Shekou, Baishi Rd.
May 13 2012
Apr 28 2012
The predictions of a re-shoring trend may be greatly overblown.
I commented on this post over on Forbes: “Why Mass Employment in Manufacturing Isn’t Coming Back: It’s The Productivity“.
While it’s true that increased labor rates and perceived supply chain risks in China and other “low-cost countries” may prompt some manufacturers to “re-shore” production back to the US, the number of jobs landing on US shores will disappoint those reading the exaggerated re-shoring predictions in the western media.
As indicated in the Forbes post I referenced above, 100 Chinese jobs do not translate into 100 re-shored jobs, because productivity is higher on the U.S. side, and fewer workers are required to produce the same value. Also, as I commented, the re-shored worker is more likely to use components and materials pre-processed in China, where the corresponding Chinese worker would have used components and materials processed in-house.
One major driver of exaggerated and breathless re-shoring prediction was last year’s Boston Consulting Group’s report: “Made in America Again” stating that Chinese labor will reach cost parity with US labor around 2015, which will make Chinese manufacturing unattractive for export manufacturing. Maybe (who am I to contradict BCG?), but it seems the report is counting on some tenuous predictions:
- Overall labor costs in China won’t rise more slowly than expected as the manufacturing sector cools
- China’s on-going productivity advancement won’t proceed at a rate higher than expected, thereby offsetting labor costs faster than expected
- U.S. economic and regulatory trends won’t point to a future of increased overall U.S. manufacturing costs, thereby making it less attractive in the long run?
Now BCG has come out with a followup survey (as reported here) stating that more than one-third of manufacturing executives of large (over USD1B) corporations are “planning” or “actively considering” re-shoring production back from China. They surveyed 106 of those companies.
My questions (I don’t have the original report) would be:
- What does “planning” mean, here? Do you mean a contingency plan for moving production “just in case”? Does it mean an individual exec is running around with a power-point presentation to impress his colleagues at the next meeting? What is the level of commitment to the plan?
- What does “actively considering” mean? How active? How much consideration? In manufacturing we consider lots of options all the time, and we are active in doing so. It doesn’t mean we are close to taking a specific action.
- How much re-shoring has been planned/considered? All of it, or just a small part? Just the products which are most expensive to ship? Just enough to get some patriotic street cred?
- Results are based on a survey of 106 companies each with annual sales of USD1B or more. How representative is that sample?
Apr 24 2012
Apr 20 2012
We have not only observed evolution in laboratories, now we have created the process by developing new strains of nucleotides and letting them reproduce themselves. This is something like an artificial form of DNA, created in the lab, and set on it’s way toward self-replication and, it turns out, evolution (based on selection pressures).
This is even cooler than a few months ago when scientists watched as single-celled organisms (yeast) responded to selection pressure by evolving into multi-cellular organisms. It only took 60 days.
Apr 03 2012
For manufacturers in China, the most effective hedge against rising costs is attracting, developing and retaining talent. In this case, the most effective is also the most ethically correct.
This from the Huffington Post:
As I’ve been saying (over and over again), an incremental upsurge in labor rates is not cause for China manufacturers to flee the country leaving unpaid salaries and rent, nor is it a justification for clawing back benefits from workers (raising prices at the company store) or trying to squeeze more out of them by brute force (speed up that conveyor belt!),
Rather, they are an impetus to analyse the entire cost structure of operations, and to optimize so that competitiveness and profitability are maintained. This quote from the article linked above:
ISuppli estimates that Apple pays less than $8 for the assembly of a 16-gigabyte iPhone 4S and $188 for its components. The phone sells in the U.S. for $649, though wireless carriers offer them at a subsidized $199 with a two-year service contract.
The estimates suggest that if Apple were to absorb a Foxconn wage increase to keep pay the same and cut the work week from 60 hours to 49, it would pay about $2 more to have an iPhone made. Dinges expects Apple to offset any higher labor expense by wringing out savings elsewhere.
Note the phrase “wringing out savings elsewhere”. This is what I’m talking about. There are many ways to ethically offset increased labor rates– and these are also the most effective ways. To start with, throughput can be improved (and labor content reduced) through workflow management, and innovation on the production line (fixtures, semi-automation, design for manufacturability, single-piece flow,etc.). Production-line management (think Model-T) can be changed to cellular production, reducing worker fatigue, as well as physical and mental stress.
