@ Supply Chain Management

Abcoautomation has a post up on How Supply Chain Optimization can help you beat your competition. Except that, the sort of optimization that is referred to there is not Optimization. I suppose that I have to start making a distinction between Big “O” optimization and small “o” optimization. However, that is a topic for another day. The topic for today however is two fold – Ernst Haeckel and the effect of Dr. Haeckel’s pithy summation on almost every and anything that we engage in. In very broad and general terms.

Ernst Haeckel, for those of us who are not likely to be avid readers, was a contemporary of Darwin (Yeah, that Darwin) championed a notion in evolutionary theory that can be summed up as, “Ontogeny recapitulates Phylogeny.” I assure you that you’re perfectly within your rights as a blog reader to switch to another page right now. It’s about to get a lot worse.

The following is the clarification of the terms: Ontogeny – the development of the form of the creature and Phylogeny – the location of the creature in the general scheme of evolutionary descent. Dr. Haeckel proposed (hypothetical creatures, drawings etc al), that Ontogeny recapitulates Phylogeny, which is to say that creatures in development exhibit developmental characteristics associated with creatures situated earlier in its evolutionary descent. This was quite an assertion which however in time turned out to be entirely wrong.

The surprising thing is that while “Ontogeny recapitulates Phylogeny” has little support in the natural world, something quite akin to it can be readily observed in the world of intellectual ideas and their application.

Here’s the content from the above story:

I heard a story one time about a Vice President of Distribution for a very well-known health and beauty aid manufacturer who gave this talk about when he took over as VP.  He asked what is the cash to cash cycle line for a particular brand of shampoo?

What is the time from the point where we spend money on boxes bottles or whatever you need for the shampoo and the manufacturing process to the time you get the money back from Wal-Mart (their end customer). Guess how long that process was?

Really, write it down and make a commitment you might be surprised at the answer. Well despite the fact that I’m not Vanna White, here is the answer. 47 weeks, 47 weeks of time. From the time that they bought bottles of goop, and paint and to the time they got their money back from Wal-Mart.

Now the next question he asked was this of those 47 weeks how much time do you really take to add the value process?

That is to make the product. Surprise again. 90 minutes. So out of the 47 weeks of time they only spent 90 minutes actually producing the product, and the final question how much of the corporate attention was on the 90 minutes?

The Supply Chain as an idea or the very recognition of the idea of a supply chain occurs quite later in the development of the capitalistic economy. So, quite akin to Dr. Haeckel’s formulation, this is a prime exhibit of later forms of organization and complexity recapitulating similar variances of thoughts and problems that were exhibited in earlier forms of organization. So while “Ontogeny recapitulates Phylogeny” was the mantra of an age past, I offer that “Novel forms of organization repeat the same problems exhibited in earlier developmental eras.” Or in other words, “Ontology recapitulates teleological gaps”.

Ontology has to do with the “that which is” and in this case would be the idea of the supply chain or manufacturing or putting things together. Teleology is about the purpose or end driven action that one undertakes day in and day out. So all that the statement above is referring to is the gaps in purpose that often exist in the recapitulation of newer ontologies.

This is precisely what prompted this long winding post – You see in the article above from abcoautomation, there is the suggestion that 47 weeks of lead time can be improved such that the non-value added proportion of this lead time can be reduced. However, that can only be done to a certain point i.e. as far as there is slack capacity to drive down the lead time. However, is there really slack capacity?

My simple point is this – these are problems that has been discovered and addressed in manufacturing – sometime well and sometimes not so well. The supply chain as a newer ontology (vis a vis Manufacturing) seems to recapitulate the same gaps in purpose.

Avoiding this recapitulation and the associated costs of this recapitulation is the only free lunch available – the question is whether you even realize the free lunch offer.

It was announced recently that Disney Parks and Resorts will be teaming up with Jaxport, the TracPac shipping terminal in Jacksonville, Florida. About 75% of Disney’s merchandise will now be going through this port as opposed to the one they were previously using in Savannah, Georgia.

