Amazing Forbes article on manufacturing: "Why Amazon Can't Make A Kindle In the USA"

[randomrogue]

Good point. Considering that the average CEO of a S/P 500 company makes about $11.5 million a year...

Conclusion is that they are greedy with no foresight. Yet we still all go to Walmart rather than the corner drug store.

 

[nonlnear]

If he's not arguing for protectionism, then he's even stupider for thinking GAAP has any effect on management decisions. I am a financial officer of a tech company - we quite frankly (and neither to analysts) could give a rat's ass about GAAP.

That's good to hear. How large is it, and what is the ownership structure like?

I suspect there's a fairly large number of companies that have tossed GAAP as a way to measure internal successes, but then business management consulting is an industry that's really built on preaching to the choir, and trying to find an angle to sell forty year old ideas as fresh meat.

 

[sonambulo]

Excellent article. Thanks for posting, yllus!

edit: Just wanted to point out that I am a budding toy micro-manufacturer. I guess a more apt term would be hobby toymaker Anyways it is truly bizarre seeing how many processes for toy manufacture were discovered, refined and shipped off to overseas and now have to be 're-invented' in America by other hobby toy makers. Surely this type of phenomenon extends beyond the tech sector.

 

[ProfJohn]

Looking at our stagnant wages and crumbling foundation (jobs for lower middle and lower classes) and an employment situation that looks like shit,

And yet government spending is at an all time high.

Part of the problem is that we have created a huge social welfare system that sucks money from productive people and gives it to non-productive people.

Imagine if we cut all social spending programs by 10% and poured that money into infrastructure. What would doubling the money spent on infrastructure do to our highway system?

What about doubling the amount of money spent on government tech research?

What if we restructured our education system and started moving poorer performing students into skills based programs so they could at least graduate with a life skill that might allow them to do something other than stand on a street corner for the rest of their lives.

There is a ton of stuff we could do, but first we have to change our way of thinking in so many ways.

 

[Phokus]

Good point. Considering that the average CEO of a S/P 500 company makes about $11.5 million a year...

Conclusion is that they are greedy with no foresight. Yet we still all go to Walmart rather than the corner drug store.

With publicly traded companies, there's no real incentive to do long term planning. Short term profits beat everything else.

If you were a CEO and you had a golden parachute, you would damn well do risky things to drive up profits in the short run, that's how incentives are aligned.

 

[1prophet]

I see things like this as the natural result of how corporate economics work. The goal isn't to employ people, or have long term success. The goal of any corporation is to make as much money as possible for the investors, in shorter and shorter time periods as the years go by. It very much seems like companies are only focused quarter to quarter now.

There's nothing really "wrong" about this, but it should serve as a reminder to people who work for a living that corporations are absolutely not on your side...either the ones that employ you or the ones you buy from.

Of course there is something wrong with this, the majority have been brainwashed with relative morality,short term profits mean everything, ends justify the means, that is why this happening.

Todays corporations are a lot like the person who feeds his head because that is most important while ignoring the rest of his body until it starts to atrophy or get sick, by the time he realizes how much further he would have gotten if he took care of the rest of his members that supported his head it will be too late.

 

[bfdd]

thanks for the read. So pretty much accounting is bullshit?

 

[HendrixFan]

And yet government spending is at an all time high.

Part of the problem is that we have created a huge social welfare system that sucks money from productive people and gives it to non-productive people.

Imagine if we cut all social spending programs by 10% and poured that money into infrastructure. What would doubling the money spent on infrastructure do to our highway system?

What about doubling the amount of money spent on government tech research?

What if we restructured our education system and started moving poorer performing students into skills based programs so they could at least graduate with a life skill that might allow them to do something other than stand on a street corner for the rest of their lives.

There is a ton of stuff we could do, but first we have to change our way of thinking in so many ways.

Wrong thread for your silly ideas. Make a new one to get owned in please, just like your teacher thread and countless others like it before.

 

[Throckmorton]

And yet government spending is at an all time high.

Part of the problem is that we have created a huge social welfare system that sucks money from productive people and gives it to non-productive people.

Imagine if we cut all social spending programs by 10% and poured that money into infrastructure. What would doubling the money spent on infrastructure do to our highway system?

What about doubling the amount of money spent on government tech research?

