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Gobal Times: China still in play for outsourced manufacturing

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November 13, 2009
by David

Consider the source, but according to an article in today’s Global Times (a fairly new English-language paper published in the PRC) western manufacturers are increasing their outsourcing activities in China:

Foreign countries have started outsourcing to China again after a brief slowdown last year.

The first nine months of the year saw 3,287 new enterprises providing services that have been outsourced to China launched, offering 585,000 new jobs. International service contracts won by Chinese enterprises in the first nine months are valued at $12.7 billion, up 212 percent from the same period last year, according to Ministry of Commerce (MOFCOM) figures released Tuesday.

As of the end of September, there were 8,060 enterprises with 1.4 million employees operating in the outsourcing industry.

The rest of the article cites the existing and potential threats to China’s outsourcing business, namely India with it’s large English speaking population, but others as well.

For those of us operating the the Pearl River Delta, where most of this outsourcing is being performed, it might mean that the PRD is still an attractive place to set up export-oriented manufacturing.  At the very least, since we assume that the GT writes what Beijing wants written, it means that the authorities are still interested in making China an attractive destination for western export manufacturing.

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CNN: Mexico is the new go-to place for manufacturing U.S. bound products

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November 7, 2009
by David

According to a CNN report,  NAFTA, proximity to the U.S. market, and lower costs (largely the results of inverse currency fluctuations of the peso and yuan)  have tipped the scales in favor of Mexico (and against China) as the new manufacturing destination of choice for U.S.- bound products.

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Foreign Manufacturers: at least Dongguang still loves you

2
November 7, 2009
by David

There is talk that the Beijing and and Guangdong governments are starting to play hard-to-get with foreign investors, downplaying their importance in upgrading China’s manufacturing, R&D and local market offerings.

However one report in The Japan Times indicates that Dongguan, at least, is still welcoming foreign investment.

A vice mayor of the Chinese industrial city of Dongguan urged Japanese manufacturers Friday to expand on its turf and exploit its domestic market to help the city recover from the global economic crisis and fall in exports.

“We are looking for more Japanese manufacturers to build R&D (research and development) centers in our city and create domestic brands, securing distribution routes,” Jiang Ling, vice mayor of Dongguan in Guangzhou Province, said at a news conference in a hotel in Minato Ward, Tokyo.

In many ways, what Jiang is saying is in lockstep with what the central and Guangdong governments seem to be promoting– focus on domestic consumption, R&D and high-tech manufacturing.

But what makes Jiang’s comments interesting are that he’s actively courting foreign investment, stating clearly that it essential for the area’s recovery.  Moreover, he’s speaking on behalf of Dongguan’s townships and villages, and these are the organizations which will be interpreting and implementing whatever policies flow down from Beijing and Guangzhou.

While this doesn’t mean that Dongguan is a good place to set up labor-intensive manufacturing, it does indicate that Dongguan, at least, is still Foreign Investment friendly.

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Guangdong Manufacturing 2.0 – if you’re low-tech, don’t get too comfy

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November 5, 2009
by David

This China Daily article quotes Guangdong governor Huang HuaHua and Guangdong Party Chief, Wang Yang making it very clear that the pre-downturn initiatives aimed at moving the province’s manufacturing base up the value chain will continue.

With the outline of the reform plan for the Pearl River Delta formally approved by the central government at the end of last year, the delta scheme has now been adopted as part of the nation’s overall development strategy. This will see the nine cities in southern China’s Guangdong province transformed into advanced manufacturing and modern service centers.

The article doesn’t talk about what they plan to do about the low-value exporting factories currently operating here, but Huang was quoted by People Daily in April saying:

…the province will step up efforts to achieve a change in development pattern by evolving self-innovative industry and upgrading industrial structure, while boosting the transfer of labor-intensive industries in the delta region to less developed regions and transferring labor forces from the agricultural to the manufacturing sector as well as from the rural area to the delta region.  [italics mine]

For me it raises the following questions:

  • How will they encourage/force the transfer of labor-intensive industries out of the province?
  • How will they define “labor intensive”?
  • How fast will they move?
  • How will they deal with the most local government and semi government bureaucracies who are still benefiting from those labor-intensive industries operating in their villages and industrial zones?


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LEAN Can Save Lives!

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September 17, 2009
by David

I love hearing about how LEAN strategies can do more important things than just help companies make more money.  Watch this video (or read the transcript) of Bill Moyers Journal for 9/11/09 where he interviews Dr. Jim Yong Kim, a public health expert and the new president of Dartmouth College.   Without mentioning LEAN by name, Dr. Kim  explains how LEAN thinking can improve healthcare, and how it (along with other strategies normally associated with industrial efficiency) should be implemented in U.S. Hospitals.

While there are many articles and posts out there discussing LEAN in healthcare, I just like the way this explains it.

Some quotes from the transcripts, with my comments interspersed [in italics and in square brackets].

BILL MOYERS: Why are we talking about the American health care system as a crisis? What’s wrong with our health care system?

DR. JIM YONG KIM: My own particular take on it is that I think for many, many years, we’ve been working under the fantasy that if we come up with new drugs and new treatments, we’re done.

