Global Sourcing Specialists’ Partner, Ashton Udall, Speaks at IHA CORE Group

By admin on August 26, 2011 | Category: Product Sourcing and Strategy | Comments Off

This last Wednesday, Global Sourcing Specialists partner, Ashton Udall, gave a talk to a Bay Area group of CEOs that are part of the International Housewares Association group CORE.

The talk was a lot of fun and it was interesting to hear the anecdotes from both small and mid-size housewares companies’ execs.  To recap, below are two points from the presentation and discussion which I thought solid takeaways:

How Badly do we Really Want Manufacturing to Return to the US? It was not surprising to hear complaints about many of the standard issues that have challenged foreign businesses manufacturing products in China: quality, IP protection, sourcing reliable factories, etc.  As with most discussions like this, there are always a few funny stories of the absurd (by US practices) things that have taken place when operating overseas (e.g. factories using customer owned molds as collateral for bank loans, the bribing structure which Chinese factories must play in, etc.)  There was also quite a bit of talk and concern amongst executives about the price increases being experienced in China manufacturing, particularly in the last 6 months.  No question…a lot of companies are feeling the pressure.

However, an interesting sentiment from many execs in the group was that US manufacturers made it difficult to do business here.  Will the trend of a Renaissance in US manufacturing, as predicted by the recent BCG report, include SMEs?  I heard many experiences in which they had a hard time getting call-backs from US factories, US factories were not interested in anything but very high volumes, and it just plain seemed like US manufacturers didn’t care to earn business.  Some said they loved the can-do attitude of the Chinese and found that, for all the challenges, Chinese sources were generally more eager to please and win business.  A few of the executives had substantial manufacturing operations in the States and, despite enjoying the control they obtained by being much closer to their sources, they concurred with the difficult attitude found in many US organizations.  Will this continue to be a problem for SMEs as things shift towards 2015?

The Sourcing Landscape is Changing–Which Means Analysis and Tough Decisions Lie Ahead: I began my presentation with the observation that most companies do not consider how they design and optimize their supply chain to support their corporate strategy.  Stepping back to look at how this could be done can give a great deal of insight on making decisions to balance cost and risk in selecting suppliers, and regions to source from.  I think most executives of SMEs are content to battle the tactical challenges of manufacturing in China, so long as costs are low.  Rising wages, a shrinking labor pool, and the fact that the Chinese govt. is purposefully enacting policies to shut down many manufacturing industries in the coastal regions and redeploy them inland, is now giving many pause as to how long the cost advantages will exist.

It’s clear that costs will continue to increase in China in the next few years and companies should be far more critical of who their suppliers are and whether they will be able to evolve, survive, and continue to offer value-added services.  There are great organizations in the coastal areas of China that provide tremendous value-add in the way of expertise, service, and engineering.  For those working with the dirt floor factories and in industries where low cost pricing pressure makes it difficult to work with factories that offer more than the bare minimum, it is high-time to begin thinking about sourcing suppliers from other regions (inland China) or countries if you aren’t already.  Either way, in the short term, it’s going to be ever-more critical to assess the suppliers you are working with and to source suppliers that can support you as the China landscape continues to change.  Paying a little more in unit cost is better than waking up one morning to find out your factory has shut down and your money, molds, and product have disappeared.

In the coming years, your company will face tougher decisions.  To stay?  To go?  If we go elsewhere–where and why?  Do we follow the herd?   If one has to make tough decisions and think about overhauling a substantial portion of your supply chain, you might as well step back and assess the bigger picture of how your customers would like to be served and which regions and factories are best able to support you in doing this.  I’ve never heard of a scenario in which following the herd offered a competitive advantage.  Take a look at this business model canvas:

What will be your market segments in 5 years?  What will be the value proposition that can set you ahead of your competitors?  And will following the herd allow you to deliver it in a way no one else can?

The New Way to Fund Consumer Product Start-ups?

By admin on June 1, 2011 | Category: Buildling a Business | Comments Off

One of the biggest challenges to developing, sourcing, and launching new consumer products for start-ups has been raising the funds to do it.  There’s no question that raising money to produce a product design, create CAD files, source a manufacturer, build tooling, and place early orders with manufacturers–all before your product has really hit the market and been tested, has been a very tough challenge for consumer product entrepreneurs.  Tech investors flocked to software based start-ups, and most in Silicon Valley shy away from anything that involves a physical product.  The options?  Self-funding.  Family and friends.  And…that’s about it.  Until recently.

