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Short of a robust regulatory regime, expecting moral behavior from a corporation ...
Don Scansen
The 'ponderous chain' that keeps jobs overseas
David Benjamin
12/20/2012 12:01 AM EST
When the editor of EBN approached me to author this column, I objected, saying, “Wait a minute. I don’t know nothin’ about supply chains,” to which he replied that his readers are eager for variety and would be happy if I wrote about “anything BUT supply chains.”
And so I have. But I have to admit that, as it keeps popping up in the news, supply-chain stuff kind of fascinates me. For example, I know that the invention of the container ship was a big deal for the supply chain, because it expanded the capacity of a single ship while automating the loading and unloading process so drastically that the word "stevedore" has slipped from the vernacular.
This vast streamlining of the trans-oceanic part of the supply chain has resulted in some amazing stories. One that received a lot of attention during the presidential election, because it involved Bain Capital (Mitt Romney’s alma mater), was the shift of a sensor manufacturer named Sensata from a little plant in Freeport, Ill., to a new location somewhere in China. Bain Capital, an owner of Sensata, got a lot of bad press because it flew a crew of Chinese workers to Freeport, where the American employees — all of whom were being laid off — were compelled to train the untrained, low-wage Communists who were taking their jobs.
All this publicity, however, overlooked the terrific logistical aspects of this offshoring saga. Not only were about 100 jobs moved overseas; every important component of the manufacturing process, including machines, test equipment, office furniture — the works — were rolled into containers, trucked to the West Coast, stacked onto container ships and transported more than 7,000 miles. This is a feat once unthinkable and certainly too costly to accomplish in a past era that didn’t have a supply chain so efficient as today’s.
One has to simply stand back, look objectively past the human tragedy of Sensata and say, “Far out!”
Even more remarkable is that many customers for Sensata’s sensors, which go into cars, RVs, airplanes, heating and air conditioning systems and mobile phone networks live right here in the U.S.A. Before its operations were moved to China, a Sensata truck driver could climb into a Dodge van and haul a half-ton of automotive sensors, switches and control devices from Freeport to the Chrysler plant over in Belvidere, Ill., in about 50 minutes — most of the trip on legendary US Route 20.
As of next year, that same shipment — now from Shanghai to Belvidere — will take… well, not being well-versed in supply-chain stuff, I really don’t know how long it might take. But more than 50 minutes, I bet.
Next: Enter Marley
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george.leopold
12/20/2012 10:08 AM EST
Business! Mankind was my business!
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me
12/20/2012 11:27 AM EST
"The proletarians have nothing to lose but their chains." There you go. See Ma, it really happens.
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Bert22306
12/20/2012 5:12 PM EST
But the words don't hint at the numbers that cause the changes in supply chain to begin with. If the words don't support the decisions the bean-counters made, it's only because the words used aren't quantitiative enough. Look at the bottom line.
Distance between manufacturing and consumption, simply put, is not all there is to the equation. It's just one small aspect of what has to be compared.
What changed, at Apple, to cause any manufacturing to return stateside at all? As far as I can tell, only political posturing changed. They still want this super cheap and mostly manual manufacturing process, because they still need/want to be able to change their product design quickly. Without paying the price that would have to be paid with a highly automated manufacturing facility. Any of that changed suddenly? I mean, or is Foxconn quoting much higher costs to Apple, to cause this change of heart? Doubtful.
The macroeconomic tradeoff arguments, e.g. other related support jobs in the region that are created if manufacturing stays home, are NOT Apple's concern. Companies deal in a microeconomic reality. That's how they survive until tomorrow.
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sprite0022
12/21/2012 12:06 AM EST
u missed sth here.
sensata definitly got customer in china as well,
by moving to china it can serve it's chinese customers better which is a plus you forget to mention.
Just as chinese made Fender guitars, many of them sold locally.
