The manufacturing industry has undergone numerous changes in the past several decades, with companies first placing an emphasis on overseas production and more recently switching their focus to nearshore manufacturing. The sector could be in for another big change, as more companies invest in 3D printing to lower labor costs, reduce waste and enhance productivity.
A new study by IT research and analysis firm Gartner revealed business leaders are quickly seeing the potential in 3D printing, and the technology is on its way to becoming mainstream among corporations due to its various benefits. The technology gives some enterprises the opportunity to produce more merchandise with less labor and lower expenses. As prices for these printers drop and their efficiency and capability increases, more companies are seeing significant opportunities for cost savings in the production process.
"The material science behind 3D printing processes and materials will continue to progress, and affordable 3D printers are lowering the cost of entry into manufacturing," read the study. "As a result, the 3D printer market will continue moving from niche adoption to broad acceptance, driven by lower printer prices, the potential for cost and time savings, greater capabilities and improved performance that drives benefits and markets."
Many companies rely on trucks to transport goods across the country in a timely fashion and support their supply chains, but with traffic congestion increasing across the country, they may need to develop a new strategy to ensure their merchandise gets to markets, warehouses or purchasers on schedule. The most recent INRIX Gridlock Index (IGI) revealed traffic increased nearly 10 percent in February, the biggest year-over-year increase seen in two years.
Could worsening traffic have an impact on shipping operations?
February's composite IGI score was 6.8, indicating an average trip in the country's 100 largest metropolitan areas took drivers 6.8 percent longer than usual. While a driver in a hurry to make a delivery could be significantly impacted by that 6.8 percent increase, gridlock was even worse in certain cities. Congestion in Chicago leaped 20 percent year-over-year and growth in Phoenix contributed to a 19 percent spike in traffic. New York's gridlock also worsened, increasing 18 percent from February 2012 to February 2013, while Houston experienced a 10 percent jump over the year.
Businesses that rely heavily on trucking to transport materials or consumer goods could notice huge consequences if traffic continues to increase at this rate. Shipping times could be disrupted, potentially resulting in a shortage of consumer goods and compromising a company's revenue and public image. The jump in gridlock could also have unrecognized expenses for an operation, as sitting in traffic wasting fuel means a driver will need to fill up more frequently, increasing shipping fees.
To avoid the risks associated with growing traffic congestion and find a business cost reduction, some companies may seek alternative transport methods to get their goods to market. Those that previously relied on the trucking industry may investigate options that could help ensure shipping is timely and cost effective. Even though some states and local governments are launching projects to help ease traffic, those infrastructure improvements won't be completed for weeks, and companies that need more efficiency now may need to switch their processes immediately.
Gazprom, the world’s largest natural-gas producer and, according to the Financial Times, creator of the “best company song” (see it on YouTube), announced that in June it will be determining the price and volume with China for its gas supplies. Such a relationship would be welcome to Russia’s giant as it finds itself stumbling in the European market.
Although still the dominant player in the domestic market (producing 75% of Russia’s gas) and a significant presence in the international market (supplies approximately 25% of gas and more in former Soviet-bloc countries), Gazprom in recent years has faced falling demands and rising competition with the introduction of different gas options. Notably, buyers are less dependent on the Russian natural-gas monopoly with the option of procuring liquefied natural gas (LNG) from other suppliers in Europe as well as (potentially) from the US. The Economist has pointed out that, despite shifts in the playing field, Gazprom has stubbornly refused to sacrifice its traditional pricing and contractual structure, where customers sign expensive long-term contracts linked to the price of oil, which serves to undermine investment. Compounding Gazprom’s challenges are its outmoded facilities, an antitrust investigation conducted by the European Commission, and general inefficiencies and high costs. Furthermore, the company indicated that it has plans to invest $50 billion in gas fields, pipelines, and an LNG plant.
Gazprom has thus turned to Asia in an effort to secure its dominance in the industry amidst its mounting difficulties. Nevertheless, price is, unsurprisingly, still a point of contention in the Sino-Russian negotiations. Gazprom remains adamant to link gas prices to oil, for fear that European parties will continue to demand greater discounts if China manages to land a better deal. Meanwhile, China insists upon paying approximately the same amount as it does for gas from Turkmenistan. With a somewhat vulnerable Gazprom, China may appear to have the advantage in this contest. Except, of course, China’s delicate situation with regards to its regional tensions – especially with Japan – may serve as an incentive for it to quickly conclude a deal with a neighboring entity.
Agreements on the amount supplied to China have been tentatively settled, but certainly a myriad of economic, geopolitical, and internal political developments will be factored in before either party settles on an agreement. Talk about sourcing negotiations on a multi-staged global scale!
More companies have gained an interest in nearshore manufacturing as labor expenses and raw material costs overseas continue to grow. This makes it attractive for firms to shift their production back to the United States, and many businesses have made the decision to do just that. Apple manufacturer Foxconn recently announced it would opening some production facilities in the U.S., but these plants won't be responsible for putting together only iPhones and iPads. It was recently revealed Google will have its brand-new Google Glass device made at a new Foxconn facility in Santa Clara, California.
The project is an advanced computer a user can wear, much like a pair of eyeglasses. It is controlled by voice and, like a smartphone or computer, can take photos and video, connect to the web and display search results. However, the devices won't be readily available to the public just yet. Reports indicate Google plans to have Foxconn put together just a few thousand pairs. The company already has plans to give 8,000 contest winners the chance to purchase the new device for about $1,500, but it could be months until they're readily available to the average consumer.
Even though the glasses will be assembled in California, many components will still be sourced from Asia. The Financial Times reported local production is necessary, as it gives Google's engineers the opportunity to closely oversee the process and ensure the devices run correctly and the manufacturing goes according to plan. Once the company begins mass producing its Glass, there is a possibility it could begin to shift production overseas in an effort to enjoy greater cost savings, depending on the expense associated with the trial U.S. assembly, and to complete the manufacturing process more quickly to meet consumer demand.
