Author Archives: Chris Jellen

Middle East Unrest Affects American Manufacturing

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Aviation Week & Space Technology reported in its Feb. 28 issue that unrest in the Middle East and North Africa appears to be causing delays of decision-making on larger weapons acquisition deals in the area.

Aerospace industry pauses briefly in mid-air

Delays in large purchases are to be expected, of course, as countries in the Middle East watch to see what they’ll actually need as new governments shake out.  But wait-and-see is still troubling news for countries like the U.S. who sell into large contracts in the area.

US manufacturing affected. US manufacturers, with billions of dollars in regional deals already on the books for 2011, are suddenly faced with a new uncertainty about sales and earnings. Many of these deals were set years ago and are simply still playing out. But whether contracts are new or legacy, the key to most of us is that broader US manufacturing indexes would be affected by any significant skips in the record.

Idealists sometimes say that Western nations should withdraw from providing arms / military fortitude to the Middle East entirely.  The point of the idea is understood by all, make no mistake. But it can’t work, because there is intense international competition for weapons dollars in the Middle East, and the market in every industry these days is in fact global.

Therefore, as the UK minister of defense equipment recently pointed out, simply withdrawing form markets is not an option because others will just fill the vacuum (AW&ST, Feb. 28, 2011).

Who’s buying and selling. The US and Russia are the top exporters of defense equipment to the Middle East market. Germany, France and the U.K. are in the second strata of providers.

On March 2, 2011, an article on msnbc.com noted that the outlook for US arm sales to Mideast region was murky. Amid unrest in the region, US seems unlikely to be pushing new arms deals, said the article.

Here are a few data points for perspective:

  1. In recent years, Arab countries and Israel have been big buyers of US warplanes, missile defense equipment and other equipment.
  2. Last September, the US announced another arms deal with Saudi Arabia that could be worth up to $60 billion
  3. From 2006-2009, the US signed arms transfer agreements worth $47.3 billion with Saudi Arabia, the United Arab Emirates, Egypt, Iraq and other countries in the region (Congressional Research Service via msnbc).
  4. In 2011, Egypt alone is expected to receive $1.3 billion in foreign military aid from the US.

There’s a lot of acquisition money coming from the region, specifically from the UAE followed by Saudi Arabia.

In one deal, the UAE bought 80 American-made F-16 fighter jets in late 2009, as recorded by the Washington Post. The UAE has long been negotiating the purchase of an estimated 60 French Rafale fighter jets, but Boeing and Lockheed haven’t been entirely ruled out of the deal. If we could bring those jobs and that payroll to our country, wouldn’t we?

But wait – there’s more: nuclear. It’s worth noting that the UAE, with US support, recently signed deals to build its first nuclear power reactors. Among other countries taking or considering similar steps are Egypt, Saudi Arabia, Turkey, Kuwait, Jordan and Yemen.  This is another equipment-sale opportunity to some.

This sort of equipment trading is yet another issue for the United Nations.

The UN meets towards improved arms treaty. On Feb. 28, the second round of negotiations to establish an international arms trade treaty (ATT) began at the United Nations headquarters in New York. These negotiations could not be timelier, according the the U.K. Guardian. Collective regulation would be good for national security, troops safety and the promotion of human rights, argue authors Jeremy Browne and Nick Harvey.

Some say that unrest in the Middle East is good for business in the long run, the thinking there is that if all were peaceful then there wouldn’t be billion dollar checks for defense/offense equipment.  That may be.

Bird’s eye view on manufacturing

However, as long as nations are poised to write billion dollar checks, any manufacturing company in the world wants to produce into those accounts. Given the nature of manufacturing and supply, demand and all the loopholes that exist for military manufacturing, it seems unlikely that any trade suppression or significant regulation would happen now.  The unrest in the Middle East, and any pause in spending as a result, may just be the Middle East market correcting itself for its relative extravagance of the past five years, suggested one analyst.

But more likely the pause is merely a short breath between notes of a long, familiar song.

Whatever happens in the Middle East over the next six months, these are key events on the global manufacturing and supply chain stage.  To the best of our ability we’ll alert you to critical turns here.

Only 9% of US Companies Innovate, Survey Says

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Only 9% of all 1.5 million U.S. companies reported innovation in any product, service or process between 2006 and 2008.  Data source is an extensive 2010 NSF, or National Science Foundation, Business R&D and Innovation Survey.