Many have heard of Kickstarter by now.  For those that haven’t, it will defy what you think is possible in the way of trust and money on the internet.  Kickstarter allows you to post a description of your project or product, your fundraising goal, what you plan to do with the money, and what different levels of investment receive in return.  It’s crowdsourced funding that started with a desire to allow people to raise funding for their art projects, and quickly broadened with projects related to products and businesses.  Most people, when they hear of the site for the first time, run through a litany of doubts, such as “what if someone steals your idea?”, “how do you know the fundraisers won’t just steal your money?”, etc.  But upon seeing the success of a few notable projects, their doubts immediately become amazement.

Some of the most notable investments and products so far?

  • TikTok and Luna Tik Watch Kits.  They transform your Ipod Nano into a wristwatch.  Fundraising goal: $15,000.  Amount raised: $941, 718 from 13,512 people.  Fundraising goal: $9,500.  Amount raised: $306,944 from 4,818 people.
  • Coffee Joulies.  I mentioned these guys in a previous post.
  • Lockpicks.  Think its limited to mass market products?  This guy raised money to create a better lockpicking set.  Fundraising goal: $6,000.  Amount raised: $87,407 from 1,159 people.

And if you don’t score seed funding on Kickstarter, perhaps you’ll get in front of the right people who can supply this.  Kickstarter project Grafighters, an online video game development group, failed to raise their funding goal on Kickstarter.  However, being on Kickstarter got them in front of angel investors who were apparently hanging out on Kickstarter.  The result?  They raised $200k from this private investment group.

Profounder, started by the former founder of Kiva.org, Jessica Jackley, takes the Kickstarter concept and targets business rather than art.  And AngelList, founded by Naval Ravikant, is working to change the way entrepreneurs meet investors and find funding.  I know start-ups that have successfully used this to fund their consumer product launch.

Thankfully, the investment landscape is changing.  Thanks to web entrepreneurs, it’s becoming democratized and more efficient.  We’re seeing levels of trust and investment on the web that I would have certainly scoffed at before I saw Kickstarter in action.  It’s a major barrier removed in getting started.  Now, a capable person with an idea can go out and, at the least, find a small amount of seed funding to accomplish the first key stages in developing and sourcing their product.  Of course, the process of marketing it is also becoming easier and cheaper due to social networks.

How long until the new way to fund and launch consumer product start-ups becomes THE way to fund new product start-ups?

“Made in the USA” Returneth? Manufacturer Sourcing in the USA Evolves from a Cause to a Profitability Driver and a Hedge Against Risk

By admin on May 20, 2011 | Category: News,Product Sourcing and Strategy | 1 Comment

There are a growing number of reasons to manufacture some, or all of your products, in the USA.  Be it cause marketing, profitability, or a hedge against risk, the USA is becoming more attractive and industry experts are advising multinational companies to explore the potential savings of making products here.

Trolling around the Stanford Cool Products Expo last month, I came across a fantastic product with an even better story. Coffee Joulies.  I had seen Coffee Joulies on the Kickstarter website a week before, where they had successfully raised $300k, which was $291k over their goal. Clearly, there was something remarkable about this product.

Coffee Joulies are a small stainless steel ball that you place into your coffee. It uses a special, non-toxic material to absorb your coffee’s heat when it’s too hot–and cools it down 3x faster than normal. Once the Joulies bring your coffee down to a desirable temperature (140 degrees F), it then begins releasing the heat back into your coffee and keeps it at that temp for up to 2x as long as it would otherwise. Brilliant.

When I talked to one of the Joulies people at their table, I asked them how they planned to manufacture the product. The story got better. They desired to produce the product in the US, but had no idea whether they could find a supplier that could do this. They looked, but to no avail. Then, in twist of fate, one of the inventors saw a factory on a late night TV show that was one of the oldest manufacturers of flatware in the country. They reached out to them. The manufacturer was in the process of closing down their US facilities. Thus, with a smaller order, the Coffee Joulies folks had to start in Mexico, but they struck a deal with the flatware manufacturer and agreed that as soon as they had enough orders, they would be able to bring production back to the manufacturer’s facilities in the States and keep the facility going.  When they made this fact known to their funders/fans on Kickstarter, some even checked in repeatedly to see if they had reached the volume to bring production back to the States.  Although difficult to measure, there is an emotional appeal to many when it comes to “Made in the USA”.

But “Made in the USA” is becoming more than just a cause marketing appeal designed to pull on your patriotic heart strings.  It’s becoming a good business decision.  Boston Consulting Group (BCG) recently issued a report that they expected a “manufacturing renaissance” of sorts in the United States by 2015. The reasons? Expected increases in wages in China and the appreciation of the Yuan, are projected to narrow the cost gap between Chinese manufacturing and U.S. manufacturing considerably. However, reconsideration of manufacturing source location will likely occur only in specific categories. As the report points out, “products that require less labor and are churned out in modest volumes, such as household appliances and construction equipment, are most likely to shift to US manufacturing sources. Products that are labor-intensive and produced in high-volume, such as textile, apparel, and TVs, will likely continue to be made overseas”.  Depending on your market, just as companies rushed overseas to slash their labor costs and improve profitability, Made in the USA may become a driver of this.

