On the heels of the crisis situation involving the world’s largest contract manufacturer Foxconn, there are additional developments that perhaps point to the early stages on labor activism within China’s key manufacturing sectors. 

A Wall Street Journal reporter based in Taipei reported that Hon Hai Precision Industry Co., better known as Foxconn is weighing the possibility of increasing wages for its factory workers in China, although the company denies that this is related to the recent large occurrences of suicide incidents among its workforce. The article notes that there were two Taiwanese and one Chinese newspaper reports noting that Hon Hai Chairmen Terry Gau was considering an increase in minimum-wage levels by 20%. Company spokespersons however have denied the accuracy of these newspaper reports.

Meanwhile, The Financial Times and other financial media have today reported that Japanese automaker Honda has been forced to suspend manufacturing operations in China due to a labor strike at a supplier factory. More than 1800 workers at a Honda transmission factory in Foshan, in southern Guangzhou province, forced that factory to close on Monday of this week.  That forced Honda’s manufacturing facility to suspend operations on Wednesday. The workers are demanding higher wages, and appear to be acting independently, without any active sponsorship from a labor union.  It is noted that labor strikes involving multi-national companies residing in China are very rare, and trade unions in the country do not practice confrontation with employers.

While two incidents do not necessarily imply a trend, they involve well recognized Chinese and multi-national brand names.  I’m wondering aloud whether these are early signs of a pending new wave of labor activism within China.  Are workers beginning to communicate that they will no longer tolerate a low minimum wage while corporate owners reap increased profits as business recovers?

A look back in U.S. and other history notes that eras of labor activism have come when workers have had enough, and band together in activist waves.  We have observed an increasing trend of higher wages within China’s massive coastal manufacturing regions primarily because of population shifts, as former migrant workers refuse to travel to coastal manufacturing zones. These two forces could now be a basis for increased activism.

We certainly trust that China’s governmental authorities will provide a peaceful and appropriate set of mitigation options to workers and corporate concerns.

It would be interesting to note what our Supply Chain Matters readers have observed regarding labor activism within China.

Bob Ferrari

Foxconn Technology Group or its parent Hon Hai Precision are very familiar names to any supply chain professional who has any knowledge of contract manufacturing, especially within high tech and consumer electronics.  This global leader of contract manufacturing, and a major supplier to likes of Apple, Dell, Hewlett Packard, Sony and others has been in crisis mode as continuing reports of worker suicides permeate media and blog outlets.  Major media such as The Financial Times, The New York Times, The Wall Street Journal and others have been featuring continuous stories. Nine workers have died after falling off buildings, the latest being this week.  Foxconn chairmen Terry Gou has rushed to Shenzhen, the site of its largest manufacturing complex to take personal charge of the crisis that is reverberating across the globe. 

In an unprecedented move, Gou has allowed certain media access to the Shenzhen complex, and you are welcomed to view this Financial Times video link to note more to this story.

Our last Supply Chain Matters commentary concerning contract manufacturing labor practices and social responsibility took a bit of a counter view. At the time, certain bloggers and media were taking Foxconn to task for allegedly roughing up a reporter who stood on a public road taking pictures of the Longhua manufacturing facility. Much was written on the highly secretive practices of Apple, which carried over to its prime contract manufacturer. There were accusations in the use of underage labor, excessive work hours and other intolerable conditions, mostly attributable to Apple.  Many took Apple to task when it released its Supplier Responsibility 2010 Report but seemed to miss the point that audits were on the increase and that Apple was publically willing to share that it had found core violations.

My counter-argument at that time was twofold.  I denounced underage labor and excessive work hour policies, and continue to do so.  These latest incidents of suicides are further evidence that more remedial actions need to take place, and at a far speedier pace.

We also need to acknowledge supply chain and business realities. Foxconn offers its OEM customers low-cost labor and high volume efficiencies, witness the fact that it has enough business to employ over 800,00 people. The Shenzhen plant complex itself has in excess of 300,000 people, and as you can view in the video, takes on its own municipal presence in housing, recreation, and other services.  There are military installations that do not take on such a scope of people that are all housed in the same area.  That alone is cause for concern.  Workers, whether young or old, need to have tolerable working conditions, reasonable working hours and recreational outlets.  They must also be paid a fair wage for the work they accomplish, which should not include the need to work 12 hours daily, six days per week. They must also have some path to personal and career success

I applauded Apple and other high tech manufacturers for taking a more open and visible effort in auditing labor and other social responsibility practices within their supply chain.  Today’s Financial Times notes that Apple, Dell and HP have all stated that they will further investigate conditions at Foxconn.  The fact that Mr. Gou has now opened his facilities to visible scrutiny, and has established new counseling and early warning processes is a positive step in the right direction.

