Last month, U.S. Sen. Sherrod Brown (D-Ohio) and Phil Angelides, Chairman of Apollo Alliance, along with other business, labor and clean energy leaders introduced the “Investments for Manufacturing Progress and Clean Technology (IMPACT) Act of 2009,” a bill intended to facilitate the development of domestic clean energy manufacturing and production. The purpose of the bill is to give loans and technical assistance to manufacturers to help those, particularly in the automotive industry, retool to manufacture clean energy components. This bill would infuse $1.5B into the Manufacturing Extension Partnership (MEP), a national network of manufacturing assistance centers that is part of NIST (National Institute of Standards and Technology) and has focused on assisting small to medium-size manufacturers by providing consulting and training. MEP has been on the front lines of teaching and coaching these SMEs in lean manufacturing principles and practices. This funding would used, according to an article in RenewableEnergyWorld.com, to “help manufacturers access clean energy markets and adopt innovative, energy-efficient manufacturing technologies”.

Interestingly, the Bush Administration tried to kill MEP repeatedly during its tenure. This always puzzled me, as it seemed counter to their stance of helping small business as the engine of the economy. Now, MEP seems as if it could be getting a new life. However, some people question the potential re-purposing of MEP in clean energy manufacturing and not focusing on its  current mission of lean implementation and education.

First, MEP was never supposed to remain in the lean business indefinitely. Having a publicly-funded organization charging market rates and competing against private sector lean consultants is not my idea of competition or a good use of public funds. Second, while some may argue that pursuing green manufacturing is push to the customer instead of pull from the customer (a violation of lean principles), green is indeed part of lean and certainly not at odds with lean. In fact, focusing on manufacturing of green components for clean energy, 70 percent of which are produced outside the U.S., is very compatible with lean manufacturing. In the nineties, I was running New England Suppliers Institute, which delivered some of the first public lean workshops as well as lean training and coaching to manufacturers, before MEP had even thought of lean and was eyeing our business as a good idea to pursue. There was not a big customer demand for lean at the time. However, MEP got into the lean business then because they saw the potential business for themselves and huge benefits to manufacturers. Green manufacturing also has the potential to be very successful.

If this bill passes, time will tell whether the clean and green repurposing of both MEP and manufacturers in the automotive industry will pay off. In my opinion, that’s what public funding is for – for investing in public good and national security in new and promising areas. It’s not just for supporting an already plentiful resource, i.e., lean consultants. Retaining and strengthening the U.S. manufacturing base is a good purpose. However, in our increasingly service-based economy, appreciation for manufacturing as an engine of growth has decreased. Breathing in new, green life may be just what it needs. Manufacturers need to be always looking ahead to the next big thing and not become complacent with what is successful at the moment.

In a recent post, “GM’s Failure: What Happened to Lean,”  I wrote about the origins of lean at GM and the NUMMI partnership with Toyota. Now, it seems that NUMMI is on Toyota’s chopping block and that Toyota seriously considering shutting down the plant. The NUMMI venture, begun in 1984, helped Toyota make a beach head in the U.S. and also was an incubator of sorts for lean manufacturing à la TPS (Toyota Production System). Toyota was trying to import TPS into its U.S. plants, and through NUMMI GM was learning about lean and trying to adopt it as well. Since then, GM has essentially pulled out of the NUMMI venture and makes only the Pontiac Vibe there, not for very much longer as it closes down the Pontiac brand. Toyota makes Corollas and Tundras at this plant. So NUMMI is now a Toyota plant with UAW workers (an anomaly for Toyota).

So why would Toyota even consider shutting down this flagship plant? Higher wage costs than its other plants are the main reason — in fact, the highest labor cost facility of any automotive plant in the automotive industry. Associates’ wages here are much higher than at Toyota’s other plants in part because of its San Francisco Bay area location also because of its UAW workforce.  The plant is losing money. Also, the plant is much farther from most of its suppliers, which adversely impacts costs. Even though Toyota has pledged not to close plants, it is on track to lose even more money this fiscal year than last and may feel forced to close NUMMI. At this point, the only production left in the plant will be Toyota’s, giving the UAW less leverage. This apparently has prompted the UAW to be more amenable to wage concessions in order to keep the plant open, despite trying to organize workers at Toyota’s other non-UAW plants. As one of the biggest employers in the area, NUMMI’s closure would be devastating to the already suffering local economy.

