2010’s New Normal – Transportation

April 26th, 2010

Logistics and transportation companies were hit early and hard by the economic downturn. The American Association of Railroads estimates that the rail industry had assets worth $43 billion standing idle as of February 2010 – almost 30%. On the air freight side, about 15% of freighter capacity was removed from the market last year. The same situation is true for trucks and containerships. This excess capacity drove down profitability. Many companies went out of business but many of the ones that survive the recession will emerge leaner and wiser – in a “new normal” business environment.

In this new normal business environment, there are a few overriding themes: 1) leaner inventory management policies (to accelerate cash flow). 2) a renewed interest in SKU rationalization (to impact costs and efficiencies). 3) Increased flexibility and openness to new ideas. For example, it is becoming common to review the relative efficiency of different modes, the location of distribution centers and whether they are willing to wait a bit longer to pay less for deliveries.

I’ve seen these themes arising more and more freqeuntly with my clients. Undoubtedly, cash is king in today’s business environment. I’ve written several articles about these topics. For example, refer to my recent newsletter on inventory reduction/ accelerating cash flow: click here.

Unemployment in CA & the U.S. – What Can We Do?

April 21st, 2010

According to the UCLA Anderson Forecast, it is predicted that California employers will shed another 90,000 jobs this year and job growth will remain slow. Overall, it’s expected to remain around 12%. California is far worse than the national average (which hovers just below 10%); however, there is much to improve with both.

Oddly, even though Southern California has huge unemployment rates and has lost some large companies in the last several years, L.A. County remains the largest manufacturing center in the U.S. with 380,000 factory jobs. On the other hand, it only holds the #1 slot because longtime #2, Chicago’s Cook County has also seen half of its manufacturing jobs vanish over the last 20 years.

The losses in manufacturing have accelerated over the last two years as manufacturers have reduced production in line with reduced consumer demand. However, interestingly, not every major metropolitan county has been losing manufacturing jobs. Harris County, Texas (which includes Houston) has added 20,000 manufacturing jobs since 1990 and is closing in on the #2 position. Houston is much more cost competitive.

Thus, what should we do? We have to turn towards INNOVATION, which happens to be America’s foundation. I recently wrote an article for M World, the American Management Association’s magazine, titled “Accelerating Cash Flow through Supply Chain Innovation”. The spring issue of M World focused exclusively on innovation. According to Commerce Secretary Gary Locke, we must spend our time more productively by rediscovering the traits that have long made America’s economy the envy of the world. Scientific research. Innovation. New technology. Entrepreneurship and the new modes of commerce.
As Gary Locke’s says, “Despite our current problems, America still employs 70% of the world’s Nobel Prize winners and is home to three-quarters of the world’s top 40 universities.” In my opinion, we need to emphasize innovation in businesses and throughout the educational system. There’s no time to waste!

Risk – Emerging Topic?

April 19th, 2010

Today uncertain economic climate is driving greater focus on risk management.

According to Industry Week’s article, “Riskier Business”, signs indicate that CEOs will be taking greater notice of risk in the wake of the economic crisis. According to a PricewaterhouseCoopers’ latest annual CEO survey, fully 84% of respondents reported they anticipate making changes to the way they approach managing risk, with 41% indicating that those changes will be major ones.

Also according to the Industry Week article, a few pieces of advice are as follows: 1) Categorize your risk – strategic risks, big-picture operational risks, financial risks and compliance risks. 2) Assume greater uncertainty. 3) Mitigate credit risk.

I also recently addressed this topic in an article published in Project Times, “Project Risk – Should You Care”. In the article, I discuss three keys to success: 1) Identify what might go wrong. 2) Determine potential reasons. 3) Implement steps to mitigate risk. To read the article in full, click here.

US Manufacturers Face Shortage of Skills – How Can That Be?

April 14th, 2010

According to a study released in 2009 by Deloitte, the Manufacturing Institute and Oracle revealed that nearly a third of companies were experiencing a modest to severe shortage. Gaps in such skills as problem-solving and communication also were noted in the study.

This doesn’t seem to add up vs. the job market; however, it appears as though there is a shortage in the high-skilled jobs. As lower skilled jobs are outsourced to other countries, there is a greater supply of lower-skilled workers yet a higher need for the high-skilled jobs (which are typically the ones required to integrate with the outsourced suppliers etc). Thomas A. Kochan, professor of management at MIT says the basic problem is that U.S. manufacturing never has developed a close community of private industry and technical schools in any systematic way, although pockets of success exist.

Training is required to address the skills challenge – and keep U.S. manufacturing competitive. Nearly two-thirds of Industry Week’s Best Plants winners and finalists over the past five years have partnered with local educational institutions to obtain training.

I’m President of the APICS (Association of Operations Management) Inland Empire Chapter, and one of our core missions is to provide practical education on manufacturing and supply chain topics. We offer certifications which are highly respected – and downright inexpensive vs. the other options available. For more information about our courses, please visit our website: click here

With that said, I completely concur with University of Tennessee’s Parke’s statement in Industry Week – “Training that brings the most success to manufacturers is integrated into a company’s strategic plan,” not a bolt-on,” and has overt commitment from leadership.” I couldn’t have said it better myself, as I find that training often becomes a waste of money without this vision.

Made in the U.S.A. is gaining popularity

April 14th, 2010

As I said in a recent blog post, I was recently quoted in an article in World Trade Magazine about how manufacturing in the U.S.A. is gaining momentum. I know my parents search to buy items made in the U.S.A. and will pay more for them – and they are not alone!

Now I wanted to share an article from Industry Week about this topic. Harry Moser has been an advocate for U.S. manufacturing for a long time, and he says in the article that manufacturers decide to offshore manufacturing work because the freight-on-board costs are lower for work done overseas. However, he says that if those companies factor in the costs of regulatory compliance, potential intellectual property loss, visits to overseas vendors, potential product quality problems, high foreign wage inflation and carrying extra inventory as cushion against late or damaged shipments, now the gap is favorable or small enough that it makes sense to reshore that work.

He is spearheading what he hopes will be a series of reshoring fairs. The first will be the 2010 Contract Manufacturing Purchasing Fair, scheduled for May 12th in Irvine, CA. The goal is to match OEMs that are outsourcing machined components, stampings, special tooling and assemblies with US suppliers that can most competitively bid on doing the work on domestic soil. It should be interesting and worth pursuing.