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Archive for the ‘global operations’ Category

How is this for a bold assertion: All your clothes are made with exploited labor.

That is the title of a recent Atlantic article which discusses what Patagonia learned when it audited the practices of its second-tier suppliers. These are not the firms sewing sweaters or assembling backpacks. Rather these are the mills producing fabric and factories producing components that go into those sweaters and backpacks. It turns out that a lot of those mills were engaged in some dubious practices.

About one-quarter of those mills are based in Taiwan, and the majority were found to have instances of trafficking and exploitation.

The problems stemmed from how those mills found the people to work their factory lines. They didn’t hire workers themselves and instead turned to so-called labor brokers. These labor brokers charged migrants exorbitant, often illegally high fees in exchange for jobs. There were other red flags, too. Suppliers would open bank accounts into which the workers deposited their paychecks, so that fees for labor brokers could be automatically deducted. Workers’ movements were also restricted through the confiscation of passports. The recruitment and hiring process used by many labor brokers can create a cycle of fear and debt that leaves workers neither able to leave their jobs nor to make a decent living.

The article goes on to explain that sourcing labor through brokers is both legal and common in Taiwan. It is arguably necessary for the mills to be cost-competitive. Still it is an embarrassment for a brand such as Patagonia which has staked quite a bit on being a better global citizen than the typical clothing brand. (Check out the social responsibility page on their website.)  (more…)

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w3w_about_mapgrid

What’s your address? For most readers of this blog, that is a pretty easy question to answer. You have a street name and a unique number. Throw in a postal code and maybe an apartment number, and you are good to go. For much of the world’s population, however, things aren’t so easy. Whether because they live in rural villages or poorly planned, rapidly growing cities, many people in developing nations don’t have a standard address. This creates a variety of problems. In particular, it cuts them off from many parts of modern commerce. How do you deliver a package to someone who can’t easily write down where they live? Note that this matters for a developing nation. If a country has an under-developed retail market, fostering an e-commerce industry is likely a better solution for many products than building out physical locations — but that cannot happen without some way of locating customers.

Solving this addressing problem is the goal of what3words, a start-up firm profiled in a recent BBC article (Giving everyone in the world an address, Apr 30). Their plan is to match every three-meter-by-three-meter square on the globe with a three-word triplet. Under this scheme, the house I grew up in becomes collapsed.networking.farm — which would only be better if it were collapsed.networking.firm.

The argument is that it is easier to remember three words than, say, a set of random numbers.  The goal then is to come up with words that are simple and unambiguous to use. Here is how their website explains the process.

Each what3words language is powered by a wordlist of 25,000 dictionary words. The wordlists go through multiple automated and human processes before being sorted by an algorithm that takes into account word length, distinctiveness, frequency, and ease of spelling and pronunciation.

Offensive words and homophones (sale & sail) have been removed. Simpler, more common words are allocated to more populated areas and the longest words are used in 3 word addresses in unpopulated areas.

How does this play out in practice? (more…)

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The dollar has been on a tear over the past year. Check out how much it has appreciated against the euro over the past year or so (A Shakeup in Currencies, Wall Street Journal, Mar 19).

euro

There are some obvious implications from this chart. For example, if you spent spring break in Europe, you have an impeccable sense of timing. Also, if you are US-based manufacturer counting on exporting to Europe, you are going to be swimming upstream (see, for example, Strong Dollar Stands in Manufacturing Sector’s Way, WSJ, Mar 15).

But if a strong dollar hurts US firms, it’s gotta be a godsend for European businesses, right? Well,maybe not. How a weak euro impacts European firms is going to depend on the structure of their supply chains. Check out this eye candy from today’s Wall Street Journal (Europe’s Fashion Retailers Under Pressure From Strengthening Dollar, Mar 24).

BT-AA741_RETAIL_16U_20150324180606

(more…)

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The vicissitudes of American manufacturing has been a long running topic on this blog. But whether one focuses on firms that have always kept their production in North America or those that have reshored manufacturing, there is the question of whether China or other Asian countries are going down without a fight. A recent article in The Economist suggests that manufacturing in Asia in general and in China in particular is going to be around for a long, long while (A tightening grip, Mar 14).

