Friday, June 23, 2006

 

Mmmm, Friday

Let your brain cruise gently to a halt with the following distractions:

Multi-tasking: Japanese gals teach English and Aerobics at the same time! (YouTube: has sound and music, so be aware.)

Do you need to win at Scrabble? Invent your own authentic-looking dictionary entries here: www.hetemeel.com

Hey, did you see this list of the 15 Strangest Coincidences? You did? Huh.

Depending on your preference, this could be the best or the worst link ever: 100 different versions of Stairway to Heaven (some of the band names are a little rude).
 

Lowdown on the Slowdown: Bring Us The Head Of Monsieur Airbus!

Here's a bummer of a headline for your weekend:

Demand for manufactured goods declines (Yahoo! News)

And unlike some of the sloppy headlines about that report about a climate change report we mentioned down below, this one is pretty much dead on. Durable goods orders declined (that's a PDF file from the Feds) for a second straight month in May. The drop was only 0.3%, compared to April's heart-stopping 4.7%.

Actually, the drops were less pronounced than that if you exclude the transportation and defense sectors: -0.1% for May, and -1.0% for April. Most reports on the subject blame "the volatile transportation sector", especially commercial aircraft.

Faced with a triple-whammy of cooling housing prices, rising interest rates, and high energy costs, it's a safe bet that the US economy as a whole will not clip along at the healthy 5.3% rate of growth it posted during the first three months of 2006. When the numbers come in for June, economists expect to see overall growth in the 3% range.

Related:
Leading Economic Index Signals Slowing Economy (IndustryWeek.com)
Emerging Economies Create Global Competitors that are Challenging Western Leaders In Every Industry (Manufacturing News)
Jobless Claims Climb by Most in 5 Weeks (Forbes.com)
 

About That Climate Change Report

We're going to broach the following topic because policy based on climate change has huge potential to affect manufacturing and industry, and because there's a debate in the US about whether climate change is actually happening because of humans.

Yesterday a panel of experts working on behalf of the National Academy of Sciences released a report to Congress. Here are some of the headlines it's inspired:

Earth Hottest It's Been in 2,000 Years (via Yahoo! News)
Last 25 Years Warmest on Earth Since 1600 (via Reuters)
Global Warming Stoked '05 Hurricanes, Study Says (USA Today)
US Panel Backs Data On Global Warming (LA Times)
Panel Supports a Controversial Report on Global Warming (The New York Times)

Unless you read the articles very closely you would think that scientists have undertaken a new study about climate change. This isn't true. Here's what happened:

In 1999, three scientists published a paper asserting that the Northern Hemisphere was warmer during the last years of the 20th Century than at any time in the previous thousand years. The scientists came to this conclusion by studying what is called "proxy evidence": tree rings, ice cores, glaciers, ocean and riverbed sediments, and good old human recordkeeping (which only applies to the last 150 years or so).

Some people read the report and said "Look! Absolute rock-solid proof that global warming exists and is caused by humans!" Others read it and said "The evidence was cherry-picked! The planet's getting warmer because of a natural cycle! Fraud!"

The argument raged for years. In 2005, Rep. Joe Barton (R-TX) actually opened a congressional investigation targeting the three scientists. To clear the air, Rep. Sherwood Boehlert (R-NY), asked the National Academy of Sciences to look into the methods and funding behind the 1999 paper and decide whether the study was conducted in a scientifically sound fashion, or if it was influenced by partisan backers. Yesterday's report is an analysis of an earlier study, not new evidence. Media outlets that suggest otherwise are being either sloppy or misleading. (Here's a good story from the BBC about how overhyping has affected acceptance of human-caused climate change evidence.)

So what did the NAS panel conlcude?
The NAS panel also concluded that using proxy evidence could help settle the question about whether climate change affects hurricane strength and frequency. They suggested that future studies go back and re-examine proxy evidence collected decades ago to investigate precipitation levels (yes, they really can figure that out by looking at a hunk of stratified rock). And they also said this, which made our eyes pop:
Surface temperature reconstructions for periods prior to the industrial era are only one of multiple lines of evidence supporting the conclusion that climatic warming is occurring in response to human activities, and they are not the primary evidence.
Frustratingly, they don't say what the primary evidence is. But that's science. We still haven't finished the theory of gravity 319 years after Isaac Newton's Principia, so this debate promises to go on for a while yet.

