After a long summer of high gasoline prices and constant news about the SUV world ending the stations are selling almost 30% lower than the weeks leading up to Labor Day. News programs are attributing it to the end of the summer driving season (possible if we are at capacity supply/demand-wise). But I think there is more going on.We have a lot of elections up this fall. With less of an energy pressure then incumbents will find it easier to stay. This certainly will be an important driver, but not the most important.Ethanol (E85) from corn and cellulose discussions are important. General Motors has the most forceful marketing push here, aided by the other local automotive manufacturers. The rough targets I have seen put E85 economic switch-over attractive if gasoline stays above the $3/gallon price point.

The announced new Gulf of Mexico oil field reserve find is probably the greatest contributor to the oil problem. A major reserve, though very deep and difficult (expensive) to obtain for $2-$3 per gallon gas. It’s very attainable above $3 per gallon though – and what the existing oil suppliers are worried about.

Existing oil producers learned a lesson in the 1970′s. They found that the US market (the largest oil consumers on the globe) started finding alternatives to big cars, uninsulated homes, and power hungry appliances. Not wanting to drive the US market to figure out further conservation and extraction methods, the existing world oil suppliers have found ways to increase supply and cut prices. They will continue to drive price spikes that scare the general consumer but follow those spikes with relatively inexpensive pricing periods that scare any oil company executive against putting up money for the next oil field supply expansion.

Here are a few recent comments I found (#2 chosen for its passion and humor). #1,
#2.

The consumer has another weapon to fight high energy costs – continue to think like the end of oil is near and pursue conservation and alternative energy methods. We won’t be the first to go this route Sweden (Oil) has already decided to eliminate oil imports by 2020. European countries in general have added high fuel taxes to artificially inflate fuel prices (politically difficult here) and naturally encourage their respective populations to avoid excessive consumption. Worried about energy costs and fueling terrorism? Keep your sights on the horizon and figure out how to save energy at home and in business. This may get you started..something I came across and may pick up for my house soon (Meter)

Cheers!

Ford Motor Company (F) is in play. The hounds of M&A are after it. A couple of events (besides the dismal sales outlook):

Business Week ran a couple of articles, the first on the Ford family considering releasing some control (they have a special voting class of shares) and the stock price is up sharply (36% in the last month) pushed by a lot of accumulation pressure (F) .

Sales are dismal. Ford just announced temporarily shutting down several plants until inventories reduce (dealer lots are too full and channel stuffing works only so long) – expecting next quarter to produce nearly 25% fewer vehicles. They have been racking up huge losses and only hope to be profitable again a long way in the future.

There once was a rumor that Ford would have been acquired by Daimler had those family stock shares not existed. Daimler is now tied up, but there could be others interested – from the Nissan camp (though Nissan is less likely due to canceling
Volvo agreements) and some denials by Hyundai to buy Jaguar to Private Equity firms that would trim down the expenses and sell off some wonderful assets/brands and make the company strong again. Or so the press releases will say. A smaller Ford might be more profitable, but it would be smaller too expected job cuts may be accelerated . There is also trouble with credit rating cuts .

For investors, the stock is moving. With the buying pressure now evident it will be fickle and at any moment that surge could disappear. But there is buying pressure. Maybe it’s Kerkorian & crew working to stitch together a Frankenstein GM-F company? There would be rediculous numbers of redundant brands, platforms, and products. But it would be in play and pay some quick moving investors handsomely – provided they knew how to get out before the crash. And that will be the key – watch the stock closely and keep moving up your trailing stops.

The business cycle is in the investor’s favor now, and Ford Motor is serious about fixing their problems. The last half of the decade should see great improvement in vehicle sales along with profits just by being in the business. Ford is one of the grand cyclical stock plays – don’t miss out (but if you get in – watch your shares closely!).

Cheers!

[Usual disclaimer here about I do not directly own shares in Ford at this time and that you use this information for investing at your own risk]

Amazon.com apparently has begun collecting personal data on its customers. Nothing new. But seems there are a lot of people really worried. Here is a post I left on digg.com regarding this topic.

