Stratoserve LLC

Global Bailouts as Jon Stewart supports US Auto Bailout

Guess what ? Governments in countries all over the world are jumping onto the "we must bailout" bandwagon. There are European, Chinese,Indian and Latin American bailouts in progress of different industries. Global government bailout actions include adjusting interest rates, lowering gas prices,direct funding  and so  on.  A strange and new facet of globalization.

We have the choice of crying over the "bailout" requests by many sectors of the US economy but Jon Stewart had a point last night that made me smile. He said that Congress was much harder on the automakers for 34B$ (up from 25 B$) compared to the 700B$ for the banking and finance sector. The auto industry at least has a product to deliver, that we may complain about, but the banking and finance folks got into trouble with products that turned out to be  fictitious!  Moreover, the banking and finance issues are  difficult and preposterous for even finance folks to understand or explain. Just because we understand the auto business more than the finance business, does'nt mean that we have to be harder on them. Jon Stewart recommends that we give the auto industry their bailout !

More auto plants close as gas prices rise

GM, Ford and Chrysler have announced plant closures in Wisconsin,Georgia,Virginia, Minnesota. These are not poor performing plants but highly efficient ones. It's just that skyrocketing gas prices has made driving around difficult and driving around in gas guzzling SUV's even more economically difficult and socially embarrassing.

But as Governor Jim Doyle mentioned if the plant is efficient and world class, is that not an advantage for the auto company? Small cars are booming and surely re-tooling the plants are possible? Why is it so difficult to change product mixes in the auto industry? I guess it is just that no one thought that "flexible" manufacturing was required in the days of low cost gas prices. This was a case of making contingency plans for the product life cycle for SUV's .Now it's just too costly to switch gears ( alas an auto metaphor) and many communities must suffer.

Michigan Auto Industry is changing

Somehow Michigan fascinates me for its auto industry and what it has given to the study of management,innovation and the wrong way to manage buyer seller relationships. When I heard on the radio about the leading rate of job losses and foreclosures in Michigan, I felt bad for the folks in Michigan. But this may be changing......

The news report that "suppliers learn collaboration and innovation" gave me hope. However, it is not the suppliers who need to learn collaboration but the auto industry who need to. In fact this blog has commented on the difference between US and Japanese auto and the long but vain scholarly research that has brought this out to an unresponsive auto sector.

But now, suppliers are no longer willing to cut prices to oblivion but are diversifying their customer portfolio and are not totally depending on the Auto industry but trying out opportunities in office furniture,food and appliance where a reverse auction type of mentality has started changing several years ago. Now the auto industry is changing, rationalizing the supply base and becoming more collaborative and driving innovation with its suppliers. I was particularly impressed with the take of Amerikam CEO Stephanie Leonardos on how long and painful this realization has been for Michigan Auto. But read the last few paragraphs of the interview here.

Mature Global design Strategies improve profits

I was rather happy to read the Aberdeen report's summary which highlights that global product design and development leads to reduction in product development time and time to market while allowing the protection of intellectual property through Digital Rights Management.

This blog and my research has been investigating these issues for some time and I am glad that the data is now available. The question is how do you make it work in practice, particularly if you are not a gigantic organization that can afford to open offices worldwide and actually place your person to work with the supplier in another country. That is an interesting question .....

Crib Recall - New Product Development meets Supplier Involvement

Walk into any furniture store in the US and almost all products are made in China. You order anything and the boxes arrive with instructions and you do as best as you can. I , for example, have a desk with a hutch that I could not install very well and just did not want to spend money on a professional installer and a rattling hutch is not a problem. But what happens if it is a crib or a rocking chair for the elderly? Serious injury or even death can result.

The recall of one million, yes one million cribs puts the focus on New Product Development and Early Supplier Involvement and the core of this blog i.e. Business to Business Relationships. According to the Chicago Tribune , 3 deaths , 7 entrapments and 55 incidents are reported where tiny infants are involved.

Apparently, the cause of the problem, is that customers might install the drop side of the crib upside down. This is because the design fault allows such an installation. Once wrongly installed, the hardware can weaken and can allow the drop side to detach. The gap so created in the crib could entrap the infant.

