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

[Michael]

I wonder how Denning's conclusions can be trusted when he doesn't even understand GAAP, doesn't understand Cost Accounting, and tosses out something like "through-put accounting" without explaining what is different about it.

He also blasts Dell and lauds Apple over outsourcing when Apple outsources all of their manufacturing. I don't think that Apple has made any of their own hardware for decades and they purchase from the same outsource suppliers that Dell uses for many of their parts.

His main complaint about GAAP is that it values what things cost instead of what their "value" is. That is like complaining that the sun is bright. That is what GAAP does. No one forces any management team to make decisions solely based on cost. I personally think that ignoring cost is the height of stupidity, but overiding cost as the main driver to a decision is fine.

Michael (public company CFO for close to a decade now, and has seen cost accounting fads come and go for years ...)

 

[bfdd]

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...

and at their slave labor wages, they still manage to out save americans on average so explain that?

 

[PrayForDeath]

Tagged. Thanks for sharing

 

[Exterous]

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.

This is what gives me hope. IMO We, as a society, have been to bottom line focused. If the product looks and appears to do the same as another one but costs less we will buy it. As long as it appears similar on the surface and it's easier on the pocket book in the short term, why not? Reliability and Quality are hard for a consumer to see at first glance. Even if it does fail in a year or two, mistakes happen right?

It has taken a lot of 'mistakes' for us, collectively, to realize the hidden costs of unreliable, cheap components and products and be willing to pay higher costs

 

[Macamus Prime]

What’s to be done?

All the folks you listed - they are out to take care of themselves.

Thank you for sharing. But, the people that can make a difference, choose to go with what gets rewarded the most; cost cutting and headcount reduction.

 

[yllus]

I wonder how Denning's conclusions can be trusted when he doesn't even understand GAAP, doesn't understand Cost Accounting, and tosses out something like "through-put accounting" without explaining what is different about it.

He also blasts Dell and lauds Apple over outsourcing when Apple outsources all of their manufacturing. I don't think that Apple has made any of their own hardware for decades and they purchase from the same outsource suppliers that Dell uses for many of their parts.

His main complaint about GAAP is that it values what things cost instead of what their "value" is. That is like complaining that the sun is bright. That is what GAAP does. No one forces any management team to make decisions solely based on cost. I personally think that ignoring cost is the height of stupidity, but overriding cost as the main driver to a decision is fine.

Michael (public company CFO for close to a decade now, and has seen cost accounting fads come and go for years ...)

I don't think Denning is really going after cost accounting as a method. I think we all agree that it's simply a method that leads to a set of information, and what decisions you make armed with that information is all on you. But he is going after the place that cost accounting has taken in management philosophy today. He seems to feel it should be one factor in decision making, not the factor as he feels it's become.

Denning's praise of Apple is reflected praise from the paper he's using as the base of the article, which says that Apple has thus far avoided the supplier-turned-ODM trap by being intimately involved at every step but cautions that it cannot last.

 

[ichy]

I can't help but think of Boeing. They made their business building airplanes, and got into trouble when they decided they'd let others make the planes for them. Why? To cut costs.

It's more complicated than that. Designing a new airliner requires an extraordinarily large amount of capital and R&D investment. A single failure could force a company out of that line of business (look at the Lockheed TriStar, and things have only gotten more expensive since then.) By building parts of the 787 all over the world Boeing was able to spread the risk around with its partners as well as attract a significant amount of support from foreign governments. The Japanese chipped in several billion dollars in grants and subsidized loans since the wings are made in Japan. Unfortunately managing a supply chain that's as complicated as the 787's turned out to be nearly impossible.

 

[Zorba]

It's more complicated than that. Designing a new airliner requires an extraordinarily large amount of capital and R&D investment. A single failure could force a company out of that line of business (look at the Lockheed TriStar, and things have only gotten more expensive since then.) By building parts of the 787 all over the world Boeing was able to spread the risk around with its partners as well as attract a significant amount of support from foreign governments. The Japanese chipped in several billion dollars in grants and subsidized loans since the wings are made in Japan. Unfortunately managing a supply chain that's as complicated as the 787's turned out to be nearly impossible.