“Just don’t give out your information.

For those concerned about the database, remember that it’s a large corporation, with many, many inputs and differenet people typing in the information. Most of these databases get corupted data in them (ever typed your password in twice to change it? It’s because repeating and comparing the inputs is a good safety check against typos). The IRS has you self-report your taxes and then does spot-check audits.

A company can learn about zip codes, but they are not specific enough for effectuve merchandizing (any zip code can have houses ranging from $50k to $5M, the diverse incomes to support those house payments and fluctuating consumption as well depending on the owners’ perceived job security).

Can there be data to mine? Sure, but that assumes someone is really analyzing it. Supermarkets have tried “shoppers clubs” for years and they are no better off now than when they started. Many are abandoning these cards.

Or consider Automotive – the car companies track purchase patterns too – and what they always find is small cars (like the neons, PT cruisers, cobalts, civics, and corollas etc) always have a really high age group purchasing them (like averaging 54 years old). Then they run around trying to figure out how they missed their target consumers (was it the trim, the music package, were the advertisements in the wrong magazines or on the wrong tv shows, etc?) – the problem is their data. They have 54 year olds buying those cars for their sons’ & daughters’ first car. There are fewer 30 year olds buying cars for 16 year-ld kids than 54 year olds.

So your front-line defense is don’t share personal information (hard to resist those phishers too?). The second is to remember that data is corrupt. The third safety nets is inappropriate analysis.

Then worry less.

For the companies – stop over at www.privateproductivity.com/weblog for some help.”

Behind the Six Sigma quality movement is a reliance on actually analyzing data to get to the solution. And there are ways to better analyze data than are typically used, as well as improving the quality of the data existing and collected in the databases.

If you are a company looking to improve your data capture and analysis then please contact me. I am sure I can offer some quick and free advice or assist in really improving your systems.

Cheers!

Business Week ran an article titled “What Dell Should Do” to assist Dell in their falling stock price problem. I offered the following post on Business Week and have expanded on the “why” portion in this blog.

“Investors and traders should get ready to short Dell stock, because after seeing: “we expect to end the year with the widest product portfolio in our history, says Dell spokesman”, expect increasing trouble.

Dell is treading dangerous ground with expanding their offerings – companies increasing their complexity tend to lose focus and erode profits – that topples their stock price. It always begins by looking good. They expand their portfolio to capture marginal and fickle customers, overtax their quality control systems, and begin wavering on (or are overwhelmed by) customer service. After the stock price shock sets in (and with the usual management house cleaning) there is a consolidation wave to Value Engineer existing products and streamline the products and refocus marketing.

Get some help soon – before all those products launch.”

The “Why” portion:

There are a lot of whys, but the cleanest is some old (1970s and 1980s) studies by a couple of the larger branded consulting companies that looked at product breadth and company profitability. The data showed a sharp and linear decline in profitability with increasing products and brands that a company had.

Compare General Motors (eight brands) with Toyota (three brands). The television news program running as I write this said GM sales 2nd quarter 2006 fell 22% while Toyota increased 12%. Every day these two companies are nearing each other in annual sales.

Uncover the ramifications of complexity… A GM marketing budget needs to be almost three times larger to get the same mind-share (if not they are underspending on some or all of their brands). Likewise, an engineering design or manufacturing problem gets only a third of the management attention that such a problem might get at their competitor.

But one potential solution Dell should research: the platform engineering problems of GM in the 1980s. It was a naturally logical move then that became a liability. GM has only somewhat recently figured out what to do and has some great products launching now and in the coming months.

Often seeing and fixing the problem needs an outside opinion – too many inside the company are too vested in expanding their local efforts (products, brands, etc). A fresh set of eyes can aid the senior executives review, analyze, and decide these important issues. And there are a lot of details that need to be considered that cannot be covered even in a long weblog..

So send me an email if you think your company could use some help.

Cheers!

An interesting article and discussion on the merits of free Wifi in an Internet Cafe’ – they are concerned with how to move squatters along so real turnover of regular paying customers occurs. But is this really a problem lacking creative solutions? Free WiFi spawns cafe backlash and the discussion. Seems they want to charge for Wifi and offer free coffee? An argument for adding wifi is here.

