If you purchase from China, there is one thing you have noticed: prices are going up, often by 10-25% a year. The reason is not that manufacturers are increasing their margins, but that their costs are rising very fast.
Yet, these same factories are under more and more intense pricing pressure from their customers.
Which manufacturers will survive and turn out a profit over the next 10 years? Those who increase their efficiency (by reducing waste in their operations or by increasing throughput) and/or who raise their production quality.
What will it take for them to reach these goals? I see 7 obstacles they will need to address:
1. Short term focus
Right now, most exporters are focused on surviving, and if possible on getting enough for the boss to get a new car (or for his wife to buy another apartment).
But there also seems to be an aspect of Chinese culture that pushes every one to focus on the short term. It makes it extremely hard for companies to sustain a long-term investment aiming at improving the organization.
2. No pride of workmanship
Why are they in business? For money, of course. Very few manufacturers here care about a nice workmanship, a new design, or a defect-free production run.
It is very frustrating to explain to factory technicians that products must look better, and to realize that people nod politely (if at all) and actually don’t care. All they want to know is “what is the absolute lowest effort we can make?” Not a great customer retention strategy…
3. Focus on “making production”
Go inside a factory building, and you will see everyone trying to get the products out of the door. In 95% of cases, the shop floor is an absolute chaos.
The problem is, no one wants to stop the line when they notice bad quality, since they are paid by the number of pieces they make. As long as this attitude subsists, quality will be inconsistent.
4. No respect of workers
Ten years ago, it seemed like the Chinese workforce was endless. Unskilled workers were easily disposable. Fear was an effective motivator (“follow the rules, or you are out”).
The problem is, the situation has changed much faster than managerial methods. Training the operators and retaining them should become one of the top objectives.
5. Compartmentalization of activities
It is very common for factories to prepare prototypes in one place, and to produce the corresponding order in another floor (or to subcontract it to a different company). But development, engineering, and production should work hand in hand.
Another problem is the young and aggressive salespeople who say ‘yes’ to all requests, in their search for new orders. In the end, customers are disappointed and look for another source.
6. No analytical accounting
To reduce costs, it is important to know where they come from. Not only don’t most Chinese companies use analytical accounting tools, but their tax evasion tactics often deprive them of any accurate accounting!
They have no idea how much non-quality (rework, re-order of components, discounts, lost customers) costs them, for example. So why make an effort?
7. No interest in best practices
Most factory bosses have copied the way another manufacturer — often a previous employer — was organized. To them, the way to make money is to grow up, while keeping costs down… and occasionally screwing a few customers.
They are usually not interested in running experiments or purchasing software/machinery to improve their organization. If there is one thing that makes me pessimistic about Chinese manufacturing, it is this lack of curiosity in new methods.
I guess my 7 “deadly sins” are related. But where does it start? Probably by seeing good examples and copying them. Or maybe by starting new factories from scratch, with better management?