When asked about the move, Senior VP and CFO of Disney Parks and Resorts, Anthony Connelly, had this to say:

“From a business decision for us, it’s about optimizing our supply chain and being able to minimize the cost associated with bringing freight here.  So to us, it was about saving money and we’re certainly excited to participate in growing Florida’s economy as well as Jacksonville’s economy.”

Although a quarter of Disney’s merchandise will still pass through the port in Savannah, the goal of the company is to eventually have Jaxport be the standalone terminal for all of Disney’s merchandise.

Jaxport – America’s New Logistics Center

Disney’s switch to Jaxport is a signal that this hub is becoming a major player in the import and export industry. What makes Jaxport so unique is its ability to serve as a terminal for both inbound and outbound cargo as well as the ease of distribution of goods to numerous parts of the United States.

Jaxport can also boast a new state-of-the-art container terminal, and the hub’s location in Jacksonville, Florida means it is the crossroads of global commerce, with multiple highway and rail options in and out of the city.

Disney is not the only company taking advantage of Jaxport’s superior capabilities. Brands like Coach, Michael’s, Bridgestone, PSS World Medical, Sears, Samsonite, Maxwell House and Unilever have all made the switch to Jaxport in an effort to better optimize their supply chains.

Rich Markovich, Director of International Logistics and Compliance for the Michael’s art supply chain, notes an advantage Jaxport has and why it is such an attractive choice:

“A real point of strength is the workforce in the Jacksonville area – on top of the dynamics that make Jacksonville a very attractive place when it comes to domestic transportation.”

The Decline in U.S. Manufacturing Leads to New Supply Chain Logistics Centers

Throughout the last decade, there has been a measurable decline in the manufacturing of goods on US soil as production has shifted to overseas markets where costs are much lower.

This shift has caused an increase in imported goods to this country and a need for new supply chain logistical centers that can handle the arrival and distribution of thousands of cargo containers.

Many ports throughout the country are trying to capitalize on this import trend, but it is the ports on the southeast coast in particular, such as Jaxport, that are in a position to reap the greatest benefits. This is in large part due to the fact that west coast ports are currently close to operating capacity and cargo moved from these hubs must absorb increasing expenses as fuel prices remain high.

From a First Coast Vision Report:

“Supply chain logistics centers are catalysts for further economic activity in the community. Clustering of these facilities is common because businesses feel more confident in their location decisions when they see companies with similar business needs thriving. As Jacksonville attracts more of these companies, others will seriously consider Jacksonville for their own relocations and expansions.”

As supply chain management executives continue to seek optimized and cost-effective logistical solutions, they must consider using ports of entry with established supply chain centers that have connections to major trade lanes, reliable containership services, and a qualified workforce. These considerations make Jaxport a natural supply chain logistics center choice despite intense competition.

Pete Kontakos is a contributor who writes about supply chain management certification online.

The Coming Tech-led Boom is a recent article published in the Wall Street Journal.

In January 2012, we sit again on the cusp of three grand technological transformations with the potential to rival that of the past century. All find their epicenters in America: big data, smart manufacturing and the wireless revolution.

Now, that’s what I call timing because I’ve been staking out the ground on two of those technological transformation – Smarter Manufacturing here on this blog and Big Data (at my new blog: Pachydata.com). Alas, as far as Smarter Manufacturing is concerned, I’m more concerned about effective manufacturing and elaborating on the fundamentals of manufacturing carried out in an intensely competitive environment.

The Smarter Manufacturing that the authors of the article had in mind is as follows:

While we see evidence already in automation and information systems applied to supply-chain management, we are just entering an era where the very fabrication of physical things is revolutionized by emerging materials science. Engineers will soon design and build from the molecular level, optimizing features and even creating new materials, radically improving quality and reducing waste.