Many coffee shops are owner operator affairs and are the ones that seem to struggle the most with this problem (Starbucks may be good for its own separate discussion). They attempt to generate more traffic by offering free internet access. During non-peak hours it’s good for the shop as the booths are filled. Customers doing work are usually looking for a get-away that is somewhat quiet fitting perfectly with off-peak hours – most are polite enough to vacate when tables and noise levels are filling the up the shop. Filled seats are visible from outside the store which encourages other people to flock into the store since people seem to equate store activity with food quality. The problems arise during peak hours when the store really wants to increase its “manufacturing inventory turns”.

An example middle of a block retail space in a nearby small upscale mid-western town I was looking into for a project was running at $40,000 per month or $20 per square foot per month rent (while four miles away an off-the-beaten path strip mall space was available at $3). Obviously, a corner location amongst a major retail center in New York, Los Angeles, or Chicago will be much higher, but so should the location’s sales. Doing the spreadsheet calculation thing with customer space consumption (small table+chair for laptop, backpack/briefcase, and of course a coffee cup at ten square feet available eighteen hours a day) results in a $0.40 per hour base cost to the store. That’s to cover just the lease space and doesn’t include the cost of the non-seating areas nor the other overhead items that the store owner must pay to remain a viable business. Many stores have seating in only half to two-thirds of the store. So a chair and small table for a lone Internet user rapidly approaches $1 per hour in cost. If the coffee shop owner or investor group hopes to get a return on their capital that is at risk (owning a business is much more risky since the business is less liquid to get out of than stocks or a bank deposit and subject to the whirlwind whims of land-lords, city taxes, and the cost of beans, water, electricity, and labor).

So what to do? I would recommend against charging for the Wifi access or making hourly purchase requirements and otherwise getting mean with customers. Rather than seeking to re-cut the existing pie into smaller portions, try making the pie larger.

Work with nearby stores to gang internet providing – ubiquitous availability means fewer squatters at anyone’s paying tables. A larger purchasing pool can negotiate better with an internet provider for a lower cost on faster access so everyone is better off.

Try advertising – canvass the local retail shops and work out arrangements for advertising on the main coffee shop wifi login screen. Create accounts for the advertisers to self-update their information so the coffee shop does not have to (the flower shop next door uploads their own graphics and announcements to not forget Mother’s day – timely and finely targeted for everyone involved).

Put a sign up that at peak hours (listed) request limiting Wifi use to make tables available for larger parties with a goal to ‘shame’ those camping out – but do recognize that campers are useful in the non-peak hours to show ‘consumption’ to other potential customers.

Have only 25% of available tables marked as available for mixed use by regular parties or laptops/Internet users (paint the table rims gold and have power cord drops over them so it’s obvious which tables are to be used for long-term use). This will encourage Internet users to avoid the other tables. Also be aware that most coffee sales end up being consumed outside the retail store – the store seating does more of the muffins and cookie and sandwich meal sales – the coffee is the highest margin “sku”. So a comparison of the non-coffee sales should be done to evaluate the seating/squatter problem and the store sales mix. Maybe pairing some of the slower moving and low profit skus will be worth more management time than Wifi policing.

Ultimately free Wifi is good for these stores – charge for the coffee and creatively give away the Wifi.

Cheers!

Plastic automotive parts are expensive. The cost of raw plastic feed stock keeps going up. The engineering involved. The application and durability testing. The lead time. Even importing from China or India becomes expensive. Cost cost cost! So what to do?Change your paradigm.

Take a walk through a toy store. Really look at some of todays toys. These toys represent the automotive suppliers of tomorrow. Japan started with toys in the 1950s and 1960s then started shipping car parts and cars to the world. China has been making toys for years, now car parts and cars. Turn over your kid’s toys and see where they are made.

Maybe you should find out who makes these toys and get ahead of everyone else?

There is more involved in making toys than the general automotive engineer may believe, without a snicker or two.

