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Positive News for Manufacturing in the U.S.A.

By Herb Shields | 05/16/2011 | 5:41 PM

 

My last post commented on the upbeat atmosphere at a Chicago based event for manufacturers.  A number of speakers talked optimistically about the outlook for manufacturing in the Chicago area.

More good news is contained in a paper that The Boston Consulting Group released this month that examines the prospects for U.S. manufacturers over the next 5 years.  BCG is predicting a “manufacturing renaissance” in the U.S. based on rising wage rates in China and a willingness by U.S. workers and labor unions to accept concessions in order to bring jobs back to the U.S.

At the same time, there have been significant increases in the prices of raw materials and components in both China and, to a lesser extent, in the U.S.  How this will all play out over the next few months and years is an important question for all manufacturers wherever they are located.

The major producers of consumer products in some categories – personal care products and food products – for the most part never found it cost effective to produce those products off shore.  Instead their products are manufactured regionally for markets around the world.

 General trends are important and I agree with the points made by BCG in this paper.  However, I believe that each company has to carefully analyze their own supply chain process starting with their suppliers (or their suppliers’ suppliers) all the way through to their customers.  The large multi-national companies have a deep understanding of every element of the total cost in their supply chain process.  The challenge for the mid-sized and small manufacturers in the U.S. is to develop their total cost equation so that the decisions are made with the best possible information.

 Total cost should include the following:

  •  Purchase price including materials, labor, and overhead
  • Transportation costs including duties, tariffs, etc.
  • Quality cost including inspections, rework, etc.
  • Inventory cost including cost of extra inventory due to longer lead times when sourcing globally.

 Even then, the recent volatility in commodity prices is just one example of why a company has to re-evaluate those costs frequently.  The best strategy may include local, regional, and global suppliers based on the characteristics of the items that you are purchasing and/or manufacturing.  Sourcing strategies are typically based on a 3 – 5 year projection of requirements and new product plans.  However, with the volatility we have experienced in recent years – natural disasters, spikes in various raw material prices, etc., it is important for a supply chain organization to have a risk management plan in place.  An annual review of the changes that have occurred may lead to adjustments in sourcing, whether the cause is cost or risk.

 You can find the paper at www.bcg.com.

U.S. Manufacturing – The View from Chicago

By Herb Shields | 04/15/2011 | 1:44 PM

I had the pleasure of attending the Alliance for Illinois Manufacturing program honoring retiring Mayor Richard M. Daley of Chicago yesterday.  It was a big day in Chicago yesterday with President Obama arriving later in the day to attend several functions himself.

 The audience for the Alliance program included state and city politicians of course, but also many representatives from local manufacturing and service companies.  The atmosphere was very upbeat with respect to the business outlook for most of the attendees. (This was echoed today by strong manufacturing numbers reported for the entire U.S.)  Pam McDonough, President of the Alliance, mentioned several important statistics during her opening remarks:

  •  Chicagoland has the 2nd most manufacturing companies in the U.S.
  • Manufacturing is the 5th largest employer in the Illinois, 12% of the total economic activity.
  • The Chicagoland manufacturers profile – 50+ years in business, less than 100 employees, average sales of $10 Million

 The Mayor focused his comments on the importance of Chicago as a major city and force in the global economy.  He spoke at length about the efforts he has led to build relationships with China and the importance of trade between companies in China and those in this area.  He mentioned the importance of working with individual city states in China and, I believe, sees the greater Chicagoland area in somewhat the same light.

 While he did not use the term global supply chain, it was clear that he sees a company’s supply chain as a factor in allowing even the small manufacturer to compete and prosper in the global marketplace.  In terms of global transportation, Mayor Daley has always been a strong advocate for O’Hare International here in Chicago.  He spoke yesterday of the concept of building a high speed rail link between O’Hare and downtown Chicago, and suggested that it be financed privately rather than with public money.  One other comment that I found interesting was his mentioning the possibility of 100 million visitors from China to the U.S. over the next 10 years.  I am not sure how to validate the number, but, even if it turns out to be too high, it has big implications for U.S. businesses, that is a lot of potential consumers – even temporarily!

 My thanks to Jim Taylor from Taylor Group Insurance Agency for inviting me to the event.

Japan’s earthquake and Supply Chain Risk Management

By Herb Shields | 03/26/2011 | 3:39 PM

 

I delivered a lecture this week to a Risk Management class at the Illinois Institute of Technology on supply chain risk management. (Full disclosure, I teach 2 courses at IIT myself.)  When we set the date up several months ago, I had no idea how timely the subject would be.  The earthquakes and tsunami that hit Japan have not only wreaked havoc on the Japanese people and their economy, but it has far-reaching implications for much of the world.  If your company uses automotive parts, electronics, or lithium ion batteries, you may already have lost some sleep in the last few days.  But even if you are in an industry segment without obvious ties to factories in Japan, you need to be thinking harder about managing risk in your supply chain.