Thursday, June 22, 2006

 

Useless Trivia: Alumininininum

If you work with metal and if you've ever dealt with English-speaking customers or colleagues outside the US, Wikipedia explains how the US got to calling it aluminum while the UK calls it aluminium.
 

Good for the Environment, Hard on Your Buyer

Purchasing.com's June magazine issue serves up an overview of new global environmental regulations facing manufacturers. The article concentrates on the EU's Reduction of Hazardous Substances framework and also notes new tough regulations in China, Korea, and several US states (OK, California) that will directly affect manufacturers of many types of products. We've covered the RoHS framework, and its big baby brother, the Energy Using Produucts directive, which is due in 2007. Some interesting tidbits from the article, which you should read:
If you can't hire a crack team of researchers to assist your buyer as all these laws come into effect, please at least make sure you've allocated funds for supplemental office equipment, and possibly some at-home support products.

Seriously, though, eMvoy.com is all for environmentally sustainable manufacturing, and we think it's good that political organizations are using their clout to encourage reducing pollutants in the products we use on a daily basis. It's hard not to agree with London's Guardian Newspaper when it says:
Global problems demand global policies... Co-operation in the European Union...without exaggeration - could be as important to the environment in the first half of the 21st century as it was to peace in the second half of the 20th. EU agreements have already brought major environmental benefits, from dramatically improving water quality and waste disposal to achieving higher product standards and protecting endangered species and habitats.
There's a genuine market for sustainably-produced products in Europe-- people there, according to our operative in the UK, are much more aware of and concerned about global climate change than people in the US. Good regulations can nudge companies into better serving that market and helping it grow. We just wish the regulations were a little more carrot and a little less stick.

Also, we would certainly applaud a better coordinated effort between, say, the EU and China, or the EU and India, to consult on their differing RoHS laws so that it's easier for companies who want to trade in those nations to plan how they design, build, and package the new products they want to bring to the market. The China RoHS law, even allowing for translation to English, is really painful to read and very vague.

Still, imagine if there weren't an EU? Imagine if you had to navigate all of those tiny countries' weird, vague laws to get a product sold there (The UK: "Our law is whatever France's isn't." France: "Our law is whatever the UK's isn't; you sort it out.")? It would be even more of a nightmare.

Anyway, if you're a buyer or a designer or an executive at a company that's dealing with any of the new environmental issues, please feel free to write or rant below about your experience preparing to meet the new guidelines.
 

The Estate Tax: Half a Loaf Is Better Than None, Says House GOP

The House of Representatives may vote on an estate tax bill today. Republicans have long advocated the abolition of the estate tax (the "death tax"), saying it retards economic growth (their argument: why bother to be really successful when the government takes a big piece of your pie?) and ruins the legacies of small-business and farm owners.

After a complete repeal of the estate tax failed to clear the Senate several times (including a 57-41 squeaker on June 8th), House Ways and Means Committee Chairman Bill Thomas (R-CA) introduced a tweaked compromise bill that has a better chance of passing the upper chamber. Included in the compromise:
GOP members of the House are promoting the compromise as a temporary relief on the way to total shutdown of the tax. Opponents of an estate tax repeal say that since the new compromise will protect all but the most wealthy families (only 0.15% of estates will be affected, if the Washington Post is to be believed), and it therefore suits them as a permanent solution to the estate tax issue. So even if Thomas's compromise makes it to the President's desk later this year, expect to see the estate tax issue come lumbering back, zombie-like, midway through the next president's term.

More about the estate tax issue:

The Wall Street Journal, in a prescient 2005 article, lays out what it would consider acceptable for an estate tax compromise. If you can't access WSJ online, there's an abstract and a discussion here at TaxProfBlog.

Here's a lucid, if ranty, opinion piece advocating the estate tax from Jonathan Chait in the LA Times.

A handy, free-of-IRS-babble look at the statistics for the death tax are in the sidebar of this Appleton, WI Post-Crescent article.

