Join the manufacturing practice. See the world. Battle pirates?
When Archstone Consulting principal and
founder John Ferreira entered the ranks of
manufacturing consultants 24 years ago,
he could not have imagined that he would
one day set sail on the seven seas to
work a single project for one client. Today,
in his work with one of the largest high-tech manufacturers, he’s done just that.
And Ferreira’s work as Archstone’s industrial and supply chain practice leader has
exposed him to a costly yet under-exposed
scourge of the global supply chain: piracy.
Piracy takes several forms, including
outright theft, usually perpetrated by
large syndicated crime rings, counterfeit goods and the gray market. The latter form of piracy is “bigger than you
think,” Ferreira asserts. “
Manufacturers are losing billions of dollars in this
area, and it’s a direct result of partner
networks growing more extensive and
complex to manage.”
Gray market theft occurs when legitimate products, like software, toner cartridges or almost any other high-margin
product, enter a market via an unauthorized seller at a huge price discount. The
unauthorized sale frequently originates
with a supply chain partner who does an
“end-around” the established channels
and “leaks” the product to a market.
The gray market, for example, explains why there are two price tags—a
“U.S.” tag and an “imported” tag (for 20
percent to 40 percent less)—dangling
from high-end camera lenses in some
Manhattan camera stores: the manufacturer of the lenses was forced to support
the retailer’s discounted price (and the
rebate on the “U.S.” price) because the
retailer’s competitors are selling the
same lenses as the discounted price
thanks to gray-market suppliers.
“Few companies aggressively attack
this area,” Ferreira reports. They should,
however: Two years ago, U.S. manufacturers lost an estimated $250 billion to
piracy, a large component of which involved gray market transactions, according to the U.S. Chamber of Commerce.
That figure also helps explain why
Ferreira and his colleagues are sharing
with clients techniques for strengthening
supply chain controls and processes to
plug those leaks and recoup lost revenue and profits. —E.K.
range of interconnected problems, nestled within each of the following bits of bumper-sticker clarifications.
The entire world is not flat. Yes, supply chains are flattening
thanks to an explosion of new suppliers in low-cost countries,
but not all markets have flattened. Many U.S. manufacturers remain regional in terms of their markets: they serve U.S. customers while trying to stave new competitors with lower cost
structures and, as a result, lower prices. Schwalm estimates that
only about 10 percent of U.S. manufacturers—the largest ones,
such as General Electric, Hewlett Packard, Dell, Texas Instru-
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you’re not in China, you’re a fool. … Now, it’s much more complicated, because it’s not just China. We do quite a lot of studies
of where companies can locate manufacturing capabilities of various sorts.” The analyses are complicated because they must evaluate a complex array of political conditions, available skills,
salaries, logistics and other factors.
After addressing the what, where and why, manufacturers
confront a more imposing question: how? “It’s not so much a
cost challenge as it is a capability challenge,” Schwalm asserts.
“That is a real fundamental challenge. To do this well, you
basically have to design a product and then characterize that
product to the entire supply chain digitally.”
Not surprisingly, several of the aforementioned electronics and
high-tech manufactures have made the quickest transformation to
an all-digital manufacturing organization. They can take a bill of
materials and ship it electronically all over the world and then also
manage their entire engineering processes, manufacturing
