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Father of the shipping container passes

Father of the shipping container passes

When I began this blog two years ago, my first post was about the passing of Norman Borlaug, the Father of the Green Revolution. Mr. Borlaug’s research created varieties of wheat, maize and rice that helped feed literally hundreds of millions of the world’s poorest people, including the pre-reform People’s Republic of China.

Mr. Borlaug’s inventions produced a great deal of good for the world – fewer starving children strikes me as quite good – but his detractors argued that cheap plentiful food was a bad thing. Too much food would lead to too many people, and Gaia must be saved. Their compassion only extended to mankind in the abstract. I guess some people are never happy.

Now today a coworker sends me a fascinating article on the passing of Keith Tantlinger, the inventor of the modern shipping container. While Malcom McLean usually gets most of the credit for moving the world to containerization, Mr. Tantlinger was the man who actually designed the containers themselves. If there is one item that made “Made in China” possible, the shipping container is it.

Here is his obituary and here’s the blog post sent by my coworker.

I don’t know if Mr. Tantlinger knew he was creating technology that would truly change the world, enabling the export led growth that allowed so much of Asia to crawl out of miserable poverty in such a short period of time. That change allows me and millions of other consumers around the developed world to enjoy inexpensive imported products that would be priced out of the market if they were Made in America. Indeed, many of these products would never have been brought to market, as the initial investment in tooling would have been prohibitively expensive. Anyone up for a $2500 iPhone?

I know what the pessimist side will say, international trade has cost American jobs. I can probably find a thousand economists on either side of this argument, but my first hand impression having done business in emerging markets like Mexico, Eastern Europe and China is this – economic growth is a good thing and not a zero sum game. The Czech Republic right after the fall of communism desperately needed economic growth to recover from the damage done by the previous regime. Should we have refused to trade with the Czechs? What would have happened had there been no blossoming of the export sector? I can’t think of any alternate scenario with a happy ending.

I could write for days on why American industry is or is not competitive or why you should or should not source in China. I will agree that there is always a cost to every transaction (there is a benefit too), and sometimes that cost is measured in manufacturing jobs lost to foreign competition. I will agree that “free trade” with China is a stacked deck. But billions of people are benefiting from global trade and the USA has seen its ship rise right along with everyone else. None of this would have happened without containerized freight.

So thank you Mr. Tantlinger, may you rest in peace. Those of us in the China supply chain management game wouldn’t be here without you.

Supply chain in China: From ‘just-in-time’ to ‘just-in-case?’

Supply chain in China: From 'just-in-time' to 'just-in-case?'

Glenn Reynolds, aka Instapundit, wrote a great op-ed piece in the Washington Examiner recently, on the impact the Japanese earthquake and tsunami are having on supply chains around the globe.

Quoting the Professor in full:

Japan’s earthquake/tsunami has occupied the news and also spurred a lot of thought. Among other things, it has underscored the fragile and interconnected nature of modern society, and caused some to question the wisdom of “just-in-time” manufacturing approaches in today’s unsettled world.Instead, it is suggested, we might want to focus on “just in case” approaches designed to be more resilient under stress.

Japan’s earthquake was in some ways a triumph of preparedness: Thanks to strict building codes, not a single building in Tokyo collapsed. But the earthquake, and the tsunami it produced, have had impacts that go well beyond the immediate.

In particular, the damage is exposing the extent to which modern supply-chain management has produced a system that is so lean it lacks the reserve capacity needed to cope with disasters.

In manufacturing, plants have been idled around the world because Japanese factories — or often, a single Japanese factory — serve as the sole source for a vital component. With the factories sidelined by damage or power outages, the components are unavailable, and production has to stop.

Ford Motor Company idled a plant in Belgium for five days over parts shortages; Toyota warned plants in the United States to be prepared to close for the same reason. A U.S. plant making car seats had to close because of a shortage of premium vinyl made only in Japan. Ford has suspended orders for some models in red and black because the paints come from a single factory in Japan, now closed. Tales like these abound.

Even the New York subway system is affected by the parts shortage: As National Public Radio’s “Marketplace” reported: “Steel from the north of Japan can’t get to Suzuki. Suzuki can’t make the parts for Hitachi. And Hitachi can’t send the parts to New York. The global supply chain breaks down with the removal of just one link.”