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bobzz
12/22/2012 4:32 AM EST
wow just wow
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Traces
12/22/2012 6:04 PM EST
For those of you without any time in business school (my minor while getting my EE masters), let me clarify a few things about business decisions:
1. Management types are especially prone to fads, mainly because many of their decisions are only partially quantifiable.
2. Offshoring, in particular, seemed like a great idea when gas was extremely cheap, chinese labor rates were extremely low, design cycles were extremely long, all businesses were thought to operate in a strict hierarchal manner (similar to the military or IBM in the 1950's), and all manufacturing that had to be done was transplanting well-worn processes from US soil to Chinese.
3. So, in regards to Bert's question "What changed...to cause any manufacturing to return stateside...?" I would provide the obvious answer: the entire world has changed. Every single justification for outsourcing manufacturing to China initially is no longer valid. Perhaps there are newer justifications for continuing to outsource, but I'm not aware of any yet.
4. Moreover, we're not where we were in 1985. We need to come up with new manufacturing processes, and provide a feedback loop to the designers to improve the product. Very hard to do across the ocean.
5. Moreover, businesses don't operate the way they used to. IBM-style command-and-control structures have given way to Scrum and Extreme Programming reiterative styles. Constant feedback and reiteration is becoming the norm, and this requires quick and meaningful feedback to make work.
6. Moreover, six weeks in a container ship probably works for a white goods with a five-year lifecycle, but surely doesn't work for cellphones with a six month lifecycle.
7. And, finally, we starting to enter an era of cheap, ubiquitous, and easy to program robots, which will render labor costs largely moot, anyway.
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Bert22306
12/23/2012 7:21 PM EST
First, I think you're forgetting that the Apple decision to bring SOME manufacturing back stateside is merely a token gesture. It's not for iPads or iPhones, for example. So clearly, not that much has changed in the cost equations they see, at any rate. It was some undisclosed fraction of high-end Macs. Hardly their bread and butter.
And sure, in time costs change. No one is denying that. The simple fact is, the article did not discuss the numbers at all. What motivates companies is always going to be to minimize costs and maximize revenues.
The distance traveled by products to US markets in particular is hardly all there is to this. For one, the US is not the only market in the world. For another, if it's cheaper in spite of transportation costs, it's still cheaper. So look at the numbers, at why it's cheaper, at the state of the art in automated manufacturing, and so on, using real numbers, so the real tradeoffs can be seen.
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Traces
12/24/2012 6:25 AM EST
Oh, for sure US insourcing isn't the only answer. Supply chains are like elephants: slow to start up, slow to change direction, and very slow to stop. Momentum alone will keep manufacturing going in China for at least the next half decade. After that, a lion's share of manufacturing will go to even cheaper Asian countries, but some will come back to the US.
For Apple, in particular, I believe that Tim Cook has drunk too much of the China Kool-Aid and IS only insourcing for PR.
But I also think it's obvious that an increasing amount of people view synergistic local manufacturing enabled by cheap ubiquitous robotics as the New, New Thing.
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Ogemaniac
12/26/2012 3:39 AM EST
"What motivates companies is always going to be to minimize costs and maximize revenues."
And that virtually always involves:
1: Finding ways to externalize costs such as pollution
2: Finding ways to pay less than living wages, so that your workers's basic needs have to be subsidized by government
3: Finding ways to buy regulations favorable to you and bad for your competition
4: Finding ways to latch onto the government teat directly by demanding cash or other goodies for not moving just across the border
And btw, "companies" do not have motivations. Managers do. And what motivates them is grabbing as much money as they can, as fast as they can. This often has only minimal connection of what is in the best interest of the company they are running, which in turn has little connection to what is best for society due to the all of the reasons I mentioned above.
There is precisely zero reason to believe that managers' decisions and society-wide optimization are at all related, given all of the failures of free market theory that lie between them.
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Bert22306
12/26/2012 7:28 PM EST
Companies HAVE to operate that way, in order to stay afloat. So the trick is for governments to carefully fine-tune their tax policies and regulations, including regs on pullution.