Only 9% of U.S. companies are innovating.  Can we really call that an innovation economy?

China innovates at 0%. “China doesn’t innovate at all,” is what we tell ourselves.

For the sake of argument, let’s say it’s true, that China has no innovation prowess. Does that makes our 9% innovation rate acceptable?

Nine percent innovation across industry in a country is not an innovation economy. It leaves 91% making the same old stuff and approaching things the same old way: the same way that didn’t work the year before.  It’s a stunning statistic.  It ought to rouse a fire under our hindquarters — maybe President Obama was the only one who took note of the study, hence his current Revolutionary Ride.

Innovation and need. Recently I saw a blog post that said a greener New England is on the way, that the northeast quadrant of the US is poised to become the innovative green tech capital of the world.

The gist was that the overeducated, industrious, conservative New Englanders would bring innovation and revolution to the green tech, rather like what Silicon Valley did for the computing industry. New England wouldn’t do this out of utopian ideals. It would come to pass out of practical need.

What sort of need? The inability to afford New England heating and cooling expenses, and the New Englander ability to do something about it.

Shell Oil notes increasing demand and more difficult supply restrictions. To illustrate the need, here are two pieces of news from last week:

  1. Europe is planning an 80-90% GHG reduction, or greenhouse gas reduction, by 2050. The plan, published earlier this month, aims for emissions reductions as follows: 2020 (25%), 2030 (40%), 2040 (60%) and 2050 (80-95%).
  2. Simultaneously, the largest oil company in Europe, Shell Oil, announced that there will soon be an oil shortage, between tightening restrictions and increased Asian demand. “Supply will struggle to keep pace with demand,” said the report, which is oil-company-ese for “significant price hikes are somewhat inevitable.”

The logic is as follows:

  1. There is monstrous expected economic growth in India and China from now through 2050,
  2. There are increasingly stringent restrictions on emissions, ergo processes, transportation, and regulatory parameters, therefore
  3. Meeting increased demand with more restriction will be challenging (thus expensive).

The gap of demand to supply “will have to be bridged by some combination of extraordinary demand moderation and extraordinary production acceleration,” said Shell, as reported by the Associate Press.  AP ended the article rather cheekily, but fairly, by pointing out:

Shell’s net profits last quarter were $6.79 billion.

You know what’s cooler than $6.79 million?  $6.79 billion.*

What’s cooler than $6.79 billion?  Making $6.79 billion per quarter.

Innovation as necessity. What’s cooler than cheap oil? Not needing oil and gas for heating and cooling homes, office buildings and public spaces.

I recently read something about a vision for America by 2025:  geothermal heating and cooling for every building in the country.  Maybe we should contact New England about that, was my first thought.  But really, it’s not such a bad idea.  If the cost of doing so less than $6.79 billion per quarter, we ought to get some momentum behind the idea; because we’re spending that money anyway.

Maybe that’s the kind of innovative thinking we need to get over this 9% hump.

Nine percent!

For more on the innovation survey, please see this NSF data: http://www.nsf.gov/statistics/infbrief/nsf11300/ See also: Bruce Nussbaum on America’s Innovation Policies

*Paraphrased from the film, The Social Network.

http://supply-chain-data-mgmt.blogspot.com/

Gartner Survey Says CIOs Finally Get Cloud

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Gartner just released a survey of over 2,000 CIOs representing more than $160 billion in spending, across 50 countries and 38 industries. Cloud computing was a leader on the list of CIO’s 2011 technical priorities. Why cloud? For trust, money, and a whole bunch of other reasons. (See our previous post that identifies 7 benefits of SaaS.)

Supply chain data management by cloud is not a new concept. It makes sense, because a supply chain involves different locations, different timezones and uniquely permissioned auditors. Since almost everything in a company that makes anything at all has a complicated supply chain, it was only a matter of time before the average enterprise Information Officer would catch onto the cloud. Why now?

Trust. In addition to selecting cloud computing as a top priority, CIOs responding to the Gartner survey expected to adopt new cloud services quickly, reported the esteemed tech journal CMSWire. Currently, only 3% of organizations operate most of their IT in the cloud or on a software as a service (SaaS) platform. Over the next four years, 43% of CIOs want to transition to a cloud dominated infrastructure.

Look out, cloud technology providers!