 

This is not our first wake-up call, earlier this year, an earthquake in New Zealand and storms-of-the-century in the mid-west and eastern U.S.  Last year the Gulf oil spill, earthquake in Chile, the list goes on.  Globalization of supply chains only escalates the problem and how many manufacturers or distributors today do not have at least some globalization in their supply chain?  Not many.

 

What are some of the supply chain risk categories that need to be considered?

 

  • Natural disasters
  • Supplier issues such as labor contracts, quality problems, etc.
  • Global shortages of key materials or components
  • Product contamination
  • Transportation disruption
  • Transportation capacity
  • Suppliers going out of business

 

You cannot afford to have contingencies for anything that might happen, but the challenge for the Supply Chain organization is to balance probability against cost.  If you expect tight supply of your products in the future, more inventory might be the answer, but at what cost? 

 

A long term multi-year approach is helpful.  If you are in a tight supply situation temporarily, inventory may be the answer.  But if this happens every few years, have you looked for and evaluated alternate sources?  Have you looked at other countries or regions, not just for today but for the future?

 

Here are some steps that you can take quickly to improve the risk management readiness of your business:

 

  • Model your supply chain to identify potential risks
  • Develop contingency plans
  • Document your processes
  • Align supply chain and logistics partners
  • Collect and analyze information that is available from suppliers, customers, and logistics partners

 

Any comments or questions are always appreciated.

Four Supply Chain Strategies for 2011

By Herb Shields | 03/08/2011 | 6:03 PM

 

We are just two months into the year and oil has hit $100/barrel, inflation has become an issue, and people are still trying to understand how the recovery is impacting their plans for 2011.  A colleague of mine, Ara Surenian of Cadent Resources, published what I thought is some very good advice for companies as they contemplate the emerging issues.

 "Here are four improvement strategies for the remainder of 2011:

  1. Collaborate! Now more than ever is the time to actively communicate with your customers and suppliers. Where possible use technology to share data and demand plans. Extend your planning process to include your suppliers. Imagine if you and your suppliers were tied together with a taught string. You pulling on supply prompts your vendors to react immediately to your needs. Collaboration via data sharing and active communication eliminates the natural slack in manual processes that introduce delays and demand and supply volatility and inaccuracies.
  2. Become faster. Implement lean manufacturing methods to reduce waste and become more nimble. You want to be in a position to respond quickly. Reducing lead times both internally and externally is critical.
  3. Measure. We are big proponents of data based decision making.  As the economy is slowly picking up, you need to evaluate the following to get peak performance from your ERP.
    1. Are your lead times and run times all up to date?
    2. When was the last time you did an ABC reclassification of finished goods and purchased materials?
    3. Take a hard look at your customer service measures. Are there holes in your performance? Often if there are issues inventory is to blame which could mean you have capacity issues or do not have appropriate inventory policies. The new normal dictates a continual review and adjustment of these levels.
  4. Refocus. It is a great time to revitalize your continuous improvement efforts.
    1. Assess your top issues, concerns, priorities?  What improvement in these areas would provide the biggest P&L dividend to your business?
    2. Regarding collaboration, put a CI team in place with your major customer or supplier to improve or implement a Collaborative Planning Process.”

 

Cadent Resources offers an excellent “front end” for demand planning and inventory optimization that companies are using today to improve the performance of their ERP system.  If you want to check that out, go to www.demandcaster.com

And if you have any feedback on these suggestions, I would like to hear from you.

The Quiet Office

By Herb Shields | 02/01/2011 | 12:40 PM

 

            My work as a supply chain consultant causes me to spend a lot of time in client and prospect offices.  One of the interesting things that I have noticed in the last few years is how quiet the typical office is today versus 10 or more years ago.  We all know the reasons for this – e-mail has replaced phone calls, thus less phones ring.  Many people have their phone automatically programmed to voice mail, so no ringing there either.  In many companies, fewer people have more to do, less time for “casual” conversation.  E-mail also generates a record of the exchange, whereas phone calls or face –to-face conversation, unless recorded, are undocumented.  In several instances, I have seen people at adjacent work stations sending e-mails back and forth, rather than turning around to talk directly to their neighbor.  People now go immediately to the internet to find answers to many of their questions, the idea of asking a person has become passé, or does not even occur to the latest generation of students.

