The Wave of Supply Chain Information Coming…From All Angles

By GSS on May 5, 2009 | Category: Sustainability & Transparency | Comments Off

I know the identities of all of the factories and suppliers involved in the production of every product I make, from final assembly and packaging to the materials suppliers 4 tiers deep. 

I know what customers they are all working with.  I know their capacity and exportation quantities at any given time.  I know their financial health.

My customers know who all of these suppliers are as well.  They know the working conditions at the factories, worker wage levels, safety compliance, environmental practices, and what the bathrooms looked like…last week.

In fact, one avid customer who loves our products, took a trip to visit one of our supplier's factories, created a video documentary about their trip, and posted it on several social networking and company/product fan websites.  The video was well done, and 83,344 people viewed it in the first 4 months it was online.  We project it will be viewed by 1 million consumers within 2 years, and estimate a resulting increase in annual sales of $2.7 million for the product they featured.

My 7 year old daughter viewed the video and is now doing a class Twitter project with the daughter of the production manager at the factory.

Is this the future?  By when, 2015?  2020?

When supply chains began to extend globally over the last several decades, barriers to visibility up and down the supply chain were erected that had not previously existed or did not exist at the level of complexity found today.  Communications took place by plane, phone, fax, wire, catalog, trade show, etc. 

The advent of supply chain software technologies brought about a much greater system for supply chain management and was the first step to breaking down the walls of geographical distance and the opacity of suppliers' operations.  Out of Web 2.0, emerged internet portals such as Alibaba, Global Sources, and others that allowed buyers and suppliers all over the world to make contact without leaving their office chairs.  Today, we're seeing the emergence of another layer of supply chain information, from within companies, from 3rd parties, and possibly…eventually, consumers of the goods produced by the supply chain?

More to come…

Global Sourcing Specialists’ Blog “Product Global” Places Just Behind Forbes Magazine and Earns #16 Spot out of 100 Blogs Listed on oDesk.com’s 100 Offshoring Resources List

By GSS on May 1, 2009 | Category: News | Comments Off

oDesk.com, a global service marketplace for small and medium sized business to hire, manage, and pay remote freelancers or teams, has announced their top 100 offshoring resources, and Global Sourcing Specialists' Product Global blog has earned the #16 spot out of 100 blogs and websites.  We came in just behind Forbes Magazine (#15).  According to oDesk.com:

GSS Blog It has a manufacturing focus, but this blog from  Global Sourcing Specialists contains a few gems, like this is the article about the global sourcing short-term outlook.

Manufacturing the Ipod Shuffle: How Apple Produces Great Products at Great Prices

By GSS on April 30, 2009 | Category: Product Development | 1 Comment

Shuffle-black BusinessWeeks' Technology section ran an article this month, Deconstructing Apple's Tiny Ipod Shuffle (h/t Supply Excellence), that takes a shot at explaining how Apple has managed to create its latest, buttonless MP3 dynamo.  Based on data supplied by ISuppli, a company which opens up consumer electronics products and estimates the cost of components (not including costs associated with design, software, manufacturing, and shipping, the hard cost of the latest Shuffle is estimated at $21.77, or 28% of retail price ($79).  Some interesting points:

  • Apple's mp3 player competitor, Samsung, who makes semiconductors, supplies Apple with some of their most important and highest cost components: the main application chip and flash memory.
  • The lithium ion battery is the smallest which iSuppli analysts have ever seen and the passive components, resistors and capacitors, are exceptionally small–indicating Apple's use of cutting edge components across the board.
  • Except for the power switch, there are no actual buttons on the Shuffle.  All volume and track controls have been moved to the headphones cord.

In my mind, these all add up to what Apple does a wonderful job of in their handhelds: making great, cutting-edge products at prices that the masses are willing to pay.  Pretty simple.  One of the resources they've developed which I think allows them to accomplish this is their intimate understanding of their customers.  Understanding that the forfeiture of button controls on the device itself, to reduce cost/size, would be acceptable to consumers, and perhaps even seen as adding the aesthetic of the device, is impressive. "It's almost like six dollars worth of flash memory tied to some flash
and a battery and not much else," Rassweiler says (iSuppli's analyst). "It's very basic and
downsized."  In a consumer electronics market where devices are usually outfitted to death with features–Apple has achieved excellence in distilling devices down to the necessary, or the few most desired features, while at the same time opening up new form factors and price points that in turn open sales up to new customers. 

