Category Archives: Economics

Verbund Manufacturing

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German manufacturing culture does many things very well, but a few things particularly stand out. One of these items pertains to the concept of verbund manufacturing. Verbund simply means “integrated” or “linked”. Verbund manufacturing sites are clusters of manufacturing units that take advantage of proximity. Clustering can offer certain logistic and energy advantages if done intelligently.

A cluster of manufacturing sites can operate and share a co-generation plant for the distribution of steam, waste heat, and electricity. Large capital items like steam plants can be shared so funds can be plowed into larger scale for better economy. Rail operations and other transportation resources can be shared as well. Clustering also provides for the possibility of vertically integrated manufacturing on site and a reduction in transportation costs.

Clustered manufacturing may also have the effect of concentrating the supply of skilled workers for the labor pool. A manufacturing nexus can attract community colleges and other vocational opportunities for the next generation of employees.

The USA has many manufacturing sites where similar industries congregate. Look at the Gulf coast with all of the refinery locations. But the extent to which there are synergistic interactions between companies is unclear.

In the US, corporations tend to behave as the Republic of Exxon or the Republic of the Union Pacific. This kind of a fragmented confederation of corporate states is becoming obsolete as we go up against nationalized business entities that control key resources and trade. The key to future vitality is greater efficiency with resources. Synergistic cooperation is one model that is available. But to do this requires trust and the desire to cooperate for mutual benefit. Competition begets gamesmanship and posturing which works against the verbund model for US businesses.

US corporations have much to learn from this business model.

Synthetic Chicken- Regular or Extra Crispy?

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While the rest of us were wasting our time sleeping or soaking in the spa, our ambitious food scientists have been steadily beavering away on the cultivation of chicken tissues. The goal is toward the mass production of chicken-like food.  Poulterer and Kentucky Colonel Harlan Sanders will be transformed into tissue farmer Dr. Sanders in a lab coat and goggles.

The mass production of tissue cultivated meats won’t happen anytime soon. However, it is something that is being investigated by serious workers in the field.

I have to admit that my unquestioning embrace of Progress is weakening. Nonetheless, interesting things are happening. Consider the work of Vladimir Mironov, Director of the MUSC Bioprinting Center at the Medical School, University of South Carolina in Charleston.  In an effort to get around the engineering problem relating to the construction of 3-D structured tissues, the idea of layering cells by ink-jet deposition was developed.

Who knows where this is going?  Mironov’s technology will be very expensive initially, so its application to the production of $4.59 pork tenderloin sandwiches at the local diner is some distance into the future. More likely than not, it will be used for the cultivation of designer transplant organs.

Eventually, some company with deep pockets will attempt to market engineered meats. I would venture to say that the marketing problem is nearly as big as the technology challenge. Wide acceptance into the marketplace will take a while. I wonder how the first ad campaign will take shape? PETA approved Beef-Like Steak Food. Marbling and tenderizing is already engineered into the “cut”. Marketing may eventually be its undoing.

Synthetic chicken fried steak with mashed potatoes and synthetic gravy. Genetically modified Roundup Ready corn on the cob boiled in reverse-osmosis purified water. HEPA filtered air in a kitchen cleaned with anti-microbial soaps. Mouths freshly gargled with hydrogen peroxide and bellies full of nutritional supplements. Lordy. Where are we going with this?

All Rights Reserved. Copyright 2008.

Spacely Sprockets

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A commentor recently pointed out that Th’ Gaussling was sounding off in a nationalist/socialist way. While I’m pretty sure I’m not a socialist, I must admit that I’m on a nationalistic bender at the moment. And by nationalistic, don’t think for minute that I get weepy and sentimental over Kenny Rogers flag waving ballads. I don’t.

But I do believe that, in the short and bloody history of humanity, this North American culture of ours has produced or advanced some truly amazing things. Like space exploration and antibiotics. Airplanes, transistors, synthetic chemistry, and cinema. We’ve had some low points as well. But in spite of our war-like behavior, much good has come from our industriousness. 