The Gartner survey indicates that cloud computing is moving into the mainstream. Cost savings and rapid technology adoption that cloud offers are two very compelling motivations for this. Also, most people are using the cloud now in their private lives (banking, social networks, remote desktop access, email accounts, SaaS services…) which has boosted general trust in the paradigm and product lines.

Money. CIOs expect cloud technologies to liberate 35% to 50% of infrastructure and operational resources.Fifty percent  is a very high number. Heck, 35% is a high number. According the the Gartner IT survey, CIOs’ 2011 business priorities include:

  • Reducing enterprise costs
  • Improving business processes
  • Improving operations
  • * Attracting and retaining new customers.

Cloud technology surely empowers three out of four initiatives listed there. (As for the other, an argument could be made that cloud technology helps with attracting and retaining new customers, but it would be an argument, not a fact.)

Adoption. As CMSWire aptly reported in its story on cloud technology: The Gartner survey suggests that IT will be changing dramatically over the next few years. IT changes will be driven by technology that was recently considered “too cutting edge” for wide-spread adoption. CIOs will be consistently challenged with supporting growth while reducing cost and improving operational efficiency. Cloud technology answers the challenge.

Cloud, ASP, SaaS, on-demand, Web-based and Online. Cloud solutions for supply-chain management are usually called SaaS, some are still called ASP. Other terms include on-demand, web-based, and online applications. While a die-hard IT director will argue that all these things are not actually, pedantically “cloud,” for all intents and purposes, they are.

Any application served up over the Internet is what people and journalists mean when they say “cloud.” And we all have to get used to it. And here at this blog, we’re okay with that. Apparently CIOs talking to Gartner are too.

To keep up, we’ll spend more time watching the clouds.

http://supply-chain-data-mgmt.blogspot.com/

China: More E Than E-Waste These Days

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Divya Sharma reported via Reuters from Asia that manufacturers of electrical products forecast strong 2011 revenue growth.  This comes on the heels of strong fourth quarter results in the sector.

Ametek, a global manufacturer of electronic instruments and electromechanical devices ($2.5 billion in annual sales) cited growth in demand from industrial, oil & gas, power and aerospace customers.

Reuters also reported that Teledyne, the electronic components maker, posted a higher quarterly profit, boosted by higher sales at its electronics and communication unit. Teledyne also said it would “focus on its core electronics, instrumentation and engineering businesses after selling its aviation products business to an unnamed international buyer.”  Interesting on a few levels, not the least of which is that the company sold its aviation products business.  This was announced on Dec. 14:  Teledyne would sell its general aviation piston engine business to Technify Motor (USA) Ltd., a subsidiary of AVIC International, for $186 million in cash.

Headquartered in Beijing, In 2009, AVIC International has consolidated annual sales of approximately $6 billion. AVIC was formerly known as CATIC International Holdings. It’s an investment holding company. AVIC aviation customers include Boeing, Airbus, Snecma and Honeywell, says its press, but then, everyone’s customer base includes Boeing, Airbus, Snecma and Honeywell to some degree so that doesn’t really tell us much. (I don’t mean to be cynical, just realistic: those are the most comprehensive supply chains out there.)

AVIC being a China-based holdings company is also interesting.  We should get used to seeing that. China is more economy than e-waste these days.  The electronics aspect of this is the tip of the iceberg.

In a video recently circulated by a manufacturing magazine Economist Martin Jacques discussed China’s likelihood of taking over as the world’s dominant economy by 2050.

(source: http://www.mbtmag.com/Content.aspx?id=1899)

Jacques showed that Goldman-Sachs said that by 2027 China’s economy would be twice that of the United States.  But then he said that this projection has been adjusted, due to the recent global economic tumble.

Now, says Jacques, updated forecasts indicate that China’s economy will be larger than that of the United States by 2020.  That’s less than 10 years from now.  That kind of thing can improve your posture quickly.

China from the inside out
The video is worth watching.  Jacques goes on to identify three “building blocks” to understanding Chinese culture and how it is different from our own culture.  He also says that contrary to popular belief, Chinese culture will not become more like Western culture as it becomes more modernized and successful.  In fact, we need to become educated quickly on how their culture ticks so we can more accurately predict and understand market behavior.

According to Martin Jacques, Chinese thought is critically different from Western thought in the Chinese firm notions of:

  1. Culture: one unified civilization with many different systems within it.
  2. Race: where nationality and race are almost synonymous.
  3. State: where state is not a meddler, it’s a family member, a patriarch.