As popular as they are, the “brands” are not part of the sports themselves, but rather they feed and benefit directly from them. Sports are the corporate brands’ bread and butter, and big corporations like Nike, Adidas, Reebok and Tag Heuer (to name a representative few), have cleverly adapted their business model to an ever-changing scenario in which corporate endorsements play a major role. Their goal is simple, to get you to think about their brand name by association, so they sign distinguished athletes and celebrities to make their point. Ironically enough, their point is many times moot by their own endorsers; certainly a risky proposition for their many multimillionaire investments.
Let’s talk about Nike for a minute, the company is today one of the most recognized brands in the globe; it has endorsed many sports legends and has built up a reputation of excellence. Case and point: Michael Jordan. However, in recent years it has also had an unfortunate history of adverse endorsing. Many of the highest profile “scandals” of the recent years have put Nike on the spot; starting with Michael Vick who in 2007 was sent to prison for being involved in running a dogfighting operation, then was Tiger Woods who in 2009 his extra-marital affairs send him to hiatus; recently after that, one of Nike’s favorites, Lance Armstrong, was accused of “the most sophisticated, professionalized and successful doping program that sport [cycling] has ever seen”. The Penn State scandal followed that, which forced Nike to remove Joe Paterno’s name from its Child Development Center on its Oregon campus. And finally, most recently is the Oscar Pistorius case, which is probably the most outraging case of adverse publicity Nike has faced in the decade.
With all these sour endorsement efforts happening so frequently, is hard to anticipate what Nike’s marketing department will be doing in the coming years. Endorsements are intended to serve as a selling tool that portray the brand beyond the quality of its materials, the design of the products or even their performance, they sell by referencing exemplary individuals who represent what the brand stands for. Ill endorsements may mean adverse publicity, but yet publicity and in Nike’s case this long line of bad endorsements may also make the company look less corporate and more humanized that other seemingly perfect brands, that is as long as the company learns how to react and address a situation when one of its protégés “drops the ball”. It seems that thus far Nike has done a rather solid job in keeping the eyes of the market in the right place despite what celebrities or athletes do; a good example is the fact that Nike has never dropped an endorser until is absolutely necessary, and in some cases resigning them once they have corrected their path.
Some may consider this as poor management or slow reactiveness to crisis; I for one think that Nike knows exactly what they are doing. For the third quarter of 2012, Nike reported net income for $660 million, approximately 8% increase on shares, a 35% increase on their online operations and a 9% increase on income on the previous year. Bad publicity? perhaps, but don’t forget that Nike also has some of the best in the game behind the swoosh, with an approximate spend of $800 Million, Nike has signed stars like Roger Federer, Ronaldinho, LeBron James, Michelle Wie, Paul Rodriguez Jr. and Maria Sharapova.
But there are solutions to these problems. Many organizations are taking advantages of ever-competitive wide are network service providers to drive down cost. What's more is WAN optimization hardware, virtual hardware, software and services can help to further improve network performance, reducing overall operational costs. The combination of reducing recurring costs through strategic sourcing and making a capital investment in WAN optimization solutions can result in significant long term operational costs. This savings can then be reinvested in building up a more robust network, including redundant connectivity where needed, and increasing bandwidth accordingly. Most of this can be done while maintaining some of the savings from the budget.
As organizations adopt new technology at an rapid rate, it is easy to lose sight of some of the other cost areas that may be impacted. By proactively looking at a total cost of ownership for these types of projects, many of the challenges described above can be even further offset, leading to and overall lower TCO and optimized cost reduction. For help planning your IT and network strategy, contact Source One Management Services, LLC at www.sourceoneinc.com
Chinese hackers have been accused of multiple cyberattacks on United States businesses and agencies in the last several months, and the federal government is taking the initiative to crack down on this illegal activity. A spending bill recently signed by President Barack Obama changes how the federal government can procure IT necessities, imposing restrictions that could have an impact on Chinese technology companies but may also help better protect American national security interests.
The legislation makes it extremely difficult for government agencies, including NASA, the Justice Department and the Commerce Department from purchasing information technology systems made by companies with ties to the Chinese government. This restriction could, in some instances, be overruled if a department head thinks making the purchase is essential. Agencies will need to determine the "cyber espionage or sabotage" risk when buying technology from certain businesses because of the concerns purchasing this equipment could allow hackers easy access into confidential U.S. systems.
According to Reuters, purchasing decisions are often made with strategic sourcing and low prices in mind. This new legislation could change how agencies procure their essential IT products and the process through which they determine which vendors are permissible to work with. Because the rules were just put into place, it's unclear how great of an impact they could have on agencies' purchasing strategies and Chinese businesses. Fox News reported the move may end up being more symbolic than economically significant to Chinese companies.
This move will likely call for many departments to change up their supply chains and rework their purchasing initiatives. This could allow them to give more business to American companies and boost domestic manufacturing, or award more contracts to foreign firms with no links to the Chinese government. Rethinking these sourcing tactics could potentially lead to cost savings in addition to limit the risk associated with IT materials made in China.
Many businesses have implemented programs to reveal the procurement, logistical and manufacturing processes used in their supply chains. As concerns over sustainability, raw material use and green strategies have become of more importance to consumers, companies are making their strategies known to the public and making a strong impression with purchasers.
Businesses increasingly publicize green measures
Companies like GlaxoSmithKline, MITIE and Eurostar recently joined an initiative to become more transparent and make their processes known to suppliers and consumers. They will be reporting and measuring energy use, which could cause some of these companies to change their strategies and implement more sustainable tactics.
Not only will this help businesses cut energy use and become more focused on renewable resources, it will also allow companies to check their suppliers' backgrounds and determine if the processes they use are in compliance with a hiring firm's own standards and initiatives in regard to waste creation, water use and green energy strategies. Organizations that aren't satisfied with the progress a supplier has made switching to green strategies can choose to request their partners employ more sustainable programs or renewable energy use or make the decision to change suppliers.