Here’s a scenario to consider:
Name brand (Fisher-Price) dinosaur toy sells retail for $10. Typically retailer’s cost from the manufacturer is 50% of that (clothing industry tends toward 30% of retail price). So what do you get for $5? Compare your last automotive part against these offerings..

Multi-part vacuum mold display container with 4-5 color printed die-cut cardboard backer and insert (that are case & pallet packed for retail shipment).

Toy complete plastic weight 12oz x $1/lb = $0.75 total raw plastic cost. The plastic feed stock has to be a pure color since many of the parts will have unpainted visible surfaces. There are requirements for bite strength (so a two-year old can’t bite off a claw), the parts can’t shatter (causing choking hazards), and the plastic must hold paint durably enough to play outside on rocks and concrete. There are probably additional safety requirements that a toy manufacturer needs to incorporate into the finished product as well. So the plastic may actually be slightly more expensive, maybe $1 in plastic.

Engineered fits are required between the parts so they snap together, articulate, and have mechanisms (this particular dinosaur has a lever that makes the front legs slash and claw at pretend opponents as well as movable thigh and knee joints, two tail joints, a movable head and a jaw joint). The caveman has dual-swivel arms and traditional single swivel legs. These parts require high unit volume injection molding tooling and compensation for shrinkage and flow cooling distortions.

The dinosaur has 15 different molded parts. The caveman has 7 and there are three other loose parts – a dinosaur saddle, a spear and the caveman’s bone armor vest.

The dinosaur is finished with 8 different colors. Some hand painting, some pad printed, some silk screen or mask printed. The caveman has six colors, his saddle has two colors, the spear is made with two colors, while his bone armor is a single unpainted color.

There is a complete assembly process to build the dinosaur designed with snap fits to avoid fastener costs. Functional requirements of the toy prohibit single direction stacking-type assembly processes that can better facilitate automated assembly machines (hind legs and tail require snapping in from their three separate directions).

Then there is the breadth of the product line – currently over 50 different main products (all in the $10-$15 retail price range) and a few under $3 and $15+ kits. Very few of the products seem to share parts (T-Rex and Triceritops dinosaurs do not resemble each other enough to assist in sharing details). The likely production run for any particular part might last three to five years before being discontinued or replaced. Some probably appear and vanish over the holiday buying spree.

So with approximately 25 parts in this example $5 toy set the manufacturer is averaging around $0.20 revenue for each part, not including packaging. Or $0.15 if the cost of plastic is removed. That’s covering all the tooling amortization (25 different tools per finished retail part number), plant and facilities, production workers, engineering, marketing, and management pay, debt recovery, and some sort of profit for the investors.

Maybe there is a reason all those dinosaur toys look so angry?

Then again, these toy manufacturers are in a competitive market that are building the skills that will enable them to enter automotive. At least that is the historical progression. So next time you are lamenting the cost of your automotive parts or trying to engineer an elegant solution to your HVAC or engine or interior problem take a break and tour the toy store isles. You might find a useful idea, a good benchmarking example (might be hard to pass through an expense account!) or at least a new manufacturer to add to your quote sourcing solicitations.

Cheers.

For those of you still locked in Windows operating systems, you should do an experiment – go to www.distrowatch.org and take a look at the number of open source operating systems available. If you’re willing to experiment, try out any distributions that offer a “live-CD”. Downloading and burning one of these files to a CD will allow you to try out the software using your CD as an effective “hard drive” (the live-CDs do not install to your hard drive so you can remove the CD when you’re done and reboot back to your old system). Some people have disabled booting from the CD in their computer, so you may need to make that change (press F2, Del, F10 key depending on computer manufacturer during initial boot and change drive seek/boot order). Do keep in mind you will notice some performance lags running from the CD that you wouldn’t have from a regular Hard Drive installation.

If you select a version of Linux that offers Open Office, you can compare the open source productivity suite to Microsoft Office. You can read and save in “.doc”, “.ppt”, and “.xls” formats so you can share your documents with co-workers. I would suggest trying out “Kubuntu” as a starting point (some distributions can be too finely targeted for a general user), www.kubuntu.org. If you use a re-writeable CD you can try out several different varieties and avoid the “coaster” problem if you don’t like a particular flavor.

