The IKEA “Do-It-Yourself” Energy Plan

Discussion Questions:

  1. How does IKEAs renewable energy plan work?
  2. Compare it to the Wal-Mart approach.
  3. Find other examples of what major companies are doing to become “energy neutral.”

IKEA Assembles a Sustainability Program

Swedish Retailer Plans First Wind-Energy Investment in U.S.

By Andria Cheng

April 15, 2014 11:25 p.m. ET

Many retailers are expanding their use of renewable energy, but IKEA is taking a do-it-yourself approach.

Last week, the Swedish furniture and home-furnishings retailer told a congressional task force on climate change that it is making its first wind-energy investment in the U.S. The company said it is buying a 98-megawatt wind farm in Hoopeston, Ill., about 110 miles south of Chicago.

The Illinois wind farm, slated to include 49 wind turbines and be wholly owned by IKEA, is expected to be fully operational by the first half of 2015.

The wind farm isn’t intended to supply energy to any of IKEA’s 38 stores in North America. Rather, it is part of IKEA’s goal of becoming energy neutral—that is, not using any more energy than it’s able to produce.

The company will sell the generated energy back to the power grid, said IKEA’s chief financial officer for U.S. operations, Rob Olson, who is also acting president of the U.S. unit.

The Illinois wind field will supply energy equivalent to 1.3 times IKEA’s total U.S. electricity and other energy use, according to the company. Put another way, it will generate enough for the average energy needs of 34,000 American households annually, according to the company. It will catapult IKEA’s renewable-energy production to two-thirds of global energy consumption, from 37% currently, Mr. Olson said in an interview.

The project will be larger than wind farms IKEA has built in eight other countries, including Canada and Germany.

IKEA plans to delegate management to wind and solar developer Apex Clean Energy.

The retailer, which earlier this year characterized itself as the No. 2 private commercial owner/user of solar power in the U.S. (Wal-Mart, meanwhile, is said to be the No. 1 solar-power buyer), has committed itself to becoming energy-neutral by 2020, and the Illinois wind farm is the biggest energy project it has announced so far.

While declining to specify how much the project will cost, Mr. Olson said that wind-farm expenditures are included in the $2 billion the company has earmarked for energy projects between 2009 and 2015.

IKEA, whose sales have jumped more than 30% to nearly $40 billion over the past five years, also produces renewable energy with the 550,000 solar panels it owns globally. The company also produces geothermal energy.

The retailer has “mapped out and produced” a favorable return on investment, Mr. Olson said, adding that IKEA will continue to scout for wind-farm investment opportunities globally. “We don’t look at it as a short-term investment. The potential with wind energy is huge. We want to make sure we are doing our part to take care of the environment and to be energy independent. But it also makes economic sense,” he said.

Andrew Winston, founder of sustainability consultancy Winston Eco-Strategies, said IKEA is one of the few companies that invests in its own energy projects.

Wal-Mart has said it wants to derive 100% of its energy from renewable sources and drive annual production or purchase of 7 million megawatt-hours of renewable energy globally by 2020. That company, with about $480 billion in sales, said 24% of its total electricity supply comes from renewable sources, including 8% from company-driven projects. Wal-Mart said it primarily uses power-purchase agreements to buy renewable energy from developers. The company uses wind energy in markets including Mexico and Texas but doesn’t own any wind farms.

By contrast, IKEA owns 100% of the solar panels, geothermal-energy facilities and wind farms it uses.

Write to Andria Cheng at acheng@marketwatch.com

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Smartphones–Modular vs Integrated Design

Discussion Questions:

  1. The following two articles are related to smartphone design.  The first article describes Google’s idea for a modular design where the user can customize the phone to their exact requirements. The second article is about the cost to build the Samsung S5 phone, which is a conventional integrated design.  Read and outline the key points from each article.
  2. From a manufacturing cost standpoint, what do you think would be less expensive to build, the modular phone or the integrated phone?
  3. Do you think people would be willing to pay more for the modular phone since it may more closely match their need?
  4. What do you think the future holds, will phones be modular or integrated?

Google Unveils Project Ara, a ‘Modular’ Smartphone

Users Could Customize Their Devices With Hardware Modules Built by Outside Developers

By  Alistair Barr

April 15, 2014 6:36 p.m. ET

Google’s Project Ara phone would have modules, like cameras or lighters, that could be slotted into a metal frame and held in place by magnets. Google

Google Inc. is planning a “modular” smartphone that consumers can configure with different features, executives said on Tuesday.