That was the idea, but the last numbers I saw said that Boeing thought by outsourcing and having risk sharing partners it was only going to cost them $5B to develope the 787. That number has climbed to over $14B, but they still have to share all their revenue with all these other companies. Companies that are going to use that revenue to grew their business in their best interest, not Boeing's best interest.

 

[piasabird]

When the entire computer industry has been off-shored, how do you implement protectionism? Do you quit importing computer cases and assembled computers? Maybe you could force all computers sold in the USA to be assembled here. You could implement a value added tax on all goods imported. You could use tax incentives if the goods were partially assembed in the USA.

Without protectionism the USA is just sold to the highest bidder. Even banking business is performed outside of the USA. Just look at Bank of America!

 

[BlahBlahYouToo]

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.

the only side ANYBODY is in is their own.
from the CEO at the very top, to the investors, all the way down to the lowly janitor.
i guess that's human nature. nobody cares about the greater good.

 

[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.

It may that I'm much older than you, but I have seen changes over the years in who actually runs a business.

While I was in college, most CEO's etc were from the accounting field. Prior to that it had been engineers. While there were always exceptions, for some reason there seemed a general trend in preferring one (business) field over others.

The last time I noticed, it was those out of the marketing field who were running things. IMO, they made a mess out of it. As marketers are inclined, they hyped stuff and ended up in trouble (lying to shareholders etc).

I haven't been paying sufficient attention which, if any, business field is mostly running stuff now, but if it's accounting/finance then I suppose we're seeing a cycle.

Note: I'm not saying they (businesses) just hired an engineer or marketing person directly as CEO. It was that as people rose through the corporate ranks it tended to more of those of one particular area (accounting, marketing etc) that rose to top.

These days things are much more complicated than they were (what's new?), so I think anybody at the top better be extremely cross trained, as well as have a bunch of knowledgeable staff from all sorts of fields. I make no claims that the top execs should come from the accounting area, but I will say anybody at the top better be damn well informed in accounting. That's where a great amount of your business info comes from. They say a picture is worth a thousand words, well then a financial statement is worth a million. It's a highly condensed form of information.

Sometimes I find it interesting to think of the different personality types these business areas tend to have and the effect it may have on businesses. E.g., in general accounting types are conservative and cautious, marketing types pretty much the opposite. Does that difference in the leader influence a businesses' culture? I think it does.

Fern

 

[JeffreyLebowski]

These are a couple of the worst articles I've ever read. Not surprising that he's 1) an old fart and 2) a lawyer who thinks you can change global macroeconomics with laws/protectionism.

The ultimate fallacy in the article is that he says the governmental programs like NASA and DARPA, ect can help spur the economy. Uhh, No they can't when agencies like OSHA, the EPA, FCC, NRC, and on and on and on, make up rules on the fly and hamstring businesses from being able to manufacture or dispose of anything.

Can't build that factory here because it will cause to much pollution. Or you can build it, but it will cost you 5x what it would normally cost to come into compliance with our un-needed, un proven "safety" and "health" requirements.
The answer is simple. Make the product somewhere else that is cheaper.

The article is also flawed by stating Apple doesn't fall into this group? What the hell do you think Foxconn is? It makes all of Apple's stuff, thye used to make Dells stuff. Whoopdie doo. Apple has some designers here in America. The 100 or so people there doing design are nowhere near enoguh to make any kind of dent or even blimp in statistics.

 

[Atreus21]

It's all about cost, isn't it. What's the cheapest way to get the work done. Contract it out and/or offshore it or hire younger less expensive workers who will put in 16 hour days. Oh, and get rid of all those lazy older workers that don't want to work the offshift and who make more money because they have been around a long time.

If you walk into a store and see two identical products at different prices, do you choose the cheaper one or the more expensive one?

 

[werepossum]

I found this article incredibly interesting because it illustrates how a series of seemingly reasonable business decisions can be made by North American corporations that ultimately lead to entire industries being moved offshore. Even better, it talks about repair measures we can take, starting with a shift in our way of thinking at every decision-making level.

SNIP

Several excellent articles, thanks! I spent my lunch hour reading these and the linked articles. I completely agree with the articles, and to me it's been self-evident since the 80s where outsourcing was leading both to our economy and to our political arena.