What does this mean for business productivity? A lot! Small startup firms can get underway with very little capital. I’ve tested a small installation that allows a mini call-center (or marketing, finance, or shipping group) to run on ten year old “scrounged from friends” 486 and Pentium I’s. Recently, I came close to starting up a small manufacturing company myself and would have run the entire plant for the cost of some ethernet cables, a couple of inexpensive network hubs, and a shipping label printer. Larger companies can retrofit their workforce with similar systems instead of “upgrading every three years”. One study I looked at, buying new equipment for traditional vs open source options like the above installation (and rather than starting with re-using existing assets), cut the Information Technology (IT) hardware and software expenditures by 70% – something to make any CFO or CEO or investor take notice.

Is open source coming to your neighborhood? Check out the chart on this link: (Firefox)
Most of these users are running Firefox under Windows (baby-steps are ok), but you can see the market cross-over point has been passed. If your company is on the medium to large size, you are probably already running open source operating systems on the “backroom” IT tasks like email servers, routers, file storage servers, and so on – and most non-IT employees don’t even realize it (except for the fabulous up time those devices and users enjoy under open source Linux).

Drop me a line if you’re interested in more details on open source – or have had your own success with an open source installation (click on the link in the “about” section at the top right of this page). In case you’re interested: my consulting web site, this Blog & updates, and all my daily computing needs are met running open source software. I switched after getting really tired of daily Windows lock-up events and the “blue screen of death” (including losing work since my last file save). Then when re-booting, Windows thumbs its nose at me and says I should be more careful and properly exit when I shut down my computer!

Microsoft will certainly improve its software offerings, and will need to with the growing Linux community and especially now that Apple computer is building with Intel CPUs. We’ll see how they do.

Cheers!

Don’t be too quick to run to China. Normal economic forces are at work in the massive country (China decline). Leading ‘canaries’ are the textile companies cited in the article. Computer and related technology companies will make the move to be followed shortly by the automotive and other heavy industries.

Taking a break with some Mexican white collar employees at a Mexico City automotive parts supplier in the late 1990′s revealed how concerned they were with India. This was an interesting conversation since, at that time, the noise in the US was still on Mexico taking US jobs (China was on the horizon but not really leveraged like it is today). The common mythical valuation by workers was that moving US jobs to Mexico was 1/10th the cost while these workers believed India was 1/10th the cost of doing equivalent activities in Mexico (they also pointed out that India had nearly the same climate they had). India also has the advantage of speaking “The Queen’s English”, encouraging the fascination for putting call centers there (Dell computer corporation made a recent announcement to expand their call centers there, again). Then, the last time I checked out the US Census Bureau statistics, India was projected to surpass China in total population by 2015. A few forward thinking companies have mostly bypassed the China market and have headed toward India – but that should be a separate post.

Chasing the lowest labor cost around the world involves significant investments (management travel, factory construction, equipment sourcing and setup/debug, infrastructure surprises, and so on). Setting up new shipping routes. Training everyone. Sleepless nights worrying if the far-flung colonies are working smoothly and won’t revolt (with a “Boston Tea Party”). Then in less than ten years to “pull up the tent stakes” and move to another country – and later repeat. Sure, you recognize the risks and expense in following the herd, but can you compete any other way?

What if you stay here (in the US)? It’s not as glamorous as spending weeks away from your family, nor taking twelve to eighteen hour flights and living in taxi cabs, but there are benefits.

European corporations have realized the US can be a cheap labor pool. Toyota has realized the US can be an inexpensive labor pool – they are continuing to build US assembly plants, and have a technical center in Ann Arbor, Michigan and a design studio in California. Granted it’s easier and lower cost to assemble parts shipped in bulk from off-shore in tightly bundled packages compared to “shipping air” in finished automobiles. And while there may be some political advantage of higher “value added” actions in assembling in the US, a significant portion of Toyota’s end sales do happen here.