Perhaps I am biased, as I am a mac, Iphone, Ipod user.  But, if they're making a substantial profit margin, I believe they've earned it.  When I get a device that works as wonderfully and reliably as my Macbook, I am happy to pay it.  

Who is Your Manufacturer? Creating Value-Added Factory Sourcing

By GSS on April 28, 2009 | Category: Product Sourcing and Strategy | Comments Off

We're preparing to sit down with a new potential client and the management of the factory which we've sourced for their project tomorrow afternoon.  Every time we work on a sourcing project, we're faced with the question of how close do we bring the vendors to the customers.  Many outsourcing service providers fear they'll be left out in the cold in a situation like this.  But we've found it to be very helpful, in fact, necessary to always allow our customers the opportunity to meet the manufacturer that will be producing their products.  The value to us in keeping everyone arms length from each other is smaller than one might think (the value essentially being mitigating the risk of being cut out of the process prematurely), and it costs us, and raises risk levels, in several ways.

  • Honesty and straight-dealing: It may be impossible to quantify the value, but bringing everyone into the communication loop may be one of the most important aspects of all parties knowing each other.  It sets a tone.  Communication and information can flow more freely.  Less time and energy is spent on Prisoner's Dilemma thinking–trying to figure out how to come out ahead of the other guy in all situations, and more time is spent collaborating to figure out how to resolve problems and innovate. 

I recently had an interesting conversation with a former senior exec of sourcing and manufacturing at Nike and Disney about transparency in their supply chains and working with vendors to improve their labor and environmental practices.  At a time when these companies faced serious risk in consumer backlash because of the exposure of poor working conditions at factories, Nike, for example, took a hard look at their manufacturing base and changed course to focus on working more intimately with fewer suppliers.  According to this gentleman, everyone opened their books, saw what each other was making, understood that everyone needed to make money for the system to work, and collaborated on resolving issues that challenged any party in the supply chain, because they could all be honest about the causes and effects of what was taking place.  Nike is now known to be well out in front of the 8 ball when it comes to dealing with corporate social responsibility issues in its supply chain.  Issues do and will continue to come up for them, but they are in a much better place to resolve these problems at factories.  The same cannot be said for many other companies out there. 

  • Understanding the manufacturing process: When sourcing a new manufacturer for a product, particularly when a new product is being developed, it's always helpful when a client has toured the manufacturing facility where the product is going to be made.  Understanding the engineering of the production plan, seeing the machines that are used, how materials are stored, how quality control is accomplished, all offer a client the opportunity to better understand why certain issues are coming up and what can be done to resolve them.  This is particularly helpful in the product design and new product development process, when the ability of a manufacturer to include certain product features, use specific materials, or provide these things at a specific cost, is challenged by what is actually feasible in the manufacturing and sourcing process.  An understanding of the manufacturing process and capabilities allows all parties involved to quickly move beyond trying to understand why something is an issue, to resolving the issue. 
  • Knowing the key players: In any organization, you will find that there are some people that really move things forward, and some that don't.  Whether this is because they wield formal authority or soft power in the organization, they get up and get to work earlier than the next guy, or they aren't afraid to pick up the phone and talk to people, you want to know who are the people that really drive progress and solutions for your project in the organization.  When the S hits the fan–you want to be able to reach these people.

Not all customers have the opportunity to travel to the factory location, particularly if it's overseas.  It's our job to be the feet on the street, whether in China, Vietnam, Mexico, the Midwest, or southern California.  But, we encourage customers to come see the manufacturing plant and meet key players in the contract manufacturing organization if they have the opportunity and motivation.  Organizations relying on keeping people, and parties in the process, at arms length when designing or developing new products, sourcing new manufacturers, and managing the supply chain as a whole, do so because they lack the ability to provide strong value in other capacities.  There are many ways to add value to the sourcing process.  This is one simple way to make a big impact.

Making Cool Products Out of Trash, Terracycle’s Product Development and Materials Sourcing Process

By GSS on April 22, 2009 | Category: Product Innovation | Comments Off

Before the company Terracycle, the only thing that backpacks, laptop bags, and kites, had in common with Caprisun pouches, Oreo wrappers, and chips bags, is the kids that took them to school everyday.  Not anymore.  Terracycle is flipping this on its head, by creating products like backpacks, laptop bags, and kites out of the trash that we toss out everyday. 

