Solar Energy’s Solstice Problem

The Global Solar Power Explosion

By any count, solar electric generation is a huge success. Solar cells, like the ones on the roof of my house, are being installed in accelerating numbers by residences, public buildings, commercial facilities, industries and electric power utilities around the world. The cost of solar installations continues to decline, while environmental concerns affect the operational viability of existing fossil fueled electricity generation.

AEO 2016 ER Solar Power GenerationThe graph to the right, from the U.S. Department of Energy, [1] projects that solar generation capacity will increase by about ten times from 2015 to 2040, without considering any new technology, laws, regulations or other factors that may well accelerate the rate of solar installation further over the coming years. Solar power generation capacity in countries other than the U.S. – including less economically developed countries – is likewise increasing.

Closer to Home

My Home Viewed from Space

My home, as viewed from Space

My home is in the high desert of central Arizona, about as far north as Los Angeles or Atlanta. Climate here is sunny and dry almost year around – almost optimal for solar power. Here is a Google Earth picture of my house, as seen by a satellite. The solar panels, which you can see in the picture, have been in service for three years now.  My solar power system has on-line data collection, so I now have some pretty reliable performance numbers.

The graph below, from my actual experience, demonstrates solar’s “solstice problem”. The blue curve indicates the total electric power consumed at my house, by month. The red curve indicates the amount of solar electric power generated at my house, by month. The green curve indicates the net amount of electricity I purchase from my local electric power utility, again by month.

Home Solar Power Graph

My solar power system is designed to produce 70% of my electric requirements, taken over a full year (which it does). However, as the blue curve indicates, my total power consumption varies widely from month to month, with strong peaks in mid-summer (air conditioning) and mid-winter (electric heating).

However, my solar power generation (red curve) also varies strongly from month to month, with high peaks during the long days of mid-summer and low peaks during the short days of mid-winter.  As you can see, my solar system produces about half as much power in mid-winter months as it does in mid-summer months, near the solstices.

The Solstice Problem

To appreciate the impact of the solstice problem, it is useful to zoom out from considering a single solar installation (like my house) to thinking from the perspective of a power utility or the perspective of the power grids. Solar power is going to continue to grow as a fraction of total electric generating capacity. But, solar power facilities only generate electricity while the sun shines. At the same time, residential customers like me and you, as well as commercial and industrial customers, expect all of the power they need to be available whenever they need it.

Obviously, the sun doesn’t shine at night. But nights only last a few hours. Batteries and other technologies are available to manage the overnight problem. The solstice problem – generating capacity varies dramatically over weeks and months from solstice to solstice – is another matter. The solstice problem is just that – a problem that needs to be solved for solar energy to become truly practical on a massive scale. There are lots of possible avenues toward a solution, or sets of solutions for different geographic areas. These avenues might include demand management and innovative large scale energy storage technologies. Or, there may be approaches that nobody has thought of yet.

For Smaller Manufacturers

The electric power industry is in a state of transition. Manufacturers, especially those with substantial electric power requirements, need to remain aware of your utility’s situation and your own options. You might consider producing some or all of your own power (solar, of course). In any case, develop and maintain an on-going rapport with your utility’s customer service engineers.

Thoughtful comments and experience reports are always appreciated.

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.


[1] This graph is from Energy Information Administration’s Annual Energy Outlook 2016, Early Edition, published 17 May 2016. Available for free download at: http://www.eia.gov/forecasts/aeo/er/index.cfm

 

The Next Killer App – Part 2

“Killer App”?

“Killer App” is a computer industry term. It refers to the software that creates the value that makes people buy the hardware – lots of hardware. In this post, I use “killer app” rather loosely, to mean a whole genre of software that breathes life into new hardware platforms.

The Next Killer App – Part 1 reprised the idea of an electro – mechanical continuum in equipment design. As design emphasis moves past electric to electronic, software becomes increasingly important, such that the equipment increasingly becomes a means by which the software creates value. That’s why I think that the next killer app will be will be electric automobiles, and the value that sells them will lie in safety, convenience, comfort, efficiency and entertainment.

 Electric Vehicles: Why?

The global vehicle industry has been evolving rather slowly since about the year 1900. The rate of evolution has accelerated in the last few decades, such that today’s vehicles powered by internal combustion engines are remarkable machines by almost any measure. Today, however, there is a convergence of technical and social factors that make electric vehicles much more desirable – so much so that electric vehicles may well become our vehicles of choice over the next few decades. Here are a few of those “technical and social factors”:

>> There are persistent concerns with importing and burning huge quantities of petroleum every year. These concerns include a pernicious deficit in America’s international balance of trade figures and accumulating levels of atmospheric pollutants from combustion.

>> Highway safety figures have improved significantly over the years, even while the number of miles driven has increased. Still, 32,675 people died in vehicle accidents on American roads in 2014. Compare that to commercial airline figures, which are consistently near zero, never mind travelling 500+ miles an hour, six miles straight up.

1903 Studebaker Electric

Thomas Edison in 1903 Studebaker Electric Automobile

>> Battery and electric drive technology has improved dramatically, especially over the last decade or so, vastly improving an idea – electric automobiles – that is as old as the automobile industry itself. (Mrs. Henry Ford is said to have owned an electric car).

Fifty years ago, a newspaper ad for a used car might read something like “1956 Dodge 4 door sedan, 48,000 miles, excellent condition, R&H” The “R&H” meant radio and heater, which were extra cost options. Since then, add automatic transmissions, air conditioning, power steering, seat belts, fuel injection, stereo entertainment systems, GPS and more. The long term trend in the features that people want badly enough to pay for is clear enough.

Tesla Leads a Revolution

Tesla Motors, of course, is current leader in electric vehicles. Their cars define the current state of the art. But Tesla isn’t just about spiffy new cars. Tesla has stated that their intention is to lead a revolution – a revolution in how we think about transportation. Tesla recognizes that it needs to create an electric vehicle industry for electric vehicles to become more than a side show in the very large global vehicle circus.[1]  To that end, Tesla opened its considerable cache of patents, license and royalty free, to any firm that seriously attempts to build electric vehicles.

