Strongest job market is in DC, do they create value?

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According to Bloomberg Businessweek this morning Washington DC is the nation's strongest job market. Read the whole article at this link.

http://www.businessweek.com/lifestyle/content/jul2010/bw20100713_490598.htm

The question is, many if not most of the jobs in the DC area appear to be providing services to the ever increasing federal government.

That means those are jobs that will be funded by taxpayer dollars being funneled to private companies and ultimately to their employees. 

While people getting jobs is certainly good news, the question remains where is the value that is created? If job growth is funded ultimately by the taxpayer, and the economic rebound is keyed on consumer spending, much of it from the same taxpayer, how does that work in the grand scheme?

Government and the economy would be better served by investing in small business and driving real growth than continuing the strategy they seem to be on.

Create value to “fight China price”

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I read an article in our local paper entitled Furniture Industry fights China Price”. Northeast Mississippi is a furniture manufacturing hub and is being hit hard by low cost imports. The article covered a workshop developed by the Mississippi State Franklin Furniture Institute and really provided few answers to the problem.

Having grown up in a steel mill town and seeing what happens to an industry that cannot compete with low cost competition I have some historical knowledge of what happens to a region when the key industry is decimated. My hometown has never recovered.

I’ve done some research on the subject of competing with low cost manufactures and competing on price simply doesn’t work. The average burdened labor rate in China in 2007 was between .70 cents and .92 cents per hour depending on where you get the data. The corresponding rate per hour in the United States for manufacturing jobs is about $25.27 fully burdened with benefits.

In addition the Chinese companies don’t have the regulations and environmental rules to follow and we can all agree it isn’t a level playing field.

But come companies are competing and doing well against low cost competition. Those companies are identifying and developing niches to operate within that take advantage of problems with Chinese production:

• Freight costs
• Increases inventory and safety stock necessitated by potential supply interruptions or poor quality
• Lost sales due to stock out and poor quality
•  Poor logistics support within China
•  Duties, fees and taxes.

The reality of the situation in furniture or in any industry if you allow the product to become a commodity, low price will win every time. In high volume production of the same product with no service or customization, low price is the only differentiator.

What are the companies doing that compete?

• Performance improvements alone such as automation or lean will not allow U.S. companies to compete on price. Certainly U.S. manufacturers must get lean and be as productive as possible, but they will never automate to .90 cent and hour.
•  They take advantage of the close proximity to markets and stay close to their customers, quickly turning customer requirements into opportunities.
• They develop the capability to run low volume and high quality products based on customer orders, allowing retailers and distributors to save money on inventory levels. This can be accomplished through Lean Manufacturing.
• They market their competitive advantages such as some level of customization, build to order, or features based on regional preference.
• They provide excellent customer service and warranty policies that offset the Chinese manufacturers distance from the market.
• Identify and market to consumers that are looking for a higher quality, higher tolerance product that can’t be easily produced in China.
• Use logistics and information to develop a competitive advantage within the supply chain.
• Allow the consumer or end user to have some input to the design and selection of the final product.

There are numerous things that U.S. manufacturers can look at strategically to offset some of China’s weaknesses. Allowing a market to be driven by low price is allowing a market to become at risk and expendable, and once a product becomes a commodity it seldom returns, electronics is a great example.

Better strategic planning, better marketing, and better communications with the customer can all be used as a competitive advantage by U.S. Manufacturers, and directly exploit weaknesses of Chinese manufacturers. Allowing them to dictate the market in our regions and establish low prices as the only selling point is giving up on an industry. Government tariffs and tax credits will never be enough to bridge the gap in labor costs. We must find a different way to do business.

Back to northeast Mississippi the furniture industry seems to be more concerned about each other than trying to form a cohesive marketing strategy to change the market.

Do trade organizations create value?

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I spent the better part of this week in Oakland, CA at a logistics conference on behalf of a client. It was a three day event, bookended by two long travel days), and had numerous very well prepared presentations.

There were numerous companies and trade organizations represented and a lot of work and information was shared. What became apparent to me after the first day was that a lot of people were spending a lot of time and effort but were delivering very little results or value.

The conference dealt with cold chain logistics, which is essentially monitoring and certifying shipments worldwide of products that must be maintained at specific temperatures. There are numerous federal agencies monitoring movement of these as well as hazardous shipments, but there are very few standards documented as to how to meet the guidelines.

One trade group had been working for three years to document best practices for packaging, shipping, storing and monitoring these critical shipments. The results of three years worth of work was an incomplete set of guidelines, for companies to look at and decide if they wanted to use them.

There are very few published standards or even audits for things like pharmaceuticals and biomedical products being shipped. The FDA will fine a manufacturer for violations of label temperature requirements but there is no real monitoring format. They leave it up to the manufacturers to monitor their shipments and report excursions, unless they happen to trip over an obvious violation.

The issue here is the manufactures create value through their core business, which is research and development of pharmaceutical products. I’m absolutely certain their manufacturing processes are closely monitored and are state of the art. All that is left to chance however when a product leaves the door.

The shippers use whatever packaging the manufacturer recommends. If the package is verified to maintain 0 to 8 degree Celsius for 96 hours, they make every effort to deliver the product within 96 hours. The shipping process however is not within anyone’s control. The package can be bumped off a flight because the dry ice quota has been exceeded, it can be held in customs, delayed die to equipment failures, left on a tarmac or in an uncontrolled warehouse. There is little ownership of the process once the product leaves the manufacturer, and little or no monitoring or escalation of exceptions.

It just appeared to me the whole industry is focused on providing pockets of information but not focused on how to create value.