It will be interesting to see if losing money trumps pledges to keep production facilities open. Toyota management is under enormous pressure right now due to its unprecedented financial losses. Will the symbolic value of NUMMI help it avoid closure? UAW wage concessions may make it more likely to remain open. Corporate America usually opts for not losing money. But I’m not going to guess what Toyota will decide to do in this complicated situation.

As the loss of manufacturers and manufacturing jobs continues during the current recession, the debate continues about whether we should even care. The U.S. is now indisputably a service-based economy. And supporters argue that the erosion of manufacturing in the U.S. is not a bad thing. I was particularly taken aback by Robert Reich’s recent blog post, “The Future of Manufacturing, GM, and American Workers”. We can get manufactured goods from all over the world, he asserts. So long as we keep our sources diversified and don’t depend too much on any particular suppliers, we should be OK. The most important type of work is what he calls symbolic analyst work. Only manufacturing engineers really need to know about manufacturing. As for the rest, he says, “Whatever they need to learn about manufacturing can usually be discovered online.” Not surprising, coming from a member of the ivory tower brain trust. And really, where did he tour a factory run by 400 robots and 2 workers? And, then think it will be the norm in the future? A former Secretary of Labor (whom I highly respect, by the way) is saying this?

What I disagree strongly with is that outsourcing any or all manufacturing to entities in other countries does not create problems. Also, the assumption that all ideas in manufacturing come from the symbolic analysts is definitely false. Often some of the most creative ideas come from those who actually do the work on the factory floor. How do you tap into those people when they work for foreign entities? And what about new technology? It comes from doing, not just reading about manufacturing on the Internet. Who is going to design and build those factories run by robots? People browsing the Internet?

When you lose technology, you can lose an industry. When you lose the suppliers of technology in the US, you may lose opportunities to reinvent and revitalize industries or lose those industries completely.  For example, what happened to the Swiss watch industry? The Swiss did not invent the new electronic technology, let it pass them by, and suddenly their dominance of an industry synonymous with their country disappeared. Putting IP (intellectual property) in the hands of foreign suppliers risks IP infringement and theft, even with supposed protections in place. As the U.S. becomes more dependent on overseas suppliers for manufacturing, jobs are not the only loss. Lost innovation may never be recaptured and harnessed to improve our society and our standard of living. Loss of whole industries are not being made up by an equal increase in knowledge workers making the same decent wages. 

Is there another factor at play with assertions that preserving a strong manufacturing base is not important? I believe that there are class prejudices at work here – a strong “don’t get your hands dirty” group that thinks manufacturing is for blue collar types, the uneducated and lower class and is best performed by low-paid workers in other countries.

What does this say about the future of the American worker? If the demise of U.S. manufacturing continues, instead of supervising factories run by robots, will we be the ones making the little paper umbrellas to put in the drinks of workers in other countries?

I recently wrote a post for the Spend Matters blog, “12 Reasons Why Supplier Scorecards Fail” (updated, with one additional reason than my original post  on this site in December 2008). There were some insightful comments, including one about the customer’s role in supplier performance success. Rob Handfield made a pertinent comment that it is often the customer who causes supplier performance problems and that customers should ask their suppliers to score their performance. This was the conclusion of a study that Dr. Handfield presented at the 2009 ISM Conference.  Some of the twelve customer competencies Dr. Handfield cited in the presentation were: ease of doing business, timely payments, communications, forecast accuracy and customer service (on the customer side).