Jacques’ point is that we’d better start understanding Chinese culture now because they’re going to be boss soon. He wrote a book about it called “When China Rules the World: The End of the Western World and the Birth of a New Global Order.” A good read if this sort of thing interests readers as much as it does this blogger. (Do we have a choice but to be interested?)

A very informed review of the book in the New York Times provides this perspective:

As China finds its own path economically, it is unlikely to look west for political advice, Jacques suggests. Its ruling Communist Party, having largely set aside its socialist ideology, has become a modern version of an imperial dynasty. China’s Communist leaders have flirted with reviving Confucianist thought, positioning themselves as protectors of Chinese unity, the state’s traditional role. Many Chinese see that mission as sacred. Jacques argues, credibly, that most Chinese will back their leaders, with or without democratic reforms, as long as the country keeps getting stronger.

So how might the world work under Pax Sinica?  Jacques ventures some fascinating guesses: The United States often promotes democracy within nations. China insists on democracy among nations. If the power of countries in the international arena were determined by how many people they represent, China would have more clout than all the Western democracies combined. (source: Joseph Kahn, former Beijing bureau chief and deputy foreign editor, The New York Times)

So when Reuters reports on the elevating electronics market – and immediately we’re talking about Chinese holding companies – it really should come as no surprise at all.

As the next few years tick by, we’ll want to understand what’s happening in China more from the inside out. Which is why voices like Jacques, Kahn and others are so very important to the manufacturing industry and supply chain management, starting right now.

EU Postpones Raw Material Sourcing Expansions

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By spring, the European Commission is expected to temporarily shelve plans empowering European companies to obtain expanded access to raw materials worldwide.  This comes amid public, governmental and industry calls for greater traceability of imported minerals from African countries to better screen supply chain conflict minerals.

Last November, EU’s Executive Commission stated it would be assertive about securing access to foreign markets and scarce natural resources and that this would be part of a plan to help the EU battle the economic crisis.  That statement came on the heals of China moving to restrict exports of rare earths. Rare earths are the raw materials used in everything from wind turbines to mobile phones.

A European Commission spokespeople told EurActiv — which by the way is an excellent news source for this sort of thing — that the issue of transparency in the extractive industry will be reflected in the EU’s new communication on raw materials.  This new communication was originally due to to be published today (Jan. 26), but publishing has since been postponed.

However, Commission representatives also said that the situation in the mining sector in some African countries was “complex” and full traces of imports would be difficult to carry out in practice.

EU Initiative

Objectives of the EU Initiative include provisions that the actions and recommendations for further EU Initiative activity should be based on the 3 major pillars identified in the Raw Materials Initiative or RMI, as follows:

1. Ensure a level playing field in access for resources in third world countries.
2. Foster a sustainable supply of raw materials from European sources.
3. Reduce consumption of primary raw materials by increasing resource efficiency and promoting recycling/reuse.

IPC Weighs in Heavy
IPC as always takes the “smart and firm” stance on the issue of conflict sourcing.

Although reporting requirements only apply to companies required to report to the SEC, it is expected that these requirements will rapidly be passed through the entire supply chain. The requirements are expected to flow down from the publicly traded companies through the entire supply chain from the OEMs to the solder manufacturers and everyone in between. Ultimately, while this is targeted to reporting, the reporting requirements will undoubtedly impact the selection of suppliers throughout the supply chain, as public companies now will be responsible for detailed knowledge about the location of source materials affected by the new regulations. Today, companies have no mechanism through which to comply with this requirement.

Scary observation but spot on.
Conflict Sourcing Regulations
Another industry compliance Blog by the Actio Communications Network weighs in with the latest regulatory news by saying that these source material regulations are to be adopted no later than April 15, 2011.  It’s all happening faster than one might think.

In the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama on July 21, 2010, are new requirements for manufacturers of products containing tin, tantalum, gold, tungsten or any other “conflict metals.”

The Act includes these provisions regarding minerals sourcing:

  • Section 1502 requires persons to disclose annually whether any conflict minerals that are necessary to the functionality or production of a product of the person, as defined in the provision, originated in the Congo or an adjoining country and if so to report on due diligence on the source and chain of custody of those minerals, which must include an independent private sector audit of that report that is certified by the person filing the report
  • Section 1504 requires reporting issuers engaged in the commercial development of oil, natural gas, or minerals to disclose in an annual report certain payments made to the United States or a foreign government

Regulations required by Sections 1502 and 1504 must be adopted no later than 270 days after the Dodd-Frank Act’s enactment, so the latest would be April 15, 2011.