I still can’t understand why manufacturing leaders still see clawing back employee compensation, benefits, health & safety, etc. as a reliable method of maintaining profitability and competitiveness. Short-term gains achieved on the backs of workers disappear pretty fast when those workers find better employment and need to be replaced– high operator turnover causes very expensive havoc in production.
One thing is clear: the most effective path toward profitability is attracting, developing and retaining talent. The most destructive path is to nickel and dime your workers.
Mar 31 2012
Foxconn/Apple have responded to bad press by vowing to implement changes that benefit workers. That will necessarily mean it will reduce it’s operators’ overtime working hours and, presumable, it will have to boost regular-time salaries to offset the operators’ loss of revenue. The result, of course, higher unit labor costs for Foxconn, and maybe for all of us manufacturing in China.
As the Washington Post reports:
Both Foxconn and Apple agreed with the report’s findings and said they would work to implement the Fair Labor Association’s suggestions. For Foxconn, that will mean hiring tens of thousands of new employees, and significantly raising wages while keeping working hours within acceptable norms. Such moves could ripple throughout the consumer electronics industry.
Just some random questions/comments:
I wonder if this was already the plan when, last year, Foxconn announced it would invest massively in robotic production. Ramping up automation at that point would offset (and pre-empt) the effect of expected labor cost increases– they’ll be paying more dollars per hour but, through automation, consuming less labor hours per sales dollar earned. Also, since a much higher percentage of the labor hours consumed will be regular-time hours (as opposed to more expensive overtime hours), the costs of this move will be further offset. The “loss” will be in the number of labor hours Foxconn offers on the labor market.
It will be interesting to see what deal they come up with, and how it will affect the rest of us manufacturing in China. Many are saying that as goes Foxconn, so must we all go, and that radical overtime reduction coupled with more salary increases are in our near future. Is this another adjustment, or a game changer? If Foxconn gives it’s in-land factory workers a deal similar to the one it gives in Shenzhen (and if it extends to Foxconn’s in-land subcontractors as well), will that push up production costs in those areas, helping to closing the gap with Pearl River Delta costs? If so, what about all those Pearl River Delta factories that have moved inland to chase cheap labor just to survive? While Foxconn is, of course, the biggest employer in its industry, in no area does it have a high-enough share of the labor market to affect labor costs as a result of straight supply and demand. However, the disproportionate publicity surrounding their moves might make Foxconn’s deal the de facto standard. We will see.
I wonder if Foxconn, in addition to decreasing– and paying more for– working hours, will be doing more to decrease the monotony of those hours. As I’ve mentioned before, I suspect a large part of Foxconn’s labor/PR issue stems from the way its processes are designed, where each worker is tasked with performing the narrowest possible range of actions and is pushed to perform those actions repetitively, as quickly as possible, for hours and hours and hours. If this is indeed how Foxconn’s workflow is managed they could reduce stress by giving individual operators a greater range of work, thereby increasing the range of actions and reducing the number of workpeices that flow through each operator’s hands. Easier said than done, but potentially as rewarding as raising salaries.
Finally, allow me to indulge in naive fantasy. Let’s say Foxconn manages to use labor more productively, and then invests some percentage of that productivity into worker satisfaction. Let’s say, then, that the resulting improvement in turnover and loyalty then takes productivity at Foxconn to yet another level. Maybe this would get enough publicity to teach other manufacturing executives here in China how to invest in their workforce in such a way as to show bottom-line benefits.
- Foxconn not a bad place to work
- Should you automate your Chinese factory?
- PRD Labor Cost Rising: Run Away, Run Away!!! Not So Fast.
Mar 27 2012
OBAMA NOMINATES LEAN THINKER FOR WORLD BANK PRESIDENT
When I read that President Obama nominated a guy named Jim Yong Kim for President of the World Bank, I thought his name sounded familiar. I finally checked him out on Wikipedia and realized he was the same guy I posted about back in September, 2009. I had heard him on NPR promoting lean (without using the word itself) as a way to lower costs and improve outcomes in US hospitals.
I found it blogworthy, and I guess Obama read my blog and was as impressed with Dr. Kim as I was.
Clearly, Dr. Kim is a lean thinker, and it will be interesting to see if he will bring lean thinking in his new job (assuming he get’s it).
Congratulations Dr. Kim!
Mar 26 2012
Mar 25 2012