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?
I’ve learned that most people are skeptical when they’re told to expect significant financial benefits from implementing Lean.
In teams of 3, I used TMAC’s Financial Fundamentals business simulation game to teach finance to non-financial people. During the 6-hour workshop, each team manufactures and sells a common product to a single customer … me. The winner of the workshop is the team with the most income in Retained Earnings.