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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About 10 years ago, I was hired as the sourcing director for ***** Electronics, a privately held company headquartered for over 40 years in southern California.   We were a smallish power supply company, supporting OEM projects for some major players in the medical, commercial and sometimes retail electronics markets.   We had no China facility, and relied on our Taiwanese suppliers to realize the designs, make the products and ship them to us.   My job was to setup and run a small liaison office in Taiwan,   managing the development and sourcing of power supplies with our Taiwanese OEM and ODM vendors, and ensuring the quality of products made by those vendors in their Taiwan and Chinese factories.

Previous attempts at outsourcing in Mexico had failed miserably, and now it was time to try Taiwan as a manufacturing center.  Prior to my arrival, Taiwan wasn’t working either.   It was clear that Taiwan wasn’t “working for us” because it’s factories in Taiwan didn’t have the quality understanding to satisfy our market’s demands, and their factories in China (where an increasing number of our products were being made) didn’t have the flexibilty to “buy into” our high-mix low-volume high-value model.  The results: projects sold to major customers  got to market late, or never made it to market at all.   Most damaging were product recalls for power supplies sold to Bloomberg and Kodak.

I found that the problems were manifold: the vendors were quoting and planning our production on a mass-production model, but in the end were getting the small, unattractive orders our company had come to expect.  In their business models, low volume = low value.

While I was able to improve the results we got with our Taiwan vendors, I could not change the basic DNA of the situation:  we had a  fairly large large number of vendors, each geared for mass production of commodities, each getting small orders of products requiring a quality and technical level they had never encountered before.   Products and Projects stalled, sputtered and failed.

So it was decided sometime in 1999 that we would solve these problems by setting up in China.   When I mentioned to our current vendors that we would be setting up in China, they tended to snicker as they mumbled “chasing cheap labor”.  My dirty little secret was out, as if I’d winked while mentioning I was “going for a massage”,

This was when labor WAS still cheap in China, but cheap labor was not even CLOSE to being the driver for the move.  This facility was set up (and remains) in Shenzhen city (in Nanyou), which is a much higher cost setting than where any of our competitors had set up (usually in Shenzhen’s  outskirts, or in Dongguan).   We paid our people more, and spent more on housing and other benefits than our competitors did (many called me stupid to do this, and warned me against “spoiling” the workforce).

What we chased, or what we caught, was a stable and flexible workforce.   In retrospect, cheaper labor would have been much more costly.  That facility, with it’s high labor costs, started on a shoestring budget, grew to take in all previously outsourced production, and grew an R&D function which was intened as a “back office” to the US R&D facility.  In the end that too became the driver of our company’s R&D capablity.

So we came to China and paid our workers too much, spent too much on their benefits and too much on ensuring their comfort and safety.  And all we got for all this “cost” was LEAN, flexible, and otherwise value-added production.  The value, added by this flexible and stable workforce, was not lost on the market, and as  we added Fortune 500 companies to our customer list, our value and stature grew.  Finally the operation was finally purchased by a competitor.

I left that company in 2005, but I still talk to people in that company fairly often; I’ve never heard anyone mention moving out of southern China to chase cheap labor.

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I do believe, however, that those manufacturers who practice LEAN and it’s related strategies may be better able to whether the storm, and may even come out better.  Here’s why LEAN and JIT may help manufacturers get through the crisis:

When labor costs rise those more efficient in labor utilization will gain more value as a competitive advantage. This is one of LEAN’s primary advantages.

When credit is scarce there may be opportunities for growth for those organizations who can utilize cash most efficiently. Once again, LEAN and JIT make better use of cash as inventories are reduced. Those that waste cash on creating WIP, creating rework, and creating stock will be at a fiscal disadvantage.

When order sizes decrease, as is likely in a recession, those manufacturers which are flexible and can efficiently produce smaller lots and ship them JIT may have opportunities for growth, taking business away from the larger, less flexible manufacturers who are unable to adapt to smaller order sizes with a greater product mix.