Was adequate product "in-use" testing done before launch of this product? Obviously not - because design flaws would come up straight away if even simple consumer product  tests were conducted before large scale market launch. For example, if you tried a testing with a large demographic of good and bad handyman Dads with infants almost certainly the wrong way installation of the drop side of the crib would have come up. Then obviously the designers could have eliminated the wrong side installation possibility. Such research would have cost a paltry amount and would save infant lives not to speak of the the organizations involved including Simplicity and its Chinese suppliers.

And if you ask the supplier, they'll tell you that they work off the drawing and the drawing is part of the contract. And off course the supplier has absolutely no idea,interest or concern about the product's actual in-home use  in classic B-to-B style. Also partly because the marketing company keeps the suppliers completely guessing about what's happening in the consumer market. Nothing wrong with that because the crib company has probably many suppliers and would not like to discuss too many market issues lest the suppliers become competitors at the consumer end.

But then could the crib maker have ordered a 100 samples for a consumer "in-home" product test - with no reference to the actual market?  The Chinese suppliers would have supplied them free!  But it was probably from the drawing board to the overseas manufacturer and then direct to consumer. Pretty neat and virtual as a new product process , with very messy and real consequences. 

NECON 2007 my Knowledge Based Services - Low Cost Country Sourcing talk

The NECON Conference is a great event and will be will be inaugurated   by Massachusetts Attorney General Martha Coakley  with a whole lot of great speakers. NECON is a collaborative initiative of  the Boston and North Shore Chapter of APICS ,The Council of Supply Chain Management Professionals, the CSCMP New England Roundtable, the NE Supply Management Group  and The Purchasing Management Association,Boston.Richard G. Weissman's blog on Purchasing.com has started the buzz for the event that is between September 30 to October 2, 2007 in Marlborough, Massachusetts.

My own talk is on Tuesday afternoon and an abstract appears here. I am  working on delivering a really useful and enjoyable workshop!

Apple iPod early adopters receive iPology

Less than two months ago this blog discussed the spectacular iPhone launch. Today the early adopters who had signed up for the $599 iPhone are furious. Apple decided to reduce the price to $299 to enhance adoption by mainstream consumers, in time for the holiday season. According to Steve Jobs the price cut will make the iPhone more affordable.

Understandably, the price cut has left the original early adopters of the iPhone, angry. Naturally, if you stood in line for hours and forked up $2000 for the yearly contract and then realized that the marketer had cut prices by 33% in less than 60 days - you'd feel shortchanged.

Luckily, Steve Jobs and Apple have responded and are giving a $100 credit. What was Apple thinking? Early adopters are crucial for any market and more so for the revolutionary products like the iPhone. Early adopters are those who are recognized as folks who "are first to try something new" and "order a new dish or go to new restaurants" and generally take the risks and kinks that come with being the first to try something new. Most consumers just wait it out till things stabilize and some (the laggards) do not adopt the innovation at all. Without early adopters there would be no innovation which could really reach the market. I am glad that Apple realized it's folly and Apple enthusiasts are happy again. The iPology worked ! Classic service recovery by Apple on this one.

Dell available in Wal Mart - end of pure online business models?

Ever since I saw some Dell computers in my local Wal-Mart, I have been well, shocked! Shocked because like so many others, I have believed that Dell had a unique end to end supply chain that linked its customer preferences directly to its supply chain partners through a very visible and transparent global supply chain . In fact, it is for over 10 years that Dell has been following a direct marketing model and I remember ordering a laptop in 1997 online from Singapore that was delivered from the Malaysian Dell factory. It had a DVD player and I was pleased as a peach when the ordering system told me that the supplier (I think Toshiba) had a backlog and there might be a slight delay. In other words, each component you ordered became visible to an upstream supply chain partner who moved into motion. Dell transfered my warranty to the US and actually replaced some components that were not working within the extended warranty in 2000 in the US. Well that was Dell- providing global customer service in the year 2000.

