Innovation Spells the End of Total Chinese Supply Chain Dominance

by Sandeep Duggal under
Just as the commoditization of global transportation, communication network and manufacturing lingua franca led to the globalization in manufacturing, the emergence of highly configured devices, changing macroeconomics, geopolitics and evolving knowledge and preferences of both OEMs and consumers will lead to the end of Chinese hegemony in manufacturing.  It will also lead to the emergence of a more logical (and flexible) dispersed operations and manufacturing model that relies on true "national competitive advantage" and less on pure wage competitiveness.

As Michael Porter stated in the Harvard Business Review in 1990, “A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade.” 

Lasting national competitive advantage is generated through innovation at the corporate level, not policy or monetary manipulation.  That innovation can take many forms – product, marketing, financial, or production. 

Companies who read the tea leaves of the current macroeconomic environment (as well as that of the current geopolitical environment) and who seek to innovate in ways that are unexpected will set the bar in terms of competitiveness.  To many, it almost feels contrarian in nature.  While the crowd goes one way, the innovators look for opportunities in the other direction.

And so it goes with manufacturing.  Rather than completely consolidating globalized transportation and manufacturing into macro-scale contact manufacturers and distributors, the contrarians are finding increased value in rethinking production on a local scale.  Breaking the supply chain at key strategic junctures and onshoring the “last mile” of the supply chain to nimble US-based manufacturers, companies can move IP-sensitive steps, weight-laden features, and other components of the supply chain back onshore.

Let me conclude by stating that I am not predicting a total demise of Chinese Manufacturing, but rather that China, like many other countries, will be a supplier of certain commodities and services in which it has national competitiveness - industries the Chinese State wants to be a leader in and those where labor content and lax environmental regulation makes China a logical choice of manufacturers.  I think that this means high-volume undifferentiated goods, high-volume PCB assemblies and certain ‘dirty’ components (flat screens, PCB Fabs, electroplated goods and so on.  China will, in short, become a major, but not the only, Global player.

No longer is it a lock that Chinese companies provide the best cost, best timing, and most IP-secure solutions for globalized supply chains.  Through innovative thinking about supply chains - - thinking that combines the best aspects of global sourcing and local manufacturing capabilities – U.S. based companies are beginning to leverage true national competitiveness and finding success in ways  that we could not have envisioned 20 years ago.



Posted by Sandeep Duggal at 4:08 PM 0 comments

Why Last Mile Manufacturing Matters

by Sandeep Duggal under

Last Mile Manufacturing (LMM) is a new Supply Chain Archtecture and Philosphy that takes into account major macro-economic changes, geo-political shifts and new business thinking to manage supply chains differently.

In a nutshell, today's technology supply chains are based on assumptions and economics that were true in the 1980s and 1990s.  Many of these assumptions have been turned on their head:

- steadily increasing US wages (actually real US manufacturing wages are falling)
- infinitely cheaper foreign labor costs (actually, adjusted for exchange rates, foreign skilled wage rates are rising rapidly when compared to US wages, which are falling)
- steady exchange rates (actually the US dollar has fallen against many Asian currencies)
- cheap transportation is here to stay (actually transportation costs have increased dramatically)
- US companies would always have an IP lead on the competition and anyway, outsourcing manufacturing didn't really result in IP loss..(actually, major competition has emerged from the very countries that US OEMs outsourced manufactuing and then design to)

I could go on.....

LMM matters because it addresses these discontinuities and makes economic sense for OEMs that used to (or currently do) manufacture in Asia.  LMM matters because it saves OEMs money, because it reduces the asset intensity of their business, because it protects their IP, because it reduces their risk and because it enhances customer satisfaction.  Additionally, LMM addresses inherent US economic weakness (on the jobs and training front), which is why government (and many large outsourcers that sell into the US) should care about LMM.

More in my next post on how LMM works and why it is crtical for US tech companies.
Posted by Sandeep Duggal at 2:43 PM 0 comments

Welcome!

by Sandeep Duggal under
Welcome to the first posting to the Last Mile Manufacturing Review blog!

I think the best place for me to start is to begin to make the case for Last Mile Manufacturing, before going into huge detail on how it works or how one implements it.  So this first post is a bit of a summary of the "why" and the "what"  -- and I'll try to keep it high level before going into detail in future posts.  Here is is:


It’s a well-known fact.  Over the last two decades, our nation has lost millions of jobs to outsourcing.  Companies that once manufactured products here have outsourced entire supply chains to Asia, taking advantage of lower labor costs, accommodative governments, and lower regulatory burdens. 

But as you know, wage rates in Asia are rising dramatically, oil prices and transportation costs have skyrocketed, and overseas theft of our nation’s valuable intellectual property is rampant – in many cases, these things offset much of the old rationale to manufacture offshore.

The principles of Last Mile Manufacturing have the potential to return hundreds of thousands of jobs in the tech sector – millions of jobs across all sectors --  to the United States, by taking the “last mile” and onshoring it. Last Mile Manufacturing can improve a company’s bottom line, improve responsiveness to marketplace demands, and protect valuable I.P.

It will take all of us working in whatever way we can to make the needed changes.  Many companies who have offshored production now have supply chains that are based on outdated assumptions, and need to overcome considerable inertia.  Learning the details behind Last Mile Manufacturing approach and spreading the word are the first step.  Getting corporate leaders, industry associations, as well as local, state, and federal leadership on board is critical.  Last Mile Manufacturing is the only truly self-funding job creator, and it’s a win-win for companies and communities that get behind it.

I encourage you to learn more about Last Mile Manufacturing,  here in these blog pages as well as at LastMileManufacturing.org, and to join with us in spreading the word.

Together, we can bring home those jobs for Americans.

Best regards,
Sandeep
Posted by Sandeep Duggal at 11:49 AM 0 comments
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