The rest of the system will take care of itself. In my view, the rocket science in health and health care is how we deliver it. And unfortunately, there’s not a single medical school that I know of that actually teaches the delivery of health care as one of the essential sciences [sic]

[in other words, Dr. Kim is saying that high-tech innovation alone is not enough to make us excellent. The same can be said for many manufacturing facilities.]

DR. JIM YONG KIM: Well, just think about a single patient. So a patient comes into the hospital. There’s a judgment made the minute that patient walks into the emergency room about how sick that person is. And then there are relays of information from the triage nurse to the physician, from the physician to the other physician, who comes on the shift.

From them to the ward team, that takes over that patient. There’s so many just transfers of information. You know, we haven’t looked at that transfer of information the way that, for example, Southwest Airlines has. Apparently they do it better than any other company in the world.

[The same way we gain efficiencies by LEANING the flow of materials and of information in our facility.]

DR. JIM YONG KIM: It means how do you evaluate clinical outcomes? How do you understand variation in doctors’ practices, for example? And ultimately, how do you fix the problems? So the group at Dartmouth Institute does all of that. We look at variation. You know, why is a Medicare reimbursement rate, you know, almost a third in the Mayo Clinic area, as opposed to Miami?

[Measure results.  Analyze variation. Improve procedure.]

DR. JIM YONG KIM: Well, I’ve noticed over the years that when it comes to our most cherished social goals, not only do we tolerate poor execution, sometimes we celebrate poor execution. Sometimes it’s part of the culture. You know, these folks are trying to solve this terrible problem. They can’t keep their books straight.

They really don’t know what they’re getting. They don’t measure anything. But they’re on the right side, so that’s okay. I think we’re in a different time.

[Tolerating waste as a cultural problem.]

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Dumping your waste upstream isn’t LEAN — another view

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May 27, 2009
by David

Last month I wrote a post, “Dumping your waste upstream isn’t LEAN“, giving an example of how one large American company I know (and have left unnamed) has been bullying it’s vendors into accepting the costs of wasteful stocking in order to lower it’s own costs and leadtimes, while actually raising their own costs in less obvious but more significant ways.

This month, Bill Waddell of Evolving Excellence gives another example– none other than General Motors. Anyway, for another (more skillfully written) take on a similar issue, go to his post here.

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“Good” reasons to be wasteful!!!

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May 12, 2009
by David

Yesterday I visited a small factory owned by a friend of mine. I had visited the facility once before, when times were good and they had more orders than they could keep up with.  As I said, business was good, but the harder they worked the more they had issues with delivery, quality and cash flow.

During that first tour, I was chatting with my friend’s production manager. Pointing at the mountains of semi-finished goods on the factory floor, I explained that in those mounds were hiding defects (later to be discovered by customers), clogging the production cycle (impacting delivery), and tying up his boss’s cash (needed for sales, marketing and other investmens).  Reducing the WIP, I argued,  would be a solid first-step in turning the place around.

To my surprise, the production manager seemed well versed in LEAN. He understood how to balance the production on both sides of the bottleneck, and how to eliminate non value-added steps in the process.  He understood the value of JIT and Jidoka.

“All good stuff”, he said.  “But we can’t implement it here.”

Why? Because they were too busy for LEAN or JIT.   If they tried he explained, it would slow the process flow, resulting in even more delivery problems.  Yes, in principle it’s a good idea.  But not here.  Not now.

That was during the good times. Yesterday’s visit showed a much slower factory, with much fewer workers and lots fewer orders. Some things, however, haven’t changed. There are still piles of WIP on the factory floor, and (not surprisingly) they are still having quality, delivery and cash-flow issues. Once again, I broached the subject of LEANing the production flow, and once again there was a “good reason” not to. Whereas before they were “too busy” for LEAN, now there was “not enough work” to go LEAN. Now the thinking, it seems, is that if they go LEAN and utilize their labor (and other resources) efficiently then some people wouldn’t have enough work to be kept busy.   (I mentioned to him that the workers who were idled by balancing the line could be employed in his factory’s 5S efforts, but that didn’t go over too well).

This I’ve heard before.  LEAN makes sense.  It’s good stuff.  But not here.  Not now!  Here are some lame excuses to maintain waste in the production cycle:

  • People need to be kept as busy as possible. That’s the only way to be efficient. (Actually, processes need to be efficient– not people)
  • It works for Japanese and westerners, but for cultural reasons, Chinese can’t understand/implement/accept it. (Total bullshit.  LEAN works just fine in China)
  • LEAN production looks less busy and active, and people will think they don’t have to work hard. (Not really.  People are smarter than that– especially the workers who can see first hand how productive their team has become).
  • You will need to hire lots of additional people to do the clerical work required for LEAN. (Not true.  And if there were “extra work” to do, it could be done by some of the people made temporarily redundant by balancing the line).
  • People want to do the same repetitive tasks over and over all day.  It makes them feel like experts. And the longer they perform that one task, the quicker and better they become.  (I doubt it.  But even if it did make them faster, it wouldn’t make production faster or any better.)
  • LEAN is great if you have large production runs, or if all of your items utilize similar process steps. But our low-volume/high-mix model can’t be LEAN. (100% wrong.  LEAN is great for low-volume/high-mix production.  LEAN makes your facility flexible and agile).
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Dumping your waste upstream isn’t LEAN!

