An article I saw yesterday has me thinking about supply and demand for talented employees. That article, which ran in the Chicago Tribune, reported that more than a third of all employers globally face a shortage of skilled workers, according to the results of a new survey. That survey, conducted by Manpower Group, also found that not only is it challenging to find skilled employees, but companies are reluctant to hire until people with the right skillsets are found.

Manpower’s survey of more than 40,000 employers across 41 countries found that the hardest jobs to fill globally are skilled trade workers, engineers, and sales representatives. Among the most frequently cited reasons employers say they can’t fill roles is a lack of applicants—that response was cited by 33 percent of the respondents this year, up from 24 percent in 2011. An equal percentage complain they see a “lack of technical competencies/hard skills”—especially when it comes to industry-specific qualifications in both professional and skilled trades categories.

The news is worse for U.S.-based companies. Another Manpower study found that 49 percent of U.S. employers are experiencing difficulty filling critical positions within their organizations. Indeed, according to the more than 1,300 U.S. employers surveyed, the positions that are most difficult to fill include skilled trades, engineers, and IT staff.

While it’s getting worse, this isn’t exactly a new problem, and it has been discussed for the past few years. Robert J. Bowman, managing editor, SupplyChainBrain, recently wrote that in 2010, MIT’s Center for Transportation & Logistics released a white paper titled “Are You Prepared for the Supply Chain Talent Crisis?” In that paper, global communications consultant Ken Cottrill speculated that the recession was a contributing factor. Eager to cut costs in a down economy, companies went too far in shedding themselves of valuable—albeit expensive--supply-chain expertise. They took for granted their ability to pick up suitable talent from a supposedly deep pool of applicants, when things got better. Meanwhile, baby boomers, who make up the lion’s share of supply-chain professionals, are beginning to retire, and younger replacements are in short supply, Cottrill wrote. Add to that a discipline that’s ever-changing and more challenging than ever before, and the situation borders on becoming critical.

So the salient question then becomes: How can companies address this labor shortage? In Bowman’s article, he wrote that David Ecklund, program director of the University of Tennessee’s Global Supply Chain Executive MBA program, recommends taking what he calls a “dual development path,” which focuses on core supply-chain skills while simultaneously embracing cross-functional capabilities. The transformation of talent requires a focus on standard competency models, career and succession planning, and continuing education. Also, Ecklund says global networking is absolutely critical. Companies must look outside their own industry.

Jonas Prising, ManpowerGroup president of the Americas, adds that wise corporate leaders are already acting on the talent shortage. For example, he says the firm increasingly sees companies developing workforce strategies and partnerships with local educational institutions to train the next generation of workers.

I’m reminded by that of the Skills for America’s Future program, which is an industry led initiative with the goal to improve industry partnerships with community colleges and build a nation-wide network to maximize workforce development strategies, job training programs, and job placements. Central to the program is a Manufacturing Skills Certification System, which will give students the opportunity to earn manufacturing credentials that will travel across state lines. I am interested in watching the program develop, and in seeing results from the initiative.

Earlier this year, there was considerable discussion about whether or not companies should consider re-shoring—returning manufacturing to the U.S.--and how soon it may begin to occur. The topic continues to draw interest mainly since the concept does have a great deal of merit.

As has been previously noted, wages in China and other low-cost countries have been rising quickly. Indeed, some analysts expect that in a few years, there won’t be much difference at all between wages in China and those of U.S. workers. At the same time, increasing fuel prices continue to push transportation costs higher. Finally, and perhaps most significantly, the overall total cost of ownership—ranging from labor and quality to inventory carrying and shipping costs—makes manufacturing in the U.S. (or at least closer to home) more appealing.

I saw an announcement from The Hackett Group last week that, according to its new research, more companies are re-shoring a portion of their manufacturing capacity. That’s because the total landed cost gap between China and the U.S. continues to shrink--driven in part by rising wage inflation in China, continued productivity improvements in the U.S., and rising fuel prices that increase shipping costs.