While publicizing the data could be beneficial for those who are looking for a good deal on their sourcing, it can also greatly benefit the firms making their supply chains visible to purchasers. Companies that willingly submit such data can prove they have no unethical, undesirable or illegal practices within their supply chains. This can lead more purchasers to view them as strong business partners and employ their services, boosting profits and helping both parties establish stronger relationships that will improve their processes.
Organizations and countries often rely on other nations for resources or manufacturing, as raw material costs and manufacturing labor are often less expensive in less developed nations. This makes purchasing goods from outside the country and outsourced manufacturing an effective and budget friendly way for companies to ensure they can sell their products for as little as possible, allowing them to remain competitive and popular with consumers.
China putting a focus on South America
Chinese companies have recently set their sights on South America as the new frontier for manufacturing, raw material procurement and sales. According to The Guardian, Chinese money has flowed into several countries in the region, providing loans for mining, infrastructure and other projects, with much of the money going to Venezuela, Ecuador, Brazil and Argentina. The amount China has invested in South American countries has increased enormously over the past several years. While trade between China and South American continent came in at $10 billion in 2000, it skyrocketed to more than $241 billion in 2011.
Countries in South America are sending more exports to China, with raw materials like copper, iron ore, oil and soybeans topping the list of goods sent overseas. As China attempts to gain a hold in provisions worldwide, it has stepped up its procurement from foreign countries and is also investing heavily in South American markets to ensure it continually has access to valuable natural resources. Chinese companies are not only making use of these materials, they are also hoping these partnerships will prove beneficial in the future, as they seek to expand exports to these new markets. Low-cost Chinese products could soon flood South American stores, making it more difficult for local manufacturers to remain competitive and forcing them to find a way to bring their production expenses down so they can offer lower prices.
After an Oxfam report detailed how several chocolate companies are failing to protect the female farmers and workers across their global supply chains, Mars and Nestle announced new initiatives that will address gender inequality in their processes. General worker welfare in the Ivory Coast, which is the world's largest cocoa producer, has been an issue for major chocolate companies for years. However, a recent report revealed women farmers often suffer more than their male counterparts; they're paid less, have limited access to land and credit and are discriminated against by supervisors and coworkers.
Public outcry leads to changes
The public backlash that came with the report forced Nestle and Mars to announce they would be making changes within their supply chains. Both companies have announced they'll be taking the steps necessary that will allow the women who are responsible for the farming and production process greater opportunities and address discrimination.
Both brands have committed to improving the livelihood of their workers will still optimizing their farming, production and logistical processes. According to Oxfam, Nestle and Mars will complete assessments that detail how women in their supply chains are faring, create action plans that will improve conditions, sign onto the United Nations Women's Empowerment Principles and partner with other players in the cocoa industry to draw attention to these major issues. It isn't thought these changes will have any negative impact on corporate processes or limit productivity.
"Women cocoa farmers and consumers around the globe have made their voices hears," said Alison Woodhead, campaign manager for Oxfam's Behind the Brands campaign. "Mars and Nestle have taken important steps to show the farmers they rely on, their customers and the rest of the food industry that they care about the conditions women face in their supply chains including low pay, discrimination and unequal opportunity."
Managing warehouse inventory is becoming a more important component of company supply chains, especially as shoppers use more outlets than ever to make and receive purchases. While clients once could make a trip to the store and buy an item, they now can opt to make a purchase on the web and have their merchandise delivered to their home, or even shipped to a nearby store. In recent years, mobile shopping is also becoming a trend, and shoppers can browse inventories from anywhere they have smartphone reception and choose to have their products delivered or pick them up in person.
Managing warehouses as shipping strategies change
While consumers may enjoy having a growing number of options, the increasing complexity could prove to be problematic for businesses that aren't prepared for such plans. Having the right warehouse management tools that can effectively react to demand changes, multiple shipping possibilities and cope with any inventory difficulties that may arise from manufacturing problems or logistics and natural disasters is essential.
Corporate warehouses no longer can get away with merely shipping items to individual stores as their stock runs low. They must now be prepared to handle shipping goods to stores if consumers desire an in-store pickup, sending packages to consumer homes and accepting order data from multiple systems, including brick-and-mortar stores, a company website and potentially social media platforms.
In order to handle these new options and ensure customers and physical stores get the correct shipments in a timely fashion, it is important for companies to update their warehouse management processes and ensure optimized practices are in place. Without the right management policies, a company could find its storage areas are unable to ensure timely shipments or guarantee consumers get the right items, which could lead to product shortages or potentially damage a firm's reputation with clients.
Food giant Kraft has made its macaroni and cheese a classic childhood meal, but the ingredients it uses in its American version of the product are stirring controversy among consumers and causing many to call for a change in the company's manufacturing processes.
The form of the dish sold in the United States contains Yellow 5 and Yellow 6, additives approved by the Food and Drug Administration (FDA), but thought to be tied to hyperactivity, allergies, asthma and migraines. These chemicals have already been banned in several countries, including Norway and Austria.
However, it's not just the presence of these additives that has sparked concern - it's the fact that the company excludes those same additives from the Kraft Cheesey Pasta sold in the United Kingdom. The additives serve to give Kraft's American dish its unmistakable color. While the company claims the presence of Yellow 5 and Yellow 6 are not harmful to consumers, it has replaced them with natural coloring agents - such as paprika - in the Kraft Cheesey Pasta sold overseas. This slight change in ingredients does nothing to alter the taste or appearance of the product, according to reports.
The virtually identical products have led consumers to question why Kraft allows the potentially harmful dyes to remain in its American version, but eliminate them from its U.K. products. Many have signed a petition to urge the company to employ the same manufacturing processes and ingredients it uses in its U.K. items at home in America, especially if the raw material costs are virtually identical.
