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     I found it interesting that among U.S. manufacturers participating in a new survey, 83 percent expect their revenues to go up in the next year. That’s according to the findings from the Q4 2012 Manufacturing Barometer released by PwC. What’s more, 58 percent of the respondents said they would be hiring, up 21 points from the same period in 2011. Those who are hiring said they are looking for professionals/technicians, skilled laborers, and production workers.


     At the same time, an article in The American also is on my mind because it notes that while a shortage of skilled manufacturing workers in the U.S. is generally acknowledged, estimates of the size of the shortage vary widely. For example, the article cites research from Boston Consulting Group, which found the skills gap in U.S. manufacturing to be more limited than many people believe, and is unlikely to prevent a projected resurgence in U.S. manufacturing.


     “Shortages of highly skilled manufacturing workers exist and must be addressed but the numbers aren’t as bad as many believe,” says Harold L. Sirkin, a BCG senior partner and coauthor of the firm’s research.


     Nevertheless, The American article also references a September 2011 report, “Boiling Point? The Skills Gap in U.S. Manufacturing,” commissioned by Deloitte and the Manufacturing Institute. The online survey of U.S. manufacturing executives found that 83 percent of participating American manufacturers reported a moderate or severe shortage of skilled workers. That translates into approximately 600,000 unfilled skilled manufacturing positions.


     The manufacturing skills gap is forecasted to worsen in the near term as well. While BCG and the Manufacturing Institute differ on the current number of unfilled positions, they both agree that certain demographic realities will contribute to a much greater skilled worker shortage, explain the article’s authors--Thomas A. Hemphill (associate professor of strategy, innovation, and public policy at the University of Michigan’s Flint campus), Waheeda Lillevik (assistant professor of human resources and management at the College of New Jersey), and Mark Perry (a scholar at the American Enterprise Institute and a professor of economics at the University of Michigan’s Flint campus).


     A U.S. Department of Labor statistics show the percentage of manufacturing workers aged 55 to 64 years and the share of workers older than 65 years have both significantly increased since 2000. The shortfall of skilled factory workers due to the aging manufacturing workforce and the resulting retirements of older workers, occurring at the same time a manufacturing rebound is expected—driven by U.S. manufacturers trying to bring millions of factory jobs back to the U.S.--will further increase demand for skilled workers.


     The solution to closing the skills gap will most likely require two things to happen. For one thing, those entering the workforce will need the education and marketable skills in demand by manufacturers. A key aspect to this may be the Skills for America’s Future program, 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.


     Secondly, it warrants pointing out that not all of the concessions should be made by the prospective workforce. If companies are going to entice and recruit people to join the manufacturing workforce, employers must be willing to pay competitive wages and assume some of the employee training costs. If they do so, they will be better able to retain quality employees and continue to reap the benefits of their personal investment.


     What do you think? Is there a so-called manufacturing skills gap? If so, how bad do you think it is?

     Over the past four years, the Pharmaceutical Cargo Security Coalition—an all-volunteer, industry-led group of security and transportation managers in the U.S. life sciences industry—has created an on-line network working to prevent or minimize thefts of trailers, vehicles, or warehouse break-ins. Pharmaceutical Commerce reports that at the group’s national meeting this week, PCSC chairman, Purdue Pharma’s supply chain security director, Chuck Forsaith, noted that cargo thefts were down in 2012. There were 30 thefts in 2012, down from 36 in 2011, he said. The dollar value of losses has dropped even more dramatically: from an average of $585,000 in 2011 to $168,219 last year.


     In 2009, when the effort got started, there were 47 thefts and the average value was over $4 million. A Recent Securing Industry article points out that action by the drug industry—aided by the PCSC and other organizations such as Rx-360—to tackle theft has resulted in four straight years of declines in the number of stolen shipments. The average value of the stolen cargo has also declined from a high of $4.2m per incident in 2009.


     Essentially, PCSC is an information-sharing network, says Forsaith. When a member company sustains a theft, word is communicated to all other members, and to local, regional, and national law-enforcement agencies, he says in the Pharmaceutical Commerce article. Private security efforts, such as real-time monitoring systems from FreightWatch International, SC-Integrity, CargoNet, and others come into play when a PCSC member is using one of their GPS tracking systems on the truck or in the cargo.