At the moment, China remains a manufacturing leader, and nearly 75 percent of the companies surveyed having some manufacturing capability in China for at least three years, either directly or through contract manufacturers. But the study also found that companies are exploring re-shoring as an option for nearly 20 percent of their offshore manufacturing capacity between 2012 and 2014.

Re-shoring is expected to become more viable with each passing year, as the total landed cost gap of manufacturing offshore shrinks. The Hackett Group’s research found that the cost gap between the U.S. and China has shrunk by nearly 50 percent over the past eight years, and is expected to stand at just 16 percent by 2013. Furthermore, the research found that the shrinking total landed cost gap could create a tipping point which could accelerate re-shoring.

As the total landed cost gap falls below 15 percent, the economic opportunity will require more companies to rebalance their supply chains and move capacity back closer to customers in the U.S., says David P. Sievers, principal, strategy and operations leader for The Hackett Group.

Nevertheless, that doesn’t all imply that manufacturing will necessarily return to the U.S. Other research this year shows that while China is expected to remain a leading low-cost country due to its mature manufacturing infrastructure and the significant costs of moving production, some of that production likely will shift to other countries. Mexico, for instance, offers the lowest landed costs for U.S. customers. Additionally, other countries, such as India, Thailand, Vietnam, and Brazil will continue to become more cost-effective for manufacturing, and consequently will gain manufacturing.

Some companies have begun to move operations. For instance, Reuters reported earlier this year that executives at some large manufacturers now see a competitive advantage to building their footprint in the U.S. For example, General Electric announced it essentially is moving appliance manufacturing from Mexico and China to Louisville, Ky. When the company evaluated the business on a cost basis, U.S. labor is still higher, but it’s more competitive now than it has been. Additionally, both materials and distribution are less expensive in the U.S.

Other companies also are reaching a similar conclusion. Industryweek also reported earlier this year that Caterpillar announced it will shift production of small tractors and excavators from its Sagami, Japan, plant to the U.S. to be closer to a large base of customers in North America and Europe. A new site in Athens, Ga., will be close to the major ports of Savannah and Charleston, and the region offers a strong base of potential suppliers and skilled manufacturing employees.

It remains to be seen, of course, whether other companies will continue the re-shoring trend, shift operations to other low-cost countries, or simply maintain their operations in China.

 

 

 

 

 

 

Google announced yesterday that it finalized its $12.5 billion acquisition of Motorola Mobility, the manufacturer of smartphones and other devices.

The statement by Google added that “the acquisition will enable Google to supercharge the Android ecosystem and will enhance competition in mobile computing.” But what that really means is that Google can compete directly with Apple, which should prove interesting to watch.

The news was widely reported, but I saw an article on IndustryWeek carrying a quote from Google Chief Executive Larry Page’s prepared statement, in which Page said, “I’m happy to announce the deal has closed. Motorola is a great American tech company, with a track record of over 80 years of innovation.” He further added that, “It’s a great time to be in the mobile business, and I’m confident that the team at Motorola will be creating the next generation of mobile devices that will improve lives for years to come.”

Page said the deal offered exciting possibilities for Google, which until now has been focused mainly on software. “The phones in our pockets have become supercomputers that are changing the way we live,” Page said. “It’s now possible to do things we used to think were magic, or only possible on Star Trek—like get directions right from where we are standing, watch a video on YouTube, or take a picture and share the moment instantly with friends.”

What’s interesting is that Google first announced its intention to buy Motorola Mobility last August, citing the company’s 17,000 patents as a main driver of the deal. But it has taken Google months to clear regulatory hurdles and fend off inquiries from authorities. That’s because Chinese, U.S., and European regulators have all expressed concern that Google would keep Android, a free operating system, out of the hands of competitors in the mobile device market. So, for example, regulators in the U.S. have previously stated they will be watching to ensure Google does not use its acquisition of Motorola Mobility to gain unfair advantage.

Furthermore, as Jenna Wortham points out in a New York Times blog post, Chinese regulators finally approved the purchase, but they attached a significant condition: that Google’s Android operating system for mobile devices remain available at no cost for five years.