Tesla Model SFurther, Tesla hasn’t shied from confronting the external barriers to the general acceptability of electric vehicles. For example, Tesla continues to construct what is already an impressive number of electric vehicle recharging locations in the U.S. and elsewhere. Also, in July of this year, Tesla will hold the Grand Opening of a huge gigafactory which will produce the vast number of lithium ion batteries that Tesla expects to require (on the hurry-up).

The Business Model Continuum

The 360,000+ orders Tesla booked in a few weeks for their new Model 3 confirmed that demand for vehicles like Tesla’s does indeed exist. That’s good, because over a dozen serious prospective mass market electric vehicle manufacturers have already emerged globally. At least initially, there appears to be a continuum in the approaches these firms take toward electric vehicles. On one extreme, some existing global vehicle manufacturers seem to regard electric vehicles as a line extension, as hybrid vehicles are. I call this the Detroit view, although Nissan may prove to be the best example. Toward the other extreme, Tesla represents what I call the San Jose view, where the vehicle is viewed as a conduit for technology that provides new value in transportation.

Here are some examples:

>> Faraday Future has broken ground for a $1 billion manufacturing facility near Las Vegas where “we are eager to start production of the vehicles of the future that will embrace the increasingly intrinsic relationship between technology and mobility.” Like Tesla, Faraday Future is headquartered in Silicon Valley (physically and in mindset). Their initial products are expected to be high performance premium vehicles. Any firm that invests a billion dollars in a grass roots manufacturing facility is worth taking seriously. The firm is reported to be closely linked to the Chinese equivalent of Net Flix.[2]

>> There have been strong rumors of a coming electric vehicle from Apple (yes, that Apple). Apple has spent about $5 billion in additional R&D from 2013 to 2015, which, along with a $1 billion investment in a Chinese ride sharing service, suggests that Apple has a strong interest in shared mobility, expressed through shared, rather than owned vehicles. Driverless vehicles might well provide a new vessel for Apple software functionality, as Apple’s iPhone provides a vessel for personal communications software technology. It is interesting that Apple does not manufacture iPhones, or anything else that I know of. It is reasonable to suppose that an Apple car will be designed by Apple but built by somebody else.

>> There was a recent ad in the Phoenix newspaper for a Manager for Google’s driverless car operations in the Phoenix area. Google’s cute driverless vehicles are being widely road tested (more than 1.5 million self driving miles to date).[3] Google has been working on self driving cars since 2009, so now has a lot of experience with the necessary software. It seems likely that Google will partner with established automakers to provide self driving technology, rather than building their own vehicles.

>> The June 2016 issue of Fast Company magazine lists Mark Fields as #13 in its ranking of the 100 most creative people in business in 2016. Mark Fields is the President and CEO of Ford. Fast Company is not the sort of publication that normally associates “creative” with Detroit executives. The brief Fast Company listing notes that Ford has been conducting extensive road testing on driverless vehicles. Fields is quoting as wanting driverless technology for mass market vehicles that is “true to (Ford’s) brand”.

Incidentally, Ford recently announced a coming electric version of the mid-sized Ford Fusion model, featuring a 200 mile range. Sounds like a line extension to me. So, maybe Ford is still closer to Detroit than to Silicon Valley.

For Smaller Manufacturers

The automotive industry is obviously in a state of transition, perhaps disruptive transition. A lot of new competition is coming on several fronts. In situations like this, existing supplier relations are at risk. Bad, if you are an incumbent supplier. Not so bad if you have been on the outside, looking in. Better yet, there is room for new faces and new ideas as the distance between Detroit and Silicon Valley diminishes.

Chuck - VancouverThoughtful comments and experience reports are always appreciated.

 

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly. 


[1] How big is that “very large global vehicle circus”? Statista reports over 72 million vehicles sold in 2015, while projecting 100 million for 2020! http://www.statista.com/statistics/200002/international-car-sales-since-1990/

[2] For more on Faraday Future, see www.ff.com

[3] Google offers a video on its driverless prototypes at: https://www.google.com/selfdrivingcar/

 

 

The Next Killer App – Part 1

“Killer App”?

“Killer App” is a computer industry term. It refers to the software that creates the value that makes people buy the hardware – lots of hardware. In this post, I use “killer app” rather loosely, to mean a whole genre of software that breathes life into new hardware platforms.

Seventy-five years ago, the “killer app” was military software, such as code breaking, that financed the first truly digital computers. Today, it is social media and entertainment software that powers smart phone sales. Tomorrow, look for safety, efficiency and entertainment software that sells electric automobiles – especially electric vehicles that drive themselves.

This post – part 1 of 2 – reviews the idea of an electro – mechanical continuum in equipment design. This provides background for a discussion of electric vehicles and their consequences The Next Killer App – Part 2, next week.


The Electro – Mechanical Spectrum – From 15 November 2014

The Evolution of Machinery

Four Change DriversIt is increasingly clear — if not painfully clear — to most manufacturers that those who cannot embrace change are ill-prepared for the realities of operating in the 21st century. Manufacturers today face a convergence of many change drivers, which this blog rather arbitrarily groups as Globalization, Sustainability, Technology, and Demographics & Trends. To further complicate matters, some change drivers interact with others. Some emerge seemingly instantaneously, like 3D printing. Others reflect a trend over time.

This post looks at a trend in machinery, from almost entirely mechanical to extensively electrical (or electronic). One can imagine a continuum with mechanical devices at one extreme and electrical (or electronic) devices at the other.

As a familiar example, consider a continuum with a fine mechanical wrist watch at one extreme and the Apple Watch,[1] which was recently announced for 2015, at the other. It is easy to see a trend over time from pure mechanical watches to Bulova’s Accutron (electric tuning fork) watch, to quartz crystal watches, to all digital watches, to digital watches that keep time and do an increasing number of other things as well. In my view, the tipping point – the point where watches became more electrical than mechanical – fell between quartz watches with analog faces and hands, and quartz watches with digital displays.

Automobiles provide another example. Early cars were mechanical devices. They made little use of electricity, other than firing spark plugs – a hand crank started the engine. Electrification increased over the years to include lights, starter motors, electric windshield wipers, seat warmers and so on. Almost all of today’s cars make extensive use of electric power and computerization.

