There is no understating the importance of a CEO’s vision to a company’s policy decisions and corporate culture. The choice about where to locate manufacturing, for example, has been driven by many a CEO. In the past decade, Wall Street analysts’ belief that manufacturing in China was the ticket to increasing shareholder value (regardless of product types or customer locations) propelled countless CEOs to declare that their companies, too, would manufacture products in China — often to the surprise of their Chief Operating Officers.
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?
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I’m so glad to such a terrific reason to bring mfg back on-shore, or at least to consolidate all the operations to reduce the carbon footprint. At Oracle we have a supply chain optimization software offering (”Strategic Network Optimization” or SNO) that would help a company include the “carbon footprint impact” of a supply chain decision in addition to other constraints such as capacity, storage limits, transportation, and material sourcing. Hopefully more supply chain planners will include this kind of consideration in the future.
In the ECM business there are a number of factors that dictate in what location a company does its manufacturing. First of all, for the small NPI builds, you need to be close to your customer. Since most of those tend to be located in the U.S., it’s good to have locations here in the U.S. Fortunately, my company, AFG, has a facility in northern CA which suits most of our customers very well. As the volume of production increases and becomes stable (all the bugs worked out), then you can take advantage of cost benefits by moving to Asia. There is definitely a cost savings to our customers with this model. I don’t think carbon footprint makes a difference. The footprint is dependent on the volume of manufacturing. However, Asia will tighten its controls on pollution, but that will probably increase their labor costs over time.
In my experience, I have seen many dynamics influence the choice of manufacturing location. It’s interesting to see Pam Gordon’s examples of the personal influence of the CEO. I was interviewed on this very topic within the past month!
In my experience, I have witnessed the same “CEO forces” direct the behavior of a sourcing team on a very large scale. In a recent experience, bonus and other incentives for Senior Management and Executives were based on executing transition plans to move a specific % of work content to a short list of “Low Cost Source” countries. The opportunities pursued to develop in-house and outsourced manufacturing arrangements were highly influenced by the list. In fact, although some partners with excellent long-term potential existed in true low cost regions, they were quickly excluded from consideration since the locations were not on “the CEO’s list”. Rather than challenge the political system, very qualified strategic sourcing managers would prefer not to bring these great opportunities up for discussion.
Interestingly enough, I have also seen the opposite behavior occur with Top Level dictates that work be brought back to the US. This example was more associated with surviving the downturn and optimizing overhead absorption on lower volumes. It’s tough to manage manufacturing and supply chains like yo-yos with major moves that are only supported with short term business cases.. and may not be sustainable for at least the medium term.
While I would agree that we should bring more manufacturing and jobs to America, you should do more qualifying on the CEO’s you interview for your blogs. There are many exciting new renewable energy technologies being developed by very innovative Americans that will undoubtedly create new jobs for our country. The Denver basin is a magnet for these new developing technologies and has a strong base of technically trained people to support this market.