Let’s say you develop a custom product (based on your own design) with a manufacturing partner in China. After 2 years, they push for a price increase because their costs are going up.
And let’s say you cannot raise your purchasing price. You have to find ways to keep costs down in manufacturing.
There is definitely a place for product redesign. It can lead to enormous savings. And often, a Chinese supplier can give suggestions, such as:
- A cheaper grade of steel would do the work just fine.
- This piece of fabric could be cut this way, and thus save some fabric.
- Let’s “clip” these 2 parts instead of screwing them.
- Another customer uses this different packaging material, have a look.
However, product redesign is very often (always?) suggested, and process improvement very seldom (never?) is.
This seems to be a constant in the electronics industry, especially consumer electronics. All the engineers tend to be working on making a good product and pushing it to market very fast. And they spend very little time improving their production processes and their preventive & predictive maintenance systems.
When they think of their processes, the question is ‘how to automate these process steps?’. And it is not always the answer. Automation often hurts the flexibility to make many different SKUs in relatively small quantities.
In contrast, in car assembly plants, the managers have to drive variable costs down by 5-10% every year. Let’s say a new model is launched this year — the priority is to get the right number of cars, at the right quality level, out the door. And in the next 5 years? Drive costs down by 5-10% every year.
And they have no control over design. There is no way they will be allowed to change the current model.
What do they do to achieve that objective? There are many options, among which:
- Make some tooling to assist operators
- Automate some process steps further
- Improve process controls so that fewer quality issues (necessitating rework, scrap…) come up and fewer inspectors are necessary
- Improve preventive maintenance to minimize downtime in production and quality issues
- Train the operators and push for improvement projects, so that they way people work is continuously improving
- Tweak internal logistics to reduce the number of operators
- Reduce setup times to process more parts per day (or to keep less inventory on hand)
You get my point. Depending on the main sources of waste identified, a relevant and well-implemented action plan will drive cost down.
Why is it that design changes seem to always be the priority?
As I wrote before, why do most Chinese dislike processes? Or is this just an impression?
I think your observation is correct, that companies manufacturing their products in Asia oftentimes look to product redesign vs. process design when attempting to reduce costs. The reason for this may be rooted in how contracts are often signed with third party manufacturers in Asia. Many/most of these contracts are with a price for the final packaged product. As a result, the internal manufacturing process is off limits for negotiating any cost reductions due to improvements suggested by the client company. I had an experience where a packaging operation in Spain for a particular product took only 5 people, whereas the exact same product being produced in Thailand took 28 people, 3 times more space, and produced fewer units per hour. The Thai manufacturer pointed out his workers cost a fraction of the wages in Europe, which was true, but why have 5 times more workers do the job slower than in Europe? Wouldn’t it behoove both the manufacturer and the client company to move towards a more efficient process? Their answer: it doesn’t matter, since the price was negotiated for a completed, packaged product. I never understood why the benefits of higher efficiency couldn’t be shared in such situations, but I’ve seen this repeated many times for European, Korean and European clients manufacturing in China and other parts of Asia.
I’d also like to suggest that product and packaging redesign can lead to significant cost reductions when supply chain logistics are considered. The cost for shipping products can sometimes be much greater than the most expensive component inside a product, especially cushioned electronic products. Small modifications to the geometry and/or fragility of such products can save millions of dollars in shipping, handling, storage and damage costs, all by increasing load density in ocean containers and air planes, yet very few companies consider the supply chain costs when adding up the costs for production and components.
Great points, Howard. Fully agree. The taste of Chinese business owners for opacity is a real issue.