As Edward Tenner noted in the Atlantic: “The tsunami has exposed a weakness in global logistics long recognized in principle but disregarded in practice. Lean manufacturing plus heavy reliance on a single plant equals vulnerability to disruption.”

With managers under pressure to keep costs down, there has been a tendency to cut special deals with single suppliers, and to keep stocks of parts as low as possible. So long as everything goes smoothly, this saves money: Single suppliers give you the best price, and low inventories keep you from tying up working capital.

The problem is that we seem to be in a period where things aren’t going as smoothly as they did for a while. And when things don’t go smoothly, the lean approach means that it doesn’t take much to bring things to a halt.

I mentioned this to a friend who’s got a custom-car business, and he said his experience with disruptions in getting supplies from vendors has caused him to move from a “just-in-time” system to what he calls a “just in case” system, where stockpiles are bigger and alternative suppliers are identified in advance. I think we’ll be seeing a lot more of this, post-Japan.

But the problem goes well beyond cars and subways. Lots of more important systems are similarly vulnerable. My wife takes a heart-rhythm drug called Tikosyn; if she misses a dose, she could die.

Walgreen’s doesn’t want to keep it in stock, so they order a bottle by air-freight when her prescription is about to expire. Normally, that’s fine — but if something happened to interrupt shipping, she’d be in trouble.

She keeps a backup supply, but what would Walgreen’s do for others in a similar predicament? A few days of shipping problems and many pharmacies would be out of important drugs.

Likewise, grocery stores now keep only a small supply of food on hand, depending on regular deliveries for restocking. When those deliveries are interrupted, shelves start to empty pretty fast. (And government emergency food stockpiles are nothing like they were in the Cold War era).

Power plants used to keep a 60-day supply of coal in stock. Now they typically keep only 30 days’ worth. That saves utilities money but it means that there’s less margin if deliveries get interrupted. In the past, severe blizzards have left some utilities dangerously close to running out. Most cities have only a few days’ worth of gasoline.

We’ve come off a period of several decades in which weather was better than average, and in which other forms of societal disruption were fairly minor. The 21st century looks likely to be less placid.

As we make all sorts of plans, at the governmental, the business, or the personal level, it will pay to think more about the likelihood that things won’t go smoothly, and about ways we can prepare now to deal with the inevitable problems ahead.

A new subdiscipline called “resilience engineering” looks at how systems can be made more resistant to failure, and better able to recover when they do fail. That kind of thinking, it seems to me, is relevant to all of us, not just engineers.

The ride seems to be getting bumpier. In all sorts of areas, we need more of a cushion.

This advice is similar to advice I’ve been giving for years when it comes to a supply chain in China. Simply put, “your order will be late; plan accordingly”. When I was supplying parts to a large American motorcycle company, I knew that I had to buffer uncertainty with inventory. They often couldn’t give reliable forecasts (or I should say, their forecasts didn’t always filter through the other supply chain members reliably), so I had to keep weeks or months worth of product on the floor to compensate. And that was just the customer – the suppliers were a whole other ration of uncertainty. This is the dirty little secret of the JIT revolution – the inventory levels are often still there, just held by someone other than the OEM.

If you actually both to read past the first chapter in any book on JIT, you will see that stability is a prerequisite for a JIT system – stability in demand and in supply. The system can’t work in chaos. Most Chinese supply chains are far too chaotic to be part of a JIT system (for Apple this is not the case, but chances are if you are reading this blog, the rule applies).

I could go into the math of how to calculate an inventory level based on your target fulfillment goal, but suffice it to say, you are wise to keep some stock on hand. Much cheaper than airfreight.

As for single sourcing, some products don’t have the volume to have multiple sources, but whenever we have a client with substantial order quantities, I always recommend having at least two sources for each component. I also encourage clients to develop domestic sources to support 20% of the normal production, and make sure they have capacity to handle increased orders if there are problems with the Chinese suppliers.

So, when you come to China, do NOT expect to run the supply chain the way the new text books say. Go old school and put some fat in the system. Just in case.

Life is uncertain – eat dessert first

So say the T-shirts at are local ice cream parlor. I think it’s a great line and not a bad philosophy.

It got me think about our services. Despite the copious amounts of verbiage on our website, I spend a good chunk of each day explaining what we do and how we do it – which is one of the drivers behind developing the upcoming video tours, which we hope to post soon.

