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Archive for July, 2010

Domestic Manufacturing’s Comeback?

Thursday, July 29th, 2010

In the not too distant past, corporations were flocking to China in search of cheap labor, lax environmental regulations and cheap goods. For many, China was the only place to be. In fact, if a company was conducting business in China, it was a sign that the company was progressive and a world class competitor.

Is a reverse shift possibly underway?

From my perspective, the answer to this question is ”Yes.” In recent months, stories about how production is exiting China and reentering the US are beginning to surface. The reason for this shift is multifold. For instance, Chinese workers have been able to negotiate huge wage increases (greater than 20% in most instances) in factories producing goods as far ranging as automobiles (Honda, Toyota…), electronics (Foxconn, which produces the IPod…) and numerous other consumer products. Second, China has stated that it will allow the yuan to float relative to other world currencies. Third, China is focused on curbing its growth rate by reducing its money supply into the banking system. Each of these and numerous other factors will play a role in China’s export-based economy. And lets not forget, China’s quality is still a huge risk factor for many companies.

Yes, the early stages of a resurrgence of US based manufacturing is beginning to evolve. For instance, a recent article at MachineDesign.com in the article Backshoring Gains Momentum as More U.S. Companies Bring Production Home begins to address this issue. It states:

Ensuring a steady stream of low-cost, high-quality parts is a growing headache for U. S. manufacturers that source parts overseas. Governmental, economic, societal, and cultural factors are forcing U. S. OEMs to rethink the strategies that led them to outsourcing in the past decades, says Mitch Free, CEO of Atlanta-based MFG.com. “But tangible failures of suppliers, quality, training, and logistics have also forced these businesses to recognize and investigate the costs extended supply chains placed on their abilities to respond to customers, innovate, and compete effectively,” he says.

As evidence, he cites the most recent MFGWatch survey conducted by MFG.com, where a remarkable 44% of North American participants — from design engineers to purchasing professionals — say they have experienced a significant supply-chain disruption that forced them to find an alternative supplier. This is up from an already significant 35% figure last quarter, and strongly suggests that supply-chain contraction will be the trend well into 2012, says Free.

One consequence: “Backshoring — repatriating work to the U. S. after initially outsourcing it to low-cost countries — is becoming more prevalent as domestic manufacturers reassess the total costs of their products,” he explains.

I’m convinced this new trend will continue for numerous reasons.

  1. Most US based manufacturers have reduced their manufacturing costs significantly by investing in new automation assets and new manufacturing processes. Suddenly when all factors are weighted, the cost differential is minimal.
  2. Companies are doing a more effective job of analyzing their true cost of managing diverse supply-chains scattered around the globe. In many instances, their perceived cost wasn’t close to their true costs.
  3. “Made in China” in some circles raises many issues, especially relating to quality (one I’ve discuss many times here and here).

Yes, the next shift is underway and the unthinkable will emerge. Domestic manufacturing will likely become the next growth engine for the US economy in coming years.

Silent Problems & Brand Valuations

Wednesday, July 21st, 2010

Market valuations and silent problems - are they correlated to each other?

24/7 Wall Street recently looked at the 10 Biggest Brand Disasters of 2010. Guess what? There is a close correlation to the exposure of silent problems and the loss of brand valuations. On the list:

1. BP: Need I say more.
2. Dell: This company has exposed numerous silent problems in recent years.
4. Sony: I’ve written about Sony and its silent problems numerous times.
5. Goldman Sachs: What can I say other than they’ve created a culture where silent problems are endemic to the organization.
8. Johnson & Johnson: J&J use to be squeeky clean when it came to their brand, now silent problems are eroding it.
10. Toyota: Toyota’s culture of silencing their problems was exposed in a big way in 2010.

The other companies on the list R.I.M. (Blackberry), Adobe, Nokia and Google. Interestingly, each of these are in the fast moving technology arena where a “what’s hot” and “what’s not” mentality can reside. Yet the 6-companies on the above list have direct ties to silent problems. Makes one wonder when the marketplace will finally look at exposure to silent problems in stock valuations.

Adobe:

Silent Problems & Persistently Bad News

Monday, July 12th, 2010

One might wonder why Toyota has been consistently delivering bad news since the initial brake recall some 6-months ago? And how about the falterig economies in Europe like Greece and Spain. And what about all the stories related to the financial crisis like Lehman Brothers, Bear Stearns, Citi Group and others in recet years? Its almost as if there was pent up bad news once the initial story broke loose. Then once the floodgats opened, the torrent of bad news was overwhelming.