     There were 14 full trailer load thefts in 2012. Half of those occurred over a weekend while three took place during holidays, according to the Securing Industry article. Ten of the stolen shipments did not make use of GPS tracking technology, which has allowed a number of shipments to be recovered—and sometimes, criminals to be detained—in the last couple of years.


That is what recently happened in Georgia. FreightWatch reports that on January 23, in the early morning hours, a tractor and trailer with a load of pharmaceuticals was stolen from a rest stop in Jackson, GA. It was momentarily unattended when both team drivers left the load to use the facilities. Fortunately, the load contained an embedded covert GPS tracking device. The tractor had been dropped four miles away from the theft location, and both the cargo and trailer were recovered intact and uncompromised at a truck stop in Greensboro, GA—nearly 60 miles away. No suspects were arrested as the load appeared to have been abandoned, perhaps because the thieves were monitoring police radio frequencies and knew authorities were in pursuit.


     Forsaith told PCSC meeting attendees that moving forward, the group will focus more closely on last-mile courier deliveries, which generally occur when a driver with a car or small truck is making local deliveries to pharmacies or clinics, the Pharmaceutical Commerce article reports. These constituted nearly half of all thefts PCSC recorded in 2012, however the delivery companies don’t have the technical resources that exist for long-haul trucking companies.


     An example of this type of theft also happened recently. FreightWatch reports that on January 21st, an armed suspect hijacked a last-mile courier of pharmaceutical products at gunpoint outside a pharmacy in Detroit. The load was being monitored by a covert GPS tracking device as well as an on-person panic device with the driver. During the hijack, the thief took the panic device and commandeered the courier van with 30 totes of pharmaceuticals. The tracking device led local law enforcement to an abandoned car manufacturing plant where the thieves were relocating the stolen pharmaceuticals. The police arrived within minutes after the perpetrators had abandoned the cargo, and the load was partially recovered.


     While the number of thefts has been declining in recent years, there is still cause for organizations to increase their vigilance. The trailers are seen as an easy target offering potentially significant payoff. Furthermore, such thefts put an entire lot of that drug at risk of recall, as well as presenting a near-term threat to patient safety.

     You’ve probably been reading about problems with the Boeing 787 Dreamliner. If so, you already know federal investigators said they had ruled out excessive voltage as the cause of a battery fire on a Boeing 787 Dreamliner in Boston. The fire, aboard a Japan Airlines plane January 7th at Logan International Airport in Boston, occurred after the passengers had gotten off.


     That wasn’t an isolated event. A battery problem on another 787 forced an All Nippon Airways jetliner to make an emergency landing in Japan. As a Seattle Times article reported, that event prompted aviation authorities around the world to ground the planes. The Federal Aviation Administration said then it would not lift the ban until Boeing could show the batteries were safe. But with investigators on a global quest to find out what went wrong, the safety board’s statement suggested there might not be a rapid resumption of 787 flights.


     Nevertheless,Boeing’s battery problems may be the least of its worries. For starters, the company will need all its political clout in Washington to speed through a resolution from regulators who are already facing allegations that they fast-tracked the troubled aircraft in the first place, according to a Guardian article.


     But it’s Boeing’s approach itself that now draws scrutiny. The 787 was pitched as the airline of the future because it breaks from the norm and, instead, uses new technology. So, for example, the Dreamliner is made of carbon-fiber. What’s really notable, however, is Boeing’s decision to massively increase the percentage of parts it sourced from outside contractors. The Guardian article details that the Dreamliner’s wing tips were made in Korea, the cabin lighting in Germany, cargo doors in Sweden, escape slides in New Jersey, and landing gear in France.


     Using such a high number of outsourced parts also led to three years of delays. The article cites a number of problems, such as that parts didn’t fit together properly; shims used to bridge small parts weren’t attached correctly; and that many aircraft had to have their tails extensively reworked. As has been previously noted, Boeing eventually ended up buying some of those suppliers so it could bring business back in-house.