Devices and products are already appearing based on computationally engineered materials that literally did not exist a few years ago: novel metal alloys, graphene instead of silicon transistors (graphene and carbon enable a radically new class of electronic and structural materials), and meta-materials that possess properties not possible in nature; e.g., rendering an object invisible—speculation about which received understandable recent publicity.

This era of new materials will be economically explosive when combined with 3-D printing, also known as direct-digital manufacturing—literally "printing" parts and devices using computational power, lasers and basic powdered metals and plastics. Already emerging are printed parts for high-value applications like patient-specific implants for hip joints or teeth, or lighter and stronger aircraft parts. Then one day, the Holy Grail: "desktop" printing of entire final products from wheels to even washing machines.

Such a radical shift is definitely possible but that changes the very idea of manufacturing as it has existed over the last three centuries. It’s not Smarter Manufacturing as much as it is desktop manufacturing.

Ok, so one out of three – not bad at all.

In an earlier post, I blogged about the Baltic Dry Index as a good indicator of economic activity (Read it here: Ready for a recession?)

Even if we were to magically start moving in the Baltic Dry Index in a positive direction which would be a tremendous relief for everyone (but remember – *magically*), the US treasury and the Federal Reserve would continue to devalue the US dollar for two practical reasons:

1) Repay outstanding debts with a depreciated currency. This is really quid pro quo with some of the trading partners of the US against whom the US has been running trade deficits for the better part of a decade. The whole point of trade is not for one side of the equation to accumulate a lot of paper currency but to reciprocate in buying the origin country’s exports.

2) Make US exports competitive with other countries and reignite production/manufacturing stateside.

In fact, if the US (and World) economy were to recover some what, the above two agencies would devalue the US dollar with a vengeance.

This sort of policy, if successful, would mean a repatriation of some of the manufacturing that went overseas. Going further, when US firms look at the scenario (albeit a few years down the line) and see that the assets created overseas for manufacturing whatever widgets were outsourced have depreciated or is in need of upgrades to remain viable, that would be the decision point for deciding where the next generation of manufacturing will be located.

Much of the trajectory of what we see taking place goes to answering that question of the future and the above two agencies are hell bent on creating conditions that  answer this question of manufacturing in the positive.

Or so I believe.

In such a scenario, what I believe to be key to long term competitive manufacturing is the ability to be smart about manufacturing – it means being able to operate using a very thin buffer for error because American firms will be competing with overseas firms (firm benefiting from their own countries’ competitive devaluation) that will continue to compete on large volumes and scale.

So what is Smarter Manufacturing?

That’s probably a rather safe thing to say as long as everyone is saying it. I would add that they might be whispering, “Well, what do you think would happen given the costs of in-sourcing?”. That’s probably not a safe thing to say, if you were a CEO.

Square with me a little, ought it not to be said? Perhaps, it bears frequent repetition as far as I’m concerned. The article titled Multinational CEOs say outsourcing has gone too far from Manufacturing and Technology News recounts:

Chief executive officers and senior manufacturing executives working for multinational corporations predict the United States will become an even less competitive location for manufacturing, according to a survey conducted by Deloitte on behalf of the U.S. Council on Competitiveness. Over the next five years, the United States is expected to slip further behind the world’s current leading manufacturing nations — China, India and Korea. The CEOs say Brazil will surpass the United States as a better destination for manufacturing by 2015.

The CEOs "see a fundamental shift — a new world order in manufacturing — that replaces the 20th century dominance" of the United States, Germany and Japan, says Craig Giffi, vice chairman of Deloitte. "It’s a virtual restart from the 21st century."

