Artisanal Manufacturing and Marketing

One day in April of 2008, I was having lunch in a transit lounge in the Singapore airport. A news story on the TV over the bar showed me the Jerome (AZ) Grand Hotel and a number of visiting politicos. By April of 2008, Senator McCain was the presumptive Republican candidate for President. McCain has a property near Jerome. The politicos were VP candidate – wannabes visiting with the Senator.

Seeing little Jerome on TV news a half a world away strikes me as a strange story. But there a lot of strange stories in Jerome. One of those is about a Jerome shop that has become a global artisanal marketing focal point. That story is worth retelling here.

… C.H.


Artisanal Manufacturing and the Power of Stories

Were it not for a mesquite tree, Jerome would be readily visible from my bedroom window. The town of Jerome clings to the steep slopes of Cleopatra Mountain, a mile high – about half way between the Verde River and the mountain’s summit. As the 19th century turned into the 20th, in the twilight of the Wild West, rich copper mines made Jerome one of the largest settlements in Arizona Territory. Ores dwindled until the mines closed in 1953. Today, Jerome is home to about 450 souls, largely artisans and artists. A modest but growing tourist trade keeps them occupied.

Today, Jerome provides a rather remarkable story for artisanal manufacturers – a story about stories. Among the shops, restaurants and such that clutch the mountainside, two ladies run the largest kaleidoscope store in the world. It is fair to say that Nellie Bly (the store’s name) is the focal point of the kaleidoscope world.

Being a curious fellow, I wondered how a retail shop in an off-the-beaten-path tourist town had become central to a niche market like kaleidoscopes. So I drove up the mountain and asked. Mary Wills, one of Nellie Bly’s owners, said that she didn’t know. But she did kindly make time to show me around her busy shop and to chat with me for a while. I drew my own conclusions.

The Stories

Mary Wills and Sally Dryer, her partner, do not make kaleidoscopes. Their shop does provide an interface linking those who make kaleidoscopes with the collectors and retail customers who buy them. I think that the necessary network of contacts came to be largely by word of mouth, likely aided by several stories that serve to “break the ice” and promote pass-it-along conversations. Here are a few of such stories:

> Kaleidoscopes: Most of us remember kaleidoscopes as toys – paperboard tubes that display pretty geometric patterns. The kaleidoscopes that Nellie Bly sells are certainly not toys. Rather, they are artistic or artisanal creations. The juxtaposition of the familiar toy kaleidoscopes with their unfamiliar Nellie Bly counterparts fuels conversation.

Nellie Bly> Nellie Bly – Take 1: Mary Wills is a Nellie Bly fan. Nellie Bly was the pen name of an intrepid woman reporter with Joseph Pulitzer’s New York World who achieved considerable celebrity in the later decades of the 19th century. She visited northern Arizona in 1890 as part of her around the world race against time. (She beat Jules Verne’s fictional Around the World in 80 Days record by about 6 days). Her celebrity in the mining community resulted in her name being associated with several Jerome mining claims. This remarkable woman spurred conversation in 19th century. She still does.

> Lucy van Pelt: Mary’s partner Sally Dryer has her own story. As a child, she was the voice of crabby Lucy van Pelt in a number of Peanuts animated TV specials. Everybody remembers Lucy, Charley Brown and the Great Pumpkin. Again, a story to talk about and to pass along. Throw in the kaleidoscopes.

> Belgian Jennie: Nellie Bly – the store – is built on the foundation of an earlier structure that burned in the late 1800’s. That building housed one of Belgian Jennie’s Jerome establishments. Belgian Jennie was easily the most prominent Madame in the Arizona mining camps. She was also generally regarded as the wealthiest woman in Arizona at the time of her murder in 1905. Yet again, a remarkable character to talk about, then by-the-way into discussion about kaleidoscopes.

Nellie Bly – Take 2

Stories offer one means to open doors toward building relationship with prospective customers and with prospective suppliers. Once a door is opened, however it is opened, it is still necessary to build lasting relationships that generate repeat and referral business. Nellie Bly — the store – helps do this in several ways. For example, customers are actually encouraged to touch, hence experience, the kaleidoscopes, even though many are priced in the hundreds or thousands of dollars. Take a minute to check out what Trip Advisor has to say about the store:  http://www.tripadvisor.com/Attraction_Review-g31253-d5209037-Reviews-Nellie_Bly_Kaleidoscopes-Jerome_Arizona.html

Relationships with suppliers are fostered by an annual weekend of kaleidoscope workshops, experience sharing and social events. Sally and Mary, the owners, also take deep personal interest, especially in those who make the kaleidoscopes. Its about relationships.

