Don’t Fire Unprofitable Customers; Price Them Out the Door

By Chris Chiappinelli | Published: March 19, 2010

I was privy to an interesting discussion this week about the promise and perils of price optimization. PROS, a company that got its start in the 1980s in the airline industry and today offers pricing and profit management software for manufacturers and others, gathered a small group of individuals who focus on pricing practices every day, and the ensuing conversation revealed much about entrenched business practices and companies’ ability to change their customer-facing practices.

Participants included Noha Tohamy, a pricing analyst at AMR Research, now part of Gartner; Mike Simonetto, who founded Deloitte’s pricing practice, and his colleague John Norkus; and Kevin Wholly, a vice president and general manager at Arrow Electronics who oversees $1.2 billion worth of sales for the electronics distributor.

In a stately conference room in the iconic New York Stock Exchange building on Wall Street, we talked about the fear salespeople have of the analytical calculations of a software system, the reluctance of companies to admit that they’re using pricing technology, the tendency to “SWAG it” when it comes to product or service pricing, and the stigma attached to firing customers.

Arrow’s Wholly framed the discussion succinctly when he said, somewhat defensively, “Arrow has never fired a customer.” That statement gets to the thorny truth at the heart of price optimization practices: When a manufacturer evaluates its product pricing empirically instead of by gut feel, the close examination inevitably reveals that it is serving some customers at a loss. Firing those customers outright is a bold step that few companies are willing to take — and with good reason, since such a move can damage a company’s reputation. The answer, the experts advised, is to raise prices so that unprofitable customers either begin to pay their way or look elsewhere for business.

Simonetto of Deloitte said the process requires an inversion of the usual value equation, from the traditional inside-out perspective — i.e., what value do I create for the customer? — to one that looks outside-in. A company must determine “what value does that customer create for me, and [then] price according to that value,” he said.

All agreed that this is much easier said than done. Any effort by manufacturers or distributors to improve pricing must go through the sales team, and many initiatives without strong executive support don’t make it through that sieve. At Arrow, the pricing effort started at the top. Wholly said the CEO wanted names of salespeople who weren’t in compliance with the new pricing guidelines. And Arrow installed someone to act as policeman to keep the sales staff from going rogue. “She just will not allow [deviation],“ he said.

Before the company installed the PROS pricing software, Wholly said, “we SWAGged it” when making pricing decisions for new products. Now, the system uses similar existing products as a baseline and helps Arrow create better pricing parameters for new products.

Tohamy said many companies lack a single executive or manager who oversees pricing practices, and without that kind of governance structure, most salespeople feel free to price based on instinct. Wholly said companies that institute a pricing system “need to guard against the salesmen’s perception that their IP has been removed from the equation.”

When all is said and done, everyone seemed to agree, companies must push past issues of ego and complacency and do what is good for the business. That may mean installing a pricing manager, analyzing your pricing decisions more diligently, or using a software-based pricing system. But it definitely means a closer look at the value your customers give to you.

What do you think? Are you ready to fire your underperforming customers?

Posted in Customer Management | Tagged , , , , , | 1 Comment

Ordering Up Innovation

By Jeff Moad | Published: March 16, 2010

Funny thing about innovation: It can’t be mandated.

For years, U.S. car makers vowed to regain their mojo by out-innovating competitors. But, until recently, what they delivered was bigger SUVs. And cup holders.

Now SAP’s new CEO brain trust of Bill McDermott and Jim Hagemann Snabe say their company will regain its mojo by accelerating innovation. Yesterday, at their press conference at SAP’s Palo Alto campus, they emphasized the company’s intent to turn up the innovation “clock speed,” rolling out technology platforms and internal processes that, they said, will deliver new products that will keep up with customer expectations even in the era of mobile communications, where smart devices change as rapidly as hem lines. (The SAP co-CEOs made similar statements at the recent CeBIT conference in Germany.)

While there’s little doubt that SAP — and all enterprise application providers, for that matter — could do with more out-of-the-box thinking and less financial engineering, SAP’s leaders may find that it will take more than a CEO change and a new innovation strategic plan to start seeing results.