And, I am anxious to keep it much of it running. There is no return to a pastoral life in the Shire. We are electric hominids whether we like it or not. The very existence of life itself leads to disorder. Highly ordered organisms that we are, we create vast amounts of disorder to energize life and hold our molecules together in cellular membranes.  Practically by definition, we cannot help but leave a carbon footprint. The trick is to avoid adding carbon faster than the cycle can accomodate.

It is plain as day that the USA is trending in a bad economic direction. I’m not talking about economic indicators or some political movement. I’m talking about our business culture. I believe that our manner of doing business has gone astray.  We have come to value the wrong people and unhealthy organizational behavior. We have come to admire those who appear to generate wealth by the manipulation of financial contrivances and accounting machinations. Strangely, the notion of manufacturing as a desirable activity has become nearly obsolete.

We don’t need Grand Theft Auto IV or Microsoft Vista or better cell phone gimmicks. We don’t need more gadgets to give neurotic, hyperactive, workaholics 2X better web connectivity.  Somehow, we have become intoxicated with computer technology to the point where we feel we need to fill terabytes of disk space with junk data rather than going outside and planting a garden or talking to the neighbor.

The greedheads in banking, finance, and real estate have helped to construct a business finance machine that few understand. Greed as a virtue is the norm. The right to petition congress has come to mean a docking port for electronic funds transfer to the military-industrial complex. If gaming the system is possible, then it is manditory.

We don’t have to abandon the basic principles of laissez faire markets. Markets work. Even the Chinese communists realize this. But we don’t have to shut our brains off either.

We do need a comprehensive mass transit network covering most of the continent. We need better ways to generate and transfer electric power. We need to find ways to make sure that people in Honduras have clean drinking water.

We don’t need a better version of Excel or SAP. We need Spacely Sprockets. We need people to continue to go into the trades and build things. We need welders and electricians and machinists, millwrights and longshoremen.  This country needs to get back to the fundamentals of manufacturing tangible products.

 

 

Aviation Deathmatch- Boeing vs Airbus vs PR of China

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China has announced that it will enter into the passenger jet manufacturing business.  China Commercial Aircraft is expected to produce 150-passenger aircraft by 2020. 

This is a big deal.  And a big time challenge to the primacy of the US aviation industry. China’s aim is to achieve self-sufficiency in all high tech sectors. If it were just that, it would be less threatening. But what it really means is global market domination, not just self-sufficiency.  This is just competition, but how it plays out for the US will depend on how US industry acts to hold on to its marketshare beginning right now.

The USA retains talent and ability in the entertainment and aviation industries. I believe that US influence of the petrochemical industry is in decline, due in part to the rise of nationalized oil companies in much of the oil producing world. It looks as if our aviation industry will feel competition by a nationalized aircraft manufacturer as well.

The rise of Chinese competition in the marketplace in inevitable. What the west must come to grips with is the inherent leverage that China has with its low wage labor force and the ability to channel resources into projects of national pride such as this.

China will also have the benefit of a century of jet engine and aeronautical research paid for by other nations. I imagine that more than a few of its engineers will have western universities listed on their resumes. Can’t do much about this either. But we in the west can use this example to strengthen our resolve to not go the way of tired and anemic empires.

Thus Begins Cold War II

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Russia celebrated a holiday recently with a large scale military parade on Red Square. Just like the bad old days. Putins sock puppet, President Dmitri Medvedev, smiled while Putin stood stern-faced at his side at the annual Parade of Hardware.  Insiders claim that Russia’s effort to modernize its military forces is anemic and plagued with corruption. Putin and followers are plainly appealing to that voice in the Russian soul that longs for strongman leadership.

China, on the other hand, is quietly constructing a secret underground nuclear submarine base on Hainan. Hmmm. A secret underground lair. Sounds like Dr. No.  I doubt there are miniskirted nubiles with machine guns. Bummer.

Whereas Russia is fighting infrastructural inertia in its return to the platform, China is methodically ramping up its military with an economy flush with cash. With funding from its exports of Wal-Mart inventory and other Cheap Plastic Crap (CPC) marketed through its many outlets in the USA, China is moving closer to a blue water Navy and an SSBN fleet.

