Category Archives: Global Trade

How advanced are your Shared Services?

Especially if you’re not a global 3000 working with a BoB (Best of Breed) Shared Services Advisory firm?

A recent article over on the Shared Services Link describes “Six Trends that define the Shared Services age today”. In particular, it notes that:

  • Shared Services Continue to Move Up the Value Chain
    The argument is that much of the finance function has been outsourced, the dynamic of staff in an SSO is changing (as teams no longer crunch and enter data) but instead judge and advise, and the model works.
  • Business services rather than finance services
    The argument is that we’ve moved on to business functions like HR, IT, and Procurement and this provides the organization with greater value.
  • Outsources gain share, but slowly
    Since 2007, there have been 850 major finance multi-process outsourcing deals.
  • Shared services find better ways to work in a multi-ERP environment
    They have adopted middleware technology to integrate the systems.
  • Data is evolving into insight
    Now that we’ve moved beyond process consolidation and off-shoring, we can focus on BI (Business Intelligence).
  • A new breed of being — the global process owner
    We have created end-to-end process guardians who oversee the global implementation of a process.

And while I believe this is true for the 850 multi-nationals that entered into big shared-services deals with “tier 1” shared service providers, for mid-size companies just jumping on the bandwagon, are they as lucky? Yes, the technology and processes will be there in the providers, but in order to take advantage of it, it often requires considerable restructuring and change management on the part of the company. Sometimes so much so that the leading organizations, uninterested in what will be a losing engagement during the learning curve, may inadvertently scare these organizations away to “tier 2” providers that mainly focus on process standardization and data consolidation and haven’t advanced to the third wave of BI and expert consulting. So if you’re not in the big leagues, have you yet to catch sight of the third wave?

Federalist No. 12

In Federalist No. 12, Hamilton writes on the utility of the union in respect to revenue as a follow up to his piece on the utility of the union in respect to commercial relations and a navy. Given that all organizations require revenue to function, this is an important topic, especially since everyone disdains taxes and wants to know that their tax dollars will not be wasted.

Hamilton is right when he notes that The ability of a country to pay taxes must always be proportioned, in a great degree, to the quantity of money in circulation, and to the celerity with which it circulates. If taxes are too high, it will create too high a burden on the population, but if they are too low, the government may not have enough revenue to effectively function and provide needed services. In addition, commerce, contributing to both these objects, must of necessity render the payment of taxes easier. Taxes are a necessary burden, but paying them shouldn’t be burdensome. Too bad we’ve forgotten this with tax codes so convoluted that five accountants can do the same return and arrive at a different conclusion for the same household!

Hamilton said a great thing when he said that it is evident from the state of the country, from the habits of the people, from the experience we have had on the point itself, that it is impracticable to raise any very considerable sums by direct taxation. Tax laws have in vain been multiplied; new methods to enforce the collection have in vain been tried; the public expectation has been uniformly disappointed, and the treasuries of the States have remained empty — as this is another point that needs to be remembered. The more convoluted the tax code, the more ineffective and inefficient it gets. For example, in Return to Prosperity, Arthur B. Laffer, a noted economist, argues for a flat tax. He notes that if we implemented such a tax across individuals and businesses, not only could we simplify the tax return to a single page, but we could reduce the tax rate to about 13% and collect about the same amount of taxes as we do now! 13%! Given that, in some states, some residents pay over 30% in sate and federal income taxes, many people could see their taxes halved and the government could still collect the additional dollars it needs to operate effectively. If that’s not a win-win, I don’t know what is!

The primary argument he puts forth as to how a Union would be better, and fairer, than a collection of states with respect to the collection of revenue is the following:

The relative situation of these States; the number of rivers with which they are intersected, and of bays that wash there shores; the facility of communication in every direction; the affinity of language and manners; the familiar habits of intercourse; – all these are circumstances that would conspire to render an illicit trade between them a matter of little difficulty, and would insure frequent evasions of the commercial regulations of each other.

But if, on the contrary, there be but one government pervading all the States, there will be, as to the principal part of our commerce, but ONE SIDE to guard—the ATLANTIC COAST.

In other words, there would be no illicit trade between the states, and the only worries with respect to duty and tax evasion would be in global trade, with respect to goods originating from Europe or India. With only one border to patrol (with the unified navy that would be obtained as per the previous argument for a Union), we would be able to stop the smugglers and impose fair taxes across the board. Because ocean going vessels would have to dread both the dangers of the coast, and of detection, as well after as before their arrival at the places of their final destination if they attempted to unlade prior to entering port, an ordinary degree of vigilance would be
competent to the prevention of any material infractions upon the rights of the revenue.

