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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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?

2009 is finally over
It’s hard to imagine that we have been in the downturn long enough now that year-on-year measures are actually starting to look good in the transport sector. While demand shrank, deep capacity cuts in nearly all modes helped to prop up pricing as we closed out 2009 and moved into 2010. Despite these cuts, carrier profits remain dismally low, and in some sectors, non-existent. Ocean freight has been a particularly difficult market.

Quoted in Logistics Management, Edward Zaninelli, VP Transpacific westbound trade for ocean carrier Orient Overseas Container Line, says that “Revenue is below cost in all trade lanes, and the recovery is just beginning.” Another recent article in the Journal of Commerce stated that “The world’s top 22 ocean container carriers lost some $11 billion in the first nine months of [2009].”

Service and reliability implications
TFI’s forecast is for slowly improving market conditions; we see shippers being generally more optimistic about 2010 volumes. We expect that the gradual strengthening of economic fundamentals will continue through 2010. Unfortunately, these modest gains may not be enough to prop up all service providers. Similar situations exist in the domestic truckload and less-than-truckload markets, as well as in international airfreight. Some of the weaker players may not survive through this year.

Faced with these difficult market conditions, ocean carriers are using “slow steaming” operations as a way to constrain capacity and reduce operating costs. Rather than idling ships outright, carriers are opting to run certain lanes at reduced speeds to save on fuel and reduce costs. Others are avoiding expensive transits of the Panama Canal by steaming around Cape Horn.

Slow steaming can reduce operating costs by as much as 5% to 7%, but the increased transit time, as much as 33% longer, may be problematic for time-sensitive shippers.

Bottlenecks forecast
Improving economic conditions could lead to bottlenecks in transportation as constrained capacity and carrier bankruptcies collide with growing demand. Spot market container rates are rising quickly in some lanes, reflecting this shift in supply and demand balance. In fact, small shortages in ocean liner capacity occurred in late 2009 just before the holidays, and we expect this to recur in January/early February 2010, driven by preparations for Chinese New Year factory shutdowns.

What to do next
Proactive shippers are carefully watching their carriers and aligning with strong, well-financed partners in all transport modes. Savvy buyers are making the best of bad market conditions and getting good pricing where possible, while still managing risk.

To avoid supply-chain interruptions, supply-chain managers should proactively review ocean transit times and communicate changes inside their organizations. Slower ocean transit times also call for reassessing the cost of capital for in-transit inventories and reviewing the total cost differential between airfreight and ocean shipping options.

Finally, supply-chain managers should actively analyze transportation-related risks and develop contingency plans to deal with service interruptions due to ongoing carrier financial stress and/or upticks in demand.

What are you doing to manage risk, control costs, and drive transportation innovation at your company? Let us know if you are curious how TFI’s experts help clients improve supply chains and better manage transportation.

Celestica, in response to the Montreal Protocol phasing out ozone-depleting substances was the first electronics contract manufacturer to leap-frog from cleaning printed-circuit-board assemblies with CFC (ozone-depleting) solvents to the no-clean process. In doing so, Celestica leaped over the aqueous-cleaning technique requiring costly capital equipment, floor space and power for the equipment, labor hours, and disposal of heavy-metal water with permits and treatments. I interviewed the parties responsible for this change a few years afterward (for my book Lean and Green: Profit for Your Workplace and the Environment), and the smarts behind the leap-frog move were motivated by environmental conservation and competitive savings of time, cost, real estate, and more.

HP, anteing up for a package-reduction challenge by Walmart, did not do as most of its competitors did — incrementally or even substantively reducing the size and weight of the packaging surrounding the products. One HP employee had the idea to make the packaging part of the product itself. The notebook computers, cables, and accessories were packed in attractive over-the-shoulder “messenger” bags — three to a cardboard shipping box without any other packaging material. In one fell swoop, this leap-frog move resulted in 97% reduction of packaging, conservation of fuel, and reduction of CO2 emissions by removing the equivalent of one out of every four trucks previously needed to deliver the notebooks to Walmart and Sam’s Clubs around the USA.

I encourage you to take advantage of the New Year to use leap-frog thinking — in your companies’ manufacturing strategies, supply-chain and logistics designs, Lean programs, sustainability programs, and every other aspect of your workplaces. Make it easier for yourself! Raise up your company’s efficacy 4-5 steps at once instead of inching upward — facing organizational resistance to change each time. Leave the arduous step-by-step improvements to your competitors, who will arrive at the finish line much later and with far more cost.

Will you face more organizational resistance to this one leap-frog improvement than to a more routine change? Perhaps yes. But if you are like me, one of the reasons you get up in the morning and head to your desk is to make your organization and the world better places.

Do you want to try on some leap-frog ideas with the TFI and TFI Environment consultants and/or community (reply below)?

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?

And the networking industry has responded by using more efficient power supplies. But this is an incremental improvement. Significant market growth is available to companies disrupting the way that networking equipment consumes power through alternative designs and innovative power management.

