When should you not outsource?

Among the outcry about America losing its manufacturing jobs, two iconic companies, prominently featured in recent WSJ and NYT, prove that manufacturing is still possible in the good-ol’-America. One of them is Harley Davidson, the maker of big smooth-riding bikes, the other is Watermark, Brooklyn-based manufacturer of high end bath faucets. Both of them face stiff competition from Asia. Both of them could outsource, but did not. Why?

The answer is, of course, in understanding their strategies and core competencies. Harley is an American legend for more than 100 years. And so is Watermark, boasting its Brooklyn chic design. This is what the customers are willing to pay premium for! Ironically, many of the customers are in Asia. China with its growing highway network is getting a taste of riding, and liking it better on a Harley; the builders and buyers of luxury condos in Shanghai prefer to have unique faucets from Brooklyn. Going through the recession neither of the companies made a move to make their products cheaper. High price together with their “Made in USA” brand are driving demand for them.

It does not mean that companies did not have to trim some fat in their operation. Harley streamlined their production process, cutting workforce by 2000, but at the same time making sure that the remaining 1000 are better trained and flexible enough to perform multiple operations. Their inventory is down and production volume can be adjusted relative to demand. Some clever technology is in use at Watermark as well: 3D printing is used to speed up prototyping and cut lead times.

Now, could they have done the same overseas? Quality and quantity-wise – probably, yes. Would they be able to market their products so well? Probably, no. Interestingly, even Apple has “Designed in California” brand on their product. Had they have to drop it, by how much would they have to reduce their price?!
And since it’s Friday, I can’t help but notice another, rather peculiar, commonality in their day-to-day operations. Both companies routinely submerge their products in the water. That clearly better be done here in the States!


How to counter demand variability?

Very timely comes this article about the Beer game and our favorite trillion-dollar-company-to-be Apple. The Beer game is a board game where the idea is to simulate a (beer) supply chain. It seems pretty simple – in order to fulfill the end demand retailers have to order inventory from wholesalers, wholesalers – from distributors, and distributors from factory, that produces beer. Each level has to decide how much to order or produce based on their demand. Things can get out of whack pretty quickly – a small increase in end consumer demand usually leads to inventory shortage at the retail level and that drives up the ordering quantity. Wholesalers facing increased demand, also start having backlog and increase order sizes even more. When the demand hits the factory, it has to produce crazy amounts to satisfy it…

All of this is the classical Bullwhip effect… One of the reason for it is the delay between the moment when the order is placed and when it is delivered. If the delay is shorter, supply will be matched with demand quicker and inventories will be reduced. How is this all related to Apple? Continue reading

Jobs creation in the Apple ecosystem

Being the largest public company it is hard to avoid scrutiny of business decisions. The story has begun a couple of months ago with the series of articles about work conditions at the Apple contract manufacturers in China and the impact of Apple’s outsourcing on the US economy. So here comes another batch of numbers related to the Apple’s jobs creation, this time from Apple itself.

Continue reading