Firm On A Lean Mission To China

September 18, 2004
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HOLLAND — Perhaps beginning the next trend in the outsourcing movement, CommonSense Lean co-founders Bob Richards and Ron Kuhn embarked on a fact-finding mission to China earlier this month.

The two Herman Miller alums are traveling to the Middle Kingdom at the request of Tier I automotive supplier Johnson Electric.

Hong Kong-based Johnson Electric is a global enterprise with locations in Brazil, Italy, the United States, mainland China and several other countries. A manufacturer of small electric motors for use in automobiles as well as consumer electronics, the bulk of Johnson's production is in mainland China

"The basis of our trip is to do more of a due diligence," Kuhn said. "To take a look at their operation and do some evaluation of their work and of their use of lean concepts. Then see if we can help them."

The scenario that has brought CommonSense to Shanghai is a new twist to a situation familiar to U.S. manufacturers. The majority of sourcing is conducted in China in an effort to take advantage of cheap Chinese labor. The problem arises in the balancing of transportation costs and time against the savings found in labor costs. That has become harder to do as it has become apparent that the rising costs of shipping and raw materials are not solely a U.S. problem.

"The way I understand it, the increase in steel and other commodity type items have created new costs that they can't pass along to their end customers," Richards explained. "So they have to keep internally getting more efficient.

"What they're running into is more of a transportation issue," Richards added. "Their customers receive the product via boat." He said this means mainland Chinese must be very efficient in their mass production and their shipping, because their lead time is eaten up with the shipping that goes on.

As a result of this, he said, an exceptional amount of inventory is stalled in the transit phase of the supply chain so that Chinese manufacturers suffer from an exceedingly low inventory turnover.

Richards said those added costs erode the benefits of cheap labor.

"I've heard that because the labor is so cheap, they don't focus on process efficiently," Kuhn said. "They try to cover things up with inventory and so on, causing that piece to grow even larger. There may be opportunities for this cheap labor to become more efficient cheap labor."

CommonSense Lean is no stranger to work in unfamiliar territory.

The company has worked hard to bring its implementation-focused consulting to industries that are not generally associated with lean, such as chemical manufacturing, financial planning, and health care in its implementation for BorgessHospital

"These concepts are really universal and generic," Richards said.

"Everything has a process," he said. "And usually if things don't run very well, or if the processes are broken, it's because there are either too many steps in the process or other misguided things have crept into the process."

Richards said every organizational culture seems to have a unique situation whether "in West Michigan or the eastern part of the state or Sioux City, Iowa — whether union shops, nonunion or privately held companies."

"Each seemed to have its own personality," Kuhn added.

The duo is well equipped to investigate the problems facing the Chinese manufacturers.

Richards was previously responsible for Herman Miller's $250 million build-to-order, short lead-time, SQA office furniture operation.

Kuhn was a program manager for Herman Miller's lean manufacturing/engineering departments.

At Herman Miller, the two helped implement lean concepts that resulted in increased production capacity of up to 292 percent. That was accomplished despite cultural and language barriers of a diverse work force.

"We had a trilingual work force at Herman Miller spread over three shifts," Richards said.

"English was primarily the language of the first shift. Second shift was Hispanic and third shift was a mixture of Asian and Hispanic. But we had processes in the plant that had to be done consistently across all the shifts."

He said they replaced operator manuals with digital pictures and attempted to reduce the words involved in standardized work as much as possible. He said CommonSense will likely use similar practices in any Chinese implementation.

CommonSense believes that its insistence to walk the client through implementation rather than just making recommendations differentiates the company from its competition.

On top of that, while many consultants have learned about lean through academic work, Richards and Kuhn have real-world experience implementing those concepts.

The new experience likely to be gained from the work overseas will likely provide another distinguishing competency.

"This will give us a unique perspective," Kuhn said.

"You hear of companies shutting down shop and moving to China. Most of those are purely for labor. Cheap labor is one thing, but the transportation and inventory side of it can add up to a whole lot more money.

"We're going to have that perspective where if companies are looking at (outsourcing overseas), we'll be able to help them decide if it might be better to stay put, or if it'll be a good deal."

CommonSense hopes to foster an ongoing relationship with Johnson Electric, possibly implementing lean concepts in many of its other overseas facilities, as well.   

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