reduce output (and the accompanying pollution).”

By the way, Friedman’s chapter “China for a Day” also reminded me of my 2004 visit to China (meeting executives at EMS and ODM companies in Shanghai and Suzhou), when with no apparent warning the Central Government banned filter-less cigarettes — without years-long deliberation by politicians in tobacco states or investments by the tobacco lobby. I found it both impressive and scary.

What do you think about China’s environmental policies and the way they are created?

Using a down market as an opportune time to innovate is what some of the smartest companies in the tech industry have done. When customer orders return, they have a competitively superior product or service to sell. You might be thinking, “But who has the resources to innovate with the budget cuts we’ve experienced?”

This week I conducted a seminar near Tel Aviv for 45 engineers whose companies’ innovations impressed me: from next-generation human-computer-interface to security products to even automated pool-cleaning units. And during the past year Israel experienced not only the global economic slowdown that affected everyone, but also economic challenges from missile defense, a continuing stream of immigrants, and providing among the best health care in the world. Even though Israel has capable global and local EMS companies, manufacturing is not as popular as innovation; many Israeli companies lean on Chinese manufacturing companies for (at least perceived) cost savings. Innovation is a strength to a fault, in that many foreign-based companies establish think tanks in Israel and manufacture the products elsewhere. But this reputation for in-house innovation is enviable.

Though outsourcing manufacturing is a near-ubiquitous strategy for companies around the globe, let’s take care not to outsource innovation completely. Electronic-product companies’ preference to use original design manufacturers (ODMs) to leverage other companies’ product designs continues to grow. Many mid- and large-sized electronics companies have a steady diet of acquiring companies with innovative solutions; notwithstanding “bargains,” these acquisitions can be tougher during lean economic times. Outsourcing and buying innovation are strategies that cannot stand alone.

Remember that innovation in our industry is not restricted to hardware design. This is an excellent time for innovations also in software (hint–more software than hardware is the way to go) and in organizational processes for the gamut: design, supply chain, manufacturing, fulfillment/logistics, distribution, facilities, human resources, and — yes — the process of innovation itself throughout the company.

What have you noticed about the world’s most innovative high-tech companies, in both rich and poor times?

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).

Corporations habitually buy IT equipment, furniture, supplies for offices and cafeterias, capital equipment, marketing collateral, and product-related materials. Managers fear that if they don’t buy enough stuff to consume this year’s budget, then next year’s budget will be smaller. So the process has been “Buy it, then Use it or Store it.” Employees are starting to get disgusted with how their companies are laying off people while offices and storage rooms brim with unused or underused investments.

Replace the old procurement habit with “Identify the need, then Find a solution” — whether that solution is borrowed, second hand, leased, a service, or a better process requiring no additional stuff whatsoever. CFOs need to start rewarding departments that use “Identify the need, then Find a solution” instead of those tactically following “use it or lose it.”

Cisco had it right when they created CREDO — an online inventory that matches surplus items to identified needs. Several years ago we consulted to a client trying to bring this buying-stuff alternative to other companies, but you can easily create one on your intranet. And expand your thinking to include strategic solutions that avoid opening new facilities and taking on other major expenses.

Secondly, imagine the time we’d free up if we halved the time we spent in meetings. Check out four smart tips to reducing hours (even minutes) from meetings that do not further corporate objectives. Executives can insist on dogged project-management practices, comprising milestones and accountability for accomplishing corporate objectives. Leverage priority-only meetings and on-line tools for collaboration and accountability.

Corporations will not overcome their addictions to buying stuff and holding unlimited meetings until a “less is more” culture is embraced by top management and frequently re-enforced through employee training, fun competitions, and rewards.

Before you run to your next meeting or fill out a purchase requisition, take a minute to share with the TFI network your successes with repairing margins, by leaving a reply.

*Watch for an upcoming post in which we’ll write about notable mid- and smaller-sized contract manufacturers whose margins have actually been good.

The beauty of talk such as this stems from the multifunctional, multiregional composition of green teams that develop Lean and Green strategies for product design, manufacturing, suppliers, product movement, cafeterias, corporate travel, corporate procurement, employee commutes, and in all aspects of facilities.

Two weeks ago at the TFI Quarterly Forum in Walldorf, Germany, we witnessed nearly a dozen environmental improvements throughout Forum-host SAP’s facilities. Examples include coffee and tea served in ceramic cups, avoidance of air-conditioning owing to smart natural-air-flow design and grass-covered roofs for cooling, solar panels generating 180,000 kw/year from photovoltaics, and rainwater collection for grounds irrigation and — yes — toilet flushes. And beyond the realm of facilities, SAP designs their software products to run on hardware consuming less electricity, and offers solutions to help customers to measure and reduce their carbon footprints. Taken together, SAP’s environmental and cost-savings initiatives cross numerous corporate functions and regions. We think that’s the best way to drive deep cost reductions and environmental benefits (as discussed in our recent TFI white paper).

If you are located in EMEA, consider attending the Design-for-Environment Workshop that my colleague Graham Adams and I are co-leading 22 June near Tel Aviv. It will be a full day’s experience of Leaning and Greening electronic product designs.

So, take a chance and bring up “trash talk” at your next cost-reduction meeting — in a civilized manner, of course. Last week, when discussing TFI’s High-Return Environmental Partnership, the VP of Operations at one of our electronics-contract-manufacturing clients told me, “As you know, every year I need to figure out how to take cost reductions to another level, so this may be one thing that helps us this year.”

What conversations has your green team had that led to significant savings for the company and environment?

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?)

Have you read your company’s sustainability report lately? If creation of such a communication has not been undertaken, yet the company is making honest strides toward becoming lean and green, then perhaps now is the time to consider it.

At a recent dinner, the 19-year-old daughter of friends of mine told me that my generation – the baby boomers – and the corporate culture we built caused the threats now facing our environment, and that her generation is left to clean it up. Her comments struck a nerve. Granted, “better living through chemistry” did explode onto the scene in the post-WWII 1950s, and our consumerism grew into a mode of taking whatever we wanted, from wherever we wanted it, and without thought to the materials being used or their potential damage to the environment.

But, as someone who has been working with corporations for thirty years, I see examples daily of how businesses can be part of the solution, agents of change. Illustrations of this are readily available in the sustainability reporting coming out of electronics manufacturing, including the recent Consumer Electronics Association sustainability report (which we were privileged to write and design).

In a study completed in January 2008 on reader response to sustainability reports, the benefits of looking inwardly and assessing sustainability efforts give good reason to build such an effort into individual companies’ environmental stewardship practices:

* Readers use reports to improve their understanding, benchmark against others, and provide basis for further action.

* Sustainability reports impact decisions by investors, customers, and corporate partners.

* The reports overwhelmingly improved readers’ opinions of the reporting companies.

Furthermore, is it just a matter of time before some governments require sustainability reporting of publicly held companies? As shareholder mindset becomes increasingly influenced by socially responsible initiatives in our personal lives, we anticipate an increasing demand for corporate accountability, driving past “compliance-driven” initiatives toward broader corporate consciousness of environmental stewardship and social responsibility.

For our Environmental Partnership program we’ve benchmarked sustainability indicators such as position on the Zero Waste continuum, Carbon Footprints, Greenhouse Gas Emissions, renewable and non-renewable resources per employee, solid and effluent waste per employee, and correlating cost savings. We’ve also seen how this data, in concert with compelling visuals designed for readability, can deliver competitive advantage through positive impact to business reputation.

Do you have a favorite sustainability report — either inside or outside the high-tech industry? What experiences have you had encouraging your company to report on bona fide environmental benefits? Do you require your suppliers to have such a report?

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?