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:

http://seekingalpha.com/article/79417-challenges-pile-up-for-chinese-manufacturing?source=news_sitemap

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.

Struggling Dell?

Dell Inc. is closing its manufacturing facility in Austin, Texas. check this article.
http://www.marketwatch.com/news/story/dell-close-texas-plantweigh-sale/story.aspx?guid=%7B0DF2ADF8-453A-4B08-BC32-74E75CFA0389%7D

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.

China and US at it again

The current feud is about contaminated heparin that has apparently caused 81 deaths in the United States. To a lay man it might seem like a simple issue of contamination happening at a local facility in China that has weak processes. Read this link in The New York Times
http://www.nytimes.com/2008/04/22/health/policy/22fda.html?_r=1&scp=1&sq=heparin+China&st=nyt&oref=slogin
There is an amusing paragraph in the middle: China has in recent years exported poisonous toothpaste, lead-painted toys, toxic pet food, tainted fish and now, contaminated medicine.

All this seems to be part of a larger battle to assert dominance. This is not a political blog, but the point of putting it here is that your products may suffer becuase of your country's relation with your customers' country. Judging by these events I think it might be prudent for small manufacturers to avoid certain markets altogether. In short run it might seem to be a bad business idea, but in the long term it should work out.

Moral of the story: Just because you have a market, it may not be a good idea to sell there.

New product development

My last post in November 2007 was about sew product development and so I start the blog again after 5 months on the same topic. When the user and the designer are two seperate departments both would naturally have different requirements. Not necessarily all these requirements can be mapped, because all may not be logical. For example if a doctor has a preference for a particular brand of surgical instruments he will not switch brands merely on the basis of logic. There is a realiability based bond that he has with the current brand.

Coming back the the point, when users and designers of a product are a very different set of people, conflicts are bound to occur. Nothing displays this conflict more than the development of India's indigenous battle tank Arjun. The designer is DRDO and the user is the Indian Army. Chk the link
http://www.business-standard.com/common/news_article.php?leftnm=10&bKeyFlag=BO&autono=320813
Ajai Shukla has done beautiful work in bringing out the story from both sides.

One more point of consideration is the long lead time of design. The long lead time ensures that customers have time to be impregnated by new ideas and rock the existing boat. The key would be to create a product as fast as possible and give it to the customer. There will always be a scope for improvement. This scope should not limit the product being produced. Like the Eurofighter mentioned in the article, a basic product should roll out first and then there can be incremental improvements. Unless there is a huge safety issue I believe that some product is better than no product. Given the strategic nature of defense sector I believe that some version of the tank should be in service as soon s possible and it can be developed as and when needed.

I'll do some wishful thinking here. Maybe if the design was modular, we could very easily replace the old technology modules with new gadgets as soon as they are designed.

Global approach?

Mahindra and Mahindra's Scorpio is now a legend. It is a completely 'India' car designed at a fraction of the cost of all international automakers. Mahindras used the knowledge of their vendors to have some form of distributed design to speed up and reduce the cost of new product development.

http://findarticles.com/p/articles/mi_m3012/is_10_182/ai_94335258

The link is a very detailed article on the evolution of Scorpio.

Boeing 787 dreamliner followed pretty much the same story. Boeing had a practice of giving completed designs to its vendors. For the 787 they let their vendors do a lot of their own designing themselves. The 787 project, if documented, could be a lesson of how not to manage a new product development.

http://seattletimes.nwsource.com/html/boeingaerospace/2003986302_webbair01.html

This brings me to my central belief that nothing is 'good' or 'bad'. There is a lot more to these practices than meets the eye. Implementing modern techniques taking them at their face value is not a guarantee of success. The deeper implications need to be understood.

It is not that collaborative designs cannot succeed in aircraft industry. Also it is not that the concept will always be a hit in automobiles. There are a lot of 'other' factors involved.

I am not too sure of being able to document these other factors as of now. I would love contributions to help me answer this..

taxing of alternate technologies

If we consider the life cycle of any product, at least 30% of it is paid as some for of 'tax' to the government. The taxes are justified as the production of goods consumes some resources that are in public domain. The idea would be to balance the revenue from taxation with the costs that the government has to incur because of that industry / product. Of course there is some additional amount for general public expenditure.

The nature of costs have drastically changed. However the taxation has not. Water and air are much more dearer today than a few years ago. The taxation has to changed to reflect this. Some products that may seem to earn money for the government, may actually be a drain on the system. Cigarettes and alcohol are major tax revenue earners, at least in the Indian context. However, when this amount is compared to the money spent on subsidised public health care or the loss of human resources it may not amount to much.

If there is some product in a particular category that does not use up as much of the water and air resources, meaning it uses clean technologies, it must be taxed considerably lower. There could be a special subsidy for green products or an additional duty levied on polluting industries.

In the short run the subsidies may seem to 'cost' the government, but it the long run we may all be better off with cleaner products and technologies. But of course governments all over the world have their own ways. In this context taxing of India's first electric car "Reva" at par with other cars seems unjust.

http://www.sonyclassics.com/whokilledtheelectriccar/

Check the above link. Things are maybe not as straight and simple as they seem.

Ahh, but there is hope too, check the link below.

http://www.channelnewsasia.com/stories/singaporebusinessnews/view/307933/1/.html

Happy weekend.

Going Green

I am sure this will not be the first post on the topic of environment friendly manufacturing. The Sri Lanka Sunday Times has reported that the worlds first clean fabric manufacturing zone (MAS Fabric Park) has opened in Sri Lanka. They plan to recycle most of the effluents, generate bio gas, compost (fertiliser) and all. Look at the link below.

http://www.sundaytimes.lk/071021/FinancialTimes/ft302.html

A question is if such examples are mere blips in the otherwise "dirty" world of manufacturing. I strongly believe that there is no question on the need of clean technologies. Sustaining business on a long term needs clean policies.

At some level it is all a question of economics. Water is very cheap, so there is no incentive for companies to recycle. Air is free, so again, clean technologies are not really a priority. What should the governments do? This question can be a wasteful intellectual discussion and would probably have no end. A better question is what we in business should do.

All new facilities set up anywhere must be environmentally friendly. Yes, strong anti pollution legislations may not happen in the near future. But, one bout of acid rain can change all that. The recent Nobel peace prize to Al Gore has also made it difficult for governments to ignore the issue. Businesses can expect strong pressures for clean technologies in a few years. Rather than have facilities that are rendered redundant, it would be smart to start the plans from today.

Here's one more link

http://www.edmunds.com/insideline/do/News/articleId=123102?imw=Y

Kia Motors is planning mass production of its new "green"vehicle.