Google envisions hardware modules, such as a camera or blood-sugar monitor, that would be available in an “app store,” like its own Google Play store for software applications.

The modules would fit into a metal “endoskeleton” designed for the phone, which Google calls Project Ara. Flat rectangular “modules” can be slotted into this frame, where they will be held in place by magnets, designers said.

“The existing way of making smartphones is mature. But there are new ways of making phones,” said Kaigham Gabriel, deputy director of Google’s Advanced Technology and Projects Group, which developed the concept for the phone. Mr. Gabriel spoke in an interview at the first Project Ara developer conference Tuesday.

Each module would perform a particular task. One may be a battery for the phone, while another may house a wireless antenna, or a camera. Google controls the design of the endoskeleton, while outside developers will design the modules.

Google is hoping to harness the creativity of thousands of developers to build a large ecosystem of hardware modules. Google plans to start with an entry-level phone with basic functions that would cost roughly $50 to make.

Google didn’t say how much it plans to charge for the phone.

Google also is planning an online marketplace where consumers buy additional modules, depending on what they want their phone to do.

“We want it to be like an app store,” Mr. Gabriel said. “You may want a blood-sugar monitor and a cigarette lighter on your phone. Why should you not have that?”

Software-based app stores, such as Apple Inc.’s App Store and Google Play, are rich profit sources because they typically take about 30% of the money spent on apps.

Rajeev Chand, head of research at Rutberg & Co., an investment bank focused on the wireless and digital-media industries, said Project Ara could let smartphone users upgrade their gadgets more cheaply and more often, rather than replacing the entire device every 18 months, as many do now.

For Project Ara to succeed, large hardware makers need to embrace the platform and make their own modules, while wireless network carriers also need to get on board, Mr. Chand added.

There’s also the question of whether many consumers will want to spend time customizing their phones with complex new components, Mr. Chand said.

“There may not be a consumer market for this,” he added.

The phone’s creators are working on an app to help users select modules.

They also are considering using eye tracking and heart-rate sensors to check if users are overwhelmed by the choices, said Paul Eremenko, the head of Project Ara. If stress levels rise, the configurator app will whittle down the choices to a more manageable selection, he explained.

“The smartphone ecosystem is in early stages of its development, like the car in the early 1900s when you could have any color you wanted as long as it was black,” Mr. Eremenko explained. “Today, about 25% of the value of automobiles

 

This is how much Samsung’s Galaxy S5 costs to build

CNBC – Ansuya Harjani | @Ansuya_H

A customer looks at the new Samsung Electronics Co. Galaxy S5 smartphone on display at a Best Buy Co. store in San Francisco, California, U.S..

David Paul Morris | Bloomberg | Getty Images

A customer looks at the new Samsung Electronics Co. Galaxy S5 smartphone on display at a Best Buy Co. store in San Francisco, California, U.S..

Samsung Electronics is spending more to build its new flagship Galaxy S5 than the previous model despite a slowdown in the high-end smartphone market.

The 32-Gigabyte Galaxy S5, which is water resistant and features a heart-rate monitor and fingerprint scanner, costs an “astronomical” $256.52 to build, according to teardown analysis by IHS. The model, which was launched on Friday, is selling for around $650 off-contract in the U.S.

Read More Can Samsung’s Galaxy S5 take on the next iPhone?

This is well above $236 required to build its predecessor and $207 for the iPhone 5S. It contrasts even more starkly with smartphones at the lower end of the cost spectrum, such as the ZTE U793, which has a materials bill of less than $35, according to the market research firm.

“Samsung is throwing more components into the device – they know that the high-end is going to be very competitive and they want to differentiate themselves. That in effect is their strategy,” Wayne Lam, senior analyst, wireless communications at HIS told CNBC.

“They are really competing both against Apple and their Android ecosystem – so there is more competitive impetus to innovate by adding more features,” he added.

Wayne Lam, Senior Analyst, Wireless Communications at IHS, explains why he thinks the new model is a “significant release” for the electronics giant.

Samsung’s market share dropped to 29.5 percent in the fourth quarter of 2013, from 31.1 percent a year earlier, mainly due to a saturated high-end smartphone market in developed regions, according to research firm Gartner. During this quarter, Chinese manufacturers including Huawei and Leonvo picked up market share, as they acquire technical and design expertise to add to their low production costs.

