Masood Mortazavi's Weblog

Wednesday December 15, 2004

[ Economics ] Why Manufacturing Matters

Supply chains are not merely centers of inventory, transportation, delay and fluctuation ("bullwhip") costs that can be unburdened on a contract manufacturer at will, while keeping the "brand" for oneself. Admittedly, the brand represents a highly valuable transaction-specific asset for the guarantees and "insurance" it brings with itself to the products it carries. Supply chains, on the other hand, embody not only costs but also the art of deal making and organization. Doing without them means that one will gradually lose the global deal-making capabilities and skills for the production of stuff, as IBM found out in its ultimate decision to give up its PC division to a manufacturer who had mastered, better than IBM could, the sophisticated art of deal making that lies behind the production of PCs (or anything else for that matter).
Abandoned Factory Images

2004-12-15 16:08:52.0 -- Comments [3] ; Permalink ; Trackback.

Comments:

The Art ; of Deal making. Fee for Service! ( or anything else that matters) Foundation business. " How do we make money " An examination of First Principals: The function of infulencing with integriety! Over and Over again! Winners All. rtg

Posted by BOMBOVA on December 15, 2004 at 06:12 PM PST #

I really did not get your argument, because "Why manufacturing matters" as a question has gained renewed prominence in the US after the recent issue of outsourcing: the very continuance of a country as a superpower w/o manufacturing has been called into question. So the question is larger than the putative loss skill in global deal-making that may derive from using supply-chains. While giving up its PC division and the supply-chain involved in the process might damage some of its "global deal-making" abilities/resources, I think one can hardly worry that would seriously damage IBM in such a vital area. It has a thriving services division (including PWC) and that is nothing if not pure deal-making, and yes, very global!!

Posted by Umang on December 16, 2004 at 07:36 AM PST #

Deal making has many aspects to it. It means working with a large number of other economic entities. By sticking to brands and outsourcing all production of stuff, the focus is on the last point of sale and not on the putting together of the product, although many multinational companies insist on playing and do play a significant role on the early design phases as well. Nevertheless, design and brands, while highly intellectual from a business strategy perspective, do miss the core of manufacturing which is the putting together and preserving of supply relationships. That's the art of deal making. The loss is not sudden or abrupt, and yes, this is not the end of IBM. That's not what I meant. The loss is gradual and incremental but the trend is definitely there. The point I'm trying to make is that when it comes to useful things, manufacturing matters. It cannot be brushed aside as an activity, only secondary to branding and design.

Posted by M. Mortazavi on December 16, 2004 at 08:51 AM PST #