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2014

Executives at large, U.S.-based companies remain bullish on American manufacturing, and they continue to act on those beliefs as well, according to new research released last week by The Boston Consulting Group (BCG).

 

The firm’s third annual survey of senior manufacturing executives at companies with sales of $1 billion or more found that the number of respondents who said that their companies are already bringing production back from China to the U.S. had risen from roughly 13 percent to 16 percent over the past year. The number who said their companies would consider returning production in the near future also grew from about 17 percent to 20 percent of the respondents since last year. A majority (54 percent) of the respondents also expressed interest in reshoring, further validating the findings of last year’s survey results, BCG explains.

 

The 2014 survey, conducted by BCG’s Center for Consumer and Customer Insight in August, drew responses from 252 decision makers across a broad range of industries.

 

There are some findings I find most interesting. For example, the respondents predicted that the U.S. would account for an average of 47 percent of their total production in five years, which is a seven percent increase in their projected U.S. capacity, compared with last year’s results. Only 11 percent of the respondents’ companies’ capacity would be in China, a 21 percent decrease from last year. Respondents forecast that the share of production in Mexico, Western Europe and the rest of Asia will also drop.

 

By a three-to-one margin, respondents also predicted that reshoring would create U.S. manufacturing jobs within five years, BCG reports. Indeed, 50 percent of the respondents indicated they expect to boost their U.S.-manufacturing workforces by five percent or more. Only 17 percent of the respondents predicted that their companies would be employing at least five percent fewer manufacturing workers in the U.S. five years from now. The survey findings reinforce a previous BCG estimate that reshored production, along with rising exports, could create between 600,000 and 1 million direct manufacturing jobs by 2020, BCG explains in the report.

 

Finally, another trend seen in the findings is that U.S. manufacturers are increasingly considering factors other than direct costs such as labor when they create production strategies. More than 70 percent of the respondents cited better access to skilled talent as a reason for moving operations to the U.S.—more than four times as many respondents as those who cited access to talent as a reason for relocating production outside the U.S., according to BCG. For goods that would be sold in the U.S., roughly 80 percent of the respondents cited logistical factors such as shorter supply chains and lower shipping costs as the primary reasons for moving operations to the U.S. from other countries.

 

“We have long advised companies to look at the total cost of manufacturing in the U.S. and to consider the entire supply chain—not just obvious factors such as wages,” says Michael Zinser, a BCG partner who leads the firm’s manufacturing practice in the Americas. “When companies take a holistic view, the U.S. increasingly comes out ahead, particularly if those products are to be consumed in the U.S.”

 

What I am more interested in, however, are your thoughts on reshoring. Is your company planning to reshore some manufacturing—particularly if the goods will be consumed in the U.S.? If so, what are the primary reasons for considering the shift in operations?

 

 

 

 

It’s easy to put off action regarding some recalls, or to even forget about them. But when a recall involves the potential for what is essentially shrapnel shot throughout the interior of an automobile, well, that’s something different. That is what is happening with some vehicles equipped with Takata airbags, which may potentially inflate with too much force, blowing apart metal canisters and sending metal shards flying at drivers and passengers. At least three deaths and more than 100 injuries have been attributed so far to the rupturing airbags made by Japanese auto supplier Takata.

 

The situation has gotten so bad recently that Toyota and General Motors advised U.S. passengers not to sit in the front seat of several of their models containing Takata air bags—a warning Toyota had issued in Japan four months earlier. Toyota furthermore said that a defective inflator could be so dangerous that affected owners in humid areas of the U.S. should consider letting dealers deactivate the air bags in their cars if replacement parts aren’t readily available. Think about that for a minute: an automaker’s statement is that it may be safer to drive with deactivated airbags than with potentially faulty airbags poised to deploy.

 

That’s not all that’s happening, however. Last week, the New York Times reported that Capitol Hill increased pressure on Takata as well as U.S. federal safety regulators, when two senators demanded wider recalls to fix millions of defective airbags, and a House committee said it wanted a fuller accounting of how the recalls were handled.

 

In a letter, Senators Richard Blumenthal and Edward J. Markey took the National Highway Traffic Safety Administration (NHTSA) to task for its handling of the recalls. The senators reprimanded the agency for allowing automakers to limit the recalls to certain geographic areas with “high humidity,” the New York Times article reports. Humidity, regulators said, may cause the propellant to erupt, sending shrapnel into the cabin.

