Technology Forecasters, Inc.
Strategic Environmental and Manufacturing Consulting
One of the rewarding aspects of being consultants to electronics-company executives is the occasional opportunity to give away “freebies.” In this instance, I am pleased to report that this week one of our clients asked us to offer to TFI’s network a head start on enterprise-wide sustainability measurement, for free.
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).
Two weeks ago I co-led a four-hour Sustainability Workshop for a couple dozen executives sitting in a conference room 7,500 miles away, and I didn’t even need to pack a bag. Videoconferencing is a tool that could be used much more widely in the electronics and other manufacturing industries as a strategy to reduce the costs and environmental impact of air travel.
As we set up for the workshop, some clients at our location saw their colleagues at the distant location for first time, even though they’d been working together for some time. “Is that Linda? Hi, it’ Chris! Nice to ‘meet’ you!” –Big grins of delight.
I had the ability to angle the remote camera (it happened to be a PolyCom ViewStation EX) and see everyone in the workshop, ask questions of individuals, see and hear their responses, and gauge their understanding of the concepts.
On-site in the workshop room with the executives was TFI Environment Consultant Dr. Kim Allen (she was in the region). Kim says she appreciated the videoconferencing system because it made the workshop truly co-led. I appreciated Kim being “live-and-in-person”– especially to facilitate the hands-on exercises and judge the contest winners.
OK, what was the client’s ROI for using this productivity tool?
* For not flying me in for the half-day workshop, the client saved about US$6,500, for (1) airfare, (2) other standard travel expenses, and (3) my time (we bill travel time at half our consulting rate—not to exceed 8 hours of billing in a day).
* Next May when reporting emissions to the Carbon Disclosure Project, the client will enter 6,230 fewer pounds of CO2 emissions.
* Our clients got to schedule the workshop on their first-choice date. My schedule did not allow me to fly to the client location; it was the same day as our Quarterly Forum!
* From an internet search today, I found the same mid-range set-top conference-room system that the client owns for less than US$2,000 (for a new unit—it’s even less refurbished with warranty and technical support). The client used their existing, secure data and voice networks, so the operations costs were nominal.
There are many other systems and manufacturers from which to choose, ranging from a $35 attach-to-your-own-computer-screen camera used with the free or nearly free Skype service, to the Telepresence system (here’s a fun demonstration). To foster successful global supplier relationships without the cost and exhaustion of global travel, I especially like Tandberg’s wireless, hand-held videoconferencing unit—such as for seeing and resolving together an issue on the manufacturing floor.
Hey global TFI contacts: Maybe I will see you soon–with Skype at the very least. Extra points go to the first of you who arranges to meet with me using a Telepresence system.
Please share your experiences with videoconferencing so all can benefit: What was your company’s positive or negative ROI (e.g., did your equipment investment truly result in less employee travel?)? How did the cultural shift come about? Do you have a humorous story about videoconferencing?
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.)
Global electronics companies are still outsourcing more manufacturing to China than to any another single country. Though early adopters are starting to shift to regional manufacturing, China is on top now. And China is arguably the world’s largest time bomb when it comes to environmental catastrophes (see “The River Runs Black: The Environmental Challenge to China’s Future” (Cornell University Press, 2004) — notwithstanding the 2008 Summer Olympics’ beautiful gardens and renewable-energy sports arenas. So, if the electronics industry does not focus Lean and Green efforts in China, then where?
You see, focusing solely on your own company’s footprint–albeit vital for competitiveness and cost-savings these days–is a farce in the world’s theatre. Consider that HP’s–like other electronics companies–own company’s energy usage is an estimated one-twentieth of its supply chain’s energy usage (according to Jay Celorie, a manager of HP’s social and environmental responsibility efforts). HP is focusing on reducing its supply-chain energy usage, as well as optimizing logistics networks, joining the Carbon Disclosure Project, and taking other steps to, as Celorie puts it, “prepare for a carbon-constrained society.” More companies, like HP, can reduce costs and risks by addressing their supply chains’ environmental efficiencies.
