Globalizing lean
My ESM
Shoshanah Cohen and Anthony Paolini
Supply chain executives know that opening a manufacturing facility in China brings with it the opportunity for lower labor costs and increased profit margins. They also know from experience with existing plants in their home markets that Lean concepts can fuel process efficiencies, reduce inventory and eliminate waste. Indeed, Lean is a highly successful tactic for pulling ahead of the competition.
What those executives are now trying to figure out is how to mesh the two by bringing Lean practices to China.
It's a complicated challenge, to which leading-edge companies like Boeing, Celestica and Whirlpool can attest. They are finding that Lean strategies that have been successfully deployed in factories in North America must be rolled out differently in China.
Most important, a solid understanding of China's culture, politics, labor and business practices is essential for successful implementation.
First steps
Lean concepts offer a proven, structured way to increase quality and lower costs throughout the supply chain. When Lean is deployed in a manufacturing environment, companies often realize immediate improvements in cycle times, inventory levels, product quality, costs, asset performance and scheduled delivery targets. The impact on the business and financial performance of a company can be significant.
A Solectron Corp. plant in Milpitas, Calif., for example, reduced the lead time for pc board assembly from more than eight days to less than two, while increasing quality from 91 percent to 96 percent. At the same time, the facility's inventory was reduced from 20 days of supply to just six.
With results like this, it's only natural that companies are eager to roll out Lean practices in locations known for low labor costs, such as China. But China, while now a world-class manufacturing hub, is not experienced with modern production concepts, and executives must find ways to address those shortcomings if they want their companies to fully leverage all potential advantages.
There are four areas on which to focus:
Culture
Perhaps the biggest challenge for Westerners is the deep-seated cultural and business differences that exist in China. For instance, companies implementing Lean principles must contend with the different perceptions of personal empowerment.
Unlike in the West, Chinese employees have not had as much exposure to management styles that break away from traditional command-and-control hierarchical structures. Since the upper echelon in the government or corporations commonly dictates rules, the notion that an individual worker can foster change requires a fundamental shift in thinking. What's more, obedience to an established hierarchy is not limited to the formal management chain, but exists within an informal network too.
A case in point is BHA Aero Composite Parts Co. Ltd., an equal-share joint venture among Boeing, Hexcel and the Aviation Industries of China 1. BHA found that one of the biggest hurdles in implementing Lean was convincing workers that it is acceptable to come up with innovative ideas for improvement.
Constant encouragement and reminders were needed before employees began to embrace the idea of sharing their opinions, but once they were on board, they took an active role in redesigning BHA's composite finishing area, where surfaces are trimmed and prepared for painting. Using Lean principles, employees made improvements that cut cycle times in half and reduced the number of people from 18 on two shifts to 10 on a single shift.
Without making empowerment an explicit element of your Lean implementation, continuous improvement is not possible. And without continuous improvement, Lean is not possible.
Quality
Another problem companies face when implementing Lean in China is that the standards for product quality may be inconsistent with management expectations. Expectations of exceptional quality have been largely assumed at U.S. manufacturers for nearly 30 years. Since the near meltdown of the domestic auto industry in the mid-1970s, due to the invasion of higher-quality Japanese imports, the drive to improve quality has been a focus of management and labor.
The Lean premise-that there is always room for improvement-is widely accepted in the States. In other words, there is no such thing as a perfect product, process or service, so there is always more that can be done.
But in China, a "just good enough" philosophy means that a level of quality can be reached where there is no need to make further improvements. China's People's Daily Online characterizes this as a "make-do attitude," noting that while Chinese plants may have the capability to produce quality products, many-especially small-to medium-size enterprises-tend to have a very short-term perspective. The assumption is that if a ready buyer is available today, then current quality levels must be sufficient.
In addition, cultural norms that discourage individuals from "making waves" contribute to a lack of accountability within the Chinese work force. There is a tendency to accept a product or process as "good enough," even when there is clearly room, in Western eyes, for improvement. This acceptance of the status quo is at odds with Lean principles.
The leaner an operation becomes, the more it depends on all participants to meet their commitments and strive to improve.
Generally, the overriding manufacturing principle in China centers on simply getting products out the door. Quality, therefore, can be pushed down the priority list. And when metrics and performance evaluations are not tied to product quality, there is no incentive to eliminate waste, seek continuous improvement or simplify processes.
Workers
Factories in the coastal cities of China attract workers from rural, agricultural villages with little understanding of basic manufacturing concepts. The chances that they will be able to effectively identify inefficiencies and suggest process improvements are slim. This can be especially troublesome if the management ranks are staffed with weak managers, ill-trained in Lean concepts, because it leaves direct labor with no place to go to develop those skills.
The lure of money and much-respected titles throws a wrench into Lean deployment as well. In the midst of the economic boom, many Chinese frequently jump from job to job in search of bigger paychecks from companies willing to step up salaries as a way to secure their foothold in the country. Often more appealing than the money is the title that comes with a new job and the importance that title bears in climbing the social ladder and garnering higher personal stature.
As workers move around, they take with them intellectual property and trade secrets, and put them to use at the competition's manufacturing facility. The combined headaches of high turnover and the high incidence of IP theft make a consistent Lean deployment even more challenging.
