Tag: manufacturing

Rebuilding American Manufacturing

The US textile industry’s recovery is an economic story of our times, it’s also one of our future.

US manufacturing is undergoing a resurgence, just without the jobs reports the New York Times in its story on the textile mills of South Carolina.

The decline and recovery of US manufacturing is a story of our times – the industrialisation of Asia, trade treaties such as NAFTA and China’s joining the World Trade Organisation all saw Western producers move their operations overseas.

A weakness with that business model are the extended global supply chains as goods spend months on ships following long manufacturing and design lead times, the exact opposite of what modern consumers are looking for.

Coupled with domestic manufacturers’ increased investment in automated systems which makes labour costs a smaller factor and the sums start adding up for making things in the United States.

Unfortunately for the workforce, those automated plants don’t require anywhere near the staff older factories employed and the skills required in today’s mills are substantially different from those needed in those of earlier times.

Most industries are encountering the same change and new technologies make the modern factory very different to that of a few decades ago.

The jobs aren’t going to come back in the numbers that were once employed, as the New York Times story illustrates with the decline in the working population.

US-employment-changes-by-industry

Despite the recovery in US manufacturing, today’s industry is very different to what it was last century, something that’s missed by those advocating a return 1950s style government policies to protect jobs in sectors like car manufacturing.

Even if they are successful in rejuvenating local car factories, cotton mills or coal mines, the days of these plants employing tens of thousands of grateful cloth capped workers are over.

Those politicians whose ideology is based on the old model, or businesspeople who want to work in the old ways, are going to find the modern economy very difficult and challenging.

Image of cotton threads on a weaving machine through jbeeby on sxc.hu

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Open source manufacturing

Open source hardware promises to change manufacturing and resurrect the art of soldering

Chinese business website Caixin Online has a great video on China’s Open Source Hardware Movement, this is an area that promises to change the manufacturing industry.

Open Source is the philosophy of sharing intellectual property and allowing anyone to improve the idea on the proviso they share their changes with the rest of the world.

The hope is that open sourced products end up being more reliable than proprietary designs due to scrutiny from hundreds, or thousands, of reviewers.

Until recently, open source has been largely restricted to the software world but now it’s moving into broader Engineering and manufacturing circles.

As the Caixin video shows, the open source hardware movement is introducing geeks to a tool which many thought was dead – the soldering iron.

I noticed this a week or so ago when I walked into a co-working space and found the lady I was meeting hunched over a soldering iron putting together a part for a quadcopter.

Right now soldering parts to build quadcopters or game controllers is just the beginning, the really interesting things start when open source meets 3D printing – then we’ll see some real game changing things happen.

Soldering iron picture courtesy of Bomazi through Wikimedia Commons.

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Was the netbook the Trabant or Model T of the computer world?

After only five years the netbook computer comes to an end having being killed by tablet computers and vendor hostility. We will remember these systems as the Model T or Trabant of the PC world?

Taiwanese technology website Digitimes reports Asustek have shipped their last eeePC netbooks, bringing to an end a product that promised to change the computing world when they were first released in 2007.

At the time the eeePC netbook picked up on a number of trends – cheap hardware, the maturity of the open source Linux operating system, affordable wireless access and, most importantly, the accessibility of cloud computing services.

There’d been a pent up demand for usable portable computers for years but Microsoft and their hardware partners consistently released clunky, overpriced tablet computers that simply didn’t deliver on their promises.

For users wanting a cheap, fairly robust portable computer then netbooks were a good choice, at the price you could even risk having one eaten by lions.

into the lions den with an Asus eeePC netbook

Unfortunately for netbook a few things went against the idea.

Customers don’t like Linux

An early blow to the eeePC was that retail users don’t like Linux. Most computer users are happy with Windows and MacOS and weaning them off what they know is a very hard sell.

Sadly on this topic I have first hand knowledge having suffered the pain of co-founding a business in the mid 2000s that tried to sell Linux to small businesses.

Asustek discovered this when they found customers preferred the more expensive Windows XP version over the original Linux equipped devices.

Unfortunately Microsoft’s licenses damaged the economics of the netbook and held the manufacturers hostage to Microsoft who, at the time, wasn’t particularly inclined to encourage customers to use cloud services.

Manufacturer resistance

Microsoft weren’t the only supplier unhappy with netbooks. Harry McCracken at Time Tech describes how chip supplier Intel worked against the products.

For manufacturers, the netbooks were bad news as they crushed margins in an industry already struggling with tiny profits. However all of them couldn’t ignore the sales volumes and released their own netbooks which cannabilised their own low end laptop and desktop ranges.

In turn this irritated the army of PC resellers who found their commissions and margins were falling due to the lower ticket prices of netbooks.

The rise of the tablet

The one computer manufacturer who stayed aloof from the rush into low margin netbooks was Apple who had no reason to rush down the commodity computing rabbit hole. It was Steve Jobs who launched the product that made netbooks irrelevant.

“Netbooks aren’t better at anything… they are just cheaper, they are just cheap laptops” Jobs said at the iPad launch in January 2010.