For Smaller Manufacturers

For many smaller manufacturers, artisanal or otherwise, accessing markets and building sales is the primary constraint to sustainability, let alone growth. Smaller manufacturers face a big world and well heeled competition. Getting the word out in a cost – effective manner is tough, but not impossible. Stories like Nellie Bly’s offer one inexpensive approach that some businesses may find useful.

Quick BS check: Suppose that you are one of the four million plus people who visit Sedona AZ this year. Now that you have heard the stories, would you be more likely to take a short side trip to Jerome? If you did, would you be more likely to visit Nellie Bly? If you did, would you be more likely to buy a kaleidoscope as a gift or for yourself?

Chuck - SedonaThoughtful 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.

The Foundations of a Sustainable Business

The ABCs of Structured Maintenance, a recent post to this blog, emphasized the importance of maintenance as a foundation for viable manufacturing operations. The following updated version of Cultivating Disciplined Operations, a post from October 2015, expands on the necessity for structure and discipline. — C.H.


Cultivating Disciplined Operations

In order for an organization to function effectively in a competitive world, a culture of disciplined operations is necessary. This does not mean the imposed discipline of a military boot camp. Rather, it means a voluntary coordination of efforts among all involved. As an ideal, consider a symphony orchestra, where a group of highly skilled musicians coordinate their personal talents to a mutually understood and desired end. Yes, a conductor does arrange the music and does direct the tempo. But it is the blended performances of the musicians that work the magic.

Cultivate Text Box“Cultivating” is the right word here. A voluntary coordination of efforts comes about through a culture of mutual respect, directed toward a mutually desired end. It is that culture that needs to be cultivated. Here, “mutual respect” means a sincere regard for the interests and aspirations of everyone involved, diverse though those interests and aspirations may be. “Mutually desired end” refers to a condition in which everyone involved can prosper indefinitely.

An initial assessment of how closely a given organization’s culture approaches one of mutual respect, directed toward a mutually desired end is pretty easy. Employee turnover rates, absentee rates, equipment downtime rates and OSHA recordable safety incidents can readily be compared with relevant norms. Apply Pareto’s rule: if your organization isn’t comfortably in the top 20% for each of these, your competitive posture is at risk. [1] Even if your numbers are all in the top 20% — or even the top 1% — remember that everything and everyone can always improve. Including your competitors, today and tomorrow.

Here are some areas that require constant cultivation:

>> Safety: In manufacturing, a top notch safety program is essential. The benefits of a pain free working environment are immediately clear to everyone. Cultivation of safe operating practices is fundamental to the cultivation of mutual respect. [2]

>> Maintenance: Equipment and facilities need be designed for operability as well as for throughput. Poor working conditions and dysfunctional equipment are antithetical to the cultivation of mutual respect.

>> Training: It is not reasonable to ask anyone to participate in manufacturing operations absent a clear understanding of what that individual is to do and how to do it safely and effectively. My personal preference is that written work instructions be used as a basis for training materials. Trainers should be trained in how to train others. Understanding should be confirmed by demonstration.

>> ISO 9001: The ISO 9001 Standard for Quality Management Systems provides a systematic framework for disciplined operations. It is worth studying, even in part. Implementing systems compliant with the ISO 9001 Standard is a substantial undertaking. However, the cultivation of disciplined operations that occurs while doing so is a substantial reward for everyone and a substantial step toward an organization that can prosper indefinitely. [3]


Chuck in FranceThoughtful 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.


[1] For more on Pareto and operating performance, see Operational Excellence – The Performance Curve, this blog, http://jerasustainabledevelopment.com/2012/05/24/operational-excellence-the-performance-curve/

[2] For more on safety and its importance, see On Safety and Sustainability, this blog, http://jerasustainabledevelopment.com/2013/10/24/on-safety-and-sustainability/

[3] For more on the ISO 9001 Standard and its application, see What’s Wrong With ISO?, this blog,  http://jerasustainabledevelopment.com/2012/07/05/whats-wrong-with-iso/  and Keeping Up With ISO, this blog, http://jerasustainabledevelopment.com/2014/08/28/keeping-up-with-iso/

The ABCs of Structured Maintenance

Order In – Order Out, Order In – Order Out, Order In – Order Out… is the life breath of a manufacturing business. And the effective maintenance of the equipment, processes and systems that convert Orders In to Orders Out are foundational to the success of that business. This post is an update to a post from five years ago that focuses on the critical importance of structure in keeping maintenance effective. – C.H.


Structured Maintenance (From 1/12/2012)

Sustainability goes far beyond concern for the environment. Adam Werbach* says that “being a sustainable business means thriving in perpetuity”. To thrive in perpetuity requires constant attention to the present and the future on the factory floor, within the business as an organization, within the industry in which the business operates, within global economic and social realities, and within the natural world we all rely on.

