Manufacturing skill development

Check this article

http://blog.seattlepi.com/gettowork/archives/188875.asp

All major factories for industrial tooling have closed down in the United States. Now, obviously with no demand of technicians, the technical schools offering these trades would close down also. So in a way the complete supply chain of a particular skill type would come to a halt. This is a huge risk as restarting this supply chain would be very very difficult.

At a business level, we routinely keep at least two vendors alive for most items. It is a risk management strategy. Surprisingly this fact seems to have been ignored at the national level. Countries spend billions of dollars in creating oil reservoirs to de risk oil shortages. I guess somewhere a similar investment is needed to ensure the basic level of technical skill. The risk of losing out on these skills is just too high.

The Chicken and egg story in Logistics

What come first - setting up a good logistics network and then starting the business or starting the business and then setting up a logistics network to support the requirements that crop up? A lay man answer would be to say 'business' comes first. But sometimes the cost of such rear guard action may be prohibitive and in fact cause the business to shut shop.

The US government committed additional combat troops to Afghanistan. As per a report in today's Wall Street journal, the supplies necessary for this deployment are just not here. The building material (concrete blocks - to be procured from Pakistan), fuel (Afghanistan is land locked) and blast resistant trucks ( to be imported from US) have all to reach Afghanistan before the troops actually arrive.

I am not questioning if the troops should be sent or not. Obama already has a Nobel prize for peace so I will keep my personal views away from this. The issue is of planning the logistics and sequencing the deployment of troops in sync with logistics deployment. We certainly not want troops to be in war zone without the necessary equipment and logistics support.

It is easy to take a 'consultant' position and advice the armed forces. In our businesses however the logistics side of business is totally ignored. The modern trade in India has set up retail shops and are now, at a much later stage, thinking of logistics optimisation. New products are being designed without too much thinking of the increase in component SKUs and thee corresponding affect on inventory related costs.

It is a simple proposition that I am trying to put forward - Business requirements have to be met. There is no question of this. This, however can not be done at the cost of ignoring the constraints of logistics. For every step of business growth and change, the corresponding logistics resources should be planned also. And, this logistics planning must be done in the same forum that does the business planning and not by a department head.

Adidas shifting NBA jerseys out of USA

Adidas is planning to move the manufacturing of NBA jerseys from American Classic Outfitter (ACO)- a firm based in Wyoming, USA to Thailand. Check this article here

http://buffalo.bizjournals.com/buffalo/stories/2009/11/30/daily4.html

There are a number of issues here. First is the Adidas side of the story. NBA happens every year and unlike the Soccer world cup, the uniforms do not change very often. Though every year some new stars are created, the older players definitely do their job. The point of the two sentences is that the demand for the jerseys is more or less stable and obsolescence low. Given these parameters, outsourcing to Thailand would definitely make a lot of sense. "Moving manufacturing closer to the source of raw materials", as Adidas says, surely makes sense.

Adidas plans to continue making jerseys for college and amateur teams in the United States. Given the unstable demand in this sector, again this makes sense. However an increasing price differential between the US and Thailand (plus the cost of transporting bulky raw material instead of finished goods), Adidas may be forced to revisit this decision also.

Another issue is the statement that Adidas had promised ACO a five year deal based on which ACO had invested USD 1 million in new machines. At this point it would be difficult to say if this was true. It could be a political hype being created to force Adidas to reverse its decision.

In case it is true, it is again not something that has never been done. Companies are known to treat their vendors with disdain. Buyers of large firms limit their reach to the sales personnel of the vendors. Contracts are short term and the changes in schedules are high. While this may reduce the 'price' the firm pays its vendors, the 'cost' incurred by the vendor increases. The vendor has to compensate the drop in his profits. This is where the the vendor may resort to means that are not exactly ethical. He / she would definitely cut service levels to the customers in some form.

In some cases it is very easy for the buyer to shift vendors, but relatively difficult for the vendors to find new buyers. If the vendors in such cases do not have long term contracts they try to recover all their costs of capital and process changes in the first period of the contract. this would mean substantially higher prices for the buyer.

The message here is very simple. Toyota has been doing this for ages. The point is in continuation to my last post. Resorting to pressure tactics and changing vendors may create a mirage of reducing prices. However the increase of cost is sure to reflect somewhere. Unreliability (meaning increased inventory and lost capacity) and the increased firefighting efforts that we see in our firms are a reflection of these very unhealthy practices that we are following.