In January, another leading consulting firm, McKinsey & Co., issued an article entitled “Building the Supply Chain of the Future”, in which they tag flexibility and risk management as the drivers of success in today’s supply chain.  They encourage companies to “splinter” their long, global supply chains, down into smaller, more nimble supply chains.  By doing so, companies enhance their ability to react more quickly with SKUs that experience considerable demand volatility, as well as, reduce uncontrollable risk caused by unforeseen natural disasters and geo-political spats.

This last example does not necessarily entail “Made in the USA” as a strategy, but it certainly calls into question a long trend of extending global supply chains further and further into low-cost countries as a method of reducing cost.  The fewer countries your product components must travel through, the lower the risk something will happen that delays your supply.  And, after all, freight costs add zero value to a product.  Coupled with more competitive wage levels, there’s no doubt that this will be another compelling reason to consider U.S. manufacturing sources.

But note the fact that I say consider, because each case must be evaluated to determine the best strategy for your supply chain.  With so many other issues to deal with as a startup, many founding teams and early employees just do not have the bandwith or expertise to perform an analysis.  Ideally, one would use an approach similar to what is suggested in this Harvard Business Review article, which offers an excellent case study of how a company can analyze where to locate manufacturing by using a real options valuation analysis to determine the value of being local and flexible.  If going to that level of analysis is not doable, a company might begin by simply having both US and offshore manufacturing sources quote the product and then tally up the associated costs of doing business in each scenario to see what the Total Cost of Ownership in each looks like.

Going a step further towards optimization, a company could work to understand the potential value that can be unlocked through greater flexibility–by delaying the point of SKU differentiation to occur with a local source, or reducing excess inventory with shorter lead times.  Rather than forecast future demand purely by assumption, shorter lead times allow a company to wait to place an order and actually observe early demand before forecasting how much product they’ll actually need.  Observing actual demand should allow you to refine your forecasts and minimize excess.

The level of analysis you go into should be driven by the stage in the lifecycle your company and product are at. There’s no need to boil the ocean when your product has not yet gained reasonable traction.  However, when you’re in the market and expanding, or fighting competitors, the supply chain can become a KEY point of competitive advantage.  Whether for purposes of marketing, profitability, or risk, it’s clear that there are a growing number of reasons to seriously explore the offshore vs domestic question.

Prototyping New Products: What You Can Learn from an Industry Pro

By admin on May 6, 2011 | Category: Product Development | Tags: , , , , , , | Comments Off

I recently heard a talk by David Small, of Shoot the Moon products, at Hacker Dojo in Mountain View, CA. Shoot the Moon products is an uber-successful product development and invention firm in the toy industry.  Toy industry giants like Mattel, Fisher Price, and Hasbro often look outside the company to inventors and firms like Shoot the Moon, for their breakthrough products and ideas.  Shoot the Moon has had a lot of success with this–with a track record of over 100 product lines developed and licensed, creating roughly $2 Billion in retail sales. These guys are pros.

David, one of the cofounders of the firm, led the audience through several of their biggest hits, such as Laser tag, and showing videos of Elmo and Talking Teddy, two animatronic toys that were very successful in their time.  He then walked through their latest creation, to be released this June by Mattel.  Enter the doll, Fijit.

Starting concept ideation back in 2008, Small highlighted to the audience that it took their expert team 3 years before they would get their product to market. Creating a new product line that was to represent the cutting edge in toys, make kids go crazy with desire, and inspire images of hockey stick growth curves in toy industry execs, is not a feat that would be accomplished without years of hard work.

I think two of the most important takeaways that emerged from his talk were that 1) figuring out how to bring the product to life involved solving numerous, complex problems, the solving of which, led to many new problems, and 2) they used everyday materials, from whatever source they could find, to build out the prototype  It was not easy.

Let’s take #1.  In the ultra-competitive toy industry, price points are crucial, margins are thin, and therefore, cost is king.  Developing the killer new toy technology at a cost that is going to allow for affordable toy pricing, can be extremely challenging.  Anyone could have used high-end technology and disregarded assembly and part cost to build a product like Fijit.  The key was doing it at the amazing retail price point of $49.99.  This required problem-solving to create the desired capabilities as efficiently as possible.  They needed to make a doll that could pull off multiple movements in all directions, but only use a minimum of motors, battery power, and parts to do it. This took a great deal of engineering work and involved several dead-ends. When they finally developed a solution, they realized they had created a new problem: the skins (exterior of the doll) that they typically used with dolls, would not work with this setup.  The victory of the first challenge quickly created the tough work of solving the second–finding a material that would work.

