As higher wages, inflation, and rising transportation costs begin to level the low-cost playing field with China, US companies can position themselves to take advantage of the changing environment.
Even small changes can help US component makers win back some of the ground they lost when low-cost competitors emerged from offshore, says Mark Hehl, principal of Hehl and Associates, a manufacturing consultancy. Although none of these practices are new, many of them have been overlooked as companies focus solely on low-cost labor.
By implementing practices such as lean, gathering intelligence on competitors, and improving customer service, a number of US companies have been able to get their costs and prices in line with offshore competitors, says Hehl. He recommends four “countermeasures” against the offshore cost advantage.
Fighting the Money Battle : Work at cost containment and operational excellence. This is a worthwhile effort for any organization. The best-performing companies, domestic and foreign, constantly watch their costs. “Of the various avenues they employ, what works most consistently is lean,” says Hehl.
One US manufacturer realized $4 million in cost savings by making some simple changes. Hehl was working with this company for an ISO qualification and during the process discovered a duplication of effort in purchasing. Two different groups in the company were both checking inventory and ordering new material. This resulted in too much inventory, which ate up warehouse space that could have been used for production. By eliminating the duplication, the company saved in labor costs, inventory, and extra space rented for storage. The company was able to expand production within its own facility.
Competitor Intelligence : Understand your overseas competition. It's not that hard to do — simply survey other companies doing business with your competitors. Collect this information and use it. “I've seen hundreds of companies in low-cost regions, and even the best-run companies have an Achilles heel. Identify those weaknesses and capitalize on them,” says Hehl. “Armed with competitive information, you can convince customers to come back onshore and it is easier to compete on price.”
Innovation : Companies that don't innovate don't grow. Look at your own business and select a niche in which you can excel. Hehl cites a component maker that was producing a broad range of components, including miniature parts. It turns out a large number of these tiny parts can be shipped overseas in a standard express envelope. This was enough to offset overseas competitors' lower labor costs.
Focus on Superior Customer Service : In the electronics industry, quick turnaround is difficult to achieve when suppliers and customers are separated by a 12-hour time difference. “Fast response is something US companies are unable to get from low-cost competitors,” says Hehl. “If you have a problem at 11 am and you need to resolve it, it's midnight in China. It may take two or three days to resolve. Within the US you can call and get someone during their work day. Companies are willing to pay more for this.”
Don't just add services for the sake of it — find out what your customers want. Find out what they are willing to pay for. Survey them regularly, and ask questions about what's important to them.
Hehl points out that practices such as lean are not widely implemented in the Far East. Lean faces a cultural barrier in many regions of Asia. “In the West, we are accustomed to working in groups. In some Asian nations, the culture is autocratic — the belief is 'I just work and you tell me what to do.' Engaging in a group is very difficult for this culture and a hard barrier to break.”
Implementing lean can be a significant competitive advantage.