     Consequently, not only were there delays, but as a Washington Post blog points out, such a high degree of outsourcing made it difficult for Boeing to spot and evaluate systemic problems. Outsourcing has always been a part of commercial aviation, the difference now is the complexity and co-dependence of the electronics operating the aircraft. Indeed, the sheer number of outsourced parts makes troubleshooting potentially more difficult, the post notes.


     So, for example, a Japan Today article notes that parts came into Boeing’s assembly plants from 135 other sites and 50 suppliers. Furthermore, an IndustryWeek article points out that, writing in Forbes magazine, Steve Denning explains that Boeing had around 70 percent of the 787 built by strategic partners who were tasked with managing relations with sub-contractors. He went on to add that Boeing executives realized over time that not all its partners had the require expertise.


     There certainly will be ramifications for other companies. That same IndustryWeek article explains that executives at European aircraft maker Airbus are wary that the problems leading to the grounding of the 787 Dreamliner could also delay the commercial launch of it’s own A350 airliner. Like the Dreamliner, the Airbus A350, which is to enter service in the second half of 2014, uses lots of composite materials and shifts some of the mechanics from hydraulic systems to electrical ones, which may be where Boeing has run into trouble.


     But Airbus executives are also quick to point out differences between the planes. Boeing built the 787 with a fully composite fuselage to save weight, whereas the A350 wraps composite panels around a metal frame, for example, and relies less on electronic systems for flight controls.


     EADS executives acknowledge the A350 will also experience problems since it too relies on new technology, but as one spokesperson says in the IndustryWeek article, “We were lucky to come after Boeing and learn from what they have come up against.” He added that Airbus will also now avoid certain suppliers.


     I’m interested to hear what you think. Will new regulations be proposed as a result of potential findings? Also, what type of ripple effect will be felt through the aviation supply chain? Will all level of suppliers come under increased scrutiny?

     Does your company specifically target emerging markets or, for that matter, partner with companies from those countries? I ask because I’m intrigued by the results of a new study, which found that top companies from emerging markets are riding the rapid growth of their regions and will shape the global economy over the next decade.


     An article running on IndustryWeek notes that the top 100 fast-globalizing companies from rapidly developing economies are outpacing their rivals from developed economies in terms of expansion, job creation, and productivity, according to the Boston Consulting Group (BCG) study. These companies, which the firm calls global challengers, grew at an annual average of 16 percent from 2008 through 2011—four times the rate of their competitors in developed countries. Their average revenue hit $26.5 billion in 2011, compared to $21 billion for the non-financial companies listed on the S&P 500 stock index.


     The BCG report, “Allies and Adversaries,” states that global challengers are full-fledged competitors making game-changing moves. They are companies poised to shape the global economy over the next decade, including in industries such as aircraft manufacturing, medical devices, mobile telephony, and e-commerce.


     These companies have benefited, and are in a position to continue to do so, the report continues, from the fact that emerging markets have become the world’s economic engine due to growing numbers of consumers with disposable income. While these global challengers are increasingly seen as competitors by Western multinationals, those Western companies often stand to gain from partnerships, BCG says in the report.


     That’s because these markets also offer great sources of talent, capital, and companies. Over the past five years, more than 1,000 companies headquartered in emerging markets have reached at least $1 billion in annual sales. Located in countries such as Brazil, China, India, Indonesia, Malaysia, Mexico, Russia, Thailand, and Turkey, these global challengers purchase more than $1.7 trillion of goods and services a year, creating enormous opportunities for Western companies that can win their business as allies, according to BCG.


     “If ever there was a wake-up call for business leaders in the West, this is it,” says David C. Michael, coauthor of the report and head of BCG’s globalization practice. “We have been monitoring the rise of global challenger companies for nearly a decade, and the ambition of these companies—what we call the accelerator mindset—has never been stronger.”


     As an example, I was interested to read in BusinessWeek that sales in emerging markets make up 55 percent of the revenue at Unilever, the world’s second-largest consumer-products company. Indeed, sales in those areas are growing faster than its U.S. and European businesses, which is a direct result of Unilever accelerating its sales growth, new-product development, and presence in emerging markets over the past three years.


     “Many of its rivals are struggling amid the prolonged economic downturn but its Unilever’s moment in the sun,” says Harold Thompson, a Deutsche Bank analyst who follows the company, in the article.