The search for Fijit’s exterior skin was on.  Remember, these guys are familiar with all kinds of materials and have experts at their disposal. They looked at several materials, including plush, and needed to find a material that would house the guts of the doll safely, be flexible enough to move in a variety of directions, and soft and cuddly to the touch.  They went through a lot of options with no luck. They eventually found solution. A very soft, stretchy, rubbery plastic in…another toy.  When questions of prototype building comes up with entrepreneurs, I often encourage them to find and loot whatever off-the-shelf products they can for useful materials.  Not everything must be created from scratch and walking the aisles of stores is the fastest and cheapest way to see what’s out there that you can use.  Not only did David and his team find the plastic toy that used this material, but they bought it and spent painstaking hours taking it apart so it would be usable in their prototype.  It might sound like this is very difficult, and it may be.  But I can assure you that it is usually a faster method than describing a hypothetical material and talking to industry people and vendors to see if such a thing exists somewhere…out there…in the world.  Start with what’s in stores.  Loot existing products and materials that are easily accessible.  Get your hands dirty and be creative.

There can be a lot of dead-ends in new product development.  We spend a lot of time and resources traveling down the exploratory path of sussing out various materials and designs, only to find that they don’t work for some small reason.  It’s easy to fall into the trap of thinking that we were foolish not to see the problems early on and save ourselves the time.  Well, as David lamented, even the pros go through this very process.  They might go through certain stages faster (even though Fijit development spanned several years), but the product development process is full of uncertainty.  As I mention in this blog post, like startup businesses, the goal is to fail quickly and cheaply, and iterate to success.  Even Thomas Edison described his invention development as a process of getting through failures to hit success.

Fijit is a very impressive toy, at an even more impressive price point.  It won’t be long till we see if 6 year old girls and parents everywhere agree.  Hopefully, for Shoot the Moon, their persistence pays off handsomely.

China Manufacturing Edges out U.S. in Output, but is No Match for U.S. Productivity

By admin on March 15, 2011 | Category: International Trade and Political Economy | Comments Off

China has become the world’s top manufacturing country by output, according to a study released last week by IHS Global Insight, a US-based economics consultancy (h/t Financial Times Article). Last year, China accounted for 19.8% of world manufacturing output, a fraction ahead of the United States’ 19.4%.

According to the Deborah Wince-Smith, chief executive of the Council on Competitiveness, a Washington-based business group, China’s ascendancy “shows the need for the U.S. to compete in the future not on the basis of commodity manufacturing, but on innovation and new kinds of services that are driven by production industries”.

As I pointed out in my post Made in the USA isn’t Dead, Just Different, Smith’s comments highlight the trend already taking place: US manufacturing is graduating on to higher value/higher skilled products such as aircraft, defense related equipment, space equipment, car parts, energy products, etc.

In fact, in 2007, for every $1 of value produced in China’s factories, American factories generate $2.50. Mark Killion, head of IHS’s world industry services, notes that the IHS report’s latest data indicates that manufacturing is far from bleak in the US, a fact that the media and policy makers often overlook:

The US has a huge productivity advantage in that it produced only slightly less than China’s manufacturing output in 2010 but with 11.5 million workers compared to the 100 million workers employed in the same sector in China.

The advantages of sourcing manufacturers in China versus sourcing manufacturers in the United States are quite distinct. A great many low-cost consumer products will continue to be made overseas, be it in China or other developing economies, as the low-skill/low-cost labor advantage is irrefutable. However, higher-value goods and industries requiring supply chains offering speed and flexibility will continue to find advantages here with U.S. factories.

AliBaba Experiencing Fraud in China and Why Sourcing a Tree Octopus is Still Possible

By admin on March 10, 2011 | Category: Product Sourcing and Strategy | Comments Off

In 2010, the Dept. of Education funded a study by Dr. Donald Leu, which turned out a report claiming that school children were facing a learning crisis spawned by the internet.  The study highlighted an experiment of Dr. Leu’s, in which he asked his students to write a report on the Tree Octopus, “an allegedly endangered species roaming the treetops of the Pacific Northwest”.  The story goes:

Researchers on Leu’s team asked a group of students to hunt down information on the critter, which of course does not exist. But the same researchers pulled a bit of trickery on the students — they directed them to a website dedicated to saving the mythical tree octopus from extinction. And presto: the kids taking part in the study fell for the hoax and even continued to believe in the tree octopus after the study’s leaders explained that there was no such thing.

Here’s a sampling of the tree octopus factoids featured on the site:

Tree octopuses have eyesight comparable to humans. Besides allowing them to see their prey and environment, it helps them in inter-octopus relations. Although they are not social animals like us, they display to one-another their emotions through their ability to change the color of their skin: red indicates anger, white fear, while they normally maintain a mottled brown tone to blend in with the background.

