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2015

The growth in automotive sales, and demand from consumers for new technologies in vehicles, will drive continued growth in other industries as well. In particular, business is looking up for electronics and hardware industries, and some parts of the chemicals industry.

 

For instance, while cars that park or even drive themselves still sometimes seem like something from a science fiction novel or movie, numerous companies are developing such technology, and consumers ask for it. The result is that it’s no longer a question of if, but when, autonomous vehicles (AVs) will be available. Indeed, vehicles with varying levels of self-driving capability—ranging from single-lane highway driving to self-parking—will start to become available to consumers as soon as mid-2015 or early 2016, a recent report from Boston Consulting Group (BCG) explains.

 

AVs are enabled by multiple hardware and software components, including various sensor technologies used to assess and react to a vehicle’s environment. The functionality of AVs makes use of innovative technologies to process input from sensors as well as software to interpret the inputs and translate them into a needed course of action.

 

Although some of these technologies are already commercially available, certain critical pieces of hardware—most notably, sensors—need further development before they can be used commercially, the BCG report explains. Automotive suppliers and technology companies have already developed a mix of sensors that rely on radar, cameras, ultrasound and light detection and ranging (lidar) technology, as well as other computing and positioning systems. Nevertheless, some of the most vital enabling components—specifically lidar sensors and GPS—must be further developed, and their costs scaled down, before OEMs will adopt them, the BCG authors write.

 

Another key component of AVs will be short-range communications technology. This technology, such as vehicle-to-vehicle and vehicle-to-infrastructure communication, is collectively referred to as V2X, which can be effectively applied to complex driving environments to enhance the safety of AVs. V2X technology can supplement on-board sensors to gather and transmit environmental data, enabling the car, for example, to “see” around corners and negotiate road intersections, BCG authors write. V2X technologies are being developed in parallel with AV technologies, and are expected to enhance AV performance and safety, according to the report.

 

Then again, as automotive sales in general pick up, there is a corresponding increased demand for the chemicals industry, and plastics in particular. Plastics make up about 15 percent of the materials used in a mid-size car, so KPMG estimates that growing auto sales could correspond to an expected growth rate of eight percent annually through 2018 for plastics, a recent Chem.Info article reports.

 

This is especially good news for companies developing advanced plastics used in light-weight vehicles, KPMG notes. Modern polyesters, for example, reduce the amount of foam needed in seats. New light-weight polycarbonates are increasingly being used for sunroofs and windows. Finally, just as is the case for airplanes, new polymer composites deliver strength but also help reduce the structural weight of vehicle components.

 

“The material is 50 percent lighter than conventional steel and 30 percent lighter than aluminum,” says Mike Shannon, Global Chair, Chemicals & Performance Technologies at KPMG, in the Chem.Info article.

 

What are your thoughts on the automotive supply chain? Do you also forecast significant growth for everything from electronics hardware to plastics used in vehicles today?

Mexico continues to be viewed favorably by automakers. It also seems that status is even on the rise. Indeed, in recent weeks, several automakers have announced plans for significant expansion in Mexico.

 

For example, Ford Motor Co. recently announced a $2.5 billion plan to expand and build new engine and transmission plants in Mexico. Joseph Hinrichs, the company’s president for the Americas, says the projects in the states of Chihuahua and Guanajuato will create 3,800 direct jobs. The facilities are expected to boost engine exports to the U.S., Canada, South America and the Asia-Pacific region.

 

Toyota also recently announced plans for a $1 billion plant in Guanajuato to begin production of the Corolla sedan in 2019, creating about 2,000 jobs. Toyota will shift Corolla production away from a Canadian plant to the new facility in Mexico.

 

It isn’t just automakers expanding in Mexico, however. U.S. tire maker Goodyear recently announced it too will build a factory in central Mexico to produce six million tires a year for customers across the Americas. The plant will be built in the state of San Luis Potosi, and will begin production in mid-2017. The investment is expected to cost between $500 million and $550 million and will employ roughly 1,000 people.