Some time ago, casting about for a good analogy for our company, my obscene fatness landed upon the concept of an a la carte menu. You can use our services in the typical order – Sourcing Feasibility Study (sample report here), Vendor Coordination, Assembly-Inspection-Packaging (sample Product Quality Manual here), etc. – or you can start anywhere in the process you like. Skip the salad and go straight to the main course. Or eat dessert first. We are nothing if not flexible, and our only goal is to help the client be successful in China.

And now I want ice cream. Damn.

That’s the good thing about the Dark Side. Eventually, your eyes adjust.

That’s my favorite line from the incomparable James Lileks, appropriately enough referring to brand loyalty.

If you’ve noticed that blogging has been slow these past weeks, it’s been because a number of trips, client visits, etc., but the main reason has been an ongoing grind of computer trouble. I have a high-end Windows machine from one of the big American brands. It was bought a year ago because my prior machine, a super-crappy XP laptop from one of the other big American brands had finally given up. The new machine purchase was ill-timed as I had to get a Vista machine.

Short version, it sucks. Vista is, was and will be terrible. But the machine itself was not much either. Fit and finish were poor (screen was scratched and scuffed out of the box) and like all Windows machines, the thing was crammed with bloatware. Despite its specs, it was slow from the start.

Three weeks ago, Windows download a bunch of updates and all hell broke loose. The Blackberry also updated its software at the same time, which caused another slew of problems. Worst of all, Outlook, which is the only Microsoft product I prefer to use, stopped working reliably. I tried Thunderbird but found it a poor substitute (I love Firefox though). After four (4) different IT folks took a look, after upgrading to Windows 7, after reinstalling Outlook twice, I gave up. My Macbook Pro arrives today. After 20+ years as a Windows user, I am switching (back) to Mac.

Note to Steve Ballmer – when your “productivity software” is this unreliable, it is no longer productive for me to use it.

It will be an adjustment, I am sure and there will be plenty of cussing no doubt. But I had the opportunity to play around with one the IT professional’s Macbook and his iPhone 4G, and both blew me away. I have bitched before about how little I like my Blackberry Storm 2, how unimpressed I am with my current carrier and now I am plotting my move (back) to AT&T so I can get a phone that was designed from the ground up to interface with my computer. When the only office you have is two devices you can hold in your hands, you just can’t afford this kind of garbage.

Why do I include this in a blog about doing business in China? Because both my current laptop and the new Macbook were made by the same company – Foxconn – and yet the fit and finish are night and day.

I have the feeling the company who’s name is on the current Windows laptop just goes to Foxconn and asks what’s new that they can slap their name on and market. I know that Apple does not do that.

I have said it before and I’ll say it again now – you get the quality in China you are willing to pay for.

China’s Mexico is inside China

300x250 run backup

This analogy has a number of problems with it (like most analogies), but I got the point the first time I heard Mike Bellamy make it.

Too many American industries rely on illegal labor to remain cost competitive, thus the constant drama on the border issue.

The China nearly every Westerner sees is the coastal veneer. The majority of China still dwells in the poor, mostly agrarian interior. Their source of cheap labor in internal.

And as this article in Slate by Brett Edkins points out, in a sense, many of those Chinese migrant workers are “illegal” anyway. Key paragraphs:

The United States could begin by conceding one of China’s principal arguments: Human rights are not just about individual liberty, but also economic opportunity. The Chinese “economic miracle,” which lifted 500 million people out of poverty in just one generation, is itself an unprecedented human rights achievement. Yet it gave rise to other pressing human rights concerns, including an issue that threatens to destabilize China’s Communist regime—growing discrimination against the roughly 200 million Chinese citizens who left their rural homes to find jobs in China’s booming cities.

In many ways, these rural migrants resemble undocumented immigrants in the United States. In China, they provide indispensable labor for vast urban construction projects and work in menial jobs as guards, waiters, cooks, or barbers. They are often mistreated by employers, generally live in poor conditions, and receive few social benefits and limited protection from the police. And their children are regularly denied public education.

