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.

Once again, Stanford University is hosting their annual Entrepreneurship Week from February 22-February 28.  The event agenda promises great opportunities to gain insights about entrepreneurship and hear stories from scholars, consultants, and entrepreneurs from perhaps what is the most active entrepreneurial area of the world

I participated on the speaking panel last year at Stanford's "Bring Your Product to Life" Workshop, and it was a  fun event and fantastic turnout.  Here is a link to some of the highlights of last year's session.  The panel features an array of speakers with varying backgrounds that have been asked to cover topics relevant to getting your product from idea or design, through manufacturing, and on the market.  Yours truly will be there to discuss my take on working and getting things done in foreign countries.  Other topics covered will include product development, sustainability, contract manufacturing, IP, and more.  

Hosted by Stanford's Product Realization Network, the workshop will take place on February 27th, from 12:30-2:30.  Further event details to come soon.  There was standing room only last year–so get there early!

Hat tip to Michael Lamoureux of Sourcing Innovation for his post covering a recent article in Industry Week on Collaborative Innovation.  Let's start with the meat that gets everyone's mouth watering:

Increase profits 15% to 20%.

That's correct.  According to a survey of 30 global consumer packaged goods manufacturers in retailers, 95% of them cited collaborative innovation as very important to achieving business objectives and a driver of profitability.  A few of the main points, as highlighted by Michael at Sourcing Innovation:

• Non-Adversarial Mindset
  Michael mentioned going one step further to say that you need to be able to trust the the party.  I completely agree.  When it comes to manufacturing sources, particularly in overseas places like China, building trust occurs out of 
• • working with people who are trustworthy in the first place (duh!  but often overlooked…)
  • putting in the time to meet your partners and understand their business
  • approaching your business dealings with them as a partnership and looking for win-win scenarios.  What's good for the goose is good for the gander and your partners will go the extra mile for you to meet your deadlines and meet your specifications when they know they will gain if you do.  

• The Ability to Learn to Speak "Another Language"
  Michael's thoughts: "Every profession, and every group, has their own "language". You are going to need to learn it or you might as well only speak English while your collaborator only speaks Mandarin as the communication gap will be just as broad until you do."  IMHO, the success of learning another language is driven by speaking a lot.  I often say that you cannot communicate too much in product development and sourcing throughout your supply chain.  When you talk more, you catch things that were missed and raises the probability of discovering areas where your "language" is different from their "language".  Making the effort is 80% of the battle, and goes a long way to buttress the first point–building a trusted relationship.  It may take more effort in the beginning, but once you are in the swing of things with the other party, progress will occur at blinding speeds.

• New Metrics
  Most companies will have a hard time transitioning from the metrics they have to measure supply chain performance now, and metrics that will help analyze and improve elements of the supply chain such as collaborative innovation.  One area that companies are increasingly tackling is corporate social and environmental responsibility, which requires collaborative innovation and work up-and-down the supply chain.  Metrics for the supply chain, or supply chain partners are developed, such as packaging reduction, eliminating energy intensive materials and processes from the supply chain.  Managing, measuring, and sharing in the successes and failures brings partners closer and can be an indirect method of getting a handle on the level of collaboration taking place.  More simple methods of looking at this might involve looking at what % of ideas came from where.  For example, how much did you product specification change from when you first handed it off for quotation compared to when you arrived at a final quotation based on approved samples?  Were materials changed?  Assembly processes changed?  Part dimensions changed for lower cost tooling?  If so, where did these ideas come from.  Your vendors may be bringing you more value than you think?  Also, one can look at the % of risk shared.  How is performance measured and payment structured?  Is one partner shouldering all of the risk?

• Willingness to Share IP
  When thinking about offshore manufacturing destinations like China, hands start to tremble at the thought of this.  In the article, this point might be more directed towards conversations downstream in the supply chain–such as with distributors, retailers, and key customers.  It's important to make decisions about when and what and with whom you are willing to disclose IP related information.  However, while most focus on what can be risked and loss, there is also quite a bit to be gained.  Fresh and valuable perspectives on how to make the most of one of your most core assets, from a core partner, could be one of the most profitable benefits.  

I like this article because the global business environment is simply too competitive to not leverage the value of your best partners.  Talent and resources can be tapped that you don't need to directly pay for, and mutual wins can translate into strong relationships that drive competitive advantage.  While this may be a lot of MBA and corporate speak to say that putting in effort to play well with others means more change in the piggy bank, it's surprising how many companies and people forget this when playing in the sandbox.    

We're currently in the midst of several projects moving through the final design to tooling stages–a very iterative process in which companies are finalizing their product designs based on playing with prototypes, buyer/market feedback, and getting cost feedback from suppliers to make decisions on feature/cost trade-offs.  I thought I would write a post regarding some of the issues that have come up and offering a few insights into addressing the sizable up-front financial investment that building injection molds and tooling can pose to companies launching new products.

Companies can look at several different options to bring mold costs down: from design to financing. 

• Product Design: A good product designer will design parts for cost-effective tooling, bearing in mind the part will be ejected from the mold, shrinkage rates, and dimensional tolerances.  If you have a source, or sources, that are great with customer service and will work with you to re-quote injection molds based on several design iterations, this can be very helpful in leading the industrial design to the optimal design/cost balance.

