Vicente Fox on the Importance of Open Markets for Global Collaboration

I was privileged last week to hear Vicente Fox, former President of Mexico, talking about the importance of open markets and trade agreements like NAFTA in today’s complex global trading economies. It was the highlight of AMR Research’s 2008 Supply Chain Summit and most of the people I talked with were very impressed with the speech.

I admit that it is easy to question trade agreements like NAFTA when we see so many U.S. manufacturing jobs moving overseas. But the arguments in favor of open trade are strong and need to be considered. I will try to share some of Vicente’s thoughts in this article and I urge that you also keep an open mind. Even if we don’t agree with some of his message, we can respect that it comes from someone that has done a lot of research, collaborated with international leaders, and has a lot of international business experience. Before entering politics, Vicente Fox was a successful President for Coca-Cola Latin America.

I would also like to note that Vicente Fox is a very clear and charismatic speaker. He was able to engage us, make his points with humor, and keep us focused on topics that are usually full of boring political rhetoric. If you ever have a chance to listen to him, don’t miss it.

Paraphrasing some nuggets from the former President...

In the 70-80’s, nationalism and protectionism was the name of the game. Several dictatorships and corrupt governments made it hard to do business and make a profit. While other parts of the world were advancing, Latin America was falling behind. We had to change and let go of the dictators. We needed new leaders with great vision.

Today we know that in Latin America, democracy and open markets work. We are finally returning to growth in the region. Capital per person is increasing. We are making a small dent on poverty numbers but we know this path works. We need to continue increasing our middle class.

The theme of this conference, Globalization Comes Home, is very important, because globalization is still not a fully accepted concept around the world. Mexico has one of the most open markets in the world with a large number of trade agreements. A lot of of the world’s exported products move through Mexico.

I am surprised that this US nation is moving back toward protectionism. We are also concerned about China, but building walls is not a long term vision. I don’t believe that thinking global translates to losing jobs.

Mexico, US and Canada are all losing jobs to China and we could benefit from working closer together. There are also many other stable countries in Latin America like Chile, Brazil, and even Colombia who has been trying to control problems with drug trafficking.

There are also currently a few countries like Venezuela that are causing worries in Latin America. It seems that we have not learned our lessons from the past. Fortunately globalization does not really enable Totalitarian governments to thrive in the global economy. Hugo Chavez withdrew from the G3 Trade Agreement between Colombia, Mexico and Venezuela. The current few dissident Latin American leaders opposing free markets have eroded the process, but it will come back.

I am not just talking optimistically about democracy and open markets. We have sound figures that show us the results and point to what we have to do to move forward in the future. What we need the most is leadership and institutions that generate those leaders. So we are creating initiatives like Mexico’s Presidential Library to help educate the next generation of leaders for Latin America. We need to recover the time lost during the 20th century in Latin America.

We hope this great US nation comes back to show its leadership in the area of globalization and open markets; a nation with great ideas and innovation like the Internet.

Not everything that shines is gold. The race to China might be overrated. A big advantage of doing business in Mexico for US companies is the benefit to logistics from the proximity. As an example, in the maquinadoras industry we can turn around raw materials into final product and have it back in the US in one day.

Mexico also represents a huge local market for the United States. Mexico still has 33% poverty; we need to continue growing the middle class. But the 77% that consume represent a big buying market. Imports from the US to Mexico are bigger than for the rest of Latin America together. Mexico as a market is bigger than several European nations together. Around 70-75% of imports into Mexico are from the US.

Q: Your book, “Revolution of Hope”, talks about a “Super NAFTA” can you elaborate?
A: We must study and learn from models like the Europe Union. We are learning in Latin America and making some progress. For example, it is not necessary to have a passport to move between Guatemala and El Salvador. We should pay attention and learn from what is working over there.

Q: How much can Chavez derail progress in Latin America?
A: We have not increased education levels enough and middle class enough in Latin America, so these leaders have been able to hold on to power. I don’t believe that 21st century socialism is going anywhere. It is just a nostalgic concept and does not have a plan for future prosperity. There is no long term vision.

Education and democracy is the only way to prosper in the future. It gives people choices. Authoritarian governments will try to keep people ignorant so they don’t have choices. We learned the lesson in Mexico and we have been educating. Now 100% of schools have IT technology and a big percent of them are connected to the Internet. We expect the returns not only in numbers but also in the quality of the education.

I believe that we need to be able to handle more than one issue at a time. We cannot just focus on terrorism. We also need to address issues of trade, immigration, and manufacturing globalization. I have campaigned a lot, and when you campaign you make a lot of promises. Once you sit on the chair, you feel the weight on your shoulders and you ask yourself “Now what are you going to do Vicente?” After the elections, the same will happen here and we will need to more seriously address issues like immigration and the NAFTA trade agreement.

“Better tomorrow” is a great Mexican concept,  but some of these issues need attention now and we should act soon. We need to figure out soon how to turn issues like immigration into a plus for each country.