Founded by Tom Szaky and Jon Beyer in 2001, Terracycle started by offering composted plant food, which eventually hit shelves in Home Depot in 2004.  Since then, the company is gaining steam and, according to Ecopreneurist (h/t for the story), is now exploring opportunties with Walmart and Office Max. 

The above video was taken from National Geographic's show, Garbage Moguls, on Terracycle.  Making trash, otherwise headed for the landfill, into a viable material for resuse in a new product, is perhaps closer to a Cradle to Cradle process than anything else I've seen in consumer products.  Through Terracycle's process, the product could be considered to be up-cycled, rather than downcycled (the actual process that occurs in most "recycling", in which a product is broken up into its material components and some or all of those components are reused, or downcycled, into a product that requires a lower quality grade of material). 

Although in embryonic stages at this point, could this be the next disruptor in the materials market?  It will be interesting to watch as Terracycle moves to transform the prototypes developed by their teams into mass-manufacturable products.  It's certainly a challenge that can be tackled by the creative minds driving innovations like this forward in the first place.  I'm ready to buy my Caprisun laptop bag and to start scouting out landfills for potential sourcing and manufacturing applications.

18.2 Months to Change Consumer Habits?

By GSS on April 21, 2009 | Category: Product Marketing | Comments Off

They say it takes 3 to 4 weeks to form a new habit.  How about 18.2 months?  That's how long the current economic downturn has lasted.   What will this do to consumer consumption and spending habits?

The NPD Group and the National Retail Federation (NRF) have released their consumer perception and retail reports for the first quarter of 2009.  The gist?

NPD:

  • "Consumer confidence continues to decline, albeit slightly, while intent
    to spend at retail remains steady, indicating that consumers may have
    reached their cost cutting limits.  With concern down only slightly, consumers did not dial back spending intentions.  The Economy Tracker’s
    Retail Response Indicator rose 0.5 points in March. “This slight rise
    could be an indication that we are seeing the beginning of
    stabilization,” said Cohen." (Marshall Cohen, Chief Industry Analyst of NPD Group)

NRF:

  • Several months of stronger-than-expected retail sales provided hope
    that the industry was poised to bounce back, but March retail sales
    demonstrate that the industry is continuing to struggle.  According to the National Retail Federation, retail industry sales for
    March (which exclude automobiles, gas stations, and restaurants)
    decreased 0.6 percent seasonally adjusted from February and dropped 3.7
    percent unadjusted over last year.

The NRF also issued a press release stating that "retail import volume hits the lowest level in seven years as number of cargo containers drops below 1 million mark". 

Two major questions: 1) When will we hit bottom and begin our way back
up? 2) Will consumer habits be markedly different because of this most
recent recession experience?

Stimulus package, tax refunds, latest shopping indicators.  Experts are looking for signs of the upturn.  We're all looking for signs.  But, do we really know?  What we can plan for, is the longer and more painful the recession is–the greater likelihood we'll see differences in the consumer that emerges.  My assumption is that a more painful experience for consumers creates greater motivation to not create the same
circumstances that lead to the pain again.  That's not a great leap in logic.  The generation that experienced the Great Depression, during which breadlines, shantytowns, and 1 out of 4 people were jobless, seemed to emerge with a measured approach to personal finance and consumption (in comparison to droves of people taking no down payment, interest-only, adjustable rate mortgages–like today).  Of course, the Great Depression generation didn't have easy access to credit cards and 55" HD flat screens calling their name. I'm just saying grandpa…

But what if some of the experts were correct, and the economy is very close to bottom and will begin inching upwards again soon?  The National Bureau of Economic Research estimates that we won't see a conclusion to this recession until the end of 2009 at the earliest.  In comparing this recession to the 3 other "Bad Bears", or the last 3 major economic declines since the Great Depression, we've declined further than the tech crash of 2000 and the oil shock of 1973, but have bounced back to similar S&P 500 levels as those events in the last few months  (Hat tip to Paul Kedrosky's Infectious Greed and Dshort for the graph).  With respect to time, the current bear market has existed for 18.2 months so far, while the oil crisis lasted for 20.7 months and the tech crash lasted for 30.5 months.  The Great Depression? Forget about it…34.2 months.

