U.S. Manufacturing - Are You Ready To Play Ball? How To Compete In This Global Outsourcing Economy
Posted 1 year, 5 months ago at 8:56 am. 0 comments
Manufacturing used partnership be as American as apple pie and baseball.
In the 1980s, this began to change. In order for large U.S. original equipment manufacturers, or OEMs, to remain competitive in price-sensitive global markets, they were forced to reduce their costs.
One initiative was the move to outsourcing to take advantage of lower labor rates. At first these foreign countries did not have the ability to fully service the needs of large OEMs. They didn’t have factories, so they built them — state-of-the-art factories using the latest in manufacturing and information technology.
They didn’t have the quality levels required, so they learned from us. Now, lower labor rates are not the only driver moving OEMs to low-cost regions. We are being beaten at our own game.
Global competition now is right on the doorstep of even the smallest U.S. companies, and many are not prepared for the challenge.
In my previous corporate position as a commodity manager in the sourcing group of a major U.S. OEM, my job was to manage suppliers and reduce commodity costs. Unfortunately, this usually was achieved by moving our supply base off-shore.
Other commodity managers I know at large OEMs don’t enjoy moving business out of our country, but often say they have no choice because of the resistance they get from U.S. manufacturers in implementing cost-saving changes and state of the art technology and processes.
The average cost savings produced by moving suppliers to foreign countries is about 40 percent. So, how do we compete?
To stay in the game we need to reduce this gap to between 20 percent and 30 percent to make the total landed cost of transition less appealing to our customers. U.S. manufacturing companies can be competitive with companies in lower-cost regions, but it’s going to require effort, passion and most importantly, changes in the way we are doing business. If you are still doing business the same way you did 20 or 30 years ago, your company is in extreme danger.
Is your company in fighting form? Here are four areas to evaluate within your own firm:
*Do you have a strategic supply chain process that includes formal contracts with your suppliers and continuous raw market, commodity spend, and inventory analysis? No? Strike one!
*Do you have an automated enterprise resource planning (ERP) technology system that integrates activities from the production floor, purchasing, inventory control, product distribution and order tracking that drives the manufacturing flow? No? Strike two!
*Do you use lean manufacturing and Six Sigma-based processes on your production floor? No? Strike three!
*Have you developed a Global Footprint by either partnering with or building your own manufacturing facility in a Low Cost Region? No? You’re OUT!
Just as in baseball, three strikes and you’re out. If you are not currently adding or developing all four of these strategies, you are out of time. Speed and agility are the name of the game. While we are moving forward slowly — our competition is moving very quickly. The technologies exist that can make companies more effective and partnership and our offshore competitors are using them. Why aren’t we?
I have been in factories in China, Hong Kong and Mexico, and I was impressed. The U.S. manufacturing industry typically has exhibited a reluctance to change (remember the auto industry?), and while the majority of company owners know the wolf is at their door, many are still using either a “wait-and-see” attitude or are in complete denial that they are in the ninth inning and there will be no overtime.
This resistance to change may be driven by denial, fear, time or money crunch, or just lack of education on how efficiently they could be performing using tools that are easily available today. But if improvements in the four crucial areas noted above are not made an immediate priority, I believe within a few short years the road of U.S. manufacturing will be lined with the carcasses of companies that began making changes too late.
Companies that are willing to rise to the challenge and embrace the changes required are being rewarded for their efforts. Depending on the level of efficiency a company currently is operating, most companies that implement these strategic processes will gain an immediate savings of at least 15 percent to 30 percent.
It will be enough to level the playing field and keep more business here at home.
U.S. manufacturers can sit in the dugout and business outsourcing goes away, or we can do what Americans do best: Get back in the game. So, are YOU ready to play ball?
Joanne Rainey, C.P.M.
The Supply Chain Gal
Southwest Outsource Purchasing, LLC is dedicated to helping small to mid-sized companies improve their Supply Chain and Production Operations processes through Strategic Consulting and Program Management. We offer a unique monthly retainer program that allows your company immediate access to consulting and project management services with highly skilled professionals in the industry for an affordable price. Let us help you stay in the game!