Google will run Motorola Mobility as a separate business unit, led by “long-time Googler” Dennis Woodside, who will take over from Sanjay Jha. In an interview conducted with Bloomberg Businessweek before the deal formally closed, Woodside said Google plans to use the Motorola division to produce smartphones and tablet computers that can help Google set the pace of innovation in the mobile business. In a Businessweek article, Woodside says, “This is a huge opportunity to really show what Android can do in a well-designed, well-packaged, and well-marketed product.”

But that article’s authors, Brad Stone and Peter Burrows, also note that the move is a huge gamble for Google, which became a household name and one of the most profitable businesses ever by sticking to on-line services and software. Now, however, the company will have to figure out the cutthroat, low-margin world of hardware—which means managing production lines and extensive supply chains. The deal could even slow the rise of Android. Device makers such as Samsung and HTC have been comfortable licensing the Android mobile operating system because Google wasn’t involved with associated hardware. It’s quite possible those feelings will now begin to change.

So there clearly are opportunities as well as supply chain challenges for Google. It certainly will be interesting to watch the market evolve.

 

 

Amid all the news surrounding Facebook’s IPO, I almost missed some interesting developments in the cellphone market. I’m glad I didn’t.

The first story involves rising demand. As Bloomberg reports, China Mobile, the world’s largest phone company by number of users, and Apple are in talks for China Mobile to offer Apple’s iPhone, the carrier’s new chairman said earlier this week.

The problem was that China Mobile’s homegrown 3G service left it unable to offer popular handsets including Apple’s iPhone, which has been available through china Mobile’s domestic competitors China Unicom and China Telecom. However, the carrier is counting on a shift to a fourth-generation wireless network to stem a decline in market share among subscribers who use mobile devices to access the Web to watch videos, play games, and so on.

China Mobile will expand its fourth-generation network trial to nine cities, from six in 2011, and add 20,000 base stations to the 900 it tested last year, Chief Executive Officer Li Yue announced earlier this week, according to Bloomberg. If the trial is a success, the total number of 4G base stations will climb to 200,000 next year, he said.

AppleInsider reports that China Mobile’s Chairman Xi Guohua added that he can’t offer too many details, but he did repeat that both sides do hope to boost their cooperation.

Demand for the iPhone on China Mobile is expected to be quite high. Despite the lack of official sales of the device, the company has more than 15 million iPhone users on its network, the article explains.

Even without China Mobile, Apple is seeing spectacular growth in iPhone sales throughout Greater China, AppleInsider notes. Unit sales of the smartphone in the March 2012 quarter were five times those of the previous year. Sales of the iPhone surely will be interesting to watch when China Mobile’s 4G network is complete.

Other news this week included an announcement about declining demand. I read on Industryweek that Toshiba announced it has stopped making televisions in Japan, citing slow domestic demand as falling prices, fierce global competition, and a strong yen pressure the country’s electronics makers. Instead, the company has shifted all of its television production to factories in China, Indonesia, Egypt, and Poland.

But another announcement by Toshiba was more interesting to me. In a widely published Associated Press story, which I saw picked up by Wirelessweek, Toshiba said Wednesday it will end production of mobile phones in Japan due to falling demand amid an economic slump.

Toshiba spokeswoman Yuko Sugahara said in the story that the Japanese mobile phone market was hit hard by the country’s on-going economic slump. Consequently, consumers are reluctant to buy new mobile phone handsets amid an economic downturn, Sugahara says.

Toshiba’s global shipments of mobile phones fell to 3 million units in the last fiscal year—down from 6 million units the previous year. Toshiba said most of its cellphones were sold in Japan. However, the company did say it will continue to make cellphones at its plant in the eastern Chinese city of Hangzhou. It will also outsource its mobile phone production, but declined to give further details, the story reports.

In some respects, these stories are about rising demand in China for, well, everything, and continuing economic difficulties in Japan. But they also show how companies must be quick to identify and then develop—or halt, and then relocate—capabilities to respond to market fluctuation.