For instance, last week I was working with a client that had experienced a barrage of silent problems surfacing in recent months. To say the least, the many layers of bad news was taking its toll. On the surface, it felt as if the sky was falling. However in reality, there was a cleansing process underway. It was painful, yet necessary. An excellent story relating to this phenomenon is Toyota, who has experienced a multitude of quality related problems in 200. This past week they announced a 2nd recall in less than a month, this one for defective engine valve springs. A recent news story notes:

Toyota knew two years ago about the engine problem behind its latest Lexus recall, even changing the spring part to correct it, but did not think a recall was warranted until recently, a company official said Tuesday.

Toyota Motor Corp. started Monday a global recall over engine defects in its Lexus luxury models sold around the world, as well as the Crown sold in Japan, moving to repair some 270,000 vehicles to replace valve springs — crucial engine components that are flawed and could cause vehicles to stall.

In August 2008, Toyota changed that spring part, making it thicker, to prevent the problem, spokesman Hideaki Homma told The Associated Press. That is why the latest recall does not affect vehicles produced after August 2008.

What Toyota is experiencing today with the high volume of recalls is typical in many situations. What is really being exposed here is a system and culture oriented towards avoidance and neglect. And now that a new course has been set, the torrent of silent problems is being vetted all at once. However in the end, this will become positive if the problems aren’t too big to manage. Eventually this will lead to new systems, new degrees of accountability and most importantly, an integral part of their new culture.

When Superstars Become A Problem

Friday, July 2nd, 2010

One of the most challenging decisions business leaders face is when their superstar becomes a problem. You know the person. Maybe its a sales manager that customers love, yet employees hate. Maybe it’s a V.P. that holds tremendous knowledge, yet disrupts every meeting at the last minute. Or maybe its an executive that believes corporate ethics and values don’t apply to them.

So how do most people cope when situations like these occur? Most people simply cope by getting out of the way or they leave  the organization. The impact on the organization - can be HUGE.

Yes, most of us have worked with one or reported to one of thse bigger than life characters in our careers. Unfortunately, it’s a problem that is often avoided or neglected, which pulls it under the umbrella of being a silent problem.

A couple of weeks ago the Rolling Stones published a riveting article titled The Runaway General. A story about General Stanley McCrystal, the former head of Afghan military operations. It’s a troubling story, because it’s a “when a superstar becomes a problem” story. Its a story about how an individual rose up through the ranks, yet what brought him down was his own weaknesses. For instance the story states,

By some accounts, McChrystal’s career should have been over at least two times by now. As Pentagon spokesman during the invasion of Iraq, the general seemed more like a White House mouthpiece than an up-and-coming commander with a reputation for speaking his mind. When Defense Secretary Donald Rumsfeld made his infamous “stuff happens” remark during the looting of Baghdad, McChrystal backed him up. A few days later, he echoed the president’s Mission Accomplished gaffe by insisting that major combat operations in Iraq were over. But it was during his next stint – overseeing the military’s most elite units, including the Rangers, Navy Seals and Delta Force – that McChrystal took part in a cover-up that would have destroyed the career of a lesser man. 

After Cpl. Pat Tillman, the former-NFL-star-turned-Ranger, was accidentally killed by his own troops in Afghanistan in April 2004, McChrystal took an active role in creating the impression that Tillman had died at the hands of Taliban fighters. He signed off on a falsified recommendation for a Silver Star that suggested Tillman had been killed by enemy fire. (McChrystal would later claim he didn’t read the recommendation closely enough – a strange excuse for a commander known for his laserlike attention to minute details.) A week later, McChrystal sent a memo up the chain of command, specifically warning that President Bush should avoid mentioning the cause of Tillman’s death. “If the circumstances of Corporal Tillman’s death become public,” he wrote, it could cause “public embarrassment” for the president.

Superstars create numerous challenges. First, they often believe they’re part of an elite group, which makes it difficult to hold them accountable. And its this status they believe provides them priveleges and unlimited “get out of jail” cards when a problem emerges. Second, they can hold the team and the organization hostage. At times, they view themselves as “untouchable.” Third and possibly most important, they can be very difficult to get rid of, because they have the connections and the knowledge that could put your organization in harms way.

So what are the lessons we should heed?

  1. Be careful when putting superstars in leadership positions. Do your homework up front.
  2. Realize no one is irreplaceable. Be prepared to cut the line sooner, rather than later.
  3. Remember, toxic superstars add to your bottom-line, but also take away from it through higher turnover and diminished performance.

At the end of the day, every organization is in search of superstars. However at the beginning of the day, make certain they’re the right fit.

Be the one to see it coming!

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