For manufacturers, that begins with efficient production and timely delivery of high quality products — all the time. And that requires production equipment that reliably performs as intended. It is the function of the maintenance program to assure that the equipment performs reliably. As extreme examples, think about what “reliably performs” means to passengers in jet aircraft or to sailors in nuclear submarines, not to mention astronauts. The sign on the shop wall that said “If It Ain’t Broke, Don’t Fix It” was retired some time ago.

To be clear on terms, that which is to be maintained, I refer to as a “maintained item”, or, more simply, “item”. An item may be a machine (such as a lathe), a system (e.g. electrical power distribution) or anything else that you may want to declare as a unit for the purposes of maintenance and performance records keeping.

ABC BlocksIt is convenient and useful to divide maintained items into three classes:

Class A Items – The failure of a Class A item can shut down or significantly impair production, or create a serious safety condition, in the entire facility. Most Class A items are utilities or similar services, such as a main power transformer, a boiler, materials conveying system or critical ventilation unit.

Each of these critical items needs both a plan to keep it performing reliably and a plan for its rapid repair or replacement, in case it does fail. The “keep it performing” plan might include a scheduled inspect / clean / service routine, pre-emptive parts replacement based on service hours or proactive parts replacement based on throughput or on monitored machine condition (for example, vibrations analysis).

The corresponding rapid repair / replacement plan might involve in-line spare capacity, critical spare parts inventory, rental equipment (for example, an air compressor) and/or fast response third party service (examples: digital control systems or boilers). Since parts for critical items are often quite expensive, spare parts inventory costs must be weighed appropriately during the planning process.

For critical items, Failure Mode and Effects Analysis (FMEA) may be of significant use in formulating both plans. FMEA is a technique for evaluating the probable occurrence of various failure modes and the likely effects of such failures. FMEA is widely used in the automotive, aerospace and other industries for product and process design and improvement. It works well for critical item maintenance planning too. If you aren’t familiar with FMEA, start with a free power point presentation from Purdue University at www.stat.purdue.edu/~kuczek/stat513/IT 381_Chap_7.ppt. There is a lot more on FMEA on the web. Don’t confuse FMEA with FEMA, the federal agency that is supposed to respond to natural disasters.

Class B Items – Class B includes most primary production equipment, failure of which can shut down or significantly impair operation of a single production line, or create a localized safety concern.

The “keep it performing” plan for each of these less critical items might, as with Class A items, include a scheduled inspect / clean / service routine, pre-emptive parts replacement based on service hours or proactive parts replacement based on throughput or on monitored machine condition.

Appropriate repair / replacement plans might include common spare parts, reconditioned parts (e.g. gear boxes or rewound motors), prearranged “order as needed” parts from reliable suppliers or specialized third – party service calls (preferably with pre-arranged vendors).

Class C Items – Repairs or replacement of Class C items, taken individually or in small groups, are less urgent. Scheduled inspect / clean /service routines are often appropriate. For some high wear parts or for items that require other items to be down while maintenance to be performed, scheduled preventative maintenance may be the best route. Run to failure is an acceptable strategy for some Class C items.

The real point to this post is that effective and cost efficient equipment maintenance requires item–by–item planning, to keep the equipment performing reliably and to correct failures when they do occur. Grouping items by criticality helps make maintenance planning easier.

There is a lot more to maintenance planning than any one post can even hope to cover – look for more on maintenance in future posts.

Chuck at ReneThoughtful 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.

* Werbach, Adam, Strategy for Sustainability, Harvard Business Press, Boston (2009), page 9.

Driving Change – Demographics & Trends

Proactive management presupposes an organized approach to anticipating change, in so far as that is possible. Sometimes, a recognition of the underlying factors driving change helps to do that. This post, reprised from one of a series of posts on proactive management from about two years ago, offers a “heads up” on demographics and trends that may affect your business as the future makes itself manifest. — C.H.

Driving Change

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, the last in this series, focuses on Demographics & Trends along with two of the change drivers associated with demographics and trends:

The Future is Now?

No, the future isn’t now. But demographics and trends allows one to reasonably project into the future. For example, given the number of people in the world who are 20 to 30 years old today, it is straightforward to approximate the number of people who will be 40 to 50 years old 20 years from now. Accordingly, demographic and trend information is at the core of the insurance industry. Insurers use demographic and trend information to approximate the number of life insurance customers will die in the year 2035, or the cost of replacing the insured houses that will burn down next year. For health insurance, segmented demographic information (segmentation by age, sub grouped by gender, medical history, lifestyle and so on), along with critical trend information such as medical treatment cost trends and advances in medicines.

Reliable demographic and trend information is powerful stuff. Especially demographics or trends which indicate that the future will be substantially different from the present. This isn’t just for insurance companies. A systematic means for continuously paying attention to a wide range of demographic and trend information can help businesses anticipate opportunities and avoid disruption.

