A Lean Guy Reads the Financial Times

I've often done posts titled “A Lean Guy Reads the WSJ” — I would create a link to them, but I'm currently suffering a bit of an internet glitch (can anyone help?) I'm in the UK, but my hotel's internet service apparently runs through Germany somehow, as Google (and Facebook) are both somehow recognizing I'm in Germany, so I can only get “google.de” to load — how do I force google.com to load?

Anyway, back to the main topic… it's a common theme here and on other blogs (like Evolving Excellence) that American companies can (and should) be using Lean to compete against offshoring manufacturing to China and other far off countries. Companies and executives who chase cheap labor often underestimate the total system costs, leading them to regret poor quality and slow supply chains.

So it's interesting to see a series of articles in the Financial Times, about British manufacturers, that make these points beautifully.

British win orders back from China

British manufacturers are winning back work from China, as customers find the cost of using Chinese producers higher than expected, the results poor and delivery times unreliable, according to research by the FT.

While many large multinational companies continue to move production offshore to the lower-cost Asian manufacturing centres, others prefer the shorter supply chain of UK-based suppliers.

Smaller customers buying components and products from China often find the lower prices quoted for manufacturing them is outweighed by additional costs for shipping and quality control issues that are expensive to resolve.

“The main problem is that companies do not compare like with like,” says Julia Moore, chief executive of the Gauge and Toolmakers Association. “If they realised what the real costs were of manufacturing in China, they would certainly consider bringing the work back to the UK.”

Great news for the UK and their economy right? Do they have political leaders here who say “these jobs aren't coming back” as they're saying in the U.S. presidential election? (Was that McCain who said that? I can't reach a U.S. search engine!!) — it was McCain.

Not only are costs rising quickly in China, companies are finding they can better control quality by keeping production local. They want smaller batches, frequent delivery, and high quality. One company's story:

“One of the companies needed batches of 150, and the Chinese manufacturer sent crates of 1,000 a time. They had to employ two people to sort through them to find 150 of acceptable quality, and scrap the rest.”

That's NOT a huge step forward in the world of quality, having to hire people to inspect and sort the good from the crap.

UK proves to be more cost-effective

From this article, a company talks about bringing 95% of their molding work back to the UK:

Paul Blackmore, an HBC director, says that when the moulds arrived back in the UK, they were made of low-quality materials, full of holes and too soft. They threw half the moulds away and rebuilt the others. The rejection rate dropped to 200 parts per million, cutting costs for Signature.

“Businesses are very interested in reducing their costs,” says Mr Blackmore. “But when thinking about production in China, they need to look at the end-to-end costs.

“With Chinese wages increasing, shipping charges, import tariffs and other supply chain issues, local manufacturing can be more cost-effective – even if the quoted price is lower in China. And if you want it in six weeks, it isn't going to come from the Far East.”

Seal of approval for home factory

From this article, another company's experience:

Three years ago, Mr Brown began visiting China to see whether he could shift production there. Since Superior's production is highly automated, the motive was not to save on labour costs but to move closer to customers who wanted their suppliers to manufacture locally.

After several visits, Mr Brown decided it would not be the right thing to do. Now the company stocks its products in China and can top them up easily by air freight through Heathrow airport.

Great stuff, all of it. Manufacturing isn't dead in the U.S., nor is it dead in China. I'm currently in a town that was a famous shoe-making capital, but much of that is gone. I'm curious to learn more about “why?” that is… was it completely a story of companies chasing cheap labor?

Last story from the FT:

Squeeze fuels vain quest for company change

This covers a lot, including the general failure rate of change programs, in general. That's nothing new to readers of this blog and studies that look at change — Lean, Six Sigma, etc.

Colin Sempill, head of strategic change at Scottish-Southern Energy, who was interviewed for the report, said: “A programme to create value is a lot more fun for people.

“If you are purely cutting costs, it is tougher to get people engaged around it.”

The report concluded that companies needed to get the basics right – through good communication, leadership and planning – to convince employees of the benefits of change.

Mr Clarkson said change initiatives often failed because they did not have clear objectives at the start and their aim was to achieve change rather than deliver results.

“Companies fail in the execution of change initiatives because they are unable to win the hearts and minds of employees at all levels of their organisation,” he said.

“This happens when people do not trust their managers or understand what values the management team stands for. Too often, a change programme is seen as an excuse to make people redundant.”

It's definitely much more fun to grow a business, adding more value, and helping more customers (or more patients) than it is to slash and burn. Cost cutting and layoffs don't inspire people. It's an important lesson to make sure our Lean initiatives focus (as much as possible) on value and growth, not just cost. It's also critical to make sure Lean efforts aren't leading to layoffs – that's the best way to keep people involved. You have to eliminate or reduce their fear, otherwise it will be hard for them to fully participate in Lean and continuous improvement.

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