     One key to that growth is that in 2005, Unilever had 5,000 new-product projects in its pipeline but was only able to bring eight of them to 10 or more countries within a year of their debut. However, last year it cut the pipeline to 600 projects, and 90 of them were rolled out globally inside of 12 months, Paul Polman, Unilever’s chief executive officer, says in the article.


     “You want fewer, bigger ideas,” says Polman. He adds that he won’t even look at a new project unless it can potentially generate at least €50 million in sales.


     What about your company? How does it view emerging markets and other companies in those regions?

     The growing number of weather-related and other business-driven disruptions point out just how vulnerable today’s increasingly complex supply chains have become. Events such as Hurricanes Sandy and Katrina, and the 2011 Japanese tsunami and nuclear disaster showed that business disruptions can also have a long-lasting impact. Furthermore, the 2011 flooding in Thailand showed how events can have a compounding effect on already weakened supply chains because many auto manufacturers were still reeling from the catastrophe in Japan earlier in the year.


     Insurers and companies are still calculating the direct costs of the devastation. Reuters reported that natural disasters, led by catastrophic earthquakes in Japan and New Zealand, cost $380 billion in 2011, more than double the figure for 2010 and triple the average for the past decade, according to Munich Re, the world’s biggest reinsurer. Reuters also noted that at one point, Thailand’s insurance commissioner had estimated some $30 billion in losses from flooding in Thailand that year.


     Other research shows that in addition to immediate losses, firms continue to operate for at least two years at a lower performance level after experiencing a disruption. Small businesses in particular are particularly vulnerable to the effects of disruptions because they’re focused on fewer products and wield less clout with supply-chain partners. In the end, 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.


     With all that in mind, I was interested to see a release from PwC US on PRNewswire noting that as companies begin to realize the new normal, which consists of longer-lasting business disruptions, there is a growing need for organizations to evaluate their current crisis management programs to assess implementing a comprehensive business continuity program. Plans that detail a business’s initial emergency response provide a roadmap for keeping operations running through a crisis and position a business for the return to full operational effectiveness in the weeks that follow a disruption. These solutions
are critical components to effective business continuity programs, according to a new PwC US paper, “Beyond the first 48 hours: Can your business continuity plan go the distance?”


     It’s no longer a matter of when a business disruption will strike but instead, is a matter of how devastating it will be to a business, its resources, and operations, says Dean Simone, leader of PwC’s U.S. Risk Assurance practice. An effective and tested crisis management plan will get a company through the initial impact of major events but to address the aftermath, organizations need a comprehensive plan. Today, a company’s ability to respond to a business disruption could either protect or damage their brand for decades to come. The best-prepared companies are ready with a complete and coordinated business continuity management process that covers the full crisis lifecycle beyond the first 48 hours—from emergency response, to crisis management, to recovery, Simone says.


     PwC’s report examines the challenges of coping with the increased and unexpected risks of business disruptions. The paper outlines PwC’s recommended approach to effective business continuity management programs, which begins with emergency response, crisis management, IT disaster recovery, and business continuity plans. It also includes recovery of critical business processes, prioritized to the organization’s overall functionality. But the capability I’m most interested in is the ability to assure uniform and consistent planning, implementation, and upgrade of business continuity policies and procedures.


     That’s because it’s one thing to identify and assess potential risks to determine which ones have a probable chance of occurring. It’s another thing altogether to continually revisit the assessment to proactively identify, assess, and study events and potential resolutions. That way it’s possible to mitigate those risks using strategies such as developing plans to source from different suppliers, developing supply sources in other locations, or using alternate modes of transportation.


     What’s your company’s plan? Is it prepared to recover from long-term disruptions?

Since counterfeit electronic components are increasingly prevalent in the supply chain, I was interested to see an article that ran on SecuringIndustry, which notes that a new standard designed to help manufacturers avoid procuring counterfeit electronic components is in the latter stages of development. Among the elements covered by the new standard are risk mitigation methods in electronic design and parts management, supplier management, procurement, part verification, material control, and response strategies when suspect or confirmed counterfeit parts are discovered.