Here are two “zoomed out” examples that may well affect every business:

Aging Populations

World Fertility RateIt is my personal opinion that the single most important technical innovation of the 20th century isn’t space flight, penicillin, the internet or atomic bombs. Nope. It’s practical contraception. Practical contraception has already sharply reduced birth rates globally, and continues to reduce them. The graph labeled Total Fertility Worldwide, 1950 – 2050 indicates that the rate at which children are born has been cut it half (from 5.0, down to 2.5) since 1950 and is trending toward 2.1 around 2050. The projection to 2.1 is especially significant: a fertility rate of 2.1 corresponds to zero population growth, worldwide!

Of course, fertility rates, hence rates of population growth, vary widely from country to country. Rates in most economically developed countries are near or below 2.1 (populations in Japan and in some western European countries are already shrinking). People in less economically developed countries still prefer to have, on the average, more children, hence growing populations.

Changing age profiles within populations have enormous consequences for businesses – opportunities along with dangers. Population pyramids, a graphic device, helps make this clear. Rather than explaining, here is a five minute TED educational video titled Population Profiles: Powerful Predictors of the Future. It is worth your time to watch:

www.youtube.com/watch?v=RLmKfXwWQtE

Global Financial System

Many, if not most American manufacturers have foreign components in their value chain, on the supplier side, on the customer side, or both. Those who do not still need to be aware of possible foreign suppliers or customers (or financiers, or competitors) in the future. So, an understanding of trends within the global financial system that makes globalization practical.

Today’s global financial systems consist of remnants from the Bretton Woods accords, elements from socialist systems and several quite new wrinkles, especially:

>> Fiat currencies – most national currencies today have no extrinsic value, save the credit worthiness of the issuing nation. Some of us remember dollar links to gold or silver. Those links no longer exist, so, to borrow John Maynard Keynes’ observation, the financial system and the economies that system supports “has no anchor”.

>> Currencies that do not correspond with national borders – The Euro comes to mind here. Each member of the Euro group is a sovereign nation, entitled to set its own national tax and spending policies. The rub comes when financially stronger members of the group are expected to support the weaker ones. The current situation with Greece and Germany is a primary example.

>> A trend toward perpetually unbalanced national budgets – Chronically unbalanced budgets – intentional or otherwise — result in ballooning national debt. Growing national debt means growing present and future interest obligations. Interest rates today are at historic lows. But many of us remember double digit interest rates not so long ago.

The point here is that the financial system that supports today’s globalized economies is quite fragile. Nobody really knows how that system might react to another situation like the 2008 financial meltdown.

This post mentions only a few of many demographics and trends worth following and understanding. 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 - Mt. HumphriesThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington

This post and its 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.

Another Look at Continuous Improvement

Dreamstime - Crystal BallEverybody knows that the reality of globalized manufacturing is a continuous spiral of faster, better, cheaper. Regardless of how good your processes, practices and products are, it is essential to keep improving. On Continuous Improvement, a post from November 2015, takes a pragmatic look at continuous improvement, with some thoughts on how that might actually be accomplished. Another look at On Continuous Improvement is always timely. — C.H.


On Continuous Improvement (from November 2015)

Remaining Competitive

Everybody understands the need to be truly competitive in this globalized economy. What’s more, since everybody knows, everybody is trying to improve – so the bar is continually being raised. The 5th of Dr. Edwards Deming’s famous 14 points is characteristically blunt: [1]

“Improve constantly and forever the system of production and service.”

In practice, there are two ongoing modes of improvement. The first mode consists of numerous incremental improvements to existing products, processes and practices. The second mode involves fewer, larger improvements such as new products, new equipment, or R&D advancements. This essay focuses on the first ongoing mode of improvements.

What to Improve Continuously?

Rereading Deming’s 5th point clearly answers the “what to improve” question: “the system of production and service”. The “system of production and service” means the entire assemblage of manufacturing and processes, procedures and practices, along with their interactions and inter-dependencies, through with your organization functions. It is necessary to appreciate that Deming’s use of the term “system” is not an accident.  A “system”, as Deming intends that term, is assembled in order to serve a specific purpose (Deming prefers the term “aim”, rather than “purpose”).

Deming says that the aim (purpose) of a business is to “stay in business, create more and more jobs”. To me, that means a sustainable business that can continue to grow indefinitely.

To be more specific, it is necessary to constantly improve our products, our manufacturing processes, procedures and practices; as well as our business processes, practices and procedures. Further, it is necessary to do so in a manner that advances the overall aim of the system. Improvement in one component of the system at the expense of another component is counterproductive. Usually, most improvement efforts focus on diminishing variation and waste.