The Tesla Model S automobile may be close to a tipping point. Electric motor(s) propel the car — there is no combustion engine. Almost everything else is electric (or electronic) as well. Computers extensively monitor and regulate internal functioning and performance. The latest version of the Model S has two drive motors and all-wheel drive. The performance monitoring and feed-back in distributing power to the wheels is such that the much more powerful two motor version draws less current than the single motor version, extending – rather than reducing — the effective range between battery charges. The Model S also comes equipped with collision avoidance radar and sonar devices which also feed autopilot capabilities, not unlike a commercial airliner.

In the Factory

Equipment used in manufacturing isn’t exempt from this trend in technology. Newer machinery almost always makes more use of electricity and electronics than the machinery it replaced. Increased electrification (especially electronics-fication) improves the reliability and efficiency of the machine itself. It also improves the consistency of the products the machine produces.

Even more important, the information generated can be used outside the equipment in a multitude of useful ways – equipment maintenance, production throughput, energy consumption and materials utilization come quickly to mind. So, there are two advantages: (a) monitoring, feedback and corrective actions within the machine itself, and (b) information collection, analysis and utilization of the same information outside of the machine. Information collection can be through an industrial network, or through the internet.[2]

Production information available through the internet – the Internet of Things – is fraught with possibilities – multi-plant operations, remote maintenance, customer service and interfacing with transportation, for starters. When your firm’s products include “smart” internet accessible capability, the potential for adding value mushrooms.

This isn’t all smoke and mirrors. A McKinsey Global Institute report[3] projects that the Internet of Things will produce $0.9 trillion to $2.3 trillion in annual economic impact to manufacturers globally by 2025. Further, the McKinsey report projects that 80% – 100% of all manufacturers will be affected.

For Smaller Manufacturers

The evolution of machinery presents serious areas for concern for smaller manufacturers. Manufacturers that take advantage of this technology can expect significant gains in internal operating efficiency and in customer – facing areas. Smaller manufacturers, as a group, already lag larger manufacturers in productivity.[4] Smaller manufacturers, as a group, are less likely to have the technical capabilities necessary to exploit this technology. Smaller manufacturers, as a group, also find capital to be more expensive and harder to access than do larger firms.

These are serious concerns. Smaller manufacturers can address them by: (a) understanding and appreciating the disruptive potential for this technology within their industry, (b) continuing to focus their business, and (c) building joint actions with equipment suppliers, through trade associations, through technical societies and with customers.

Chuck - Austrian AlpsThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about confronting the realities of 21st century manufacturing … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.


[1] If you are curious about the Apple Watch, see http://www.apple.com/watch/films/#film-design

[2] For more on connected machines and products, see Smart Connected Products, a recent report from Oxford economics: http://www.ptc.com/File%20Library/Topics/Smart%20Connected%20Products/Oxford-Economics_Smart-Connected-Products-Report.pdf?l9=EN&src=Button&utm_campaign=SCP%20IoT%20SCP%20Oxford%20Report%20%e2%80%93%20IT%20B&utm_medium=email&utm_source=Eloqua

[3] See Disruptive Technologies: Advances that will transform life, business and the global economy, http://www.mckinsey.com/insights/business_technology/disruptive_technologies

[4] For more on the productivity gap between larger manufacturers and smaller, see Confronting the Productivity Gap, this blog, http://jerasustainabledevelopment.com/2012/11/29/confronting-the-productivity-gap/

More on Henry Ford and Elon Musk

Last week’s post, Henry and Elon, discussed Elon Musk’s “problem” – ramping up production sufficiently to fill the 400,000 orders for Tesla’s new Model 3 in a timely manner. The production rate increases were compared to Henry Ford’s success at ramping up Ford Model T production a century ago. The situation Musk faces is remarkably similar to Ford’s, never mind the hundred years.

Last week, Tesla’s management held a conference call for business analysts and the financial community. The Model 3 production schedule was discussed at some length. Some points from that conference call follow the text from last week’s post – repeated below, (in case you missed it).


Henry and Elon

From 1 May 2016

I’m writing this post just one month after Tesla Motors’ Model 3 electric automobile was introduced and made available for advance orders. As you may have heard, in the first week following that introduction, Tesla received more than 325,000 orders, with $1,000 deposits – reportedly a record for any product, ever! Now, a full month from launch, the order book reportedly totals around 400,000.

The question now is “can Tesla produce enough cars to fill those orders before the folks in the queue get tired of waiting and demand their fully refundable deposit back?” Sounds like a fair question, especially considering: (a) that Tesla produced only about 52,000 cars in all of 2015, (b) that Tesla will want to continue to produce their existing Model S and Model X cars, presumably in increasing volumes, and (c) that lots of additional Model 3 orders will keep rolling in. As a practical guess, let’s rephrase the question this way: “can Tesla deliver a cumulative 400,000 Model 3 automobiles by the middle of 2019 without retarding growth of their other product offerings?”

Henry Ford’s Model T

Let’s start to answer the Model 3 production question by considering Henry’s Model T of a century ago. Ford introduced the Model T as a practical and affordable automobile for everyman in late 1908 and started deliveries in the 1909 – 1910 model year. Here are the production figures:

Ford Model T Production Figures

1910 Ford Model TStarting at zero, it took Ford about four and a half years to produce the first 400,000 Model T Fords. Unlike Tesla, Ford did not start with 400,000 orders in hand. Henry Ford had no idea, from the start, how many he would be able to sell: “everyman” had not even dreamed of owning an automobile in 1908. So, Ford didn’t know how much manufacturing capacity he would need, nor did he know how raw materials would be sourced in sufficient and timely quantities.

For Ford, it was necessary to vertically integrate from iron ore deposits to metals castings all the way through finished vehicles in order to assure adequate supplies of all of the components necessary to keep production going. Tesla has integrated vertically to build a “gigafactory” sufficient to mass produce batteries in the quantities that Model 3 production will require. The “gigafactory” is already in operation, although far from full capacity.

