US President Orders Plan for Protecting the Country’s Supply Chain

President Barack Obama has currently directed the Homeland Security and Departments of State to come up with a plan that will protect the $14 trillion American economy from disruptions and issues in the global supply chain.

Last January 25, the White House just released a federal strategy about global chain security which will give officials from departments 6 months to come up with suggestions on how to spot supply risks and make infrastructure more resilient to changes.

Disruptions in the supply chain caused by natural disasters and terrorists attacks can potentially affect international economic growth and its productivity. Hurricane Katrina already disrupted the American oil and refining industry in the year 2005. The Japan tsunami last year also disrupted exports and imports and hurt the American automobile industries.

Terrorist Threat

Several terrorist attacks like the September 11 or recent plots on the air cargo shipments shipped from Middle East and Europe can also hurt the American and global economy. According to Janet Napolitano of Homeland Security, the U.S. has to strengthen its current supply chains to ensure that they work efficiently during crisis.

Hackers can also disrupt the supply chain by interrupting computer systems used by railroads, airlines, banks and phone companies. The American lawmakers are now working on a legislation that aims to enhance online security for companies and organizations.

Japanese Supply Chain Bleeds Jobs as the Country’s Yen Batters TV

Japan Inc. is currently suffering and the country’s supply chain is bearing all the costs.

Sumco Corporation, a known supplier to Toshiba and Sony, said that it will dismiss 1,300 jobs starting this month. Car windshield manufacturer Nippon Sheet Glass Co., that sells to Mazda will also let go of more than 3,000 of its employees. Altogether, they join NEC, a famous Japan-based manufacturer of telecom components and equipment, which already announced the elimination of 10,000 jobs last month.

Japan’s yen surge versus the dollar in the last twelve months has indeed widened the losses of Sharp, Mazda, Sony and Panasonic. Sharp has publicly expressed its plans of cutting their TV production to a half. A lot of manufacturers have been forced to outsource production outside Japan and press suppliers to go cost cutting.

When giants like Sharp and Sony fail, the country’s supply chain industry will definitely turn red. The yen is slowly killing the Japanese manufacturing base. Sumco have already forecasted a full year loss of up to 85 billion yen—that is USD 1.1 billion.

Nippon Glass is also expecting a 3 billion yen loss this year, compared to the previous forecast of 14 billion yen in profit. This Tokyo based firm said that their job cuts will cost around 25 billion yen but with an expected profit of 20 billion yen every year.

Water Risks: The Modern Investor’s Concern

Water use continues to surge and becomes a real issue in the supply chain.

For quite some time, a lot of economists have been forecasting that water is the next oil, especially in terms of cost, scarcity and concern relative to the supply chain and manufacturing operations. A leading investor has already expressed his concerns by saying that big corporations should account for water risks and that they should be more proactive in their water use and conservation techniques.

Jonas Kron, one of Trillum Asset Management’s advisors, says that the globe’s dwindling fresh water supply will soon affect results on the companies that they have invested in. He pointed out that JM Smucker has not yet demonstrated its readiness for any market modifications that will be brought by climate change.

Executives seem to be forgetting the water factor that poses a risk to their investments. Environmental advisor Brooke Barton of Ceres Inc. shared to Bloomberg that fresh water is an issue that business executives should be thinking about. The global population is projected to reach 10 billion at the end of this century. As the population grows, the need for water is also increasing among the middleclass.

In 2004, a Coke plant in India has been shut down by the local government because of consuming too much water. The wells dug by the aquifers were already running dry and it left farmers with dry crops. So is water the next oil? Is water really an issue in the future of supply chain?

The Underrated Freight Debate

Are trains or trucks the better supply route?

In this world’s convenience-dependent marketplace where energy conservation is crucial, resources and time is crucial in creating effective supply chains, logistics professionals around the world are slowly weighing out their options. And this leads to the question that is not comprehensively discussed—which method is superior in terms of transporting goods and freight, trucks or trains?

There are various factors that affect the efficiency of trucks and trains. The steel wheels of the train smoothly unite with that of the metal railway and omit less kinetic friction. On the other hand, the truck’s rubber wheels give out heavy friction as soon it comes in contact with asphalt, letting the automobile engine to use more fuel just to maintain its motion. Even though the slow train speed also extends the freight’s delivery time, it does enhance fuel consumption as it slows down the aerodynamic drag which results from dragging masses at fast speeds.