What if we restructured our education system and started moving poorer performing students into skills based programs so they could at least graduate with a life skill that might allow them to do something other than stand on a street corner for the rest of their lives.

There is a ton of stuff we could do, but first we have to change our way of thinking in so many ways.

Apparently the subject of this whole thread went over your head.


There are no jobs to train kids for. The jobs have been exported by the glorious capitalists you worship.

 

[Fern]

However the next time, ASUSTeK came back, it wasn’t to talk to Dell. It was to talk to Best Buy and other retailers to tell them that they could offer them their own brand or any brand PC for 20% lower cost. As The Innovator’s Prescription concludes:

Bingo. One company gone, another has taken its place. There’s no stupidity in the story. The managers in both companies did exactly what business school professors and the best management consultants would tell them to do—improve profitability by focuson on those activities that are profitable and by getting out of activities that are less profitable.

I cannot agree with the basic premise here (or one of them) - that this situation is acceptable according to business theory. It simple is not.

While I was working at one of the largest multinational CPA firms (The Big Four, or whatever they may be today) some of us were sent to classes taught by Harvard University business professors.

One such class was regarding 'Business Competition'. Business competition is not limited to those making similar products. Indeed some of your most dangerous competition are your customers or suppliers.

E.g., While I was working in Paris/France, Walt Disney expanded in to the European market and built Euro-Disney. They would approach what I consider medium sized companies to purchase their products to build and equip the Euro-Disney facility. These French companies were happy to compete for, and win big sales contracts to the Disney company. Many were nearly crushed. Take for instance the case of a manufacturer of paper towel dispensers for restrooms etc. After purchasing tons of materials, paying for overtime etc to complete the job etc., Disney came back and refused to pay. Disney made the (dubious) claim that the dispensers did not exactly meet the agreed upon specs. That manufacturer had few choices, none of which were very good:

1. Take back your product. With their Lines of Credit maxed out incurring the costs to manufacture the products and no other purchasers around this option meant bankruptcy.

2. Sue Disney. See above. Disney could keep you in court so long you'd be bankrupt before getting to the end of it. Plus, where would they get the money to hire the lawyers? Disney was huge and had a bunch of lawyers on staff, no problem for them.

3. Agree to sell at a much reduced sales price meaning no profit etc. They chose this option, by doing so they could pretty much pay-off their L.O.C. and live to see another day.

Now, this is a particularly egregious example, but serves to highlight how a disproportionately large customer has great leverage over you, and they will use it if you allow yourself to get into in that situation. Usually it's from greed for the extra profit the big new contracts promise.

Similarly, the ASUSTeK/Dell story in the OP is a case of your supplier being your competition.

I took that class, and personally watched the Disney story unfold, over 20 yrs ago. If I've known this stuff for over 20 yrs, you better believe many others do to.

Dell made an obvious and basic business screw-up. Perhaps they were forced into by other bad circumstances, but they should've seen this possibility.

Fern

 

[Fern]

If you read some of his other work, Denning doesn't seem to be arguing for protectionism at all. He's against the bad structural management incentives put in place by GAAP, and other regulatory and B-school norms which most people see as too mundane to matter.

GAAP does NOT put "structural management incentives" in place, whether bad or not.

Accounting in general is primarily an informational tool. GAAP more specifically is a system mandating comparability and consistency in the accounting information.

Structural management incentives, while employing accounting info if they choose, are models chosen or designed by management itself; often at the BoD or Senior Exec level to help obtain the objectives they have chosen.

Fern

 

[Fern]

With publicly traded companies, there's no real incentive to do long term planning. Short term profits beat everything else.

If you were a CEO and you had a golden parachute, you would damn well do risky things to drive up profits in the short run, that's how incentives are aligned.

Be careful here.

The great bulk of senior execs' compensation comes from stock; Incentive Stock Options in particular. Depending on how the ISO program is designed, you must hold that stock for more than 2 years at a minimum. Most plans I've seen require a minimum of at least 3 yrs, many 5 yrs.

So these execs are greatly interested in the longer term. If the stock doesn't increase substantially over a period of at least 3 yrs they get basically zip from the options.