***
More references on Vicente Fox:
http://www.elbalero.gob.mx/kids/government/html/gobierno/bio_foxkids.html
http://en.wikipedia.org/wiki/Vicente_Fox
Information on NAFTA:
http://www.fas.usda.gov/info/factsheets/NAFTA.asp
More on the G3 Trade Agreement:
http://en.wikipedia.org/wiki/G3_Free_Trade_Agreement

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Fresh is Best!

If you are not enjoying delivery of fresh produce from local farms you are really missing out. Our local organic farm, South Coast Farms (http://www.southcoastfarms.com/), has a Community Supported Agricultural (CSA) program which delivers a basket a fresh seasonal produce to a nearby pickup spot every week.

It is exciting to receive a basket full of produce each week and then plan the menu for the week around our fresh produce. This encourages us to do more traditional seasonal cooking and try out new recipes.

I am eating more kale and greens than I used to. Beets, turnips, carrots, cabbage, cauliflower, broccoli, a huge variety of squashes, and much more. Right now we are getting great strawberries.

They had a special event this weekend. A potluck for members where we shared treats made from the farm’s fresh produce and shared recipes. It was a delightful family time. The kids got to plant seeds and spread lady bugs.

I learned about the challenges of organic farming in the middle of the city when your neighbors are not as concerned about what they plant and what they spray.

It was heartbreaking to see the partial crop that was lost to spider mites and cutting worms. But it is part of organic farming. Some of the crop can be lost. Each year is a little different.

The Lady Bugs will help with those pesky aphids and the kids had fun trying to keep them off their clothes and trying to put them on the plants. I think I came home with a couple :)

Farmer George is running a business, but he is also part of the community and it feels good to be buying from a local producer that is delivering a much needed quality product to us. I strongly encourage everyone to seek out their local farms and become a member.

Are we Doing Enough to Develop our Next Generation of Manufacturing Leaders?

My friend Tim Jemal's blog has a great post on California education cutbacks, "California Not So Golden" ( http://jemalpublicaffairs.com/?p=15 ) and it stroke a chord with me.

Other countries are investing in education and its paying off. Medical research, computer software, and manufacturing jobs are leaving the country and moving to these countries that are investing and providing incentives. Once the expertise moves to other places it will be very hard to get it back.

We all need to voice the need for more education budget. I would gladly pay more taxes for this. Instead I am having to donate money and work on fundraisers. Ratios of 30-35 students to one elementary teacher are not acceptable.

Please read Tim's blog entry.

Juran - The Father of Pareto, Quality Planning, and perhaps Six Sigma

The field of quality management lost one of its founding fathers this year. Dr Joseph M Juran was a charismatic figure whose contributions helped shape the Quality function as we know it today. Juran’s contribution to the Quality field goes beyond statistics and equations. He helped define the terminology, methodologies and processes for the Quality field.

Juran's Quality Handbook is the Quality Bible and his “trilogy” books (Juran on Leadership for Quality, Juran on Planning for Quality and Juran on Quality by Design) should be required reading for the Quality professional.

As an Industrial Engineer, I had to work with the very thick Juran’s Quality Handbook in college. I had worked through many of the statistics and exercises, but I never fully appreciated Juran’s contributions until recently.

Juran wanted us to see Quality as more than just inspecting and counting defects on the factory floor. We can see this in his broad definition of quality terms below like Fitness For User and Quality Function.

• Fitness for Use – the extent to which the product successfully serves the purposes of the user during usage. Parameters for Fitness for Use include: quality of design, quality of conformance, abilities, and field service.

• Quality Function - the entire collection of activities through which we achieve fitness for use, no matter where these activities are performed.

In the 1940’s, Juran defined the Pareto principle―the principle of the vital few and the trivial many. In general, the principle states that by tackling the top 20% of the issues we can address 80% of the cost of poor quality. This concept is critical to focusing improvement projects on the areas that will have the bigger impact, but the Pareto principle can be applied to many things.

The function of the Inspector might be as old as the pyramids of Egypt, but the Quality Control function as we know it today was defined during the World War II years.

Juran was a pioneer in Customer Satisfaction and Total Quality Management. He understood that the Customer and the Manufacturer have very different views of product quality and cost. In more recent years, our views of Total Cost of Ownership are starting to align with the Customer’s view.

Fool-proof the process if possible, train and empower the operators as much as possible, and put standards in place. Humans are fallible, biased and at times inattentive; therefore we must have procedures in place to compensate for human error.

Juran also understood that we need to motivate people to take action and reduce errors. Motivation is driven by upper management communications and campaigns for quality. Even though, he did not believe in the general premises of the Zero Defect philosophies of the early 1960’s, he did acknowledge that they had some positive results. The personal pledge was a good motivator. He also studied other incentive and motivational methods including the Japanese QC Circle, the USSR Saratov System and the Polish DO RO (Dobra Robota) System.