Immediately the iPad redefined the computer market; those who’d been waiting a decade for a decent tablet computer scooped the devices up.

Executives who wouldn’t have dreamt of replacing their Blackberries with an iPhone, let alone using an Apple computer proudly showed off their shiny iPads.

The arrival of the iPad in boardrooms and executive suites also had the side effect of kick starting the Bring Your Own Device movement as CIOs and IT managers found that their policy of Just Say No was a career limiting move when the Managing Director wanted to connect her iPad to the corporate network.

Rebuilding PC margins

Around the time of the iPad’s released the major PC manufacturers declared a detente over netbooks and joined Intel in developing the Ultrabook specification.

Intel designed the Ultrabook portable computer specification

The aim of the Ultrabook was to de-commodify the PC laptop market by offering higher quality machines with better margins.

While the Ultrabook has worked to a point, competition from tablet computers and the demands of consumers who’ve been trained to look for sub $500 portables means the more expensive systems are gradually coming down to the netbook’s price points.

Today’s Ultrabook will be next month’s netbook.

For the PC manufacturers, the lesson is that computers have been a commodity item for nearly a decade and only savvy marketing and product development – both of which have been Apple’s strengths – is the only way for long term success in the marketplace.

Those US based manufacturers who haven’t figured this out are only go to find that Chinese manufacturers – led by companies like Taiwan’s Asustek – will increasingly take the bottom end of the market from them.

The car industry is a good comparison to personal computers in commoditisation – with the passing of the netbook, the question is whether we’ll remember the eeePC  as a Trabant, Model T Ford or a Volkswagen Beatle.

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Bringing manufacturing home

How GE is reviving its American manufacturing operations

In the 1980s General Electric, like most US companies, sent most of its appliance manufacturing offshore.

Now its coming home.

The Atlantic Magazine looks at how General Electric is resuscitating manufacturing at Kentucky’s Appliance Park as management finds US workers are more skilled and productive than their equivalents in Mexico or China.

An important part of the article is how critcal supply chains are; manufacturing hubs rely upon having a community of skilled service providers and suppliers around the factories while being close to customers improves and simplifies logistics.

In the latter case, it now take hours or days to deliver products to customers’ stores or warehouses rather than the five weeks it takes from China.

The cost of those goods is lower too, the Kansas made GeoSpring heater sells for $1299 while the Chinese product sells for $1599.

What is most notable though is how designers and managers now have a better understanding of the manufacturing process; where under the oustourced model the difficulties in assembly were none of their business, now they are far more deeper and directly involved.

This really goes to the core of what an organisation does – in the 1980s it was fashionable to talk of the “virtual corportation” where everything the business did was outsourced except for the managers who were employed solely to pocket their bonuses.

In the 1990s and early 2000s that “virtual corporation” became a reality as manufacturing and customer support were offshored and logistics was outsourced.

One of the best examples was customer support where looking after the needs of those who buy the company’s products were secondary to the need to cut costs.

This focus on cost cutting over customer service hurt Dell badly in the 2000s and it continues to hurt many organisations – particularly telcos and banks – today.

The weakness in the “virtual corporation” model was the company ended up adding little more value than the brand name and eventually those offshored manufacturers and call centres took control of the business’ goodwill and intellectual property.

Eventually the hidden costs of offshoring became too obvious for even the most craven, KPI driven manager to ignore and suddenly manufacturing in the Western world became competitive again.

Sadly, the fixation on dirt cheap labour has damaged many industries beyond the point where they can be salvaged with too many skilled workers lost and the ecosystem of capable suppliers destroyed. These are costs where tomorrow’s managers will rue the short sighted actions of yesterday’s corporate leaders.

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Six billion pairs of socks

How shallow beliefs don’t substitute for economic analysis or business sense

Ever since the days of Napoleon business people have lusted over the idea of selling into the Chinese market – the idea of a billion people clambering to buy just one widget each brings a gleam to the eyes of even jaded entrepreneurs.

When Deng Xaioping opened the Chinese economy in the mid 1980s Australian brewers, Swiss watchmakers and German motor manufacturers rushed into the country believing that a billion liberated peasants would rush to buy expensive beer and watches.

As it turned out, the real opportunities for foreigners were in the other direction. When China joined the World Trade Organisation in 2001 the boom that had already started in the Special Economic Zones along the southern Chinese coast spread across the Eastern provinces as manufacturing from Hong Kong, Japan and Taiwan to find cheaper labour.

300km South-West of Shanghai the city of Datang became “sock town” where local companies manufactured a third of the world’s sock supply.

Chinese sock manufacturers became so competitive that their Japanese counterparts were forced to move upmarket in an effort to secure a position in an industry awash with cheap products.

Today the Chinese sock industry is looking sick as manufacturers go broke and inventories pile up reports The Observer.

Excess capacity is a problem in many industries, particularly motor manufacturing where governments around the world have supported their local producers resulting in a glut of cars and trucks. Socks are no exception to the laws of supply and demand.