How to Improve Continuously?

Deming tells us that wanting to improve is not sufficient. It is necessary to have a method for doing so. Fortunately, there are several methods that are widely used by manufacturers, each with many books, publications, courses and consultants ready to assist. Generally speaking, my personal preferences are Lean Manufacturing (especially for reducing wastes), Shewhart Cycles with control charts (for reducing variation) and Theory of Constraints (for prioritizing improvement efforts).

Lean Manufacturing

Competitiveness starts with the systematic elimination of waste in all of its many forms. “Waste in all of its many forms” includes losses due to hazardous working conditions, unsafe work practices, emissions to the environment, inefficient use of energy, and on and on. Lean Manufacturing provides a proven, readily available means to do that.

Lean Mfg Text Box

Just about everybody in manufacturing has heard about Lean Manufacturing, or about the stunning success of the Toyota manufacturing system, which serves as Lean’s global model. The fact is that Lean Manufacturing is good sense, systematically applied. Lean doesn’t require computers, robots or big capital outlays. It does require access to the know-how, a willingness to apply that know-how, and a person experienced with Lean implementations to lead the effort.

Shewhart Cycles

Dr. Deming was a statistician. Early in his career, Deming met Walter Shewhart, a pioneer in statistical quality management. He learned of Shewhart’s work with control charts and PDCA improvement cycles. Control charts provide a ready method to plot process outputs and, importantly, to distinguish variation due to the process itself (common causes) from variation due to other causes (special causes).

Variation can be reduced by identifying and eliminating special causes. Shewhart Cycles, more commonly called PDCA Cycles, provide a way to do that. Shewhart Cycles consist of four steps:

Deming PDCA CycleStep 1: The first step is to study a process, to decide what change might improve it. Organize an appropriate team. Do not proceed without a plan.

Step 2: Carry out the tests or make the change, preferably on a small scale.

Step 3: Observe the effects.

Step 4: What did we learn? Repeat the test if necessary. Look for side effects.

Theory of Constraints (TOC) [2]

TOC regards a manufacturing facility as a system consisting of interacting and interdependent processes. Those processes are not all equally important to increasing throughput. A few, usually one, process limits — constrains — the system. TOC focuses on identifying the limiting process and addressing that limitation. “Addressing that limitation” means increasing the capacity of that process, such that it no longer bottlenecks the facility. In addition, TOC uses a buffer before the constrained resource and a raw materials release system to prevent overproduction at non-constrained resources.

Once a constraint is addressed and throughput increases, another constraint will be revealed — otherwise, throughput would be unbounded. So, TOC is an ongoing process of identifying and addressing constraints. As production capacity increases, the constraint to increasing revenues eventually moves from the factory to the market or to some business practice or policy.

Concisely, Theory of Constraints provides a convenient way to prioritize opportunities for improvement so as to improve the aim of the system.

Chuck - Red Rocks3Thoughtful comments and experience reports are always appreciated.

…  Chuck Harrington

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.

Image: PDCA Cycle ID 46845201 © Raducomes | Dreamstime.com


[1] Understanding continuous improvement starts with Dr. Deming. For those not familiar with Deming’s work, I suggest Mary Walton’s The Deming Management Method, Perigee Books (1986)

[2] To learn more about the Theory of Constraints, see Appreciating the Theory of Constraints, this blog, http://jerasustainabledevelopment.com/2015/06/27/appreciating-the-theory-of-constraints/

Recycling the Circular Economy

Recycling is at the heart of the Circular Economy. Embracing the Circular Economy, a post from 21 March 2016 discuses the concept of a Circular Economy, especially as it applies to smaller manufacturers. Embracing the Circular Economy is worth recycling — so here it is:


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)

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.


[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 the Frack?

On January 17th of this year, the Annual Energy Outlook for 2017 (AEO 2017) was published by the Energy Information Agency, part of the U.S. Government.[1] The AEO examines U.S. domestic energy production and consumption, with extrapolations[2] into the future. Information from the AEO 2017 provides information and insights relevant to business management. This post focuses on petroleum and natural gas production through hydraulic fracture and directional drilling techniques (“fracking”).

America and Petroleum

The graphic labeled “Energy Consumption” is from the AEO 2017. The brown line indicates that petroleum and related liquids fuels about 35% of America’s energy current energy consumption.[3] Further, it indicates little change in annual petroleum consumption over the next 24 years, given the assumptions used to extrapolate the AEO’s “reference case”.

Over the past several decades, the U.S. has consistently consumed considerably more petroleum than it has produced. The difference has been imported, much of it from the Middle East. Since imports must be paid for, petroleum imports have resulted in a substantial drag on the U.S. economy. Further, securing continuing petroleum supplies from overseas has been a major determinant of U.S. foreign policy.