For more on sourcing regulations in the US, see http://www.actio.net/default/index.cfm/actio-blog/conflict-minerals-electronics-and-the-sec/.

Your Supply Chain
Blood in the Mobile is a documentary released last September.  It’s about the cell phone manufacturing and conflict minerals.  Of course, every industry is different.  But deep inside we’re all the same:  raw materials and a supply chain made of compassion, or at least, of humanity.

So, what’s in your product?

http://supply-chain-data-mgmt.blogspot.com/

EPA Requires 19 Chemicals Tested For EHS

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In breaking manufacturing news from Washington, D.C., the US Environmental Protection Agency (EPA) is issuing a final rule under the modern TSCA or Toxic Substances Control Act.

The new final rule requires that manufacturers of 19 high production volume (HPV) chemicals test the effects, in terms of environment, health, and safety (EHS) of the named 19 chemicals.  Companies must then submit the data to the EPA.

“This chemical data reporting will provide EPA with critical information to better evaluate any potential risks from these chemicals that are being produced in large quantities in this country,” said Steve Owens, assistant administrator for EPA’s Office of Chemical Safety and Pollution Prevention.

“Having this information is essential to improve chemical safety and protect the health of the American people and the environment,” Owens said.

HPVIS Data

EPA already hosts the High Production Volume Information System (HPVIS), an online database populated with HPV chemical data. HPVIS allows users to search and query chemical data tailored to their specific needs.

We checked out the database.  A search for “toxic” or “triclosan” yielded nothing — zero search results.  Not everyone has chemical CAS numbers at their fingertips.  This is where these types of databases often fail.  Even compliance managers have to dig up CAS numbers.

Anyway, the CAS number for triclosan is 9012-63-9.  We tried that and still got zero (0) search results.  Maybe we needed something with a higher production value?  So we tried BPA and got one (1) result.  What comes up is pretty neat data — see if you can see this link — and if not, do the search yourself.  It’s worth being familiar with the database, especially if you’re a journalist reading this blog.

New Rule of 19 High Production Chemicals

The chemicals in the new rule show up in many consumer and industrial uses and products.  For instance:

  1. 9, 10-anthracenedione is used to manufacture dyes
  2. leuco sulfur black is a fingerprinting agent
  3. diphenylmethanone is used in consumer products and may be found in personal-care products
  4. C12-C24 chloroalkenes are used as metalworking fluids
  5. pentaerythritol tetranitrate (PETN) is a blasting and demolition agent

Ironically, these were hard to find — zero (0) — in the HPV database.  Hence the rule…?

The Challenge and the Rule

The rule on the 19 chemicals requiring testing follows on 2010’s voluntary HPV Challenge Program Chemical List launched by EPA that included chemicals used in household products such as hobby/craft glues, personal-care products, home cleaning products, home maintenance products, and automotive products.

The program challenged companies to make health and environmental effects data publicly available for HPV chemicals.

Companies voluntarily supplied data on more than 2,200 HPV chemicals.  But apparently no health and environmental effects data was provided on the 19 chemicals in today’s rule.  Thus EPA found it necessary to require testing.

In the coming year, EPA intends to require testing of other chemicals for which the agency has not received data.  So really, this is a warning flag from EPA that it’s not messing around.  Nor should it be, with dangerous chemicals in everything from food coloring to jewelry, public pressure on EPA is at an all time high.

You’d expect consumer protests would be the next thing.  And hand it to Dow Chemical for stepping away from the pack and toward greener chemicals and products last year.

For Industry

As a reminder, in 2008, the OECD produced Guidelines for Chemicals Testing.  These may help.  Or not!  But a key reference for the back pocket of companies pursuing the chemical testing in an action sense of the word:

OECD Test Guidelines are harmonized test methods included in the OECD Council Decision on Mutual Acceptance of Data. This means that “data generated in the testing of chemicals in an OECD Member country (or some non member economies ) in accordance with OECD Test Guidelines and OECD principles of Good Laboratory Practice2 shall be accepted in other Member countries (or non member economies) for purposes of assessment and other uses relating to the protection of man and the environment.”