The travails of China’s sock industry are a cautionary tale for those who project straight lines for Chinese growth.

Facile assumptions that every man, woman and child on the planet needs to buy two pairs of socks a year, or that China will build millions of steel hungry apartments each year, is not economic analysis and any business built on such shaky beliefs is leaving itself vulnerable when things don’t work out.

The same is true for nations. Hollow assumptions can put an entire economy on shaky ground. Just thinking that every Chinese family needs six pairs of socks doesn’t guarantee economic success.

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Risks and opportunities in crowdsourcing

There are real benefits and dangers for business in the globally connected marketplace

Crowdsourcing and offshoring are changing bringing to small business the same changes we’ve seen in manufacturing and low level office jobs over the last forty years.

Those trends are going to affect local businesses – particularly the home based service providers – in a serious way as the local web designer and bookkeeper find themselves undercut by freelancers in countries where an Australian day rate is a month’s pay.

With those thoughts in mind I went along to a round table discussion with crowdsourcing advocate Ross Dawson, Freelancer CEO Matt Barrie and Design Crowd founder Alec Lynch to hear them discuss some of the issues around the concept ahead of their half day workshops in Sydney later this months.

Having read Ross’ recent book, Getting Results From Crowds, many of the concepts and arguments are familiar but its worthwhile considering how the trend of a globalised workforce is changing.

The benefits of crowdsourcing services

Crowdsourcing services like Design Crowd and Freelancer have benefits traditional outsourcing services don’t have.

Alec Lynch describes these as reduced expense, speed and risk. A broad range of cheap, accessible suppliers mean businesses aren’t locked into costly contracts with the attendant risks while they can bring projects to fruition in days.

Until recently, globalisation only bought benefits for major corporations with manufacturers contracting work out to China, back office functions to India and software development to Eastern Europe.

The rise of web based services where smaller, one off projects could be paid for by credit card has bought global outsourcing into the small and medium sized business markets.

Now local businesses are affected by business practices that, until recently, were the concern of those working for large organisations.

This is bad news for local service businesses; the suburban web designer or bookkeeper is now finding themselves competing with individuals who, as Matt Barrie points out, have a very good weeks’ income for the equivalent of a day’s pay in Australia.

Basically the same forces that drove most low value manufacturing offshore are now driving services and white collar jobs the same way.

Responding to the threat

There are major downsides for clients using these project based outsourcing services; for instance designing a logo is only part of a much bigger branding exercise which in turn has to be considered against the orgainisation’s longer term objectives.

Often, most of us don’t know what we don’t know and that’s the real reason why we hire an expert to explain why a logo should look a certain way, an expense should be allocated to one specific cost centre and not another or why we should one software package over another.

When we outsource our services, particularly to a low cost provider, we lose that expert insight and end up with someone just carrying out a task; it is up to us to supervise something we probably don’t understand ourselves.

Part of that supervisory role is project management, in the design field managing creatives can be like herding cats. This is why experienced project managers are worth their weight in gold.

Like many essential skills, project management is one of those which most of us don’t have and is chronically undervalued but when a business is outsourcing to a freelancer in Estonia or Eritrea then this service is essential.

Providing those skilled supervisor and management roles is where the opportunities lie in a crowdsourced market place.

In many ways, we’re seeing the end result of the post-industrial society. Just as we offshored the manufacturing industries through the 1970s and 80s then the low skilled office work in the 1990s and 2000s, we’re now outsourcing local services to low cost countries.

Whether ultimately this is a good thing or not is a big question but for local businesses, the trend is clear and much of the basic work is going offshore. Those who choose to whinge rather than adapt will be left behind.

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We come here to work

We shouldn’t under estimate the economic power of the Chinese factory worker

“We come here to work and not to play” is the quote from a Chinese production line worker in Reuter’s article on Foxconn factory workers.

That quote could have come from a hundred years ago in Western societies as young workers fled agricultural communities to make better money and find greater opportunities in the factories and cities of North America, Europe and Australia.

In their report on Chinese labour conditions commissioned by Apple and its supplier Foxconn, the US Fair Labor Association confirmed the quotes from the Reuters article.

48% thought that their working hours were reasonable, and another 33.8% stated that they would like to work more hours and make more money.

These workers have an average 56 hour working week and over a third are putting in 70 hours each week.

Like our great grandparents they are focused on bettering themselves and deeply conservative; they know their immediate livelihoods and future prospects depend upon the work they can get.

They also understand the government owes them nothing and their expectations on what the authorities will do for them are low.

It often said the Communist Party of China is the most effective capitalistic organisation on the planet today. In reality it’s the workers on the assembly lines who personify what we know as the free market.

As the leaders of Western nations continue to indulge in corporate and middle class welfare while believing in magic pudding economics where massive mis allocations of resources have no cost and tax cuts pay for themselves, it might be worthwhile thinking of the businesses those 23 year old factory workers in Shenzhen or Chengdu might be running in thirty years.

Just as our great-grandparents built modern economies and industrial empires out of their hard work, which most of us still reap the benefit from, those young Chinese workers are doing the same thing.

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