People advocating spending more government money on high-tech research are missing the boat, in my opinion. The difficulty in making products from break-throughs always lies in the difficulties of economically mass-producing the product or materials. Without the attendant manufacturing and process engineering expertise, the people who will capitalize on the new high tech research won't be us.

 

[zinfamous]

they mention GE as the big example of electric cars dependent on offshore labor and companies to manufacture their batteries.

is it that Lithium-Ion are only manufactured offshore? IIRC, Tesla has their own battery system, and they are manufactured in the US and UK, correct?

or do they still have to get the LiI cells from offshore?

if not, then why would the article ignore one of those (hopeful) brightspots in nascent home-grown engineering?

 

[sactoking]

Didn't read most of the thread, just the OP, so not sure if this has been said or not:

It seems like the article is intentionally or inadvertently demonizing cost accounting and accountants. That would be misplaced angst, if true. In the Dell example, Dell kept outsourcing arms that were not in it's "core competency". Dell's "core competency" from the day it was founded was logistics, not manufacturing. At least, that's what we were lead to believe. Turns out that once Dell had divested all its non-core responsibilities, it wasn't actually very good at logistics, its alleged "core competency".

That, I think, is the real moral of the story here: US companies are increasingly not competitive at anything. Used to be the US lead the world in design, management, manufacturing, etc. Then the manufacturing was offshored because we really only specialized in design and management. Then the design was offshored because we really only were good at management. Now, with globalization and increasing international business education, we're really not that special at anything. US companies have no inherent national "core competencies" anymore. Successful companies like Apple succeed not because of design or logistics but because they put a legal stranglehold on their proprietary knowledge.

Most US managers/executives are too old and slow to react to globalization; they're too caught up in the notion that the US is inherently better than everyone else at everything. The successful US companies of tomorrow will be the ones with young/dynamic leaders that get that they will have to fight tooth and nail for everything, nothing should be given away, and there is always someone out there who can do what you do better and cheaper.

 

[Throckmorton]

The ultimate fallacy in the article is that he says the governmental programs like NASA and DARPA, ect can help spur the economy. Uhh, No they can't when agencies like OSHA, the EPA, FCC, NRC, and on and on and on, make up rules on the fly and hamstring businesses from being able to manufacture or dispose of anything.

Can't build that factory here because it will cause to much pollution. Or you can build it, but it will cost you 5x what it would normally cost to come into compliance with our un-needed, un proven "safety" and "health" requirements.
The answer is simple. Make the product somewhere else that is cheaper.

The article is also flawed by stating Apple doesn't fall into this group? What the hell do you think Foxconn is? It makes all of Apple's stuff, thye used to make Dells stuff. Whoopdie doo. Apple has some designers here in America. The 100 or so people there doing design are nowhere near enoguh to make any kind of dent or even blimp in statistics.

You must live in another America. Our standards for pollution are very lax. I bet you've never even been to an industrial district. They're just places you read about on the internets.

 

[Cerb]

If you walk into a store and see two identical products at different prices, do you choose the cheaper one or the more expensive one?

I choose the one that is available, and suits my needs the best, because it's rare these days to find a store with two products that are identical except for price.

 

[Zorba]

If you walk into a store and see two identical products at different prices, do you choose the cheaper one or the more expensive one?

Very few things are "identical," especially in quality. The problem is quality can be very hard to see, especially up front.

I personally do my best to buy at the quality level I need for any particular item, giving top priority to anything actually made in the US.

 

[rchiu]

I wonder how Denning's conclusions can be trusted when he doesn't even understand GAAP, doesn't understand Cost Accounting, and tosses out something like "through-put accounting" without explaining what is different about it.

He also blasts Dell and lauds Apple over outsourcing when Apple outsources all of their manufacturing. I don't think that Apple has made any of their own hardware for decades and they purchase from the same outsource suppliers that Dell uses for many of their parts.

His main complaint about GAAP is that it values what things cost instead of what their "value" is. That is like complaining that the sun is bright. That is what GAAP does. No one forces any management team to make decisions solely based on cost. I personally think that ignoring cost is the height of stupidity, but overiding cost as the main driver to a decision is fine.