The train has lesser aerodynamic drag compared to a truck, which makes it more cost effective and saving you money on fuel. The engine doesn’t need to overcompensate for any inertia loss. The differences in fuel cost may not differ that much in short trips, going by the train pays off when you are travelling to longer distances.

But in today’s market where time is equated to money, most firms may find the train’s lag in time to be burdensome. It isn’t just the train’s slow speed that tends to delays the supply chain, but also the process of loading and unloading freight to the train. The truck’s convenient accessibility is lesser of a hassle to load and unload. Trucks aren’t restricted by railways and make them a more flexible option when it comes to delivery.

Bu the truth doesn’t lie on whether the supply chain leaders should use or train. It is how they can integrate both sectors in a powerhouse network.

Will Apple Employees Share in its Wealth?

Apple CEO Tim Cook explains that this firm cares about their employees in its factories and that their company is doing more to enhance working conditions compared to other firms. But when it comes to corporate responsibility, talk is cheap. It doesn’t really matter what Apple tells the people, but it should be what it does.

What the company does in its international supply chain is well documented, and that is why the firm is in the public relations overdrive, and frantic to protect its immaculate corporate image. Last May 2011, investigators rolled out a report that documents the dangers workers face at the Apple factory in Chengdu, China. The report said that the factory management couldn’t control the dust produced by the aluminum cases being made into ipad2 cases. When a work environment is flooded with profuse aluminum dust, it becomes at risk for explosions. But Apple ignored the report and didn’t do anything to address this work peril.

What’s happening inside offshore factories?

Unfortunately two weeks later, the factory exploded. It injured 18 workers and killed 4. During the wake of explosion, Apple explained that its Chinese suppliers are taking care of the situation. However, despite this situation, another explosion happened last December 2011 in another Shanghai supplier which injured 61 workers.

There had been grievous issues at Apple’s suppliers that have been reported for years, including suicides in a plant in Shenzhen, the “iPod city”. In this factory alone, Apple’s major supplier, Foxconn, reported that more than ten workers committed suicide by throwing themselves out from the company’s overcrowded dormitories. According to investigations, the suicide was in protest to the company’s harsh and brutal treatment that the workers were experiencing.

Apple recently partnered with the Fair Labor Association that will audit all its supplier factories. Today, only 1 percent of the iPad’s retail prices goes to the worker who made it and 33 percent is Apple’s profit.

The Green Supply Chain

A year after Walmart launched their ambitious plan of helping supplier track their carbon emissions and material use, the effort is now a popular trend among global corporations. But it doesn’t necessarily mean that these firms implement these changes out of their love for nature. A no growth or slow growth economy is also a driver, since lower resource costs and energy cost mean increased profits. A lot of companies are going green because they are also seeing green in terms of their bottom line.

The Pacific Gas and Electric is among the newest companies who have incorporated green strategies into their supply chain. The company recently awarded its “Green Supplier of the Year” award to one of its suppliers, Southwire Company, an electric wire manufacturer headquartered in Georgia.

Southwire got this distinction for converting more than 30 percent of their fleet to hybrid vehicles, which reduced their landfill waste by up to 27 percent and eliminating lead additives from their products.

Right after Procter & Gamble launched its green efforts, Wal-Mart, IBM and PG & E have implemented more comprehensive approaches that go beyond carbon foot printing into life cycle analysis. And just like other companies in the international supply chain, Wal-Mart has a big incentive to reduce costs. Savings in the supply chain are good for nature. Paper and pulp company Georgia Pacific, recently started their package systems optimization program which focuses on sustainability and efficiency. The company has already worked with Honest Tea to make multi packs that are 40 percent lighter compared to their previous packaging, that helped them reduce shipping costs.

Driven by this need to cut cost in this slack economy, corporate environmentalism catches on even if the government doesn’t seem to support this growing environment.

Thai Floods Disrupt Supply Chain

Supply chains and factories are experiencing disruptions as the worst Thai floods of the decade affects the country’s economy.

Honda Motor, Western Digital and other firms have been forced to stop their production in Thailand last year because of the floods. A lot of factory closures result from disruptions in the local supply chains.  Around two thirds of Thailand was affected by the floods and more than 300 people have died because of this catastrophe.

