Manufacturing in 21st Century America

The global economy, which includes the U.S. and its manufacturers, is in a whirlwind of transformational change. The scope and dimensions of this is difficult to grasp. We’re Not in the 20th Century Anymore, Toto, a post to this blog from a year ago, offers some thoughts on where to start. … C.H.


We’re Not in the 20th Century Anymore, Toto – from 1 May 2015

An Emerging View of Manufacturing in the 21st Century

Dreamstime - Crystal BallThe 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. Globalization, Sustainability and Demographics & Trends 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.

Chuck ReadingThoughtful 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.

Photo Credit: © Shutter999 | Dreamstime.comCrystal Ball With A Bar Chart Photo


[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/

 

 

Whither Sustainability?

Sustainability

Sustainability, as that term applies to manufacturing, owes its origin to Limits to Growth, [1] which was published in 1972. Limits to Growth describes a systems 3P Graphicanalysis of trends in the earth’s population, industrialization, pollution, food production and resource depletion, with projections into the future. In essence, Limits to Growth emphasized that humanity’s increasing demands for economic development are overwhelming the natural world, and that industry is the primary agent for doing so. So begins the quest for sustainable economic growth and for the technology and practices that enables economic development without destroying the natural world upon which all of us rely.

Mission Zero

In 1994, some customers were asking Interface Corporation, a manufacturer of carpet tiles, about Interface’s vision regarding the environment. Ray Anderson, founder and CEO of Interface Corporation, recognized that the usual response – that Interface was in full compliance with all applicable environmental laws – just wasn’t good enough. His response was to redirect his billion dollar company toward a goal of zero environmental impact.

“I wanted Interface, a company so oil intensive that you could think of it as an extension of the petrochemical industry, to be the first enterprise in history to be truly sustainable – to shut down its smokestacks, close off its effluent pipes, to do no harm to the environment, and to take nothing from the earth not easily renewed by the earth.” [2]

Moreover, Ray Anderson proposed to accomplish this by the year 2020, and to make a profit while doing so. Consequently, Interface established a system of yearly milestone objectives toward Anderson’s vision. Today, 20 – odd years later, Interface remains roughly on course.

Climate Take Back

However, the recent global financial crisis severely impacted the construction industry, Interface’s primary market. In 2011, Ray Anderson passed away. As a result of hard economic times and the loss of their visionary leader and founder, Interface lost some of their some of its edge. The direction continued, but the audaciousness faded.

Now, Interface is renewing its initiative by redefining what Sustainability means in industry. Interface’s new mission — Climate Take Back – builds on and goes beyond Mission Zero’s “do no harm” initiatives: Climate Take Back is proactive. Climate Take Back includes four bold commitments:

>> To bring carbon home and reverse climate change – That is, to remove carbon compounds already present in the atmosphere.

>> To create supply chains that benefit all life – That is, to insist on proactivity from entire supply chains.

>> To make factories that are like forests – That is, to create manufacturing processes and entire factories that mimic nature.

>> To transform dispersed materials into products and goodness – That is, to recover and reuse widely dispersed refuse materials on a global scale.

On 6 June 2016, Joel Makower of GreenBiz published an insightful article on Interface’s new initiatives. It is well worth reading for anyone interested in both manufacturing and sustainability, and well worth careful study for those who want to make a difference.

Here is the link:

https://www.greenbiz.com/article/inside-interfaces-bold-new-mission-achieve-climate-take-back

For Smaller Manufacturers

Interface has long been a champion of, and roll model for, Sustainability in manufacturing. The switch from “do no harm” to “make the world a better place” significantly raises the bar. Beyond that, Interface’s actions and corresponding results dramatically demonstrate the power of visionary leadership.

Chuck - Red RocksThoughtful 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] Donella (“Dana”) Meadows, et al, Limits to Growth, Signet Books (1972)

[2] To learn more about Ray Anderson and Interface, Ray’s book is a good read:

Ray C. Anderson, Confessions of a Radical Industrialist, St. Martins Press (2009)

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/

Bandwidth Revisited

Just about everybody in business has heard the term “bandwidth”. But not so many can explain what “bandwidth” means when used in reference to business activities. I wrote The Importance of Expanding Bandwidth to organize my own thoughts at the time. For me, it serves that purpose again – to organize my thinking for part of a book I’m writing on operational excellence for smaller manufacturers.  The Importance of Expanding Bandwidth is revisited here so that you need not wait until the book is ready.  C.H.