 

By now you are probably asking, “What does this have to do with Supply Chain Management or Consumer goods?”  Part of the reason supply chain management developed into an important business process was to improve visibility from the supplier at one end of the process to customers at the other end.  Visibility allows us to “see” what is happening through the process.  But the supply chain also relies on communication flowing seamlessly from end-to-end and, in this writer’s opinion, e-mail is not always the best way to accomplish this.  My contention is that we have lost something in the process.  Today’s most successful supply chains are based in part on collaborative relationships, partnerships, etc.  Does an e-mail sent to 10 different people in two different companies support a collaborative effort?  Would a live discussion add more value?  Part of our rationale is that the global nature of many supply chains makes face-to-face communication impractical, but I think we would all benefit from more dialogue with each other and fewer e-mails in our respective in-boxes.

 

A former colleague of mine, Carole Veronesi of SGC Consulting works with companies in the change management area when a company is undergoing organizational or systems changes.  Carole did some research on e-mails and has this to say about them:

“A few years ago I created an electronic survey on e-communication. An organization I know agreed to distribute it to their employees. Most agreed that it is critical to form strong relationships at work for decision making, problem solving, collaboration and good team relations. Most agreed that the best way to form relationships, either with internal or external customers was through face-to-face communication. And, most agreed that they were not using face-to-face communication, even when they could, and it was limiting their effectiveness.

I also asked about Blackberries and other 24/7 devices. Most admitted they were expected to be on call 24/7 and they did not like it, yet were unwilling to speak up. No one was talking about the electronic communication issues.  When I tried to get members of the organization to look at the results, I was not able to generate enough energy from the manager to set a date, even though I disclosed some of what I thought were disturbing findings.

Bottom line - Electronic communication certainly serves a purpose in our organizational life. And yet, we have accepted the fact that there are limits, and that we would be more effective without the overuse of these electronic devices. But we are unwilling, uninterested, or unable to break the cycle of our dependence.

New research show the increase of stress and anxiety from always being “plugged in” and waiting for the next message, so we can respond immediately (even though an immediate response may not be necessary). There are lots of questions, lots of thoughts on why. But for now, our offices are too QUIET to talk about it!

 

Are we too enamored with this new technology to care whether it really benefits us? Is this another addiction? Are we just not ready to make choices about how we want to live with each other and the quality of these relationships? Are we concerned about the quality of our work?”

Now you have heard two opinions.  I hope to hear from some readers on this subject.

Greater West Town – Basic Supply Chain Training

By Herb Shields | 12/17/2010 | 7:48 AM

 

I have been a member of Greater West Town’s (GWTP) Shipping and Receiving Program Advisory Committee for several years.  For me, supporting GWTP is a year round opportunity to give something back to our profession and the community at large.  It also is a good blog topic during the Holiday Season.

 

Greater West Town Partnership is a not-for-profit organization located in Chicago that offers a variety of services to citizens who need assistance in developing their potential as productive members of society.  The Shipping and Receiving program trains approximately 60 people every year in the basic skills needed to qualify for employment in a warehouse, distribution center, or manufacturing company.

 

Bob Fittin, Director of Training at GWTP, had this to say about the selection process used to qualify people for each 12 week training program: “Each person seeking admission into training will visit the facility at least three times prior to being accepted. The first will be for a general orientation including a basic quiz to assess general industry knowledge and matching ability, completion of an application, and a brief exit interview. The second will assess the applicant’s reading and math skills. The third will be a full interview with two staff members. Those selected will then take a drug test, and if negative, will be accepted into training. We’ve worked closely with our Program Advisory Committee, composed of our business partners, to structure a process that will enable us to train the type of individual who will be motivated to succeed when hired. Since we are outcomes’ based it is critical that graduates retain their employment. This also benefits the program as businesses will look to GWTP for their next hire.”

 

GWTP’s funding is based on placement of graduates.  In recent years they have had great success and placement rates have consistently been near 90% of each class.  Over the years, many well known people including President Obama, Treasury Secretary Geithner, several  Illinois governors, Chicago Mayor Richard Daley and other elected officials have visited GWTP.  But like most not-for-profit organizations that make great contributions to society, GWTP remains largely invisible to most business people.

 

2010 is ending on a very positive note for GWTP.  They have moved into a restored building in Chicago which provides more useable space and has been certified as a LEED’s facility through the efforts of the entire staff led by Janet Sebahar, GWTP’s facility manager.  The building dedication took place on December 9th.

 

If any of my readers are aware of similar organizations that support the development of the supply chain workforce, I would be happy to hear from you.  Importantly, if any of you want information on hiring GWTP graduates, send me a message or e-mail Bob Fittin directly at bfittin@gwtp.edu.