The graphic labeled “Net Energy Trade” illustrates that, in the years around 2006 – 2008, the U.S. imported amounts of petroleum equivalent to over 25% of its entire annual energy consumption, net of any petroleum exports!

Then something dramatic happened. U.S. domestic production increased rapidly from about 2010, resulting in a major decline in global petroleum prices. Accordingly, retail gasoline prices declined by about half during the last six months of 2014, resulting in boost to the U.S. economy that, in my opinion, triggered in the end of the Great Recession. Think of it this way: when a boatload of crude oil arrived in 2013 at $100+ per barrel, the U.S. shipped a boatload of greenbacks overseas in payment. By 2015, the price of crude was less than $50 per barrel and the number of boatloads imported dropped sharply. So, the U.S. shipped many fewer greenbacks overseas in payment. The rest stayed at home, within the U.S. economy. Since we are talking about millions of barrels every day, the difference really matters.

The Fracking Revolution

Fracking – petroleum and natural gas production by directional drilling plus hydraulic fracturing – is a truly remarkable technological innovation. Look again at the graph labeled “Energy Consumption”. Notice the rapid increase in natural gas consumption from 2010. That too is due to fracking. As a fuel, natural gas is complementary to petroleum. Petroleum fuels primarily transportation. Natural gas fuels mostly stationary consumption, including industrial uses, commercial and residential heating, and especially electric power generation.  

Natural gas is difficult and expensive to transport, other than by pipeline. Fortunately, the U.S. already had a domestic pipeline network in place as the huge increase in natural gas production due to fracking became available. Prior to the advent of “fracking”, global natural gas prices generally followed petroleum (crude oil) prices. The increase in natural gas supply in the U.S. resulted in natural gas prices that are not pegged to petroleum, and that are considerably lower than natural gas prices elsewhere.

Implications, Domestic and International

>> Energy Independence: Due to increased U.S. domestic production of petroleum and natural gas, the AEO 2017 projects that U.S energy exports will exceed imports by 2026, using “reference case” assumptions. That means that, if necessary, U.S. energy production would be sufficient to satisfy America’s energy requirements, without relying on OPEC or anybody else.

>> Industrial Economics: U.S. domestic prices for natural gas are substantially lower than elsewhere in the world. This provides U.S. industry with two competitive advantages in global trade. First, energy costs are low. Second, many important petrochemicals can be produced from natural gas, resulting in lower raw materials cost for many products.

>> Petroleum and Natural Gas Reserves: Fracking is used in geological formations that are different from those where conventional petroleum and natural gas production methods are used. That means energy production becomes possible in geographic areas where it is otherwise infeasible. It also means that the world’s potential reserves of petroleum and natural gas have increased substantially.

>> International Development: Fracking technology can and will be applied in other countries. Correspondingly, many nations that lack conventional petroleum or natural gas production may be able to become producers, thus reducing dependence on foreign sources and gaining a degree of freedom from global energy prices.

>> Cleaner Fuels: Petroleum produced by fracking is generally light and sweet. That means it is easy to refine, with few byproducts such as sulfur or heavy metals. Refining light, sweet crudes is relatively energy efficient. Accordingly, less carbon dioxide is produced when light, sweet crude is produced and consumed. Natural gas is even cleaner.


There is a lot more information worth discussing in the AEO 2017. Look for more posts on other AEO 2017 in the future.

Chuck - Blue SweaterThoughtful 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.


[1] The AEO 2017 is available for free download on the Energy Information Agency’s website, www.eia.gov

[2] I use “extrapolations” rather than “forecasts” to emphasize that the AEO is projecting present and recent past information into the future based on certain assumptions. The “reference case” refers to a “business as usual” set of assumptions that do not anticipate government policy changes or technological innovations, other than those already in place.

[3] Note: U.S. annual primary energy consumption is about 100 quadrillion BTUs.

 

The Globalization Gap

The Fly-over Zone

“The fly-over zone” is David Stockman’s term for the middle portion of the United States; the vast expanse roughly bounded by the Appalachian and the Sierra Nevada mountains. Stockman holds that people in the fly-over zone think differently from those on the coasts.[1] The election results from last November tend to agree.

In my view, Globalization, with its economic and social repercussions, provide insight as to why the fly-over folks think so differently from those on the coasts. In essence, Globalization has benefited Americans whose income relies on professional services and intangibles over the last several decades. Those who depend on tangibles, again speaking generally, have done considerably less than well.

 International trade, especially in consumer goods, and large-scale migration from less economically developed nations to more developed countries are two primary factors driving polarization of opinion about Globalization here in America, as well as in the European Union.