Chinese newspapers, “Netizens,” and even Communist officials are calling for reforms. Their main target is China’s 50-year-old household registration, or hukou, system. Began as part of China’s state-run economy, the hukou system labels individuals as “rural” or “urban,” indicating their proper place of residence and binding laborers to the land. Today, rural residents are permitted to travel to the cities, but they can still be fined or forcibly returned home if they are caught working or living outside their designated hukou. Obtaining a temporary urban-residency permit from the police is beyond the means of most migrants, requiring a fee and employment documentation. Permanently changing one’s hukou by attending university or joining the military or the Communist Party is similarly out of reach.

Life for a city dweller with a rural hukou is difficult. Their hukou denies them urban welfare and access to public housing. It also excludes them from publicly funded health-insurance schemes. Since fewer than 3 percent can afford health insurance, most avoid medical care altogether. City judges often impose harsher sentences on rural migrants, and employers frequently withhold wages, knowing undocumented workers cannot complain to police without risking exposure.

I will admit I not a fan of the author’s wording, “undocumented migrants”. If you illegally cross a national border anywhere else in the world (including Mexico), you’ve broken the law. Only in the modern American journalist and politician world does that deserve an obscurant euphemism.

However, the point of the article is that despite the rapid advances, parts of the Chinese state are stuck in the Maoist past. One good thing about dealing with PassageMaker, you know our employees are treated well and legal. As a foreign owned firm, the government would come down on us like a ton of bricks were it otherwise.

Regardless, I am happy to see people in China, including members of the Communist Party, start to address the problem.

Some miscellaneous articles

Feeling lazy today. Sometimes the juices ain’t flowing. In no particular order:

Maybe get to some travel blogging tomorrow. Or not. You’ll have to check back to see.

More comments on “Sheer Import Genius” and a great post from Renaud

Renaud Anjoran is a fine fellow who runs an excellent blog about quality control in China. I’ve linked to him in the past, and he’s returned the favor.

He commented on my recent post, “Sheer Import Genius“. This led me to read two excellent posts on the the good and bad trading companies in China.

His points are spot on. One of the reasons PassageMaker formulated the Sourcing Feasibility Study (SFS) was to identify and eliminate piss-ant trading companies that don’t add value.

Li & Fung is a tremendous company, and we have sought to emulate them in many ways. PassageMaker focuses on SMEs – Small to Medium Enterprises, not Li & Fung’s market. Many of our customers are Tier 1 suppliers to Fortune 500 companies, but they themselves fall into the SME category. In my mind, this is a fine market to serve.

PassageMaker is not a middleman. We are not a traditional trading company. We add tangible value with our SFS, Vendor Coordination, Assembly-Inspection-Packaging and Factory Formation services. Most importantly, the entire process will be transparent. We don’t exist by keeping our clients in the dark.

Let us know how we can be of assistance. If you are not 100% sure about every step of your supply chain, you need our help. Trust me, you do.

Great China Law Blog post related to “Sheer Import Genius”

A most excellent post on the importance of protecting your supply chain from Dan Harris of the (most excellent) China Law Blog. If you are not a subscriber, you should be. He is kind enough to link to my post yesterday, “Sheer Import Genius“.

The importance of contracts and compartmentalizing your supply chain cannot be overstated. You have invested too much to build the business. Don’t give it away because you are too lazy or too cheap to do the work to protect that investment.

Money ‘graph:

The other day, a really savvy client of ours stopped by the office. This company has been doing business in China for a long long time and it has non-disclosure/non compete/non circumvention agreements with all of its Chinese suppliers and US Buyers I mentioned the above conversation (no names or other identifiers, of course) and we talked about the benefits of the contracts his company has both in China and in the U.S. He then reminded me that this was also one of the reasons his company had set up its own trading companies in China. This company gets its product from about a dozen different Chinese factories, but the records in both China and the United States all point to the U.S. company’s own trading company as the exporter. This company has never had a problem with its customers going around it.

PassageMaker can help you secure your China supply chain. Our “Black Box” Assembly Center is a far less expensive option than setting up your own trading company. If you still want your own presence in China, we can help you with our Factory Formation service. Give us a call, and when you need a lawyer in China, you could do far worse than Mr. Harris.

Sheer Import Genius

So…did you know that your shipping information is in the public domain?

I’ll step up and admit I didn’t.

What’s worse, now that Import Genius is out there, finding your competition’s suppliers is as easy as using a search engine. Anything imported into the USA is a matter of public record, including the exporter (i.e., your supplier), the type of goods and your receiving address.