But try to apply the same approach to environmental training and strategy in China as you do in Western nations, and you may receive blank stares. The Chinese people have been converting used objects into new applications for millennia–so much so that there was no necessity for having a separate word for recycling with the same connotation as in the English language. Encouraging workers to generate grass-roots ideas for reducing waste can lead to a deafening silence; workers are accustomed to following their supervisors’ instructions only. (Solectron Shanghai (now part of Flextronics) experienced this initial reticence when training workers in Lean several years ago.)
We believe that the winning combination is teaming up an experienced global electronics-industry consultancy specializing in the environment (TFI Environment) with an energy and environmental consultancy with deep technical strength in China (WSP Environment and Energy, with offices in Beijing, Shanghai and Hong Kong). This team will be able to leverage proven methodologies for sweeping Lean and Green organizational changes and successful access to and influence with Chinese management at the OEMs and contract manufacturers companies there. That’s why my colleague Chris Hazen (Director of WSP Environment and Energy’s Asia-Pacific operations) and I have teamed up to provide strategic, results-oriented multifunction environmental consulting in China. Let me know (PGordon@TFIenvironment.com) if you’d like to know more.
What do you think is the winning combination to address the Lean and Green necessity in China?
There are times when everything aligns for the good. The Quarterly Forum for Electronics Manufacturing Outsourcing and Supply Chain is entering its tenth year. Although it has exceeded my wildest dreams and has been an undeniable success, I have been exploring ways to take it to the next level.
Dream #1: More Multi-national As valuable as the Forum is to our North America members, I want the community and venues to become far more multi-national. Although nearly 15 percent of our members are based in Asia and Europe, we have held only 6 Forums outside the US — one in Germany, two in Canada, and three in Mexico. We need a broader international scope to reflect the global electronics industry.
Dream #2: More Industries Although the electronics industry has always been my focus, I want Forum members to benefit from best practices in other successful industries. While it is true we have touched on inter-industry benchmarking in previous Forums (in the apparel and chemistry industries), we can deliver far more thought leadership by pointing members to innovative and applicable practices outside electronics.
Dream #3: Grow Quarterly Forum Membership We have an amazing list of member companies, representing all nodes in the supply chain and leaders from every segment. Expanding on that list will provide the opportunity for more insights and opens the potential for segmented Forums based on member preferences.
Dream #4 – Grow TFI Environment Many of you know that TFI’s environmental consulting practice has skyrocketed in recent years. My dream of late has been to focus my creativity and energy on continuing to grow TFI Environment while keeping our outsourcing and supply-chain consulting strong.
I am pleased to announce that all these dreams are about to come true. The Forum now has new co-leaders: Kathleen Geraghty and Douglas Kent. Kathleen and Douglas are founders of eKNOWtion, a supply-chain education and consulting firm. I have known them both for a long time and they have consulted on numerous TFI projects. They understand our industry from within and have worked with an extensive cross section of companies globally. Their team and network provide broad industry reach in supply-chain and outsourcing strategies. Kathleen is based in North America and Douglas is based in Europe with resources to support the Forum’s growth globally.
When Bruce Rayner leads the July 31st web-based Forum in Boston, Douglas and Kathleen will be there to share their vision for making the Forum program the best ever. Douglas, Kathleen, and I will lead the October 22-23 Forum in San Jose. In addition, I will be involved in the Forum to support our members as part of your Leadership Team.
Thanks to Eric Miscoll, Bruce Rayner, and our full consulting team, we’ve done amazing things with the Forum so far. And I know it is only going to get better.
Kathleen and Douglas welcome emails (write to QuarterlyForum@TechForecasters.com) about your dreams for the Quarterly Forum. I am looking forward to seeing you at the October 22-23rd Forum, if not before.
Technology Forecasters Inc. has issued a mid-year update, based on actual 2007 data, of its five-year growth predictions for electronics manufacturing, revising downward the forecasts for total available market (TAM) and EMS sector growth, and revising upward the forecast for ODM sector growth.