The Importance of Expanding Bandwidth – From 13 February 2014

The Business of “Bandwidth”

“Bandwidth” is a communications term that refers to the rate at which information can be conveyed through a given channel. It’s roughly analogous to a pipe – the larger the diameter of the pipe, the more fluid it can carry. [i] Business borrows the term “bandwidth” to refer to flows of information into, within and out of the firm.

The internet sparked a change from a condition where access to timely information was limited to a condition where enormous quantities of information threaten to overwhelm us. The challenge for managers is more than how to gather more information. Rather, the challenge is how to order that information in such a way that it can be assimilated and made useful. This poses two situations: (1) choosing which content streams to admit into awareness, and (2) providing sufficient context for each content stream to make it truly understandable, hence actionable.

To make the term “context” clear, consider, for example, a Metropolitan Opera performance, presented as an AM radio broadcast, a stereo FM broadcast, and a high definition, enhanced sound quality color television broadcast. In each case the content may be the same. The increased aural and visual context, however, results in a much richer, more meaningful signal.

“Bandwidth” and Management

When the term “bandwidth” is applied to management, it raises several concerns:

>> How to assure access to all relevant information streams that might affect the business in today’s globalized economy?

Pragmatically speaking, a business needs to establish many “listening posts” that follow information sources, extract relevant bits and forward it to management in an organized fashion. The scope of “listening” is indeed daunting. The list extends from familiars like customer information, market information and information on new regulations to include the entire scope of 21st century business – a scope that this blog rather arbitrarily classifies as Globalization, Sustainability, Technology and Demographics & Trends.

>> How to decide which signals (information streams) should be admitted to management’s attention?

Establishing “listening posts” and defining the scope of each is management’s responsibility.

>> How to decide how much context is necessary for each signal?

One approach is to “headline” information items, then link to related information, so that management can expand the context of each “headline” as the manager deems appropriate. Exception reporting offers another, usually complimentary approach.

“Bandwidth” in Manufacturing

Applying “bandwidth” specifically to the factory, “bandwidth” can be thought of as the capability of a manufacturing facility to produce. Capability to produce involves the availability of productive resources, including equipment, technology, talent and money. Those resources can be deployed only to the extent that they are available at any given time. The effective available “bandwidth” can be improved through prudent management practices. For example, the productive capability of equipment can be improved through appropriate maintenance. Talent can be fostered through training and mentoring. Time and money can be extended through reduction of wastes.

Absent sufficient “bandwidth”, a manufacturing organization cannot adapt to abnormal circumstances, nor can it readily accommodate change. A lack of sufficient “bandwidth” helps explain why many improvement initiatives don’t succeed. “Bandwidth” also helps explain the usefulness of focusing on a small number of manufacturing activities. [ii] It is almost always necessary to increase “bandwidth” in order to move to the left on the Performance Curve. [iii] On the other hand, excessive management emphasis on cutting costs often has the unintended effect of impairing “bandwidth”, hence the organization’s intrinsic ability to compete.


Chuck - Red RocksThoughtful 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.


[i] See: http://www.businessdictionary.com/definition/bandwidth.html#ixzz3RGjdlg5i

[ii] See the Harvard Business Review’s classic article: Skinner, Wickham, “The Focused Factory”, HBR May–June 1974

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

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

 

“The Age of Sustainable Development” – Part 1

Sustainable Development

This post is the first of a series that examines the concept of Sustainable Development in its most zoomed out (broadest) sense. This series of essays is intended to provide context, from which smaller manufacturers can individually zoom in to take actions appropriate to their business and its circumstances. The series title, “The Age of Sustainable Development”, is borrowed from the title of a book and on-line course by professor Jeffery Sachs. Dr. Sach’s book and course will provide much of the material for the posts that follow this one.