Michael (public company CFO for close to a decade now, and has seen cost accounting fads come and go for years ...)

What I find Denning lacking most is in the basic Organization Behavior concept. I mean why blast Cost Accounting, GAAP, when the basic problem with business today is the reward and motivation all align to short term goals and profit and of course CEO's and management will take actions based on that.

For public companies, stock holders are more interested in the stock price for the next month, next qtr, and rarely next year and almost non-existence for 5 year or longer. Of course the compensation for management is going to be structured to maximize profit and stock price for the short term.

Unfortunately most large employers are large public companies and most of their strategy will be short sighted. Stop blaming on all these irrelevant things like cost accounting/GAAP, lol..as long as management are not rewarded for long term well being of the company and even be punished for sacrificing short term gain for long term benefit, nothing is going to change.

 

[werepossum]

they mention GE as the big example of electric cars dependent on offshore labor and companies to manufacture their batteries.

is it that Lithium-Ion are only manufactured offshore? IIRC, Tesla has their own battery system, and they are manufactured in the US and UK, correct?

or do they still have to get the LiI cells from offshore?

if not, then why would the article ignore one of those (hopeful) brightspots in nascent home-grown engineering?

I believe Tesla still uses Panasonic, which manufactures its batteries only in Asia. We have some good domestic manufacturers of advanced batteries such as A123, which makes very good batteries indeed. However, part of the damage that losing the commons causes is lack of process engineering. A manufacturer like A123 has few available hires who could bring in new ways of thinking in process engineering and manufacturing because there are few competitors on the same plane. Also, most of these manufacturers compete for low volume, high cost contracts, so their manufacturing and process expertise can be difficult to convert into high volume, low cost contracts. That's fine for richers' toys like the Tesla, but not so much for competitors to the Prius.

You must live in another America. Our standards for pollution are very lax. I bet you've never even been to an industrial district. They're just places you read about on the internets.

That's not true. Exclusive perhaps of Japan, Asia's pollution laws are much less stringent. Even Europe often has lower standards. For instance, many diesel engines sold in Europe cannot meet 49-state emissions tests, much less those for California. The only place we're really lax in is grandfathered coal-fired power plants, which may be heavily fined but not forced to upgrade, and in CO2.

And yes, I've been in many industrial districts. Many of those are now gone, their jobs shipped to Asia or Mexico, because of environmental regulations. That's a cost Americans have traditionally been willing to pay. My current city, Chattanooga, Tennessee, had its industrial district closed down because of EPA regulations and fines for air quality violations. Used to be visibility here was primarily limited by industrial smog; now it's primarily limited by pollen.

 

[Fern]

You must live in another America. Our standards for pollution are very lax. I bet you've never even been to an industrial district. They're just places you read about on the internets.

Our standards and the agencies that enforce them may be ineffective, but they are onerous.

I live in a small rural area. But you've probably read about us. We have a small manufacturer that was raided by swat teams from the EPA (or the like) and shut down. The tip they acted on came from a disgruntled former employee and never proven true.

I could go on, but that should suffice.

Fern

 

[soulcougher73]

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.

Yup. That is why i support abolishing the stock market. Although i fear im alone in my battle. It really serves no real purpose that cant be done in better ways.

 

[stargazr]

With all this talk about Boeing outsourcing I'm surprised no one brought up the fact that they tried to open a plant in South Carolina but the union stopped them because it would be non-union.

Right, that sucks to not be able to strike I guess, but as much as not having a job? All those potential jobs lost.

http://www.nytimes.com/2011/04/21/business/21boeing.html?_r=2

 

[bfdd]

You must live in another America. Our standards for pollution are very lax. I bet you've never even been to an industrial district. They're just places you read about on the internets.

You must not live in America because you have no clue what the fuck you are talking about. How many OSHA classes have you had to sit in? How about environmental safety classes as they pertain to petro? You have no clue what you're talking about.


Soulcougher, I'm all for getting rid of it as well. I fail to see how Wallstreet is any different than Las Vegas, well besides the fact we insure Wallstreet's losses.