Wednesday, June 21, 2006

 

Airbus A380 Crashing Before Takeoff (Metaphorically Speaking)

It's not the most important story in the manufacturing world right now, but when a company's failure to deliver on time causes screaming matches in the French parliament ("Bring us the head of Monsieur Airbus!"), we can't resist. And the disaster surrounding the Airbus A380's woes provides a nice, neat little parable for manufacturers of any size who overpromise and underperform (or in this case underdeliver - the jet seems to work just fine).

Earlier this month Airbus announced a second round of delays in the production of its new A380 high-capacity passenger jet, and couldn't rule out the possibility of more delays to come. There are also new allegations of insider trading following a suspicious stock sale being leveled at a top Airbus/EADS executive, Noel Forgeard. Forgeard and two of his family members exercised some stock options this past March and pocketed 2.5 million Euros (about $3.2 million USD). Not long after that, the first delays of the A380 became public. Investors in the venture are now calling for a probe of the sale.

Airbus and its parent company are in serious danger of losing a major customer. The International Lease Finance Corporation, which leases all kinds of aircraft to many airlines, has orders for 10 A380 aircraft totaling $3 billion. In light of the latest delays, the ILFC says it has a case for possibly scrapping its contract. It's not the biggest customer - that would be Emirates Air, who are waiting for 43 of the airplanes and "have not thought" about canceling their order (neither has UPS, but their 10 airplanes aren't scheduled to arrive until 2009, so they're not fussed about the current round of delays). But if the ILFC calls off its support, other customers may get skittish and begin jumping ship, so to speak.

Furthermore, in an economic climate that hasn't been favorable to airlines, some companies are having second thoughts about continuing to wait for the A380. The Malaysia Airlines Employees' Union is trying to convince Malaysia Airlines, which is having financial troubles of its own, to postpone, downsize or cancel its order for six A380s.

If a significant number of customers drop their A380 orders, Airbus will be in trouble not only with its shareholders, but also with its many, many suppliers and partners who've worked to make the A380 a reality (to see everyone involved, click through to the Airbus website, then click on the "Partners" option to play with an interactive map).

Some of the major companies supplying parts, systems, and components to the A380 include Northrop Grumman, Rolls-Royce, Alcoa, Goodrich, and Engine Alliance. Engine Alliance is a collaboration between General Electric and Pratt-Whitney, which, judging by its website's splash page, was formed specifically to develop engines for high-capacity aircraft. One can only imagine the blizzard of lawsuits that will bury Airbus if a number of customers drop orders for the A380.


 

Here Comes Speed Racer: New Superfast Chip is Supercooled

IBM and the Georgia Institute of Technology have developed a new computer chip that they've clocked at 500 gigahertz (that's 500 billion calculation cycles per second). The silicon-and-germanium-based semiconductor chip (called SiGe by its creators) is about 250 times faster than the most common "fast" chips in today's commercial computers and cell phones. At present, the new chip only hits 500 gig when supercooled with liquid helium to the mind-bogglingly low, only-found-in-outer-space temperature of -451° F. That's very close to absolute zero (-459.7° F), the coldest known temperature in nature.

At room temperature, the new chip runs at 350 gigahertz - still considerably faster than anything on the market at present. The chip in a high-end cell phone, for example, runs at 2 gigahertz, and a top-of-the-line home computer clocks at 3 gig. Developers predict that the new SiGe chip technology could someday operate at 500 gigahertz without the benefit of supercooling, and may even approach a terahertz (1,000 gigahertz).

Other superspeedy chips have been tested in labs, but the IBM/Georgia Tech product has turned heads because it is created more or less conventionally: like the chip in the computer on which these words were written, the 500-gig wonder is made of silicon (and a little bit of germanium), so it can be manufactured cheaply. Other super-chips are made of less common or experimental materials, and would cost much more to produce.

It won't be showing up in anything you can buy anytime soon, but expect to reap performance benefits of the superchip in two or three years. Possible early applications for the chips include enhancing high-speed Internet connections so users can download high-definition television and movies-on-demand.