It is therefore evident, that one national government would be able, at much less expense, to extend the duties on imports,
beyond comparison, further than would be practicable to the States separately, or to any partial confederacies.

UPS Knows that Halifax Gets it There!

UPS, with a delivery fleet of 2,500 vehicles in Canada, just opened a multi-million, fifty-thousand (50,000) square foot logistics facility in Halifax, Nova Scotia, Canada because the area is considered to be a key access point to other major supply chain networks both locally and globally. And as SI pointed out in its recent post on how The Looming Strike Might Cost Billions – But You Don’t Have To Lose a Dime, sitting on the second largest natural harbour in the world, the Port of Halifax can expand to a capacity equal to that of the Port of New York and New Jersey combined.

Two days closer to Europe, a day and a half closer to southeast Asia through the Suez Canal, and only three days to get cargo to Chicago by rail, Halifax is posed to be a key access point in the global supply chain, just as it was once a key player in the global telecommunications marketplace. It was only 110 years ago that the first radio message crossed the Atlantic, originating from Glace Bay, Nova Scotia and terminating in Poldhu, England (South Cornwall) in December 1902.

UPS knows that Halifax is important to your global supply chain. Do you?

Should Manufacturing Jobs Be ‘Re-Shored’ to the U.S.?

Yes. No. Maybe.

A recent article over on the Knowledge @ Wharton site that questions if manufacturing jobs should be ‘re-shored’ to the U.S. points out that the Boston Consulting Group forecasts that 2 Million to 3 Million manufacturing jobs will come back to the U.S. because of the fundamental shift in economics between China and the United States. While the projected shift will increase U.S. economic growth by about $100 Billion, let’s not get too excited. First of all, this is less than 1% of current GDP. Secondly, if the right jobs aren’t brought back for the right reasons, they’ll just shift again next decade.

Before we dive into this discussion, let’s summarize some key statistics from the article. Namely:

  • it is projected that the wage differential will drop from the 22X it was in 2000 to 4X in 2015, not adjusted for productivity
  • many global manufacturers have begun to move their outsourcing to even lower cost countries such as Vietnam, Indonesia, and Cambodia
  • outsourcing costs include higher transportation/logistics costs, extra inventory costs, and quality control costs
  • improved lean manufacturing processes can often cut production-times per unit considerably, up to 65% in one instance at GE
  • more than 60% of the cost of manufactured goods can be attributed to goods and services that the average firm buys from its suppliers

When you consider these points, it becomes clear that:

  • if the primary reason for outsourcing to China was labour savings, this is no longer a good reason; in some districts, the wage savings are less than 40%!
  • the wage game requires a constant move, often into unknown, or dangerous territory (as Africa will be next)
  • there are ‘hidden’ costs as transportation costs are rising, inventory carry costs can explode if demand patterns shift, and quality control costs are exponentially higher as the only sure way to ensure quality is to get feet on the ground … regularly
  • innovation and creativity can slash the relative cost of manufacturing at home if productivity is doubled (or tripled)
  • the production costs will probably be less than the procurement costs for the raw materials, components, and services — which means cost reduction is more reliant on Procurement efficiencies and successes than manufacturing, as it should be

This means that:

  • you should never outsource on a wage analysis alone, but it doesn’t necessarily mean you should pull back to the U.S. — sometimes near-sourcing, to Mexico for instance, is the right solution
  • you shouldn’t play the wage game unless you are planning two moves ahead
  • bulky items, items that can experience unpredictable demand spikes, and items that require a lot of quality control are typically not good options for outsourcing
  • you should never underestimate the potential of talent — and what can be accomplished with the right incentive
  • decisions should be made from a true TCO perspective, not just a manufacturing perspective

And when you start looking at the overall picture, the overall product lifecycle, and the strengths and weaknesses of outsourced manufacturing partners, you’ll realize that some manufacturing, even with the disappearing wage differential, should be left in China; some should be brought back home yesterday; and some should be near-sourced. For example, you can’t build a FoxConn in the U.S. China is dominant in many areas of electronic manufacturing now and will stay that way — and considering the density of phones, tablets, and laptops, it makes sense to produce them in China. On the other hand, major appliances and automobiles should be produced at home, where efficiencies in production and greatly reduced transportation costs more than make up for the labour differential. And major appliance and automotive sub-assemblies should probably be produced in Mexico, where they have idle factories, and from where shipping costs are relatively minimal.