Fern

 

[SandEagle]

If he's not arguing for protectionism, then he's even stupider for thinking GAAP has any effect on management decisions. I am a financial officer of a tech company - we quite frankly (and neither to analysts) could give a rat's ass about GAAP.

being a cashier at Best Buy does not make you a finance guru

 

[Fern]

I can see where you're coming from, but I think you overlook another truth: Dell is necessarily in the business of product innovation because they are a competitor to a company does innovate (Apple). Simultaneously, they also compete against the non-innovative copy cats (Asus* and a slew of other lesser known names). They can certainly choose to take the middle road between the two, but I'd have to wonder what their value proposition then is: Our products aren't as sleek and cool as Apple's, but they're not as drab and last-gen as Asus's? That doesn't sound especially compelling, but maybe it works.
-snip-

In most industries, you'll find any number of companies with competing products. Typically it's done on a value/price point basis.

I've seen a great case study explaining this on the tool manufacturing industry, but can't find it now.

E.g., for tool manufactures such as drills, you will find all kinds of drills at different price point with (slightly) varying features. You'll have Black & Decker for homeowners who infrequently use it, all the way to an expensive Makita used daily by a pro (and of course many in between).

Dell needed to figure out their niche (e.g., cheaper workstations purchased by biz for employees) and fight to protect it.

Fern

 

[Phokus]

Be careful here.

The great bulk of senior execs' compensation comes from stock; Incentive Stock Options in particular. Depending on how the ISO program is designed, you must hold that stock for more than 2 years at a minimum. Most plans I've seen require a minimum of at least 3 yrs, many 5 yrs.

So these execs are greatly interested in the longer term. If the stock doesn't increase substantially over a period of at least 3 yrs they get basically zip from the options.

Fern

2 to 3 years isn't 'long term'. Even 5 years is barely even cutting it.

 

[nonlnear]

GAAP does NOT put "structural management incentives" in place, whether bad or not.

Accounting in general is primarily an informational tool. GAAP more specifically is a system mandating comparability and consistency in the accounting information.

Structural management incentives, while employing accounting info if they choose, are models chosen or designed by management itself; often at the BoD or Senior Exec level to help obtain the objectives they have chosen.

I was doing a poor paraphrase of some of Denning's other articles. He's got a big hard-on against cost accounting, which he contends hobbles a lot of management. I don't really have any opinion on the matter myself.

 

[Zorba]

I took that class, and personally watched the Disney story unfold, over 20 yrs ago. If I've known this stuff for over 20 yrs, you better believe many others do to.

Dell made an obvious and basic business screw-up. Perhaps they were forced into by other bad circumstances, but they should've seen this possibility.

Fern

Yet Boeing still has outsourced almost all the manufacturing and much of the engineering, to many companies that have ambitions of competing with them in the future. Even the ones that wont compete on whole aircraft will compete on spare parts. GE outsourced the final assembly of the CF34A to a Chinese company, wonder how long before they come out with an identical engine. Other larger suppliers for GE have announced plans to build engines themselves, the other create knock off parts and undersell GE.

As the article was pointing out, also, these decisions lead to loosing of engineering ability, which directly makes it harder to innovate in the future.

 

[Fern]

I was doing a poor paraphrase of some of Denning's other articles. He's got a big hard-on against cost accounting, which he contends hobbles a lot of management. I don't really have any opinion on the matter myself.

I've noticed he is a lawyer. If so that explains a lot. No offense to our lawyer friends posting here but in my experience when lawyers stray into speaking about business in general, and accounting specifically they usually haven't a clue. Never seems to stop, or even slow them down.

Cost accounting is an objective tool (of micro-economics) used by management for whatever reason they choose. Sure, it can be used by management to cost-out a product or an element of it. But what management decides to do with that info is their (subjective) decision. Cost accounting does not mandate outsourcing, or anything else for that matter.

His laying the blame for a poor decision at the feet of the tool is stupid IMO. Throwing away the tool won't help management make better decisions.

Fern

 

[Zorba]

His laying the blame for a poor decision at the feet of the tool is stupid IMO. Throwing away the tool won't help management make better decisions.

Fern

Throwing away the tools in management would help make better decisions, though

 

[Rainsford]

Of course there is something wrong with this, the majority have been brainwashed with relative morality,short term profits mean everything, ends justify the means, that is why this happening.

Todays corporations are a lot like the person who feeds his head because that is most important while ignoring the rest of his body until it starts to atrophy or get sick, by the time he realizes how much further he would have gotten if he took care of the rest of his members that supported his head it will be too late.

