QuickREAD

December 20, 2006

Chinese Government Hopes to Jump-start Outsourcing Industry in 10 Cities
The Chinese government has earmarked 10 cities in the country for development as major outsourcing centers in a bid to capture a greater share of the tech work that Western multinationals are farming out to India and other low-cost destinations, the official Chinese news agency Xinhua reports.
The government wants to quadruple its outsourcing exports by 2010. China's revenue from such sales stands at about $900m-- less than the annual sales posted by a number of individual Indian outsourcing companies. China is hoping this latest initiative will change that.
Unlike India, which has seen the rise of billion-dollar outsourcing vendors like Infosys and TCS, China's outsourcing industry remains highly fragmented. Meanwhile, Indian vendors are themselves eyeing the People's Republic as a site for expansion in order to offset rising wages and a tight labor market in India.
Source: Information Week, http://www.informationweek.com

Dubai Ports World Sells Its U.S. Sites to Insurance Company
Dubai Ports World is selling the six U.S. port operations it acquired as a result of its acquisition of UK's Peninsular & Oriental Steam Navigation Company (P&O) in February of this year to insurance giant AIG.
That acquisition of course generated a firestorm of criticism and concern over the prospects of a company based in the Middle East having control of U.S. port operations, due to security and terrorism worries.
The U.S. House of Representatives quickly voted to block the deal, and World Ports agreed it would dispose of the U.S. assets, which include ports at New York, New Jersey, Baltimore, New Orleans, Miami and Philadelphia, and smaller operations at 16 other U.S. ports.
Why is AIG interested in running ports? The company said its AIG Global Investment Group has a track record of investments in various infrastructure businesses, including power, waste and water operations. Port operations are a new avenue for infrastructure investment. With global trade expansion, port operations should continue to be a growth business, and a deep-pocket company like AIG should be capable of funding the billions needed in automation and infrastructure improvement.
Source: Supply Chain Digest, http://scdigest.com

For Retailers, Aftermarket Services Means Never Having to Say Goodbye to Customers?
Many retail executives look to extended warranties for profits. Becoming popular several years ago, the practice is highly profitable, but often perceived as a scam by skeptical buyers. But some leading companies are finding similar value while also increasing customer intimacy through aftermarket services.
This season, when you purchase your 50" Plasma, who will install it and turn it into a home theater? When you want to lay a plush carpet in that theater, which installer will you call? Rather than turning to the yellow pages, major retail brands are offering solutions. And they're doing so profitably.
Best Buy and Circuit City, Home Depot, and Lowe's are just a sampling. In fact, John Thompson, senior vice president and general manager at Best Buy, says more than 50 percent of the company's revenue will be generated from services in the future. While last quarter installation, service, and warranty profit for the company was below expectations, it is using product purchases to trigger additional service revenue opportunity.
Source: AMR Research, http://amrresearch.com

For Independent Electronics Parts Suppliers, Today It's More About Supply Chain Processes than Shortages
Ten years ago, most electronics buyers would buy parts from nonfranchised independent distributors only when components were in short supply. Today, buyers are more apt to use the independent channel to purchase parts on a regular basis providing the components are competitively priced.
What has changed? For one thing, there have been no long-term shortages since 2000. Periodically, parts go into short supply, but suppliers add capacity and the shortage ends. To compete, many major independent distributors have changed their business models and offer some of the same services that franchised distributors do, such as inventory programs and flexible payment terms. Some have value-added services such as kitting and tape and reeling.
Many independents have successfully developed long-term relationships with OEMs and electronics manufacturing services providers (EMS) and become qualified suppliers to those companies. Some independent distributors have found new customers because of the Restriction of Hazardous Substances law (RoHS). The law bans the use of lead and five other substances from being used in electronics equipment sold in Europe. It went into effect July 1.
Many buyers have looked to independents both for information about RoHS and to purchase compliant parts. In addition, some purchasers are still buying noncompliant parts and are using independents as a source."There's no doubt, the business has changed," says Frank Cavallaro, CEO of Converge in Peabody, Mass. "There is less emphasis on the traditional shortage business and more interest in supply chain solutions development. Yes, there is a shortage business, but it is a niche. It's not the same business it was 10 years ago."
Source: Purchasing, http://www.purchasing.com