According to Leu, the founder and director of the New Literacies Research Lab at the University of Connecticut, the moral of the exercise is simple: “anyone can publish anything on the Internet and today’s students are not prepared to critically evaluate the information they find there.”

The Yahoo article I read about this in points out that the root cause of the problem may lie less on the shoulders of the internet, and more on the ability of children to think critically.  It also seems to apply to some users of manufacturer directory websites like Alibaba as well.  Dan Harris of ChinaLawBlog, has written yet another post about the perils of Alibaba, prompted this time by a Time Magazine article which has uncovered fraud within Alibaba itself.  I often remark in my presentations, as well as previous blog posts, that Alibaba and similar websites have ONLY helped us with the tip of the iceberg in the sourcing and manufacturing process.  These listings of manufacturers are powerful in that they have made it far easier to connect with companies overseas.  However, I agree with Dan when he says that this has gotten a lot of SMEs into trouble because they don’t yet know that the connection is just the tip of the iceberg in sourcing and managing a good manufacturer, particularly in a low cost country like China.

When I lay out a sourcing and manufacturing schedule for a client, it quickly becomes apparent that finding the contact information for several potential suppliers and opening communications with them is…I don’t know, generally 1%-5% of the entire process!  There is quite a bit in the way of stages, decisions, negotiations, and analyses that has to take place before a company has product coming off the line.  Part of this is getting to know who you’re going to select as a supplier, and this surely can’t be gleaned from a website, even if Alibaba has awarded them a “gold” rating.  The scandal reported by Time Magazine in relation to these ratings being manipulated, just goes to show that even a 3rd party website and their purported audit, does not offer any assurance.  The article states:

An internal investigation by independent board member Savio Kwan revealed that beginning in late 2009, Alibaba had noticed an increase in fraud claims against sellers designated as “gold suppliers,” which means they had been vetted by an independent party as legitimate merchants. The investigation revealed that about 100 Alibaba sales people, out of a staff of 5,000, were responsible for letting fraudulent entities evade regular verification measures and establish online storefronts.

The company said it uncovered fraudulent transactions by 1,219 of the “gold suppliers” registered in 2009 and 1,107 of those in 2010, accounting for about 1% of the total number of gold suppliers during those years. It further said that “the vast majority of these storefronts were set up to intentionally defraud global buyers” by advertising consumer electronics at cheap prices with low minimum-order requirements. The average claim against fraudulent suppliers was less than $1,200.

I think the Times’ report of the fraud going on inside Alibaba is 1) not surprising given the fraud that has taken place in the factory audit industry itself, and 2) just another example of the Tree Octopus phenomenon.

Sourcing and managing a manufacturer, particularly one in China, is not something done well without leaving your chair.  You’ve got to do your due diligence and use common sense, no matter what on the internet implies that you don’t.  Oh, and if you’re intrigued by the Tree Octopus and disappointed it doesn’t exist, check out the Magnetic Octopus which can be domesticated and lives on refrigerators.  It’s awesome.  An Alibaba supplier swears it:

http://www.alibaba.com/product-gs/292165505/Plush_octopus_with_magnet_plush_octopus.html

Iphone Manufacturers Getting Heat. Should you care about the working conditions of the factories you source?

By admin on February 28, 2011 | Category: Product Sourcing and Strategy,Sustainability & Transparency | Tags: , , , , | Comments Off

I think so. Wired Magazine’s March 2011 cover/issue (available in print, not yet online) “1 Million Workers. 90 Million Iphones. 17 Suicides”, raises the question from a consumer perspective.  Article author Joel Johnson hopped on a plane and toured through the main Foxconn factory, Apple’s largest contract manufacturer, in hopes of learning and telling the world more about the kinds of places the vast majority of our electronics products come from. The article did a good job of portraying the conditions of a chinese factory, and even Johnson admits that his tour guides were not far off the mark when they described the city-state factory (1 million workers) as looking like a typical community college campus in the U.S. (Are the keg lines long?).

The working conditions of overseas manufacturers are always a hot issue and scrutiny of the way large companies like Apple treat their masses of contract manufacturer workers is a good thing. Surprisingly, the Wired article may seem like a disappointment to many hoping to find the chink in Apple’s armor, because it did a good job of exonerating Apple by showing that their business with Foxconn hasn’t led to anything outside the norm for society from a statistical standpoint. The article points out that the worker suicides at Foxconn, 17 people out of 1 million, are well below the national averages for both rural and urban China, and that the suicide rate of U.S. College students is four times the incidence of suicide at Foxconn.   Geez, it almost seems as though, if you’re kid was considering suicide, statistically–you would want to send them to work in this Chinese factory.   Either way, some people will buy the magazine because more people care these days about sustainability in general and would like to know the truth, at least, according to Wired. What may be more troubling, is many people will read the magazine cover and assume there are problems because, “why else would a magazine write about it?”  The point is, these are sensitive issues for ANY company.  So even if you’re not Apple, or HP, or Sony, but you’re a start-up, how do you approach this in your supply chain?