 

Two critical reasons behind companies expanding or relocating operations to Mexico are low labor costs and fewer tariffs. A worker in Mexico costs car companies an average of $8 an hour, including wages and benefits, according to a recent Associated Press article. That wage compares with $58 per hour in the U.S. for General Motors and $38 at Volkswagen’s factory in Tennessee, the lowest hourly cost in the U.S., according to the Center for Automotive Research, the article explains. Both wages can be contrasted with that of German autoworkers, who are paid roughly $52 an hour.

 

Mexico also beats the U.S. when it comes to free trade. It has agreements with 45 countries, meaning low tariffs for exporting globally. That, along with low labor costs, convinced Audi to build an SUV factory in the state of Puebla. The German automaker will save $6,000 per vehicle in tariffs when it ships a Q5 to Europe, compared with building the same vehicle in the U.S., says Sean McAlinden, chief economist at CAR, in the AP article.

 

It’s worth noting that such cost savings also potentially enable automakers to add expensive fuel-saving features to meet stricter U.S. government gas mileage requirements. Consequently, automakers could develop such vehicle capabilities while also keeping costs down, and therefore meet customers’ expectations for increased fuel economy without increasing overall vehicle cost.

 

Automakers now have 18 factories in Mexico, and many of those have been built within the past 10 years. In four years, five more will be built, moving the country from the world’s seventh-largest auto producer to fifth. Furthermore, Mexican auto production more than doubled in the past 10 years, and consulting firm IHS Automotive expects it to rise another 50 percent by 2022. At the same time, U.S. production is expected to increase only three percent over the next seven years.

 

What are your thoughts on automotive manufacturing in Mexico? Will even more plants and facilities be built there? Also, what will happen if workers begin to demand higher wages?

What factors do you think determine whether or not a particular state is attractive for manufacturing? I ask because I’m intrigued by the results of PwC’s 2015 Aerospace Manufacturing Attractiveness Rankings, which ranked states based on tax rates, industry size, operating cost and education. The study used a weighted average of variables such as costs, workforce and number of aerospace companies located in each state to determine rankings.

 

This year, again, Florida ranked first in the U.S. for aerospace and aviation manufacturing attractiveness, according to the report. Florida is home to more than 2,000 aerospace and aviation companies that employ more than 82,000 workers. The sector has an annual payroll impact of more than $5 billion in Florida.

 

The top 10 states, as ranked by PwC, are: Florida, Michigan, Ohio, Utah, Virginia, Georgia, New York, Texas, Missouri and North Carolina. While Michigan, Ohio, Texas, Georgia, and Missouri remained in the top 10 since last year’s ranking, Utah, Virginia, New York and North Carolina were added to the list.

 

I found it interesting to see how factors may offset each other. For example, New York had moderate rankings but was helped by its overall #1 rank in workforce education. Virginia was ranked #6 in taxes and #5 in education, which more than offset its higher operating costs. Then there’s Utah, which combined a strong industry rank with low taxes.

 

Interestingly, California fell off the top 10 list this year. Although it ranks #1 in industry employment and aerospace suppliers, and #4 in education, California’s overall rank was dragged down because it was #43 in industry growth and #46 in operating cost.

 

Washington State fell from the #3 rank to #12. Even though Washington was ranked #7 in industry rank and #10 in education, its operating cost and taxes dragged the state down. High operating and tax costs also caused Pennsylvania and Arizona to fall out of the top 10 ranks.

 

It’s important to point out that, as PwC notes, this ranking by no means suggests the “best places” for aerospace manufacturing, given that companies’ individual criteria for locating in a geographical area vary so widely. On the other hand, it does offer a view on the wide diversity of options to locate sites and/or R&D facilities—especially for suppliers which do not need to be based near OEMs.