Meanwhile, Samsung said last week that is was on track to post a second straight quarter of declines in profits because slowing growth in smartphone sales is weighing on earnings. The South Korean tech giant estimated that its January-March operating profit fell by 4.3 percent to 8.4 trillion won ($7.96 billion).

“It remains critical for Samsung to continue to build on its technology leadership at the high end,” Gartner said in a recent report.

Smart move?

Discussing the impact of the higher costs on Samsung’s bottom line, Lam said the percentage loss in gross margin isn’t much relative to the revenue they capture. Margins in the premium segment are “tremendously” high, he noted.

It remains unclear whether Samsung’s investment will pay off, however.

“Smartphone makers are getting into an arms war they are innovating so quickly that we may have more technology than markets are asking for,” Lam said.

Tom Kang, research director at Counterpoint shares a similar view. While Samsung has invested heavily in components to make the device stand out, he said the upgrades are not immediately “obvious” to consumers looking at the phone on store shelves.

“There are only a handful of feature of components that consumers appreciate – some of them may work, some may not. At the end of the day, consumers may appreciate a lower price tag more,” he said.

The device’s fingerprint scanner has come under a lot of scrutiny in the past day after researchers at Germany’s Security Research Labs found there was a loophole in the sensor that could leave a user’s phone vulnerable to hackers.

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GM Recall–A Repeat of the Toyota Experience?

Discussion Questions:

  1. It’s interesting how history sometime repeats.  Read this article about the new GM Recall of over 1,000,000 vehicles.  Also, do some research to learn more about the cause and scope of this recall.  Document your research in a concise statement that summarizes what this is about.
  2. Compare this to the recent Toyota recalls.  There are a few articles on this blog related to Toyota.  Augment this information with your own research.  In a concise statement, compare the two recalls.
  3. Why is GM being so aggressive in getting customers to respond to the recall?  What are the risks that GM is facing with remediation associated with this recall?
  4. Are there any potential future benefits for GM?

GM, Dealers Aim to Blunt Impact of Recall

Customers to See Loaner Cars, Extended Service Hours and Sales Discounts

By Christina Rogers

WSJ, Updated March 28, 2014 10:56 p.m. ET

Toby Beck continues to drive his 2006 Cobalt, but says he will “think twice” about buying another car from GM. Jeff Lautenberger for The Wall Street Journal

General Motors Co. and its dealers are gearing up to blunt the impact of a global recall that now covers 2.6 million cars with defective ignition switches.

GM’s recall of certain Chevrolet Cobalts, Saturn Ions and other compact vehicles will bring to dealer showrooms and service bays owners of cars ripe not just for repairs, but for replacement. Many of the vehicles affected by the recall have traveled more than 100,000 miles, GM estimates.

Karen Radley, owner of Radley Chevrolet in Fredericksburg, Va., said records show there are nearly 1,200 people in her area driving cars covered by the recall. “This is an opportunity to reach out to every owner on the list,” she said.

“We’ve got wonderful new product and we don’t want this recall to be a black eye,” she said. The dealership has had only a handful of owners, less than 10, request a rental car as an alternative, mostly because their children drive the recalled car.

Several dealers said GM has gone beyond what it typically does during a recall to head off customer gripes. The Detroit-based auto maker has provided rental cars to concerned owners to drive until their cars is fixed, and in some cases, has offered to have recalled cars picked up and towed to a dealership for the repair. For customers who don’t have full-coverage insurance, a necessity for renting a car, GM has offered to pay for that, too, dealers said.

“They’ve put more tools in our toolbox to handle these customers than ever before,” said Chris Graff, general manager at Hank Graff Chevrolet in Davison, Mich.

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New Chevrolets are lined up at a dealership in Wheat Ridge, Colo., last month. GM is offering customers rental cars for customers awaiting replacement ignition switches. Reuters

Owners’ view of the service and incentives could bear on GM results this year. Toyota Motor Corp.’s U.S. market share fell after its big recall in 2009-2010. For now, Toby Beck, a 21-year-old college student from Allentown, Penn., is continuing to drive his 2006 Cobalt, having turned down a rental.

But he remains cautious. Mr. Beck said his Cobalt has stalled on him before while driving, shutting off after hitting a bump in the road. “I have pretty quick reflexes to turn it back on,” he said.

“I’m just hoping the steering won’t lock up with the car being off. The roads are pretty bad here.”

But he will “think twice” about buying another car from GM even with a trade-in incentive on his car, he said. “I don’t really know how I can trust them,” he said.