In the next 20 years, we are likely to see China flexing its muscle by positioning naval (carrier ?) groups and hints of Chinese submarine fleets prowling the continental shelves of the world.  Just like us.

While the USA shadow boxes with multiple terrorist threats around the world, China plods forward minding its own business and funding its own growth.

Four US presidential terms were squandered following the fall of the Soviet Union- 2 x Clinton and 2 x Bush.  US efforts to engage Russia in economic cooperation were weak at best. The highlight was perhaps the downgrading of Soviet era nuclear materials.  Instead of building friendships and trade cooperation, US presidents were distracted by faulty nation building exercises and dubious foreign adventures. Mikhail Gorbachev himself recently lamented that “… every US president has to have a war…”. 

US government needs to spend a 4 year term focused inwards. We must address US infrastructure as eagerly and aggressively as we land troops on the sandy reaches of the earth. The US needs an upgrade in electrical power distribution, bridges, its rail “system”, and its ports.

Collectively, we must find ways to keep factories and businesses in the USA. We need to reconsider the structure of the Code of Federal Regulations. Our regulatory structure is now so complex and extensive that we face the real risk of killing innovation. Our tax code is too complex and too burdensome on citizens and businesses. The government is funding far too many activities.

In short, the USA must get back to basics. The country is in a existential crisis and we need to get grounded again. We need fewer rules in our lives, not more. We need fewer people telling us how to live an authentic life. More of us need to spend a bit more time in the pursuit of happiness.

On Company Lawyers

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In the chemical technology world, it often happens that one company will engage another in the manufacture of some particular substance. Company A needs a particular material made according to certain specifications. Company A goes to Company B to ask for price and availability.  But first, Company A must disclose the identity and certain particulars of the material to Company B.

For Company A to disclose the identity of its material, it must work out a secrecy agreement with Company B. Company A’s business depends on the material and it does not want Company B to disclose the details of the material, the process, or any other aspect of the business. So, they execute a secrecy agreement.

What is interesting about such arrangements is the great diversity of “language” in the terms among companies. Some companies are very concerned about the faintest smidgeon of errant information and write detailed terms accordingly. Others are much more concerned about the broad strokes and are apparently willing to let the courts work out the details in a conflict.

Some companies are willing to yield on unreasonable terms and conditions while others will fight to the death on even the slightest change.  There is a strong correlation to the corporate culture and the extent to which a company is under a market pull influence (tolling operators) or is engaged in technology push (inventors).

In some companies, issues relating to intellectual property (IP) are strongly influenced by the lawyers.  In such an organization, it sometimes happens that management is completely immobilized by indecision in IP matters. Managers may not understand the IP, are unable to engage their own lawyers in detailed discussion about the issue, or may simply be terrified of making a mistake. Doing business with organizations that are highly rigid in deference to their lawyers tends to be a more difficult activity. The thinking is that if the lawyer makes the decision, then they can take the heat if it goes south. Of course, the lawyer won’t take the heat- they’ll just bill you to get you out of the mess.

In other companies, upper management will take legal advice, but will not leave the decisions to the lawyers. These managers understand that IP is company treasure that must be put to good use in order to bring in revenues. Lawyers get paid irrespective of the outcome in the advice dispensing trade. A good manager knowns how to ride a lawyer like a cutting horse, digging in the spurs now and then to show who’s boss.

Reality Check. Always Certain But Frequently Wrong.

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One of the benefits of being a student is that there is always someone standing over your shoulder, watching the choices you make. In school you choices result in a score of some sort. Out in the world, your choices have bigger consequences than letter grades.

As in school, the Big Big World is always under time pressure. Better, Faster, Cheaper. There isn’t always time to deliberate on the global optimum solution. In industry, sometimes the choice you make is the first one that shows any promise. Experienced business people know that everything takes longer and costs more than you first realize. There is no substitute for an early start.

What results from this need to jumpstart a project is the failure to question your basic assumptions.  In chemistry, a person may slide into the seductive notion that you are an expert in a process and, of course, you know that your process will work on a particular analog. But, do you really?