Free Trade

Global free trade is fundamental to increased and increasing global standards of living. Since the end of World War II, international economic history records a succession of moves to facilitate multinational trade by removing tariffs and other barriers to trade. One result is truly multinational companies, like GE or Nestle. Another is globalized value chains, even for small companies. Companies and consumers everywhere benefit from the lowest prices available anywhere in the world.

But it isn’t all good. Employees in some nations suffer as lower cost competitors abroad take business and jobs. Some nations import much more than they export, resulting in escalating debt. Some nations use access to resources as an economic means to political ends, like the recent Russian cuts in natural gas supplies to Europe or the OPEC oil embargo in the 1970s.

So, the benefits of free trade are widely spread, but difficult to recognize or quantify. The negatives, on the other hand, are localized and specific – those who have lost their livelihoods to free trade are not happy. And that unhappiness has resulted in political resistance to new trade pacts and movements in several countries to revise or rescind existing agreements.[2]

Migration

In 2013, author and investment banker Dan Alpert[3] wrote:

“The past twenty years have seen a transformation of the global economy unlike any ever witnessed. In the time it takes to raise a child and pack her off to college, the world order that existed in the early 1990s has disappeared. Some three billion people who once lived in sleepy or sclerotic statist economies are now part of the global economy. Many compete directly with workers in the United States, Europe and Japan in a world bound together by lightning – fast communications. Countries that were once poor now find themselves with huge large surpluses of wealth. And the rich countries of the world, while still rich, struggle with monumental levels of debt – both private and public – and unsettling questions about whether they can compete globally”

Alpert’s thesis is that the world suffers from gross over-supply of labor, capital and productive capacity. Capital moves readily across national borders seeking higher returns – meaning productive investment opportunities. When excess productive capacity exists, businesses don’t invest in more. Excess labor, looking for work and stimulated by numerous local wars and conflicts, continues to migrate from developing world countries toward developed countries.

The circumstances that Alpert describes do exist and significantly define world economies and the businesses that drive those economies. These conditions will continue until fundamental global imbalances change. That change may be gradual, spanning years, or quite rapidly, like the economic equivalent of an earthquake.

Chguck - Juneau AKThoughtful 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.

Container ship graphic licensed via www.dreamstime.com


[1] David Stockman was former President Reagan’s budget director. He now writes extensively, especially on political / economic affairs.

[2] For more on this, see “Trade, at what price?” in The Economist, April 2nd – 8th 2016 edition, page 27

[3] Dan Alpert’s The Age of Oversupply, Penguin Group (USA) LLC (2014) is offers much more on this.

 

Knowledge Workers and Tomorrow’s Jobs

President Obama, in his 2015 State of the Union address, proposed that America’s community colleges be made tuition free.[1]  With advancing technology, including on-line instruction, that seems to me to be a sensible step. But only a step. America’s education system needs a comprehensive overhaul in order to educate enough people rapidly enough to meet the rapidly changing demands of the 21st century, rather than those of the 20th.

Peter Drucker discussed this need for what he termed “knowledge workers” and provides his usual profound insight to the matter. Here is a post from a year ago that discusses Drucker’s ideas. It is well worth repeating.    — C.H.


Peter Drucker and the Knowledge Worker (from 10 January 2016)

Peter Drucker is arguably the most widely respected of the 20th century management consultants. Drucker wrote over 30 books on management, which are largely focused on human behavior. His 1999 book, Management Challenges for the 21st Century, offers a forward looking assessment of what demographics suggested would be the key problems facing manager in the early decades of the 21st century. Drucker’s concept of a knowledge worker – those whose work is focused on knowledge and its applications – is central to this book. He contrasts knowledge workers with manual workers – those whose work is essentially focused on things and the manipulation of things.

The Knowledge Worker

With his characteristic bluntness and surety, Drucker states:

“Knowledge-worker productivity is the biggest of the 21st century management challenges. In the developed countries it is their first survival requirement. In no other way can the developed countries can the developed countries hope to maintain themselves, let alone to maintain their leadership and their standards of living.”

Drucker credits Fredrick Taylor’s “scientific management” for the awesome improvements in manual worker productivity that characterizes 19th and 20th century industry and agriculture in the developed countries. According to Drucker, those increases in productivity have been the primary source of incremental wealth in the developed world.

The industrial engineering concepts that constitute “scientific management” are quite portable, so they can be quickly applied anywhere, using workers with little education or training. Developing countries have lots of people, many with rudimentary educations at best, who are willing to work for close to pre-industrial wages. Developed countries have aging populations and declining birthrates, hence much higher wage expectations.  

The bottom line is that labor intensive, repetitive manufacturing in the developed countries simply isn’t competitive in this globalized world, a few special cases excepted (at least for a while). Developed countries need sophisticated work based in knowledge, rather than in method. Economies in developed countries need knowledge workers. As Drucker puts it:

“The only possible advantage developed countries can hope to have is in the supply of people prepared, educated and trained for knowledge work. There, for another fifty years, the developed countries can expect to have substantial advantages, both in quality and quantity”.