Logistics cost reduction

Logistics cost is generally around 4 - 10% of the total product cost in most manufacturing firms. Of this amount 60% to 80% is fuel cost. There are of course also the costs of the driver, cleaner and the vehicle fixed costs. The numbers make it clear that any reduction of logistics cost by further squeezing the Logistics service providers (LSPs) would clearly not be a feasible option. Yet this is the most common means of cost reduction resorted to.

Faced with such pressures, the reliability of LSPs becomes suspect. The LSPs may offer 'bargain' prices to garner initial business but such 'bargain' business often becomes low priority work. LSPs bundle loads of other customers with the load of the contracted customer. This forces them to make unnecessary detours and stops. For the customer, using such low cost resource invariably results in either inventory buildup or lost capacity.

All this is not rocket science. Yet most companies do not seem to see and realise this. One reason is of course the heavily fortified 'departments' that do not communicate with each other. The KRAs are generally designed to create local optimums. A logistics department with minimum cost may have a star status - that it create problems for other departments is a different issue.

Logistics cost is a direct out of pocket expense that is 'seen' by the entire firm. Inventory costs, obsolescence, cost of lost capacity and cost of expedited delivery are never a part of financial statements. They are thus ignored. There is a tremendous scope of improvement here. But the scope is not in reducing logistics cost. It is in reducing the total supply chain costs and in increasing sales.

Maturing of Indian organised retail

Check this article from Business World, its about Spencer's retail and their efforts to survive (and then probably thrive). The article has impressive numbers and graphs about Indian retail scenario.

http://www.rpggroup.com/images/News/shopping_bw_5_10_09.pdf

The most important point for me is that Spencer's will be shutting down three formats and focus on hypermarket and supermarket. I believe this is a very very smart move. The so called organised players of Indian retail have chosen to dabble in all formats simultaneously. Every format served a different customer but they were served by the same supply chain. This was a sure way to ensure dissatisfied customers and high operating costs.

A small store like Spencer's Express or Spinach needs frequent deliveries and in small quantities. Every delivery assortment would have different types of items. However, A large format Big Bazaar could easily store and accept deliveries of full truck loads. Every aspect of inventory planning and distribution would be different. We cannot expect the same supply chain to serve both needs.

It is good to see that Spencer's has seen the light. Am sure with the realisation that the fabled growth of Indian (so called) organised retail not happening, others have no option but to join in.

Promotions and change of jobs

Two incidents -

In a faculty meeting at NMIMS we were waiting for the tea to be served. The person manning the tea arrangements outside refused to serve us as he was the 'supervisor' and person supposed to serve tea had gone down.

At a Pizza Hut outlet at Borivali, peak time, the staff were trying to clear and re arrange tables as fast as they could. There was a rush of customers waiting outside. As soon as the table next to us became empty, the supervisor started collecting the tissues strewn on the table. Till the waiter arrived a lot of the table was clean. Both of them together cleared and cleaned the table.

I am sure all of us can take our own lessons. Job roles in processes are sometimes defined very narrowly. The definitions are also internally oriented and have nothing to do with the customer. Internally oriented job roles may lead to some hypothetical efficiency calculation, but they may be detrimental to customer service.

I am not looking at criticizing individuals. Of course a point could also be made that the faculty could have taken tea on their own. An employee behaves in a manner that is defined in his job role. In an era of less competition job roles and processes defined to create high efficiencies were okay, but in the current competitive scenario they are a sure way to ruin.

Clean technologies - CSR or business?

I was invited to take a session at an small MBA institute in Gujarat. I had given then a few pages of reading material. I saw that the institute had edited the layout of my material so that it fit in only four pages and printed it on both sides of the paper. I began my session by appreciating the editing that saved lot of paper, an environmentally conscious action. A student stood up to reply that she was responsible for this and her prime motivation was to save money. Printing on both sides was obviously cheaper than two sheets with one side printed.

This incident reemphasized my concern that we had a wrong approach to clean technologies and sustainable environment based practices. Many companies had a special department that looked at these initiatives and these were paraded to the world as CSR (Corporate Social responsibility) initiatives. Firms used such actions to occupy high moral ground among consumers and the society.

A better way to look at these initiatives would be to assess them as normal business projects. They would have an investment and a straight monetary return. This would be the only way to ensure that the projects are taken up willingly by many companies. Businesses should be convinced that clean technologies save money and that they save the environment is a by product.