The economic drivers behind the numbers are a clear signal that the U.S. is in a recession, with no sightline to its end point. “I do think we’re in recession,” says Matt Chanoff, TFI Senior Economist, who issued the update at TFI’s recent Spring Quarterly Forum. “And I do think it will take a while to work out the weaknesses that are keeping the economy slow.”
Economic drivers identified as problems in the September forecast, including housing market troubles and high energy prices, have worsened. Chanoff doesn’t expect a drop in oil prices until the summer driving season ends – if then – and expects that the fallout from the burst housing bubble will take even longer to settle.
Housing bubbles are less volatile than other financial bubbles because many of the reasons that go into purchasing or keeping a home are not economic, Chanoff explains. These factors have helped with the long run-up in home prices, but they also mean that re-inflating the housing market will take time. Additionally, it wasn’t clear last September that the U.S. housing slowdown would spread internationally, but many countries, including Britain, Spain, and even some parts of China, are now seeing it, he notes.
Chanoff also identifies a new driver of economic woe that was not obvious in September. “Food prices are ridiculously high at the moment,” he says. “Some of the high price is energy driven. Some is due to decisions to focus on bio-fuels instead of food crops. But a lot of it comes from trade restrictions meant to protect domestic markets.” He notes that India and Vietnam, two large rice exporters, have restricted sales abroad to make sure they have adequate reserves to feed people at home.
How do food prices impact electronics? Higher prices can push would-be, first-time buyers to postpone purchasing cell phones, computers, DVD players and other consumer electronics because the disposable income they had planned to use must be spent to feed the family.
“As the economic boom continues, huge numbers of people have crossed the buying threshold for electronic gadgets in Asia in recent years,” Chanoff notes. “Now high oil and high food prices are raising the threshold.”
In the U.S., consumer confidence and consumer spending remain big wild cards. In his presentation at the Forum, Chanoff cited a recent report by the International Monetary Fund, which states: “The world economy has entered new and precarious territory. The U.S. economy continues to be mired in the financial problems … [that's taken it] to the verge of recession … The effects on the rest of the world are likely to be significant.”
Chanoff’s assessment: “I imagine we’re going to bump along the bottom in terms of U.S. gross domestic product for a while, probably through the first quarter of 2009. We might rebound and see a strong end to 2009.” In contrast, he notes, most Wall Street analysts are more optimistic, envisioning a rebound toward the end of 2008.
His advice to the electronics industry: “If you accept my argument, you would be more cautious in your inventory and maybe more aggressive in focusing on markets outside the U.S. than you would be if you believe what Wall Street is saying.”
TFI’s revised average five-year growth rates, based on actual instead of estimated 2007 data, are as follows: TAM 6.1 percent, down from the 7.1 percent estimate in September; EMS growth rate, 11.2 percent, down from 13 percent; and ODM growth rate, 18.5 percent, up from 11.9 percent.
And here are the revisions to the 2007 numbers: TFI had forecasted a TAM of $1,241 billion in 2007, revised that to $1,166 billion, or 1 percent lower. TFI revised total outsourcing for 2007 from $276 billion to $292 billion, or 6 percent higher.
These numbers are based on actual 2007 year-end data from OEMs, EMS providers and ODMs, and update the projected figures in our September report, “EMS and ODM Manufacturing 2006-2011: Drivers, Market Sectors, and Geographies.”
The update only looks at the aggregate market, with no market segment or regional breakdowns. For a complete discussion of those, see the October report.
TFI will be examining the root causes of the increase in the ODM growth rate at the July Quarterly Forum breakfast to be hosted by Teradyne in Boston July 31. “ODMs ended up having a banner year in 2007 in top-line performance, with companies like Compal, Quanta, and Asustek seeing very large growth,” he notes.
In the May issue of Manufacturing Business Technology, Bruce Rayner, vice president of consulting and research at Technology Forecasters Inc., offers strategic predictions about electronics manufacturing. Don’t miss his take on matters: “Bold Changes Ahead: Electronics manufacturing rethinks the supply chain; the time is now to review your long-term strategies,” which appears on page 32 of the new issue.