Sources: The Register (UK), International Herald Tribune, Wall Street Journal


 

The Stuff That Dreams Are Made Of (if your dreams include high-tech building materials, that is)

This week saw the announcement of two manufacturing technology breakthroughs. In the US, Atlanta-based Novelis revealed what is probably the most far-reaching development in metalworking technology since the late 1930's. Novelis Fusion technology allows different alloys to be cast together simultaneously into a single aluminum rolling ingot. The ingot can then be made into a flat sheet product with different surface and core properties.

Developing the new product cost less than $100 million. 25 customers have bought and are using the new metal. Novartis plans to start out making 70,000 tons of the material this year at its upstate NY mill (the WSJ says that is only about 10% of that plant's capacity). The new multi-alloy material has application potential in the architectural, automotive, aerospace, and high-tech manufacturing industries.

Also this week, Italian scientists announced that they have created a new ultra-durable, almost-hard-as-diamond type of glass that could be used for construction or as a coating for microelectronics. The product is called amorphous carbonia and is created by taking dry ice (you know, frozen carbon dioxide, the stuff they use to pack mail-order ice cream or blow fans over to add atmosphere to stage shows) and subjecting it to enormous pressures. This forms a hard glass, albeit one that doesn't yet survive outside the lab. The next challenge is to make a product that survives at room temperature.

The glass substance also raises non-manufacturing related questions: it's possible that planets like Jupiter, which have a very high CO2 concentration in their makeup, could have carbon glass near their cores.


 

Sorry, Your Flight Is Delayed: Airbus 380 Customers To Wait Even Longer For Jumbo-Jumbo-Jet Deliveries

Airbus has announced that design changes to the 500-passenger Airbus 380 will force another 6- to 7-month delay on production (the company's stock slid as a result). It's the second such delay for Airbus. The changes are not major, nor does the safety or certification of the titanic airliner depend upon these changes. It's just that moving around small pieces of equipment, like the 132-channel DVD system, has knock-on effects in the way the plane's wiring system is arranged. The number of planes to be built this year will be cut from 25 to nine. 16 different airlines have ordered 159 of the new planes from Airbus.

Singapore Airlines, Emirates, and Qantas are the initial airlines due to receive the 380, and they will get their first planes delivered on schedule - but only a handful of the number they were expecting. Airbus expects to pay penalties due to the disruption in its timetable. More worrying was that it couldn't rule out the possibility of more delays. An aviation industry consultant quoted in the New York Times said "If I were a buyer and this were happening to me, I might use this as leverage to get something additional out of [Airbus]." eMvoy.com's unsolicited advice for disappointed Airbus customers? Don't ask for a new DVD system, or you might have to wait even longer.

In the meantime, while there is no other company making jets on the scale of the 380, airlines that were expecting to have a 380 on hand are turning to Airbus competitors to fill their fleet needs. Singapore Airlines will order 20 new 787-9 Dreamliners from Boeing. Boeing also plans to roll out a new model of its trusty 747, the 747-8, which will seat about 450 passengers. It currently has firm orders for a freight version of the 747-8.


 

Accounts Payable, Receivable, and Outsourcable

Today (14 June 2006) IndustryWeek points out the results of a recent Aberdeen Group, Inc. survey about procurement outsourcing. 170 companies participated in the survey, and almost 50% of those companies said they plan to outsource some aspect of their purchasing departments this year. Those companies already outsourcing some aspect of their procurement operations said they plan to contract out even more in 2006. The Aberdeen Group survey seems to jive with an earlier report on the trend by the Everest Research Institute, published in December 2005, that said procurement outsourcing was going to increase because of its potential to directly impact a company's bottom line.

While more companies are outsourcing procurement functions more often, the trend isn't widespread and appears to be selective of specific purchasing roles, rather than "lock, stock, and barrel" the way IT outsourcing has been, according to business columnist John Moore. The Aberdeen Group's report (available free from Aberdeen Group's website - you may need to register) says "[businesses] have waded - rather than plunged - into outsourcing. Nearly 60% that outsource today are outsourcing no more than 10% of their procurement functions." Furthermore, most businesses who outsource purchasing functions do it to handle non-critical supplies such as office equipment, or to take care of auditing and invoice reconciliation.