Sustainability and labor conditions in international supply chains is a concept that is still relatively new. For all the public and media lashings that companies like Nike and Walmart have taken over the last 20 years regarding the treatment of factory workers and environmental impacts of supply chains, we still have a long way to go in moving industries in a more sustainable and transparent direction. But it’s happening. See my posts on Walmart and IBM, for a taste of the progress.

At the start-up and growth stages, you’ve got to start early and you’ve got to approach sustainability in a way that makes sense given the challenges before you. My advice: focus on the social and environmental standards of the factories you’re sourcing. Look for the manufacturer who is already doing it right, rather than thinking you’ll change the one that isn’t.

How do you know if they’re doing it right?

There are many issues with the way large companies institute and monitor social and environmental policies with their suppliers. Typically, companies send teams of auditors to inspect factory conditions every so often.   The auditors then report either a pass for the supplier, a change in the supplier’s status to the ‘watchlist’, or elimination from the purchasing base altogether. The truth is, the monitoring system widely used in the industry is not very effective as a cause for improvement in industry conditions beyond a baseline point. Andrea Harney’s book, The China Price, does a fantastic job of laying out the problems of this system in the industry. Despite this system, there are so many factories out there that don’t even meet baseline standards.   As a start-up or small company, how do you assure the standards of the factory you’re working with?   I have 3 options for you, any of which will give you some information to make a judgment on.  Coupling a few of these tactics together will give you a more well-rounded perspective: 1) source a factory that is working with larger companies that must enforce standards, 2) go there and see the factory for yourself, 3) have an audit team go in and report on the status of the factory conditions.

Simple as that. You should start with #1, do #2 at some point anyways, and pay for #3 if you’re very serious about the issue.

Why is it unlikely that I’ll be able to push change with my manufacturer?

First, let me say that this is something that the largest of the large companies in the world are continuing to struggle with. Some companies and industries have made greater advances than others, but the fact remains that even organizations with far greater resources and budgets must work hard to make improvements. Oftentimes, industry leaders like Levi and Nike don’t have enough clout themselves to push suppliers to change their operations, and companies like these must band together with their competitors in the industry to lean on suppliers and advance their standards and operational practices. Thus, thinking you will begin to do business with a new contract manufacturer (and as a start-up, the importance of your business will likely be small compared to their larger, steady customers) and demand they adhere to guidelines they don’t already subscribe to is not realistic. For these reasons, it’s much more important to think about the factory you’re sourcing to begin with, rather than trying to change a supplier you’re already working with.

Thinking about these issues going forward, I encourage my clients who are interested in the sustainability of their products and supply chains to consider the entire lifecycle—from the materials and design of the product and packaging, to the location of the factory, the practices of the factory, and the impacts of shipping. A start-up should be strategic in their approach and go after the low hanging fruit, while making sure they are focusing on successfully growing their business. As business grows, there will be increasing opportunities and resources to continue building your business in a responsible fashion. Just like Apple, at some point, consumers and watchdogs may demand to look under the hood of your factories to see if you’re business is on the up and up.  Start early. Start smart.

Event Recap! Stanford’s Responsible Supply Chain Conference: Social and Environmental Responsibility in the Global Supply Chain

By GSS on May 4, 2010 | Category: Sustainability & Transparency | 1 Comment

This is the second year I have attended Stanford University’s conference on Responsible Supply Chains.  This year focused on the theme of collaboration in the supply chain, and  consisted of speakers and panels of top industry executives from Levi-Strauss, Nike, Johnson Controls, Business for Social Responsibility, Dow Chemical, Bon Appetit, and many others.  The conference’s growth in attendance and complexity of topics covered were representative of the continuing significance many companies are placing upon sustainability in the supply chain. Despite some of the presentations having more of an advertising slant, most of the presenters did a good job of highlighting lessons learned and best practices.  In addition, I thought the size and format of the conference helped foster candid and challenging audience questions which generally earned insightful responses from the speakers.   Here are the highlights and conversation topics of the conference which I thought were most noteworthy:

  • The conference–presenters, panel speakers, and attendees were much more international this year than last year.  In addition, it seemed several large corporations who were looking to international emerging markets for growth were taking sustainability very seriously in the development of their business models in these markets.

  • To try to implement sustainability initiatives in the supply chain from a boardroom that is an ocean or continent away from production is not realistic.To identify problems and develop practical solutions, one has to get on the ground and visit the factory, visit the field, talk to personnel and partners involved, and get your hands dirty.  Determine the unit of analysis that will be essential to spurring widespread adoption and change, and understand it deeply.  Everyone must agree on the objectives, and someone must take the reins and push action.