It is not accidental that this series of posts corresponds in time (December 2015) with U.N. sponsored meetings on Climate Change being held in Paris. Those meetings represent the latest zoomed out efforts at defining “Sustainable Development” in an operative sense.

Before we get to Dr. Sach’s book and the outcomes from the meetings in Paris, this post reprises and slightly updates an earlier post to this blog. Sustainable Development: An Oxymoron? offers a good starting point.


Sustainable Development: An Oxymoron?  (from 31 August 2011)

The publication of Rachel Carson’s Silent Spring in the 1960’s struck a nerve in Kennedy – era America. A national sense of outrage at abuse of the natural environment resonated with the protest climate of the time – the time of the Vietnam War protests and Civil Rights marches, among others. Greenpeace, perhaps the highest profile environmental activist group, has its roots in those times.

Patrick Moore was a founding member and later President of Greenpeace. In his book Confessions of a Greenpeace Dropout (terrible title), Dr. Moore recalls attending a global conference of environmental activists in Nairobi in 1982. Of course, all of the delegates at the conference championed immediate and dramatic action in defense of the environment. However, he noticed a difference in outlook between delegates from developed countries and those from developing countries. Those from developed countries wanted action, regardless of economic consequences. Delegates from developing countries, on the other hand, wanted a clean and safe world, along with economic development. There are around 7.2 billion people on this planet today. About half of those live on the equivalent of $2.00 a day or less. Yes, they want economic development.

Dr. Moore maintains that Sustainable Development – the idea that a safe, clean environment and economic development are not mutually exclusive – was born from that conference of environmentalists. Not long thereafter, it was recognized that humanity is part of nature; therefore improvement of the environment entails improvement in the condition of humanity. Dr. Moore emphasizes that connection when he credibly demonstrates that poverty is the worst single cause of environmental degradation.

For a manufacturer, Sustainable Development is a strategic approach, where economic development is pursued simultaneously with reduction in impact on natural systems and without exploitation of humanity. As development proceeds, “reduction in impact” and “without exploitation” both grow into positive improvements. In this sense, Sustainable Development is a course of action, while Sustainability is a state to be achieved.

So, Sustainable Development is definitely not an oxymoron. Serendipitously, it has become increasingly clear that the three elements of Sustainable Development – economic growth, environmental impact and humanity – can be mutually reinforcing when pursued systematically. A clear win-win-win.

The “Jera” in our name, Jera Sustainable Development, is that of a rune, part of a northern European system of writing from about the third century. Jera refers to the harvest, hence to beneficial outcomes earned through systematic actions sustained over time. Thus, our name evokes our mission: to be useful to manufacturers who choose to embrace Sustainable Development through systematic actions, sustained over time.


Chuck - Blue SweaterThoughtful 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.

Petroleum and Pragmatism – Part 2

Last week’s post, Part 1 of Petroleum and Pragmatism, offered a zoomed out view of petroleum consumption as it affects the U.S. and the world, today and for the next several years. This post, Part 2, zooms in on petroleum, greenhouse gases and, as a consequence, the continuing debate on climate change.

Petroleum and the Transportation Sector

Petroleum provided about 28% of the primary fuel consumed in the U.S. in 2013. The great majority (about 90%) of that was used in the transportation sector. Petroleum derived fuels, especially gasoline, diesel fuel and jet aircraft fuel, offer a combination of physical properties that are especially desirable for mobile applications.

AEO 2015 Fig 10The chart labeled “Figure 10” is from the Annual Energy Outlook – 2015, [1] published by the U.S. Government Department of Energy in April 2015. Figure 10 breaks out energy consumption by mode of transportation. As you can see, light-duty vehicles (cars and light trucks), heavy-duty vehicles (primarily heavy trucks) and aircraft, taken together, accounted for 88% of energy use in the transportation sector in 2013.