Outsourcing is seen not only as an opportunity to lower costs; it can free up in-house staff to focus more on strategic activities and less on getting the best deal on staplers (Swingline or Boston?). Contract purchasing firms also have access to supplier intelligence and broader spending category savvy, which makes them even more attractive to businesses. The Aberdeen Group points out that, as with any other kind of outsourcing, businesses ought to have a good idea of their how their current spending operation works before considering an outsourcing deal.

Current leaders in procurement services include companies like IBM, Accenture, and Affiliated Computer Services.


 

Britain Can Make It

Giving the lie to the conventional wisdom that a strong currency means fewer exports, Great Britain's manufacturing industry is performing better than it has in ten years, according to a survey of the UK's manufacturing sector. The good times are rolling largely due to business from abroad - apparently other countries, particularly other EU member states, are nutty for British exports. Domestic demand remained flat. The foreign demand is slightly mystifying, given that the British pound is the strongest major currency going at the moment (the UK is a member of the EU, but didn't join the Euro. Can you blame them when their coins are so cool?): £1 fetches about $1.87 or 1.45 nowadays.

According to London's Guardian, more companies are planning to expand their payrolls than to slash them - welcome news in a country where manufacturing has bled jobs until as recently as last year, and has generally taken a thrashing year in and year out for the past three decades. Still, in Britain as in the US, fears of interest rate rises may temper the good news. While the Bank of Britain is mulling a rate rise, a far more damaging possibility would be a European Union rate increase. The EU is the UK's major trading market.


 

A Slow Boat Away From China

Sunday's Chicago Tribune has an excellent article about the United Tooling Coalition, a three-year-old alliance of Michigan tool and die companies, and about the tool-and-die industry in general. The Coalition's member companies, all competitors, are working together to make US tooling producers more attractive to companies like Toyota. Domestic tooling producers have taken a major hit as Chinese and other foreign companies undercut them- according to a source in the Trib article, as many as 30% of American tooling companies have gone out of business due to foreign pressure.

The United Tooling Coalition's strategies revolve around the adoption of lean manufacturing . The members recognize that in order to change the industry's apparent fate, they may have to change its culture. Dave Martin, the owner of a tool-and-die shop, says: "We can't just sit here and get beaten up."

There is a small, emerging trend in favor of the UTC's efforts - the Rochester, NY Democrat and Chronicle has a story about companies who are reverse-offshoring. That is, they moved their labor overseas, and then decided it didn't work so well. Writer David Tyler sums it up:

"Businesses have found they can run into many troubles [with offshoring] - high shipping costs, longer lead times, delays in customs at the border, production defects. Unreliable, or in some cases unscrupulous, foreign business partners can be another negative factor."

Offshoring becomes less attractive when a company decides to go lean, as well - a supply chain spanning 12 time zones isn't particularly efficient.

Still, reverse offshoring is so far a drop in the bucket: China's labor force is growing, not shrinking. Manufacturing News quotes a report that pegs the Chinese manufacturing workforce at 109 million people (the US's manufacturing workforce has 14 million, and actually lost jobs in May). US manufacturing firms face formidable obstacles when they want to keep jobs and production domestic; changing the trend, or adapting to the conditions so that US companies can survive, will require innovative thinking and a willingness to do things outside the comfort zone. Like, say, collaborating with your competition.
 

Energy Prices Begin Nibbling at Consumption Rates

Friday's Wall Street Journal reported that while affluent consumers continue spending at a healthy rate, middle- to lower-income consumers are beginning to pinch pennies because of high energy costs. The main indicator of this trend comes from auto sales. The WSJ says:

...last month was good for luxury brands and foreign companies catering to affluent customers. Toyota, for instance, saw sales rise 17%, driven in part by its Luxury Lexus brand, while German luxury car maker BMW AG reported that sales of its BMW-brand models grew 7.1% - By contrast, U.S. auto makers, who draw more lower-income buyers, continued to see a drop in sales, especially of sport-utility vehicles, and all three blamed the recent rise of gasoline prices to the range of $3 a gallon. General Motors Corp.'s sales were down 12.5%, while sales at DaimlerChrysler AG's Chrysler Group dropped 11%. Ford Motor Co.'s sales fell 2%.