Import Genius is an amazing program and I will be using it for sure, but it also highlights another advantage PassageMaker‘s “Black Box” offers our clients. When you hire us to perform our Assembly-Inspection-Packaging service, that is really a catch-all term for any sort of contract assembly, product inspection, contract packaging, kitting, order fulfillment, pull-pack-ship, freight consolidation, private labelling or branding, etc. We do everything from kit mobile phone accessories to assemble vacuum cleaners.

Aside from the advantages we provide to help you control your costs, ensure your quality and protect your intellectual property, we also act as a “firewall” to protect your real supply chain. When a competitor searches for you on Import Genius now, they’ll get the name of your Chinese supplier. Think about that for a moment. You invested thousands upon thousands of dollars to establish that relationship, to tool your product and get the production going. If you are like a typical “mature” PassageMaker client, before you hired us, you were paying for at least a half-dozen trips to China a year. With business class seats, rooms at the Shangri-La, private cars, etc., that’s $20k per trip.

How confident are you that your supplier wouldn’t sell a knock-off of your product to a competitor?

If they search when you are working with PassageMaker, all they will see is our address as the exporter. So in addition to saving you on travel expenses, we protect the investment you made in your suppliers. Our motto is “Trust & Transparency”, and you can trust us to protect that supply chain. We wouldn’t stay in business 5 minutes if that weren’t true. In the PassageMaker system, you will always know who your suppliers are, who has your tooling, who has your designs, who has your money and who has your products. The transparency part only applies to you!

Well, that’s just great…it’s spelled “proofread”

So I spend a week proofreading my post on proofreading only to be immediately informed by an observant reader (a former professor of mine from USC no less) that “proofread” is one word. Not “proof read”, as I wrote yesterday.

I take full responsibility, as I am the only one who proofreads my blog posts. I have dyslexia, so I always try and proofread everything 2-3 times before I send it or publish it. After all, I get enough hounding from the clan in China, to say nothing of the Zen Dragon from down under, that I don’t need to make it any easier for them.

That said, my error sets me up for a good blog post today. This experience underscores what I was saying in the original post – your business documents are far, far more important in China than in your home market.

Make a mistake or an error of omission on a purchase order, and you may very well be hosed. Do the same on a Product Quality Manual (PQM), and I can guarantee trouble.

Some time ago, such an error of omission rose up and bit one of our customers rather badly. We had followed the PQM as approved, but we had not been checking a particular dimension. It had never been in the PQM, whether we didn’t include it when we drafted the document or whether the customer left it off the original drawing was lost in the mists of time, but the error had persisted undetected by all for nearly 4 years. It was never a problem as long as the vendor providing that component did their job right, but we are all human and that finally didn’t happen.

Our team inspected the product to the PQM. The error was so subtle, you would never notice it with the naked eye. The client assumed all was well and shipped the product, which immediately were rejected in the field. Long story short, everyone was unhappy and we all lost, but there was no warranty claim to be made against PassageMaker. We’d followed the approved PQM.

Our policy is we will do what you tell us in the PQM, no more, no less. It has to be this way, as the biggest problems in China are the admirable Chinese tendency to want to help too much or worse, to improvise when a problem arises.

I had a friend who was buying pillow cases in China. All the samples came in exactly 1″ too big on every dimension. Panicked, he called the factory and they told him they so appreciated the order (for several hundred thousand units), that they wanted to reward him by providing extra material at no cost! After he got his heart pumping again, he contacted our friends at China Quality Focus who went on-site and got things back on track quickly.

Doing business in China is Murphy’s Law on steroids, acid and a truckload of uncut Colombian all at once. Muse’s 1st Law is “Never Assume Anything“. Make sure if you want it to happen (or not to) that you put it in writing.

I meant it when I wrote that we LOVE getting 17 pages of corrections back from the client. It is far better than a cursory review and signature.

We have four (4) internal layers of proofreading for a PQM before it is sent to the client for approval.

  1. The PQM is drafted by a Quality Technician, with input from the entire team, including the client.
  2. It is then reviewed by the Production Engineer.
  3. It is then reviewed by the Project Manager.
  4. It is then reviewed by a member of senior management (most often by me).

Only then is it sent to the customer.

This is a time consuming process. But the alternative is terrible to contemplate. Anything worth doing is worth doing right the first time.

So make sure you proofread before you sign on the line that is dotted.