Sustainable Packaging - From Trend to Standard

By Herb Shields | 12/10/2010 | 11:55 AM

 

Most DC Velocity readers are very familiar with the subject of sustainability.  This post will discuss some of the latest thinking about sustainable consumer products packaging.  I spoke with a good colleague of mine – Ron Farnum, President of Damen Jackson.  The firm does package design and development work for many CPG companies, including a start-up venture that I was involved in during 2007/8.

 

As in many consumer product areas, Wal Mart’s sustainability mandate made sustainability a real factor for manufacturer’s of consumer products in all categories.  While consumers are not yet making sustainability the primary “reason to purchase”, awareness is increasing and people are responding to truly innovative sustainable packaging, usually in a positive way.  However, they will not pay more to feel better.

 

Damen Jackson worked with Fisher Nuts’ marketing team to develop a see-through plastic package to replace the traditional composite cans used in the snack products for many years.  The can is recyclable or reusable and allows the consumer to see the product on shelf.  The new package should be in stores within the next several months.

 

Another recent package change that was consumer-friendly and a cost savings to the manufacturer is the clam shell plastic container that is used by First Alert for residential smoke and carbon monoxide detectors.  Damen Jackson created a new design with a universal back made from recyclable PET plastic that is now used for all First Alert  detectors.  This saved tooling cost and gave First Alert greater leverage in the purchasing of plastic containers.

 

From Trend to Standard

 

Virtually all RFP’s in consumer packaging now mention sustainability, right-sizing, recyclable materials.  However, there is not yet a set of standards that provides the definition of those terms and the many others – green, natural, etc.  Companies that have adopted a sustainable approach to their products and processes are seeing benefits that impact their profitability including less material and transportation cost and less waste going to land fills.

 

Not every new package has been accepted outright.  Frito Lay introduced a new Sun Chips package that had a new look, but was too “loud” when handled by consumers.  Bottled water companies have experienced negative feedback when the light-weighted bottles lose their shape when handled.

 

It will be interesting to watch as sustainable packages become the standard in more CPG categories.

Global Supply Chains for Small Businesses

By Herb Shields | 11/02/2010 | 8:30 AM

Global supply chains have been part of the strategy for multi-national corporations for decades. Today, some of the smallest manufacturers or distributors have supply chains that include off shore suppliers and/or customers. I have worked in a start-up consumer products company so I understand the challenges.  However, there are always new ventures emerging to connect suppliers and customers on a world-wide basis.

 

I had the opportunity to speak recently with Andrea Williamson founder of a start-up company called Noblivity whose mission is to connect small retailers in the U.S. with global manufacturers of quality products.  Andrea’s business development background includes working directly with independent owners, sales leadership and technology which prepared her to launch Noblivity in 2010.

 

Noblivity connects the manufacturers and retailers through an on-line members- only platform.  There are currently over 90 brands with over 1200 products offered at wholesale pricing for small retailers.  Noblivity acts as the financial intermediary, holding the payment until the goods arrive and are approved by the customer.  The service is free to the retailer.  Noblivity collects a transaction fee from the manufacturers based on sales.  Noblivity has removed the transaction barriers and added back transparency between the retailers and manufacturers. 

 

Noblivity’s approach greatly increases the ability of the boutique store to expand its lines beyond what would be possible for the owner if they had to rely solely on trade shows, and trips to Europe and Asia.  From a supply chain perspective, there are shorter lead times and lower minimum order quantities which again provide an advantage to the small retailer.  Visit www.noblivity.com if you want to learn more.

Cost and/or Collaboration – Can we have both?

By Herb Shields | 10/07/2010 | 7:45 AM

The Material Handling Industry Association published an interesting article recently using survey data from KPMG’s Global Manufacturing Outlook report.

 

“Despite the fact that new approaches are gaining hold,” MHIA stated that “A clear majority of leading industrial companies still see cost as their main priority when managing supply chains, despite emerging evidence that excessive focus on cost has damaged relationships.”

 

KPMG’s survey revealed that “cost still reigns among 66 percent of respondents as the leading consideration of their supply chain models. But 63 percent of respondents agreed that more attention should be paid to non-financial elements of the supply chain and 38 percent said that an acute focus on cost has harmed relationships with suppliers.” 

 

As many readers of DC Velocity’s blogs know, I teach Purchasing at the Illinois Institute of Technology here in Chicago.  Each semester, my students debate these very same issues.  Can a company continuously ask for lowest cost and maintain a collaborative relationship with its key suppliers?  I think that the best answer is yes with a caveat.