During the oil crisis in the '70s, Americans turned in large numbers towards smaller, more fuel-efficient Asian-manufactured cars for the first time. That appears to be the new hip retro trend all the kids want to get in on. The New York Times notes that Asian-produced autos took a 40% share of the market last month, and that US manufacturers' market share fell to 52.9%, the second lowest share in history.

Look for manufacturers like Toyota and Honda to continue gaining market share while gas prices remain high.

Energy prices are also beginning to affect corporate investment. IndustryWeek reports on a PriceWaterhouse Cooper survey showing that "energy-vulnerable" businesses are reluctant to spend capital or expand payrolls in the months ahead. According to that write-up, 65% of US consumer product manufacturers consider energy costs a major threat to future growth.


 

Notes from around the web

IndustryWeek notes that the new Reduction of Hazardous Substances act is set to go into effect in a month, and that US electronics producers had better be ready to comply with the new regulations or risk being locked out of EU member state markets. eMvoy.com reported on the RoHS act earlier with regards to the Chinese electronics industry.

And the European Union was just getting warm with the RoHS directive, y'all: another more far-reaching law goes into effect in August 2007 that will affect electronics manufacturers, not just component producers. Electronics Weekly points out that the new directive, called the Energy Using Products directive (EuP), will impact production from the design level upwards. We'll look at this new directive in more depth soon on eMvoy.com - stay tuned.

Henry Paulson, the President's nominee for Secretary of the Treasury, says that he "really believe[s] that the decline in the dollar, the orderly decline in the dollar, will lead to a natural adjustment" in the US's staggering trade deficit. The Wall Street Journal, otherwise pleased with the nomination of the former head of Goldman Sachs, says "uh-oh": that kind of talk seems irresponsible to them in an economic environment rife with new inflation fears.

India's manufacturing sector grew 9% in May, and the overall Indian economy grew 8.4% in 2005-06. (IndustryWeek.com)

Any welding going on at your company? Industrial gases distributed by Airgas are going to rise in cost: 10-20%, some as soon as June 26th. (via Welding Design)


 

Newsflash: Fed Says Congestion Wastes Time and Money, Ticks People Off

This week the Federal Government announced a new six-point plan from the Department of Transportation designed to combat and ease congestion in the American transportation system. The plan, explained somewhat vaguely in a 16-page document entitled "National Strategy to Reduce Congestion on America's Transportation Network", says that congestion is a scourge on the economy, draining $200 billion a year in wasted fuel, man-hours, and resources. The plan also notes the societal impact of your daily soul-draining stop-and-start commute on the not-so-freeway, pointing out that additional time spent commuting is related to the drop in community affairs participation (The report's authors cite Robert Putnam's book, Bowling Alone, as their resource for that statistic. If you're a nerd like our blogger, we recommend it: it'™s readable sociology and it has lots of charts!). Reducing congestion is also an idea environmentalists like: fewer cars idling in traffic means less soot and smog emitted into the air.

The DOT's major concern, of course, is about the impact congestion has on the business community, as shipments get delayed and delivery vehicles lose time stuck in traffic. The plan aims to reduce, not just slow the growth of, transport congestion. It's aimed at airports as well as the roadways and rail system (see ATA's remarks on the plan here), with a special emphasis on LaGuardia in New York. Other highlights of the plan include encouraging private investment in transportation infrastructure, a la the Chicago Skyway, and introduction of congestion charges for urban centers, a la London, England. (This is ironic; there's currently a teapot tempest brewing about the fact that US Ambassadors in London refuse to pay that highly effective congestion charge. The Mayor of London had a few words on the subject.).

You can read Transportation Secretary Mineta's remarks at Logistics and Supply Chain Intelligence. eMvoy.com picked up on this story while browsing Logistics Today.


 

Purchasing Agents' Jobs Are About To Get Harder

Pity the purchasing agent who works for electronics producers selling in the EU. For the last two years he or she has worked to source components free of certain heavy metals in order to meet the deadline for the Restriction on Hazardous Substances directive (abbreviated as RoHS; effective from July 1, 2006). Now procurement officers will have to jump through a new set of hoops as the 2007 deadline for the Energy Using Products framework directive comes into view.