Aside from Honda, other companies like Nissan and Toyota have also experienced disruptions in terms of production. Sony has also closed its manufacturing facility in Ayutthaya because of the country wide floods. Seagate Technology has also expressed losses for their last quarter as supply chain disruptions continue in Thailand. American chip maker Western Digital also said that the flooding hurt production in terms of infrastructure and transportation problems.

The impact on these companies begins to be dwarfed by the overall impact on Thailand’s economy. The country’s Ministry of Finance has already estimated the damages to be around 69 billion baht or around 1.4 million pounds. The flood also reduced its economic growth to 3.7 percent from 4 percent in 2010. Thailand continues to pick up the pieces again these days, hoping for a better year ahead.

US Manufacturers Outlines 6 Areas for Competitiveness

The Manufacturing Performance Institute recently conducted a study on the United States manufacturing competitiveness. According to reports, more and more American manufacturers are recognizing the importance of having the key capabilities to be on a competitive stage. Here are six strategies that will help manufacturers improve their bottom line.

• Consumer-focused innovation. Firms need to develop new products quicker than the competition.
• Engaged human capital acquisition, retention and development. The creation of new processes and systems for talent management.
• Superior process improvement focus. Drive improvement that will exceed the competition, based on commitment strategies like Sigma, Lean and etc.
•  Supply chain management. Try to focus on response time, delivery and flexibility.
•  Sustainability. Finding energy and waste reductions which will reduce costs and produce greater customer value.
•  Global engagement. Build a company that is capable of purchasing and selling in the global market.

The report us based on the results generated from a huge number of manufacturers. This seems like a reasonable list but note that the lack of focus on sustainability hasn’t really affected Chinese firms that have experienced much increase for the last decade.

Report Highlights

The study also showed declining investments in R & D, perhaps as a result of the struggling economic conditions. The percentage of firms investing less than one percent of R & D sales increased, while investments greater than ten percent fall drastically. But when it comes to employee skill levels, not a lot of firms said that their workers had the skills for high level performance.

Even if most manufacturers know the importance of improvement strategies like Six Sigma and Lean, there are still plenty of opportunities for improvement. In that same report, 25 percent of employee respondents said that they had both skills and programs to drive improvement in their organization.

How to Manage Global Sourcing Risk

There are plenty of companies these days that source some parts of their products from global manufacturers. This may be textile supplies from India, electronics from China or perhaps steel components from Australia. Some of the reasons for international outsourcing are quality and cost. On the other hand, less control and long shipment also increases the risks for quality failures, disruptions and delays. Today, still a lot of firms are struggling to find the balance between reduced cost and increased risks in outsourcing overseas.

Here is a brief look on a study conducted on 15 companies and how the management handled risk related to global outsourcing.

Risks in International Sourcing

Based on the literature review conduced in this study, here are some of the risks related with international outsourcing.

• Supply disruptions, unreliable suppliers
• Quota restrictions, carbon footprint emissions, interest rate fluctuations
• Inefficient supplies in organizations
• Demand risks

This case study also shows that these risks are popular in industries like retail, fashion wholesale & retail, consumer electronics, mechanical/electrical equipment, oil/gas, aerospace and the food industry. Overall, the authors came up with four techniques for the management of global sourcing risks namely agility, risk management culture, network reengineering and collaboration.

Bigger Supply Chains in 2012

As the United States manufacturing is slowly hauled back from brink and as the American economy rapidly picks up the steam, the efficient supply chain management is believed to draw in importance—this is according to reports released by the Council of Supply Chain Management Professionals.

According to the president of the said organization, Rick Blasgen, a country’s supply chain serves as the shock absorber in the economy, working with difference between the things that have been planned and reality. During the Atlanta Modex Show, he also quoted “We facilitate a lot of what happens in the economy but don’t get a lot of credit for it”.

The belated wishes going out to supply chain supervisors and guilt laden regrets everywhere may be sent to SCD offices. It is here where they will be either given to the proper recipients or abandoned without being read at all. Overall, his speech conveyed the message that chain management is crucial to all organizations. With globalization rapidly proceeding apace, it is attracting more attention compared to the previous decades.

According to another veteran opinion, any supply chain interruption is fatal and detrimental to profits. Last year’s drastic Thailand floods resulted to a dire financial quarter for computer giant HP.