Competitive pressures, both domestic and foreign, have caused many firms to consider offshoring or outsourcing. Most of these firms have primarily considered China as the solution to reduce their cost of goods sold.
However, too many of these firms that thought they would be saving significant labor dollars from their new partners or suppliers in China have been frustrated by serious or ongoing quality problems, inventory bloat, IP theft and corruption.
In the last few years, rising labor costs are now an issue. It’s estimated that Chinese labor rates will eclipse those of our southern border neighbor, Mexico, in two to three years. So what went wrong with outsourcing?
First, for most companies, labor was the driver of cost savings, not materials or overhead. And for many of these companies, labor was only 8 percent to 12 percent of their cost of goods sold. That small percentage of labor savings was quickly lost to transit costs, import/export logistics, rework, scrap, expedited freight and much higher levels of cash tied up in goods on the water in cargo ships.
Second, resolving these problems typically required company people traveling to and staying in China to redefine expectations and monitor quality. Communications and time zone differences all contributed to a much longer time to resolve issues, let alone catch up on shipments. With all that being said, what’s our recourse?
The key to launching and sustaining a successful lean initiative is by getting help from the community of North American manufacturers who have faced the same, or similar challenges and who can help you see how lean is applied.
Over the past 30 years, our membership has learned that to thrive in a highly competitive environment requires two key ingredients: People engaged in excellence in their daily work and the sharing of enlightened knowledge throughout the enterprise. When these members get together to share, learn and grow, they inspire each other’s journey to enterprise excellence.
Why should you be passionate about growing your people’s knowledge and “leaning out” your processes? The leaner processes are and the more engaged people are, the more productive you will be and the more bottom-line success you will have.
We’ve learned that the insights of people who have been there and done that can help anyone confidently make the changes needed to accelerate growth. So when the question of “Should I stay or should I go?” arises at your company, make sure the answer is stay and get lean—and let your community help you do just that.