     SAE International—a global association of experts in the aerospace, automotive, and commercial vehicle industries—reports that work has been taking place on the AS5553A standard since May 2010. The standard, Counterfeit Electronic Parts; Avoidance, Detection, Mitigation, and Disposition, is intended for use in aviation, space, defense, and other high performance/reliability electronic equipment applications. The requirements of this standard are generic and intended to be applied/flowed down to all organizations that procure electronic parts, regardless of type, size, and product provided, the association states.


     This comes as good news because the number of instances of counterfeit electronic parts popping up in the supply chain has grown rapidly in recent years. A total of 9,539 suppliers in 2011 were reported either for known involvement in high-risk, fraudulent, and suspect counterfeit-part transactions, or for conduct identified by the government as grounds to debar, suspend or otherwise exclude from contract participation, according to information and analytics provider IHS. That means the number of high-risk suppliers to the U.S. government, including companies that sold suspect counterfeit product to military and commercial electronics channels, grew by 63 percent from 2002 to 2011, the firm’s research shows. The trend highlights the need for members of all tiers of the supply chain to implement tighter supplier-monitoring and procurement procedures to meet increasingly stringent regulations, IHS says.


     While use of counterfeit electronic components may have serious consequences in all industries, their use in defense systems may compromise performance and reliability, risk national security, and endanger the safety of military personnel. As a result, the prevalence of counterfeit electronic parts in the U.S. aerospace and defense supply chain has drawn the attention of the Senate Armed Services Committee.


     The committee conducted an investigation and, last May, announced that a “flood of counterfeit parts, overwhelmingly from China, threatens national security, the safety of our troops and American jobs.” The committee reviewed 1,800 cases of electronic parts suspected to be counterfeit in the defense supply chain in 2009 and 2010, said Carl Levin, U.S. Senator from Michigan and Senate Armed Services Committee chair. Those 1,800 cases cover more than 1 million individual parts. But while 1 million parts is a substantial number, the committee only looked at a portion of the defense supply chain, Levin said.


     “Those 1,800 cases are just the tip of the iceberg,” Levin said.


     While those parts appearing in the supply chain is cause for concern, so is the lack of reporting. In only 15 percent of these cases were reports of suspected counterfeit parts submitted to the Government Industry Data Exchange Program (GIDEP), a DOD program that was set up as a system for government and industry participants to file reports about suspect counterfeit parts and help in their removal. Actually, the Senate Armed Services Committee found that most cases of suspect counterfeit parts go unreported to GIDEP. While one industry witness told the Committee that sharing information on counterfeit parts through GIDEP “can help stop suppliers of counterfeit parts in their tracks,” only 271 total reports were submitted to GIDEP during all of 2009 and 2010.


     Obviously then there is a reporting issue as well. I am curious, however, about how the new standard will be received as well as how companies will make use of it.

     According to the results of a survey released last month, manufacturers in Indiana are stronger this year than at any point since the Great Recession. What’s more, they are well positioned to compete in the coming years. It can then be argued that the findings of the report offer sound advice not just for Hoosier manufacturers but for manufacturers across the U.S.


     Why Indiana? Indiana is one of the top manufacturing states in America in terms of wealth and jobs created, sustained, and supported. More than 50 percent of all employment in Indiana has some connection to manufacturing. Much of the manufacturing takes place in factories in northeast Indiana which primarily support the medical device, aerospace, rail, and defense industries.


     The survey comes from certified public accounting firm of Katz, Sapper & Miller LLP, which released the results of its annual Indiana manufacturing survey last month. This study of small- to mid-size manufacturing companies was commissioned by Katz, Sapper & Miller, and developed in partnership with Indiana University’s Kelley School of Business Indianapolis, Conexus Indiana, and the Indiana Manufacturers Association. Not surprisingly, the three largest industry groups represented are industrial equipment (18 percent of the respondents), automotive (15 percent), and aerospace and defense (11 percent). Another 18 percent of the survey’s respondents are evenly distributed among high-tech, healthcare, and furniture/home goods, with companies from each industry accounting for six percent of the respondents.


     “Indiana’s manufacturers have clearly recovered from the Great Recession and are now investing for growth,” says Mark Frohlich, associate professor of operations management at the Kelley School of Business Indianapolis. “They are stronger this year than we’ve seen in recent years and ready to compete with the best.”