When I began running the New England Suppliers Institute, a non-profit organization partially funded by Air Force ManTech through the TRP (Technology Reinvestment Program), the original mission was to improve the competencies of the supply base in New England so that manufacturers would be able to choose more local suppliers and thus help strengthen manufacturing base and the New England economy. But we ran into a snag. The customer companies also needed to improve their competencies as customers in order to get better performance out of their suppliers. We found poor practices rampant: less than lead-time orders being the rule rather than the exception, lack of communication about the simplest of processes (or no knowledge of whom to contact at the customer to resolve problems), goods that sat on the customer’s dock for days waiting to be accepted while at the same time dinging the supplier for a late delivery, long accounts payable cycles that threatened to put suppliers out of business. The list goes on. Then one day, one of our board members said, “It’s the customer, stupid.” (paraphrasing Bill Clinton’s campaign slogan, “It’s the economy, stupid.”). When our board members from customer companies were asked what percent of supplier performance problems were attributable to customer issues, they all agreed that the number was more than fifty percent. Needless to say, the supplier board members strongly agreed.

For suppliers to succeed, we realized that change had to occur on both sides of the customer-supplier equation, that it was not just a matter of getting suppliers to do a better job. Out of this realization we developed a process called the Supply Chain Management Improvement Process, designed to evaluate customer competencies in supply management from a process, system, and enabling behavior viewpoint and based upon a robust business model. Also, I wrote an e-book on the subject entitled, Improving Company Performance Through Supply Chain Management Practices. (Lionheart Publishing, 1999). And, we modified the mission of the New England Supplier Institute to include “improving business relationships between customers and suppliers” rather than focusing solely on supplier development and improving supplier operations. It was clear that supplier performance could not reach its potential without changes on the customer side of the equation.

I was recently interviewed by business columnist Jamie Herzlich over at Newsday for an article she recently wrote, “Small Business: Choosing the Right Supplier.” (May 14, 2009)  Many businesses are struggling with the challenge of how to choose the right suppliers. According to Ms. Herzlich, many business owners are unaware of what to look for in a supplier beyond just getting the lowest price. To summarize the key points in the article, businesses are advised to:

1. Look at total cost instead of choosing the supplier with the lowest price, as it is important to balance other important elements such as quality, delivery, and service.

 2. First determine your business’ requirements. This will help you figure out whether a supplier can meet your requirements. If your company has to meet stringent customer standards, then so will your suppliers in order for your company to be successful.

 3. Consider making a site visit to a supplier to see their facility firsthand, meet their management, and help increase your knowledge of and comfort level with the supplier.

 4. In some cases, using a distributor may be a good option for small companies, particularly those who want to buy in smaller quantities than buying directly from manufacturers will permit. This will help keep one’s inventories lower.

 5. Keep the lines of communications open and develop good relationships with suppliers to help work through changes and problems as they occur.

A colleague of mine, Sandra Gauvin, an expert in the quality field and writer of the Current Quality blog and newsletter, recently brought to my attention a new disturbing trend in supplier evaluation: suppliers who charge their customers to for the privilege of conducting an on-site audit. In this scenario, a customer contacts a supplier requesting an audit. The customer receives a reply something to the effect of:

“You can purchase our audit report.  The audit was conducted by Acme Audit Company (an independent consulting firm).  The report costs 4.000€ and the advantage is that you can receive it soon.   Or you can conduct an on-site audit of our facility but you will have to pay an audit fee of 10.000€ per day.  However, we have no available audit slots in 2009. 

We don’t have the availabilities yet for 2010, but we can place you on our waiting list. We would then propose an audit date, when we receive these availabilities.”

So if you’re the customer, what do you do? You’re between the proverbial rock and a hard place. There are consortia that negotiate with suppliers regarding audits and can prevail upon suppliers not to charge if enough members of the consortia use a particular supplier. An example of this is Rx-360, an international pharmaceutical supply chain consortium. Otherwise, depending on your industry and whether you have any leverage over the supplier, you may need to buy the independent audit report.