 

“NHTSA should immediately issue a nationwide safety recall on all the affected cars, regardless of where the car is registered,” the senators wrote in the letter, which was addressed to Transportation Secretary Anthony Foxx, whose agency oversees NHTSA, the New York Times reports. “All states experience seasons of heat and humidity.”

 

The latest development is that, responding to criticism of its slow response to safety issues, the NHTSA sent letters this week to Takata as well as 10 automakers seeking additional information in the airbag recall, CBS News Money Watch reported yesterday. In the letter, NHTSA Deputy Administrator David Friedman wrote Takata that its inflators are “creating an unacceptable risk of deaths and injuries by projecting metal fragments into vehicle occupants rather than properly inflating the attached air bag,” CBS News reports.

 

Letters to automakers urged them to speed up owner notifications and replacement-parts distribution. However, a shortage of replacement parts has meant that many drivers who scrambled to act on the recall may face wait times of months. Friedman told Takata that recall efforts won’t work if it doesn’t produce enough parts.

 

“Takata’s production capacity is critically important,” Friedman wrote, according to CBS News.

 

In the meantime, further demonstrating the connection between supplier and OEM, several law firms led by Labaton Sucharow filed a proposed class-action suit in Florida this week against Takata and automakers including Honda, BMW, Ford, Nissan and Toyota, a BusinessWeek article reports. The lawsuit claims the defendants concealed the extent of air bag dangers.

 

Takata’s shares have fallen about 50 percent so far this year as news of the injuries and the $413 million charge it took this summer against recall costs have made investors jittery. It remains to be seen, of course, what impact the airbag recall will have on automakers, but the situation is troubling. It does demonstrate though, how the actions—or in this case, inactions—of a key supplier can cause ripple effects across an industry.

 



President Barack Obama, earlier this week, introduced a series of executive actions which are intended to strengthen U.S. advanced manufacturing. A White House statement explains the actions would build on the final report of Obama’s Advanced Manufacturing Partnership (AMP), which recommends measures to promote innovation, build a skilled workforce and improve the business climate.

 

Actually, the plan addresses a number of critical actions to take but a few in particular caught my eye. The first is that NASA and the departments of Defense, Energy and Agriculture will invest more than $300 million in three emerging technologies considered crucial to the country’s industrial competitiveness: advanced materials including composites and bio-based materials, advanced sensors for manufacturing, and digital manufacturing. The Administration’s research investments, matched by private sector efforts and resources, will drive advances in manufacturing high-tech materials, “like new steel alloys that are twice as strong and lighter than today, new processes to eliminate reliance on foreign supplies of critical materials, cut the time to test and prototype a design by half, and replace chemicals made using oil with those made from plants harvested on American farms,” according to the White House statement.

 

Another key initiative outlined by the administration is to spur innovation by providing manufacturers with access to new and expanded state-of-the-art facilities like those at national labs. Toward that goal, the National Science Foundation, the Department of Energy, and NASA are taking steps to connect industry and universities on research and development and develop “technology testbeds” within Federal research facilities where companies can design, prototype, and test a new product or process.

 

The final action I am interested in following is a plan to expand effective workforce development strategies by creating an apprenticeships grant competition. This fall, the Department of Labor will launch a $100 Million American Apprenticeships Grant Competition to launch new apprenticeship models in high-growth fields such as advanced manufacturing, align apprenticeships with pathways for further learning and career advancement, and scale apprenticeship models that work. AMP members Dow, Alcoa and Siemens have already launched new apprenticeship pilots and developed a “how-to” guide for other employers looking to use apprenticeship as a proven training strategy, the White House statement explains.

 

I was also interested to see some reaction to the announcements. For example, Jim Wall, executive director of the National Institute for Metalworking Skills, says in a U.S. News & World Report article that while the “whole package” of Obama’s plan is important, reinvestment in apprenticeship programs, which were much more common for manufacturers about four decades ago, is particularly exciting for the industry.

 

“With an apprenticeship program that’s done right there through the company, that’s where the rubber meets the road … people are employed, they’re working through that company,” Wall says in the U.S. News & World Report article. “It’s not like what I call in higher education the ‘pay-and-pray’ model, where you pay your tuition and pray you get a job at the other end. With an apprenticeship program, there’s a guaranteed return.”