The US is frequently the final destination for a lot of consumer products. Rather than having a 45 to 90 day inventory risk (what’s the cost of a defect found at the store when 90 days of product sit between the store and the manufacturing plant that then corrects the problem?). If the plant were in the US there might only be a few semi-trailers of material that needs to be quickly rerouted and replaced.

There is generally an educated workforce, that if rightly motivated, can produce astounding savings. Costs can be removed from any process and effort can be reduced on current products to enable the existing workforce to increase sales productive capacity. How fast do your profits go up if you can spread existing fixed costs over 50% more sales? Once you subtract raw material expenses there will be a good amount dropping to the bottom line.

A quick example: An oil baron in the late 1800s took a tour through his oil packaging plant. There was a station that soldered the lid onto the oil can with something like 5 drops of solder. He stopped to watch the worker and the machine for several minutes. He then suggested to the worker to back off on the number of drops until the can leaked. After some iterations (some unsuccessful) the change resulted in a 40% reduction in solder usage.

Another example: An automotive bumper assembly (brackets, fascia, support structures) had around thirty fasteners. Five workers were needed to place parts and operate the screw guns to build this sub-assembly. Moving this work to Mexico/China/etc seemed to make good sense; until an enterprising engineering team figured out how to reduce component count to the point where there were less than six fasteners. Now one worker could do the activities of five (and with less effort than any of the individual five were expending before). Excited, the engineers thought they might even have a few concepts to make further improvements. The other four workers helped back-fill a couple of retirements and ease bottlenecks elsewhere in the plant – allowing the plant to produce more vehicles and support more sales, which is the only real way toward long term job security.

A final, and reverse, example that you may have experiencee at home – especially if you have recently had children under the age of five: Many plastic toys shipped in “from China”, or other low-labor countries, have several dozen wire ties wrapped around them and twisted up tight to the packaging. Excited kids can’t play with their new gift until a handy adult finds a pair of pliers to unwind the spidery mess (and what is the choking hazard from these wires and the plastic blocks used with them?). Are the toys wired in the boxes to prevent theft at the store, to prevent the contents from shifting during transit, or for some other dastardly evil conspiracy? A lot of labor goes into that tie-down wiring project – excessive costs for the manufacturer and lost time and nerves for the parents. I expect the main reason is to ensure the toys do not migrate during shipping, but there are better “fastener” options. Maybe a reader knows the root cause and can share some background here.

Cheers!

Over at Fast Company they discussed a store that publicly destroys products that they were unable to sell in an attempt at maintaining brand exclusivity (Terminal Discounting). There are some serious flaws with their public display of destruction and I offered some better alternatives to the retail operators in the comments section of the article.

Many stores suffer from the same problem. The (unnamed) national store in the article should really investigate Six-Sigma techniques (otherwise known as a data driven root cause and decision process) in determining the product offering mis-cues that resulted in the need to discard merchandise. Insufficient pre-testing of new fashions (“we think the color this year is Yellow…Oops, it’s Green and we have a warehouse full of Yellow”) or mis-allocation (cowboy hats in Maine and snowblowers in Texas) or a supply-chain that is so long and convoluted it takes months for store signals (“we need Green”) to reach the manufacturing supplier (“ok we changed colors in the spray booth”) and then to clear out the in-process inventory scattered across the world in ships, warehouses, and retail stores.

Many retail stores find themselves in the awful quandary of shortages/stock-outs of key goods and stockpiles of unwanted merchandise. Which is, of course, the typical symptom of an ailing delivery system that can be improved with Lean/Agile production concepts. The simple solution is what one general from the ancient world told his lieutenants to “get ground truth”. Go to the individual stores and see what the customers are actually buying and demanding, then build a “production” process from raw materials through retail to the customer to deliver those products as fast as possible with minimal inventory along the way. Simple to say, complex in concept, but very possible to implement.

And it doesn’t matter if you’re selling cars, computers, clothes, or housewares. You’re providing a service in transforming raw materials into finished end-products that a consumer can take home and improve their lives. Do some serious thinking and avoid smashing the glassware.

Cheers!