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Sometimes cheap is cheap

November 13, 2012 in Uncategorized | 2 comments

Sometimes cheap is cheap.  But sometimes cheap is just cheap.  The old adage, “you get what you pay for,” has its merits, even more so the engineer’s version, “you get less than or equal to what you pay for.”  But it’s also impossible, at any level, to ignore cost as a driver. Driving down costs is table stakes to be in business today; aggressively driving down costs is the only way to make money.  This applies to multinational corporations as well as small businesses.  And it’s not just the big ticket items, it’s also worrying about millicents.

In the manufacturing corner of the universe, finding lower cost–yes, cheaper–solutions is an never-ending struggle, fraught with risks to schedule, quality, customer satisfaction, safety and the like.  Yet ignoring cost is the surest way to go out of business too.  So we walk that thin line, searching for ways to lower costs without compromising other important factors.  And while it’s easy to find a lower cost supplier offering an inferior component or service, its really tough to find a supplier who will provide a quality product at a lower cost.  Likewise cutting corners on processes and quality systems can lower costs but with horrendous downsides.

We’ve got one of our operations guys in China right now, pulling what’s left of his hair out over a tool build gone south.  The really cheap solution has turned to cheap, in more ways than one.  We’re working to find ways to fix a flawed tool design and support the toolmaker in order to get a quality set of tools out for our client, but cheap is not cheap now. Not surprisingly, it actually costs more to fly a team halfway around the world, throwing away half-finished cores and cavities, and doing it over than it would have cost to have done it right (another adage) in a low cost but quality shop. This is not to say that making tools in China is a bad idea–in fact some of the best toolshops in the world today are in China.  And many have low cost structures without compromising on tool design, on steel quality, on skilled toolmakers.  But sometimes cheap is just cheap.

Do drive costs down.  Worry about the millicents. But don’t get (too) cheap.

Chuck

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Keepin’ it local, part 1: Requirements

July 20, 2012 in Keepin' it local | No comments

This is the first installment in a series chronicling Zebulon Solutions’s efforts to keep the supply chain local for a large product development project that we’re working on.  We don’t know where this will end up yet, but we’ll report on the path we take along the way.

Zebulon Solutions is a productization services company–we help our customers turn their R&D projects into manufacturing ready products.  We don’t own the product, and often times we don’t even do the design; we just help make it manufacturable. And help is a key word here–we’re rarely the only voice, and we don’t always get the last say in decisions, even when it comes to manufacturing and supply chain.

So we have a major customer, who shall remain nameless (and moreover, somewhat deliberately disguised–we take confidentiality seriously) who is designing a large scale, system level product that we shall call System X.  Think of it as a piece of capital equipment with a BOM cost running into the hundreds of thousands and a number of significant subsystems. We’re not doing the design but we are tasked with setting up the supply chain, from components to subsystems to final assembly and test, and also in helping to optimize the design for manufacturability, testability and the supply chain.

Honestly, keeping it local is not a hot button for our customer.  Other than a firm ban of using China sources, for IP reasons,  we have no direct customer imposed constraints on where we build this nor on the supply chain. What we have are requirements on performance, lead time, price, order flexibility, and end delivery point.  We’ll let these drive the supply chain, and see if they lead to a local solution or no.

  • The product is highly complex, a product in some ways pushing the leading edge beyond anything out there.
    • This means that there will likely be some pretty challenging assemblies and testing challenges
    • It also means that churn is likely
    • Both of the above favor a local supply chain
  • Lead time is also an issue
    • Again this favors a local supply chain
  • As always price is an issue. But our customer is wise enough to look at cost of ownership
    • Development pricing seems to favor keeping it local–less cost for supplier quals, getting on airplanes etc
    • But unit pricing, as always, makes us think seriously about low cost regions, for all the normal reasons
      • For non critical components, of which there are of course many, why wouldn’t we choose the lowest cost supplier?  Which are often Asia based.
  • The customer does have one somewhat unique requirement, in that they need to be able to order these systems in batch size = 1 increments, at sporadic intervals, with little to no forecasting
    • This is what drove us to start thinking local, because we need a lot of flexibility and will have to scramble to hit lead times
  • The end delivery point is tbd, but most likely Asia
    • This does not favor a local solution, but the tbd aspects keep us from looking globally, at least for now

Nothing is locked in yet, but the requirements are at least causing us to think that it would be good to try to keep as much of the supply chain local.  Not quite sure what local means: in Colorado? In the US? In North America? And also, as a complex system, it’s not as easy as asking Where is it built? as we need to look at components, subassemblies, subsystems and system integration.