Some of the greatest concerns for U.S. technology companies are interruptions and impediments to supply chain operations. That’s one of the findings of an annual report issued by BDO USA, which I saw reported on Businesswire last week.

The 2012 BDO Risk Factor Report for Technology Businesses, which analyzes the most recent SEC 10-K filings for the 100 largest publicly traded technology companies in the U.S., reports that 88 percent of tech companies cite concerns over reliable suppliers, vendors, distribution of products and services, as well as the global distribution chain. Interestingly, this marks the third consecutive year that supply chain concerns have increased (rising to 75 percent in 2010 and 86 percent in 2011).

The report also notes that natural disasters and other geopolitical issues pose a serious threat to supply chain management and operations. Indeed, 88 percent of companies cited those risks in this year’s study, up from 81 percent in 2011.

As automakers’ annual reports show, as well as news from Toshiba and Panasonic, the 2011 Japan earthquake, floods in Southeast Asia, and other natural disasters had a devastating impact. In fact, a rise in supply chain and business interruption risks was expected after the fallout from those events, says Aftab Jamil, partner and national leader of the Technology & Life Sciences practice at BDO USA, LLP. The effects of these incidents extended deeply into the technology industry and serve as a reminder of the fragility of even the soundest supply chain. As tech companies continue to grow and extend their footprint globally, supporting and securing operations is paramount for success, Jamil says.

I was also interested to see that rising product delays and raw material costs are growing concerns, which only makes sense given tech companies’ efforts to ensure timely development of products and services. So, for instance, equipment delays, manufacturing issues, and product liability were cited as risks by 80 percent of tech companies. Concerns about the price and availability of raw materials rose 21 percent in this year’s analysis (rising to 41 percent, up from 34 percent in 2011), which really is another result of Japan’s earthquake and tsunami.

These findings don’t really come as a surprise. Earlier this year, PRWeb reported on similar findings from another study. That study, released by eyefortransport (EFT) last February, found that 30 percent of hi-tech and electronics company supply chain executives believe their contingency planning could be better.

The results are the findings of the eyefortransport 2012 Hi-Tech & Electronics Supply Chain Industry Survey (conducted in late 2011), which was published in the 2012 Hi Tech & Electronics Supply Chain State of the Industry Report. But they do indicate that the effects of the past year’s crises and disasters had a clear impact on executives in the hi-tech industry. Consider this: in 2010, 65 percent of the respondents described their supply chain contingency planning as “average”, “below average” or “poor.” However, in 2011, the percentage of respondents describing their contingency planning in those terms grew to 80 percent.

This result correlates directly with industry interviews conducted in association with the survey, the firm reports. In those interviews, executives particularly noted the importance of supply chain agility as a response to supply chain interruptions, and a focus by companies on matters beyond profit margins.

So it’s clear that with these concerns in mind, executives at tech companies, as well as automotive and other industries, realize the impact of effects on the supply chain and the need to improve risk management, and, specifically, contingency planning. I look forward to seeing how they will go about making those changes, and what they entail.

Do you help your suppliers financially or help them source materials or suppliers of their own? On the flip side, is your company receiving any similar assistance?

That’s the idea behind “sharing value with suppliers,” which Lisa Arnseth wrote about in an article that ran on Inside Supply Management. In that article, Arnseth writes that some large manufacturing organizations now share financial expertise, efficiency and lean manufacturing knowledge, and capital with their smaller, highly valued suppliers. These efforts lead to new opportunities to maximize value while delivering needed assistance to suppliers.

Electronics and auto manufacturers based in Asia lead the movement to develop mutual-growth business models with their struggling suppliers, the article notes. While risk management and brand reputation were the main drivers for manufacturers to keep a tight rein on their key suppliers in the past, a shared value approach is taking hold today, says MG Jun, divisional director of Two Tomorrows (Asia) in Seoul, Korea. Jun says in the article that management mechanisms are changing, and shared business models and revenue-sharing models, collaborative efforts to streamline production and logistics for cost savings, and strong incentives for good performance in sustainability are emerging.