Managers have exactly the same motivations as anyone else in the work force (even though many are clueless about what they manage). They need to show results to their bosses, no different from what any other employee has to do.
"Society-wide optimization," aka macroeconomic considerations, cannot possibly be something your corporate managers can address, if they care to remain employed. At best, the top execs might utter nice-sounding platitudes along those lines, for the politicans' benefit.
Macro is government's job.
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RDub
12/27/2012 6:54 PM EST
"Macro is government's job."
I agree with that, yet I'm guessing the OP's intent was to highlight that free markets don't optimize for societal well being as many on the right proclaim. Free markets optimize profit, anything else they do is purely collateral.
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Ogemaniac
12/27/2012 7:20 PM EST
"Companies HAVE to operate that way, in order to stay afloat"
I agree. The very structure of corporations requires that they be both traitors and sociopaths. That is why we need to watch them like a hawk and regulate them every which way to Sunday.
The differences between management and front-line workers is that for managers, there are lots more opportunities to loot the company at investor's expense. What can I do as a grunt worker? Steal a few pens? I certainly can't pump my bonus by a few million by fudging some numbers and hiding the risks I am taking.
I am sure that when you read Wealth of Nations, you noted how dead-set Adam Smith was against the very idea of joint-stock corporations, precisely because of the large amount of moral hazard that corporate executives embody. Indeed, that is why Britain banned corporations for many decades.
You are right. Macro is the government's job. And that usually means holding corporations and their bad behaviors in check.
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Traces
1/1/2013 9:17 AM EST
Short of a robust regulatory regime, expecting moral behavior from a corporation is naive. A corporation is an amoral tool designed for one purpose: to extract value for the shareholders. Which is not to say that corporations don't have a purpose in the broader context of society; they simply need to be regulated to fit that purpose.
Those espousing "deregulation" or "ethical business practices" are either fools or liars: there can be no such thing.
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nonspecialist
12/28/2012 3:23 PM EST
True.I can`t imagine a US site that would allow a plant full of aluminum dust that explodes.Didn`t I read that the owners of that plant in China when confrounted by the local government,packed up the factory on trucks and moved it a couple hundred miles to another jurisdiction.
Thing about robots seems to be that the companys that are getting the jump on this are those that are flush with cash and orders. We sent our fabs overseas to shave costs.This next round we might just plain be behind the curve.
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sprite0022
12/23/2012 8:39 PM EST
to bring manufacture back to US.
1 thing you all can do is build a singapore style industry area. (call it thrifty city etc.)
where ppl comute with public transportation, live in high rise...
US walmart employees are striking since they can't pay for their lunch with their $1800 monthly salary, this is the true problem.
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Thomas Chongruk
12/30/2012 3:39 AM EST
Actually surprised WalMart employees get that much ...
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ewertz2
12/26/2012 9:04 PM EST
This is, after all, what Foxconn does in China, for better or worse.
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seaEE
12/28/2012 10:35 PM EST
And what Foxconn may do for Apple in the U.S. as well? :)
I enjoyed this article. It gives food for thought on why things are done the way they are, how and why trends develop, and how long they last. It only takes one company to realize there might be a better way or place to build a mousetrap, and the whole thing comes to a screeching halt and changes direction.
Maybe that would be a good EETimes contest: design an improved digital mousetrap. What components will you use? What country will you build it in (hopefully a country with a large mouse population)?
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Neo1
12/31/2012 8:08 AM EST
The jobs which require human inputs which can be reasonably faithfully reproduced after the first time will always find its way to the cheapest part of the world where it can be done. It's all about realizing cost cutting by volume. It works whatever others might feel with most of the rest of the world living of about a dollar a day it works mightily and will for many more years to come. A strategic shift is the only answer and companies which utilize that means will not need to offshore but are there any so far..
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Don Scansen
12/31/2012 2:25 PM EST
David,
It was a treat to see your writing on EE Times. I look forward to lots more.
Happy New Year.
Don
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