So what's changed in 2007? Over the years I think the computer industry has become commoditized. For example,  it's just not worthwhile  for  the hardware geek to put  together a  machine from components. The costs simply do not add up today against the bulk-component buy power of big players like HP. In addition, computer makers like HP,Compaq,Acer,IBM (now Lenovo) allow things like memory to be easily upgraded as they use more modular memory configurations. These big traditional retail channel players have reaped the benefit of lower component prices without bothering to build any huge proprietary advantage in what has turned out to be a commodity market.  Dell instead, has tried to follow a more proprietary model with expensive memory upgrades. Most importantly, there is a large population that wants to buy a computer but cannot handle the Dell buy process because it is rather overwhelming for someone not used to online buying. That population is over 50% in the US and that's a really large market and where does that market go to shop? Wal-Mart- you bet !

On the supply chain side, for the Wal-Mart segment Dell will have to reduce the assortment simply because now you have finished goods inventory sitting at various parts of Wal-Mart unlike the last minute assembly by FedEx/UPS in the direct model. But that should not be too difficult given the extreme competence Wal-Mart has in figuring out what works for middle America. So all in all- this should work and mean more market for Dell and Wal-Mart. But it does  reduce the  great charm  that the Dell direct system brought to all discussions of the "pure" end-to-end global supply chain.Is this the end of pure online plays ? Let's watch Amazon.

Toy recall , tire recall and the supply chain

Tell me frankly- if you have children are you worried about brain damage caused by lead paint from toys ? If you changed a tire recently, did you look for the "Made in" label - discreetly but anxiously.Globalization is really catching up with everyone and I feel bad for the supply chain managers at Mattel and Fisher and Price and their marketing folks and Chinese suppliers.

I can't believe that the toy specifications did not have a "no lead paint" clause in early versions. What must have happened is that marketing must have gone on pressurizing for lower costs and the supply chain managers, being less influential than marketing in organizations, must have passed on the cost pressures to the supplier who in turn passed it on to their Tier 2 paint supplier. Thus, according to CNN, one toy supplier committed suicide while the paint supplier who was in the same compound has gone missing. The paint supplier, according to the story was a friend of the toy maker and the visuals showed some of the thousand workers who became  jobless. At the consumer end, people are frantically checking toy boxes and are being advised to get the blood lead content checked for their children, and be worried only if the lead content is high. There is talk of  medical monitoring  and a fund to meet the costs of all these testings. What a mess!

For supply chain managers to have instituted lead paint checks in acceptance quality checks is ludicrous because if you live in the US lead paint is so obviously a "no-no." So why is there such a large disconnect between buyers and sellers ? Obviously because there are tiers of suppliers and everyone on the US side depends on written specifications and controls. On the Chinese side of multiple tiers in a highly context driven culture things like lead paint do not seem like  a big deal. In addition,communication,trust and an ability of suppliers to say no to unreal lower prices and an inability of buyers to understand the ground reality of overseas costs, legal and cultural environments are probably culprits here.

No amount of quality controls, PLM and SRM software, visible supply chains, can overcome this situation. A change of orientation in supplier management is called for.In the meanwhile, this situation will continue to unfold.

So what is the big deal with "Sterling Service Contracts" ?

Well for one,  the new Sterling Service Contracts , gets linked to many of the categories that I blog about! And that is a lot of categories...

Some of the things that Sterling Service Contracts will do includes, and I quote from Sterling's press release:

START QUOTE:

• Storefront capabilities that provide customers and partners with a personalized and branded buying experience increasing loyalty.
• Intelligent order orchestration that determines the most efficient and least costly location to fulfill an order.
• A 7000+ member logistics network that reduces the cost of inbound and outbound shipments through optimization, automation, and collaboration with carriers.
• Network-centric WMS that reduces inventory levels at each stocking location by managing inventory across all locations as a single inventory pool.
• Supply Chain Visibility capabilities that balance supply and demand by collecting, summarizing and displaying inbound supply information in a usable, understandable and actionable format.

END QUOTE

Sterling is probably not the only supplier offering this bundle though Forrester Research does think that the product is a step closer to the "perfect order". What's "perfect" about the concept and so fascinating is that it brings alive a lot of organizational theory that was developed for years and years before IT and the Internet made all this a reality.