Four-bears

If this was the beginning of the end of rough times, would consumers look back and think that for all the doom and gloom in the media, "that wasn't so bad?"  Mostly gloom–not as much doom.  And if so, would we change our consumption habits for the long term?  We have grown accustomed to a standard of life, or lifestyle, and to retain that lifestyle, consumers may emerge with a more discerning eye for the things that we feel are essential to our quality of life and those that are not.  A recessionary education on the risks of easy credit and the prodigality of thoughtless consumption, and I believe we'll see some changes in consumer habits.  We may not be able to have it all and we will be willing to cut consumption in some areas to enjoy a high level of it in others. 

What does this mean for product marketing?  Product sourcing and supply chains?  The job of the product marketer will be tougher…requiring a greater understanding of what particular products and features specific segments will want and those they'll be willing to trade out.  Supply chains will need to be more responsive, to reduce the costs of unsold inventory created by the fact that, even great product marketers may guess wrong with respect to what their choosey segments will want.  Even if the economy begins recovery soon, consumers may be different–perhaps smarter and more sophisticated.   Business as usual probably won't return: act accordingly.


Sourcing Overseas Manufacturers to Save US jobs. Huh?

By GSS on April 16, 2009 | Category: International Trade and Political Economy | 1 Comment

It's not an oxymoron.  As a great article in Forbes.com, which originated from a post by Dan Harris at Chinalawblog, explains, it's the way Douglas Smith, founder and owner of SmithCNC-USA, is working to save the US manufacturing sector.  SmithCNC-USA is a North Lawrence, Ohio firm that helps midwestern manufacturers get components and raw materials abroad.  Companies starring the neccessity of self-preservation in the face are finding that the path to staying alive is by sourcing and working with factories in other countries to create a business structured for competition in the global economy. 

As I noted in a previous blog post, Made in the USA isn't Dead, Just Different, companies are not simply shifting everything away, but instead adopting a more global supply chain, wherein they retain higher value-added tasks and jobs here, and contract out low skill, low-value work to more cost competitive sources.  Other companies are outsourcing tasks for cost purposes, but retaining local production for quick response purposes to hedge against difficulties in forecasting demand. 

Like SmithCNC-USA, our clients often grow the design, engineering, sales & marketing, and administrative departments in their businesses and add jobs to these areas, by outsourcing operational duties like sourcing, some engineering tasks, manufacturing, packaging, and logistics to companies like us and our network of suppliers. 

The Forbes.com article describes Smith and some of the results his clients have enjoyed:

The founder and sole owner of SmithCNC-USA is Douglas Smith, a chatty
50-year-old ex-machinist with both cost-cutting and patriotic streaks.
He says he's doing his part to preserve the shrinking U.S.
manufacturing sector, which since 2000 has shed 4 million jobs, or 27%
of its workforce. (That compares with a 2.5% decline and a 2.9%
increase, respectively, for the freshly gutted construction and
financial industries.)

Smith's customers are U.S. manufacturers doing small and medium-size
production runs, either for their own end products or as contract
suppliers to other U.S. manufacturing firms. If they are lucky, they
eke out gross profit margins between 20% and 30%. That is, after paying
for labor and raw materials, they have at best 30 cents of the revenue
dollar remaining to cover overhead and depreciation on their machinery.
Smith says that by subcontracting some of the work abroad–for example,
the intake manifold in a car's air system–these contractors can add 20
points to that gross margin, and that's after paying Smith…

These companies, who might have otherwise stagnated or folded, have been able to expand and hire in existing and new areas because of their overseas manufacturing partners. 

The impacts of global supply chains are not always rosy.  The dynamics are often more complex, and involve both positive and negative consequences, with an inordinate focus by pundits on the latter.  US companies surviving, and often flourishing, in the face of competition inevitably coming from all parts of the world, is positive.

Swimming Naked in the Supply Chain: Getting to Know Factories & Sourcing

By GSS on April 14, 2009 | Category: Product Sourcing and Strategy | Comments Off

As the phrase goes, "when the tide goes out, you find out who has been swimming naked" many businesses are painfully finding out whether their offshore manufacturing sources are without bathing suits.  Some companies have turned much greater attention to the managing of their costs and risks in the supply chain in recent years, and a few have found competitive advantage in doing so.  Now, it's becoming a necessary means of survival. 

