Friday, May 30, 2008

Global manufacturing

The flavour of the season for global conglomerates is to have specialised factories in different parts of the world specialise in a certain product. So, for example, a manufacturing plant in India can be a hub for small heat exchangers that are supplied to the entire world from here. The same company would supply boilers worldwide from their plant in China. This supposedly ensures that the companies get the benefits of scale and specialisation. Also control is easier.

What this ignores is that the businesses becomes too dependant on the fuel prices. At the US$125 per barrel range I am sure that the entire mathematics of localised manufacturing has gone awry. Read this article that talks about manufacturing in China becoming uneconimical:

The key would be to find the proportion of fuel costs in the total cost of the product. The company could then factor in the fuel comfort zone - the price of fuel upto which they are comfortable manufacturing in specialised regions.

Friday, May 23, 2008

Struggling Dell?

Dell Inc. is closing its manufacturing facility in Austin, Texas. check this article.

The article starts by labelling Dell as a 'struggling computer maker.' This is the first time I have seen the adjective 'struggling' being used to describe Dell. The makers of Dell had a merry time because of absence of legacy supply chain that allowed them to sell products directly. While direct sale was good for the commercial segment, retail consumers were never the major target of Dell. Now, with commercial spend on a tight leash Dell has no option but to look out and attract retail consumers. This is easier said than done.