Airfreight Growth in Latin America Market Hasn't Kept Pace with Predictions
After fighting for market share in the 1990s amid forecasts of growing economies, several airfreight carriers now are content to keep their capacity between the U.S. and points south of the U.S. border as is. Instead, cargo airlines are sending their largest additional capacity to other parts of the world.
Air cargo operating capacity in Latin America rose 1.2 percent during the first nine months of 2006 over the same period in 2005, the slowest pace in the world, according to the International Air Transport Association. Comparable IATA data for the nine-month period shows cargo capacity grew from 3.5 percent in Europe to 12.6 percent in the Middle East, with Africa, Asia-Pacific and North America bunched in-between.
Source: Air Cargo World, http://aircargoworld.com

U.S. Manufacturers Maintain Productivity Advantage for 25 Years, And It's a Good Thing, Too
Over the past 25 years, even while coping with an unprecedented pace of change, U.S. manufacturers have managed to maintain at least one constant: a solid, unbroken track record of productivity improvement. Vertically integrated enterprises have given way to virtual networks capable of taking advantage of trends such as cheap offshore production. Long, steady production runs have changed to short, demand-driven production bursts. Manageable bills of materials and product catalogs have exploded as the number of products and features has skyrocketed. Yet, through it all, U.S. manufacturers have remained at or near the top in driving productivity, at least as measured in the traditional terms of output per worker hour.
And it's a good thing, too. Without the breakthrough productivity gains that they have achieved in recent years, many U.S. manufacturers would not have been able to overcome an avalanche of rising costs for everything from raw materials to energy. Nor would U.S. consumers have enjoyed the steady supply of low-cost manufactured goods that has played a major role in stimulating economic growth.
Source: Managing Automation, http://www.managingautomation.com

On-Target Forecasting Is Indispensable to Successful Businesses, But It Isn't Enough
Accurate forecasting always has been a critical organizational capability for effective business planning. Good forecasts are essential for identifying new market opportunities, anticipating future demands, effectively scheduling production, and reducing inventories.
Over the past few years, however, the role of forecasting has become especially significant due to more competitive market pressures. Information technology has enabled forecasts to drive entire supply chains and enterprise resources planning systems. Simultaneously, global competition has created an environment characterized by uncertainty, rapidly shifting markets, and compressed cycle times. Customers are demanding increasingly shorter response times, improved quality, and greater product choice. The result has been a sharp rise in forecasting's complexity and historical data that are often of limited value for predicting the future.
But relying on statistical forecasts alone can be ineffective in this highly complex environment.
Source: APICS, http://www.apics.org

Product Lifecycle Management Increasingly Called on to Counter Complexity
The growing ubiquity of product lifecycle management (PLM) applications in manufacturing signifies more than management reaching for incremental improvement. It reflects the emerging challenges of a developing business globalism defined by increasing complexity. PLM offers an enterprise solution to deal with growth and acquisitions and the accompanying increase in plant sites, products, processes and regulatory requirements. By facilitating a response to those challenges, PLM is more quickly satisfying customers.
Originally adopted by automotive and aerospace manufacturers, product lifecycle management solutions have become a performance necessity across all of industry. The key incentives: the need to become more collaborative, integrated, adaptive, flexible and responsive.
Source: Industry Week, http://industryweek.com

Globalization, Outsourcing Spur Market Demand for Supplier Relationship Management Applications
The increased demand for supplier relationship management (SRM) applications will be predominantly driven by the continued proliferation of globalization and outsourcing. The worldwide market for supplier relationship management is expected to grow at a compounded annual growth rate of 8.2 percent over the next five years. The market was $1.56bn in 2006 and is forecasted to be over $2.3bn in 2011, according to a new ARC Advisory Group study, "Supplier Relationship Management Worldwide Outlook: Market Forecast and Analysis Through 2011."
The SRM market has experienced substantial M&A activity and is currently occupied by four major categories of vendors: ERP vendors offering SRM functionality, SRM suite vendors, point-solution providers, and PLM providers offering SRM functionality."Point-solution vendors have merged resulting in a smaller number of providers offering integrated suites of supplier relationship management, or 'spend management', solutions. In addition, product lifecycle management solution providers have recently begun offering SRM solutions integrated with their PLM solutions," according to Clint Reiser, analyst for supply chain management at ARC Advisory Group and the principal author of the study.
Source: ARC Advisory Group, http://arcweb.com