The CEOs are nervous about what this means for their children and grandchildren if the United States can’t get back into the global manufacturing game. They recognize that outsourcing of manufacturing has not worked in the way they had envisioned. "We overestimated the issues associated with outsourcing jobs to low-cost nations and the consequences of that," says Giffi. "The executives underestimated the erosion that would have in their overall capabilities in places like the United States and how that would fundamentally shift their supply chains."

and

But the United States government can’t dither in putting together policies that favor production over consumption. "This isn’t something that can be debated indefinitely," says Giffi. "Business leaders are forced into a world of making decisions 24 hours a day seven days a week on where they have to make investments in plants, equipment and new jobs." If the United States does not address its cost structure, talent gaps, trade polices and infrastructure "then we will see a continual gradual deterioration and downward spiral. . ."

Now, in the pages of this blog, I’ve gone over back and forth over the outsourcing, off-shoring and in-sourcing arguments countless times. Whether the decision to outsource or offshore manufacturing is based on flawed cost modeling, the growth of a global culture of some weird shape or form, easy credit or some other combination of other factors – what is obviously true is that it has been happening for more than a decade now.

One of more pathetic slogans that I have heard during this recession/depression is – “Buy American.” Well, I’ve been hearing this slogan even before that too. The implication of such a statement is staggering.

Allow me to explain. If the only recourse the American manufacturer has left in his arsenal to the onslaught of “cheap” foreign manufactured items is patriotism i.e. “Buy American”, it’s time to remove the last tatters of a once delicate fig leaf that has been long defending the promise of American manufacturing. If using that same flawed cost modeling, it costs ten times more to manufacturing something here in the USA than in some place far far away – there are two glaring questions – Why? and Where is the equilibration point?

The first question is :Why?

Well. that’s quite easily answered if one is prepared to be crude. Life doesn’t cost as much over there. Being paid 50 cents an hour to stitch shoe soles might inflame the passions of the very flammable over here but 50 cents an hour is a life changing event in some parts of the world. In other words, the difference in costs (using the same flawed cost modeling) is purely because of divergent cultural attitudes, wants and desires – after all, needs are the same for the human being. And this divergence has been effected in the course of less than a century. The corollary of this statement is that rights, benefits and freedoms come at an enormous price and you have to be willing to pay it.

The second question is : Where is the equilibration point?

Now, we all know that there is never going to be perfect equilibrium between the manufacturing options from overseas and those over here i.e. because of backgrounds, resource distribution etc, there are going to be quite a different set of initial conditions for any operation/endeavor. So, the natural question is whether the equilibration point is at three, five or seven times wage differential or does it lie on some other dimension itself? Is it going to be dictated on a dimension of response time or quality or some other critical cost impacting dimension? In the real world, it is a function that intersects all of these and as we muddle from one crisis to another, it will become quite apparent.

But the proof of equilibration is in the pudding. Consider for a moment, that all tax breaks for US corporations that move jobs overseas are eliminated, the currency exchange rate differential between the US$ and other foreign currencies are eliminated and so on and so forth – will there still be a significant wage differential remaining? Will the American manufacturer still have to utter the words, “Buy American!!”  as a rejoinder to those who weigh the output stateside and overseas and votes with their dollars to buy overseas? For American manufacturing to win, there has to be an exceptional value delivered even to American buyers be they consumers or intermediates. Only exceptional value can force equilibration at a higher wage differential – so the real message to the American manufacturer seems to be – where is the value that I ought to be getting for this high a wage differential? And I’m afraid that the answer just doesn’t cut it.

You see, I fear that it is not the multinational CEO that has been shipping jobs overseas as much as it is the lack of value that was being created that forced the issue. It  may not be that one fine day, a couple of CEOs figured out that it is better to ship everything, lock, stock and barrel to some god forsaken place far far away. Instead, a few CEOs looked at what they were getting for what they were paying and decided not to pay that differential any more.

I fear that in a very general sense, the American brand as far as manufacturing was concerned (and maybe in some other aspects as well) has lost its way and that’s why it becomes necessary to invoke the fig leaf of patriotism.

The words of General Patton concerning patriotism ring true –

Don’t be a fool and die for your country. Let the other sonofabitch die for his.

That’s the be all and end all of patriotism. For everything else, bring Value.