 

These aren't President Obama’s first manufacturing improvement endeavors. The administration has previously launched four manufacturing innovation institutes; invested nearly $1 billion to upgrade community colleges to train workers for advanced manufacturing jobs; expanded investments in applied research for emerging manufacturing technologies; and launched a new initiative to match the talent of returning military veterans to in-demand jobs, including in advanced manufacturing. However, these new executive actions do demonstrate a commitment to, and belief in, U.S. manufacturing.

 

What are your thoughts on Digital Labs and apprenticeship programs? Will those programs help ease the so-called skills gap?

Public health authorities say they hope to begin trials of Ebola vaccines in West African countries as early as December and could know around April whether they were effective. If the vaccines are effective, it would clear the way for possible mass inoculations to stem the epidemic, an article in the New York Times reports.

 

The spreading Ebola virus outbreak has killed more than 4,800 people since the start of the year, almost all of them in the West African countries of Liberia, Guinea and Sierra Leone. However, doctors and aid workers have contracted the virus as well, and then left the countries by airtravel—spurring fears, and at least anxiety, in other countries.

 

“Vaccine is not the magic bullet,” Dr. Marie-Paule Kieny, assistant director-general for health systems and innovation for the Geneva-based World Health Organization, said at a news conference in Geneva. “But when ready, they may be a good part of the effort to turn the tide of this epidemic.”

 

Dr. Kieny said a decision to start mass vaccinations in the spring of 2015 would depend on whether one or more vaccines proved safe and effective, whether enough vaccine would be available and whether that strategy would be needed, the New York Times article notes. If the drug trials do begin in December, it also would be a month earlier than Dr. Kieny had previously indicated. In any case, manufacturers have committed to having millions of vaccine doses available in 2015, with hundreds of thousands ready by the first half of the year, she said.

 

“All previous plans are changing from week to week, and always to a greater involvement and a greater mobilization of all efforts to have more vaccine available more quickly,” Dr. Kieny said.

 

Two experimental vaccines are already being tested for safety in healthy volunteers in the United States and other countries outside the outbreak region. One is being developed by the National Institutes of Health and GlaxoSmithKline, while the other vaccine is being developed by the Canadian government and NewLink Genetics. If these vaccines, which are the most advanced so far, prove safe in initial testing, trials would begin in Liberia and Sierra Leone to see if the vaccines can actually prevent people from getting Ebola.

 

There are, of course, other companies developing drugs quickly. Tekmira, whose drug is TKM-Ebola, has taken steps to increase production and is waiting to see if it is chosen for trials in West Africa. Kentucky BioProcessing, owned by Reynolds American, is ramping up production of Mapp Biopharmaceutical’s compound ZMapp. Then there is Chimerix, which said it plans to begin a clinical trial “immediately” in Ebola-infected patients in the U.S. and Europe. The company says it has an adequate supply of its brincidofovir tablets, and it plans to continue making the drug available on an emergency basis in the U.S. and Europe.

 

Earlier this week, Johnson & Johnson announced it would spend up to $200 million to speed up and expand its Ebola vaccine program, with testing scheduled to begin in January. The company said its unit Janssen Pharmaceutical Companies was closely working with the World Health Organization, the National Institute of Allergy and Infectious Diseases, as well as other key stakeholders, governments and public health authorities on the program.

 

The proposed vaccine regimen combines a Janssen preventative vaccine with a vaccine from Bavarian Nordic, a biotechnology company based in Denmark. The vaccine combination was discovered in a collaborative research program between Janssen and the National Institutes of Health.

 

“Our innovation model enables us to quickly mobilize our extensive resources to collaborate with health authorities and governments and other experts to help contain this disease, save lives and protect the health and lives of those at risk,” says Alex Gorsky, chairman and CEO, Johnson & Johnson.

 

What I find intriguing is how quickly companies and their supply chains have been able to reallocate resources to accelerate and expand their vaccine programs. It will be interesting to watch both vaccine development, as well as whether or not other companies are able to bring vaccines to clinical trials.






Chicago Mayor Rahm Emanuel has announced an initiative to place workers in 1,000 manufacturing jobs over the next year.

