How to Beat the Foreign Competition

How to Beat the Foreign Competition
September 9, 2013 Joan Adams

I write a lot of articles in which I address the issues and concerns of warehouses, distribution centers and manufacturing.  In case you haven’t noticed – domestic manufacturers are facing a world of hurt these days.  And I have heard every reason imaginable as to why domestic manufacturing is in such a state – much of what I have heard I am afraid to say is whining, complaining and a lot of excuses.  To hear US manufacturers tell it, all their woes stem from three bogeymen: foreigner companies, unions and the government.

In fact, US manufacturers have some huge advantages in the marketplace, but they won’t or can’t seem to exploit them.

1) Buy American. This isn’t just a slogan.  Many companies and government entities are required to buy American (the military for example).  And yet – even these markets are slowly but surely slipping away.  They want to buy American – but can’t find or depend on US manufacturers to supply them.

2) Proximity.  US manufacturers aren’t an ocean, fifteen time zones away and a language barrier away.  US companies are right here and that should mean they could respond more quickly to customers’ wants and needs (but they don’t – more on that later).

3) Local knowledge.  US manufacturers know the local markets, they know US regulations and standards and they speak English. This should be a huge selling advantage for domestic producers.

4) Relationships.  Most American manufacturers have built relationships with suppliers, distributors and end-users over the years.  This would be nearly impossible for a foreign company to replicate in a few short years.  Yet those old ties are crumbling.  Lack of customer service, quality and short delivery times are eroding these priceless relationships.

Foreign competitors lack all of the aforementioned advantages, so why are they able to enter the US market with ease?

US manufacturers have developed some seriously bad habits over the last fifty years and these bad habits are now haunting them with a vengeance.

Since Henry Ford – US manufacturers typically set up long production runs and make a lot of each product.  This was probably a reasonable approach back in the day as companies made a much smaller range of less complex products.  In today’s world?  Long runs are a customer service killer.

I’ve seen equipment set up times that take days, even weeks.  Long set up times push a company to produces heaps and heaps of one product.  They push that product out the door to make room for the next product.  Now they set up the production line to make the next product.  The first product goes out to distributors, warehouses and stores in volume, whether or not the customers actually want a lot of this product.  If this product sells briskly – long production runs will still work.  As soon as the product doesn’t sell – the warehouse, distribution centers and stores are saddled with lots of inventory and the problems start.

Pretty soon, the manufacturer has no place to store the products from its second long production run.  Distributors, warehouses and stores don’t have space either.  They demand (and get) price cuts so they can move the first product out.

Now a large and important end-customer places a huge order for a different product.  The company doesn’t have any; the distributors, warehouses and stores don’t have any in stock either.  The manufacturer still has a lot of the first and 2n production run product on hand and is in the middle of setting up production for a long run of a third product.  The manufacturing schedule is already set for the next ten months.  The result?  The customer gets a quote for the product they want with an insufferably long lead-time (10+ months).  Enter the Chinese manufacturer, he may be far away, he may speak terrible English – but he says – “No problem – we can ship the product you see in 6 weeks and by the way – we offer great volume discounts on prices.”

The number one complaint I hear about US manufacturers is lead–time.  The US producer is caught between the proverbial rock and a hard place.  They can’t afford to carry lots of inventory.  Their manufacturing schedule isn’t flexible enough to make the products customers want in a timely fashion.  Long manufacturing runs result in long lead times and breathtakingly bad customer service.  This has swung the door wide open for foreign competitors to walk right into our domestic market.

It doesn’t take 10+ months to make a valve or a car or specialty brass wire.  It is time for the US manufacturers to suck it up and learn about Lean, Pull Systems, Kanban, Total Customer Service and Manufacturing Flexibility.

The Solution

US manufacturers of every stripe are certain that all the odds are stacked against them.  Being so sure that the game is rigged has prevented them from totally rethinking the manner in which they manufacture goods.

This lack of new thinking traps manufacturers into the devastating combination of stock outs, excess inventory of the wrong stuff and long lead times for orders.  US manufacturers are locked into long manufacturing runs and this, not unions, not Chinese competitors, not the high cost of labor or overhead, is what’s killing them.

The first wrong-headed thought is the concept that long manufacturing runs save money.  Indeed, long, laborious changeovers are expensive – making it imperative to make the most of a product before changing over again.  A company on a long manufacturing run will tell customers “We can’t start making your stuff for another 3 – 6 months.”

It is time to stop being a slave to set up times.  Cutting set up times in half and production lengths in half will do wonders.  Lead times get shorter by half, giving a company the flexibility to manufacture a mix of products every few months.  Repeating the exercise – (cutting set up times and production lengths in half again) will result in lead times reduced from weeks to days, carried inventory will get smaller, through out the supply chain.  Customers will get what the product they want, when they want it.

Another common misconception in manufacturing is that the workers are lazy and/or not terribly productive.  Similarly, people think that American companies can’t compete due to high labor costs.  Numerous manufacturing studies have shown that 90%-95% of production lead time is caused by waiting, unnecessary movement, rework and other wastes, meaning workers only do “real value added” work a mere 5%-10% of production time.  So, let’s do the math.  If by some miracle, the employees worked twice as fast (an unlikely proposition – given labor laws protecting employees from the lash), the best result of their doubling their efforts would be to reduce the total lead-time by 5%-10%.  At best, the product would get out the door a few hours faster.  In short – workers are NOT the problem.

Prove it to yourself.

• Put a marker on a product at the beginning of the line.

• Follow that item through the plant.

• Draw a flow chart – showing the path and the stops along the way.  (i.e. warehouse, cutting bench, drill press, welder, grinder, paint hood, warehouse).

• Measure the length of time the product stays at each stop, (warehouse 6 weeks, cutting bench 2 days, drill press 5 days…)

• Now, measure the productive time at each stop, (cut time 5 min, drill time 15 minutes, paint hood – 30 minutes paint, 24 hours dry).

You will quickly discover that it doesn’t take months to make that part (or five or fifteen parts).  Most of “lead time” is waiting in the queue; waiting for a change over, waiting for a supervisor, waiting for a spare part…   If a company eliminated all the time wasted “waiting”, they would be astounded to learn how productive their workers are.

The new thinking has to be customer focused – “I want to make quality products quickly for my customers.” Not – “I want long manufacturing runs because they are cheap and thus they help my bottom line.”

In the end, quick changeovers and shorter runs are the low cost solution – the company will carry less raw, WIP and finished inventory.  Labor costs go down too – as now way more than 5% of workers’ time will be devoted to productive, value adding activities.  Order response time will be lightning fast – engendering customer loyalty.

This can be done – I have reduced three-week changeovers in heavy industry to less than three hours and shortened three-month runs to less than a week. It’s time to start the “Lean” journey.  Your company will become more productive, you will have happier workers, keep your customers and find new customers – many of which are dying to buy from US manufacturers, which can meet their needs.

By Joan Adams

Photo of Joan AdamsJoan Adams is a Lean Consultant at Pierian. Pierian works with small and medium sized companies helping them grow in a managed rational way. We improve performance using Lean Manufacturing techniques at all levels and then target new customers that can be acquired and new markets that can be reached thanks to all the new operational capabilities.

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