Smarter
and Faster –
not Leaner and Meaner.
If you think that the way to compete with imports is to
focus on being the lowest cost producer – i.e., more efficient, don’t
waste time, fold now! There is no level playing field.
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If you think you are insulated from imports, so
did the residential casegoods furniture producers who thought the idea
of shipping boxes of air from China just
wouldn’t ever happen. The
good old boys were complacent, assured that high shipping costs
of both finished goods and raw materials would more than offset the
“almost free” labor. Surprise,
surprise! Not only were the
imports competitive, but after a rocky start, quality control was as
good or better than many U.S. companies. Next target – upholstered furniture. This is an ideal target: lower investment level combined with a more labor intensive product. The hitch was a limited choice of fabrics. U.S. fabric mills have seen the writing on the Great Wall and are starting to build mills in China. First to feel the pinch was the patio furniture industry where upholstery is simpler and fabric selection not as critical. They felt insulated by the low percentage of labor in their product and the feeling that aluminum prices were the same worldwide. Not quite true! It was over when they were offered castings and welded tube for almost the same price as raw aluminum. P.S. It didn’t take long for their “new suppliers” to bypass them and sell direct to the mass marketers. Cabinets, anyone? Maybe not assembled cabinets but how about doors? Thirty years ago I was involved in a project to import pre-finished doors from Asia. It failed because of supplier financing issues, finish durability and the perception that mahogany doors couldn’t match oak face frame cabinets. Today, Chinese suppliers will bankroll your inventory, meet KCMA finish standards, and ship a container of oak lumber from Pennsylvania to their factories in China for less than it costs you to ship it to California. |
First, you must realize that you have two sets of
competitors. Local (domestic)
producers and the importers.
In the short term the locals may be
more dangerous as some of them, not knowing their true costs, may just
“go loco” and embrace suicidal pricing. Not much that you can do other
than wait them out ; hoping they don’t have real deep pockets. The
consolation prize is picking over their assets at the inevitable auction.
Importers will drastically thin out local producers and
your game plan is to be one of the survivors. I’m reminded of the two guys
being chased by a bear and one stops for a few seconds to put on his running
shoes. The other screams at him: “Don’t
you know that the bear can easily outrun us?” He replies. “I don’t have to outrun the bear, only outrun you!”
So first you must outlast existing competitors, then you
must learn how to live with the new ones.
Think positive: today China is competing on price.
A good analogy is how, despite predictions of demise, department stores
and full price boutiques withstood the discount chains.
They survived by out-servicing and out-merchandising their drab
competitors. They kept their fingers on their customers pulse to know what
they wanted and when!
There is always room for niche producers living on the
crumbs from the giant’s table but if you are truly a mass-market supplier
you need more than my best wishes; you need to do something almost miraculous
to convince your customers that they need you. In a few words it boils down to
quick delivery, customer service and style.
Your customer’s perception of you as a good supplier is not enough
for survival. There’s a lot more:
It’s all about profit, not volume.
Realizing this, Boeing just walked away from a major order. It really
hurt: in 2004 they will no longer be the world’s largest manufacturer of
commercial airliners as they realize their adversary Airbus will always be
able to undercut them. (As France subsidizes Airbus for the jobs it creates,
China will do what’s necessary to keep its low-tech furniture
factories busy.) Sure you have an obligation to your loyal employees
but bankruptcy will put them all out of work rather than just the few losing
jobs to reduced volume and outsourcing.
Get your running shoes now! Don’t wait
until the bear is chasing you to update your processes and systems.
Investment is necessary to avoid being devoured and new equipment
should be focused on improving quality and productivity (including reduced
set-up time) rather than total output. Think systems (and people) that bind
you to your customers. (When they call order entry clerks know who they are:
their prior order history; contacts; shipping status of current orders; etc.
– this is what will
differentiate you from your overseas competition.)
Work smarter.
Your employees must get
the message that you aren’t cracking the whip to make them work harder and
faster. Don’t threaten, true or not, that if you don’t perform we shut
down. You need to demonstrate that the company and its employees have a future
working together. Start off by
cross-training and job rotation, creating job enrichment while gaining
flexibility in adjusting to peaks and valleys in demand.
Market driven, not “The Market” driven.
A key way to compete with overseas sources is to style your product
regionally and by customer. At market time, don’t stand in the halls waiting
for feedback – your competitors may copy your designs
and be in production before you. The furniture industry has changed,
but the concept of cuttings and style introductions at furniture markets
lingers. Look, even in
Hollywood, people really don’t have all the answers about consumer
preferences. It’s safer to
produce a number of low budget winners than invest in a blockbuster. Stop
sweating lot size; what took
hours to setup in old double end tenoners and profilers can be done in minutes
in a CNC. The ability to offer
product line extensions and unique styles creates sales and profit
opportunities without major investment. The kicker is the need for great
systems that can communicate production and engineering information to the
factory and monitor the costs of these variations.
Be true to yourself. Know your true costs
– actual direct labor and materials as well as indirect costs based on
current volume. Accurately estimate costs when quoting orders and measure the actual cost of producing the order. Analyze
Cost of Goods Sold (COGS) for every order to learn from history. Knowing your
true delivery capabilities is also a key to maximizing profits while avoiding
chaos.
Blow-away toxic customers. COGS analysis is the first step in identifying problem customers whose volume may be profitless. Look for profit squeezes from unearned discounts, excessive freight, damage allowances, etc. Your order entry system should pull up complete details of all of a customer’s prior orders and flash warning messages that will allow you to avoid repeating past problems. (The ultimate message should not be “do not sell” but one that will set up a “win-win” situation.)
Stop
investing in brain surgery for dinosaurs.
The logistics of maintaining and operating huge old factory buildings
can kill your company. If your
product flows a half mile before
it gets out the door, close your eyes and visualize the labor and time savings
of a competitor who only needs to move his product 500 feet.
Think “work cells” rather than “functional departments” or
“production lines”!
It’s all about time. Retailers need you
to deliver customized products in days not weeks or months…. before the
customer can change his mind. If
you quote six months, or even six weeks for delivery, don’t you think there
is the possibility of the consumer’s life style changing before delivery?
(Why wait for a sofa when you can get instant gratification from an
in-stock large screen TV?)
If you can’t get every order through your factory in
less than a week you really need help! It’s
probably not the production cycle but the paperwork cycle that is hampering
your ability to compete with timely delivery.
How long does it take to get an order out of the office? It should be
minutes and it should automatically update production queues and inventory
demands. Your shop floor
schedules shouldn’t be engraved in stone. Supervisors should have visibility
of new orders and be empowered to make their own decisions to group them to
reduce setups. On-line production
reporting helps them avoid bottlenecks and provides order status information
to customer service.
Managing time becomes more difficult as you move away from the production of inventoried commodities. Outsourced components and raw materials must be on hand before production starts and although many items can be made in a few days, or even hours, you need to schedule due dates over a longer period to smooth the production load and gain the benefits of larger lot sizes. Tossed into this stew are the inevitable rush orders which must be accommodated without disrupting the factory’s momentum. Factory management must get past the issues of “legacy” equipment (long set-ups), being clueless about what happens on the shop floor because they depend on accounting systems rather than manufacturing systems, and resolve their adversarial relationship with the work force. Only then can they can focus on efficiently getting quality products to their customers!
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Competing with TIME |
Competing with STYLE |
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Management Information Systems Regional factories Short flow paths in factories Good shop floor control Flexible staffing |
Quick setup machinery Customize products by parametric engineering Product line extensions Defined options and features Feedback from customers |
© 2002 by Feldman Engineering Corporation. All rights reserved. Updated March 24, 2007.