2
May 7, 2009
by David

LEAN is about reducing waste and adding value.  Adding value for shareholders and customers is important, but to be truly successful in the long run, an organization should strive to add value to all of its relationships, benefiting its employees, its community and, of course, its vendors.

Here’s an example of a “LEAN” organization that didn’t get this point:

The China manufacturing subsidiary of a Really Big Corporation  (we’ll call them “RBC” for short) purchases small volumes of manufactured components from it’s vendors.  In order to cut inventory costs and reduce lead-times to almost zero, it requires its vendors to stock both excessive amounts of raw materials  and also a fairly large quantity of it’s finished goods (which are the customer’s components).

The strategy is, in the narrowest sense, successful.   RBC holds almost no component or material stock, and yet, whenever RBC needs one or one thousand components for it’s manufacturing, they are always on-hand immediately.  Zero Stock!   Zero Leadtime! And if RBC has a spike in demand it’s no problem (for them)  because their vendors have been commanded to hold lots and lots  of raw material on-hand.  Just in case. (Better safe than sorry, I always say)

OK, they’ve added value for the shareholders; cash flow is improved and the risks associated with stocking is drastically reduced.  And they’ve added value for the customer, because lead times are reduced and flexibility  is enhanced.

The problem is that RBC has not really reduced waste, it has just dumped it upstream, which is as smart as pissing into the wind (or tugging on Superman’s cape).   Because the waste that RBC has driven out of its internal material flows has now shown up as liability on the balance sheets of its vendors.   And make no mistake, the waste is flowing back to them– as a result of waste dumping, RBC cannot command the  price reductions in might, because vendors are raising prices in an effort to  offset the cost of carrying  so much slow-moving inventory.  In some cases valuable vendor relationships, costly for RBC to initiate and develop, are in jeopardy, meaning that they will likely  spend time, money and “bandwidth” to find, qualify and train new vendors.

The sad part is, it doesn’t have to be this way.  RBC could have achieved a most of its objectives without unduly burdening its vendors by working with them to set up reasonable and fast-moving buffer stock procedures.  How this is done would vary from vendor to vendor, but to a certain extent, it can be accomplished.  An added benefit is that the vendors who were not versed in LEAN could have learned some valuable inventory management techniques.

Don’t worry too much– RBC will be just fine (they are, after all, Really Big).  In addition, I understand that they are open to learning, and may change their ways.   I write about it because I hate  to see otherwise respectable and forward-thinking companies giving LEAN a bad rap with this type of implimentation.

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China factory closures: perspective from The Economist

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November 24, 2008
by David

A recent article in The Economist helps to put the China factory closure issue in perspective.

A longer-term concern is whether more expensive labour could wipe out Asia’s competitive edge. Labour costs are rising much faster than in the developed world, forcing some Chinese firms to close down. But Chinese manufacturing wages are still less than 10% of those in America.

More factories in southern China will go bust in 2009 because the country is starting to lose its competitiveness in some low-value products, such as toys, shoes and textiles. This is forcing Chinese manufacturers to move up the value chain, just as those in South Korea and Taiwan did years ago. But this is evidence of success as countries grow richer, not a sign of dwindling competitiveness.

This seems to indicate agreement with me that many press reports are exaggerating the the scope of China’s economic slowdown in general, and the effect of factory closures in particular.

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Dongguan factory closures: the view from street level

1
November 20, 2008
by David

To read the press on plant closures in Dongguan, you would think that the city has become a sort of ghost town, with hordes of traumatically unemployed  workers roving  the streets like a pack of zombies  (the un-severanced) seeking their last month’s paycheck from long gone bosses.

Now, I work here in Dongguan, and I drive through various parts of industrial Dongguan and Shenzhen everyday.  I have friends and suppliers throughout the manufacturing districts of these cities with whom I discuss the current situation.   Besides what I read in the newspapers, I see no evidence of significant plant closings in my daily life.  Nor do my friends and suppliers.  The district-level government people I sometimes talk to cite closures of only very small firms, which they say were undercapitalized to begin with.  Some factories are still hiring workers, as evidenced by “help wanted” posters placed out on the street.

The press reports show impressive numbers of closings, but give details about a very few of the more spectacular situations; factories like Smart Union (in Zhang Mu Tou) or WeiXu (in Chang’An)  who’s closures disgorged  thousands of disgruntled workers into the streets, protesting and eventually getting paid off by the local district Government (and some, reportedly, getting beaten up by the police)

What I do see and hear about, and what we all know is true, is that business is down for almost everyone these days and that many  workers are either being  laid off or sent on extended vacation in response to drastically decreased order levels.

I don’t know how many factories have closed.  I suspect the situation is not nearly as dire as we read about in the western press, and that for the most part it is confined to those small, undercapitalized factories which did not play a significant part in the local economy.

That’s the view from street level.

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