What To Do?

There have always been knowledge workers, so much is known about knowledge work. Much can be learned about knowledge worker productivity from professional firms such as surgical practices, legal firms, architectural firms and accountancy firms. Today’s medical practices, for example, have several types of knowledge workers – specialized nurses, radiological technicians, physician’s assistants and such – that enhance the productivity of physicians, the practices’ key resource..

For manufacturing firms that intend to become and remain Sustainable, significant changes in organizational practices and organizational structure will be needed. This means new and innovative business models. Obviously, doing all of this will require study, careful thought and even more careful implementation. There isn’t any real alternative to embracing the change. Start by reading (or re-reading) Peter Drucker’s Management Challenges for the 21st Century !

Chuck - Austrian AlpsThoughtful 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 always welcome.


[1] For more on my thoughts on President Obama’s proposal, see: http://jerasustainabledevelopment.com/2015/01/24/tomorrows-talent/

 

Advancing Global Competitiveness

The HBS Report

The Harvard Business School conducted a study on America’s competitiveness within the global economy. The study defines competitiveness this way: [i]

A nation is competitive to the extent that firms operating there can compete successfully in domestic and foreign markets while also lifting the living standards of the average citizen.

One way to measure a nation’s competitiveness is by following that nation’s balance of trade – the difference in value of that nation’s exports and imports. An excess of exports over imports yields a positive balance, while an excess of imports over exports yields a negative balance, or “trade gap”.

The Bureau of the Census has this to say about America’s balance of trade: [ii]

The trade gap in the United States increased to $42.6 billion in October 2016, up $6.4 billion from a downwardly revised $36.2 billion in September. Exports recorded the biggest decline since January due to lower shipments of food, industrial supplies and materials, automobiles, consumer goods and soybeans while imports reached the highest in 14 months. Balance of Trade in the United States averaged negative $13.521 billion from 1950 to 2016, reaching an all time high of positive $1.946 billion in June of 1975 and a record low of negative $67.823 billion in August of 2006.

This graphic puts that into rather vivid perspective:

U.S. Balance of Trade Graph

As you can see, America’s balance of trade was roughly even from 1950 until 1975, when the balance turned sharply negative following a rapid increase in imported crude oil prices. Matters got much worse after about 2000.

To beg the obvious, America’s persistently large and negative trade gap, especially since the millennium, indicates that America does not “compete successfully in domestic and foreign markets”. Accordingly, “lifting the living standards of the average citizen” has not occurred. This is not surprising, since a trade gap is paid for by exporting cash in lieu of goods, bleeding the U.S. economy. Quite obviously, this is not sustainable.

It is my personal conviction that the dramatic decrease in the price of crude oil experienced in the latter half of 2014 is the key trigger to the relative improvement in the performance in the U.S. economy since that time. That reduction in international crude oil prices is directly attributable to the corresponding sharp increases in U.S. crude oil production, due to “fracking”.

What to Do?

Crude oil imports are an important part of America’s trade gap, but only a part. Manufactured goods are another major portion. Many other economically developed countries have positive balances of trade in the manufactured goods sector – it is not impossible. Nor is it easy. Action is needed at all levels, from individual manufacturing firms to the federal governments. Many earlier posts to this blog address competitiveness, especially for smaller manufacturing firms, as will future posts.

The Harvard study mentioned above offers an eight-point plan for policy improvements at the federal level. That plan, believe it or not, strikes me as a starting point that the incoming Trump administration might actually find actionable:

Eight-Point Plan

  1. Simplify the corporate tax code with lower statutory rates and no loopholes
  2. Move to a territorial tax system
  3. Ease the immigration of highly-skilled individuals
  4. Aggressively address distortions and abuses in international trading systems
  5. Improve logistics, communications and energy infrastructure
  6. Simplify and streamline regulation
  7. Create a sustainable federal budget, including reforms to entitlements
  8. Responsibly develop America’s unconventional energy advantage

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.


[i] Michael E. Porter et al, Problems Unsolved and a Nation Divided  – A Harvard Business School Survey on U.S. Competitiveness, Harvard Business School, Cambridge MA, September 2016. The study is available for download at: http://www.hbs.edu/competitiveness/research/Pages/research-details.aspx?rid=81. It is well worth reading.

[ii] This quotation is from www.tradingeconomics.com/united-states/balance-of-trade (a service of the U.S. Bureau of the Census, accessed 31 December 2016). In the interest of clarity, some figures have been restated from millions to billions and the terms “negative” and “positive” have been substituted for the corresponding “-“ and “+” symbols.