When Google released the Nexus Q, a media streaming
device, in June 2012, the company positioned itself in contrast to conventional
electronics manufacturing. Rather than building the devices overseas and then shipping
orders from foreign distribution centers, the Nexus Q was designed and
manufactured entirely in the United States. As emphasized during our next week
in class, this production feature was a management decision made early in the
product conception process to gain a competitive advantage over other media
streaming devices.
On June 27th, 2012, the New York Times profiled the Nexus Q to assess whether increases in
American manufacturing are aberrations or new manufacturing trends based in
conditions of the global market.
WHY AMERICAN MADE
This next week in class
we will focus on how and why supply chain management decisions are incorporated
early in the product conception process. Or readings highlight how IKEA ensures
its efficiency (lowest cost and high volume) by detailing specific vendors and
production processes before products are even designed and how Tata Motors
built its business model, of reaching rural residents at low cost, by
constructing its vehicles in sections which can be combined in auto kits by
minimally trained local shops.[1][2]
The design and manufacture of the Nexus Q in the United
States was a strategic decision made early in the development process of the
device. The New York Times suggests four
primary reasons for this:
1. Increases in labor and energy costs in China
To be competitive, Google wanted the Nexus Q to have low product
construction costs. Rising wages and energy costs in Chinese factories made
overseas production more expensive than in the past. The United States was
considered a feasible manufacturing alternative because, although wages were
higher, they were predictable.
2. Increases in transportation costs
To be competitive, Google wanted the Nexus Q to have low
transportation costs. Rising oil prices convinced Google that by manufacturing
its devices in the United States, it could ship the devices less expensively to
customers in North America.
3. Theft of intellectual property
Electronics manufacturing overseas also increases risks
of intellectual property theft and leaks. Rather than attempting to maintain
positive relationships with foreign suppliers, as IKEA does, Google wanted
higher security and safeguards during its design and manufacturing process—security
that was only feasible at a U.S. based plant (which ended up being only a few
miles from Google headquarters in California).
4. Time-to-market competitive advantage
Google wanted its media streaming device to be highly
responsive (a feature of more expensive goods) to public demand. By designing
and manufacturing the Nexus Q in California, Google was able to design the product
faster and with significantly more flexibility than had it been designed and
manufactured overseas. To ensure speed and quality of production, Google sought
out and used American suppliers for most Nexus Q components as well. [3]
WILL NEW AMERICAN MANUFACTURING BE A TREND?
The question that arises from the debut of the Nexus Q
is, “Will more companies shift their manufacturing divisions back to the United
States?
The outcome of the Nexus Q itself may not provide an
answer. By August, 2012, Google had halted production of the Nexus Q indefinitely.
At $299, the device was too expensive (its production costs with American wages
were too high) and critics panned it for being poorly designed (poor
quality/uncertain design responsiveness). [4]
Still, in an April 2012 report, Boston Consulting Group
suggested that large manufacturing firms are, indeed, considering moving
production lines from China to the United States. The study revealed that one
third of U.S. companies with sales greater than $1 Billion USD are planning or
considering moving manufacturing from China back to the United States. Top
motivators for such plans are labor costs, product quality, ease of doing
business, and proximity to customers. [5]
This movement has already been seen by Caterpillar,
Kubota, and Toyota who have invested over $430 million dollars to build manufacturing
plants in the State of Georgia. Rising transportation costs and proximity to
the Panama Canal were cited as factors behind the investments. [6]
ADDITIONAL THOUGHTS AND QUESTIONS
Paired with the April report from BCG, the failure of the
Nexus Q presents several additional questions that our class may be able to
look at.
-If wages in China are not yet equivalent to those in the
United States but are rising, when should U.S. firms begin shifting their
manufacturing out of China?
- Is the United States the best alternative manufacturing
location? If not, what other alternative locations are there?
-How much volume of parts can U.S. suppliers handle? Are
any common electronic components unavailable from U.S. suppliers?
SOURCES
[1] Margonelli, Lisa. "How IKEA designs its sexy price tags." Business 2.0, October, 2002.
[2] Brown, John Sealy and John Hagel. "Learning from Tata's Nano: The innovations of the $2,500 car carry important lessons for Western Executives." Bloomberg Businessweek, 27 February, 2008.
[3] Markoff, John. "Google Tries Something Retro: Made in the USA." The New York Times, 27 June, 2012. Internet; Available from http://www.nytimes.com/2012/06/28/technology/google-and-others-give-manufacturing-in-the-us-a-try.html?pagewanted=all
[4] Miller, Claire Cain. "Google Goes Back to the Drawing Board for Nexus Q." The New York Times, 8 August, 2012. Internet; Available from http://www.nytimes.com/2012/08/09/technology/google-goes-back-to-the-drawing-board-for-nexus-q.html?pagewanted=all
[5] "More Than a Third of Large Manufacturers Are Considering Reshoring from China to the US." Boston Consulting Group, 20 April, 2012. Internet; Available from http://www.bcg.com/media/PressReleaseDetails.aspx?id=tcm:12-104216
[6] Sams, Douglas. "Caterpiller moving to 'Orkin Tract' megasite." Atlanta Business Chronicle, 17 February, 2012. Internet; Available from http://www.bizjournals.com/atlanta/news/2012/02/17/caterpillar-to-build-plant-near-athens.html?page=all