Non-linear phenomena are particularly troublesome.  Or phenomena that are polynomial in description.  It is hard to intuit outcomes when terms that were previously small become dominant in the equation. There is no substitute for measurement. If you want to truly understand a thing, eventually you are going to have to make measurements and plot a curve.

Like a lot of people fresh from Grad School, I was sometimes an arrogant turd. Just ask around. Today I am much more cautious about my abilities and knowledge. Periodically I am reminded that intuition can fail. Like a 2×4 between the eyes.

While I can’t give details, I have had to drastically recalibrate my intuition about some things that I believed I had a handle on. It involved mass transport concepts. The separation of substances can be subject to constraints that aren’t so obvious to someone who has only been through the ACS-approved chemistry curriculum. An engineer might have looked at my circumstance and solved the problem in a New York minute.

But Th’ Gaussling had to learn the hard way. What else is new?

On Chemical Negotiation

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I always amazes me how little negotiation goes on in chemical B2B transactions. Buyers ask for the price of an obscure chemical and that may be the last you hear from them. Only rarely do I see pushback. Either a purchase order arrives or it doesn’t.  I’m not referring to trainloads of soda ash or other mass quantities of commodity chemicals. I’m talking in the one to 100 of kg range. People naturally take prices as fixed in concrete.

This is especially unfortunate or even tragic for materials that are very unusual. Items that have a low volume or minimal competition are products whose price has not been made rational through the forces of the market place. Competition has not forced the price to an optimum level.

Price is determined by what the market will bear. If there is limited exposure of a product to the market, then a rational price probably has not been reached and someone is leaving money on the table. Prices are initially based on some reasonable multiple of costs. The demand picture and the sellers anxiety to move product determine the real price point.

Much has been written about negotiation. I have no new concepts to add except a reminder that the best deals can come from multiple iterations of offer/counter-offer. Only by going into cycles of offer/counter-offer can you find out exactly what is possible to get from the bargaining.

Some companies, like SAF for example, are notoriously rigid in their approach to sales. I have found that they do fix their prices in blast resistant concrete. SAF is uber-aggressive in the marketplace because they are after total global domination. But not all companies are like this. Many are pleased to make a deal to get some material out of inventory.

What is troublesome for manufacturers of new or obscure products is that the initial price may frighten off a buyer. If the buyer recoils in horror from a price without any attempt to negotiate, then they lose the benefit of that product and the seller loses the sale and perhaps the entire market future of the material. I have seen this happen many times.

What makes this a difficult issue for the seller is that you don’t want to seem too anxious to drop your price. That just telegraphs to the buyer that they should expect a better price. The seller should have a front price that they want and a fallback price that they can live with. It is better to have the fallback price than nothing.  The skill comes in the smooth application of salesmanship.

A good sales person watches the prospective buyer carefully for flight impulse and silently swoops in like a vampire for the seduction and the lusty bite. 

Hip-motized by Doctrine

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It is interesting how people can adhere to abstract doctrines while reality rages all around them.  In particular, I am thinking of a recent “conversation” with an economist friend. A fundamentalist libertarian, he steadfastly refuses any hint of pragmatism in favor of his utopian idealology promoted by certain Austrian economists.

To the economist, anthing that smells like collectivism of any sort is deemed an automatic throwback to the failed ideals of Marx. It’s all about the individual and his property. Nevermind that any anthropologist will observe that people spontaneously form groups and associations to lessen risks and burdens associated with survival. 

Harm comes to people and society when those with a power position advocate for abstract doctrines over the welfare of citizens.  Notions of political structure, reproductive issues, qualification for acceptance into an after-life, or slavery are all sacred abstractions on which people have taken stands and many have killed or been killed for.

How many people have needlessly died because of the squeemishness of celebate men with the idea of condoms? How much destruction was released in Southeast Asia due to the opposed idealogies of Marxism and Capitalism?

Today, Americans face continued endurance of a broken health care system because certain vocal idealogues profess doubts over “Socialized Medicine”? American health care is already socialized to some extent. But in a way that favors the flow of cash to the coffers of corporate medical providers and insurers. Why do you think Warren Buffett is so enthusiastic about owning insurance companies?  You get paid up front. Surely there are other health care models out there that we can emulate.