Panjiva, a company which data mines US Customs data along with other sources to develop insight into manufacturing and trade trends, notes in this blog post that "From January 2009 to February 2009, in just a single month, the number
of global manufacturers shipping to the U.S. dropped 10%, from ~131K to
~118K."  Furthermore, Panjiva reports that:

Many SMEs do not have the resources to build risk models to assess risk in the supply base and to create and implement expensive risk management plans.  However, even without sophisticated quantitative methods, the principles can be applied.  Thinking through various events that can occur, the likelihood of these events, and the impact they can have, can be a useful exercise for an SME to undertake.  In good times, many won't delve too deeply into creating contingency plans.  Of course, in challenging times, it's the companies that did set this up who eat the market share of those who are too busy scrambling to save the company.

Given the economic environment, a few risk infused events that are more likely to occur on the supply side might be price increases, MOQ increases, or quality fade–stemming out of a situation in which a supplier, or even a 2nd tier supplier, is hitting the skids business-wise and needs to find a way to get more cash with the customers and orders they still have.  They may be looking at monthly survival. 

A lower probability event that may have a high impact may be your supplier going under and completely disappearing.  Worst case scenario: they disappear with your money.  Or, perhaps they don't respond to your emails and phone calls next time you are ready to place an order.  This won't give you much time to source another supplier, develop their manufacturing processes to meet your specifications, and pick up where the last one left off.

How can we create a decisive advantage in managing these risk factors?  Create greater visibility in your supply chain and expand your portfolio of options.  Visibility is  information–thus extract more information from your suppliers and about your suppliers.  The easiest way greater transparency can be had is with a more open, trusting dialogue.  These kinds of things are much easier to do face-to-face, particularly in countries like China.  But use third party information to help create a comprehensive picture.  Consider having factory and company financial audits performed.  Information from local banks used by your suppliers, government agencies, and other sources can give you an idea of the financial status of your factory.  Another useful source is the company Panjiva, mentioned above.  Panjiva offers reports on the importation data for thousands of suppliers that allow one to learn about fluctuations in a suppliers shipments to the U.S., their other product lines, and other customers.  In this case, knowledge is power and with it, you obtain a much better view into your suppliers current situation and their impetus for trying to renegotiate terms. 

Also, are you single sourced on key products and components?  Source second and third suppliers for your products.  Alternative sourcing options gives you leverage with knowledge of general pricing and terms available in the market, as well allows you a stronger negotiating position by not feeling entirely dependent on one supplier.  

Summer's around the corner…if you don't already have a bathing suit, now is the time to start shopping.

Moving Towards More Transparent and Sustainable Supply Chains?

By GSS on April 7, 2009 | Category: Sustainability & Transparency | Comments Off

Green chain
While the prevalence of "green" and "sustainability" has been rather constant, or shown slow, steady growth from 1995 to 2005, numerous consumer research sources show that consumer attitudes and preferences for sustainable and green elements in their shopping experiences and lifestyles has grown dramatically in the last few years (download Greentailing in Tough Times: How are Consumers Reacting and Retailers Responding?.  A few general observations that I have found particularly interesting:

  • The definitions and standards of "green" and "sustainability" are still under debate and refinement.  It's clear that there are many shades of green which can be analyzed in many areas of a product's lifecycle.  For example, how does one measure the "greenness" of a completely recyclable product that is manufactured in a fashion that has a large, negative impact on the environment?  Conversely, what of the circumstance in which a non-recyclable product with harmful materials is manufactured in a very low-impact environment?  Include the footprint that is created when factors such as packaging, shipping, disposal vs. reuse vs. recycling, energy consumption of the product itself, retail environment requirements, and many more–and it's easy to see that there are numerous areas in which a product may or may not be green and/or sustainable.
  • Green generally refers to elements of eco-friendliness.  Ethically sourced and Fair Trade generally refer to the social impacts of the conditions in which the goods are made.  Both might be said to fall under the general umbrella of sustainability.
  • Because the topics of green and sustainability have gained so much momentum in the last few years, many companies who jumped into marketing green without much follow through, were quickly labeled as "greenwashers".  Thus, 3rd party certification and authenticity through honesty and transparency seem to be gaining greater currency with consumers who demand that companies' claims of sustainability are real.  
  • Consumers are generally not willing to pay a price premium higher than
    10% or so for green products.  To continue towards mainstream growth,
    green cannot cost more…green.