 

One factor that does warrant emphasis is that for companies to thrive, they must nurture a workforce to satisfy backlog demand for aircraft and to meet demand for the next generation of more efficient, sustainable aircraft, PwC authors write. Growing and diversifying this workforce is fundamental to securing the competitiveness of U.S. commercial aviation manufacturing in a globalized market. Some companies have taken innovative steps to recruit, train and retain talent. For example, the PwC authors do point out that South Carolina has been working closely with Boeing, which recently located a 787 final assembly plant there, to create a state-sponsored training program and facility to keep supplying qualified, interested employees as the site grows.

 

“Effective talent recruitment strategies involve collaboration among private sector, government and educational institutions that target numerous talent issues including STEM education, relevant job skills training, and the recruitment of new talent needed to spark innovations that will produce the next generation of aircraft,” PwC authors write. “The industry should also take measures to lift its reputation and allure, as other industries, over the years, have pulled talent that might once have been drawn to aviation.”

 

Whether you are in the aerospace and aviation industry or not, what do you think of the state rankings? Are those top states where you and your supply chain have locations?

 

People who had ordered Apple Watches—smartwatches, also known as “connected watches” and “wearables”—a few weeks ago began to receive them today. This type of watch is the highest profile wearable technology used to link wirelessly to phones. What’s more interesting, however, is how other companies will react, and the effect on Apple’s supply chain.

 

For instance, Samsung Electronics made news today as well, making an announcement about a new version of its Gear smartwatch. The company’s official blog post showed images of a smartwatch with a round face, which would be a new development for Samsung. The post also announced that Samsung is working with Baidu, Yelp and CNN developing apps. Samsung also said it would release a wearable software development kit for third-party developers ahead of the eventual launch.

 

Nonetheless, Apple’s smartwatch is still expected to sell much better than any rival products. Research firm IHS expects shipments of more than 19 million Apple Watches this year, more than five times the number of all smartwatches shipped globally in 2014. IHS estimates that Samsung accounted for nearly 1 million of the 3.6 million smartwatches shipped globally last year.

 

What I found most interesting, however, is that anybody interested in finding out which components are inside an Apple Watch—and who the components came from—is in for a surprise. For instance, Apple encases its chips in a tough resin and also uses uncommon screws to fasten the watch together, which makes the watch more difficult for people to disassemble.

 

Gadget repair firm iFixit, which has carried out “teardowns” on Apple products ranging from iPhones to MacBooks, sent a team from San Luis Obispo to Australia to get one of the first Apple Watch deliveries, a Reuters story reports. The team began a teardown by using a heat gun to get the Apple Watch’s screen off. That’s when they discovered what the Reuters’ story describes as “a nest of cables” covering the “S1” core computing module encased in resin that even a pen knife couldn’t shift. Furthermore, the team told Reuters Apple appears to be promoting its brand on the watch’s inner workings, which hinders a detailed analysis of the parts’ origins.

 

“We have definitely not seen this before,” says iFixit teardown engineer Andrew Goldberg in the Reuters report.

 

iFixit had anticipated that the resin module, which Apple has said is to protect the electronics from the elements, would have a lid that could be opened rather than be a solid block.

 

“In the past, they have identified the component parts, but now instead of identifying all the processors and chips, they’re marketing it as the S1,” says Sam Lionheart, a technical writer at iFixit, in the Reuters story.

 

Apple in the past has relied on numerous companies to supply its memory chips for storing music and photos. The company, however, also imposes strict rules forbidding those suppliers from discussing Apple-related business with investors and the media. Previous suppliers have included SK Hynix, Qualcomm, Skyworks Solutions, Avago Technologies, ARM Holdings, NXP Semiconductors NV and Samsung Electronics.

 

Whether the strategy is to protect electronics from the elements, to protect the electronics from prying eyes, or both, I like it. And if that in turn makes identifying both components and members of Apple’s supply chain more difficult, well, good for Apple.

 

Congressional aides announced yesterday that the House of Representatives is expected to pass a cybersecurity bill today with support from both Republicans and Democrats. The bill, the National Cybersecurity Protection Act, will push private companies to share access to their computer networks and records with federal cyber crime investigators.