The EuP directive is the next step in the EU's march towards making the electronics industry more environmentally friendly. It's a profound, far-reaching directive that will affect every phase of production from design upwards. The directive aims to determine the amount of environmental impact caused by production and use of many common electronic products. A consumer ratings system would be developed, allowing end-users to compare the energy impact of electronic products before buying them. Then, the goal is to lower environmental impact incrementally, reducing energy used not only by the finished product, but also by the entire supply chain and manufacturing process involved in making the product. It's a huge task.

At the moment, it's still possible that the electronics industry will rally to build voluntary compliance into this directive instead of legally binding enforceable requirements. The implementation of some requirements, which would come into law next year, is probably inevitable. For now, manufacturers and their purchasing agents need to assume they're going to have some new legally-backed targets to meet. They'll continue examining their supply chains and consulting with designers and engineers about how to make their products work the same way with different components.

Which brings us to today's digression: with all these new directives pushing companies to change the way they make their products, isn't it possible we sometimes neglecting the role that procurement professionals play in driving innovation? A purchasing agent in a manufacturing firm isn't just the paper pusher who orders staplers for the front office, after all. He or she plays an integral role in the final appearance and performance of the company's products by sourcing components or materials from suppliers.

And with the advent of these new green directives for trading with the EU, purchasing agents are responsible for using their firms' business as leverage to get suppliers to, say, reduce the amount of cadmium in that electronic component or find a way to produce those plastics a little more energy-efficiently. If these EU directives are effective in reducing waste, curtailing pollutants, and improving recyclability of electronic products, it might not be total hyperbole to say that purchasing agents have helped save the environment. Don't let the engineers have all the glory.

Just a thought.

On the lighter side!

Addendum to the sturm-und-drang article about purchasing agents' new challenge above: buyers for Macy's, Inc., seem to have fun, according to the New York Times' Cathy Horyn, who was a fly on the wall at a recent buyer's meeting. ("Macy's is so Excited about Crinkle Cotton" - free registration required.)


 

Will We See More of the C-17?

It's been a busy week for Chicago-based aerospace giant Boeing. Production of commercial airplanes at their historic Long Beach, CA facility ended on May 23 after delivery of the last new 717 airliners. Also on May 23, a new military production plant in Georgia opened for business. Yesterday the New York Times ("The Plane That Wouldn't Die", free registration required) reported on hush-hush, sorta-against-Pentagon-rules lobbying efforts on Capitol Hill aimed at extending production of Boeing's C-17 Globemaster III, a massive cargo jet used to airlift heavy equipment and supplies overseas.

The C-17 is produced at the Long Beach, CA military facility and Boeing employs 6,500 workers on the line at that plant. 42,000 jobs in total rely on the C-17's continued production. The current Pentagon contract calls for production of the jet to end in 2008, after the 180th plane is completed. And that's fine with the Bush Administration, which wants to end production of the plane to free up money for other projects.

The Air Force (and Boeing) feel differently. Friends of the C-17 have been meeting with their Congresscritters, and managed to score approval for at least three more jets from the House Armed Services Committee on May 11th. The Senate Armed Services Committee begins looking at the matter this week.

Senator John McCain (R-AZ), no big fan of Boeing, is a senior member of the committee. McCain has been a bugbear for Boeing in the past, digging up too-cozy connections between the Pentagon and Boeing officials in 2003 (that particular scandal actually got adapted for an episode of The West Wing). Senator McCain and SASC Chairman Senator John Warner will begin to scrutinize the defense industry's contracts with the Pentagon today, trying to rout out sweetheart deals and waste.

It's a safe bet they'll be looking very closely at the deal to extend the life of the C-17.


 

Green Manufacturing Regulations: The EU Says "Jump!", China Says "We'll jump higher!"

The European Union's Restriction of the Use of Certain Hazardous Substances directive for electronics manufacturers comes into effect on July 1 (and makes a great beach read, take my word for it). This environmentally-focused regulation aims to

ensure that...new electrical and electronic equipment put on the market does not contain lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls (PBB) or polybrominated diphenyl ethers (PBDE).

These chemicals and metals have been found to cause human health or environmental damage, and they're un-recyclable. The EU is trying to cut down on electronics waste products through its WEEE (Waste Electrical and Electronic Equipment) directives, and reducing these substances from electronics products makes them more recyclable. Electronics manufacturers within Europe have had to alter their products and processes to comply.