Clearly, all of SAP’s talk about a plan to accelerate innovation is a by-product of the company’s recent wrenching leadership change. Ousted CEO Leo Apotheker bore the brunt of customer backlash over a failed plan to raise maintenance and support prices while reducing customer choice. As one SAP customer told me, “It sent the unintended message that the focus was not on being innovative but on recycling what they had as a way to move the company forward.” Unfortunately true.

Now SAP wants to differentiate itself — particularly from archrival Oracle — by emphasizing innovation leadership. To demonstrate that, Hagemann Snabe yesterday said SAP has rolled out to its 12,000-person developer team a new agile, iterative software development process that will allow the company to accelerate the creation of new products. The approach, for example, has allowed SAP to reduce the number of developers working on its cloud-based Business ByDesign product by a third while accelerating results, he said.

But innovation is about a lot more than how fast you can write code. It’s about coming up with great ideas for great products, even before your customers know they need them. As Steve Jobs once said, “You can’t just ask customers what they want and then try to give that to them. By the time you get it built, they’ll want something new.”

This type of anticipatory innovation is what built SAP and other software companies. When SAP launched its R/2 business system in the late 1970s, there weren’t a lot of CIOs jumping up and down demanding the fully integrated enterprise application suite that R/2 and, later, R/3 would become. SAP was ahead of that market. It helped define that market in the same way that Apple defined what consumers expect from mobile devices.

But that was then. Today SAP is a different company, with 50,000 employees serving 95,000 customers. There is a huge installed base of software to worry about, and multiple layers of management to feed. Inevitably at such a large company, the need to satisfy entrenched interests can undermine inspired innovation.

Don’t get me wrong;, some of the initiatives SAP is pursuing represent significant innovation. Business ByDesign, while not an original idea, will have a significant impact, particularly if SAP can incorporate core manufacturing functionality into the product. And the company’s plans for an in-memory database could be a game-changer, giving companies a way to respond to changing business conditions on the fly.

But McDermott and Hagemann Snabe shouldn’t fool themselves. Building — or rebuilding — a culture of innovation at a company the size of SAP can’t start at the CEO level, and it can’t be accomplished overnight. As my colleague Mark Halper wrote recently in Manufacturing Executive, building a culture of innovation requires the willingness to embrace good ideas regardless of their source, an acceptance of the fact that failure is part of the process, and a willingness to reward innovation at all levels of the enterprise.

Posted in Enterprise Applications, Innovation | Tagged , , , , , , | Leave a comment

Onshoring Manufacturing

By Chris Chiappinelli | Published: March 16, 2010

Manufacturers are at it again, chasing cheap labor wherever it appears.

But wait; they’re chasing it in America.

Heavy equipment manufacturer Caterpillar recently announced that it would look for a site in the United States to build a new factory for its construction excavators. That would replace production work currently performed in Japan and Illinois, and it follows a much ballyhooed decision by GE to “onshore” production of some of its water heaters beginning in 2011.

In a Wall Street Journal article, Caterpillar spokesman Jim Dugan said the onshoring announcement was part and parcel of “a long-term look at where we think this market and this product is going globally and how can we best get ourselves positioned.”

If Caterpillar follows through on the plan to build out U.S. production, the WSJ states, it could take advantage of a depressed dollar, job incentives coming out of Washington, and shortened supply and distribution chains for its products. The company expects U.S. demand for its construction machinery to pick up after a period of relative drought, and I suspect that many of its fellow manufacturers might see similar demand patterns emerge in the next couple of years. That is, manufacturers that in recent years plied emerging markets to help keep sales respectable might now see a resurgent customer here in America.

If that dynamic plays out, the total landed cost for many goods producers will change yet again. Throw in reduced spending power overseas, the persuasive power of job tax credits at home, and an eager U.S. labor force willing to work for less, and supply chains may get much homier in the near term.

That shift would please the National Association of Manufacturers, which for years has decried the soaring cost differential between the United States and countries that are popular manufacturing depots for U.S.-based companies. That awareness campaign has underpinned NAM’s efforts to drive down government regulations and taxes on manufacturers.