Please notice that projected percentages for 2040 indicate both a substantial reduction in energy consumption for light-duty vehicles and an increase in heavy-duty vehicle fuel consumption. Also notice that the total energy consumed by the transportation sector is almost unchanged between 2013 and 2040 (energy use equivalent to 13.8 million barrels of petroleum per day in 2013, declining only slightly to 13.5 million barrels per day in 2040).

Petroleum, Greenhouse Gases and Climate Change

Petroleum derived fuels are close to 100% hydrocarbons, so greenhouse gas emissions from petroleum derived fuels — mostly carbon dioxide (CO2) – are just about directly proportional to petroleum consumption. Greenhouse gases are regarded as the primary driver of the climate change and its negative effects, as projected for coming years. In order to abate the dangers associated with climate change, President Obama has proposed to reduce America’s total greenhouse gas emissions by 25% – 28% by 2028.

AEO 2015 Fig 37The chart labeled “Figure 37” indicates total greenhouse gas emissions by sector for 2005 and 2013, along with projections for 2025 and 2040. Clearly, the emissions from the Transportation sector will need to decline much more than Figure 37 indicates.

Here are some comments on the obvious discrepancy between the President’s proposal and the figures presented in the Annual Energy Outlook – 2015:

>> The projections presented in Figure 10 and Figure 37 reflect the Annual Energy Outlook’s Reference Case. The Reference Case extrapolates historical data in light of demographic projections, macroeconomic projections and regulations in place prior to publication. Anticipated technical breakthroughs and regulations not yet finalized are not considered in the Reference Case. As examples: (1) The Corporate Average Fuel Economy (CAFE) regulations for light-duty vehicles are included and timely compliance is assumed (roughly 5% decrease in fuel consumption per model year through model year 2025). (2) New heavy-duty vehicle fuel economy standards proposed for years following 2018 are not final, hence are not considered.

>> Most, if not all major light-duty vehicle manufacturers have included diesel engines in their CAFE standards compliance plans. Volkswagen’s recent emissions problem with diesel engines and France’s decision to de-emphasize diesel engines in light-duty vehicles cast doubts on the future market acceptance of diesel powered light-duty vehicles. [2]

>> Electric vehicles, hybrids and bio-fuel powered vehicles are the only practical and available alternatives to petroleum fueled light-duty vehicles that come to mind. Electric vehicles, like those offered by Nissan, BMW and Tesla, if manufactured and sold in sufficient numbers, would dramatically reduce greenhouse gas emissions. I personally don’t like hybrids – given an adequate recharging infrastructure, I don’t see any advantage compared to all electric vehicles. I’m also less than enthusiastic about bio-fuels for light-duty vehicles. Toyota has introduced a fuel-cell powered light-duty vehicle – I admire Toyota, but I have not seen much action toward the necessary refueling infrastructure.

>> For heavy-duty vehicles, natural gas is my first choice. Natural gas is significantly cleaner than diesel fuel, emits less greenhouse gas than diesel fuel, and is readily available from domestic sources. The necessary refueling infrastructure is increasing daily.

>> As everyone has noticed, the price of gasoline has dropped by almost half over the last year or so. The operating economics of vehicles using $2.10 per gallon gasoline are hard to match – or even approach — with any other practical and available technology.

The advent of “fracking”, the migration of some non-transportation uses to natural gas and the discovery of new and extensive petroleum sources financed through years of high petroleum prices are all conspiring to keep petroleum prices low for the reasonably foreseeable future.

At the same time, cheap gasoline can be expected to motivate buyers to choose larger, more fuel hungry vehicles. Cheap gasoline can be expected to encourage people to drive more. Additionally, cheap gasoline can be expected to promote demand for more vehicles.

All of this means more greenhouse gas emissions, not less.

For Smaller Manufacturers

Look for several years of cheap petroleum products. If you have made greenhouse gas emissions reduction commitments, take another look at how those reductions will be accomplished.