Compared to Ford and his Model T, Tesla has a century of manufacturing technology to draw on, along with the infrastructure that supports an industry that can produce about 15 million vehicles annually. With 400,000 orders in hand (and the $400,000,000 from the deposits), Musk and Tesla are certainly in a much better position to find financing for the facilities and capital goods necessary to produce the Model 3 than Ford was in 1908.

Building and operating a 21st century automobile factory that can produce 400,000 automobiles by the middle of 2019 is a big job. The manufacturing technology is impressive, but it’s not rocket science. By the way, Elon Musk is a rocket scientist – he is the Chief Technical Officer of SpaceX, maker of 21st century rockets.

Will the Tesla Model 3 deliver fast enough? Bet on it.


Additional Comments – 7 May 2016

On 4 May, Elon Musk and Tesla’s management team held a conference call for business analysts and the financial community. Model 3 production planning was a primary area of discussion. Here are a few points that build on last week’s post:

>> Production Rate: Musk announced that Tesla intends to reach the 500,000 cars per year rate in 2018, instead of 2020 as previously indicated. I take that to mean total production of all three models, not Model 3 alone. The blue line on the graph labeled “Model T Production” indicates that Ford significantly exceeded the half million cars per year production rate in the 1916 – 1917 model year. The production rate in 1910 – 1911 was 53,192. So, within five years Ford increased production by more than ten times. Now, Tesla says they will do something similar – from about 52,000 in 2015 to about 500,000 in 2018 – in three years rather than Ford’s five. Also notice that the second 500,000 vehicle production rate increase took only about three years (until 1919 – 1920), even though production of military goods for the First World War (1917 – 1918, for Americans) significantly delayed the ramp-up.

Model T Production and Price

>> Operating Leverage: In a discussion on costs, Elon Musk mentioned that “our operating leverage means fixed cost relative to variable cost is going to improve dramatically”. How much is “dramatically”? The red line on the graph labeled “Model T Production” indicates the per vehicle selling price. For the 1910 – 1911 model year, Ford charged customers $780 for a Model T. The price was reduced to $440 for the 1916 – 1917 model year. That 43.6% price reduction was made possible through Ford’s increase in operating leverage.

Ford was selling the Model T into an entirely new market. Each time he reduced the price, he created an entirely new customer segment. Ford used price to keep his production rates increasing. Improvement in operating leverage funded the price reductions – with some left over for Henry Ford and his Company.

>> “Hell-bent on becoming the best manufacturer on earth”: Musk pointed out that that:

“Thus far, I think we’ve done a good job on design and technology of our products. The Model S and Model X are generally regarded by critical judges as technologically the most advanced cars in the world. We’ve done well in that respect. The key thing we need to achieve in the future is to also become the leader in manufacturing.”

Excellence in manufacturing operations results in high product quality levels and high throughput rates – hence strong operating leverage. It worked for Ford a century ago. It is working for Tesla today,


Everybody in manufacturing should read (or re-read) Henry Ford’s autobiography. The parallels between what Ford said and did with what Musk is saying and doing are truly remarkable. Of course, it goes without saying that a century does make a difference and that a Tesla Model 3 isn’t a Ford Model T. But, the real point here is that what has been done must be possible, and Tesla’s task looks a whole lot like something that has been accomplished — a century ago.

By the way, last week rocket scientist Elon Musk’s SpaceX recovered (landed) a rocket on a barge at sea, at night. SpaceX designed and manufactured that rocket. SpaceX will reuse the rocket, reduce the price for future satellite launches, and increase their throughput and their operating leverage. Musk and his crowd do know how to do things well.

Chuck - SedonaThoughtful comments are always welcome.

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about thriving in the 21st century … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.

Image credits: 1910 Ford Model T photo – creative commons via Wikipedia

Henry and Elon

I’m writing this post just one month after Tesla Motors’ Model 3 electric automobile was introduced and made available for advance orders. As you may have heard, in the first week following that introduction, Tesla received more than 325,000 orders, with $1,000 deposits – reportedly a record for any product, ever! Now, a full month from launch, the order book reportedly totals around 400,000.

The question now is “can Tesla produce enough cars to fill those orders before the folks in the queue get tired of waiting and demand their fully refundable deposit back?” Sounds like a fair question, especially considering: (a) that Tesla produced only about 52,000 cars in all of 2015, (b) that Tesla will want to continue to produce their existing Model S and Model X cars, presumably in increasing volumes, and (c) that lots of additional Model 3 orders will keep rolling in. As a practical guess, let’s rephrase the question this way: “can Tesla deliver a cumulative 400,000 Model 3 automobiles by the middle of 2019 without retarding growth of their other product offerings?”

Henry Ford’s Model T

Let’s start to answer the Model 3 production question by considering Henry’s Model T of a century ago. Ford introduced the Model T as a practical and affordable automobile for everyman in late 1908 and started deliveries in the 1909 – 1910 model year. Here are the production figures:

Model Year 1909 – 1910 1910 – 1911 1911 – 1912 1912 – 1913 1913 – 1914
Production 18,664 34,528 78,440 168,220 248,307
Cumulative

Production

18,664 53,192 131,632 299,852 548,159

1910 Ford Model TStarting at zero, it took Ford about four and a half years to produce the first 400,000 Model T Fords. Unlike Tesla, Ford did not start with 400,000 orders in hand. Henry Ford had no idea, from the start, how many he would be able to sell: “everyman” had not even dreamed of owning an automobile in 1908. So, Ford didn’t know how much manufacturing capacity he would need, nor did he know how raw materials would be sourced in sufficient and timely quantities.

For Ford, it was necessary to vertically integrate from iron ore deposits to metals castings all the way through finished vehicles in order to assure adequate supplies of all of the components necessary to keep production going. Tesla has integrated vertically to build a “gigafactory” sufficient to mass produce batteries in the quantities that Model 3 production will require. The “gigafactory” is already in operation, although far from full capacity.

Compared to Ford and his Model T, Tesla has a century of manufacturing technology to draw on, along with the infrastructure that supports an industry that can produce about 15 million vehicles annually. With 400,000 orders in hand (and the $400,000,000 from the deposits), Musk and Tesla are certainly in a much better position to find financing for the facilities and capital goods necessary to produce the Model 3 than Ford was in 1908.