Major loopholes in Chinese law and in the country's trademark and patent system exacerbate the problem. Many Chinese patents are granted without examination of their originality, making it easy for local companies to claim others' innovations as their own. And IP theft isn't limited to smaller companies with obscure products. Companies like General Motors, Cisco and Sony have recently complained that their designs or formulas for everything from cars and routers to Playstations have been stolen.
Suppliers
Cultural obstacles aren't the only barriers to ramping up Lean manufacturing practices in China. Success has as much to do with supplier reliability as it does with internal process improvement.
Supplier reliability requires predictable quality and predictable delivery. Both must be present to ensure success. An inability to determine when inbound production materials will arrive, whether the material will be acceptable or when customers will receive finished products forces companies to stockpile inventory to meet delivery commitments. Not only is buffering inventory anathema to manufacturing executives, but it also runs counter to the Lean philosophy. More inventory invariably adds steps to the process-not to mention cost-and contradicts the core goal of eliminating waste.
If dependable local suppliers cannot be established, turning to overseas sources may not be the answer either, since government agencies would not be likely to champion Lean concepts.
For example, customs clearance procedures for imports and exports are notoriously complex in China. Shipments can be stalled at airports for days. Drivers have to hand off cargo to other drivers from different logistics providers when they reach provincial borders. Tracking the movement of each parcel is a relatively new concept. And it requires a well-defined way to retrieve data-along with a vast amount of patience.
Making hard decisions
Although standardizing international operations on a Lean production model makes sense from a consistency standpoint, companies must approach a ramp-up in China somewhat differently from a factory implementation in the States.
Fundamentally, the challenges that exist in China require careful planning and precise decision-making. To overcome cultural barriers, executives must ask themselves whether the company's existing management team has the know-how to implement sweeping changes.
A cornerstone to a successful Lean rollout involves support from middle and senior managers. If managers are not able to rally and empower the work force to Lean compliance, then determining the cause of the problem is a critical next step. Does the problem lie in a lack of support and enthusiasm from senior management? Are middle managers improperly trained on the cultural hurdles, or do they lack the resources necessary to enforce Lean?
Once those questions have been answered, another decision needs to be made: Would native Chinese managers or expatriates be better-suited to the task? It's not an easy question to answer. On one hand, native Chinese managers have a grasp of how things are traditionally done and are in tune with cultural manners. On the other, an outsider with a Lean background may be able to introduce, educate and reinforce business and quality practices without bias toward historical precedent.
The recent past might offer some guidance. When Japanese automakers like Toyota, Honda and Nissan built their first plants in the United States, they relied heavily on Japanese managers to develop and institutionalize the quality and Lean concepts that differentiated their products from domestic producers. While initial efforts met with heavy resistance, and even ridicule, the passion and determination of the Japanese "teachers" eventually won over their American "students." Demonstrating this same level of passion and leading by example-indeed, evangelizing Lean concepts-are critical requirements of expatriate managers.
Bringing Lean to China also demands a mind-set change from top management, particularly in how it views work force longevity. If companies want to exceed productivity, profit and revenue expectations, they must invest in their work force and establish employee retention programs that promote long-term tenure and loyalty.
To retain employees, managers need to stop thinking that they have a "disposable" work force. Companies must invest in cross-functional training that empowers employees and makes them more valuable to the manufacturing operation. Training sessions should go beyond Lean concepts and encompass everything from inventory control and planning strategies to the definition and use of metrics.
Plantronics Inc., a leading manufacturer of headsets, clearly understands that the people with the most intimate knowledge of the best way to build a product are the ones who build it day in and day out. Work force retention is a key element of Plantronics' manufacturing strategy; the company prides itself on highly knowledgeable employees who can produce exceptional quality. This philosophy is a driving force behind the design of the company's new facility in Suzhou, which will employ systems and rewards that encourage people to seek continuous innovation practices.
Better compensation is another way to win employee loyalty. Pay should be more directly tied to skill sets and performance evaluations based on how well Lean practices are distributed throughout the organization. Closing the gap between compensation and performance metrics may eventually lead to a shift away from the "just good enough" ideology and inspire a new sense of responsibility beyond individual work silos.
With that in mind, employees must believe that they can contribute to the organization's goals and drive some of the change being imposed on them. Managers should recognize accomplishments that took root on the shop floor. For example, one company used a suggestion box to collect ideas that would fuel greater efficiencies and publicly recognized workers who showed initiative and suggested new time-saving techniques.
Addressing internal issues is only one part of the decision to set up Lean in China. Management must also figure out how to tackle such things as supplier practices and the convoluted logistics infrastructure.
As with all new ventures, replicating manufacturing strategies in a place as evolutionary as China comes with its share of headaches. The right amount of patience, forethought and understanding, though, will help ease the pain and result in a significant return on investment in the long run.
Shoshanah Cohen is a director and Anthony Paolini is a principal in the supply chain practice unit of Pittiglio Rabin Todd and McGrath (PRTM), a global management consulting. Contact the authors at mailto:scohen@prtm.com
Copyright 2004 © CMP Media, LLC