Chuck - Vancouver3Thoughtful 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] The Annual Energy Outlook – 2015 is available for free download at www.eia.gov

[2] For more on VW, France and diesel engines see The Diesel Dilemma, this blog, http://jerasustainabledevelopment.com/2015/10/10/the-diesel-dilemma/

 

Petroleum and Pragmatism

This post takes a zoomed out view on petroleum as it affects the U.S. and the world, today and for the next several years. The global supply / demand balance for petroleum and related products has changed dramatically over the last several months and continues to change, affecting almost everybody and everybody’s business. With the approach of the Paris meetings on climate change – hence fossil fuels, including petroleum – a pragmatic approach to petroleum and policy may offer some prospective.

Petroleum in America

http://www.dreamstime.com/-image23393490

The term “petroleum” (literally “rock oil”) refers to crude oil. Petroleum consists of a broad collection of hydrocarbon molecules. Petroleum refineries separate these molecules useful fractions (such as gasoline) and process less useful molecules by splitting or rearranging them to produce more of the useful kinds. Petroleum is a natural material that varies significantly from source to source. Refiners are willing to pay more for petroleum that has lots of useful molecules and little difficult to process residues (sulfur, for instance). Petroleum provides more than a third of the primary energy consumed in America. Far and away, the principle use for refined petroleum is to fuel transportation.

Importantly, petroleum (crude oil) is a globalized commodity with a globalized pricing structure. The ease of transporting crude oil internationally makes it so. Until recently, the global pricing of crude oil was determined by an international cartel

For present purposes, it is useful to include natural gas in the discussion, taking care not to confuse natural gas with petroleum. Natural gas, unlike petroleum, is not readily transported, except by pipeline. Consequently, pricing for natural gas varies significantly from place to place, depending on access. In the past, natural gas, generally speaking, was limited by available supplies and natural gas pricing more or less tracked that of petroleum.

“Fracking”

Hydraulic fracturing, an innovation in drilling oil and gas wells, changed everything. “Fracking” allowed natural gas and petroleum production to increase substantially here in the U.S. over the last several years. The huge increase in U.S. domestic oil and gas production resulted in a decrease in global petroleum prices by more than half, as traditional petroleum exporting countries scramble to protect world market share.

Supply Dependency and the Trade Deficit

The recent and dramatic changes in global petroleum and natural gas supply / demand balances have several implications for Americans and for America:

>> For American drivers, cheaper crude translates into substantially lower prices gasoline prices.

>> For residential and commercial customers, plentiful natural gas results in lower heating costs.

>> For electric utilities, plentiful natural gas allows migration from coal without dramatically increasing fuel costs.

>> For American manufacturers, plentiful natural gas provides energy cost savings and a low cost source for some petrochemical products – especially ethylene and propylene – based petrochemicals and polymers.

>> For just about all Americans, lower crude oil prices result in lower transportation cost, be it by rail, truck, air or sea.

>> Petroleum imports have more a major factor in American’s persistent foreign trade deficits. Until recently, when America imported a boatload of crude oil, America exported a corresponding boatload of greenback dollars. Now, if and when America imports a boatload of crude oil, America exports less than half a boatload of greenbacks. The rest stay here in America and circulate through our domestic economy. It is difficult to over emphasize how important those additional greenbacks can be, especially in a stressed out economy.

In 2009, when the U.S. economy tanked, global crude prices followed, then quickly recovered. Sometime in mid – 2014, U.S. petroleum and natural gas supplies reached a tipping point and prices began to drop. It is my contention that the export of greenbacks for crude oil played a significant role in America’s prolonged recovery from the Great Recession. Further, I contend that sharp reduction in the export of greenbacks in 2014 was a primary factor, if not the primary factor in the recovery the U.S. has experienced over the last 12 – 15 months.

>> Even more importantly for all Americans, the new global supply / demand balances for petroleum and natural gas provide a genuine opportunity to become and remain independent from foreign suppliers. “Independent” doesn’t mean that American should not buy foreign crude oil. It does mean that America does not have to buy foreign oil. Supply independence reduces the probability of oil price shocks. Further, supply independence significantly reduces the influence of the Middle East in American foreign policy.

In my view, energy policy and the present opportunity to become and remain energy independent should be a major – if not the major – issue in the upcoming elections.

Chuck on Wilson Mtn.Thoughtful 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.

Oil well image credit: http://www.dreamstime.com/-image23393490