Now, at the dawn of a still tepid onshoring movement, a new kind of campaign emerges to replace the doom and gloom of NAM’s studies with a more optimistic message. The National Tooling and Machining Association (NTMA), the Precision Metalforming Association (PMA), and the Association for Manufacturing Technology (AMT) have teamed up to produce the Contract Manufacturing Purchasing Fair 2010, to be held May 12 in Irvine, CA. The fair is intended to link OEMs with domestic job shops. Its theme: Re-Shoring: Bringing Work Back to the U.S.A.

In the words of the organizers, “The fair is intended to change the sourcing paradigm from ‘Off-shored is cheaper,’ to ‘Local reduces total cost of ownership.’ ”

The NAM can continue to bang its drum for change in Washington, but the collective efforts of the NTMA, the PMA, and the AMT might inspire more immediate rethinking of total landed cost and the benefits of a U.S.-based supply chain.

John Engler, chairman of the NAM, may cover this subject when he keynotes Managing Automation’s 2010 Progressive Manufacturing Summit in Palm Beach, FL, during the first week of May. For more info, check out the Progressive Manufacturing conference site.

Posted in Supply Network | Tagged , , , , , , , , | 3 Comments

Scrutinizing SAP’s Mobile Strategy

By Stephanie Neil | Published: March 15, 2010

Earlier this month, SAP and Sybase delivered the mobile CRM application they promised a year ago when they announced a co-innovation agreement. Actually, there were two new applications: Sybase Mobile Sales for SAP CRM and Sybase Mobile Workflow for SAP Business Suite, for iPhone and Windows Mobile, with a RIM Blackberry version coming out later this year. Now, existing SAP customers can extend their CRM applications to an on-the-go sales force, giving them anytime, anywhere access to SAP CRM 2007 to immediately complete business transactions, such as workflow items and alerts or travel requests wherever they may be.

The apps are built on Sybase’s Unwired Platform, technology that enables developers to create mobile applications that connect any device to back-end business data. It is, as Sybase says, a flexible, open standards-based infrastructure that greatly simplifies mobile application development. It also includes device management and security capabilities, important elements when building out a mobile workforce.

With the Sybase partnership, it seems SAP has come a long way in its mobile strategy. SAP has a CRM application that it created, but it was not connected to the back-end database. It behaved more like a disconnected laptop, I was told by an SAP spokesperson. The Sybase solution, therefore, is a more serious step toward enterprise mobility. But it’s not the only step in the right direction.

SAP is big on building out partner ecosystems in order to tap into expertise it doesn’t possess. And the partnerships are rarely exclusive. For example, SAP’s adaptive manufacturing partner ecosystem includes just about every automation vendor under the sun. But that makes sense, as manufacturers have already invested in their control and operations management software, meaning an all-encompassing partner plan helps ensure that SAP has a solution for every circumstance.

It seems SAP is following the same mindset with its mobility partner program. Click on the SAP EcoHub web page and search for ‘mobile crm.’ The results display about two dozen partners. There’s Syclo, which offers a mobile suite for SAP systems for asset management and field service order management; ClickSoftware workforce scheduling and optimization software; and 3i Solutions Inc.’s mobile workplace, among others. Similarly, a quick search for ‘mobile infrastructure’ brings up Sybase, Antenna Software’s Concert development platform, and SkyConnect from Sky Technologies.

I question whether or not SAP needs the same broad base of partners in mobility as it does in manufacturing. Most manufacturers are just starting to implement a wireless strategy, and since it is untapped terrain for them, they may just want a turnkey solution from SAP, not a menu of choices.

I think SAP’s mobility group should rip a page from its manufacturing practice, which early on identified the critical pieces it needed, like shop floor to top floor integration and MES, and acquired those assets via its Lighthammer and Visiprise buyouts, respectively. Then SAP built out a partnership framework to support what it was creating in house.

To that end, SAP’s next move should be to acquire a mobile infrastructure vendor upon which it can build a stable of wireless applications that fit into its — and its customers’ — long-term mobile enterprise plan. The company can continue co-innovating, but it needs to lead the effort. SAP has a rare opportunity right now to shape an emerging market.