Some dealers have extended their hours to handle customer calls on the recall and schedule repairs, while others have used the outreach as a chance to talk up GM’s latest offerings.

GM has said it doesn’t want dealers to exploit the situation. At the same time, the auto maker is offering a $500 cash allowance to drop the price of a new vehicle for owners of recalled vehicles who want to dump the old car.

GM recently expanded the offer so owners could get the same rebate on a used, or “certified preowned,” GM vehicle, as well as a discounted finance rate. Usually such deals are for new cars only, dealers said.

“We’re going to do everything we can to fix it or get them into a new car,” said Brian Hamilton, a GM dealer in Kearney, Neb.

“We’ll give them the numbers on a new car. With interest rates so low and the incentives so big, a lot of times we can set them up with a new car and keep their payments the same.”

Mr. Graff said GM could do more, questioning why the money spent on rental cars couldn’t be applied to a larger rebate on a replacement vehicle. Some customers will be in rental cars for between 30 days and 45 days, he estimates.

“I’d rather see those dollars in the hands of the customer than a rental agency,” Mr. Graff said.

A GM spokesman said the company doesn’t plan to increase the rebate.

Dealers said the recall and related investigations have cast a pall over GM’s recent quality and design improvements.

Last year, GM’s Chevrolet and GMC brands finished among the top five brands in J.D. Power & Associates’ new-car quality survey.

“I’m frustrated by it because we have a lot of positives going for us,” said John Medved, owner of Colorado-based Medved Autoplex. “You’re talking about an entity and an era that is gone and we’re still living with it.”

Mr. Medved said while the recall is unfortunate, he is willing to “take a little less on the deal and give more on the trade-in” to get owners of recalled cars into a newer vehicle.

Dealers said there have been some mixed signals and confusion in GM’s communications to dealers. Some want GM to instruct dealers to hold on to used cars affected by the recall until they are repaired.

AutoNation Inc., for instance, has stopped sales of the less than 100 cars it owns because they are part of the recall, a company spokesman said. Other dealers also have stopped selling the affected cars.

But as of Wednesday, AutoTrader.com, an online auto marketplace, showed thousands of affected Saturn Ions and Chevrolet Cobalts listed for sale across the U.S.

A GM spokesman said GM’s franchise agreement with dealers requires them to check new and used vehicles for recalls and repair them before they are sold.

The auto maker late Friday said it was recalling 172,000 Chevrolet Cruze compact cars covering the 2013 and 2014 model years. The recall is focused on Cruzes equipped with 1.4-liter turbo gasoline engines. The company found that in some cases the right front axle of the vehicles can fracture and separate during normal driving. The auto maker is unaware of any injuries or crashes related to the issue.

The auto maker also recalled 490,200 of its pickup trucks and sport-utility vehicles for a possible oil cooler line leak that could result in a fire. The recall covers 2014 Chevrolet Silverado and GMC Sierra pickup trucks along with the 2015 Chevrolet Suburban, Tahoe and GM Yukon.

All customers will receive notifications from GM which will also repair the vehicles free of charge.

Write to Christina Rogers at christina.rogers@wsj.com

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Should Company Employees Be Personally Responsible For Product Defects

Discussion Questions:

  1. The U.S. Justice Department may pursue individuals within a company arguing that the individuals who make decisions within a company should be held accountable.  Carefully read the article and list the main points.

  2. Make a list of product related decisions that employees make that may lead to serious product liability issues.  Do this within the context of a specific company or industry.

  3. Do you think that employees should be held personally responsible for the decisions they make for their employer?

  4. How should you personally manage this type of risk?

Judge Wants Toyota Probe to Include Employees

Judge Approves $1.2 Billion Penalty for Misleading Consumers on Safety Problems

Christopher M. Matthews

Updated March 20, 2014 4:06 p.m. ET

Now that the Justice Department has extracted a $1.2 billion penalty from Toyota Motor Corp. for misleading consumers about safety problems in its cars, a federal judge wants prosecutors to go after the employees who were responsible.

U.S. District Judge William H. Pauley approved the auto maker’s settlement with prosecutors on Thursday, saying it “painted a reprehensible picture of corporate misconduct.” But he added that ultimately individuals are responsible for corporate misconduct and urged the Manhattan U.S. attorney’s office, which conducted the investigation into Toyota, to continue its probe.

“I sincerely hope that this is not the end but rather the beginning to seek to hold those individuals responsible for making these decisions accountable,” Judge Pauley said during a hearing in Manhattan federal court.

