Is offshore outsourcing an unavoidable fate for the UK manufacturing industry? Many seem to think so, but, argues Chris Astall of Cincom Systems, looking closer to home at improved efficiency and lean operations can sometimes lead to equal savings.
Offshore manufacturing is only one choice, not an inevitable step. Its most-quoted explanation is cost. Taking cost alone (the potential impact on customer service and reputation being another matter altogether), potential reported savings range from 25% to 50-plus%. Impressive these may be, but there is still no reason to jump aboard the slow boat to China without first looking at existing processes.
Given that upwards of 70% of the average business or manufacturing processes consist of non-value-added activities and are therefore pure cost, the potential to match these savings on UK shores undeniably exists. Often talked about but seldom implemented, a Lean Manufacturing – or should we say a Lean Enterprise – strategy is an obvious solution. If, by adopting Lean, the average business is able to reduce its non-value-added activities to just 10%, it could reduce costs by some 43% and cycle times by 63%. Yet, aside from some posturing among the bigger boys, few companies are taking advantage of these possibilities.
Whether we build our own factories in China or Eastern Europe as some are doing, or outsource the manufacture of our products doesn’t matter as usually all we are doing is translating the same bad, inefficient processes to another location. Yes, the labour costs are less but what advantage does the customer receive if all we are providing is “same old, same old”?
The most worrying faction within the industry consists of those businesses which are not sending their work offshore and are not adopting Lean, or any other change strategy. These companies are failing to face up to the future.
A gentleman attending a recent seminar on offshore manufacturing asked – or rather made a statement about his £6 million business – that as a supplier to a major auto manufacturer, he is under enormous pressure from said car company to reduce costs and improve productivity. Yet this gentleman believed that his business was too small to change the way it operated and that new technology enabling productivity improvements was too costly an investment.
In the ensuing discussion he was asked that, given what happened to the corner shop over the last two decades with the dominance of the major retailers (Tesco, Sainsbury, Asda, etc), what did he think was going to happen in the long term? His response was “I think we won’t exist” and yet he still didn’t see how he could, or should, change. For him, doing nothing will result in exactly that: nothing. This attitude, which he is not alone in holding, will sound the death knell for the small enterprise in the UK and probably in the rest of the western world.
Conversations such as these are frustrating and not a little sad for those within the industry who see it unnecessarily folding to an inevitability that simply does not have to exist. There simply has to be a call to action for industry as a whole: while 57% of executives in a recent survey may have said Lean is critical to how many of these are actually doing anything about it?
Lean is not just about cost savings, its about creating a flexible, agile and responsive environment, within which businesses can gain competitive advantage by servicing customers better; faster; at lower cost and with higher profits. Offshore manufacturing may bring the latter effects in spades but if this is at the cost of service quality, how long can the benefit last?
Chris Astall is director of demand-driven strategies at Cincom Systems.