Supply Chain Matters recently provided a commentary on the potential resurgence in U.S. based manufacturing and specifically called attention to an upcoming MIT Leaders for Global Operations hosted conference, The Future of U.S. Manufacturing in the U.S..

We had the opportunity to speak with Dr. Donald B. Rosenfield, the Director for MIT’s Global Operations Program. Dr. Rosenfield’s research focuses primarily in manufacturing strategy and supply chain management and is a co-author of Operations Strategy, Competing in the 21^st Century, among other publications.

In our interview, Dr. Rosenfield discussed the background and goals for the upcoming MIT hosted conference. Recent shifts in the world economy, concerns for rising energy and direct labor costs involving current low-cost manufacturing regions, and needs for increased product and process innovation have sparked a renewed interest in U.S. based manufacturing among global firms. While shifts in economics, particularly labor costs within the southern coastal regions of China, have caused manufacturers to revisit strategies, the longer-term perspective for investments in U.S. based manufacturing will center on improvements in innovation capabilities.

The U.S. Presidential Commission on Manufacturing Competitiveness has also raised awareness to the importance of a manufacturing-based economy. This two day conference also coincides with the one-year anniversary of the Obama administration’s Advanced Manufacturing Partnership (AMP), a national effort co-chaired by MIT.

Dr. Rosenfield anticipates that conference attendees should expect to hear speakers address:

• The important imperatives for encouraging and sustaining U.S. resident manufacturing efforts.
• The categorization of specific needs in terms of policies, skills and workforce training.
• Some consensus on what policies need to be pursued among industry, government and academia.

A number of panel discussions and speakers will address the topics of innovation in manufacturing, workforce needs, and barriers to success in manufacturing. U.S. Secretary of Commerce John Bryson is expected to speak along with Bob King, President, United Auto Workers. Other speakers include senior executives representing Amgen, Boeing, Caterpillar, General Electric, General Motors, Johnson and Johnson, Spirit Aero Systems, among others.

We alert our readers responsible for manufacturing and supply chain strategies to consider joining Supply Chain Matters in attending this timely and important two-day conference which will be held May 8 and 9 on the MIT campus in Cambridge Massachusetts.  Dr. Rosenfield informed us that as of today, there are already 200 attendees registered for the conference, and prompt registration is advisable.

You can access the conference information and view a video overview from Dr. Rosenfield by either clicking on the MIT LGO logo located within our Conferences panel (right-hand side), or clicking on this conference link.

Bob Ferrari

Tomorrow, a new chief executive, Kazuo Hirai, will outline the specifics of a broad and painful strategy to turn around consumer electronics producer Sony.

The company is in crisis mode.  For the fourth time in less than a year, Sony had to slash its earnings outlook. It is currently on-track to announce the deepest financial losses in the company’s history, along with the fourth straight year of non-profitability. Current forecasts are that Sony will incur upwards of over a $6 billion loss for the fiscal year.

Mr. Hirai has taken the reigns from former chief executive, Howard Stringer, and has promised decisions necessary to return the company to profitability. Those decisions are reported to include major headcount reductions in the order of 6 percent of its global workforce and other painful operating decisions that concern its various businesses.

Supply Chain Matters has provided many ongoing commentaries concerning Sony’s business and related supply chain challenges. As far back as March and November of 2010, Supply Chain Matters noted major supply chain implications of an aggressive production outsourcing strategy with overly optimistic forecasts of Sony’s planned television output levels in the midst of a cutthroat market that was ripe for consolidation. Sony wanted to aggressively attack the 2010 holiday buying season with optimistic sales forecasts but limited supply chain follow-through.  Sony also failed to recognize consumer buying sensitivities to price over brand loyalty. In August of 2011, after the June ending quarter results, we noted how Sony executives continued to iterate the importance of the television business even though it continued to have over optimistic output and revenue forecasts. We speculated on S&OP whiplash as television output levels were slashed 19 percent in a matter of two months. In November, Sony announced a major restructuring of its TV business which included high volume contract manufacturing as a dedicated focus.

While all of this has been occurring, Sony’s supply chain teams have had to overcome the significant impacts of the March 2011 earthquake and tsunami and the later tsunami floods that impacted Thailand.

This week, the Lex Column of the printed edition of the Financial Times made the observation that in light of the current crisis, Sony’s workers have to be frustrated.  Previous large investments in restructuring have yielded limited results. The column also opined that Sony has been a terrible company for decades in terms of long term return on equity, and if the company has any chance of recovery, it should cease retrenching and start investing in its future.

From our lens, we believe that Sony’s future must include an emphasis on externally focused supply chain innovation. We continue to believe that Sony’s teams need to internalize the implications of more external faced value chain activities and their implications for more advanced supply chain capabilities. As more value-added component sourcing, production and logistics are outsourced to contract manufacturers and trading partners, Sony will require enhanced supply chain visibility and decision-making capabilities. A previous culture of rigidity in product demand forecasting needs to be replaced with product demand sensing and response capabilities linked to constantly changing consumer needs and market trends. The company’s internal S&OP teams can benefit from more scenario-based planning and coordinated execution and fulfillment capabilities.