While Kraft has not yet announced it will alter its processes, it could decide to alter processes in the future. An online petition urging the company to change its ingredients has gathered hundreds of thousands of signatures. The Guardian reported a similar petition condemning Gatorade's use of harmful chemicals gathered fewer signatures before the brand announced it would phase in new, less harmful ingredients.
Supermarkets in Brazil are pledging to avoid the procurement of beef raised in the Amazon rainforest, refusing to sell the meat to consumers. The Amazon, which is located primarily in Brazil, has undergone massive deforestation and illegal activities in recent years, limiting the area in which native species have to roam undisturbed. Much of the forest has been turned into pastures for grazing animals and crop plantations.
Changing sourcing strategies for a cause
The vow not to source any meat that could have grazed on what was formerly Amazon rainforest comes as supermarkets attempt to voice their concern over the destruction of the habitat. The Brazilian Association of Supermarkets hopes their move will slow the deforestation process and limit the amount of people who illegally turn sections of rainforest into cow pastures. Environmental advocate Greenpeace claims the cattle industry is responsible for the majority of rainforest destruction in the area.
Will the move force Brazilian suppliers to revise their supply chains?
The Brazilian Association of Supermarkets plans to share its list of best practices for avoiding meat that has contributed to Amazon destruction with its 2,800 members. If all or most comply with these guidelines, there could be a significant shift in the way producers raise meat or the manner in which suppliers purchase their products. Suppliers will now need to ensure their producers are complying with mandates and perhaps implement policies or checks that ensure no Amazon grazing land is in use.
Such a move could also change prices for consumers shopping for beef in the country. Suppliers may need to turn to new producers for beef, which has the potential to set off a series of price jumps that may eventually reach customers.
Summly redefines news for the mobile world with algorithmically generated summaries from thousands of sources. Innovative gestures, animations and great summaries make reading the news fun: easy to use, easy to scan, easy to read, clear and concise.
And there it is again, that word – Innovation. While I’m not implying that anyone can achieve this kind of success, certainly not by age 17, I definitely think that with the right idea and motivation anyone can create innovation. Whether at work or for personal benefit - it is about knowing your limitations and how to break right through them. In this case D’Aloisio took his aptitude for math and technology and built himself quite the reputation. But what is Yahoo! reportedly doing with this sizable purchase? Apparently nothing as far as the app goes; in fact they have already pulled it from the iOS App Store. This move is part of Yahoo!’s goal to expand its mobile platform. They basically bought a bright young talent and his algorithmic science. Seems like an expensive gamble but consider the benefits if this concept takes a hold of the next generation in technological advances. Guess we will have to wait and see.
The United States General Services Administration (GSA) recently implemented a strategic sourcing initiative to find greater cost savings and the most efficient, least expensive procurement processes available. Strategic sourcing helps businesses or organizations identify where they can get the most value for common or large purchases, allowing them to cut costs on purchases made multiple times per year.
The GSA's federal strategic sourcing initiative (FSSI) aimed to drive down costs, share best practices with other government agencies and centralize purchasing practices. According to new data, the plan has had some success and effectively achieved some of its goals.
According to the Washington Business Journal, the new sourcing policies have saved the federal government $300 million. In recent testimony to the House Appropriations Committee's Subcommittee on Financial Services and General Government, Daniel Tangherlini, acting administrator of the GSA, revealed the success of the program and voiced support for implementing more initiatives that will help cut down on the cost of purchasing commonly-used goods such as cleaning supplies and wireless devices.
While these practices do have the benefit of slashing expenses, some lawmakers are concerned the increasing focus on strategic sourcing and its impact on smaller businesses. Purchasing from the vendor that offers the lowest prices for the most amount of product often doesn't allow small companies to remain competitive, especially if they don't typically deal with bulk orders. This makes it more cost effective for the government to purchase products from larger companies and deny some firms that can't rival those prices more business; according to the Federal Times, small businesses typically win only 20 percent of federal contracts. Some politicians fear this combined with a strategic sourcing push could push smaller enterprises out of business and limit competition in the marketplace if taken too far.
After the federal government failed to come to an agreement on a plan to cut spending and reduce the national debt, a series of automatic spending cuts kicked in. Though their full effects have yet to be experienced, it is possible companies could soon notice a change in their procurement or shipping policies as a result of the budget cuts.
The Federal Aviation Administration recently announced it will be forced to close 149 air traffic control towers, a move it claims is a cutback necessary to meet the organization's sequester-imposed spending cuts of $637 million. The plan will take effect April 7 and start off by closing towers at small airports across the country.
A potential problem for businesses
This move could pose difficulties for companies that rely on shipments that arrive in these airports. The closed control towers will require pilots to use their radios to schedule takeoffs and landings, with no outside assistance. Many fear this could lead to delays, rerouted aircrafts or accidents, all of which could have a significant impact on businesses relying on planes carrying product or raw materials to these airports.
"We've heard from communities across the country about the importance of their towers and these were very tough decisions," said Ray LaHood, secretary of transportation of the United States. "Unfortunately we are faced with a series of difficult choices that we have to make to reach the required cuts under sequestration."
To mitigate the risks associated with the closed control towers, some enterprises could take the initiative to have their products shipped to a different airport, requiring a change in logistical strategies and potentially increasing costs. Others could change their practices entirely, instead relying on trucks or cargo ships to transport their materials to reduce the potential problems that could be seen as air traffic control towers close.
Supply chain and procurement roles have been traditionally viewed as tactical, but as noted by the Aberdeen Group, CFOs and other top executives are gaining a new perspective on the field. Eight years ago we saw CFOs and CPOs speak to procurement’s role moving ahead.
New dynamics stemming from the modern business model are reflected in those areas in which procurement must have “some role” and actively support the line-of-business managers. These initiatives include evaluating outsourcing make/buy decisions; improving cash flow; complying with new regulatory requirements; and managing sales, general, and administrative cost categories.