Posted in Enterprise Mobility | Tagged , , , , , , , , , | 1 Comment

Toyota and the Curse of Lean

By Jeff Moad | Published: March 12, 2010

Has Toyota’s legendary adherence to lean manufacturing principles increased the company’s vulnerability to the kind of devastating quality problems that, unimaginably, have caused the world’s number-one car maker to recall millions of vehicles and tarnished its once pristine brand image?

It’s a natural question to ask, given that, for many years, the vaunted Toyota Production System — a precursor to modern lean principles — was cited as Toyota’s not-so-secret weapon in its largely successful battle with Detroit to dominate the global car market. But could the same guiding principles that helped Toyota win the manufacturing battle also have played a role in bringing about what must be the company’s most significant challenge to date?

Recently I spent some time discussing the issue with Kelly Thomas, senior vice president for manufacturing at supply chain management software provider JDA. Thomas, who spent 10 years at General Motors’ former EDS unit before getting into the supply chain software business, thinks that too much lean in some parts of Toyota’s business and too little in others contributed to the company’s current problems.

To be sure, lean isn’t the cause of Toyota’s current problems. The company has publicly traced the cause of the recall to too rapid growth, which, Toyota says, caused it to lose focus on quality.

But, Thomas says, Toyota’s slavish adherence to lean principles — particularly in the sourcing and supplier management domain — may have made it much harder for the company to recover from its current mess. Toyota, he says, has been a leading proponent of value engineering, a lean-related principle that calls for the reuse of parts across designs, particularly those that don’t necessarily add value in the eyes of customers.

That led Toyota to use essentially the same part designs — including the faulty accelerator assemblies — in many of its vehicles. When the parts proved defective, the impact rippled across Toyota’s product line — and installed base of vehicles — with devastating effects.

Toyota, of course, hasn’t been the only car maker to fall victim to this problem. German manufacturer Audi/Volkswagen had similar problems back in 2003.

At the same time, lean principles have led Toyota to significantly reduce the number of suppliers with which it works and the number of dealers in its network. Again, in the face of a devastating design problem and a massive recall, Toyota’s lean supplier network has been overwhelmed.

And, Thomas says, the company has too few dealers to fix all the problems quickly enough. With about 8 million cars on recall, each of the company’s 1,100 dealers would need to service, on average 7,300 cars each, on top of their regular service workloads. Not something that’s likely to happen without a lot of scheduling headaches and customer dissatisfaction.

At the same time, he says, Toyota failed to apply lean principles in areas where it might have helped the company cope with or even avoid its current difficulties. Take the company’s design and engineering processes, for example. While workers in Toyota’s plants have been trained to be on the lookout for production bottlenecks and to report them immediately for corrective action, that type of behavior hasn’t been encouraged in the design and engineering domain.

“There, bringing problems to your boss is not nearly as prevalent as it is in the plant,” Thomas says. “It’s just not part of the culture.”

As a result, Toyota hasn’t been able or willing to spot and fix design problems, even when, by all accounts, they’ve been evident in the field for a long time.

Ironically, U.S. car makers — specifically General Motors — seem to be doing a better job these days of sniffing out engineering and design issues before they become big problems.

Unfortunately, Thomas says, it’s not at all clear that other car makers will learn enough from Toyota’s mistakes. Most are following in Toyota’s lean-inspired footsteps, pursuing value engineering and attempting to slash dealer networks.

Posted in Systems & Integration | Tagged , , , , , , , | 2 Comments

Predicting a Recovery Requires a Crystal Ball

By Stephanie Neil | Published: March 9, 2010

We’ve been joking lately about the weather reports here in coastal New England, because when the meteorologists start telling us to batten down the hatches in preparation for a horrible winter storm—putting the town in a tailspin — it’s a good bet it’s a false alarm. While it doesn’t seem like a big deal, when school gets canceled and travel is rearranged, it creates a disruption on the home front.

Similarly, on the work front, it feels like we’re being bombarded by “post-recession reports” from industry experts and watchdog groups predicting a turnaround in the economy based on forecasts of new spending and production increases.