Our respectful message to Mr. Hirai and the extended management team is to continue to make the required painful decisions required to restore Sony to greatness, and include in these decisions the need for business culture changes. At the same time, recognize that Sony’s supply chain capabilities need to be augmented to the business outcomes required in its future business models.

Now is not the time for wholesale supply chain cost cutting, nor unlimited process and technology budgets. Rather, it can be the time to focus on the differentiated supply chain process capabilities required to restore Sony to product innovation and competiveness in its future markets.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.

The business and supply chain management community has had time to reflect on the recent announcement of labor violations discovered by the Fair Labor Association in audits of Apple’s massive Foxconn contract manufacturing facilities. As can be expected, the responses vary in perspectives. Labor rights advocates feel that Apple’s efforts demand constant scrutiny. Other business media have opined that this development is a sign of strategic shifts or an overblown reaction to the reality of low-cost manufacturing environments such as China.

We cite three articles of particular interest.

In a Washington Post blog entry, Jena McGregor noted that the stakes for Apple are far higher than that for Foxconn.  By proactively responding to working condition findings, CEO Tim Cook could face the wrath of Apple shareholders for eventually increasing supply chain costs. McGregor astutely points to far bigger stakes, namely that Apple walks a fine line by not also pointing the finger of labor abuse to other high tech competitors such as Amazon, Dell and HP who also manufacture in similar facilities within China. Supply Chain Matters expressed similar opinion months ago when the Apple’s social responsibility efforts initially became very public.

The New York Times, who managed to provoke Apple with its superb in-depth article of Foxconn working conditions has been rumored to be attempting to gain positive favor with the company.  That aside, an April 1 article penned by Nick Wingfield places a rather positive spin to this development, namely the new direction and sensitivity that CEO Tim Cook has steered for Apple.  According to NYT sources, Steve Jobs never visited the factories in China where Apple products were made. Conversely, Cook, who has spent a lot of time in factories, is steering Apple toward higher levels of leadership and visibility to respond to greater scrutiny by media and consumer groups reflecting  on how its products are manufactured and how serious the company is committed to labor rights.

We were somewhat surprised to read a posting from Supply Chain Digest which implied that Apple’s issues related to working conditions and pay were quite modest, with the implication that this was no big deal. With all due respect, that comment completely misses the mark.

When a company like Apple is deservedly ranked number one on nearly every researcher’s top supply chain listing, the ranking comes with a high bar of expectations.  We all expect Apple to set world class benchmarks in many supply chain capabilities including supplier and social responsibility.  Apple may be feeling the heat, but there are many other firms dealing with the same challenges.  It is a rather, big deal, one that does not provide simple solutions, and one that should not be hidden.

Today, The Wall Street Journal is reporting that Hon Hai Precision Industry, the parent of Foxconn, announced plans to “significantly” raise wages for its employees located at its headquarters in Taiwan, which is expected to take effect in July.  Readers may recall that last year, when Foxconn finally announced meaningful wage increases for its assembly workers in China, a ripple effect of other cascading labor rate increases incurred throughout China’s southern manufacturing regions.

In a Supply Chain Matters commentary posted in mid-March, we provided our point-of-view that many current signs point to the need for changing supply chain strategies for Apple, some of which may be conflicting. There are a number of strategic directions to which Apple’s supply chain can shift, but any will be dependent on the business and customer outcomes desired by the company.  A socially responsible supply chain may be a component of that direction, and the fallout will not just be Apple alone.

The time is long overdue for high tech and other industries to find a balance point between supply chains driven by cost and those that may also be driven by innovation and social responsibility.

Bob Ferrari

The Wall Street Journal is reporting today that Google is making plans to sell a variety of co-branded tablet computers directly to consumers via an online store concept similar to the online fulfillment sites of Amazon and Apple. According to the WSJ, hardware manufacturers Samsung Electronics, AsusTeK Computer, and possibly Motorola Mobility Holdings will be tapped to provide the tablet models.

Similar to Google’s failed experiment with its branded Nexus One phone in 2010, the effort is directed at providing a direct consumer fulfillment model, but this time will include the ability to also up-sell various electronic content services. The WSJ quotes people familiar with this strategy as indicating that Google believes that the current model for selling tablets is broken, including the inability of wireless carriers to gain any market traction as a fulfillment channel.  Also reported was that the company is considering subsidizing the cost of future tablets in order to be able to compete on pricing with Amazon’s Kindle Fire. The article stresses however, that physical stores will still remain an important channel for Google.