The article notes that Hyundai has developed a support program to assist its suppliers through a variety of financial strategies. For example, a cash payment policy guarantees payment to increase the financial sustainability of suppliers. Additionally, a variety of loans are also available to suppliers, including credit loans for operation funds.

A second example is that when heavy equipment manufacturer Terex Corporation divested one of its business segments, it found surplus cash on its balance sheets. The ISM article explains that Terex decided this money could be put to good use by applying it to help its second-tier suppliers of critical commodity suppliers because the companies may have been overleveraged and/or insufficiently capitalized following huge production cuts.

Naseem Malik, director of global sourcing for Terex, says the company developed an accelerated payment program with these suppliers. The program enables the suppliers to receive payments from Terex in a shorter time period in exchange for providing a nominal discount.

According to Malik, Terex had hoped to achieve at least an eight percent to 10 percent return with each supplier. However, on average, the return has been better than expected, Malik says in the ISM article.

This reminds me of some news after the earthquake and tsunami in Japan in 2011. As a story in The New York Times reported, rather than focus on securing alternate sources for parts, GM management instead chose to focus on helping many of its Japanese suppliers get back on-line quickly enough to keep GM’s car and truck assembly lines running. Toward that goal, early in the crisis, when information from suppliers was sparse, GM sent more than 40 employees to Japan to visit suppliers and determine the extent to which shipments of parts would be interrupted, as well as offer help getting vital plants reopened.

As The Times article noted, one supplier could no longer obtain the hydrogen peroxide it uses to process electronic components, and another plant was unable to get the steel it needed. GM arranged for new sources in Korea to supply both companies.

It was, of course, in everyone’s best interest for GM to help its suppliers return to full productivity as quickly as possible. After all, the sooner the suppliers were back on-line, the sooner GM could return to full productivity itself. GM also knew what kind of performance levels and quality its suppliers deliver, so it certainly made sense to stick with proven performers. But there obviously were important benefits for the Japanese suppliers as well because they were able to resume production sooner than expected.

This type of shared value is mutually beneficial for all involved parties. And in the long run, it will help create stronger supply chains as well.

 

As supply chains become more complex and global, the need to correspondingly step up efforts to manage supplier risk and compliance becomes more critical. I don’t mean simply knowing about their financial stability or whether a key supplier’s performance may be affected by a natural disaster, but instead, I’m thinking about how suppliers have an impact on overall compliance—including legally and ethically. 

One of the problems, as explained in a ChainLink Research report titled “Supplier Risk and Compliance Management in Practice: Part One” is that regulatory and legal responsibilities and compliance requirements continue to grow rapidly. Consequently, companies now have an increasing number of internal compliance requirements. That has forced companies to become much more prescriptive and detailed in supplier mandates to ensure their supply chain and operations run more efficiently and smoothly. While in the past, compliance manuals for suppliers used to be just a few pages, they now may include hundreds of pages, covering everything from routing guides, labeling and packaging requirements to environmental requirements. What’s more, a growing number of companies have supplier codes of conduct, recognizing that the court of public opinion holds them responsible for what happens in their supply chain, ChainLink notes.

With that in mind, it would stand to reason that companies invest substantially to manage supplier risk and compliance. However, to the contrary, ChainLink’s research has found that most companies under-invest in managing supplier risk. Oddly, this is at a time when the need for stronger capabilities to manage risk and compliance are greater than ever due to supply bases that are global, outsourced, and interconnected; and demand volatility, rising commodity prices, and fluctuating exchange rates introduce additional risks.

By analyzing nearly 1,000 supply chain disruptions, ChainLink’s research found that companies’ stock price fell on average about 25 percent as the result of each single disruption. That statistic reminds me of the results of a landmark study a few years ago conducted by Vinod Singhal, professor of operations management at Georgia Tech College of Management, and Kevin Hendricks, associate professor of operations management at the University of Western Ontario. Their research shows that disruptions also do long-lasting damage to companies’ stock prices and profitability.