First, one has to recognize that the growth in Asian manufacturing over the last 20-plus yeas has been spectacular. Check out this graphic.

20150314_BBC958

As the article notes, these numbers get a little more extreme if one looks at “intermediate inputs,” doohickeys like displays and circuit boards that go into finished products that may be assembled elsewhere. (more…)

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Fast Company named American Giant one of its most innovative companies of 2015 (American Giant Guns For Gap By Doubling Down On The USA, March 2015). American Giant is purveyor of T-shirts, sweatshirts, and (most famously) hoodies. We have posted about them several times before. Part of American Giant’s pitch is that they make everything in, well, America. They cut and sew all of their items in facilities in California and North Carolina. This TechCrunch video offers a tour of their Brisbane, CA, facility.

Now one of the challenges of producing sweatshirts in the US instead of overseas is the increased labor cost. Check out this graphic from the New York Times (U.S. Textile Plants Return, With Floors Largely Empty of People, Sep 19, 2013)

cost

Assembling garments in the US roughly triples the labor costs. These are partially offset by lower duties and logistic costs, but they remain the primary reason why a US-made costs about 20% more than an Asian one.

But what can be done to make an American sewer more productive to reduce the labor cost gap? (more…)

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Reshoring — moving manufacturing from far-flung global locations back to the US — has been a popular topic both in the general press and on this blog. What’s not to like about it? As long as manufacturing allows average humans without extreme degrees of education or super rare skills to make a decent wage, new employment opportunities in manufacturing are always going to create a buzz.

But just what kind of firms are bringing work back to the States? According to the Wall Street Journal, we are mostly talking about smaller enterprises (Bringing Jobs Back to U.S. Is Bruising Task, Jun 25).

More than 80% of companies bringing work back to the U.S. have $200 million or less in sales, according to the Reshoring Initiative, a nonprofit that encourages companies to return production to the U.S. Many supply parts to bigger companies or, if they sell directly to consumers, are seeking to cut out lengthy supply chains from Asia.

But big companies have the resources and experience to hopscotch around the globe. It’s harder and riskier for small firms to do the same.

So for every General Electric moving appliance manufacturing back to Kentucky, you have lots of firms like Chesapeake Bay Candle dealing with much smaller product lines. To some extent this is not too surprising. Whether you are GE or Chesapeake Bay Candle, managing a long supply chain or navigating cultural differences is nontrivial. One of those firms, however, can much more easily absorb the cost of having in country staff or can resort to throwing around its sizable weight to get a good deal. Further, a multinational like GE can also have ambitions of growing in China that may not be a priority for a small player like Chesapeake Bay Candle.

While it is not surprising that smaller firms play a big role in reshoring, that is also a problem.  (more…)

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Why invest in automation? The answer to that question is often to cut cost — a straight up move to replace labour with capital. That has the obvious implication that firms in high-wage locales like the US should be willing to invest heavily in fancy machinery while those in lower-wage countries like India should be more cautious in doing so. That may not always hold, however. As the Wall Street Journal tells it, there is one Indian industry that is investing heavily in automation and it’s not really about shaving costs. The industry in question is generic pharmaceuticals and the driving force behind the capital investments is maintaining high quality standards (India’s Drug Makers Move Toward Automation, Jun 5).

Despite an abundance of low-cost laborers in India, all of [Dr. Reddy’s Laboratories’] plants are moving toward fully automating their production process “to avoid good manufacturing practice pitfalls from regulators,” said Samiran Das, head of Dr. Reddy’s generic drugs manufacturing.

In the past decade, India’s pharmaceutical companies have blossomed into multibillion-dollar companies that now account for 40% of the generic drugs sold in the U.S. Those companies, however, have come under increased scrutiny in recent years from the U.S. FDA, for manufacturing, testing and other safety issues that are often the result of human error.

To ensure that their products don’t get banned from the U.S.—the world’s biggest drug market—many companies that can afford it are spending hundreds of millions of dollars to automate. …

Mr. Venkatanaryan, the head of the Dr. Reddy’s Bachupally plant, says the drive toward automation is meant to make the manufacturing process “mistake-proof.”

(more…)

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