It was the second day of the E3 process and still the company refused to believe or accept that there were opportunities to improve. The day before we had shown them lights left on, areas over lit, compressed air leaks and poorly insulated equipment.
The facility manager was a long time employee of the company that had been in business for over 50 years. He nursed an unlit cigar that he held in the side of his mouth. I keep asking myself why did he not want to change? Could it have been that the company was making lots of money or the fact that he was close to retirement? Maybe he had just gotten lazy and was set in his ways. Was I going to be like him one day?
So we keep to the agenda of the E3 (Energy, Environment, Economy)…an on-site 2 day training to help manufacturers understand ways to reduce costs, utilities and other impacts to the environment. We took the group for a walk outside their buildings to look at things…we had just trained them on Learning to See, an exercise to help identify non-value outputs from their processes. The group included TMAC staff and 4 employees of the company. This included the maintenance manager, operations manager, quality engineer and someone from the sales staff.
As we walked around the property the maintenance manager commented saying “you guys just won’t give up..there is nothing out here to find”. We were running out of time, just one more hour and the workshop would be over. This was going to be a disaster…. So we walked up to one of the 60 yard solid waste containers, it was closed. I stood the group together in front of the dumpster and asked the team how much they spent each year on disposal. They all looked at each other and said “oh maybe $4,000 per year”.
So we took a look inside and discovered that there were over 100 wood pallets inside. Then someone said that this was just one of 3 containers that were picked up weekly. Then the operation manager turned to the others and asked “why are we doing this? How long have we been doing this?” For the first time the facility mangers cigar pointed to the ground as they all look puzzled. Once again the E3 process produced the results we were looking to find. The actual cost to dispose of their wood pallets was over $60,000 per year. This expense could be fully eliminated through recycling or reuse.
I slept better that night knowing that it wasn’t up to me to find future opportunities, but to just let the process lead the way.
After listening to the webinar Leading Strategies for Manufacturers Against Low-Cost Competitors, presented by Mark Hehl of Hehl & Associates, through IndustryWeek, I found it validating that many of the concepts that we, at TMAC, discuss with our customers were some of the best ways to compete.
Is Manufacturing in China Really a Better Deal?
While the talk focused on China, which is by far not the only low-cost manufacturing country, many of the findings are common regardless of the country. Companies are lured by the low-cost promised on their purchase order, but neglect to consider unexpected costs associated with doing business outside of the US.
With China specifically, there is a steady increase in labor rates as workers demand more money and become more skilled. Ironically, while China has a large population, the one-child rule has limited the available work force, again leading to increases in wages. As current workers become better trained, there is a problem with retention of workers, requiring factories to compete for the highly skilled. The bottom line is increased labor rates are only a small part of the story, fluctuating exchange rates and inflation, are usually ignored when deciding to use off-shore suppliers.
Going the Distance
Off-shore suppliers have other associated supply-issue costs like on-time delivery, quality expectations, communication barriers, and cultural issues. Time and time again, I’ve heard horror stories of a delivery being late. Instead of using (the planned) surface means of shipping, air transportation is all of the sudden needed, adding a cost of up to 8 times more than originally budgeted. In the beginning of the relationship, the quality of the parts is adequate, but as time goes on, the quality starts to degrade. With communications, especially if there are significant distances between the supplier and the company (say Texas to China) if something is wrong, it may take a day or two to communicate the issue, let alone resolve it. Some cultures do not discuss problems at the time corrective action could (and should) be taken. These additional, usually unforeseen, costs are driving companies to bring their manufacturing facilities back to North America – so the logical question is How do we keep them from leaving in the first place?
Keeping Manufacturing Stateside
Implement Lean Methodologies. Lean isn’t exclusive to the plant floor; it can be implemented in administrative processes too! Lean focuses on cost containment, reduction and/or elimination of waste, and increasing capacity without increasing personnel or equipment. A poor Lean implementation can cause more problems than it solves. Lean is a journey, not a destination. Industryweek’s recommendation was to hire an external organization to aid in your Lean deployment.
Competitor and/or Market Intelligence. Look into what your customers want: What is important to them? Talk to customers who purchase from competitors and see what they like and dislike. Look for weaknesses, and exploit them.
Innovate. Quite simply look at new products for existing markets, new markets for existing products, and new services that you can offer customers. Companies that innovate earn double the profit of companies that do not. When was the last time you introduced a new product?
Offer Superior Customer Service. Determine what your customer really wants. How? Ask. Using Lean in the administrative side of the business, your customer service representatives can be more flexible and often respond faster, something that it is difficult for off-shore competitors to do.
What Does it All Mean?
The entire webinar can be summed up:
If you implement Lean, you can use the savings to innovate, offer superior customer service and competitor intelligence.
The presentation was interesting and informative; I recommend it as valuable food for thought for any manufacturer or business owner.
Are you considering moving your manufacturing operations overseas? Have you moved your manufacturing operations back from overseas? Why? Have you implemented any of the suggestions above? What was your experience?