For example, firms continue to operate for at least two years at a lower performance level after experiencing a disruption, says Singhal. According to Singhal and Hendricks’ research, companies experiencing a supply chain disruption suffer a decline in stock prices that ranges between a 33 percent and 40 percent decline compared with industry peers over a three year period.

To be sure, government regulations and record-keeping requirements will continue to grow and become more complex and encompassing. For instance, some people think of environmental regulations as reducing the impact of manufacturing operations on air, water, and soils, but they also apply to product specifications, water withdrawal permitting, and costs associated with disposal of products that contain hazardous material. Additionally, as concern over conflict minerals mined in the Democratic Republic of the Congo continues to grow, it seems a regulation is eminent that would require publicly traded companies whose products use the conflict minerals to report to shareholders and the SEC whether their mineral supply comes from the DRC.

With all that in mind—as well as the realization that not only are penalties at stake, but that a brand’s reputation may also be publicly harmed by a supplier’s actions or inactions—companies should take a hard look at their risk scorecard. So in addition to risk factors such as sole-sourced/alternative sources, financial health/viability, and quality metrics, a supplier’s security and hiring practices, traceability systems and processes, social responsibility and other factors should also be carefully scrutinized to further evaluate risk.

 

I don’t closely follow efforts to reduce carbon emissions, but I am intrigued by an idea I recently ran across called “Sales Carbon Operations Planning.” The concept, explained in an article I saw on SupplyChainBrain, combines S&OP techniques with the ability to track and reduce carbon emissions. Silvia Leahu-Aluas, owner of Sustainable Manufacturing Consulting, says in the article that the term covers everything from basic carbon dioxide management to complete understanding of the economic and environmental impact of greenhouse gas emissions.

What’s interesting is that according to analysis from McKinsey & Company, between 40 percent and 60 percent of consumer goods makers’, high-tech companies’, and other manufacturers’ carbon footprint resides upstream in its supply chain—from raw materials, transport, and packaging to the energy consumed in manufacturing processes. While there still is a great deal of uncertainty surrounding carbon regulation, reducing carbon emissions is increasingly considered to be a crucial goal for companies of all sizes across all industries.

One significant obstacle is that it can be difficult to identify the right tool to manage carbon emissions in the supply chain. Given the certainty of changing policies, evolving data sets, and new technologies, supply chain tools must feature several key capabilities to be useful. For example, carbon emissions data should be seamlessly integrated with current supply chain data. These new data models should treat carbon emissions as an additional cost associated with a part, activity, or a source. Furthermore, this data should include all production facilities and first tier suppliers.

The ability to run simulations is a critical functionality because while it’s important to develop a carbon footprint view of a product, there are significant revenue generating opportunities for companies that—as a continuation--simulate multiple action alternatives. Emission data from multiple sites and suppliers also should be integrated into an existing database, which, ideally, would then deliver “what-if” capabilities people throughout the organization can use to improve the decision-making process.

Another key capability is to give S&OP directors the ability to analyze changes in carbon emissions so they can be viewed as an additional cost factor when considering whether a proposed change to a sales forecast should be accepted. Companies falling under cap and trade schemes may take this a step further and consider the revenue opportunities from selling unused carbon allowances. By the way, more on providing carbon footprint visibility and planning capabilities across the supply chain can be found here.

In the SupplyChainBrain article, Leahu-Aluas says this is a logical step because S&OP is already geared toward reducing corporate expense--especially on the supply side. Companies can broaden their view of suppliers by adding carbon emissions to the metric of material costs. On the flip side, as demand, the design of “green” products can open up new avenues of revenue throughout an item’s lifecycle, Leahu-Aluas says.

We all know supply chains will come under increasing pressure to better manage their carbon emissions—and this pressure will surely increase in both scope and intensity. The benefits for companies that get ahead of the curve, and stay there, include receiving recognition from investors and consumers alike. On the other hand, companies that lag behind the curve run the risk of losing investor confidence, consumer support, and falling behind in product development.

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