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What Lean Manufacturing Consultants Know but Purchasers Don’t

August 28, 2016

 by Renaud Anjoran

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Lean manufacturing consultants are used to saying: “A factory that delivers bad products late always incurs high costs”. In their mind, the three basic dimensions of performance (quality, cost, and delivery) go together. A good factory ranks well on three dimensions, and a bad one ranks low on all three.

However, most people don’t understand the reasoning behind this. It contradicts their daily observations. In particular, purchasers don’t agree with it. Who's right?

What purchasers tend to observe… and believe

Small factories tend to be very cheap, but their quality is often bad and they have no control over delivery dates. This is true the vast majority of the time in China.

As a consequence, a theory got ingrained in most purchasers’ minds: ‘I can expect good quality and on-time deliveries only if I pay a high price’.

This is reinforced by the belief of most Chinese suppliers – namely, that they can ASSUME the quality standards and the tolerance for delay are “elastic”. They ASSUME the purchaser will give them more rope if the price is low.

(By the way, from what I read, Chinese judges give a lot of importance to the “yes quality is not good, but what could the buyer expect for such a low price?” argument. There is probably a cultural element at play here.)

 

Why would good quality and on-time deliveries go along with low cost?

Poor quality generally increases costs, mainly through two types of issues:

  • External failures (quality issues found by customers after delivery, resulting in penalties, loss of business, lawsuits, and so on);
  • Internal failures (quality issues found before shipment, resulting in costly sorting & re-processing and sometimes in a high quantity of scrapped material).

Unpredictable timing generally increases costs too. It results in customer penalties and loss of business, in expediting of production, and in extra shipping charges (sometimes sending an entire order by plane).

Well, these arguments make sense. But improving quality and on-time delivery must require putting in place systems, extra manpower, and other sources of cost, right?

Not always. Not in the approach of good Lean manufacturing consultants!

 

A process improvement plan is the best cost reduction plan

A process improvement plan is the best cost reduction plan

Putting in place systems (production planning, planned maintenance, process controls…) increases costs but, if they are appropriate, bring benefits that more than offset those costs in the mid-to-long run. Typically, it increases cost directly by a factor of 1 but reduces costs indirectly by a factory of 4 to 10 (and sometimes much more).

Here is the Lean manufacturing consultants’ view:

"From an improvement point of view, it is nearly always possible to pursue actions that improve quality, cost, and timing performance at the same time. If not, you are probably doing something wrong."

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The key is to focus on processes. A process improvement plan will typically improve all three dimensions of performance (QCD) simultaneously. Let’s go through three examples.

  • A few weeks ago, we worked on improving a die casting process. We found out that most issues came from the mold itself. After that mold had been improved, this process went from 75% to 94% in first-time quality, and from 7 to 2.5 minutes in cycle time. It was better, faster, and cheaper.
  • We have re-engineered many assembly operations to make them more compact – moving toward the ideal of one-piece flow. In an instance, the factory went from a 15-people line producing 1,800 pieces a day to an 11-people line producing more than 2,300 pieces a day. Here again, cost goes down and speed goes up.
  • It works in the office, too. A good ERP implementation reduces the need for manpower, compresses lead times for approvals, and reduces mistakes.

 

So, why are small factories cheaper, while they are quite unreliable?

There are two reasons for this apparent paradox:

  1. Small factories don’t suffer the full consequences of their shortcomings – many costs are pushed onto their customers (who have to do quality control, who can’t get their money back if they discover problems after shipment, and so on).
  2. The activity is still small enough that it can be managed more or less by one person who keeps an eye on everything. This is no longer true when complexity increases and they get over 300 employees.

 

Your Thoughts?

Do you agree with us? Do you believe that one can only get 1 or 2 of the 3 pillars of performance (high quality, low costs, and fast deliveries)? Or do you believe this is an outdated mode of thinking?

We'd like to know if this is true of your China manufacturing, so please do leave a comment and let us know.


  CMC Factory Self Assessment Tool

Topics: Lean Manufacturing, Management/Turnaround

Renaud Anjoran

Renaud Anjoran

15 years experience in China.
Partner, China Manufacturing Consultants.
Worked with hundreds of factories in China.
Certifications: ASQ CQE & CRE; ISO 9001 & 14001 lead auditor.
Author of well-read blog, Quality Inspection Tips.

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