China doesn't want its gadgets locked out of Europe (trade with EU members accounted for 25% of China's electronics exports in 2004). The Chinese government has introduced similar environmental regulations for its own manufacturers. In fact, China's directive, called the Regulation for Pollution Control of Electronics Products, goes even further than the EU's policies: China aims to eliminate, not just reduce, the use of those six hazardous substances in its electronics products.

Some products will be on line for the July 1 EU deadline; others have transitional plans in place to bring them in line with the directives later.

A nice trickle-down effect of these green directives is that manufacturers in China (and foreign firms doing business there) have begun to consider the environmental impact of their entire operations, not just the products they're shipping to Europe. After years of disastrous (for the environment) development, the government is beginning to bring environmental regulations into force, and firms doing business in China are building entire factories to green standards. The new Plantronics, Inc. plant in China has earned an LEED certification from the US Green Building Council. Intel is said to be considering following suit with its plant in Shanghai, and China's own SMT (Surface Mount Technologies), which has three factories, is the first company in China to become a Sony OEM Green Partner.

It's heartening to know that China, referred to sometimes as "the world's workshop", is starting to take steps to reduce negative industrial impact on the environment even as its economy continues to grow. More positive pressure from its trading partners - both countries and companies - can only serve to speed up the process.


 

Excited about the weaker dollar? Look again:

Much ink has been spilled in the past two weeks over the sudden sharp decline of the US dollar on the foreign exchange markets. (Just look at this 30-day chart for the dollar vs. the Japanese yen.)Financial and industry analysts have lunged for their tea leaves, trying to determine what the dollar's slide means in terms of the economy at large.

While it's pretty safe to say that Americans planning to vacation in Europe will be disappointed by this turn of events (especially if you want to visit the UK, where the pound gets nearly $2 nowadays), what about US manufacturers? After all, a weaker dollar means our goods are more affordable to buyers abroad. Will the decline in the dollar mean more money coming in from abroad, and high times for businesses that manufacture and sell to customers overseas?

As always with these questions of finance, the answer is yes... and no.

Certainly a weaker dollar means that some American manufacturers will see higher profits from overseas as foreign buyers snap up cheaper US goods. Typically, manufacturers of unfinished products (steel as opposed to sneakers) make out better when the dollar declines - even though our goods are more competitively priced, finished products from Asia are still much cheaper.

In fact, because the Chinese have fixed the yuan to a set value against the US dollar, a weaker dollar actually encourages investment in Chinese manufacturing. Companies in other Asian countries will want to move their production facilities to China to take advantage of lower production costs. That's great for them, but bad for us, because it means we'll be flooded with even more goods made in China, and the already staggering trade deficit will climb higher instead of lower. Analysts at the Merk Hard Currency fund note that

While a middle class in China is growing, we doubt that the pickup in worldwide consumption will be fast and sufficient enough to rescue the current account deficit. It also remains to be seen what these consumers will consume - what consumers [sic] goods do we produce in the US that are attractive to Chinese consumers?

Ouch. Getting even more cheerful, the Merk analysts remind us that "A lower dollar will not re-create the US manufacturing industry."

Asian competition aside, a weaker US dollar also translates into higher production costs for companies who rely on overseas suppliers for parts, materials, or machinery. And if production costs increase sharply enough, manufacturers will have to pass costs down the line to their customers. In plain English, that's inflation, which helps nobody. Economic organizations such as the Organization for Economic Cooperation and Development warn that the weakening dollar plus the trade deficit could weigh very heavily on the US economy as a whole in the long run.

In the past, a weakening in the dollar has been good news for manufacturers. Times have changed. While your company may see a bump in profits in the short term, a long-term decline in the dollar could put everyone - investors, manufacturers, and consumers - in a bind.

For further reading, here are a few links that give an excellent overview of the subject:

The Chicago Federal Reserve Board: Weak Dollar, Strong Dollar

Mike Whitney at Manufacturing Center.com: What does a weak US Dollar Mean?

CNNMoney.com (from 2004): What a sagging dollar means for you


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