Where do supply chains fit into all of this?  The general concept of the supply chain consists of how products are produced and moved from producer to end user.  From the consumer's perspective, this process is essentially invisible.  This may be a reason in which this area has received less focus than others, such as energy consumption of the product, packaging, recyclability. 

However, global supply chains have been a major force for economic expansion and development, as well as widening environmental and social impacts.  When companies in the United States extend supply chains to lower cost, developing countries, prices in stores drop and a whole segment of the U.S. population that would not have been able to afford a certain standard of living are able to accumulate material wealth. In China, the manufacturing base expands to support the demand, and people leave the countryside to earn wages higher than those made in the countryside.  When consumers in the United States slow down their consumption of products, areas in China developed to support previous consumption levels are again dramatically impacted.  In the area of Dongguan, a large manufacturing region in Southern China, it is estimated that up to 1/2 of the population, or approximately 6 million people, have left in the last year.  Imagine half the population of Los Angeles leaving the city in a year's time.  The positives and negatives of all of this is extremely complex and could be approached from myriad perspectives.  But one thing is clear, supply chains are having a substantial impact on the world.

Some companies like Patagonia, Timberland, and a few others are publishing the carbon dioxide footprint of their product lifecycles.  Patagonia is taking some impressive steps forward with their Footprint Chronicles and the publishing of their factory list.  Patagonia is not only making their supply chain more transparent, they are doing so in a refreshingly authentic fashion by sharing both the positive and negative impacts that their products and processes have.   Will other retailers and manufacturers follow suit?  Will consumers demand more information and transparency with respect to supply chains?

Much more to come on this topic, such as Walmart and transparency, manufacturers in China, the social compliance auditing system, and more.

Ashton Udall, of GSS, speaking at Stanford University Feb 21 & Industrial Designers Society of America Feb 24 – Come Join Us!

By GSS on February 20, 2009 | Category: News | Comments Off

We hope you can join us at the upcoming Stanford University Entrepreneurship Week "Bring Your Product to Life" Workshop and DesignSight, an event hosted by the San Francisco Chapter of the Industrial Designers Society of America.  Ashton Udall, of Global Sourcing Specialists, will be speaking at these two upcoming events on the topics of sourcing and managing overseas manufacturing.  The events are geared to delve deep into practical, nuts and bolts practices and stories of design and manufacturing in the entrepreneurial process.  Specifically, Ashton will focus on the process of successfully moving products from development and low volume manufacturing to high volume manufacturing with qualified offshore manufacturing partners.  Event details are below.  We hope you can join us!

TUESDAY FEB 24th ~ Join Us!

DesignSight is a new event series developed to help stimulate important conversations within the design community.

The mission of this month's event is Creative Entrepreneurship – Design Business. Any designer considering entrepreneurship or those looking to fine tune their business practices in the face of the recession should attend. Come ready to discuss your concerns with experts on topics such as: business frameworks specific to design, intellectual property, sourcing, entrepreneurial best practices and product development.

BUY Tickets

$35 – Dinner, Drinks and Great Conversation
7:00 pm
Andalu Restaurant | in the Mission District of San Francisco
3198 16th St., San Francisco CA | (415) 621-2211

Please RSVP with your top 3 table choices.

Table 1. John Edson – President – LUNAR
Table 2. Ashton Udall – Global Sourcing Specialists
Table 3. Mathew Lawyer – MD, JD, MPH, registered USPTO Patent Agent and Entrepreneur
Table 4. Mike Strasser – Managing Member – Think2Build and ReactorSF

What we do

  • Design & Engineering
  • Factory Sourcing
  • Manufacturer Development
  • Contract Negotiation
  • Manufacturing Management
  • Assembly & Packaging
  • Quality Assurance
  • Freight Forwarding

Testimonials

“Thanks to GSS for making our product a reality!”
by Julia Houck-Whitaker President & Founder, Hem Gems LLC