 

First, you need to focus on total cost, not just piece price.  Total cost includes piece (or unit) price along with transportation, quality, inventory, and tooling to name a few other elements.  And cost reductions may occur anywhere in the supply chain process perhaps starting with your suppliers’ suppliers. Cost reductions that are achieved by competitive bidding only may be temporary at best.  If that is your only strategy, ultimately you may force suppliers out of your business and into collaboration with your competitors.

 

Damaged relationships affect the buyer as well as the supplier.  Several senior executives whose companies are in the consumer products supply chain have told me that their organizations evaluate customers on the basis of their willingness to collaborate.  One executive said that his company cannot afford to develop capacity for a customer and then have the customer ask for pricing proposals from his competitors.  Customers who expect the supplier to continuously reduce cost, but do not participate in finding collaborative approaches are becoming second tier in terms of R&D, new product development, etc.

 

KPMG’s report states that “Having stronger and deeper relationships is critical among leading companies with 53 percent of respondents expecting to enter into more long-term contracts but with fewer suppliers. Cost remains the key driver for much of the collaboration.”

“More important than the duration is the depth of the partnerships. Over half of the respondents plan to collaborate more closely with suppliers on product innovation and development, research and development (R&D), and cost reduction. Such collaboration appears to be a preferred approach among the top performers.”  From my perspective, depth is synonymous with trust.  The more trust that is developed in a buyer/supplier relationship, the more potential exists for cost savings and other important supply chain improvements.  Regarding duration, it is difficult to build trust quickly, and, people need to work together for a period of time to learn the best ways to collaborate.  Strategic relationships are measured in years, not months.

 

I am interested in your thoughts on this subject.  Has your company been able to balance lowest total cost and collaboration?  What has worked for you?

What do we mean by Aligning a Supply Chain?

By Herb Shields | 09/17/2010 | 1:12 PM

 

Last Monday, September 13, the Chicago Tribune published an interesting article titled Jumbo Problems for Boeing in its Business section.  Apparently, the well-known problems with the development and delivery of Boeing’s 787 Dreamliner are impacting another major program – developing a freighter version of the 747 jumbo jet that most of us have traveled on and enjoyed for over 20 years.  The article attributes many of the problems to “supply chain mishaps” including “some partners who are just not capable of doing the job”.

 

In a recent meeting of supply chain professionals here in the Chicago area, we tackled the subject of this post – what does alignment mean to supply chain management.  Our first insight was that the alignment must be pointed at the corporate strategy that comes from the senior management team of the organization.  The Tribune article mentions a change in culture at Boeing and the re-location of corporate headquarters and management from Seattle to Chicago.  Both may have had an impact on alignment.

 

During our discussion, the importance of insuring complete understanding of corporate strategy throughout the company was seen as a key first step towards an aligned supply chain.  Utilizing a Sales & Operations Planning process is the next logical step in the alignment process.  S&OP will serve to align the operating functions of the supply chain process so that major initiatives that are critical to the company and its customers and suppliers can succeed.  S&OP also provides opportunity for regular feedback on progress toward completing an initiative.

 

When outsourcing of products or sub-assemblies is part of the program, it is important to confirm up front the capabilities of those suppliers and their processes.  Clearly, that was one of the major flaws in Boeing’s Dreamliner program.  According to the Tribune – “the pendulum is swinging back as Boeing has taken direct control of more of the 787 process.  Boeing bought …two early supply chain bottlenecks.”

 

We also talked about the idea of using compensation to reward people throughout the process when the goals are met.  That of course implies that there should be measurements in place that are consistent with the corporate strategy and the objectives of each major program. 

 

Finally, the group saw communication and feedback as being important to aligned supply chains.  Communication from the top down provides the opportunity to adjust alignment when conditions change.  Feedback will help everyone including management to react quickly when something is not going as planned.

 

To summarize, alignment includes strategy, S&OP, outsourcing, compensation, measurements, communication, and feedback.  Let me know if you think we missed anything.

The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

About Herb Shields

Herb Shields

Herb Shields has run Chicago-based HCS Consulting since 2000, helping clients across multiple industries and in higher education improve their supply chain strategy and execution. Shields has more than 30 years as an operations executive for capital equipment, automotive, electrical machinery and consumer products companies. As vice president of materials management at consumer goods company Helene Curtis, Shields led the supply chain organization that helped Helene Curtis win "Vendor of the Year" awards from Wal-Mart Stores and Target Corp. Shields has a B.S. degree in Electrical Engineering from Clarkson University and did graduate work in business at Bowling Green State University.



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