As China’s manufacturing price differential, due to a number of factors, is losing its competitive advantage, quality is moving up in importance.
A demonstration of this fact is the recent visit by a Chinese delegation of manufacturers to the headquarters of QAD, a software provider for manufacturing companies, to learn about advanced manufacturing in the U.S.
"The Chinese manufacturers visited to learn best practices around lean, supply chain risk management and ERP systems,” explains Carter Lloyds, QAD’s CMO.
All of the above issues are moving up in importance to Chinese manufacturers as the country’s predominant cost advantage, labor, has disappeared as labor costs have skyrocketed. Lloyds points out that ten years ago productivity-adjusted manufacturing hourly wages in China were $4.35 and are now are $12.47.
As labor costs increase, along with other costs, driving up the price of Chinese goods, manufacturers need to offer other values, such as quality products, to attract consumers.
“All manufacturers, including Chinese, recognize that quality is the most important factor when it comes to their products,” says Lloyds. “The number of recalls has made that clear. And as Chinese manufacturers are supplying OEMs, quality becomes even more important.”
This is particularly true in automotive as the MMOG/LE standards, which are the global standard for supply chain management processes that reduces costs from errors, waste, and workload for suppliers and customers, is upheld.
One tool to ensure a standard of quality is using lean. The U.S has a good track record on adopting lean which is one of the reasons the delegation wanted to visit a couple of customers of QAD including Scosche, a consumer technology and car audio installation hardware manufacturer and Vitatech Nutritional Sciences, an FDA-licensed contract manufacturer of nutritional products.
Another area of interest is how to use technology to implement the new practices. “China is moving into the phase where they are looking to ERP to help solve issues like demand and supply chain planning, as well as improving customer service,” Lloyds says.
One advantage of increasing the use of technology now, as opposed to a few years ago, is the ability to leapfrog right into cloud technology, explains Lloyds.
“At the end of the day, the trip was a way for the Chinese manufacturers to learn best practices from companies here which will help them accelerate their progress. This in turn will benefit U.S. manufacturers in that they will have stronger partners in their Chinese counterparts. ”