  • CXO leadership and support is critical.  Presenters unanimously cited that support from the top echelons of management was essential to being able to push change and achieve sustainability objectives in the organization and supply chain.

  • It is clearly not just about reputation management anymore.  Many feel regulatory risks are on the horizon and its best to begin addressing high profile issues now. Furthermore, at a more fundamental level, a few executives cited the inevitable increase in scarcity of resources and the rise in input costs as a growing, long-term risk to their competitiveness.  Whether the company relied heavily on cotton, oil, plastics, chemicals, food, etc., the cost and scarcity of future resources were prime motivations to address sustainability in the supply chain and make the long term business case in light of short-term financial pressures.  Sustainability in the supply chain will be a competitive driver of the next decade and will eventually become a price of market entry.

  • The challenges of reliably monitoring, or “policing”, the supply chain, have caused companies to adopt approaches centered on capacity building.  Supplier managers are engaged and asked to monitor themselves and demonstrate not only their effectiveness, but their continual improvement as well.  Because of the investment required to build the capacity of a given supplier, advancing these programs is more challenging in industries where switching suppliers is common.

  • The food industry is an excellent example of just how fast an industry can change and sustainability can become a major consumer concern.  In the last decade, the market progressed from consumers not caring where their food came from, to explosive growth in demand and supply of organics, locally sourced and fair trade food categories, adoption by major grocery retailers, and TV shows and documentaries stirring consumer awareness.  Apparel is another industry that is experiencing rapid change.  Executives cannot take these issues lightly with respect to how quickly they can alter the competitive landscape.

  • One presenter felt that to truly move a company towards sustainability, metrics and incentives in this area must be embedded into company management systems.  Also, some companies, which are taking sustainability very seriously, are reorganizing their structures to allow for greater innovation and information sharing in these areas.

IBM and Walmart Make Big Pushes for Supply Chain Sustainability: 5 Key Points to Consider

By GSS on April 16, 2010 | Category: News | 3 Comments

IBM announced on Wednesday that they will require their suppliers, numbering almost 30,000 worldwide, to initiate data management systems in the areas of energy use, greenhouse gas emissions, and waste and recycling.  This announcement is on the heels of Walmart's press release in February regarding the company's goal to cut 20 million metric tons of greenhouse gas (GHG) emissions from its global supply chain by the end of 2015.  

Last September, I collaborated with Michael Lamereoux of Sourcing Innovation to publish a guest post on Supply Chain Sustainability and Transparency.  In it, I said: 

(Supply Chain Sustainability and Transparency)…a trend that requires many sourcing and procurement organizations to stretch outside their traditional bounds because of its interdisciplinary and cross-functional nature. Whether one likes it or not, for reasons of consumer demand, cost reduction and risk, and good ol' conservationism, environmental sustainability will grow in importance and the supply chain will increasingly be dragged into the limelight on this topic.

It's happening now and smart companies are getting out in front.  A few points to note:

When companies set goals and standards for their suppliers like this, they generally aren't mandates.  In most cases, they aren't saying "do this or we won't do business with you".  Watchdogs may see this as a loophole, but the reality is that the mandate approach doesn't work as well for two reasons:

1) Suppliers deal with multiple customers and cannot effectively serve mandates developed independently by each customer.  Originally, when companies began demanding adherence to social and environmental codes, each company had different requirements.  Thus, suppliers would be forced to modify their practices to comply with many different types of standards–hardly efficient and when I would meet with factory managers and this topic came up, it wasn't unusual for them to voice their complaints about how difficult it was trying to modify one factory to comply with the variety of standards. Allowing factories to develop their own systems not only builds their management capacity, but allows them to address key issues for everyone in their own creative ways. 

2) Companies are finding that best practices in driving sustainability make collaboration a priority.  Why?  Because suppliers buy-in when they have a say.  The "Beyond Monitoring" Group of San Franicsco based NGO, Business for Social Responsibility (BSR), advise that focusing on suppliers' management capacity is a key indicator of how effective a supplier will be at implementing their own monitoring and reporting systems.  In case studies, both Global Reporting Initiative (GRI) and BSR have noted that suppliers' managers typically express difficulty in designing, managing, and reporting on their environmental issues because they have a hard time pulling resources and time away from other operations to accommodate this.  In successful cases, brands compel and guide suppliers to do the tough work of increasing the sophistication of their management systems to be able to handle these issues. Thus, they've stretched themselves and enhanced their own capabilities.  They own the changes.  And, they can use it for competitive differentiation.  This is better than a mandate.

Because of the number of changes that must occur for these goals to be reached, both internally and externally, the companies that are most successful at this will generate wins on multiple levels that will help them gain competitive advantage.  