 

The mayor’s office, World Business Chicago, Chicago Federation of Labor and numerous business leaders announced last week that 1,000 Jobs for Chicagoland Manufacturing, an initiative in the Mayor’s 2015 Budget, will match a minimum of 1,000 qualified job seekers to open manufacturing jobs, and also link residents who need additional skills to training and apprenticeship programs that may result in full-time employment.

 

Manufacturing is the second-largest sector in the Chicago region, employing more than 400,000 people, the Mayor's office explains. Currently, 14,000 small and mid-size manufacturers operate in Chicago, and more than 100 have located or expanded in the city since the mayor took office in 2011. With average wages on average 27 percent higher than other industries in the region, manufacturing produces strong, middle-class jobs for Chicago residents. Furthermore, jobs in the Chicago region can provide workers with full-benefits and median wages of more than $70,000 during their career.

 

“This program to connect 1,000 workers to manufacturing jobs builds on the work that we have done to reestablish Chicago as one of the country’s major manufacturing hubs,” Mayor Emanuel says. “From working to bring the Digital Manufacturing Lab to Chicago to investing in College to Career manufacturing training programs at Richard J. Daley Community College, attracting new manufacturers to Chicago and training and supporting future manufacturing talent, we are helping to ensure Chicago’s economy will continue to grow well into the future.”

 

Interestingly, the 1,000 Jobs for Chicagoland Manufacturing initiative will focus on three areas of need. The first is to raise awareness of manufacturing jobs in Chicago and the region. The second area is to increase capacity at existing workforce organizations to help them to match job seekers to jobs and training programs that meet the needs of area manufacturing businesses. Finally, the initiative will also work to facilitate coordination through a 1,000 Jobs for Chicagoland Manufacturing-branded web portal that will connect job seekers with training and employment opportunities.

 

“These manufacturing jobs are available today, and manufacturers are engaging and ready to hire,” says Jeff Malehorn, president of World Business Chicago. “This program has the ability to grow our economy by $400 million and demonstrate to the world that Chicago is the world leader in the new era of manufacturing. That’s why World Business Chicago has partnered with local manufacturers and the workforce development system to promote the sector and strengthen the pool of potential employees.”

 

The initiative will be supported in part by $200,000 in the Mayor’s 2015 Budget, along with more than $750,000 in funds and in-kind contributions raised by the WBC Advisory Council for Chicagoland Manufacturing—a group of 36 manufacturing industry leaders from across Chicagoland and chaired by the Mayor’s office—and in partnership with the Chicago Federation of Labor, Chicagoland Chamber of Commerce, Grant Thornton, Digital Manufacturing and Design Innovation Institute, Chicago Urban League, and more than 50 other partners.

 

The initiative strikes a chord with Chicago manufacturers. David W. Seeger, president of Atlas Tube, says the company offers competitive wages and fulfilling work, yet it encounters a shortage of interested, qualified applicants for open positions.

 

“We’re excited to partner with World Business Chicago to promote the manufacturing industry, grow our local applicant pool, and, ultimately, grow our local economy,” Seeger says.

 

The aspect of 1,000 Jobs for Chicagoland Manufacturing that I am most interested in is the capability to connect interested workers with training and apprenticeship programs. It doesn’t seem the problem manufacturers struggle with is a lack of workers, it is a lack of skills. I will be interested to follow the initiative and see the results it produces.

 

What are your thoughts on manufacturing and skilled workers? Is 1,000 Jobs for Chicagoland Manufacturing a sound initiative? Would other metropolitan areas benefit from similar initiatives?



All industries are prone to supply chain disruptions but for the life sciences industry, disruptions present more risk and may bring more significant consequences. Disruptions caused by anything from natural disasters to supplier insolvency may lead to increased regulatory scrutiny, financial penalties, declining sales, shareholder apprehension, damaged brand and reputation, and, potentially, compromised patient safety.

 

Writing in Pharmaceutical Processing, Jamie T. Hintlian, a principal, and Ryan Kelly, a manager, in Ernst & Young LLP’s Advisory Services practice, focusing on the life sciences supply chain, note that to mitigate risk, build business continuity and reliably deliver critical products to patients, manufacturers need to create comprehensive crisis management plans that provide an immediate response to emergencies. Since effective risk management begins with sourcing, manufacturers must thoroughly understand and audit the operations of key suppliers, measuring their performance and quantifying the potential cost of supply disruption, damaged brand reputation, and the impact to company profitability, Hintlian and Kelly write. In this qualification process, it is vital for manufacturers to collect and analyze a full range of supplier financial and compliance information.