     The results from this year’s survey, 2012 Indiana Manufacturing Survey: “Halftime” for Indiana Manufacturing, indicate that businesses are starting to invest for growth, including facilities and automation, with an eye toward providing customers increasing quality at lower prices. Indeed, more than 70 percent of the respondents reported that among their goals are to increase investment in areas either essential for revenue growth, or across the entire business.


     The survey found that the respondents believe a new manufacturing era is on the horizon, and they generally agree about what it will look like. They believe manufacturing will not just be a separate strategic initiative, but also one that is fully integrated into the strategy and operations of a company.


     With that in mind, I was interested to see that the report offers suggestions for specific business, manufacturing, and supply-chain strategies that pertain to the Indiana manufacturers but of course, also to all U.S. manufacturing companies. The first is that superior product design and customer service are keys to new growth. Secondly, smart manufacturing in conjunction with process improvement programs such as Lean and Six Sigma will likely lead to financial success. Finally, supply chain integration is linked to fewer customer complaints and better inventory control. Each of these strategies offer significant advantage, but as the report concludes, when combined together, these findings suggest a roadmap for successful manufacturing by small- to mid-size companies.


     Whether your company is based in Indiana or not, what do you think of this roadmap?

     There are many facets to the Panama Canal expansion project, which was scheduled to be completed by October 2014 but has been pushed back to early 2015. The project is building new locks and wider and deeper channels that are expected to double the canal’s capacity. This will allow megaships carrying 14,000+ containers to move through the Canal. Shipping containers through the Canal on these larger ships could reduce costs by as much as $75 to $100 per container per voyage, which adds up quickly if there are 14,000 containers on a single ship.


     When such ships are able to pass through the Panama Canal, business will consequently pick up along both the U.S. Eastern and Gulf coast ports because the ships can take an “all-water” route from Asia to the U.S. East or Gulf coast—bypassing West coast ports and the roads and railways now used to transport goods across the U.S. However, these ships require depths of up to 50 feet of water to navigate. As a result, port authorities along the U.S. Eastern seaboard and Gulf coast are spending hundreds of millions of dollars to dredge the bottoms of their bays and river bottoms to deepen harbors to accommodate the larger ships.


     It seems that one overlooked aspect of all this is the possible environmental impact. SupplyChainBrain pointed me to an Environmental Defense Fund blog post that announces the release of a peer-reviewed paper that analyzes the environmental implications of potential changes in container shipping as a result of the expansion. Panama Canal Expansion: Emission Changes from Possible U.S. West Coast Modal Shift,” is featured in a special issue of the journal Carbon Management. The paper, a collaboration by researchers at the University of Delaware, Rochester Institute of Technology, and Environmental Defense Fund (EDF), estimates changes in carbon dioxide emissions and regional criteria pollutant emissions such as nitrogen oxides and particulate matter.


     Given that ocean transport is more carbon efficient than truck or rail, it is expected that the use of larger ships and more water routes will reduce the carbon dioxide footprint of freight transported through an expanded canal. However, the authors found that using larger, more efficient container ships instead of the traditional truck/rail overland network used to transport cargo from the U.S. West coast ports to Eastern states may not necessarily offset the increase in carbon emissions resulting from a longer waterborne distance traveled. Although the carbon effects may be negligible, localized air pollution is expected to rise in ports with projected growth in cargo volume. This includes the emissions of criteria pollutants that increase the risk for health impacts, such as asthma and lung disease.


     As carriers and shippers look to reduce their environmental footprint, the report’s authors believe a systems approach must be taken to fully understand the effects of route selection, modes, and distribution networks. An intermodal strategy can best take advantage of infrastructure developments such as the Canal expansion, provided all of the costs and benefits are thoroughly evaluated.


     While infrastructure investments like an expanded Canal will help shipping shift to lower-emission vessel designs, the multimodal supply chain must be considered as a system to fully realize the sustainability benefits of freight innovation, says Dr. James Corbett, Professor of Marine Policy at the University of Delaware. He adds that the researchers look forward to helping all parts of the freight sector—industry and policy decision makers—visualize the potential for green freight networks.


     Are you or your company considering the impact the expanded Panama Canal will have on your supply chain? If so, is carbon footprint part of those discussions?