Category Archives: Manufacturing

‘Made in China’ Now ‘Made in Egypt’

I got a bit of flak for my last global sourcing post on how Some Companies Will Move To China but Others Will Move Closer To Home despite the fact that before the China revolution, Mexican manufacturing was all the rage — and the fact that Mexico still has capability and lots of capacity. While my antagonists may be right in that some verticals will stay in China due to the significant investments that have been made in China in those verticals, not all verticals have made the same level of investment as the high-tech vertical, for example. Also, as per “Made in China, Now Made in Egypt” in Industry Week, even China is adopting near-sourcing!

According to the article, so far, around 950 Chinese companies have set up operations in Egyptian free zones, which represents a total investment of about $300 Million. The breakdown is about 55% (manufacturing) industry, 33% (service), and 12% other (agricultural, tourism, etc.). This is because Egypt is now offering cheap labor (as salaries compete with those in China), investment incentives, and unrestricted exports. Furthermore, given that China is already quite comfortable with Africa (where it invested 7.8B in 2008, up from $0.5B in 2003), this is just the beginning.

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Flexible Capacity: Is it realistic in a down economy?

A recent article over on Supply Chain Brain on preparing for uncertainty noted that:

the imperative of capacity flexibility for design and development departments is especially high in the current uncertain climate. Even though the pressure on controlling operational cost is intensifying, leading to shedding excess capacity, not being able to fulfill demand when needed could lead to a lost customer. And losing customers due to capacity shortfall when demand does spike can lead to more losses than having excess capacity, which limits your loss to overhead.

But how do you create flexible capacity? The article gives us three options:

Create Capacity Options

One option is to buy capacity when needed, instead of retaining dedicated technologies. However, this will increase cost.

Another option is to cross-train dedicated capacity. For example, structural engineers could be cross-trained on mechanical systems and vice versa. Then your engineers could be applied where the need is. However, the engineers will be less productive in these secondary areas that they rarely work in, which will increase cost as the work will take longer and require a greater degree of care in review.

A third option is to use multiple vendors. However, if demand is forecasted to be low, and commitments are minimal, the chances of you getting the best price on a per-unit basis are slim to none.

Rolling Forecast Mechanism

Use periodic rolling forecasts that are updated regularly, and at least quarterly, and ramp available capacity up or down on a regular basis, such as every quarter, based on the rolling forecast updates. However, it costs you money every time you have to recruit someone or lay them off. Furthermore, what happens if you can’t find the talent fast enough when you need to ramp up quickly?

Layered Sourcing

Maintain captive capacity at the expected minimum demand level for a given time period (such as a year) and then have on-demand contracts with additional providers who serve as capacity reservoirs. The spot-buys from the capacity reservoirs will be more costly, but will always correlate against actual demand.

But how realistic is each of the above in the current down economy?

Capacity options

Buying capacity when needed sounds good, but without guaranteed income, many more suppliers are going to go out of business. So it might not be there when you need it.

Your staff is probably already over-worked, and under-paid, and chances are you’ve already made the mistake of cutting the training budget, which is usually the second thing to get cut after the travel budget. So this probably isn’t an option either.

More vendors than necessary is not going to save you money, so that’s not a good option either.

Rolling Forecasts

Not only can you probably not afford the costs associated with hiring and firing every quarter, but you’re probably already running at minimum staff levels. Thus, even though you should be using rolling forecasts anyway, you can’t really use them as a fountain of flexible capacity.

Layered Sourcing

This could work, as long as your captive vendors also give you the option for reserve/ramp-up capacity because even if your reserve vendors don’t go out of business, it could take them time to ramp-up.

In conclusion, in a down economy, your options for flexible capacity are limited and layered sourcing might be your only alternative. Any differing opinions?

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Give Your Manufacturing a Lift

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Pneumatic lift-assistance devices can not only prevent back injuries, which account for one of every five workplace injuries or illnesses and cost businesses over 12 Billion annually, but they can increase productivity by 40%.

A recent article in Industry Week explained how there is “no more back breaking work” at 3M since it installed tailor-made pneumatic lift-assistance devices that were tailor made for lifting various pressure-sensitive rolls of consumer labels that can weigh up to 250 lbs. The installation, which eliminated lift-related injuries in the associated plant processes, noted that not only is productivity up 40%, but there is no problem with operator fatigue or repetitive motion injury … and an alert employee is a productive employee.

Furthermore, when you consider that a single injury can cost an employee 65,000 or more, it’s hard to argue against installing lift equipment that also increase productivity. So go for it … and give your manufacturing a lift (and then ask for cost reductions since you know you manufacturing will gain 40% productivity as a result).

Front-End Loading

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In supply management, front end loading is the coming together of all stakeholders in a multi-disciplinary team to insure that the concept, value, and strategy of a proposed product are worked out well before the design is finalized and production begins. It focusses on front-end planning, and insures that required parts and materials are available and affordable within the target cost.

Front-End Loading is used heavily in Japan where it is seen as a primary contributor to Kaizen (value creation), which refers to the Japanese approach to continual quality enhancement and waste reduction through small, but continual, improvements. It has contributed to a lot of success over the past decade, and the CAPS Research Japan Group recently released a detailed white-paper on “Front-End Loading” (FEL) that chronicled the result of their surveys in 2002, 2004, and 2006 on FEL and ESI (Early Supplier Involvement) and eleven industry case studies.

The surveys, which also revealed a number of trends in the automobile, electronics, food, retail, and engineering industries, found that supply management experienced a significant change in the first half of the decade from where it had little involvement in product planning in 2000 to significantly increased involvement in 2006. Although some companies don’t involve their suppliers in the early stages of NPD, the involvement is on the rise.

Front-End Loading has contributed significantly to each industry it has been adopted in. In electronics, for example, Xerox obtained an annual 10% reduction in net product cost, a 93% reduction in rejected material, a 50% reduction in NPD time and cost and, most importantly a reduction in production lead time from 52 to 15 weeks and in automotive parts, Mitsuba expects to reduce it’s average product life cycle from seven or eight years to four.

When procurement leads the cross-functional team in the screening and evaluation of potential sources of supply, cycle time is reduced, costs go down, and green purchasing, social responsibility, audit/compliance, and risk management are considered up front. By tackling these timely issues, procurement can be sure that the organization reduces, reuses, and recycles; acts in a socially responsible manner; implements effective internal controls; and minimizes supply risks and the opportunity for disruption.

That’s Not Trash … That’s Profit!

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A recent article in Industry Week explained how TerraCycle can turn your “garbage into gold” by taking non-recyclable pre- and post- consumer materials and up-cycling these traditional waste streams into reusable products which includes eco-binders, trash & recycling containers, pencil cases, backpacks, lunch boxes, and other consumer materials. They’ve even come up with a way to create fertilizer from, and package it in, bio-degradeable waste.

So where’s the profit? If you are a school, church, or a non-profit organization, TerraCycle will provide you with packaging materials and cover postage to ship it non-recylcable food packaging that it uses in the creation of its products — and pay you for each item you provide. For example, you can get $0.02 for each drink pouch, candy wrapper, or cooky wrapper your members collect and send it.