A Toyota spokeswoman declined to comment.

A spokesman for the Justice Department declined to comment on Thursday. When asked if prosecutors would pursue individuals during a news conference Wednesday, Manhattan U.S. Attorney Preet Bharara said he wasn’t “foreclosing anything” but believed the settlement is the “final resolution” of the case.

“[T]he rules of evidence sometimes do not allow you to use certain kinds of evidence and certain documents against individuals, although they might be admissible against the company itself,” said Mr. Bharara. “And so although there is an admission that there were individuals who engaged in conduct which provides for a basis to bring a case against the company, they are not charged here.”

The comments add to a growing chorus from judges who have criticized prosecutors for settling claims of wrongdoing with companies while not bringing charges against executives or others who actually made the decisions.

Under the terms of the agreement, Toyota admitted that it misled U.S. consumers by concealing information and making deceptive statements about two safety issues affecting its vehicles, each of which resulted in unintended acceleration.

Christopher P. Reynolds, Toyota Motor North America’s top lawyer, admitted Thursday that Toyota had misled consumers, but the company pleaded not guilty to wire fraud, a common part of such settlements.

The $1.2 billion penalty is the largest to date against an auto maker and ends a four-year criminal probe into Toyota’s handling of safety issues that a government regulator in 2010 found had caused at least five deaths.

“This is unfortunately a case that demonstrates that corporate fraud can kill,” Judge Pauley said on Thursday.

The settlement comes as the government is ramping up a similar investigation into General Motors Co. handling of a faulty ignition switch that affected more than 1.6 million vehicles and has been linked to a dozen deaths. GM has acknowledged that it knew about the defect for years before it conducted a full recall.

Write to Christopher M. Matthews at christopher.matthews@wsj.com

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Total Cost of Ownership–Mercedes or Ford?

Discussion Questions:

  1. Total cost of ownership is an important but often overlooked Operations and Supply Chain Topic.  This article brings the topic down to a personal level.  Study the article and consider how this idea is applied to material purchase decisions in a company.
  2. How can cost of ownership be considered in the design of a firm’s products?  How important is this to the success of the product?
  3. Consider the idea of “value” to the customer, how does the total cost of ownership impact value?

Mercedes or Ford, It Costs a Lot More Than You Think

Your Car Could Be Driving Your Budget Into the Ground

By Andrea Coombes

March 15, 2014 8:26 p.m. ET

Ever wonder where your money disappears every month? Take a look in your garage.

Your car could be driving your budget into the ground.

If you’re driving 15,000 miles a year—not uncommon for an American worker—in a midsize sedan such as a Toyota Camry or Ford Fusion, you’ll spend more than $760 a month on average, or $9,150 a year, on gas, maintenance, tires, full-coverage insurance, license and registration costs, depreciation and finance charges.

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That’s according to an annual report by AAA, the auto club, on driving costs in 2013, based on buying a new car and driving it for five years and 75,000 miles.

But your costs easily could be higher.

Got an SUV? It will cost you about $967 a month, or $11,600 a year, according to AAA.

And don’t forget those one-time and infrequent costs not included in the AAA report—say, $10 a pop for a carwash every other month, an occasional parking ticket of, say, $40. Perhaps you’re also shelling out for paid parking at the baseball game or a downtown garage. Add $300 a year for those types of charges. Let’s just say you avoid budget-busting speeding tickets.

We could add in the square footage of your garage—say 400 square feet at $100 a square foot. That’s $40,000 of your mortgage that’s going to the car.

Plus, if you’re like 76% of Americans, you drive to work alone—and it takes you about 50 minutes a day round-trip on average. Your driving costs are counted in AAA’s estimate, but what about the value of your time?

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Toyota cars at the company’s showroom in Tokyo last year. Bloomberg

Let’s say your time is worth $25 an hour. Add up that 50-minute commute every weekday for all but two weeks a year and you’re spending about $5,200 a year.

After 10 years, that’s $52,000 worth of your time, gone, not to mention the $94,500 in direct car costs, without even including your garage financing costs.

Realize, too, that where you choose to live also plays a part. “Transportation costs vary by region,” says Linda Young, research director at Center for Neighborhood Technology in Chicago.

Some of the most expensive U.S. housing markets, including San Francisco and New York, rise high in the Center’s affordability rankings when transportation costs are factored in, and more spread-out places such as Houston or Tampa become less affordable.

