Insights

Global Focus

The Phronesis Group’s functional expertise is well suited to meet the local and global challenges our clients face. We work closely with our clients and are only satisfied when our clients succeed. Working well in partnership, we generate better outcomes that drive tangible results. We often reject conventional wisdom because customized solutions yield the greatest competitive advantages and maximize value. Careful consideration of our clients’ unique position in their industry, marketplace and the world, are central to our process.

Global Shifts in Manufacturing

According to a new analysis by The Boston Consulting Group (May 5, 2011 “Made in the USA, Again”) there will be a shift in manufacturing over the next 5 years:

  • Manufacturing is expected to return to America as China’s rising labor costs erase most savings from off shoring
  • Reinvestment during the next five years could usher in a ‘Manufacturing Renaissance’ as the U.S. Becomes a Low-Cost Country Among Developed Nations
  • The wage gap with China will shrink and certain U.S. states will become some of the cheapest locations for manufacturing in the developed world
  • Chinese wages are rising at about 15-20% percent per year (because of a supply and demand imbalance in skilled labor) and the value of the Yuan continues to increase, causing the gap between U.S. and Chinese wages to narrow rapidly
  • Flexible work rules and a host of government incentives are making many states—including Mississippi, South Carolina, and Alabama—increasingly competitive as low-cost bases for supplying the U.S. market
  • Per Harold L. Sirkin, a BCG senior partner: “We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years”; especially with products that require less labor and are churned out in modest volumes, such as household appliances and construction equipment, are most likely to shift to U.S. production. Goods that are labor-intensive and produced in high volumes, such as textiles, apparel, and TVs, will likely continue to be made overseas.

Many U.S.-based companies are already rethinking their production locations and supply chains for goods destined to be sold in the U.S. For some, the economics (support from local and state governments) have already reached a tipping point. “Workers and unions are more willing to accept concessions to bring jobs back to the U.S.,” noted Michael Zinser, a BCG partner.

  • Caterpillar Inc., for example, announced last year the expansion of its U.S. operations with the construction of a new 600,000-square-foot hydraulic excavator manufacturing facility in Victoria, Texas. Once fully operational, the plant is expected to employ more than 500 people and will triple the company's U.S.-based excavator capacity. “Victoria’s proximity to our supply base, access to ports and other transportation, as well as the positive business climate in Texas made this the ideal site for this project,” said Gary Stampanato, a Caterpillar vice president.
  • NCR Corp. announced in late 2009 that it was bringing back production of its ATMs to Columbus, Georgia, in order to decrease the time to market, increase internal collaboration, and lower operating costs.
  • Toy manufacturer Wham-O Inc. last year returned 50 percent of its Frisbee production and its Hula Hoop production from China and Mexico to the U.S.

Innovation

It is not enough to know where to go but how to get there. Not all companies are prepared to handle change to the same degree. What may work for one company may fail to work for another. Companies that exit recessions ahead of their competitors share five common characteristics where they are able to do the following:

  • Identify the root competitive advantage
  • Determine structural changes required to rise above competitors
  • Break down what is required to out-execute / out-perform the competition
  • Blend / balance structural changes and execution excellence
  • Select the proper “path to change” to stay grounded in operational excellence

A company’s path to operational excellence may call for a multi-year, enterprise-wide transformation, a streamline program of one key function across the company and/ or a large number of smaller initiatives that yield benefits immediately. At The Phronesis Group, we successfully help companies take three unique paths towards operational excellence:

  • Continuous Improvement:A large number of small initiatives that yield immediate benefits but require smaller investment will ultimately become a natural part of doing things. This is best suited for a client who has defined an operating model and leans toward decentralization of authority by empowering front-line staff.
  • Targeted Intervention:Significant changes to a client’s operations may require a step-by-step process to reduce the risk caused by the changes. Usually, a compelling reason to change may be a threat caused by a new growth opportunity or a sense of urgency.
  • Metamorphic Transformation: When a complete and total transformation is required on a grand scale, it is usually the fastest way to get a significant change implemented and to obliterate the competition.

Once we are able to diagnose what is needful, by bringing to light root causes for areas of dysfunction, incompatibility or irrelevance, we are then able to guide our clients through to innovation that is best suited for their needs.

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