 

Last month the House Intelligence Committee unanimously passed the bill. That was somewhat of a surprise given that the bill has been years in the making. A bipartisan effort in 2012 failed twice over concerns—including from the White House—that the private sector would be too burdened with the legislation and that such a bill may jeopardize the privacy rights of consumers. The current bill, however, is expected to pass with bipartisan support because it will increase liability protections for the private sector, which fears lawsuits for sharing customer information.

 

“I very much present this as...one that accomplishes that balance of facilitating the sharing of cyberinformation, cyber threat indicators, to make our personal and business information safer on the networks,” says Rep. John Ratcliffe, R-Texas, who helped write the bill. “At the same time, this bill very much ensures that people’s privacy is protected.”

 

The difference over the years is that the nature and severity of cyberattacks has changed. Last fall, the attack on Sony Pictures, which the FBI blamed on the North Korean government, prevented the wide release of a comedy portraying the assassination of North Korea’s leader, Kim Jong-un, as a New York Times article points out. Early this year, healthcare company Anthem reported a major breach that exposed the records of nearly 80 million people. Just last week, Target agreed to reimburse MasterCard $19 million for losses associated with the theft of 40 million credit and debit card numbers from its computer network in December 2013.

 

The current House bill would provide legal liability protections for companies that share cyberthreat information with one other or with the government. But negotiators added what they see as critical privacy protections. If a company shares information with the government, it would receive liability protection only if its data undergoes two rounds of washing out personal information—once by the company before it gives the data to the government and another round by the government agency that receives the data, the New York Times article reports. What’s more, the data would first go to a civilian agency, not the National Security Agency or the Defense Department, for that scrub.

 

President Barack Obama’s administration supports the passage of the current cybersecurity protection bill, but states that “improvements to the bill are needed to ensure that its liability protections are appropriately targeted to encourage responsible cybersecurity practices.” The administration also notes that adding the bill’s liability protections may “remove incentives for companies to protect their customers’ personal information.”

 

The Obama administration isn’t alone in voicing hesitation regarding the current bill. Some privacy advocates strongly oppose the legislation, saying it would do too little to prevent more data collection by the National Security Agency and other U.S. intelligence agencies, a Reuters article reports. Such surveillance has come under scrutiny since 2013 disclosures by former NSA contractor Edward Snowden.

 

Be all of that as it may, some corporations have been calling for Congress to extend legal liability protections so they can more easily share data with the government to help prevent and respond to cyberattacks. For example, several major companies, including Microsoft, Lockheed Martin and Morgan Stanley, had pushed for a threat-sharing bill.

 

What are your thoughts on cybersecurity and the supply chain? How much of a concern is it for you?

Women are no longer at a disadvantage when applying for tenure-track positions in university science departments, according to a new study from Cornell University psychologists. If anything, the bias has flipped: Female candidates are now twice as likely to be chosen as equally qualified men, according to the study, “National hiring experiments reveal 2:1 faculty preference for women on STEM tenure track,” published this week in the Proceedings of the National Academy of Sciences.

 

In a nationwide study from the Cornell Institute for Women in Science, professors Wendy Williams and Stephen Ceci—co-directors of the institute—found tenure-track faculty in engineering, economics, biology and psychology generally favored hiring female candidates rather than otherwise identical male candidates by a 2-to-1 margin. A series of five experiments were conducted on 873 faculty members at 371 colleges and universities from all 50 states and the District of Columbia.

 

In the experiments, evaluators were presented with profiles of fictional job candidates and asked to rank them according to who was most qualified for an assistant professorship in biology, engineering, economics and psychology, explains a Washington Post article. In nearly every case, the female candidates were more likely to be ranked higher, regardless of their lifestyle, area of expertise and the evaluators’ field of research. The one exception was with male economists, who showed no gender bias one way or the other.

 

The bias toward women “was totally unexpected,” Williams says in a Reuters story. “We were shocked,” she says.