If people want to be shortsighted and run their companies based on 3 month profit projections, that's their business. The problem isn't that many companies are run by shortsighted, greedy idiots. The problem is that many people view corporations as perfect economic entities that can do no wrong and deserve our unquestioning support.

Many Republicans, for instance, want to move the balance of power more towards corporations and away from individuals and government. That's their plan for economic recovery, based on the idea that corporations want to create as many jobs as possible. And they DO create jobs, sort of. But it's not at all their primary focus. In fact, I suspect most companies would rather create as FEW jobs as possible to maximize their profits.

 

[Rainsford]

I've noticed he is a lawyer. If so that explains a lot. No offense to our lawyer friends posting here but in my experience when lawyers stray into speaking about business in general, and accounting specifically they usually haven't a clue. Never seems to stop, or even slow them down.

Cost accounting is an objective tool (of micro-economics) used by management for whatever reason they choose. Sure, it can be used by management to cost-out a product or an element of it. But what management decides to do with that info is their (subjective) decision. Cost accounting does not mandate outsourcing, or anything else for that matter.

His laying the blame for a poor decision at the feet of the tool is stupid IMO. Throwing away the tool won't help management make better decisions.

Fern

I might be getting a bit off into the tall grass here...but is it worth considering that finance is to business success what telescope purchasing is to astronomy? I was thinking about this topic for much of the afternoon, and I can't help but think that the business world has let the tail wag the dog a bit too much.

The financial and business folks in any organization tend to run the place, but the more I think about it, the more it seems like they really should serve more of a support function than anything...like IT, or facilities. Yes, a business needs financial geniuses and management to be successful...but no business is really about those things any more than it's about its Microsoft Exchange server or HVAC system. Products and services drive businesses, and unless the business in question is a financial services organization, at the end of the day, the real profit making work is done by the people who create (design and manufacture) the products.

I don't mean to disparage accounting or business folks at all. I'm just wondering if what they bring to the table is really what businesses should be exclusively focusing on.

 

[Farang]

ts.

I don't mean to disparage accounting or business folks at all. I'm just wondering if what they bring to the table is really what businesses should be exclusively focusing on.

I think you're spot on.

To bring up Boeing again, the reason Boeing has been successful is because they make a hell of an airplane that companies (and governments) want to buy. The value in Boeing is the airplanes they create.

But the head of the company are businesspeople who see the value of Boeing as being the money the company generates quarterly. Boeing is successful because it generates 1.x dollars per share.

What happens is management is trying to be successful by increasing that 1.x dollars per share, and they're smart and they figure out how to do that. Among their ideas is outsourcing the production of major parts of their next generation airplane.

If we go down this road further, eventually we see that the value in Boeing (creating airplanes that people want to buy) no longer exists. Suddenly Boeing is just a coordinator for companies like Alenia, who create parts of airplanes people want to buy.

Not to belabor the point but I think it is just a great example of the American economy as a whole.

 

[K1052]

Yet Boeing still has outsourced almost all the manufacturing and much of the engineering, to many companies that have ambitions of competing with them in the future. Even the ones that wont compete on whole aircraft will compete on spare parts. GE outsourced the final assembly of the CF34A to a Chinese company, wonder how long before they come out with an identical engine. Other larger suppliers for GE have announced plans to build engines themselves, the other create knock off parts and undersell GE.

As the article was pointing out, also, these decisions lead to loosing of engineering ability, which directly makes it harder to innovate in the future.

Boeing learned some expensive lessons, particularly on the 787, and has bought a number of it's suppliers to bring more under direct company control. They will certainly not make the same mistakes and farm out so much engineering and production as they tried to.

Even Airbus got burned on the A380 from simple differences in design/manufacturing that even varied from European county to country.

 

[Infohawk]

Neither the Republicans or Democrats are really addressing the manufacturing issue. It might seem fine that the Chinese are making all our iphones but when they're making more advanced weapons it won't be so cute anymore.

The North American continent needs to produce its own food and a reasonable amount of its own high technology.

And tariffs are the answer.

 

[Generator]

The reason why Dell is failing and a Kindle can't be made in this country is because of Chinese slave labor morons. IT IS THAT SIMPLE.

Also the article seems to put a halo on Apple. I wonder how many slaves at FoxConn jumped to their death today...