 

This same level of scrutiny for material suppliers must also be applied to production assets used to manufacture and package pharmaceutical products as well as supporting infrastructure and technology, Hintlian and Kelly write. Furthermore, quality control must be managed at every level, which means each product and ingredient must come from a qualified supplier, and its quality must be validated to maintain supply reliability.

 

As companies continue to outsource logistics and storage, they must also validate that logistics providers have comprehensive quality and risk management programs in place. Pharmaceutical companies must consider all logistics capabilities and permitting required to preserve product integrity—including management of import and export, strategic routes, compliant packaging and storage conditions, and adherence to standard operating procedures and good documentation practices, Hintlian and Kelly write.

 

Finally, new legislation in the U.S. makes compliance more rigorous. For instance, the Drug Quality and Security Act (DQSA) and the related Title II of the DQSA, the Drug Supply Chain Security Act (DSCSA), are intended to protect consumers by increasing compliance vigilance. To comply with these—and other—laws, manufacturers will need to focus on authenticating their products, integrating disparate systems across supply chain partners and updating storage, facility equipment and information technology, Hintlian and Kelly write.

 

There are a great number of necessary steps for companies to take, so I was interested to see Hintlian and Kelly propose many action steps, including to develop clear processes and governance for qualifying and managing the portfolio of suppliers; and to create redundancy plans to develop on-site and in-network equipment redundancy for critical production equipment that may not have back-ups. I was also interested to see Hintlian and Kelly note the critical need for C-level executive involvement.

 

In a survey of 1,000 senior executives from large global companies earlier this year, Accenture found that leading companies have a greater centralization of responsibility for supply chain risk management. Indeed, 43 percent of leaders (versus 32 percent of others) said they have a central risk management function, led by a C-level or VP-level executive, to oversee all risk management activities. With that type of involvement, it isn’t surprising that those companies make operations risk management a higher priority than other companies. Sixty-one percent of leaders (compared with 37 percent of others) consider supply chain risk management very important.

 

As the Accenture report further explains, leading companies invest aggressively in supply chain risk management capabilities. More than 50 percent of the surveyed executives said their company is increasing investment in supply chain risk management by up to 20 percent—and another 25 percent of the respondents said their company is increasing spending by 20 percent or more.

 

Does your company have a central risk management function, led by a C-level or VP-level executive, to oversee all risk management activities?



Lack of visibility into manufacturing processes is the most prevalent issue plaguing manufacturers today, according to the results of a new survey. The results of the 2014 Smart Manufacturing Technologies Survey from location intelligence solution provider Ubisense, show that 40 percent of manufacturers have no visibility into the real-time status of their manufacturing processes. The results of the survey, which was conducted by SME and Manufacturing Engineering Media, are based on the responses of 252 manufacturing engineers, product designers and quality management professionals.

 

Visibility is crucial for process improvement and control but it also has a bottom-line impact. According to responses from the Ubisense survey, nearly 10 percent of factories spend half their day simply looking for equipment and products. This non-value-added time can result in significant wastage. For example, a few minutes spent finding each vehicle in a heavy vehicle plant can accumulate to several hundred thousand dollars in lost inventory costs annually, the report explains.

 

“Ubisense works with global manufacturers every day, so we knew visibility was an area of concern but the results of this survey gave us much greater insight into the blind spots that impact all areas of the manufacturing process and the level of efficiency that can be achieved,” says Adrian Jennings, CTO of Ubisense Americas. “The manufacturing world is talking about Industry 4.0 but this survey confirmed that most manufacturers are far from embracing cyber-physical systems which define the next Industrial Revolution.”

 

I suppose the takeaway from the results depends on whether the reader has a “glass is half full” or a “glass is half empty” perspective. For example, 30 percent of the respondents indicated their companies do have access to instant, real-time status of every product. More importantly, 40 percent of the survey’s participants say their company leverages their visibility data to try to identify problems before they occur. In these situations, frontline managers can be much more proactive by identifying pending stoppage and making adjustments in advance to maintain flow.