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.
With nano-thin margins in many electronics segments, it is only natural that OEMs are looking for the next low-cost place to build. Vietnam, which pops up on most radar screens, might be that place – or might not. The Asian low-cost leader has an upside and a downside.
At Technology Forecasters’ Quarterly Forum on April 23 and 24, Matthew Chanoff, TFI senior economist, will share his recommendations for outsourcing in Vietnam based on his quantitative analysis, and his recent interviews and plant tours in Vietnam. TFI will also release his report to members.
To pique your interest, let’s take a look at one issue, which Chanoff will examine in more depth: The labor force.
Vietnamese skilled workers are highly skilled, proficient in English and driven to learn what they don’t know. There just aren’t enough of them. This land of 80 million people has a skilled labor shortage. It should come as no surprise that even though Vietnam has a labor cost advantage, wages are rising.
One Western executive says wages have skyrocketed 300 percent for top performers in the four years he’s been in Vietnam.
“The challenge everyone is beginning to face now is the relative lack of skills and experience versus the demand,” says Lorien Hamilton, operations director of Technology Resources Group, a Hanoi-based software reseller and service firm.
Hamilton, who serves as vice chair of the Information, Communication and Technology Committee of the Hanoi chapter of the American Chamber of Commerce in Vietnam, says turnover rates are as high as 40 percent. “The more skilled, experienced, and internationalized the person is, the more difficult it is to keep them. That individual can change jobs and double his salary every six months to a year.”
Unlike China, where there are literally millions or workers to do fairly low-tech production line work, Vietnam has a far smaller pool of people to draw from. Hamiton notes that GDP is running at more than 8 percent in Vietnam, second only to China, but that people often overlook the inflation rate, which is between 15 and 20 percent in Vietnam. “We recently had a big pay review within TRG and it seems to be much harder to match expectations with a sensible pay increase,” he says.
Jason Craft, managing director of Spartronics, the Vietnamese subsidiary of Sparton Corp., an EMS company based in Jackson, Mich., says retaining staff is a challenge. Sparton, a high-mix, low-volume provider with about $200 million in annual revenue, built a factory in an industrial park near Ho Chi Minh City, and began to operate in 2005.
Craft says turnover can be brutal, but Spartronics has a relatively small churn among its 150 employees. He attributes that record to the fact that he’s the only Westerner in the plant, and that all his key staff positions are Vietnamese, which gives others in the workforce hope of being able to advance.
At most foreign companies he knows in Vietnam, the top two layers of management are ex-patriots, Craft says. His management team is Vietnamese, and has proven highly capable. At the time we talked, Craft had just completed home leave: “My staff proved they can do it. I’ve been in the U.S. for month and they’ve run it without me.”
This is an opportunity they would not find at most other plants. “Some guys working for me worked elsewhere and were three levels down and were going no higher,” Craft says. “That is why they came to work for me.”
Craft has seen Western companies struggle because they don’t pay attention to basics. “I’ve learned a lot of things about the Vietnamese and how to treat them. You’d better know what motivates and drives them so you can create benefits and retain them,” he says.
Vietnamese workers are extremely loyal when given a chance to keep learning, he says. “Right now they really value education and the challenge of learning things new. They’re not much different from Americans in this regard.”
Whatever the Vietnamese lack in engineering education, they seem to make up for with a thirst for knowledge. “If they don’t know something, they go learn it in a couple of days,” he notes. “My engineering force here is almost as competent as the one in the U.S”
Craft says members of his management team all speak English, and the entire workforce understands enough English that he can deliver instructions in English. He believes he has scored points with his management and engineering teams by training them in modern management practices, including Six Sigma and Lean, which they’ve been able to apply in the plant.
Much of what Craft advises seems like Human Resources 101, but all too often, companies forget the basics. In the end, what it takes to retain employees in Vietnam is the same thing it takes anywhere – the right kind of TLC from management.
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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