3) Implementing the internal changes required to drive sustainability up the supply chain is not easy. At Stanford University's Responsible Supply Chain Conference last Spring (coming up again soon), I listened to execs from several large companies describe the challenges they faced in making small changes to reduce carbon footprint.  A simple example which alludes to the potential complexity: modifying shipping pallet size by less than a foot to accommodate tighter packing of cartons, required workers in the factory, trucks, warehouse, and retail to change from practices that have worked for years, as well as, allocate budget to change out old infrastructure. This is change management at its core and finding ways to appeal to everyone proved key to getting the bigger, systemwide win.  It all adds up, and the companies improving their skills in change management like this will continue to push their lead on competitors.

4) Much of advancing sustainable initiatives involves the "reduction" of things–energy, material, scrap, distance, and so forth.   Anyone with P&L responsibility will perk up when they hear something that sounds like inspirational cost cutting.  The economic conditions of the last few years have shown companies just how important it is to remain lean in good times.  Companies looking for the sustainability/cost-cutting win-win will be able to fatten margins or pass savings onto customers.  

5) Conveying "sustainability" to consumers is an area that is still very new and experimental.  Companies have been experimenting with different approaches and had varying amounts of success.  A few things are clear: 

A) Consumers and watchdogs catch on quickly and greenwashers are punished.

B) As major players continue to push sustainability, sustainability will continue its transition in more and more product categories from nice-to-have selling point, to "must-have" feature–similar to quality, price, and service.

C) Despite the economic turn, a growing swath of consumers are considering sustainability in their purchasing decisions and many report being willing to pay a price premium.  As sustainability continues its push to the mainstream, the price premium will likely erode–meaning you better have cost-cutting as a priority for your sustainability to be…sustainable.  

D) Sustainability works well with transparency. Some of the best approaches to conveying sustainability to consumers seems to involve simply showing them what you're doing.  Method, Patagonia, and Timberland, are three companies that seem to blend authenticity, transparency, and sustainability in an exceptional way that drives brand value. Integrating sustainability into the company and/or product brand may be the most effective method of increasing brand value and maintaining price premiums as sustainability becomes more commonplace.

Product Packaging Design and Messaging: Don’t be a Pansy

By GSS on April 11, 2010 | Category: Product Marketing | Comments Off

It's tempting to answer the question: "what would it take for my product to appeal to a little bit wider audience or market?"  If you answer that question, repeatedly, and continue to make packaging changes based on the answers, you'll end up with something that speaks to a lot of people, but doesn't really say much.  Great for politics, not so great when trying to create perceived value.  

Seth Godin, in his post Telling a Story on the Label, brakes down how packaging adds $17 in value to a soap product.  It takes thought, and guts, to speak directly to who your market is, and turn away everyone who isn't.  Take it away Seth:

Seth godin packaging
 

Here's a $20 bottle of soap. Functionally identical to a $3 bottle, so what's the $17 for?

Let's assume the people buying it aren't stupid. What are they paying $17 for? A story. A feeling. A souvenir of a shopping expedition or perhaps just a little bit of joy in the shower every morning. Let's dissect:

1. The hang tag. It's special because most soap doesn't have a hang tag. Hang tags come on things that are a little more special than soap. And hang tags beg to be read. This one says a lot (and nothing, at the same time.) It reminds us that it doesn't contain SLS. What's SLS? Is it as bad as SLES?

2. This isn't soap. It's mineral botanic. Both words are meaningless, which means the purchaser can attach whatever feelings they choose to them. In this case, the marketer is hoping for old-time, genuine, down-to-earth and real.

3. It's not made by a soap company. It's made in a Dead Sea Laboratory. Laboratories, of course, are where scientists work, and the Dead Sea is biblical, spiritual and really salty. The company has a name (Ahava) that is onomatopoeic and reminds you of breathing. Breathe deep and find calm. [Even better, I'm told it means 'love' in Hebrew].

4. My favorite part is that it's made from bamboo and pansy. At least a little. Bamboo because it's fast growing and Asian and gentle and wood and grass at the same time. And pansy… well… pansy is for girls.

5. Two really good things here. First, it's for very dry skin. This is brilliant. If your skin is dry, you don't want to hear that it's sort of dry, kind of dry, not as dry as that guy over there… No, you want to hear that it's extremely dry, really dry, so dry it's like sand. That kind of dry. This bottle understands how very dry your skin is, and it's here to help.

Also, it's in French! I love that there's the language of love and sophistication and diplomacy right here on the bottle. I can imagine that models for Chanel are using it on the Rive Gauche as we speak.

6. Did I mention the part about velvet?

It took guts to take this packaging so over the top. It doesn't match my worldview, but it might match yours. There's not a lot of room for slightly-out-of-the-ordinary.

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