 

The conclusion should come as good news for proponents of women in STEM (science, technology, engineering and mathematics), who have long argued that hiring bias is holding female scientists back. However, since the report also contradicts other prominent studies of the issue, some researchers remain skeptical.

 

Joan C. Williams (no relation to the Cornell researcher), 1066 Foundation Chair and founding director of the Center for WorkLife Law at the University of California’s Hastings College of Law, says in an Inside Higher Ed article that the Cornell study’s methodology was sound but that it is “seriously flawed” in its conclusion that STEM is now a welcoming place for women. She says instead, hiring has never really been the main source of discrimination against women, and any study that ignores climate and retention issues beyond the hiring phase doesn't paint an accurate picture of the field.

 

On-going research by Joan Williams, who also is co-principal investigator for Tools for Change in STEM—a long-term research project on women in the sciences—suggests that 100 percent of women scientists (of 60 surveyed) have faced gender bias once they’re on the job, the Inside Higher Ed article reports.

 

Those statements remind me of the findings of another study, “Athena 2.0 Factor: Accelerating Female Talent in Science, Engineering & Technology,” which was released last year by research think tank Center for Talent Innovation (CTI). That study found that 72 percent of women in the U.S. working in science, engineering and technology fields perceive gender bias in performance evaluations. What’s more, women working in these fields are 45 percent more likely than their male peers to leave the industry within a year, according to the study’s findings.

 

“Their intent to leave these companies clearly isn't because these women are afraid of hard work,” says Laura Sherbin, director of research for CTI. “But they feel stalled in their careers, and this feeling of being stalled turns into a massive lack of hope.”

 

What I’d like to know is if you think these problems are also found in the supply chain. Do you think gender bias takes place during performance evaluations? In general, are women in supply chain jobs held to different expectations than men?

 

The biggest threat to the stability of the world for the next 10 years comes from the risk of international conflict, according to the Global Risks 2015 report developed for the World Economic Forum with the support of Marsh & McLennan Companies and Zurich Insurance Group.

 

The report, which every year features an assessment by experts on the top global risks in terms of likelihood and potential impact over the coming 10 years, identifies interstate conflict with regional consequences as the number one global risk in terms of likelihood, and the fourth most serious risk in terms of impact. After interstate conflict, the next four most likely risks are extreme weather events, failure of national governance systems, state collapse or crisis, and high structural unemployment or underemployment.

 

“Twenty-five years after the fall of the Berlin Wall, the world again faces the risk of major conflict between states,” says Margareta Drzeniek-Hanouz, Lead Economist, World Economic Forum. “Today, however, the means to wage such conflict, whether through cyber-attack, competition for resources, or sanctions and other economic tools, is broader than ever. Addressing all these possible triggers and seeking to return the world to a path of partnership, rather than competition, should be a priority for leaders as we enter 2015.”

 

What I find interesting is that Axel P. Lehmann, Chief Risk Officer at Zurich Insurance, says the risks to business in a truly globalized world are too numerous and too interconnected to be completely avoided. While the more immediate risks are often easier to recognize, there also can be existential threats from pervasive risks that slowly drain a business of its vitality, he says.

 

“For a modern business to survive and prosper requires a holistic view of the world and the interconnected risks that permeate it,” says Lehmann. “For example, technology has made it possible for nearly any business to operate on a global level, but along with that, cyber-breaches and disruptions have become the new norm. The ripple effects of this have real implications.”

 

In a global risk landscape that is now commonly described as a “not if, but when” proposition, it’s tempting to focus solely on a defensive risk management strategy, Lehmann says. However, he adds, for your business to continually evolve, thrive and stay ahead of the competition requires proactively rethinking your risk management strategy to incorporate reinvigorated strength and layer upon layer of resiliency.