Building and operating a 21st century automobile factory that can produce 400,000 automobiles by the middle of 2019 is a big job. The manufacturing technology is impressive, but it’s not rocket science. By the way, Elon Musk is a rocket scientist – he is the Chief Technical Officer of SpaceX, maker of 21st century rockets.

Will the Tesla Model 3 deliver fast enough? Bet on it.

Chuck ReadingThoughtful comments are always welcome.

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about thriving in the 21st century … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.

Image of 1910 Model T Ford is from creative commons via Wikipedia

Figures on Ford Model T production are from My Life and Work, an autobiography of Henry Ford.

Toward Proactive Management – Technology

In order to survive – let alone thrive – in the 21st century, management must proactively cope with ceaseless waves of change. One way to proactively approach the future (which doesn’t yet exist) is to examine existing conditions that are likely to drive change as the 21st century unfolds. There are a daunting number of current realities that, jointly or severally, are likely to drive change. For convenience of organization, this blog groups change drivers as:

Globalization

Sustainability

Technology

Demographics & Trends

This series of posts examines a few especially significant change drivers in each of the four categories. This post focuses on Technology and two of the change drivers it generates:

Technology and Manufacturing

Dreamstime - Crystal BallTechnical innovations, evolutionary as well as revolutionary, can drive change in every aspect of manufacturing; including materials choices, product design techniques, transportation options, process technology, staffing requirements, back office capabilities, even marketing and financing options. Technological innovations can be disrupt entire industries. Technical innovation also often provides the single best response to challenges to your firm’s competitive posture.

Sunshine and Negawatts

As this post was being written, Peabody Energy Corporation filed for bankruptcy. Peabody, America’s largest coal producer, joins a growing parade of coal producer bankruptcies. “Fracking”, an innovative Technical development, led to the availability of large amounts of low cost natural gas here in the United States. Climate change, a Sustainability – induced concern, has led to an increasing stream of expensive regulatory requirements that coal fired electrical power plants must meet. A substantial decrease in China’s economic growth rate, hence China’s coal requirements (a Globalization – induced phenomenon), triggered a sharp decrease in global coal prices.

So, changes associated with Technology, Sustainability and Globalization have combined to disrupt the coal production industry. However, coal still provides about a third of America’s electricity. The remainder of America’s coal fired power plants face an accelerated, but hopefully orderly retirement schedule. Natural gas fired plants will likely be the first choice for replacement electrical generation capacity in the near term. But “fracking”, hence natural gas, has its own Sustainability concerns.

Almost all of America’s vast fleet of electric power generating facilities will be replaced over the next several decades. Natural gas fired facilities will likely be first choice, at least initially, for large scale facilities. Natural gas, however, isn’t the only real, practical possibility. There are other increasingly viable options, especially photovoltaic solar energy and “negawatts”.

PV Solar

Photovoltaic (PV) solar energy means arrays of solar panels on rooftops or elsewhere. PV solar installations can be of sizes comparable in electricity generation capacity with utility – scale power plants, or as small as a desk calculator. PV solar needs no fuel, except sunshine. It is also passive, requiring little maintenance human attention. The cost build and operate a new utility scale PV solar power generation facility is already close to that of a coal or natural gas fired facility, and dropping fast.

On the other hand, PV solar generation capacity is only available when the sun is shining. From the point of view of an electric power utility, demand for electric power varies continually, 24/7. The utility needs to react to changes in demand as they occur. The utility needs access to sufficient immediately available generation capacity to meet demand, regardless of the weather or the time of day.

The answer to PV solar’s capacity availability issue lies in energy storage technology. Storage in innovative batteries is already being used by utilities and by end users to balance the sunshine to power demand. Tesla, the electric car manufacturer, was amazed at the demand for their new line of batteries introduced last year. Speaking of Tesla, if electric cars do become as ubiquitous as pre-sales of Tesla’s new Model 3 suggests, it may well be practical to create of a “cloud” of electric power storage capacity in interconnected automobile batteries, similar to the “cloud” of digital data storage that exists in interconnected file servers.

Batteries aren’t the only possibility. Electric power can be stored for later use by pumping water uphill while the sun shines and recovering that energy by releasing the water through turbines when power demand requires. Compressed air storage devices work similarly. The list of possibilities goes on.

“Negawatts”

“Negawatts” is a tongue-in-cheek term referring to electric power not supplied because the need for that power has been eliminated. Quick example: a 60 watt incandescent light bulb can be replaced by an LED bulb that draws only 11 watts. Bingo – 60 minus 11 equals 49 “negawatts” of electric energy that doesn’t need to be generated.

AEO 2015 Fig 19There are a lot of “negawatt” opportunities, from high tech innovations like LED light bulbs, to high efficiency motors and compressors, to better insulation and building design. As it turns out, the cost of “negawatts” often compares favorably to the cost of building and operating the electric generation capacity it doesn’t need. As you can from the chart labeled “Figure 19“, the Energy Information Agency (a U.S. government agency) projects that energy consumed to produce a (constant) dollar of GDP declines by half from 2013 to 2040! That’s the power of “negawatts”!


This post mentions only a few of many new technologies now emerging in the manufacturing world. There are many more. Because of the scale of these matters, the resulting conditions as they specifically affect your business may prove to be surprising. In the 21st century, it is absolutely necessary for even small businesses to follow and understand these zoomed-out, big picture change drivers, so that proactive steps can be taken.

Chuck at ReneThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about surviving and thriving in the 21st century … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.

Images: Globe and Chart – Dreamstime.com; “Figure 19” – Annual Energy Outlook 2015

Toward Proactive Management – Part 1

Ceaseless Waves of Change

Doing business in the 21st century entails coping with relentless waves of change. Much of this change will be at the most fundamental level. To survive, let alone to thrive, requires a proactive mindset on the part of management. It is essential to identify the primary underlying change drivers affecting your business, and to establish management processes to proactively adapt to the corresponding changes.

Four Change DriversAs a convenience, this blog groups change drivers as Globalization, Sustainability, Technology and Demographics & Trends. These four groupings not exclusive – many changes your business may face will be driven by combinations of these. For example, many of the changes constituting Globalization depend on changes in Technology.