Personally, I think the following quote, from a recent statement by Hudson, really captures the struggle for top purchasing and procurement teams today,
The role of a procurement leader is to deliver and add value to the organisation by way of strong cost management, typically through smart sourcing and buying. The challenge in today’s world is to react to increasing demand for cost cutting while demonstrating long term strategic value.
The key word there is strategic. Companies are learning more that procurement teams play a major role in developing and maintaining a strategic edge. Everything from spend management and managing supplier relationships to contract visibility and regulating internal risk factors are vital to how an organization makes operational decisions. Appointing procurement professionals to the executive team shows us that companies like Apple and Toshiba understand what traits are important in a leader.
Sportswear company Nike recently vowed to enhance its sustainability initiatives by using more green materials and chemicals in its consumer products and increasing sustainable practices across its domestic and offshore manufacturing processes. The changes will have a significant impact on Nike's current manufacturing procedures, as its enormous global supply chain is spread across almost 50 countries, includes more than 800 contracted factories and has several hundred textile suppliers.
A history of sustainable initiatives
This isn't the first sustainability move the company has made in recent years. In 2001, Nike created a list of restricted substances, which limited the amount of hazardous chemicals suppliers and manufacturers responsible for creating Nike products were permitted to use in their production processes. Since then, the corporation has pushed its chemical suppliers and manufacturers to invest in more green chemistry and emphasized the importance of safe chemicals and procedures.
In recent months, Nike joined several other companies as it developed a strategy to measure the impact its products and global supply chain have on the environment. The program looks at energy and water use, waste and toxins released throughout the manufacturing process.
With its latest move, Nike will be able to better screen potential suppliers and more efficiently reduce the use of toxic chemicals in its facilities. This will allow the company to engage in strategic sourcing as it becomes more familiar with which firms are phasing out hazardous dyes and detergents.
"Nike is committed to catalyzing a major change in the world of materials, driving for the elimination of hazardous substances and innovating new, sustainable materials," said Hannah Jones, vice president of sustainable business and innovation at Nike. "To shift to a palette of entirely sustainable materials, multiple stakeholders must work together to innovate new chemistry, encourage the use and scale of better chemistry, and eliminate harmful chemistry."
While most companies try to ensure their supply chains are as free from potential disasters, sometimes it's impossible for a firm to guarantee its sourcing or manufacturing are completely safe. Depending on a product being manufactured, or destination for products, it can be necessary for a company to encounter some risk in its processes. In these instances, having disaster preparedness business solutions in place is even more critical, and these alternative methods have to be effective to stop a corporation from experiencing financial loss, a shortage of product or reputation problems.
When firms rely on risky supply chain components
Even though business leaders may have no intention of sourcing from risky, war-torn areas, they may have no other choice when trying to procure an uncommon or valuable natural resource. Similarly, circumstances may require a firm to ship its materials or products through a dangerous country or an area known for natural disasters that could disrupt the entire production process. While unusual for a company to only be able to rely on these areas, the situation can occur.
While some companies have to deal with these risks, they're common for disaster-relief organizations or humanitarian groups that frequently need to get food, medical supplies and other goods to dangerous, remote or devastated areas. According to Supply Chain Digital, when faced with problems, these groups frequently try to get their supplies in by reassessing transportation methods, determining which nearby areas could work to their advantage for receiving shipments or figuring out how local warehouses or storage areas can help them distribute essentials.
Companies that are forced to rely on similar areas for their procurement or logistical processes could do well to use some of these strategies when faced with an impending disaster that could threaten their supply chains. While advance planning is critical, quick organizational adaptability can prove essential for firms trying to mitigate the effects of a major problem and save their supply chains.
As the economy recovers and companies speed up their rate of production, both domestic and offshore manufacturing are on the rise. Businesses could be anticipating a surge in consumer demand or strong sales in the coming months, leading to the growth the sector is currently experiencing.
Manufacturing on the rise at home and overseas
Though manufacturing numbers in China were less than impressive in February, they appear to be on the rise again this month. According to data released by HSBC, the flash manufacturing Purchasing Managers' Index (PMI) for March jumped to 51.7, compared to the final reading of 50.4 seen last month. This number indicates the Chinese manufacturing sector is experiencing growth and could continue to expand.
However, Chinese manufacturing may not expand as quickly as anticipated if companies continue to reshore their production strategies to better manage risk and take into account overseas logistics and natural disasters. Manufacturing grew at an even more impressive rate in the United States than it did in China. Financial data firm Markit just released its preliminary PMI for March and estimates domestic production jumped from 54.9 from the final reading of 54.3 seen in February.
Businesses increasing their production levels can't only consider the amount of goods they are manufacturing - they must also consider how these actions impact their entire supply chains. Procurement of raw materials must increase for workers to be able to fill orders and logistical processes must be altered or enhanced for the increased amount of goods to get to market in a timely and cost effective manner. Optimizing these processes as production increases is critical, and companies that don't take the initiative to consider how more manufacturing impacts other processes may fall behind on orders or sales.
As the United States Food and Drug Administration (FDA) draws closer to approving a genetically engineered salmon for human consumption, grocers across the country are protesting the anticipated move by declaring they will prohibit sourcing the fish and revise their procurement policies to do so. Chains such as Whole Foods, Trader Joe's, Aldi and PCC Natural Markets have committed to not carrying the salmon, a product that has sparked huge controversy among consumers and environmental groups.
Genetically modified organisms (GMOs) are often in grains, and can be found in many common food products. However, they are controversial, as some scientists and groups claim the products haven't been put through enough testing to ensure they are safe to consume. Many want the government to mandate labeling on foods that contain GMOs, as is the standard in Europe, but no initiatives have yet been seen in Washington. Some state and local initiatives are in the works, and Whole Foods recently announced it would require suppliers to label products that contain GMOs by 2018.
While genetically modified grains are disturbing to some, many believe the potential for the approval of engineered salmon is even more upsetting. This product would be the first modified animal to enter the American food supply chain. The fish is similar to an Atlantic salmon, but its genes have been altered with those of Pacific salmon to make them grow faster and DNA from ocean pout to ensure they grow year-round.