So, this is a call-to-action for network-equipment designers everywhere, as well as to innovative software and parts suppliers serving the networking industry. Let’s discuss ways you’ve considered power reductions and together create a roadmap of likely alternatives for growing up while powering down the networking industry.

Here are some ideas to get us going, so we can discuss these approaches’ benefits from a Design-for-Environment (DfE) perspective and discuss any downsides of using these for standard product operation:

- Solid state drives
- Low Power Dual Quad Core processor and chip set
- A rack that can better manage power efficiency and have the power redundancy at the rack level rather than the system level
- Smart cooling: Fan-less, fewer variable speed fans, liquid cooling, or Pulsed Air Jet Cooling (liquid-cooled racks can reduce the amount of cooling required to keep the environment around the systems at around 25 degrees Celsius)
- Developing an idle mode for systems that currently run 24/7 — while still supporting customers applications and traffic
- Scalable or dynamic power supplies that monitor actual usage and only turns on the power needed
- Active power management with monitoring system vitals
- Use of ultra-capacitors instead of a Lithium button cell batteries
- Modular design for power supplies that grows with additional hardware

And to make our roadmap as Lean and Green as possible, we’ll discuss business questions such as…

- Under which circumstances or application does a power supply with a 90%-and-higher-efficiency rating provide enough savings over a standard 80+ power supply to justify the significantly higher investment cost?
- How do you convince your own company’s management to invest in more efficient designs / components (80+ GOLD power supplies, active power management, solid state drives, de-materialization, fan-less design, etc.) given that it’s the customer and not the OEM that saves money and carbon footprint?
- What are the affects of delivering systems with 1-2 dozen-drive capacity (and power ratings accordingly) initially populated with just a handful of drives from Design for Environment (DfE) perspective, and what alternate techniques can be used to minimize this impact?
- How can we influence regulators around the world to develop highly technical-and-cost savvy (e.g., through EuP study groups)?

Reply below or write to me (PGordon@TFIenvironment.com) to let me know you are interested in creating, exploring, and sharing ideas that will help address one of the most pressing issues today and tomorrow for networking equipment — vital to corporate customers, to cost reductions, and of course to reducing global Greenhouse Gas emissions. I look forward to the challenge!

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.)

If you frequent TFI’s Friday Best of Blogs, then you know that we recommend changes to profitably streamline tech companies’ product design, supply chain, product movement, and other operational functions. Our clients know that change is necessary, otherwise they would not have engaged us. But often they need help in overcoming their teams’ or managers’ resistance to change. Organizations have an unfortunate habit of acquiring blockages that impede progress and stymie performance.

Managers can regularly embark on search-and-destroy missions to root out barriers and obliterate them. These barriers can be difficult to find, because they morph into familiar forms and hide in plain sight. If you look carefully, you can uncover these barriers to change:

1. EXCUSES — When you start hearing excuses for why things can’t change, you have encountered a blockage.
2. FEAR — When people get scared, they freeze and plug up everything they are involved in.
3. SECRETS – This is a sure sign of a dysfunctional organization.
4. INSECURITY — When people are in over their head, they know it and their main purpose in life becomes trying to make sure other people don’t figure it out.
5. POSTURING — When people fixate on their image, you are in the presence of a blockage.
6. ROUTINES — Doing things the same way for too long creates “comfort zones,” which are places where fearful, insecure, posturing people go to avoid detection.

By contrast, positive change thrives in healthy organizations, characterized by:

1. Strong, enlightened, progressive, free-thinking, open-minded LEADERSHIP.
2. An appreciation of the value and importance of SETTING AND ACHIEVING GOALS.
3. An atmosphere of HIGH-ACHIEVEMENT, where good enough is not good enough.
4. FULL DISCLOSURE and a willingness to share virtually all information.
5. Employees who understand WHAT IS EXPECTED and WHAT THEY WILL GAIN when they achieve it.
6. A sense of TEAMWORK where everyone believes they are working for the benefit of all, not enriching the few.
7. The ability to EMBRACE CHANGE and LEARN FROM MISTAKES.
8. The capacity to GET THINGS DONE.

How many organizations truly possess all of these attributes? Precious few. The first step to positive change is creating the right conditions for improvements to exist. Life on earth didn’t emerge until there was an oxygen-rich atmosphere. The Renaissance couldn’t happen until dogma gave way to enlightened thought. And an organization plugged with barriers cannot strategically progress.

We at TFI have succeeded in having upper and middle management and all employees understand the imperative of positive change. How? We gain enthusiastic buy-in through addressing key leaders’ business and budgetary goals, inspire people through real-life examples of other companies’ success, show how it’s good for business, educate about the cost of wasted materials/processes, and tie compensation to results. We use a host of approaches depending on the company’s culture. It’s very rewarding.

How have you removed barriers to change in your company? (Please reply below.)

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?

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).

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?

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.)

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?

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.