We’re Not in the 20th Century Anymore Toto, a post to this blog from a year ago, provides an introduction to these change drivers as they apply to your business:


We’re Not in the 20th Century Anymore, Toto  (From 1 May 2015)

An Emerging View of Manufacturing in the 21st Century

The Industrial Age in America – a time in which the mass production of goods provided the economic focus of the country – declined during the final decades of the 20th century and swooned as the 21st century began. This isn’t a cyclic matter: 20th century manufacturing isn’t going to come back. Instead, the end of the Industrial Age in America is part of a transformation that is as sweeping as the Industrial Revolution was, when industry replaced agriculture as this nation’s economic focus.

Keep in mind that, in 1870, 70% – 80% of America’s working population was employed in agriculture. As of 2008, less than 2% was directly employed in agriculture. [1] Never the less, America’s farms today produce much more than ever before. America will continue to manufacture tangible products – lots of them. The way that America manufactures those products will change as dramatically as farming has changed.

“… right now we are going through a once-in-a-century transformation in business that is throwing out all of the existing rules.” [2]

This transformation is powered by a confluence of potent change agents, which might be loosely grouped as Globalization, Sustainability, Technology and Demographics & Trends. These four, individually and in combination, provide insights as to the rapidly expanding context within which even quite small manufacturers must operate. Technology provides the means for transformation.

A few thoughts on the globalized context within 21st century manufacturers must operate:

>> Competition – Competitors and potential competitors exist worldwide, with more coming every day. So do suppliers and potential suppliers. Likewise, customers and potential customers. And these competitors / suppliers / customers are quickly becoming increasingly sophisticated in all aspects of globalized business.

>> Population – Since the advent of truly viable birth control, birth rates have dropped significantly, especially in economically developed nations. As a result, populations are aging. At the same time, the participation on women in all aspects of commerce has increased dramatically. Per capita GDP is increasing, notably in developing countries, resulting in more global middle class buying power.

>> Commerce is global / Politics are local – While competition is global, governments everywhere have incentive to favor their own. Issues including jobs, access to resources, taxation, entitlements and property rights continue to be contentious.

>> Financial System – The global financial system, as it exists today, is a hodge-podge of remnants from the Bretton Woods accords, socialist notions from the soviet era as well as from western nations, fiat (rather than hard) currencies, instantaneous globalized trading in currencies and financial derivatives, not to mention a diverse array of banking institutions. All of this is hardly a recipe for international financial stability.

Some thoughts on 21st century manufacturing operations:

Atomic physicist Niels Bohr once said that “prediction is very difficult, especially about the future”.  Actually, it’s the being correct part that is difficult. The following are extrapolations from American manufacturing’s current situation. We’ll all see what actually happens as the 21st century unfolds.

>> Products: To beg the obvious, labor related costs in economically developed countries are much higher than in less developed countries. To be globally competitive, products manufactured in developed countries will require significantly greater intangible aspects, as opposed to the simply tangible. Above all, products need be clearly differentiable.

>> Emphasis on Return on Capital Employed (RoCE): Manufacturing is capital intensive, especially concerning fixed assets, when compared to other modes of enterprise. Accordingly, financial viability depends on sustainable RoCE, taken across the business cycle, rather than on profits per se. This change in point of view fosters longer term thinking in many respects. Organizational structure and financing are not least of these.

>> The Electro-Mechanical Spectrum: A recent essay [3] discussed a trend in machinery from the mechanical to the electronic. The Tesla automobile serves as a familiar example. Unmanned space vehicles offer another. The more electronic machines offer obvious advantages, including reliability and Moore’s Law initial costs. Perhaps the most important advantage is that electronic machines have a significant software component. For this reason, machines can be improved, or even retasked, through software changes. Such machines can actually improve over time, rather than just depreciate.

>> Innovation: There is nothing static about the future. 21st century manufacturers must consistently offer differentiable products that please customers while generating satisfactory returns. This requires continuous and systematic innovation in products, operating processes and, especially, business models. A prior essay looks at all three of these modes of innovation. [4]

There is a lot more to manufacturing in the 21st century than a single essay can even hint at. The changes involved in this “once-in-a-century transformation” are of almost seismic magnitude. And change will beget more change, even more rapidly. Stand by — subsequent posts to this blog will focus individually on each of the four change drivers.


Chuck - Red RocksThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about pursuing Sustainability … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.


 

[1] Figures from Wikipedia, http://en.wikipedia.org/wiki/Agriculture_in_the_United_States

[2] Tien Tzuo, CEO of Zuora, quoted in Fortune magazine. http://fortune.com/2015/04/27/tien-tzuo-starting-your-own-business/. Zuora is a start-up business that is pioneering subscription based business models. For more on Zuora, see www.Zuora.com.

[3] http://jerasustainabledevelopment.com/2014/11/15/the-electro-mechanical-spectrum/

[4] http://jerasustainabledevelopment.com/2014/11/29/three-modes-of-innovation/

 

 

Embracing the Circular Economy

The Circular Economy

In an industrial sense, the term circular economy refers to a systemic view of resources utilization. It replaces the linear one pass take (from the natural world) … make (something incompatible with the natural world) … and dispose of (that is, burden the natural world with) production wastes along with the product itself at the end of its useful life. Instead, the circular economy envisions closed loop production which minimizes impacts on the natural world. Circular economy begins with products designed with multiple cycles of reuse and recycling in mind. Corresponding industrial processes are designed to minimize interactions which degrade the natural world, including interactions which occur anywhere along the product’s value chain.

