Don't be fooled. All too often, pressure to protect the bottom line coupled with tales of low wages, low overhead, and less restrictive regulation cause manufacturers to jump ship and move overseas. But offshoring isn't a panacea. In fact, what might appear to be the most cost effective solution on paper can often lead to an expensive disaster in reality.
A rush to offshore in an attempt to achieve rapid cost reduction for production activities by simply "plugging in" new low-cost labor in place of seasoned production workers brings with it significant challenges and unforeseen costs. Furthermore the ever-increasing production wages in historically low-wage countries makes the option even less attractive. Couple this with it the risks of repeating (or worsening) bad production behaviors from the existing operations and you've formulated a recipe for disaster. This recipe often results in more expensive operating costs than the firm experienced prior to offshoring.
There is another option. When companies opt to implement lean manufacturing techniques correctly they achieve necessary cost improvements, optimize productivity, develop corporate community relations all while maintaining operational control that only on-shore, in-sourced production offers.
Before any company considers offshoring their manufacturing operations they should have experienced stringent lean methodologies. This goes beyond installation of colorful posters in the facility and teaching staff to use key buzzwords like "kaizen" and "muda." To truly embrace the power of lean, executives and their staff must develop exceptional process knowledge, process discipline, and a burning passion for continuous improvement. Likely the single biggest benefit of lean implementation is the deep knowledge of processes that is obtained within the organization.
Step by Step
In almost all cases, the first step to lean implementation is process mapping (followed in quick succession by value stream mapping). The activity of mapping the processes within the organization and communication of these maps for validation by the entire organization makes everyone within the firm more knowledgeable of how things are done within the firm.
Often, senior executives have become so removed from the day-to-day tactical actions of their employees, they fail to see time wasting barriers and bureaucracy that their staff face in trying to implement strategic initiatives. By sharing the value-stream maps throughout the organization during lean implementation, all levels of the organization become aware of non-value adding activities that staff members may carry out daily.
Process to Productivity to Profits
Beyond knowledge of business processes (both commercial and operational), lean offers manufacturers the chance to gain focus on process discipline. By taking advantage of the Hawthorne Effect (which provides for improvement simply by measuring an activity), we see significant process discipline improvements when production staff realize it is important to first follow the process and then improve the process. This gives the phrase the way we always do it a refreshing and positive connotation rather than what has become obstacle building.
The value of defined and followed processes is immense. When a manufacturing firm has defined and followed processes, support of continuous improvement activity is simplified, identification of root cause to problems is more easily accomplished, and cost reduction opportunities not only emerge, but are typically more readily executed. Continuous improvement is a fundamental cultural impact of lean implementation. The drive for better results requires many factors; informed participants, energetic activity, and thorough communication through all dimensions of the organization. If an operation hasn't fully embraced lean culture it has little hope of success.
Lean Means Performance
While companies go lean in process, people can improve performance. But this can only happen when firms pursue operational excellence using lean tools and have obtained workforce commitment from the key lean philosophy of respect for people. This gives firms the ideal positioning to consider strategic methods for sustained competitive advantage. And, if after this is achieved and the firm wants to offshore for geographic advantage and market access reasons, lean manufacturing will already be established. Pursuing domestic lean implementation coupled with automation investments certainly yields better economic results than an offshore-only strategy.
Offshore Puts You Off-message
While less than politically correct, it is important to acknowledge that cultural barriers and educational deficiencies in low cost countries can make process understanding and development a monumental and expensive task. In an accounting sense, we see relatively small cost improvements in the Cost of Goods Sold line while extremely high SG&A (Selling, General and Administrative) costs are encountered after gross results are obtained. This is often justified as a "one-time expense" although this cost tends to continue to be incurred throughout the life of the offshore operation, resulting in significant unbudgeted expenses.
Additionally, the firm must often rotate its most experienced talent to the offshore location in an attempt to improve average personnel performance through processes most similar to proximity principles and osmosis. The firm, with a poor understanding of its strategic intent, sends these leaders to the location in hopes that the operational deficiencies can be overcome only to realize even more resources will be required to achieve lean results in the operational facility. Instead of requesting more budget, the relocated execs often continue to toil in hopes that, by chance, the operation will achieve the initially desired results, at least until their expatriate assignment concludes.
Modernizing your lean onshore will always be preferable to offshoring. Take the time to study it, implement it and lead with it. The results will be worth it.
Jason Piatt is president of Praestar Technology Corp., a provider of consulting and training services to manufacturers in the Mid-Atlantic region specializing in Lean, Six Sigma & Strategy Formation.