 

That being said, according to the results, 40 percent of the respondents say their company has no visibility into the real-time status of the manufacturing process. Furthermore, 56 percent of the manufacturers are using the limited visibility data they have to identify problems as they occur, meaning that over half of respondents only know about crises after they happen.

 

There are a few points about the survey that stand out for me. For instance, without having visibility to the plant floor, companies are limited in their ability to accept orders and schedule operations confidently because they don’t understand current production volumes, available manufacturing times for additional output, and overall production capacity—including people, processes and machines. That, in turn, may have an impact on material requirements because those companies may have excess inventory on-hand to meet unexpected demand.

 

Secondly, while there’s obvious significance to being aware of events, the real value is in being able to respond quickly and—more importantly—appropriately. So after receiving an alert that an event is likely, it’s necessary to be able to accurately model the event. The simulation must be backed by analytics that allow personnel to accurately model the event and possible resolutions in real time. While simulating the event and the resolutions, users also must be able to collaborate with other people and other teams to ensure that the resolutions take all factors into consideration and will most appropriately meet corporate objectives. Without plant floor visibility, none of that is possible either.

 

What are your thoughts on the survey results? Does your company—and suppliers—have a lack of manufacturing visibility? If so, what is the impact on the supply chain?

 

October is National Cyber Security Awareness month 2014, and, almost as if right on cue, cyber-attacks have been in the news.

 

First, there is news that as many as 83 million customer records from JPMorgan Chase & Co. were compromised in a massive cyber-attack that occurred last summer. JPMorgan, the largest U.S. bank in terms of assets, revealed in a regulatory filing last week that the widespread data breach affected customers who used the bank’s Chase.com and JPMorganOnline websites, as well as the Chase and J.P. Morgan mobile apps. While the breach may have compromised users’ contact information—such as names, address, phone number and email addresses—the bank says “there is no evidence” that customers’ financial information such as customers’ account numbers and passwords, as well as their Social Security numbers, were compromised.

 

JPMorgan emphasized that it has yet “to have seen any unusual customer fraud related to this incident.” Spokespeople also said the bank continues to investigate the matter and is cooperating with government authorities in their ongoing investigations into the breach. The Federal Bureau of Investigation and various security firms focused on digital forensics are also investigating the attacks.

 

Cybercrime experts nevertheless warn that years of fraud may stem from the hack because criminals can use the stolen data to “phish” for customer passwords. Their first step will likely be to use the information to send customers emails supposedly from JPMorgan Chase. Links embedded in those emails could be used to trick customers into revealing their passwords.

 

Other, perhaps more troubling, cyber-crime news came from the Department of Homeland Security (DHS) and the FBI. The groups jointly announced they have seen an increasing exploitation of business networks and servers by disgruntled and/or former employees. Some of these cases have resulted in significant FBI investigations in which individuals used their access to destroy data, steal proprietary software, obtain customer information, purchase unauthorized goods and services using customer accounts, and gain a competitive edge at a new company.

 

Additionally, multiple incidents were reported in which disgruntled or former employees attempted to extort their employer for financial gain by modifying and restricting access to company Web sites, disabling content management system functions, and conducting distributed denial of service attacks.

 

The theft of proprietary information in many of these incidents was facilitated through the use of cloud storage Web sites and personal e-mail accounts. In many cases, terminated employees had continued access to their former employer’s computer networks through the installation of unauthorized remote desktop protocol software, which was installed prior to their leaving the company, according to the DHS and FBI.

 

A review of recent FBI cyber investigations shows that the cost to businesses for these attacks by disgruntled or former employees ranges from $5,000 to $3 million. Businesses reported various factors were used to create those cost estimates, including calculating the value of stolen data, assorted information technology services, the establishment of network countermeasures, legal fees, loss of revenue and/or customers, and the purchase of credit monitoring services for employees and customers affected by a data breach.

 

It’s one thing to learn that a major bank with significant resources at-hand was a victim of a cyber-attack. Time will tell, hopefully, who was behind that attack. News that crimes by disgruntled or former employees, on the other hand, are even more worrisome because they show that such crimes could take place at any company. Is your company prepared for cyber-attacks, whether they stem from crime syndicates or employees?