IBM Targets Pharmaceutical Industry with RFID Tracking, Data Analysis Technology
IBM has introduced new RFID technology aimed at the pharmaceutical industry that it says not only provides better tracking information but also offers users more flexibility in analyzing the data that it generates.
WebSphere RFID Information Center, essentially a data-gathering and repository application, is based on the EPCglobal standard called "EPCIS." The system captures, manages and shares RFID, sensor and 2D barcode "events" across the enterprise.
The data can also be shared with external organizations such as customers, suppliers and government agencies, which is integral to the business plan the application supports.
Its Shipment Verification capability automates the tracking and confirmation of receipts. Other possible uses, depending on configuration, include diversion-tracking, inventory management, targeted recalls and regulatory compliance.
WebSphere RFID Information Center can integrate with other master data repositories in order to put the RFID-generated information into better context, according to IBM. Also, a company could develop new applications on the sensor network repositories that are linked to master data.
Source: E-Commerce Times, http://ecommercetimes.com

For Manufacturers, There's No One-Size-Fits-All Answer in Automation vs. Outsourcing Debate
Manufacturers typically turn to automation to lower costs, increase yields, decrease cycle times, improve product quality and uniformity, and gain competitiveness. Because short product lifecycles are the rule rather than the exception today, most companies want high-speed assembly machines, conveyors, feeders, robots, vision systems and other types of automation that is flexible. Reusable and reconfigurable automation benefits manufacturers because the equipment can be used for more than one product line or more than one assembly process.
Any type of automation project must be competitive in price, provide a positive return on investment and be delivered on time. However, manufacturers are demanding more value from automation equipment today, because they are under intense pressure to compete and control production costs.
As product lifecycles get shorter and shorter, it makes it less practical for some companies to build proprietary assembly lines. Outsourcing production to a third-party contract manufacturer allows original equipment manufacturers to dramatically cut their fixed costs, while freeing up cash to invest in strategic initiatives, such as new product development or marketing. It also lets a company reduce labor costs by shrinking its direct work force.
Most companies that outsource production usually realize better financial ratios, improved cost of goods sold and faster time to market. By limiting their financial risks, manufacturers can derive an immediate cost savings of anywhere from 10 percent to 15 percent.
Unfortunately, there's no one-size-fits-all "best answer" to the automation vs. outsourcing question. Indeed, the ultimate decision depends on many different factors, including intangibles such as consumer demand, management style, corporate culture and shareholder pressure.
Source: Assembly, http://www.assemblymag.com

It's Really Simple: RSS Feeds to Become Chief Means for Employees to Get Company Information
RSS (really simple syndication) is a favored XML format for individuals to get information from sources such as news sites and blogs. In fact, a recent Pew Internet Foundation survey found nearly one in three individuals consumes RSS feeds. But for enterprises, the most telling response was that 63 percent of these RSS users subscribe to work-related feeds managers. After all, RSS readers are easy to install and use. This technology does a fine job helping workers cut through irrelevant information that floods portals, enterprise search results, and e-mail. But as RSS's popularity rises, so do risks. For example, precious network bandwidth is consumed when many employees update the same feed. Plus, there are security risks associated with accessing inappropriate feeds.
To get around these issues and give more employees the benefit of RSS, organizations are adopting enterprise RSS solutions.
Source: CRM Daily, http://www.crm-daily.com

Microsoft Says Its Aura Application Can Deliver Real-Time Info on Consumer Products to Mobile Devices
Technologists have long dreamed of using the internet to send data about consumer products to shoppers in real time, wherever they happen to be. Researchers at Microsoft Corp. claim they're getting closer to making that happen.
Now, Microsoft says, people who have phones and other portable devices that run the company's Windows Mobile operating system can download a free Microsoft application known as Aura. It stands for Advanced User Resource Annotation and is designed to connect shoppers on the go to a world of information about products.
People with an Aura-enabled device would use its digital camera to snap the barcode on a product. Aura then would deliver several links and search results about the item to the handheld computer. A consumer might learn whether the same product is available for a lower price elsewhere, for example, or whether the item was manufactured in a country with controversial labor practices.
Source: CIO Today, http://www.cio-today.com

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2007 Supply Chain Management Resource Guide & Executive Yearbook
The annual complete source of industry suppliers of solutions, systems and services, industry conferences, exhibitions, seminars and executive education programs.
And some of the most respected SCM research organizations and analysts take a look at the past year's developments and suggest what to look for in 2007.

In the January 2007 issue of Global Logistics & Supply Chain Strategies magazine.