Two weeks ago, it was the Manufacturers Alliance/MAPI reporting a rebound in consumer spending that it said will lead to 2.8% growth in gross domestic product (GDP) this year, followed by 3% growth in 2011.

Yesterday, the American Machine Tool Distributors’ Association (AMTDA) and the Association for Manufacturing Technology (AMT) released the U.S. Manufacturing Technology Consumption (USMTC) report, noting that last month, technology spending was up 26.2% from the year-ago period.

And, today, IT industry analyst firm Ovum issued a press release outlining a new study that indicates IT spending is on the rise in 2010.

There is a caveat in each optimistic outlook, however. MAPI says there must be a reversal of the current employment conditions to ensure a complete recovery. The USMTC report of a 26.2% upturn in technology spending looks rosy, but February spending was down 40.3% from December 2009.  And Ovum’s IT report notes that while there is an indication of an increase in IT spending this year, it’s only inching up 1% to 5%.

“The survey data, while promising, does not translate into an IT spending recovery,” said Ovum senior analyst, Rhonda Ascierto, in a statement. “Realistically, the numbers more likely reflect the effect of previously deep budget cuts, during 2008 and the first half of 2009, which left many IT departments operating at ‘bare-bones’ capacity.”

The bottom line is, we can slice and dice the data all day long in an attempt to paint a bright outlook, but, like the meteorologists, we really don’t know what’s going to happen. The financial forecast for U.S. manufacturing is sunny with a chance of a severe storm. Let’s prepare for the best and hope that storm doesn’t hit again.

Posted in Operations Management | Tagged , , , , , | 1 Comment

Toyota’s Biggest Blunder

By Chris Chiappinelli | Published: March 5, 2010

Between you and me, Toyota really messed this one up.

The company long known for its meticulous quality and, by extension, its meticulous customer care drove completely off the rails in recent years, churning out ever larger production batches, ever faster, even as quality control declined inversely. That led to the recall of more than 8 million vehicles across a slew of Toyota brands. The company did this — and this is where the customer care part gets really murky — only after the failure of what appears to be a Machiavellian effort to silence its customers’ complaints.

But neither history nor customers will consider that to be Toyota’s greatest sin if it turns out that the fixes were just a smoke screen to hide the real problem. Toyota maintains that the defects that cause unintended acceleration are inherent in the mechanics of the gas pedal, which can get stuck, or in faulty floor mats that can tamp down said pedal. But outsiders have questioned whether the real problem might lie in the electronics that govern the vehicles’ acceleration and braking systems.

Now more than 60 Toyota drivers claim that their vehicles accelerated without cause after being recalled and purportedly fixed. Does that mean the root cause isn’t where Toyota says it is? Toyota and the National Highway Transportation Safety Administration are investigating, but haven’t announced any conclusions.

Toyota said in a statement, somewhat contradictorily, “As NHTSA is now reviewing the results of our evaluations, it is inappropriate for Toyota to provide specific information about the company’s conclusions. However, the evaluations have found no evidence of a failure of the vehicle electronic throttle control system, the recent recall remedies, or the brake override feature.”

Some observers have suggested that the recent deluge of press coverage may have made some Toyota owners oversensitive to driving events that aren’t really issues. Others might wonder which class-action lawyer is behind the complaints. I think Toyota may have more on its hands than it thought it would.

Most consumers will allow a company the chance to make good, a golden opportunity that doesn’t last long. A company, after all, won’t win market share until it wins over customers. But a cover-up of a cover-up is worse than the original sin. For customers, it’s an unforgettable insult. Time and investigations may exonerate Toyota of the second offense, but, if not, it will be the company’s biggest blunder yet.

If you drive a Toyota and need some guidance, you can visit Toyota’s recall website.

Update: Numerous news reports indicate that Toyota will conduct a webcast on Monday, March 8, to rebuff claims that the electronics system could be at fault for its vehicles’ acceleration problems. As of Monday morning, Toyota’s recall website did not appear to have details on the webcast.

What do you think about Toyota’s treatment of its customers leading up to and in the wake of this event?