Cutting to the Chase

It is readily apparent that a circular economy mindset might lead to lower costs, as well as a better world. The question becomes how to improve on what you are already doing to improve resource utilization. Here are some comments and examples to stimulate your thinking:

BMW i3 Press Kit Photo

BMW i3 Electric Vehicle

>> BMW i3 – The BMW i3 all-electric city car is an example of a circular economy product. Attention to sustainability is obvious in just about everything about the design and construction of the BMW i3. Recycled materials are used extensively.  Plans are in place for disposal of each component of the i3 at the end of its useful product life. For more on the i3, see BMW – A Case Study in Sustainability. [1]

>> Waste Management Corporation – Waste Management makes more than half of its money on recycling and upcycling refuse that people like you and me pay them to take from us. Sustainability – especially the circular economy aspect – Is integral to Waste Management’s business model. For more on how this works, see Waste Management Corp – A Case Study in Sustainability [2] and Waste Management’s 2015 Sustainability Report Update (which is entitled “The Circular Economy Revs Up”!) [3]

>> USBCSD – The United States Business Council on Sustainable Development is a not for profit business association that, among other projects, seeks to match bi-product streams with firms – often in other industries — that can use those bi-products as raw materials. In other words, one firm’s waste becomes another firm’s feedstock, to the benefit of both. See USBCSD’s website [4] for more on their work.

Scrap Tires 350pxh>> Tires – Where Waste Management Corporation seeks to find uses with the broad range of wastes it collects from residences, commercial facilities and industry, the tire industry focuses on new uses for its hard to dispose of product. Tire Recycling: An Industry Success Story was one of the first posts to this blog, almost five years ago. This lightly edited version still provides a useful example today: 

Tire Recycling: An Industry Success Story

(From 29 June 2011) 

American motorists discard a lot of tires; roughly one tire per capita or around 310 million used tires annually. On the average, tire carcasses weigh about 37 pounds, so that’s something like 11 billion pounds of waste rubber and metal every year. In the past, most of these used tires went to dumps, where they were ugly, mosquito – breeding fire hazards. Today, the recycle rate is sufficient to handle this year’s carcasses, while also significantly drawing down inventories at tire dumps nationwide.

Tire dealers add a state–mandated “tipping fee”, usually around $4.00, to each new tire sold. The “tipping fee” is passed on to the tire reclaim firm when the tire reclaimer collects carcasses from the tire dealer. The tire reclaimer converts the scrap tires into some useful form, usually by shredding the scrap tires and separating the rubber from the steel tire cords. The rubber scrap may be processed further, depending on the intended application. 

More than half of the recovered scrap rubber is used as tire–derived fuel, burned as an alternate to coal, primarily to fuel cement kilns. Ground rubber has a multitude of uses, ranging from landscaping mulch, to athletic fields, to molded rubber products, and on to de-vulcanized rubber, which can be used to produce new tires. Those who are interested can download a free report chock full of information on scrap tire products and markets at www.rma.org/scrap-tires. 

One take-away for all manufacturers is that the conversion of billions of pounds of scrap from dangerous eye-sore to useful products came to be through the efforts of a trade association. Trade associations offer a particularly useful vehicle for addressing many of the industry-wide problems and opportunities that Sustainability presents. 

>> Learning from Nature – Proponents of the Circular Economy point out that there are no wastes in biological processes. Everything eventually becomes food for something else. Actually, it is better than that. Biological processes operate at or near ambient pressures and temperatures, as opposed to the energy intensive demands of many industrial processes. I was surprised to learn that the Department of Chemical Engineering where I studied is now the Department of Chemical and Biomolecular Engineering – a strong indication of the growing importance of bio – based products and processes.

>> Books – Consider the entire value chain for books and other printed matter. Start with cutting forests, then the environmental concerns with paper making, ink chemistry, collecting end of useful life products, transportation costs across the value chain, and recycling or disposal costs. Compare all of that that with a Kindle. Replacing a tangible product – or a component of a tangible product, such as the operating instructions – with a virtual (digital) product changes everything!

For Smaller Manufacturers

The ideas behind the Circular Economy are quite powerful and potentially disruptive. Every manufacturer needs to consider how to modify its business model to embrace those ideas. As you can see, there are a lot of ways to approach this – new product development / new manufacturing processes / teaming with somebody like Waste Management or USBCSD / through a trade association / even virtualization – are just for starters, there are many more possibilities.

Chuck - FranceThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about thriving in the 21st century … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.


[1] http://jerasustainabledevelopment.com/2014/10/04/bmw-a-case-study-in-sustainability/

[2] http://jerasustainabledevelopment.com/2015/01/30/waste-management-corp-a-case-study-in-sustainability/

[3] Download for free at http://wm.com/sustainability

[4] www.usbcsd.org

 

What About Industry 4.0?

Industry 4.0

Dreamstime - Crystal BallProductivity – the value created per unit of resources deployed — is the primary driver of standard of living. In manufacturing, the “resources deployed” include raw materials, human talents, skills and efforts; and capital investment. Several times in the past, the availability and application of new technologies have occasioned marked improvements in productivity. These improvements have benefitted increasing numbers of people.

“Industry 4.0” refers to a group of digital technologies that, when employed in an interactive and integrated fashion, promise to initiate a fourth industrial revolution. In essence, Industry 4.0 extends the industrial “Internet of Things” beyond local manufacturing process condition sensing and analysis to automated decision making, integrated across entire value chains.

The Boston Consulting Group, (BGC) an international consulting firm, identifies nine key emerging digital technologies that comprise Industry 4.0: [1]

  • The industrial Internet of Things
  • Horizontal and vertical integration
  • Digital simulation technology
  • Autonomous robots
  • Big data and analytics
  • Augmented reality
  • Additive manufacturing
  • “The Cloud”
  • Cybersecurity

BGC does a good job of introducing these component technologies that can read and download. However, the point of this post isn’t the component technologies. The point is how those technologies might be employed to actually result in significant increases in productivity within manufacturing firms.

Goldratt’s Four Questions

Eliyahu Goldratt, author of The Goal, noticed that employment of new technologies in the past often resulted in large improvements for some firms, while many other forms experienced little, if any, improvement at all. Goldratt uses the logic of his Theory of Constraints to propose a series of four questions for those considering employment of Industry 4.0, or any other technology: [2]

Question #1 – What is the power of this technology?

In the case of Industry 4.0, massive employment of digital sensing, communication, evaluation and feedback promises to significantly improve productivity, primarily through increased throughput and reduction of wastes, across entire value chains.

Question #2 – What limitation does it alleviate?

Absent the technologies of Industry 4.0, many forms of waste across an entire value chain (e.g. raw materials variations, machine conditions or human errors) are not sensed, identified and acted upon quickly enough to prevent or alleviate them, or to prevent additional wastes.