To date we know that one of the major buy subsystems will come from Massachusetts as a sole source for technical reasons.  There is a custom interconnect component that we have identified a number of US sources for that should work out, and we are starting to look at Colorado based PCBA houses for doing board level assembly.  But many of the electronics components, while coming out of disty, are in fact Asia built, and that is already causing us a few concerns on lead-time but also providing some favorable pricing. Many custom mechanical components as well, but we haven’t scratched the surface there yet.

Still much, much to do.

To be continued.

Chuck

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It takes a village (to build a local supply chain)

May 21, 2012 in Uncategorized | No comments

Been much discussion lately about reshoring, bringing back manufacturing, bringing back the supply chain.  It’s complicated of course–just building something local neither works nor does much good if the supply chain is not local (see for example Making reshoring work or But we assemble it here). I was reading fellow productization and DFM blogger Mike Shipulski’s latest blog, Make It Where you Sell It,  regarding the merits of putting production near the end market, even for things smaller than a tank. Thinking that premise through, it seemed like a good idea but likely not enough–because again it only works if the supply chain is also local, or at least local enough (for more on good enough see our blog on Lagom…)

But if everyone in the “village” did the same thing–up and down the supply chain–then the concept does work. Individually we can’t make a difference, and when we run our ROI calculations we may well get the dreaded “just make it in China” answer.  And that’s important, because if we don’t focus on ROI, on making a profit, we won’t remain in business.  But as a village, all of us together as part of the supply chain, we can perhaps change the answer from red to black.

If everyone made one decision this week to use one additional local supplier, thing what a difference that would make.  Not just for jobs, but energy consumption in freight and even a few more minutes each night reading to the kids instead of yet another conference call.

Chuck

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But we assemble it here

February 9, 2012 in Uncategorized | 2 comments

Twice this week I heard Colorado based companies proudly say, “We assemble our widgets right here in Colorado.”  The first was at a meetup for local manufacturing executives.  The second was at a technologist confab.  In both cases what the respective companies actually meant, however, was that they do final assembly locally of components and subsystems manufactured in China.

Not that I am against Asian manufacturing–in fact we have spent a lot of time setting up supply chains, production lines and test systems for products being built in Asia.  And often this is the right solution, all things considered. But I bristle when I hear about a product built from a China supply chain wrapped in an American flag.  For the real challenge for us in America is not really doing final assembly here–there are always reasons to do that–it’s about having a local supply chain.  Once the supply chain moves overseas, assembly will follow.  This has already happened in many industries–consumer electronics being an obvious example.

A China supply chain is also not always the right choice.  The advantages in labor cost can be offset by IP risks, shipping costs, cash flow issues with having inventory on the water.  There is also an ROI aspect of the costs associated with setting up and qualifying a China supply chain vs the savings.  Still for many businesses it’s the right choice.

But if you want to wrap a flag around your product,  then please design it locally, use a local supply chain, and assemble it locally.

Chuck

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Productizing clean-tech redeaux

January 6, 2012 in Uncategorized | 2 comments

We’ve talked with a gaggle of clean-tech companies over the past couple of years, and worked with a handful.  Lots of interesting technologies but a lot fewer manufacturing ready products. It’s a challenging area as the incumbent technologies are cheap and mature and have been long since productized.

Last year I also blogged about Productizing clean-tech, concerning the state of clean-tech in general and here in Colorado in particular. At a macro level not that much has changed: the world is still warming, politicians are still avoiding making tough decisions, and fossil fuel alternatives are still cheap.  From a business point of view however, clean-tech seems like its a tougher sell.  The failure of Solyndra, while not unusual for VC backed companies–maybe 2 in 10 such make it typically–has been so publicized as to cast a pale on the industry, and given succor to the resurging drill-baby-drill crowd. Competition from China has also heated up in almost any sector of the clean-tech world (see our blog on What businesses worry about on Main Street ), from LED lighting to solar.  So there is basically competition not only from low cost fossil fuels but also from low cost China.