In my view, the ultimate barometer of progress will come from the influence of Foxconn’s major customers in their social responsibility practices, and the management teams of  Foxconn itself, proving to the world that efficient contract manufacturing can be accomplished in a responsible and responsive work environment.

Bob Ferrari

Supply chain professionals who are working with SAP as their ERP backbone, or any collection of SAP Supply Chain Management (SCM) or Supplier Relationship Management (SRM) applications more than likely are aware of the SAP Insider publications.  This organization not only produces publications and articles specifically directed at the SAP installed base community, but also sponsors a series of quality conferences and training events on key supply chain management process and information management needs. I have in the past had the opportunity to speak at some of their conferences and the Insider teams go to extraordinary lengths to insure that presentations deliver a learning experience.

At the recent SAP ASUG and Sapphire Conference held in Orlando, Bob Croce, Product Director of Wellesley Information Systems, the parent group, invited me to view the new Insider Learning Network and I was very impressed with the content and options available for community members. This community was established to help SAP users network and exchange related learning and information with other individuals, or to find expert advice or educational opportunities.  You can also perform your own blogging with other members of the Insider Community. The community can be a further social media option for your needs in SAP applications knowledge. 

You can view an introduction and sign-up for this new network at the following Insider Learning Network link. 

If you do decide to join, look for my name as a connection.

Bob Ferrari

We want to alert our Supply Chain Matters readers to the fact that The Supply Chain Council (SCC) will be hosting an Executive Summit in Houston on October 13-15.  The event offers senior supply chain executives a forum for discussing key emerging challenges in business and supply chain strategy.  It also offers an opportunity for executives to network with other industry peers through panel discussions, roundtables and other networking events. The theme of this upcoming summit is “Boom & Bust: The New Realities for Supply Chain Excellence”.

Readers may recall that SCC had sponsored these executive summit meetings on an annual basis, but the effects of the recent depressed economy had forced a postponement in past summits.  The location and venue of this upcoming October event was specifically chosen by SCC to provide a more justified educational and learning venue, as opposed to previous venues held in resort locations.  Summit attendance will be limited to 100 executives.

You can view further information and registration details at the SCC Executive Summit web site.

 Bob Ferrari

Disclosure: Bob Ferrari is an elected member of the North America Leadership Team (NALT) of the Supply Chain Council, but has no monetary interests in regards to promoting this upcoming conference.

Like many other manufacturers competing in discretionary and seasonal consumer oriented markets, Polaris Industries Inc. is attempting to manage the right level of inventory to meet a current surge in demand for its products.  A Wall Street Journal article, After Slashing Inventory, Polaris Now Struggles to Meet Demand, (paid subscription may be required) outlines a current common problem being expressed by many.  This manufacturer of recreational equipment such as motorcycles, snowmobiles and four-wheelers had to make dramatic cuts in production and inventory during this past recession.  Now that consumers are returning to dealer showrooms, Polaris needs to insure that its dealers have the right product on-hand, but also insure that inventory investment is not overdone if another hiccup in the economy should occur.

Polaris cut its North American inventories by nearly a quarter last year and expects an additional 15% drop this year, its lowest level since 1997.  The company has rehired 10% of its production workforce and is urging its dealers to order inventories in smaller quantities on a much more frequent basis.  Polaris had been previously noted as a ‘channel stuffer’, pressing its dealers to take more inventory than they really needed, in exchange for financial incentives.

Behind these headlines, a broader supply chain agility story is being played out at Polaris. The company has plans to double revenues to $3 billion by 2014 which include expanding into Latin America, and leveraged use of supply chain technology may help in this effort. Polaris invested in multi-echelon inventory optimization technology from SmartOps as well supply chain execution technology from RedPrairie.  While competitors in its industry sector severely cut back in product innovation, Polaris launched 34 new products in 2009. The company also made a comprehensive analysis of its product sales and determined that two-thirds of revenues come from two varieties of ATV products, and that about 40 percent of North American sales originate from the southern part of the U.S. 

Polaris announced plans last week to restructure core strategic manufacturing operations, creating manufacturing centers of excellence, with plans to open a new manufacturing facility in the Monterrey/Saltilo area of Mexico in the next 15 months. Polaris will unfortunately close its Osceola Minnesota plant if a new plant supplier buyer cannot be found. To emphasize its commitment to supply chain transformation, It recently recruited Suresh Krishna as its new vice-president of supply chain and integration. Krishna has a background in global operations and IT having a recent role leading the supply chain activities of the Fire and Security division of United Technologies (UTC).  Supply Chain Matters has previously commented on the notion that in the presence of broad supply chain transformation, combining supply chain and IT responsibilities can be effective in alignment of common supply chain process and business objectives.

Over the coming months it will be interesting to observe how Polaris continues to navigate within an quickly changing market while at the same time, undergoing supply chain re-structuring.

 Bob Ferrari