Lean, Mean and in the Game

July 27, 2009 | News China

Amidst the economic downturn worldwide, implementing smart efficiency strategies could stand Chinese companies in good stead once the economy picks up. The news could be worse. In May, China’s manufacturing sector saw growth, albeit limited, with the country’s Purchasing Managers’ Index (PMI) — a gauge of performance in the manufacturing sector — reaching 53.1, according to the Federation of Logistics and Purchasing. A figure above 50 shows expansion, and contrasted with China’s lowest PMI in November 2008 of 38.8, things are looking up. However, most manufacturing experts believe that a return to China’s manufacturing boom days might still take time. During the years of massive growth, many manufacturers ignored efficiency of operations, instead focusing on sales and capacity building — a strategy no longer viable. To thrive in these turbulent times, China-based manufacturers must focus on increasing efficiency right through manufacturing operations. Companies can lower long-term costs with a smart strategy to increase efficiency by choosing the right equipment, building the right factory and implementing the right production processes. Equipping with Efficiency
Although buying expensive new equipment and technology might not sound logical amidst a downturn, acting now could benefit a manufacturer once the economy improves. “For those companies with the cash available for improving their operations, there is no better time to invest in proven cost-saving technologies,” says Chip Keller, Asia Pacific controller at Baldor Electric. “As many companies have begun to tightly control all expenditures, those with flexibility can find themselves in an advantageous position when the economy begins to improve. This is especially true with high-efficiency equipment because as production increases and the utilisation of the equipment increases, the higher the relative cost savings over standard equipment.” However, actually choosing which expensive piece of machinery to buy can be daunting. For such a large investment, companies should consider a professional and trusted equipment supplier to maximise cost savings and efficiency. Keller recommends a base evaluation of existing equipment to determine whether new machinery is necessary or whether replacement
parts will suffice. “With highly trained engineers, Baldor is able to perform an installed base evaluation at our customer location, which consists of cataloguing all of the electrical and mechanical power transmission equipment inside the operation,” says Keller. “With years of experience in all manner of operations, they are able to bring a broad base of knowledge to the customer. This can identify many opportunities for cost savings by replacing low efficiency, damaged and obsolete components leading to improved productivity.” Building the Best
Besides proper equipment, the actual factory itself should not be neglected. The location and building specifications of a factory cannot easily be changed. Therefore, it is important, when choosing a location, to work with a knowledgeable agent and, while building a factory, to work with a proper engineering procurement and construction management company (EPCM). When choosing the right factory location, take into account the variety of often conflicting needs for efficient operations. “Manufacturers need to know where their suppliers are in relation to where their customers are. There are also labour and government relations to consider and possibly the proximity of universities or affordable housing can be important factors. It might also be important to see if there is infrastructure, such as freeways, airports or seaports nearby. Companies often need an analysis done on each of those factors,” says Andrew Hatherley, executive director of Industrial and Logistics Services for Greater China at property consultants CBRE. “Companies like ours would take a brief from a manufacturer and set up a matrix putting weighting on all of the points that need to be considered in choosing a factory location.” Geographic diversification of a company’s factories can also be recommended as opposed to large-scale expansion of an existing factory. “What we find is that manufacturers might have a factory in Shanghai and will decide to have another factory in Chengdu or Tianjin, instead of adding to the existing factory. It gives them more flexibility, access to new markets, and allows them to specialise in a specific product at each factory if required. That helps them minimise the effects of a tough market and distruption associated with expanding a factory,” says Hatherley. However, the construction of a new factory can encounter problems. As foreign companies do not have licenses to design factories, companies must rely on EPCMs to relay their needs, given technical-approach differences and translation challenges, to Chinese design houses. “Many Chinese design firms have traditional ways of designing and engineering projects. Sometimes that means things are “over-engineered”, which can lead to unnecessary cost increases, for example, structural, mechanical or electrical systems,” says Robert Benedetti, business director for China and Asia at leading EPCM SSOE-China. “It is critical for a foreigner, especially a foreigner building in China for the first time, to reach out to a foreign architect or project management company that understands their expectations, can translate their expectations to the Chinese design and construction community, and that has the Chinese staff to manage the local design and construction companies to achieve the end-result expectations of the foreign company.” The differences between the various design institutes can vary greatly when it comes to the actual work, especially because the quality of the actual designers within the institute can vary widely. However, the local connections of a specific design institute should be taken into account. “Hiring a design institute with very good knowledge of the local codes and a relationship with the local authorities is very important. For example, if the client wants to build a facility in a local industrial park, we prefer to choose a design institute that has very good relations with the officials in that specific industrial park,” says Benedetti. Eliminate the Waste Perhaps the most important way to increase efficiency, cut costs and raise profits is to create a better production process. Since Ohno created the Toyota Production System in the 1960s, Lean manufacturing has predominated as the most effective and efficient production method. Nonetheless, the counterintuitive nature of Lean prevents many manufacturers from successfully implementing it. Often, an outside Lean expert must be brought in to help transform production. “To avoid misunderstanding, it is important to note that Lean is not about ‘let people work harder and machines run faster’, but all about ‘stop doing all the activities that don’t add value to the product’. In Lean speak, these non-value-adding activities are called ‘waste’. Waste, in this sense, is equivalent to costs,” says Timo Schneemann, senior consultant at Lean manufacturing consultancy Staufen. “A company cannot cut costs. A company can only avoid or reduce the activities that cause the costs. Here is where Lean comes into play.” Lean proponents believe that it should be used regardless of outside economic issues and can also be extended beyond the production floor to various other sectors of a company’s operations. “In good economic times, the application of Lean increases the competitiveness of a company,” says Schneemann. “When business is getting difficult and margins are shrinking, Lean can bring a company back to healthy levels of profitability. When times are very difficult and a company fights for survival, it is probably best to start with a restructuring from the ground up. One highly recommended element of this restructuring is to convert from conventional to Lean manufacturing.” The idea of cutting out waste within production processes can also relate to a company’s supply chain. Vannesa Guo, vice president of 3PL Runbow Logistics, recommends investing in an IT system for supply chain and increasing details in the daily management of a supply chain to find inefficient links. “Companies need to map their supply chain to find the non-efficiency,” she said. Although the global economic downturn has hit the Chinese manufacturing industry hard, smart manufacturers will be able to see the opportunity within these difficult times. By working to increase efficiency at all levels of the business, companies will put themselves in a unique position to succeed against their competitors once the industry inevitably picks up again.

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