Which does not mean despair, but it does mean that to succeed in clean-tech a very cost optimized product is needed.  Which is where Zebulon Solutions (warning: shameless plug) can help: we’re experts at getting the cost out of a product’s design, out of the supply chain, and out of the manufacturing process. We’ve optimized the mechanical enclosure of a human-powered generator; established supply chains for a novel product that reuses CO2 for its cleaning solvent properties, and helped redesign smart lighting controllers for cost and performance.  We’re supporting a program at the University of Colorado to investigate the feasibility of a solar wafer processing technology coming out of the National Renewable Energy Lab (NREL) here in Golden, Colorado. We’ve conducted DFMEAs on water purity monitoring systems and hybrid generators, and we’ve set up inventory management processes for an electric bike company. It’s a tough slog,  but we’re doing our part.

Oh yeah, and we still drive my little green Prius to meetings. Not as fancy as a company Beemer, but it gets us there and helps just a touch with the environment.

Chuck

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What businesses worry about on Main Street

October 25, 2011 in Uncategorized | 3 comments

Contrary to the caliphony of competing messages coming from Wall Street and the Capitol rotunda, most of us business folk don’t lie awake at night worrying about taxes or regulations or whether or not we are going to win the Stimulus lottery.  We worry about three things: finding customers, raising money, and indirectly or directly, we worry about China.

I run a small business (shameless plug: Zebulon Solutions–we help turn R&D projects into manufacturing ready products); most of our customers and prospective customers and vendors and friends also run small to midsized businesses.   While there are times we’ll all sit around and grouse about politics or whinge about our own taxes, these are not the real roadblocks to growing businesses and creating jobs.  Nor are most of us betting on some type of government bailout or stimulus.  We just want more customers; we and our customers need capital; and we fret about China.

Customers are number one. I can’t think of a business that wouldn’t hire more people if they had more customers.  It’s demand that drives supply growth these days.  If businesses see a way to increase demand for their products or services, they’ll hit the Grow button.  And most business are working like crazy to find ways to goose demand (assuming they have the capital to pay for that marketing and sales effort, see below).

Capital is number two.  It’s shocking the number of small businesses that don’t have enough capital to do what they know needs to get done: goose their marketing, perfect their offerings, cost reduce their products, optimize their supply chains, and / or ramp production when demand does perk up.  Personal savings are depleted, home equity and credit cards are tapped out, and banks only lend to those who don’t need it.  And venture capital and even angel investments are in a deep coma save for a few hot niches (social gaming anyone?).

And finally there is the specter of China lurking behind every door in one form or the other.  It’s competition from Chinese companies who do have access to capital and to cheap labor; it’s  competition from domestic competitors who manufacture in China; it’s expectations of customer to only pay the China price.  And this ties back to demand and capital in a weird way, because it actually takes both to be able to go to China: to get China pricing one needs China volumes (demand) and in practice it takes a big investment in terms of bring up a China supply chain and funding all that inventory on the water.

Which should and maybe will eventually stimulate domestic supply chain development, but then the China expectation kicks us in the tush, the expectation of pricing low enough to compete, to win customers, to raise capital. And the easy answer–just wrap a flag around it and buy local–is rarely that easy: we’ve seen business plans implode from overpriced domestic supply chains that stymie demand and poison fund raising efforts. Building a cost competitive domestic supply chain also takes a lot of work, and that takes capital too.

I have no easy answers to this.  But I would like to see the dialog switch away from political issues that don’t matter as much to business issues that really do impact our businesses. Let’s get a national dialog going about building domestic supply chains, about freeing up capital for small and mid sized businesses, about opening up export markets and driving new demand. Let’s get those R&D projects out of the CAD system and into production.  Let’s get those cost reduction ideas off of the white board and into the supply chain.

Back to work,

Chuck

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