“In places that are compact, close to jobs, with a variety of transportation choices, people spend less. In dispersed areas, people need to own a lot more autos and need to drive them farther, so hence the costs go up,” says Ms. Young. For more, see HTAIndex.cnt.org.

Take a look at these tips for ways to reduce your automobile costs. (Clearly, avoiding costs such as time spent commuting entail major life changes. The point is: Don’t ignore these expenses in your decision making.)

1. Don’t buy more than you need.

Before you rush into a car purchase, consider your long-term finances. The difference in annual cost between a small and medium-size sedan driven 15,000 miles annually is more than $2,000 a year; there’s a similar difference between midsize and large sedans, according to AAA.

“In the showroom it might be a $5,000 difference, but in the long term it’s a five-figure difference,” says Michael Calkins, manager, technical services at AAA in Heathrow, Fla. Mr. Calkins compiles the figures in AAA’s annual “Your Driving Costs” report.

Why not put that money into your child’s college fund or your mortgage?

Making an extra $2,000 house payment once a year can slash your interest payments by more than $40,000, plus reduce your loan term by about seven years, assuming a 30-year, fixed-rate $200,000 loan at 4%.

2. Don’t buy new.

Buying a car new is a losing bet.

“The single biggest expense is depreciation—and that’s probably far and away the most overlooked cost of vehicle ownership,” says Mr. Calkins.

Cars depreciate at different rates, but generally, “in the first year it’s going to depreciate by roughly 20%,” says Ron Montoya, consumer-advice editor with Edmunds.com in Santa Monica, Calif. Check out their True Cost to Own tool to see depreciation and other costs for particular models: www.edmunds.com/tco.html.

To reduce costs, buy used—and look to cars that hold their value, such as a Honda Accord or Toyota Camry, Mr. Calkins says.

“Mercedes, BMW,  Lexus: These are wonderful cars, but they take big hits in the first couple of years in depreciation,” he says.

3. Read the manual.

The good news is that even though repair costs rise as cars age, “the longer you own a car, the less it costs to own and operate,” Mr. Calkins says. “Today’s cars are pretty darned reliable and most will go 100,000 miles without needing a major repair.”

But don’t overmedicate your car with oil changes and the like. Cars have changed a lot in the last couple of decades—engines are stronger and lubricants work better now, he says.

Instead, read your owner’s manual.

“There’s always a section on the upcoming services that are needed,” Mr. Montoya says. Call your mechanic for a cost estimate and figure that into your budget.

Also, various apps can help you track your gas mileage and improve your budgeting. Fuelly is one. Mr. Montoya uses Road Trip.

4. Ask about insurance costs.

Before you buy a new car, ask your insurance company for a quote on that model. You may be surprised at your insurer’s response.

“You’d think that a subcompact economy car would be really cheap to insure, but that’s not necessarily always the case,” Mr. Calkins says. “Conversely, with an expensive car, say, a Mercedes, the cost may actually be fairly reasonable because the people who own those cars tend to drive them very carefully.”

andreacoombes@outlook.com

Posted in Cost, Materials, Product Design, Purchasing, Total Cost of Ownership | Tagged | Leave a comment

Factoryless Goods Producers–Should They Be Categorized As Manufacturers?

Discussion Questions:

  1. Read the article carefully.  What’s the difference between a manufacturing and service company?
  2. Well, what do you think?  Should a company that designs a product, potentially buys the materials, and sells the product, but does not actually make the product be called a manufacturer?

U.S. Agencies Consider Redefining Manufacturing

Counting ‘Factoryless Goods Producers’ Would Boost Size of Industrial Sector

March 14, 2014 7:08 p.m. ET

Rich Cameron in the Carson Optical R&D room. Jason Andrew for The Wall Street Journal

HAUPPAUGE, N.Y.—Should a company be called a manufacturer if it doesn’t make what it sells? The answer isn’t as obvious as it seems. Just ask Rich Cameron.

“If someone asks me at a party, I say we make binoculars,” said the president of Carson Optical Inc., a small company tucked in an industrial park in this New York City suburb, adding, “It’s a little bit more vague than saying we manufacture them.”

Some refer to companies like these as “factoryless goods producers”—firms that handle every part of making their products except the actual fabrication. As industries have gone global, this model has proliferated from furniture making to electronics: Think of Apple Inc. and its iPhones. Now, there is a move afoot among U.S. government agencies to count these companies as manufacturers, which is a surprisingly fraught issue.