Posted in Customer Management | Tagged , , , , , , , | 14 Comments

Outsourcing and the Cloud

By Jeff Moad | Published: March 4, 2010

Until now, most of the discussion about the benefits of cloud computing and its variants such as software as a service (SaaS) have centered on the time and money manufacturers and other businesses can save by replacing on-premise data centers and traditional software licensing models with Web-enabled services that are paid for on a subscription basis.

This is essentially an argument for reducing IT costs, and it’s one that may make sense for many companies, assuming they can satisfy themselves that cloud environments are reliable and secure and that cloud-based applications deliver an acceptable level of industry-specific functionality.

But is all the noise about cloud computing really just about shaving a few bucks off the IT budget? If so, should manufacturing line-of-business and C-suite executives pay much attention to the whole discussion? Don’t they have bigger fish to fry, such as innovating business strategies and making sure that core business processes — especially those that directly touch customers — are running as smoothly and profitably as possible?

It turns out that cloud computing may, in fact, play a role in helping manufacturing executives streamline business processes, not just bring down IT costs. Several business process outsourcing service providers — particularly Indian BPO service providers —are fast-tracking initiatives

intended to combine outsourcing services and cloud computing.

Under the traditional model, when companies outsource business processes such as end-to-end order management or human resources management, the supporting technology — data centers, applications, etc. — doesn’t change much. The applications may be moved to a third-party data center, but they’re still owned and paid for by the manufacturer.

Now outsourcing providers such as Wipro Technologies and Infosys are exploring ways to combine BPO services with cloud-based infrastructure and applications. That would enable customers to outsource entire business processes — the people and the supporting technology — and pay for all of it according to how much is used.

Infosys seems furthest along on this path. Recently I met with Chandrashekar Kakal, Infosys’ senior vice president and global head of its enterprise solutions group, to discuss what the company calls its Infosys Business Platforms. The company is building a series of business process-specific platforms — hardware, applications, and industry-specific extensions — that will be cloud-based and used exclusively to support Infosys’ BPO offerings. So far, Infosys has built three such platforms. They support procurement and HR management processes as well as processes that are specific to publishing and media businesses. Infosys plans to add more, including multi-channel order management, according to Kakal.

This approach would seem to make sense for both Infosys and its customers. Customers could outsource entire business processes and pay based on how much they use. The cost of the procurement BPO service — including supporting technology — would be based on total spend, for example. So costs for the customer would be controllable, predictable, and scalable (assuming Infosys is able to design its platforms in a scalable fashion).

And the approach allows Infosys to offer an all-in-one BPO service while keeping its own costs under control. The company plans to use third-party data centers to reduce up-front capital investment. At the same time, Infosys gains operational flexibility, with the ability to deploy cloud-based applications from one location while Infosys staff provide outsourced business processes in another.

Of course, such a new business model will raise all kinds of technical and business challenges. Under the pay-for-service pricing model, for example, how can Infosys afford to write big up-front checks to partners such as Oracle and SAP for the applications on which the new Business Platforms will be based? Infosys has managed to negotiate new pricing models with its large enterprise application providers, Kakal says.

Another question is what customers will do with the investment they’ve made in software and data centers once they sign up for this type of all-inclusive, cloud-enable BPO? In the old days of outsourcing, providers would often compensate customers to cover the sunk cost of those assets. Will companies such as Infosys be able to do that under the new pay-for-service model? Infosys is working on that, Kakal says.

Assuming Infosys and other outsourcing providers can answer such questions, cloud computing could very soon become a topic of interest among line-of-business and C-level execs, not just IT executives.

Posted in Enterprise Applications, Systems & Integration | Tagged , , , , , , , | 7 Comments

Asset Management: A Convenient Truth

By Stephanie Neil | Published: March 2, 2010

What do former Vice President Al Gore and enterprise asset management have in common? Well, the truth is, probably nothing. But when Gore took the stage at the IBM Pulse2010 service management event last week in Las Vegas, he put such a seasoned spin on asset management and its role in solving the economic and energy crises it would put today’s most polished politicians to shame.

It’s a rare talent to be able to connect the dots among such seemingly dissimilar things. In this case, Gore’s commitment to educating the public about his views of the environment is actually a good match for IBM’s current push toward adding ‘intelligence’ to business, IT, and infrastructure assets via visibility, automation, and control technology.

