What LCC Manufacturers Want Most

In my last blog post here, I speak about the challenge in working with a LCC. Today I'm going to talk about the challenge in running a business in LCC and a golden opportunity for coaching and education.

For those that are familiar with running a factory in China, you've probably noticed the sharp increase in cost of resources (energy, material, labor) in the past 4 years especially around the cities near the Pacific Ocean: Shanghai, Guangzhou, Chaozhou, Shantou, etc. Government's mandate on increase in labor cost, inflation, and many other reasons add to the fact that more and more companies can't survive where they are today when the cost of production had tripled while the consumers are still paying the same prices. The phenomenon we are seeing today is that more and more companies (large or small) are moving inland where cost of resources are still low enough to run a profitable operation. Some companies have even packed up and moved to other LCC where the situation was more desirable.

There is still an advantage in staying near the ocean; the ease of access to exporting services and seaports helps them get their products to the customers faster, it's easier for your customers to visit you (don't have to take multiple bus rides, fly in a should-have-been-retired turbo-prop, etc), amongst other great reasons. The question becomes how does a company effectively reduce cost of production, enough to gain an advantage over its competition without having to move?

HereTryThis: For those of you that are knowledgeable about lean manufacturing, 5S, and Six Sigma approach to problem solving, this is your golden opportunity to take what you know and teach it to those who really need it. In my own experience, factories in China are rarely setup with a good foundation of Design for Six Sigma. Waste (in the form of T.I.M.W.O.O.D.) can be picked up in all aspects of the operation. The problem solving technique often used to speed up production is to throw more people at it; with the last labor rates it made sense but not with today's labor standards.

To start off, put together a team of experts (willing to travelling and residing in LCC) and hire a group of educated young intellectuals from the LCC to 1) help locate companies that need this service, 2) translate the material, and 3) become the liaison to negotiate contract. As this matures, automate this process and become a service that offers training that certifies local experts that can be contracted out to many different cities to work with more clients.

Low Cost Country - First Thoughts

One of my function at work is being the suggestion box (or the punching bag) for those people who would like to vent about something, anything. Something I hear over and over again, not only in my current position but in all of my previous occupations including the experience of operating an international trading business is the rumor that outsourcing to Low Cost Countries (LCC) do not work well.

LCC makes a whole lot of sense for its "obviously" lower cost in labor, the time difference so work can get done in LCC while people are sleeping here, and companies can concentrate on developing and keeping its core competencies in-house. The pool of talent isn't terrible at the LCC either: there are plenty of people with an American education (Masters and/or PhD). I truly believe that (majority) people don't goto work each day thinking of how to sabotage the companies they work at, so why does LCC earn such a bad name?

The complaint I hear often from people are: "yes they're cheaper, but they take twice as long to do the work," or "they did the work wrong the first time, the second time, and they still didn't get it right the third time," or "I can't talk to them, they don't understand what I want." These complaints almost always has to do with the break down in communication or an expectation not satisfied (a gap), and not the fact that the work is being done outside of the company. This is not so different from the "just throw it over the wall" mentality existing inside a company. Ever point to an engineer and say "this design is all wrong" and have him reply in return "you're just not building it right." Ever point to a buyer and say "you bought the wrong parts" and have him reply in return "then you must have given me bad info."

 To me, improving the working relationship with LCC's is a golden opportunity because if you're able to figure out how to work with LCC's efficiently, you'll be ahead of your competition. Another way of saying it is, if your competition figures out how to provide an end product faster and cheaper to the customer than you, you're going to be in deep trouble.

HereTryThis: The next time you hear a complaint about working with a LCC, first understand if the complaint is objective or subjective. There is nothing you can do about subjective feedback. Objectively if a gap does actually exist, use your favorite problem solving techniques (Six Sigma DMAIC or 8-Step Practical Problem Solving) to find the rootcause and put together a plan to eliminate the gap.