Although the approval of the fish could result in cost savings for suppliers and purchasers and mitigate the risks associated with sourcing non-GMO salmon, such as overfishing or a dwindling supply, the idea is making more grocers pledge to carry only fish that has not been genetically engineered and could force them to find new suppliers if the fish is approved by the FDA.
While some companies rely on few suppliers or manufacturers to find a greater business cost reduction or keep materials and processes tightly controlled, such methods can result in significant problems for enterprises should an unexpected event occur. A natural disaster or sourcing problem could limit a production facility's ability to make and send out merchandise, which could lead to shortages and lost revenues. Other problems, such as manufacturer defects, could result in troubles that lead to massive company recalls, missed sales goals and a strained relationship with a supplier or producer.
Chain yoga apparel retailer Lululemon Athletica recently announced a problem in its manufacturing facilities led a huge portion of its yoga pant supply to fall short of corporate standards. A defect in the company's special Luon fabric has resulted in "a level of sheerness" impacting 17 percent of the brand's pants. This is expected to create a shortage of product, which could take revenues down significantly. According to The Wall Street Journal, the mishap will force the company's anticipated first-quarter sales to drop to between $333 million and $343 million, compared to prior estimates ranging from $350 million to $355 million.
Lululemon relies on few manufacturers and suppliers, and has acknowledged in the past that this strategy puts their brand at risk for supply issues. The Journal reported in 2012, the company admitted that using only select suppliers could result in problems, and even indicated the Luon fabric, which is sourced from a single manufacturer, could pose potential issues. As this prediction has now come true, the company is scrambling to make up for its mistake and ensure consumers who may have purchased the defective product have their garments replaced as quickly as possible. Reports indicate for the time being, the brand will work with additional suppliers until it can build up a sustainable inventory once more and ensure its supply chain is running smoothly.
As companies look to get shipments more quickly, ensure their clients receive important materials on time and boost their overall supply chain productivity, they are looking for the fastest, most efficient and consistently reliable shipping agencies available. With increased competition and less business, thanks to email and more parcel shipping options, postal agencies are struggling to improve processes and bring in new clients.
Postal services increase competition
A new study from Accenture revealed private postal operators and government-run postal agencies are in competition to provide the best service, continue to diversify their shipping options and use the latest technological developments to enhance their logistical processes. They are implementing these strategies not only to find cost savings, but also to speed practices and enhance client satisfaction. The study looked at parcel services in 24 countries and two private businesses - FedEx and United Parcel Service (UPS) - to determine which are the top performing.
Singapore's postal service has been ranked at the top for two years in a row, and this year it was followed up by UPS, Austria's government-run service, Italy's state-sponsored organization and Australia's postal agency. Private carrier FedEx came in sixth place, while Norway, Belgium, the Netherlands and Brazil's services rounded out the top 10.
Some of the agencies studied are implementing options that serve to benefit clients and boost their processes. Many carriers are enhancing their domestic delivery options and carrying parcels across country borders, while others are allowing smaller windows during which the package can be rerouted by a sender, giving businesses more control over shipments.
"Despite a continued tumultuous business climate, some postal organizations are thriving," said Brody Buhler, managing director for Accenture's global postal industry practice. "They are launching new business lines, combining their products with new technology and radically changing their cost structures to be leaner and more agile."
Companies that rely on overseas procurement and have their products shipped to the United States via ocean vessel may experience delays this year, as an anticipated Asian Gypsy moth invasion could result in serious supply chain issues. Infested ships from Japan, Russia, Korea and China have been stopped by government officials trying to prevent the pest from spreading to the United States and Canada, as its presence could contribute to deforestation and have a significant impact on natural environments. According to Modern Distribution Management, one cargo ship stopped in January was home to 275 egg masses, each of which can contain up to 1,000 eggs and increase the chances of a domestic pest problem.
Moths could cause problems for companies
According to maritime services provider Inchcape Shipping Services (ISS), vessels headed to the U.S. or Canada must have pre-departure certification and carry no moths or egg masses. The presence of the insects could prove to be problematic for businesses relying on timely shipments from across the world. Unexpected delays or inspections could wreak havoc on a company's carefully planned shipping or purchasing strategies, especially if vessel inspections increase and government agencies crack down on Asian Gypsy moth control. Orders may go unfilled, clients may be unable to purchase products and a firm's reputation may be tarnished as its merchandise sits offshore waiting on an inspection.
To effectively mitigate these risks and ensure business carries on as usual, companies may need to enhance their procurement adaptability and step up their purchasing from regions not known for Asian Gypsy moths. Some operations may find it hard to change their purchasing strategies, but may find that changing logistical processes and relying on air traffic or other forms of shipping can reduce wait times and ensure there are no product shortages or consumer complaints.
More companies are turning to nearshore manufacturing and domestic purchasing strategies to cut costs and reduce the risks their overseas supply chains face. As manufacturing labor costs rise in countries known for their cheap production, corporations are seeing multiple benefits to bringing production back to the United States.
Some products can be made in America
Toy manufacturers are slowly reshoring their factories and looking to fill new jobs in the U.S. K'Nex Brands, a provider of plastic building toys for children, has been shifting its production from China to America for several years now. The company and its manufacturing affiliate, Rodon Group, have made the move to better respond to consumer demand and more quickly ship their most successful products to toy stores across the country. These advantages, combined with improving U.S. productivity and rising labor costs in China, make the move ideal for a firm looking to find greater cost savings.
While the company aims to move more of its manufacturing to the U.S., limited domestic suppliers make it difficult to have all production take place domestically. It still relies on several imported parts that are difficult to find or too expensive to purchase from American companies.
K'Nex Brands also produces Lincoln Logs and Tinkertoys, both under license from Hasbro. While K'Nex recently moved Tinkertoy production from China to the U.S., it has yet to achieve its goal to make Lincoln Logs in America. However, the firm is on the lookout for a domestic supplier that could provide competitive rates for the small wood pieces.