 

“Resilience is an absolutely key concept. If your business or part of your supply chain is located in a coastal area that’s about to be hit by a hurricane, there’s nothing you can do to avoid it. Nor can you opt out of the possibility that your business will suffer a cyber-attack. You can never prevent everything that you’d like to see prevented,” Lehmann says. “Prevention is obviously important, but so is resilience—the ability to bounce back at least as strong as before, and maybe stronger. The starting point is to understand the exposures you face. This isn’t just a technical matter: it requires a view across all dimensions of your company.”

 

Interestingly, Lehmann and his colleagues encourage businesses to think more broadly about how to enhance the long-term sustainability of an organization against what he calls, a backdrop of constant change. In so doing, businesses will not abandon measures that help manage and mitigate short-term disruptions, but they should also seek to expand existing risk management activities and supplement them with a broader focus on the factors that contribute to resilience. Moving from urgency-driven risk management to more collaborative efforts to strengthen risk resilience can serve to benefit not only the business itself, but the local and global communities it serves as well, he says.

 

Do you think your supply chain is resilient? How well does it bounce back after a disruption?

 

 

The next big improvement in manufacturing productivity will come from robotics, according to a new report.

 

A study from the Boston Consulting Group (BCG) projects that investment in industrial robots will accelerate over the next decade, from annual growth that now averages two percent to three percent to around 10 percent annually. As a result, the total cost of manufacturing labor in 2025 could be 16 percent lower, on average, in the world’s 25 largest goods-exporting nations than they would be otherwise. Depending on the industry and country, output per worker could rise by an estimated 10 to 30 percent over and above productivity gains that typically come from other measures, according to BCG.

 

“As labor costs rise around the world, it’s increasingly critical for manufacturers to rapidly take steps to improve their output per worker to stay competitive,” says Harold L. Sirkin, a BCG senior partner and coauthor of the firm’s series on the shifting economics of global manufacturing. “Companies are finding that advances in robotics and other manufacturing technologies offer some of the best opportunities to sharply improve productivity.”

 

There are several reasons behind the expected increased use of robotics. Perhaps the most significant is cost. For example, the cost of an advanced robotic spot welder has come down 27 percent, from an average of $182,000 in 2005 to $133,000 in 2014—and the price is forecast to drop another 22 percent by 2025, BCG expects. At the same time, the performance of robotics systems—speed and flexibility, among other attributes—is likely to continue improving by around five percent each year. The combination of declining price and performance improvements will greatly accelerate the time it takes for robots to become more cost effective than labor in many industries, the firm explains.

 

Manufacturers in some countries are currently installing robots much faster than in others. For instance, China, the U.S., Japan, Germany and South Korea now account for nearly 80 percent of robot purchases, BCG notes. Indeed, according to the International Federation of Robotics, an association of academic and business robotics organizations, China bought approximately 56,000 of the 227,000 industrial robots purchased worldwide in 2014, which is a 54 percent increase from 2013, a BloombergView article reports.

 

In all likelihood, China is just getting started. The government of Guangdong Province, the heart of China’s manufacturing region, recently announced a three-year program to subsidize the purchase of robots at nearly 2,000 of the province’s largest manufacturers. Guangzhou, the provincial capital, aims to have 80 percent of its factories automated by 2020, Adam Minter wrote in BloombergView. The Chinese government’s involvement shouldn’t come as a surprise since it has long wanted to shift the country’s manufacturing focus away from low-quality products that are manually assembled and toward higher-value ones—such as automobiles, household appliances and higher-end consumer electronics—that require the precision of automation, Minter wrote.

 

When it comes to adoption, rates will, of course, vary by industry. So, for example, transportation equipment, computers and electronics, electrical equipment, and machinery industries are expected to account for around 75 percent of advanced robotics installations through 2025, according to BCG’s research. By that time, robots should be able to handle 40 to 45 percent of manufacturing tasks in these industries, the report continues. It also stands to reason that adoption rates will be slower in industries such as food products, plastics, fabricated metal, and wood products where many tasks will remain difficult to automate and labor wages are relatively low.

 

What are your thoughts on how the increased use of robotics will impact manufacturing productivity? Secondly, what will the consequences be for supply chains?