Juran spoke frankly about current quality practices. “Numerous specific quality crises and problems have been traced to the way in which quality was planned in the first place. In a sense, we planned it that way.”
• Quality professionals not involved early enough in the design process and we do not give Quality the importance it needs during product and process design.
• In many factories today, product designers are still developing new products, and then delivering the product specifications to the Manufacturing Department.
• With the advent of electronic systems, many companies proceeded to convert their manual systems directly into electronic systems without first getting rid of the deficiencies in the manual systems. As a result, their manual mess became an automated mess.
• Quality Planning has been done by amateurs. Process planners need to be trained to become professionals at quality planning.

Juran also stressed that upper management had to drive a Quality philosophy in the company.
• Quality must be a part of every agenda in the company.
• The business plan should contain quality goals.
• Each level must establish goals.
• Everyone must be trained.
• To establish and meet a goal, it must be measured...measure everything possible.
• Review progress.
• Give recognition for excellent achievements.

The legacy of this hard working immigrant will be with us for a long time. The Juran Institute will continue to promote the Quality field, and the next generation of Quality thought leaders are sure to be inspired by Juran’s life and work.

Other References on Juran:

New York Times: Joseph Juran, 103, Pioneer in Quality Control, Dies
http://www.nytimes.com/2008/03/03/business/03juran.html?ex=1362286800&en=ac0c70aadae138d9&ei=5088&partner=rssnyt&

JMJuran.com An Immigrant’s Gift
http://www.jmjuran.com/

Juran Institute
http://www.juran.com/

Quality Lab – 100 Years of Juran
http://qlab.ieem.ust.hk/qlab/download/Juran%20100%20Years.pdf

Where are the Aerospace Jobs Going?

Not to Washington, not many to California, some to Alabama, some to Ohio, New Hampshire, Connecticut, some to China, Poland, Canada, France, United Kingdom, and several other places around the globe.



Northrop Grumman and EADS (Airbus) won the KC-45 tanker contract over Boeing. There were more U.S. jobs in the Boeing proposal, than in the NG+EADS proposal. NG had the best technical and cost proposal. Should we be concerned? Should we be surprised?

A long long time ago, we used to make all our military weapons and equipment in the US, but we also didn’t export any of it either. It was made in the US for the US. Today the A&D industry is a truly global industry. Instead of focusing on one contract, we need to expand our view and keep track of the trade with other countries. Especially with countries that are taking some of these jobs. Why? Because if these countries are buying other Aerospace products manufactured in the US, then they are also contributing to more Aerospace jobs in the US. As it turn outs, our A&D industry is doing pretty good in terms of trade when compared to some other industries.


In this chart from AIA (http://www.aia-aerospace.org/) we see that except for Canada we are doing pretty good in Aerospace trade with many of these countries. How come no one is complaining about how many Aerospace jobs are going to Canada?

I am concerned about several things that came to my attention from this news.
1. Are we losing the technical edge in Defense? in Engineering?
2. Can we direct some of that lobbying money to improving our designs and operations?
3. Can the West coast remain competitive in Manufacturing?

The news of the KC-45 Tanker reminded me of hearing about the Presidential Helicopter in 2005. I was also concerned at first about how many jobs were going outside the country, but then my attention turned to the technical side. Are we loosing the Engineering edge? Are the U.K. and France turning out better solutions? Better Engineering?

Between Boeing, NG, and GE they spent around $30M last year lobbying in D.C. What do you think they are spending right now? Perhaps we should spend less on lobbying and more on improving designs and improving operations, so we can have the best proposals.
Is it a coincidence that the US is not ranking globally very high in math and science? Are we spending enough in education? Are we spending our education budget on the right things?
We have increased our education spending over the last four years, but is it enough?

We just had a huge education budget cut in California. Over $4B in cuts means laying off 57,000 teachers (20% of the state’s teaching workforce), or eliminating four weeks of the school year, or increasing class sizes by 23-25 percent. How is this going to improve our math and science scores?

Washington and California have been losing Aerospace jobs, but Alabama, and North Carolina, are thriving and New Hampshire and Connecticut are holding on. What do their student-teacher ratios look like?
Students per Teacher (2005)
California 21.2
Washington 19.2
Alabama 15.7
North Carolina 14.8
Connecticut 13.6
New Hampshire 13.5

Maybe it is a coincidence, but the jobs seem to be going to states with better student-teacher ratios.

Alabama is becoming a big hub for Aerospace jobs and other states should take notice. They have an aggressive program to attract new business to the state, they have low real-estate cost, they are spending on education, and they have less union issues.

California, Washington,… is it time to re-evaluate our policies on education, and our priorities on manufacturing jobs? Can we live on software alone?

It will take some time, but it is going to take more investment in Engineering and Manufacturing in the US before we start seeing more announcements that the best propositions are coming from US ingenuity and from US manufacturers. It will take some time to rebuild the Aerospace expertise that has been lost because of the decline of military programs after the Cold War ended. Aerospace spending is on the rise now, so it looks promising in the future, if we can encourage our youth into Engineering and into the industry.