The upshot would be an overnight increase in the apparent size of the U.S. industrial sector without adding a single assembly line. It would also change its geography, as places like Silicon Valley would suddenly look much more like a manufacturing hot spot. Backers of the change say this would give a truer picture of the nation’s productive capability, because these firms still do most other functions of manufacturing, from designing goods to overseeing their production and distribution.

Lead engineer Michelle Hyers looking at fabric structures through a microscope. Jason Andrew for The Wall Street Journal

But critics like Miles Free, director of industry research and technology at the Precision Machined Products Association, a trade group for small U.S. producers, say the change in wording would gloss over the erosion of domestic manufacturing. “We think it would be bad for policy makers to say, ‘Look at these numbers, we have great manufacturing,’ ” he said, when the production in many cases is actually taking place on the other side of the world.

It was Mr. Free’s idea to put a picture of Joe Isuzu—the notoriously dishonest faux auto pitchman—on the group’s website to illustrate a story on the issue.

Government agencies say the proposed change—which could affect everything from the monthly jobs report to producer inflation figures—is simply driven by a desire to properly account for the effects of globalization.

One visible change would be in the Census Bureau’s survey of business, done once every five years, which contacts business locations across the nation and asks them questions about their operations. Until now, most operations like Carson were counted as wholesalers in the survey.

In a research paper released last year, two professors at the Tuck School of Business at Dartmouth College estimated the redefinition would have added anywhere from 431,000 to nearly two million workers to the manufacturing sector in the 2007 Census survey.

One reason for that wide range is that it is difficult to know how many factoryless goods producers there are, because not all wholesalers answer the questions that would allow them to be identified as falling into this new category.

“I’m not sure if this is a good idea or not,” says Andrew Bernard, one of the authors, “but if we don’t understand what’s going on, we might implement bad policy.”

Government economists say the change, if it occurs, wouldn’t happen before the next Census survey in 2017, and that it isn’t a done deal. “We’re working hard to understand all the potential problems and how to do this,” said Maureen Doherty of the Labor Department’s Bureau of Labor Statistics, who heads a committee made up of representatives of five agencies working on the issue. Mindful that the change could make it hard to compare numbers over time, she said they intend, whenever possible, to break out the number of factoryless-goods producers as a separate category in manufacturing.

A stroll through Carson Optical shows why companies like these can be hard to label. Mr. Cameron, a former banker, started the firm 23 years ago after a stint working in Asia, where he saw the potential to import optical goods from Japan.

But the firm today has evolved far beyond just importing the things that others create. In a conference room near the front, the walls are lined with products Carson’s three-person engineering team has designed, including a hand-held microscope used by medical-marijuana growers to study their plants and an anti-reflective lens device that can be clamped onto binoculars and gun sights.

Carson holds 94 U.S. and overseas patents. The company closely monitors how its goods are made, in some cases buying materials needed to make them and sending them to the factories in Asia.

And the evolution continues. Mr. Cameron is shopping for his first computer-guided production machine and is preparing to move to a bigger nearby building to accommodate his growing design and development operation. He plans to use the new machine to make better prototypes but doesn’t rule out someday making some of his own goods.

Michelle Hyers, the company’s lead engineer, said she has the same problem as her boss when people ask her what she does. “I say we make consumer optical products,” she said, using her fingers to mark air quotes around “make.” “We’re not producing here in the back,” she adds, “but we control the whole process.”

Write to Timothy Aeppel at timothy.aeppel@wsj.com

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Manufacturing Plants in Europe Generate Own Electricity

Discussion Questions:
  1. The following article describes what may be a growing trend where companies are becoming self-sufficient in energy needs.  What are the advantages and disadvantages of doing this?
  2. It may be that the cost advantages are dependent on government subsidies which may be reduced in the future.  Would being energy independent still be attractive?
  3. Describe a specific set of characteristics (product, manufacturing, resource, etc.) that would map into the type of company that would find energy self-sufficiency most attractive.

German Companies Take Back the Power

As Electricity Costs Soar, Energy-Hungry Firms Have a Growing Incentive to Go Off the Grid

Jan Hromadko

March 2, 2014 7:16 p.m. ET

Warwick, a bass-guitar manufacturer, produces all the electricity it needs through its own natural-gas plant, solar panels and a boiler fueled by wood waste from its guitars. Martin Jehnichen

Every sixth company in Europe’s largest economy now generates its own electricity, roughly 50% more than one year ago, according to Germany’s Chamber of Commerce and Industry. They range from rural family-owned companies to a vast Dow Chemical Co. plant that consumes 1% of the country’s electricity.