This particular situation is occurring in the pharmaceutical and biotech industry because of the requirement to conduct on-site audits of suppliers for compliance to FDA standards and GMP practices. Some suppliers, even small companies, have to host 50 or more customer site visits a year, despite their already maintaining ISO 9001:2000 or AS9100B registration. From the supplier’s point of view, such visits are costly and time-consuming. So why not charge? Suppliers would rather spend the time improving their processes than hosting customer audits. Some suppliers feel that some customers may not be auditing for valid reasons, but just to “check the boxes” or to get to spend a day out of the office. Charging can be a means of vetting out only the most serious customers.

Is charging customers for audits likely to spread beyond this industry? Also, what does charging customers for audits say about the customer-supplier relationship?  The value of audits that customers have to pay to conduct? For those industries where on-site audits are required, this is a means of capitalizing on that requirement and allowing the supplier to recoup its expenses for multiple site visits. Switching to other qualified suppliers is not so easy in pharma and biotech, given the rigorous industry standards. If companies are looking to develop mutually beneficial relationships with their suppliers, what does charging for an audit do to that relationship? I am interested to know if charging for audits conforms with  the ISM Principles and Standards of Ethical Supply Management Conduct.

Does requiring a payment for a customer audit constitute an attempt to influence the outcome of the audit or the outcome of relationship with the supplier? That is, if you have to pay to play, are you going to forgo auditing altogether, letting the supplier off the hook? Or will you be inclined toward a positive audit outcome because of the need to pay to learn the information to work with a supplier? Would paying over $13,000 to audit a supplier have any influence on your findings? Or how about the ethics of independent consultants charging you to view the supplier’s audit or else getting no audit information at all?

I’d be interested to hear readers’ reactions to this trend.

Back to Sherry’s website.

In the pursuit of cheaper shoes, yet infinite variety, shoe companies and fashionistas seem to have gone awry. Recently I went to the “Shoe Mega-Store” at Marshalls to look for a pair of new business-y shoes.  There was certainly no lack of quantity or variety of shoes. The Mega Store was really mega. But it was like the line in the Rime of the Ancient Mariner: “Water, water everywhere, nor any drop to drink.” Shoes everywhere, but there were almost none that I could actually survive in for even an hour without crippling myself. Stratospherically high heels that I absolutely could not tolerate. OK, I’ll admit that I am the daughter of a podiatrist who made me wear Buster Brown tie shoes as a kid. Maybe my feet never acclimated to fashion. And many years of running have taken their toll on my feet. But is there something wrong with the shoe industry?

According to the American Apparel & Footwear Association, 98% of footwear is now imported. The U.S. lost over 1.6 million footwear manufacturing jobs to offshore manufacturers in the past 35 years.  The U.S. shoe manufacturing industry is gone. American footwear companies now design, market, research and develop, distribute, source, warehouse, and sell shoes, but what’s missing is make.  I recently met a purchasing executive from Brown Shoe (yes, the old Buster Brown of my childhood). He was able to rattle off a dozen brands that are marketed under their banner, including the shoes I was wearing at the time.  But U.S. companies can’t compete with offshore suppliers to make shoes any more, despite a history of heavy tariffs on footwear designed to protect American companies.

Shoe companies have attempted to remedy the discomfort of women’s high heels by making inserts designed to make you feel as if the shoe’s heel is several inches shorter. And the inserts were even designed by an MIT-trained rocket scientist. Now I wonder if a rocket scientist invented stilettos?

So why are well-fitting, comfortable and fashionable women’s dress shoes impossible to find? Is it just fashion trumping comfort? Does terribly cute mean seriously uncomfortable? Or is it something about the way shoes are now made – more cheaply and at a lower quality level?  Is it the materials, mostly synthetics instead of leather? Can one blame it on the loss of American shoe manufacturers? Do offshore suppliers use a different last? Or is it a combination of these factors?

The women wearing fashionable shoes today are the podiatry patients of tomorrow. Actually, my father used to say that. For now, I’m choosing to be less fashionable, but still ambulatory.