Deploying Lean Manufacturing in your factories and supply chain in China can reduce costs, offset rising prices, and improve overall business performance.  TriVista is at the forefront of this initiative, working with companies to roll out supplier development and improvement projects throughout China and we are having quite the impact.  In the first six months of 2011, our efforts have helped one customer achieve more than USD $1 million of cost avoidance.

Until recently, when it came to dealing with suppliers or factories in China, pressures of increasing prices were addressed with threats to remove the business, quality and process issues were addressed by your suppliers with additional labor, and supply shortages were addressed with additional contingency inventory at your suppliers.  But this cycle of inefficiency and poor supply management practices is being forced to change because costs in China are on the rise, and will be for the foreseeable future.

Costs are on the Rise in China

Costs in China are increasing, and this upward trend is showing now signs of slowing.  Is there really a next destination?  No.  Will “re-shoring” work for your business?  It is highly unlikely if labor in the US remains 15 to 20 times higher than in China.  The only real option that US companies sourcing and manufacturing in China have is to accept that the days of incredibly low labor costs are over and they are going to have to get serious about supply chain management and supplier development.  The Lean Manufacturing initiative that emerged in the 80’s and 90’s in the United States is slowly emerging in China – something that many have wanted to see for a long time, but until recently wasn’t really a top priority. 

CNY to USD 2005 through May, 2011 (click to expand)

For many years now China has been a source of quality products at substantially reduced costs.  Many of us have been involved in significant movement of our supply chain to LCR’s “low cost regions” like China and many have experienced significant profitability improvements along the way.  China has also been a large benefactor of our supply chain transitions as they have expanded their economy, gained valuable technology and created millions of jobs.  For the last 30 years, it has been relatively easy to benefit from the advantageous labor costs and economic transportation costs.  For many highly competitive industries that now source the majority of their products from the region however, things are changing.

There is No Alternative Option to China that Exists Today

To this day, many people continue to talk about other destinations like India, Brazil and Vietnam.  None of these locations has emerged as a viable switching option.  Study upon study has all had the same results – that while labor costs are cheaper in these destinations, these savings are offset by increased logistics cost.  What’s more is that most companies find that even if they shift their production to these lower cost regions, their supply chains still come from China.  Didn’t these folks realize that when China become the “World’s Factory,” that they didn’t just mean the United States and Europe?? You will also hear many people talking about moving production away from the coastal cities to avoid the cost increases, but they are finding suppliers that lack the sophistication and scale to meet their production needs, and aren’t they just trying to delay the inevitable?

So what are the most progressive US companies with supply chains in China doing to combat these issues?

The only really effective answer is to improve productivity to reduce costs.  This is a proven strategy for manufacturing in the developed world and it can be successful in China too.  Some Fortune 500 companies have already been at this for a handful of years.  For example, Nike employs an internal team of more than 30 Lean Manufacturing Specialists that it deploys to supplier factories throughout China.  ITT Industries employs a global team of process improvement experts and Lean Six Sigma Champions that deploy lean manufacturing principals in their factories throughout China.  But while this method works for companies that have significant resources and billion dollar supply chains, many middle market companies are struggling to define their supplier development strategies and implementation plans.

TriVista is at the forefront of this initiative, working with companies to roll out supplier development and improvement projects throughout China.  And we are having quite the impact.  In the first six months alone, our efforts have helped one customer achieve more than USD $1 million of cost avoidance through improved forecasting methods and accuracy.  Working with their major suppliers in China, we were able to help offset significant price increases.  But we didn’t stop there.  We are now working inside their factories to deploy lean principals like 5S, implement Kan Ban Inventory systems, improve factory layout, implement single piece flow and reduce headcount.

The bottom line is that traditional interaction with the supply base will no longer produce the results once attained.  Leading edge companies are now implementing lean manufacturing at their suppliers in China to offset price increases and improve overall performance.

TriVista has offices in China and the U.S. with trained lean manufacturing experts in China ready to visit your suppliers and perform kaizen events, lean opportunity analysis, project identification and gap analysis.  Let us show you how we can work with your supply base, establish cost cutting targets, and eliminate waste that is driving cost in your procurement.

Contact us today to learn how we can improve your supply chain and reduce your costs dramatically.