“IBM’s Smarter Planet concept feels right to me,” Gore declared to an arena full of people at the MGM Grand. “It matches the moment.”

The moment he’s referring to is what he called  “a turning point” in how we handle our infrastructure. Whether it’s the Internet information super highway or a congested Los Angeles freeway, we can now — thanks to the proliferation of software and sensors on everything from firewalls to fire hydrants — gain access to information that was once completely inaccessible. And when all of that information is rolled up into a visual and intuitive dashboard, it makes a difference in the way we make decisions.

Sensors in a smokestack, for example, can measure carbon emissions to help understand what’s being ejected into the environment. Sensors on water mains can monitor problems that could jeopardize water quality. And similar technology can help you understand how much power your factory floor equipment consumes, providing insight into which components are being over- or underutilized.

As sensors integrate with asset management software to control the physical infrastructure of factories, highway systems, and enterprises, we approach a transformational event that will change the way we do business. Gore said he hopes that event will inspire the U.S. to tap more renewable energy sources.

“We are in the presence of one of the greatest opportunities in the history of business,” Gore said, “to become more efficient, eliminate waste and pollution, and at the same time, even if you don’t buy into the evidence of a climate crisis, create the jobs that China is now in the business of developing and is stealing the lead in wind and solar. We ought to seize the opportunity here, just as the industrial revolution did in an earlier era.”

But it’s up to business, not government, to make this happen. It’s the “will to act.” Gore said, that will ultimately make the difference.

Whether Gore’s speech is on target, or simply a masterful political spin, there’s no denying that deploying asset management technology in a manufacturing environment will make a dramatic difference to the bottom line (and hopefully the environment). So, when it comes to asset management, I’m in Gore’s camp. I say, act now.

Posted in Operational Excellence | Tagged , , , , | Leave a comment

Hedging Against Supply Chain Disruption

By Chris Chiappinelli | Published: March 1, 2010

When the Western Hemisphere’s latest mammoth earthquake struck Chile on Saturday, it not only imperiled thousands of lives and homes, but it also sent copper prices surging. Chile is the largest producer of copper in the world, and the immediate market reaction to the earthquake was to drive up the cost of that commodity. Only two days later the news on the ground is encouraging: Some temporary production shutdowns at Chilean copper mines have already been lifted, and operations appear to be headed back to normal.

Procurement specialists and supply chain managers hold their breath when natural disasters strike, both out of compassion for those affected and for the supply and budget implications that attend such events. Creating a nimble supply chain with redundant supply points can help a manufacturer hedge against the physical disruptions, but what about cost? Global markets being what they are, prices essentially move in concert worldwide. And recent developments indicate that the biggest supply concern of them all is about to rear its ugly head. Its big, oily head, that is.

BusinessWeek reported today that:

Hedge-fund managers and other large speculators increased their net-long positions, or bets that oil prices will rise, for a second week, according to the U.S. Commodity Futures Trading Commission.

The story quotes Tim Evans, energy analyst at Citigroup Global Markets Inc., as saying, “The situation is similar to what occurred in the first half of 2008, just the price level is lower. There’s a lot of investor interest.”

If that doesn’t send a chill up your spine, you may want to have your spine checked out because we are still in the short grass of an economic meltdown, and we have a long way to go before the U.S. industrial economy and its counterpart in China are running at full steam again. Getting there will take a lot of oil, and the speculators know that.

So, how do you hedge against what many fear is an inevitable price hike? You get more efficient. Take a look at some past Managing Automation articles that can guide you in that direction:

Driving Energy Efficiency at Ford, a look at how the automaker is cutting its energy bill with smart thinking and simple technology.

Business Transformation – Save Energy, Save the Future, a cover story detailing how manufacturers are embracing a more holistic approach to energy management in a way that betters the bottom line.

New App Tracks the Energy Efficiency of Assets, a write-up on Infor’s asset management application to track the energy use of pumps, motors, conveyors, and other assets in the manufacturing environment.

What about you: How are you hedging against supply chain disruptions?

Posted in Supply Network | Tagged , , , , , , , , , | 1 Comment