• Mold Material:  Another consideration companies may wish to entertain with respect to lowering injection mold cost, is deciding whether to build the mold out of steel or aluminum.  Aluminum has been considered a low price way to get a production run in the thousands of units completed at 1/3 the cost of steel molds.  This article, Why Offer Aluminum Molds for Production, at MoldMakingTechnology, claims that, with proper creation and care,  aluminum molds can deliver production runs into the hundreds of thousands of units and beyond.  I'll let the engineers haggle it out over the feasibility of accomplishing this.  I can tell you that I've received quotations for aluminum molds from several vendors recently and they all cautioned against the potential corrosion that can occur with aluminum molds and the susceptibility of the material to damage given it's softness.  It's worth noting that fluctuations in the price of steel and aluminum material will obviously impact the mold cost.  Currently, in China, aluminum prices rival steel, and the savings previously found in aluminum molds has essentially been wiped out due to this. 

• Mold Plan: In addition to material, one could consider different ways to layout a family of injection molds (assuming your plastic product might be composed of an assembly of parts).  Generally, each part cavity has its own mold base.  However, to reduce cost, one can consider a MUD base (sounds like a spa treatment, but MUD means "Master Unit Die"), in which the part cavity is an insert that can be dropped into the common MUD base.  Thus, only one mold base is created for all of the inserts, instead of bases being created for each insert.  This does increase the run-rate and part cost incrementally, but it can offer a notable cost reduction to reduce the up-front financial investment for new products.  Below are some pictures of a MUD base mold with two inserts:

• Mold Financing: A company should never pay an entire mold fee up-front, and should instead break out the fee according to milestones in the mold building and tweaking process itself.  An up-front payment to begin work, a payment at first shots (the first parts they make off of the tools), and a final payment upon final shots approval (meaning you've approved the parts coming from the molds), is a typical structure.  Occasionally, vendors will be willing to amortize some or all of the mold costs into one or several orders.  The ability to do this will often vary from vendor to vendor, their financial situation, and hunger to obtain the business.  Bear in mind, that until a company has paid all of the cost of the mold, they do not yet own it.

Here is a link to a video of a guest lecture GSS partner, Ashton Udall, made to Stanford University's Design and Manufacturing Forum last Friday.  The topic was Offshore Manufacturing for Start-ups and topics of discussion included basic steps in the process of offshore manufacturing and key factors for success.  Just click on View ME396 Seminars Online, and the video is Lecture 8. 

Ashton Udall will be giving a similar talk this upcoming Saturday on May 30th, at 10:30am, for the Inventors Alliance of Silicon Valley.  Event details can be found here. 

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:

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!

• Industrial Designers Society of America DesignSight Event

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

Stanford University is hosting their annual Entrepreneurship Week from February 18-February 25.  The event agenda promises great opportunities to gain insights about entrepreneurship and hear stories from scholars, consultants, and entrepreneurs from perhaps what is the most active entrepreneurial area of the world.  Ashton Udall, of our firm Global Sourcing Specialists, will be speaking on a panel at the "Bring Your Product to Life" Workshop, which will be held Saturday, 1-3pm, February 21. 

Lead by Marc Theeuwes, Consulting Associate Professor of Stanford's Mechanical Engineering Design Division, and hosted by Stanford's Product Realization Network, the panel will cover topics of creating, manufacturing, protecting, and marketing products.  Marc will be a particularly interesting panel leader to hear from.  Prior to coming to Stanford, Marc worked in management roles in areas such as product development, operations, and business development, at companies such as Gracenote,
Nokia, Lifechart, OmniCell, J&J/Lifescan, and Syva.  It should be a great workshop, as I know Marc will ensure that real-world experiences and practical insights are discussed.

I've been asked to make some remarks and answer questions on the critical entrepreneurial phase of sourcing and engaging overseas suppliers for product development and manufacturing.  The event is 2 hours and there will be a Q&A session.  The event details are below.  We look forward to seeing you there and saying hello afterwards.

About 1 year…

But are they closed?  Serving other markets?  In hibernation?

A report released by Panjiva, a company founded in 2006 that mines U.S. Customs and Border Protection data to create useful reports on suppliers, claimed that the number of apparel suppliers shipping goods to the U.S. dropped 85 percent over the year (ending October 31, 2008).  Circa October 2007, approximately 43,653 factories were supplying apparel to the U.S. One year later, the data revealed that only 6,262 remained.  While some of these factories may be surviving by diverting attention to other markets, there's no doubt that a great many of these suppliers have probably shut down completely.

It's not difficult to surmise the cause. 

Looking at the retail side, Q4 '08 is showing the signs of pain up and down the supply chain.  Order cancellation, inventory build-up, tightening credit, and of course, weak consumer shopping are rippling throughout the retail and manufacturing environment.  

The end, or even the beginning of the end, is not in sight.  Problems beleaguring consumers and retailers will surely extend, and likely worsen in Q1 & Q2 of '09.  Once the holiday cheer is over, the credit card statements come and many feel consumers will be on spending lock-down.  Inventory surpluses will need to deplete before buyers will once again begin signing off on orders. One merchandise planner for a major department store commented to me that Q3 of next year may still be early for things to finally hit bottom on the retail side.  Much will depend on the next few months.

With respect to the many factory closings, damage has been done and even more may close.  But, it's unclear how many of these factories have closed permanently, or rather, gone into hibernation.  Many of these apparel factories may be smaller shops, with 300 or less workers and no heavy machinery.  Equipment might be liquidated or stored easily and, as mentioned in my previous post, labor forces in a given locale of a developing country, particularly China, have a way of contracting and swelling much more easily than in, say, the United States.  In China, it's not uncommon to see a series of furniture shops open and close in a matter of months when a large apartment building goes up and residents moving in will need furniture.  Start-up costs/barriers may be no more than: buy some furniture and rent the space. 

Thus, as the consumer spending, and subsequently retail, begins to turn the corner, which we may begin to see by Q3 of '09 (hopefully), we may see factories begin to come out of "hibernation" and pick up operations again.  After all, management prowess, labor skills, and industry contacts don't disappear.  The availability of credit is another question.