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Chase Perfection, Not Lower Wages.
posted 22-09-2006 16:23

Outsourcing is nothing new. The succession of attractive offshore sites has run the gamut from Ireland, to Mexico, Korea, Thailand, Japan, and now China. The reasoning has always been lower wages. The current infatuation with China is driven by both low wages and a relaxation of taxes on participants in China. If memory serves, similar incentives were provided in previous objects of affection.

It is interesting, and instructive, to note that while the courtship period lasts varying amounts of time, it always ends with the need to find a new, even lower-cost opportunity just over the next hill. It is difficult to understand why we don’t realize that once formerly underpaid workers see competition for their services increase, they quickly figure out how supply and demand works. This newfound wealth that results from their discovery just as quickly is spent on some of the luxury items they are producing for the rest of the world. First it’s clothing, then appliances, then television, and finally cars and homes. It is a totally predictable progression and one that is being played out in all of those countries that caught the fancy of the cost-cutters in the United States and elsewhere. It is only a matter of time before Chinese citizens will want to participate in the global consumer economy and then the game is over. Even more disturbing is that when this happens, there will be a lot of brick-and-mortar or contractual obligations left over to deal with.

The frustrating thing is that there are ample examples of companies that have successfully overcome their paralysis and dealt with their processes, people, and markets. Toyota Motor Manufacturing, probably the most successful car company in the world by any measure, has come to the United States, built a plant, hired American workers, trained them, and in-sync with its sister plant in Ontario now produces automobiles at the lowest cost in the world – yes, including some home factories in Toyota City. It is also instructive to note that Toyota does not outsource. A spokesman for Toyota was recently quoted as saying that the pride in the plant will not allow anyone else to do it better. Why send orders to companies that are not as Lean as Toyota and expect them to provide better service, higher quality, and lower cost? It is not even discussed.

There are plenty of companies here in the United States that have fought and won the same battles. Jacobs Manufacturing (diesel engine brakes) was on the ropes in 1990 as Japanese imports threatened their very existence. Today a Lean “Jake Brake” is serving Japanese customers with plants in Asia.

The Wiremold Company doubled its market share, reduced inventories by 75%, doubled margins, and tripled revenues using Lean techniques in all aspects of their business. Most notable about this turn-around was that Wiremold adopted Lean principals across the entire organization, including Accounting, Sales, Engineering, and Customer Service as well as Manufacturing. When the company was recently sold to a large European organization, all employees received substantial payments reflecting the value of their contribution to the process.

Pella Windows has overpowered its market using Lean principles to develop lightning speed customization for clients. Cellularization of manufacturing processes and continuous improvement across the entire organization have placed it in a virtually unassailable leadership position.
The answer to this exodus of earning opportunities for American workers is not taking jobs away, but rather finding ways to innovate around the cost problems we face. That is our expertise. We take the Toyota Production System, Americanize it, and beat them at their own game (a real reversal of fortunes). We use our proximity to our markets to outwit, out-design, and outplay our competition.

I agree with some that we may be standing on the threshold of a disturbing “race to the bottom.” That we have come to this problem is not the fault of anyone, it is the fault of everyone. Escaping it is the opportunity we all can participate in.

Linford E. Stiles
President
Stiles Associates, LLC

 

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