Question #3 – What rules do we use to work around that limitation now?

Local methods for sensing and communicating conditions that create wastes are employed. Heuristics are often employed to guide remedial or corrective actions.

Question #4 – What new rules will be necessary with this new technology?

Industry 4.0, above all, requires a comprehensive systems approach to entire value chains. Such an approach will require redefinition of relationships among the components of entire value chains. It also entails significantly increased reliance on machines for making routine decisions and taking appropriate actions.

For Smaller Manufacturers

All manufacturers, large or small, must remain competitive with, literally, a world of competitors and potential competitors. To do so almost doubtlessly requires the employment and integration of new technologies as they become available. The logic behind Industry 4.0 provides a platform – a basis for thinking and acting – for the introduction of new technologies over time. The changes in thinking that Industry 4.0 requires are monumental.

As a beginning, smaller manufacturers should become increasingly aware of the emerging technologies that comprise Industry 4.0, and, even more importantly, how they fit together. Look for future posts to this blog on Industry 4.0, especially as a platform for systematic actions. Buckle your seat belts.

Chuck - SedonaThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about 21st century manufacturing … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. Blog posts are published weekly.

Transparent globe image: licensed through www.dreamstime.com


[1] Read or download BCG’s paper at: https://www.bcgperspectives.com/content/articles/engineered_products_project_business_industry_40_future_productivity_growth_manufacturing_industries/

[2] E. Goldratt, Beyond The Goal: Goldratt Speaks on Theory of Constraints, audible presentation, LLC Gildan Media (Presented on CDs, available from Amazon)

 

Pricing and Perception

On Value and Profitability, the post before this one, discussed value creation and capturing value. Pricing for Sustainability, a post from a year and a half ago, adds to that by emphasizing the importance of pricing in the creation (and capture) of value.  – C.H.

Pricing for Sustainability – from 8 November 2014

Frequent readers of the blog know that I like Adam Werbach’s definition: “…being a sustainable business means thriving in perpetuity[1]. Further, my idea of thriving is to reliably generate a return on capital employed that exceeds the cost of that capital taken across the business cycle, without exploiting anyone or anything.

For smaller businesses, particularly smaller manufacturing businesses, one of the keys to consistent profitability lies in retaining a measure of control over prices. A “measure of control” means offering products that some sufficiently large segment of the market will buy at prices that provide your firm with a sufficient degree of profitability.

In the past, manufacturing managers were conditioned to think of pricing as a function of manufacturing costs – price your product at x% over cost and hope for enough volume. Or, price your product where your competitors price theirs, and hope for enough margin and enough volume. There are several problems with these familiar approaches:

>> Product – Purchasers buy some collection of tangibles, intangibles and perceptions. Tangibles include the goods, the packaging, the documentation and so on. Intangibles include service levels, price, delivery, terms of payment, warranty and more. Perceptions are biases, judgments and expectations, often based on comparisons, rational or otherwise. Purchasers buy the lot – not just the goods, not just the price.

Oat Squares>> Cost – Manufacturers are accustomed to calculating the average unit cost of their products – at least the tangible aspects of their product. However, costs vary from day to day and from manufacturer to manufacturers due to a myriad of factors. Smaller manufacturers know that large manufacturers enjoy higher labor productivities than they do, buy at higher volumes — hence lower prices — than they do, and have better and cheaper access to capital than they do. Smaller manufacturers in developed countries also know that manufacturers abroad – large or small – can produce tangible goods at very low costs. Speaking generally, smaller manufacturers are poorly positioned to be the low cost producer, except in tightly defined market niches.

>> Customers – There is no Customers’ Union, where all prospective customers think alike. There is, literally, a world of prospective customers. Your firm is free to choose to pursue – and tailor your product offerings for — those that you are well positioned to serve.

Business Models

Your firm’s Business Model relates your firm’s products to its customers and potential customers. In essence, a business model consists of a Value Proposition and an Operating Model. The Value Proposition consists of that collection of tangible and intangible features and benefits intended to induce a defined set of prospective customers to perceive your firm’s offering as preferable to (or, offering better value than) competitive offerings. The Operating Model consists of that set of processes, policies, practices and procedures that allow you to deliver the value offered, while generating a satisfactory profit by doing so. Previous posts to this blog discuss the Value Proposition [2] and the Operating Model [3] in more detail.

Business Model Innovation

Markets and the forces that drive markets continuously change in today’s globalized economy. Successful Business Models can be disrupted, and likely will be, sooner or later. New opportunities arise and new potential customers emerge. Where a Business Model is disrupted such that it no longer generates a satisfactory profit, it needs to be reinvented. Where new opportunities arise, suitable Business Models need to be created in order to seize those opportunities. An earlier post to this blog elaborates on Business Model innovation [4], as does an informative Harvard Business Review article by innovation guru Clayton Christensen, et al [5].

For Smaller Manufacturers

Price is one component of a Value Proposition intended to induce a defined set of prospective customers to choose your firm’s products, while providing your firm with an adequate profit. It is important to recognize the many aspects of a well formulated Value Proposition, especially the intangible aspects. The perceptions aspects of the Value Proposition are intentions on the part of the producer, to be conveyed through the Operating Model. Of course, the customer (or potential customer) will form his or her own perceptions. The success of the Business Model may well depend on how well the intended perceptions are conveyed.

Chuck - VancouverThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about confronting the realities of 21st century manufacturing … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.


[1] Adam Werbach, Strategy for Sustainability, Harvard Business Press, page 9.

[2] http://jerasustainabledevelopment.com/2013/08/22/greening-your-business-model-part-1-value-proposition/

[3] http://jerasustainabledevelopment.com/2013/08/29/greening-your-business-model-part-two-operating-model/

[4] http://jerasustainabledevelopment.com/2014/04/02/on-transcience-and-innovation/

[5] Johnson, Mark, Clayton Christensen and Henning Kagermann, Reinventing Your Business Model, Harvard Business Review, December 2008. Reprint R0812C, available for download at: http://hbr.org/search/R0812C/0?refinement=4294841677