"In the long term, it's much better for us to manufacture here," said Joel Glickman, chairman of K'Nex and Rodon Group, according to The Wall Street Journal.
Even though overseas production can sometimes result in lower manufacturing labor costs or cheaper products, companies are slowly moving away from this trend and bringing their factories back to the United States. This strategy has many benefits for companies, as it can result in greater supply chain optimization and allow a firm to have better disaster preparedness business solutions. Enterprises that move production to America no longer need to worry about unrest or disasters that could hinder their capabilities overseas and can keep a closer watch on any events that may hurt business interests.
A new study from The Hackett Group revealed that manufacturers are looking to enjoy greater cost savings and security by moving their plants back to domestic shores and that this trend could reach a "tipping point" by 2015, as American productivity rises, domestic costs drop and concerns about foreign labor costs and risks increase. While in 2011 the savings seen from outsourcing were at 30 percent, the research showed in 2013 they're at just 12 percent. If this number continues to decrease, it could become even less reasonable for businesses to shift operations overseas.
The study also showed manufacturers plan to increase investment within their supply chain processes by 3 percent this year. The funds will be used to help increase productivity and limit expenses in the long run. Only 20 percent of the money companies plan to spend will be focused on upgrading machinery or increasing capacity, indicating corporate leaders believe there are more important areas in which they can improve processes. Instead, businesses plan to invest more in finding new IT strategies, employee training that will increase efficiency and finding partners and suppliers that will help them procure, produce and transport merchandise.
The British Ministry of Defense recently announced potential plans to revamp its strategic sourcing and procurement practices, and it appears the Indian Ministry of Defense may soon do the same. Reports reveal the agency could plan to shift its purchasing focus from foreign products to domestically manufactured weapons and tools. The move comes partly as the Ministry finds itself involved in a scandal with Italian firm AgustaWestland, which has been linked to alleged kickbacks sent to India through phone software contracts. As a result, the Ministry has removed software services out of the products and services that be listed as offsets, which are meant to improve domestic manufacturing and investments.
The change in procurement policies would be an enormous change for the Ministry, which currently acquires 70 percent of its purchases from foreign companies, while the remaining 30 percent is split between public sector operations and some private companies. This encourages foreign contractors to work with Indian subcontractors and enhance domestic growth.
New rules would prioritize Indian private sector purchases and make it easier for these private firms to receive Ministry purchases and contracts. This could allow them to expand their operations and grow, as the Buy and Make (Indian) program would require the department to purchase a minimum of 50 percent domestically made products.
Not only could this boost domestic manufacturing and innovation, it could also potentially result in cost savings for the Ministry in the long run. Many organizations that strategically source and procure goods domestically find that lower shipment costs and labor expenses can help them cut expenses and logistical timeframes, allowing them to receive products more quickly and spend less than they may have been purchasing goods from foreign countries.
Much of the American Midwest suffered a severe drought in recent months, and it caused problems for industries across the country. Agriculture was hit hard, some raw material costs shot up and logistical practices were severely impaired. Midwestern waterways, including the critical Mississippi River, were found to have dangerously low water levels, which forced ships to carry lighter loads and caused numerous holdups that stalled barges for hours. In an effort to avoid this type of shipping and the risks associated with it, some companies were forced to employ other forms of transit, such as trucks and air freight, which have the potential to cost more or disrupt normal logistical processes.
Can government alleviate the problem?
To ensure logistics and natural disasters don't continue to have an impact on shipping in the Midwest, President Barack Obama recently voiced his concern about this topic and expressed the need for the government to step in and provide maintenance funds to the struggling waterways, according to The Hill.
"... I think we can anticipate that we may end up having some challenges in terms of managing our waterways well, whether or not we can continue to use barges to move a lot of product out of the American heartland to ports around the world, that is going to depend on our infrastructure," he said during a President's Export Council meeting, according to the source.
Additional government funds that could help maintain the waterways and ensure their levels don't fall too low could greatly assist businesses looking to ship goods through the Midwest to get products to market. Besides reducing shipping times, as carriers will no longer need to carry lighter loads or deal with delays, it could also cut costs for companies that have been seeking other forms of transit.
Wash Away Greenwashers
As of January 2013, reputable brands such as Victoria’s Secret, Zara, Mango, Esprit, Benetton (United Colors of Benetton, Uniqlo (Japan’s leading international casual wear brand), and G-Star (Dutch denim brand) all made trustworthy Detox commitments. The commitment is to eliminate all releases of hazardous chemical throughout its entire global supply chain and products by 2020. In the past Detox commitments were not taken seriously as Greenwashers like Gap and Calvin Klein made empty commitments. Greenwashers are entities who fudge the facts in an attempt to make themselves seem more environmentally friendly and responsible than they really are. Levi’s and G-star were labeled such until recently.
The Rising Sun
Uniqlo’s parent company (Fast Retailing Group) is Japan’s largest fashion company, and plans to lead the initiative by disclosing discharge data from at least 80 percent of its suppliers (including all of its facilities) in 2013. This information will give people near manufacturing facilities, press, and citizens the right to know what is being discharged into the environment. Fast Retailing Group’s actions will also put pressure on other fashion labels to disclose more environmental information from their suppliers.
Equally impressive is the company’s commitment to lead the development of alternatives to the hazardous chemicals that are currently used by the fashion industry. This is a big win for communities around the world and is a start of a winning battle against pollution of waterways.
Fashion Forward Detox Companies
Currently there are fourteen fashion leaders who have committed to Detox. They are Nike, Adidas, Puma, H&M, M&S, C&A, Li-Ning, Zara, Mango, Esprit, Levi’s, Uniqlo, Benetton, and Victoria’s Secret. Fashion brands need to realize that they have the right to demand toxic free fashion from their suppliers and should do so, because, as the Detox slogan goes, “beautiful fashion shouldn’t cause toxic pollution”.