The reason? Ever-higher electricity prices—driven in part by a 22% government-mandated levy to fund renewable-energy sources—are prompting companies large and small to invest in their own power-generation infrastructure. Doing so not only shields them from the government surcharge, but also makes them eligible for subsidies designed to encourage energy efficiency and so-called green electricity.

Michael Salcher, head of the energy and natural-resources practice at consultancy KPMG in Germany, estimates that companies that avoid the surcharge and receive subsidies can cut their electricity bills by around 50%.

Part of the electricity that Warwick produces comes from a boiler that burns wood waste from its guitars. Martin Jehnichen

Warwick GmbH, an electric bass-guitar maker based in the eastern town of Markneukirchen, near the Czech border, produces all the electricity it needs through its own natural-gas-powered plant, solar roof-mounted facilities and a boiler fueled by wood waste from its guitars.

Warwick, which has annual sales of about €24 million, or roughly $33 million, spent more than €3.7 million on self-generation, and founder Hans-Peter Wilfer isn’t sure when the investment will pay off. “But in times of ballooning power prices, this will be worthwhile,” he said.

Partly because it aims to drop nuclear power within the next eight years and most fossil fuels by midcentury, Germany is aggressively promoting solar, wind and other green renewable-energy sources. To pay for this shift, the government has slapped a surcharge of about 22% on power bills for businesses and households. The levy, first imposed in 2000, has nearly tripled since 2010. As a result, industrial electricity bills have risen by more than 10% since 2005, while wholesale power prices have held steady.

Roughly 16% of German companies were producing their own power by the middle of last year, according to the German Chamber of Commerce—up from about 10% a year earlier. A further 23% of companies are considering joining the fray, the chamber said.

In response, Chancellor Angela Merkel’s cabinet plans to revise Germany’s energy laws in coming weeks. The new regulations would have self-generating companies pay part of the renewables surcharge and raise the bar for some green subsidies, according to a published draft of the bill.

Car-parts maker ZF Friedrichshafen AG, which spent €2 million on a new two-megawatt electricity- and heat-generation plant, is now reassessing whether to proceed with a second generating unit as a result of the potential change to energy legislation, said Mario Heusinger, the company’s maintenance chief.

Electrical self-reliance has its share of drawbacks. It can require large initial investments and force companies to manage equipment unrelated to their core business, though most contract out maintenance. Companies also usually keep some link to the grid for emergencies.

But the increasing instability of Germany’s power grid, along with higher electricity costs, is leading many companies—whose highly automated facilities demand stable current—to take the leap.

Germany’s electrical network was built to move gigawatts from relatively few large plants to users nationwide. New wind farms and solar arrays are scattered geographically and require new grid capacity to ship electricity from mostly rural areas to urban centers. Power-grid companies are struggling to adapt, and regulators say the grid’s stability has suffered as a result.

Decentralization now adds yet another headache for traditional producers like utility giants E.ON SE  and RWE AG. With fewer industrial customers, they face plunging revenues, exacerbating difficult market conditions.

In response, the utilities are trying to cash in on decentralization by installing and managing companies’ on-site generators. E.ON, for example, last year struck a deal with retailer Metro AG to build four heat-and-power units at stores in Germany and Russia.

E.ON and RWE both say decentralization offers them opportunities but acknowledge the new businesses don’t yet offset falling traditional revenues. One problem is that utilities’ background in industrial-scale generation means they aren’t focused on small companies.

Small players like bass-maker Warwick tend to turn to more nimble engineering firms for generators.

For some companies, the financial and technical advantages of independence are just benefits of necessary investments. Dow Chemical needs both steam and electricity for its complex in Stade, near Hamburg, so several years ago decided to invest roughly €400 million in generating equipment that yields both. Spokesman Joachim Sellner says rising energy prices have confirmed the wisdom of Dow’s choice.

Mr. Sellner said government plans to end exemptions from renewables subsidies could significantly increase Dow’s power bill, which are now in the hundreds of millions of euros each year. Dow is planning another on-site power plant to cope with rising bills.

Still, cutting ties with the grid can lead to unexpected knots. Warwick, the bass-guitar maker, is based in an economically depressed agricultural region of the former East Germany, and Mr. Wilfer is struggling to attract qualified staff willing to relocate to that region.

“I have invested too much” in this site, he said. “I’m stuck here and can’t move, even if I wanted to.”

Write to Jan Hromadko at jan.hromadko@wsj.com

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