“Lean” is not a good way to compete against China
The “lean vs. China” argument presupposes a false dilemma.
In it’s most recent post, Evolving Excellence cites and agrees with a Manufacturer’s Monthly (Australia) article comparing the total costs of outsourcing to China with the total costs of purchasing from a lean local factory. The conclusion from the Manufacturer’s Monthly article is succinctly stated:
Agility is the key to beat Chinese imports and lean manufacturing the most effective tool to achieve that agility.
Lean enables suppliers to offer faster service, better quality, smaller batch sizes and a greater degree of customisation than traditional manufacturing approaches without increasing unit costs. Lean can drive down total costs for customers by reducing inventory holding and handling costs, obsolescence and the cost of poor quality.
Fair enough– lean leads to competitive and strategic advantages in inventory costs, lead times, quality and overall operations. But you can’t count on “lean” to be competitive against the Chinese for one simple reason… the Chinese can be as lean as you can!!
Some (corrected) excerpts from my comment on the Evolving Excellence post:
The comparison cited above (and many like it) assume that the only choices are “lean” on one side and “outsourced” on the other. This is a false dilemma. What happens when you compare “lean domestic” sourcing cost with “lean China” sourcing costs?
My experience in China tells me that the China-based factory can be operated in a lean manner, mitigating the costs of longer transportation lead times, and not incurring the prohibitive costs associated with support functions and poor quality. If that’s the case, then the cost savings associated with low-cost production will in many cases (but not always!!) be enough to ensure profitability, even though long-distance transportation costs and transportation lead times are an offsetting factor.
By all means if you’re a manufacturer go lean… it’s good for you, your shareholders, your employees, your vendors and your customers. And if you are considering outsourcing, do ensure that you are taking into account total cost when you make your decisions. But don’t assume that going lean (or buying from lean sources) will offer you a competetive advantage against aggressive pricing in the long run, because the competition has access to the same advantages you do.
Nice post Junkie, looks like those continuing to manufacture at home will have to use good ‘ole creativity to be beat the competition…go Mets!
Hi David, the comment you left on that blog makes sense… But in fact what is the proportion of Chinese factories that have gone lean, or even “half-way lean”? I bet it’s in the 1-2% range, if that.
Chinese bosses don’t want to hear about any such profound change. Chinese production managers might show interest, but they don’t know much about it (tell them to read about the successes of Japanese companies…). And Westerners setting up local factories probably feel discouraged by some aspects of Chinese mentality (and I understand them).
It seems like you (and probably a few others) have tried and succeeded. I’m wondering if everybody in China will try to “go lean” within 5 years. I’m a little pessimistic, though.
David,
Great post and blog. I wonder how you feel about a hightech lean running factory in the US vs. a less automated factory in China. I have seen a lot of factories in China that depend on manual operations. For western factories (or anywhere else for that matter) who have automated their processes with robotics etc.. Where do they fit in your argument?
Jim
Hi Jim,
Thanks for the comment.
Regardless of where the factory is located, the level of automation deployed should be commensurate with maximum value added. Seems a no-brainer, but many people get this wrong.
Manual processes, WHEN APPROPRIATELY CONTROLLED with low-tech means (think fixtures and poke-yoke, can often add more value than high-tech robotics, which tend to incur high change-over costs and require luxuriantly large production runs.
People add value to a process when flexibility is valued. Think about the process of driving a car. It is theoretically possible to automate driving using advanced robotics, but it’s not worth it. Even in places where human drivers command a high salary, they are consistently the most cost-effective way to go, because humans are really great at learning a range of tasks and skills (turning, braking, shifting, honking, flashing lights, etc.) and deploying them as needed, and in varying measure, in response to changing operating environment (speed limits, traffic conditions, weather conditions, darkness, drunk guy driving the wrong way,etc.).
As on the road, so it is on the production line that the deployment of low-tech can assist a human operator to do his or her job more effectively (in terms of cost, quality, safety, etc.) than deployment of high-tech automation alone could. Think about rear view mirrors. Think about proximity sensors, rear view cameras, GPS, speed inhibitors, etc. All of these help the driver, none will ever replace him.
Applying this to production, if the value proposition includes the ability to cost-effectively produce low-volumes and high product mix (a model which tends to reduce the costs of over production and associating inventory) then less automation using low-tech process controls is likely more desirable.