Ice cream company Häagen-Dazs and its parent company General Mills are committing to more socially responsible procurement policies as they aim to purchase more sustainable vanilla to use in their products. The new program will help small vanilla villages and farms in Madagascar enjoy a better quality of life and take sustainable agriculture and corporate social responsibility to a new level.
Benefits seen for many
The program will call for an investment of $125,000 over the next two years and will allow General Mills and Häagen-Dazs to work with partners across their supply chains. While General Mills will adjust its processes, it will work with vanilla supplier Virginia Dare - to learn more about the agricultural aspect and market for the product - and humanitarian organization CARE to learn more about poverty eradication in the area.
While the project aims to help Malagasy vanilla farmers improve their livelihoods, benefit the environment and improve farming capabilities, the program will also benefit General Mills. The better agricultural methods and sustainable sourcing policies will help reduce supply chain risk, ensuring the company will be able to source an appropriate amount of vanilla from Madagascar, which is currently responsible for about 80 percent of the world's supply.
"Contributing to the viability and sustainability of vanilla farming could have a significant impact on the lives of Malagasy growers, their communities and the environment," said Steve Peterson, director of sourcing sustainability at General Mills. "Vanilla is integral to their way of life. From our knowledge of the region, we have come to understand that our ability to share our agronomic and supply chain expertise, while leveraging our financial resources, could help create a better, stronger, more sustainable supply of high quality vanilla, while raising living standards for the farmers who grow this important crop."
A new report from the Massachusetts Institute of Technology (MIT) suggests if American companies renew their commitment to research and development in domestic production, they could see significant gains for both their businesses and the United States economy as a whole.
Partnerships can lead to benefits
The Production in the Innovation Economy (PIE) report revealed partnerships with other businesses, federal agencies or even universities can allow enterprises to experience growth and increase their capabilities in the long run. As more companies are engaging in nearshore manufacturing and looking to enhance their organizational adaptability as business risks grow, they could find it beneficial to reinvest in their firms and work with others to develop new solutions.
"It has been suggested by previous reports that sustaining the strength of United States manufacturing is essential to America's future; a strong advanced-manufacturing base is crucial to national security, and it represents a key source of good-paying jobs," said Rafael Reif, president of MIT, according to MIT News. "But as the PIE report makes clear, local production is very important to sustaining a vibrant innovation ecosystem in a region. Thus, we must also take steps now to regain U.S. manufacturing momentum if we want to sustain the nation's signature economic advantage: innovation."
Considering risks of worldwide production
While the report emphasized how the American economy would benefit from an increased focus on domestic manufacturing, it also brought up the risks individual companies face when doing business overseas. According to the research, quality control can be a serious issue when manufacturing takes place far away from research and development initiatives, which can lead to faulty or poor product designs and limited efficiency. This highlights the importance of American production and the cost savings benefits it can lead to when a company takes the initiative to implement such programs.
Nearshore manufacturing has become more prevalent in recent years as companies become increasingly concerned about disaster preparedness business solutions and business leaders are worried about the ability of their firms to withstand major catastrophic events or disruptions. Corporations have been moving manufacturing facilities back to the United States, and many are anticipating they'll see significant growth in the coming months.
Growth in US manufacturing
Buying Consortium Prime Advantage recently released its eleventh semi-annual Group Outlook Survey, which found manufacturers are confident about revenues and plan to grow or maintain their current workforce to meet consumer demands. Sixty-eight percent of respondents anticipate their revenues will be higher in 2013, while 87 percent expect their capital expenditures will rise or remain constant in 2013. Hiring is also looking strong for businesses, with 43 percent of firms anticipating they'll need to increase hiring in the coming months and 52 percent are planning to maintain their current workforce. This indicates producers are optimistic about the future and predicting strong consumer demand, even with the economy still recovering from the recent recession.
Production is on the rise, which may explain why 43 percent of manufacturers expect they'll need to step up their hiring in the near future. Bloomberg reported on Labor Department statistics which indicate American factory employees are working more hours weekly than they have since World War II. The source revealed employees working in the industry worked an average of 41.9 hours per week in February, making it one of the busiest months since May 1944.
"The workweeks are very, very, very long right now, on a historical basis," said Michael Montgomery, economist at IHS Global Insight, according to Bloomberg. "That's why you're seeing job growth in manufacturing. When you have to start to pay people time and a half and you have the volume of business, you can justify hiring people."
Chinese lawmakers are becoming concerned with the number of disposable chopsticks manufactured within the country each year and how this will impact the nation's forests in the long run. According to Chinese state media sources, 80 billion disposable chopsticks are produced within the country annually, an increase of almost 30 billion in just the past few years.
More production could contribute to climate change concerns
The country has already taken steps to reduce the amount of waste and deforestation chopstick production creates. National Geographic reported the Chinese government imposed a tax on disposable chopsticks in 2006 and the Huffington Post revealed officials sent out a warning to companies that produced excessive amounts in 2010. Officials are now encouraging consumers to bring their own reusable sets while eating out, which could help ease the amount of chopstick manufacturing necessary to meet market demands.
"We should change our consumption habits and encourage people to carry their own tableware," said Bai Guangxin, chairman of the Jilin Forestry Industry Group, according to the Xinhua news agency.
More companies are taking the initiative to implement corporate social responsibility policies that limit harmful emissions, use more recycled products and contribute to less deforestation. Many are concerned with climate change, which is thought to be exacerbated by consistent tree removal, and how it will impact their procurement and logistical options in the future. Changing temperatures could make it impossible for certain plants to grow as they once did, which could limit a company's ability to purchase materials vital to their production processes. Warmer temperatures are also thought to contribute to the melting of polar ice caps, which could change the ability of logistical agencies to ship merchandise across the world. If these concerns continue, companies will need to consider natural forces effects on sourcing and logistics and how this impacts their current manufacturing strategies.