Will Factories in a Box Revolutionize Sustainability Initiatives?

Gizmodo just ran a very interesting, and vey insightful article on how “The Next Industrial Revolution Starts in this 20-foot Shipping Container” about Re-Char and their “Shop-in-a-Box” that can perform rapid fabrication of steel parts by way of software and a CNC plasma torch. With the Shop-in-a-Box described in the article, Re-Char can produce 600 lids for Climate Kilns. This is a specialized lid-and-chimney integration that adapts a 55-gallon drum to produce the soil amendment biochar. (In Kenya, farmers burn sugarcane debris in an open field and release tons of carbon. A Climate Kiln controls the burn to produce the carbon-rich charcoal biochar that, mixed into soil, reduces the fertilizer requirements for crops by half.) This required the precision cutting of 18-gauge metal, which, in East Africa, leaves you the option of using a guy with an oxy-acetylene torch on the side of the highway or importing a full production run out of China, one full shipping container at a time. But for 30,000, Re-Char was able to produce a Shop-in-a-Box metal cutting and joining setup that could be run by two two people and produce 600 lids as a time, when needed, where needed (as the shop in a box can be moved to a new community when the needs of the current community have been fulfilled).

From a sustainability perspective, this is incredible. It’s lean, green, and completely against the routine. Actually, lean is an understatement. The power requirements are limited to what is needed to produce the lids. The energy required just to light, cool, etc. an average factory typically takes a 600 V feed … or two … or three. It’s green in that it can be powered by sustainable energy, including wind power, water power, or solar power – whatever is available. (Transformers come with the standard kit, along with generators for [natural] gas power for stability. Just add batteries and a UPS and it’s 100% green power most of the time.) And it’s completely against the routine. When the industrial revolution started, you can be that the robber barrons never predicted a moveable factory.

To date, the most (wide-spread) innovative use of containers has been data center modules, with Google a leader in this technology. (But this has been taken to the next level. For example, Green Data Center has designs for completely self-contained data center modules that you can drop anywhere. Just hook-up a power feed and an internet feed, and you’re literally good to go. (And since you can easily put a generator, or two, in a second container, you don’t even need a power feed. Just a natural gas feed, split between a couple of generators if you don’t have a sustainable power feed, for a primary feed.)

But we don’t have to stop at data centers and steel-part fabrication shops. Especially when we are talking about the developing world (which still includes much of Africa, South America, and parts of Asia). Do we really need to refine cane sugar 2,200 kgs at a time, for example? Or how about water purification? If we’re talking about a small community of a couple of hundred people, and the primary focus is clean drinking water, we don’t need to purify 100,000 liters a day! Purifying 1,000 liters would do nicely! Both processes would fit nicely in a container system. (After all, the sugar refinement process is not radically different from micro-brewing in terms of what is needed, and you could fit that nicely in a container too — although we can’t necessarily bring the same humanitarian arguments if we did.)

And when we’ve insured that everyone has the absolute necessities of clean air, clean water, and healthy food — we could ship them clothing factories in a box. It doesn’t make sense to sew shirts in sweat-shops on another continent just to ship them to small communities in Africa, or South America, or Asia, where the living wage is $2 a day or less. Considering the shipping costs alone, you couldn’t set the price at a point where you’d make many sales. Just ship a container to the town, train a few locals on the cloth-cutting production lines and find a few budding seamstresses to do the stiching, and produce the clothing where it will be sold. A zero-mile supply chain that emits zero-carbon and has zero shipping costs. And since you don’t have time-sensitive fashion industries in developing economies, you could even rotate it between a few small communities in the beginning while the consumer base and local economy built up. (Hopefully you’d also move the employees too if they were willing, as you could outfit another container as temporary living quarters without much cost or effort.)

I think the physical manifestation of the Solution-in-a-Box approach has the potential to revolutionize manufacturing, distribution, and sustainability. And it’s not like we have a shortage of containers thanks to the outsourcing craze of the last fifteen years. They’re just sitting there waiting for a good use. And with all the super-panamax ships, and super-panamax capable ports, that we have at our disposal, we can get them from any continent to any other continent with ease, in bulk, and pretty close to where we want them. And then we just need a freightliner to haul them, and there’s no shortage of those.