If this development turns out to be accurate, it will represent another effort by the search leader to directly make a new presence in the consumer electronics sector.  We recently provided commentary on Google’s entry into the home entertainment device area.

The current tablet and e-reader wars are intense and Apple continues to outpace the market in terms of the consumer “wow” factor and overall market share. Supply Chain Matters trusts that Google will apply the learning from its previous past Nexus One flawed experiment in understanding the required strategies, underlying supply chain support processes and technology capabilities that make up worldwide direct e-fulfillment presence. The bar is set rather high with the current online direct fulfillment capabilities that exist at Amazon and Apple sites.

The WSJ points out that Google is prepared to invest big bucks in the marketing and advertising support of its planned online site. We suggest that some of those monies be allocated toward investments in world-class supply chain planning, execution, intelligence and decision-making capabilities, or to an existing online fulfillment services provider that has the potential to outpace the current capabilities in the market. Supply chain strategy needs to support desired business outcomes. For Google, that outcome is a cool tablet, delivered at a market competitive price, with a seamless online ordering and customer service experience, with adequate supply to meet global consumer demand.

Bob Ferrari

The printed edition of the Wall Street Journal will report tomorrow (paid subscription required or free metered view) that the Fair Labor Association (FLA), the designated supplier social responsibility auditor for Apple, has discovered multiple instances of average work weeks exceeding 60 hours along with other safety issues at prime contract manufacturer, Foxconn.  Also reported was that the FLA found that workers weren’t being fairly compensated for overtime, an issue that Foxconn, FLA and Apple are committed to fix.

Apple requested this audit earlier in the year in an effort to put more teeth into its social responsibility practices.

The audit was based, in part, on surveys of over 35,000 workers among Foxconn Chinese facilities located in Shenzhen and Chengdu.  The WSJ reports that the FLA found at least 50 legal or code violations. The FLA found that during some periods over the past 12 months workers worked an average of more than 60 hours per week, and there were several months in the past year where the majority of Foxconn workers exceeded China’s legal maximum of 36 overtime hours per month. The WSJ further indicates that the FLA report cited an average of 80 overtime hours worked per month.

Interestingly, FLA’s report indicates that 48 percent of worker respondents thought working hours were reasonable while 64.3 percent of workers thought their salary was not sufficient for basic needs. That certainly merits further discussion and analysis.

The report indicates that Foxconn has agreed to bring its factories in China within China’s legal limits by July 2013, and further indicates that Foxconn would need to recruit tens of thousands of extra workers to comply. In the article, FLA President and CEO Auret van Heerden is quoted as indicating that the findings were “no worse than any other factory in China”.

As Supply Chain Matters posted earlier today, Apple CEO Tim Cook has been visiting China this week and as we suspected, Mr. Cook took the time to visit and tour an iPhone assembly line at Foxconn’s Zhengzhou facility.

As a final note, we would not be surprised if Foxconn now decides to accelerate its investment and installation plans for factory automation and robotics in the wake of this latest audit development.

Bob Ferrari

This week business and technical media reported the visit of Apple CEO Tim Cook to meet with Chinese government officials. The agenda related to an ongoing dispute involving the iPad trademark which has hindered sales of that device within the country, as well as other potential topics including the opening of additional Apple retail stores in China. Apple had previously relied on Chinese resellers to distribute its products within the country.

While many procurement and supply chain professionals have had China on their travel itineraries,  it seems that the name recognition and clout of Apple can overcome many obstacles, both business and supply chain related.

Apple is involved in a rather complicated legal dispute with Proview International Holdings over the trademark rights to iPad.  Mr. Cook’s visit is reported as a “big deal” on the Chinese focused Internet with consumers sharing photos of themselves posing with “Captain Cook” at the Apple store in Beijing.

Mr. Cook was not expected to meet with Proview officials during his visit.

Coincidental or not to this visit comes a posting by Hana Stewart-Smith on the ZDNet blog that the company’s Wi-Fi enabled iPad model has passed certification for sale in China, despite the ongoing dispute with Proview. According to ZD Net, the Wi-Fi version device was granted its compulsory certification, a requirement for sales in the country, but the 4G capable model still requires certification approval.

One can also speculate that the other potential hidden agenda is the presence of over one million workers assembling electronic devices at contract manufacturer Foxconn, along with other China based suppliers participating in Apple’s value-chain.  Much visibility has been brought to the forefront regarding Apple’s commitment to supplier responsibility commitments and worker safety audits. Shortly after last year’s well publicized incidents of worker suicides occurring at Foxconn, Cook secretly traveled to China to personally meet with Foxconn officials.

Not many CEO’s in the world get the opportunity to meet with Chinese government officials, unless of course, you represent the most valuable company, with the coolest products and retail stores, representing a significant production and supply chain presence, and upwards of $100 billion in cash to invest.

All of which is somewhat compelling to state the least.

Bob Ferrari