Making factories more profitable
Industries that are comprised of factories with high manual labour content have traditionally been focused on needing to move to countries with the lowest wage structure.
From Taiwan to Malaysia to Indonesia to China to Bangladesh to Vietnam to to Inner China to Cambodia to Myanmar, to Ethiopia.
But moving to a different country every 4 or 5 years to set up in a lower minimum wage environment has proven to not be an effective strategy to deliver increased profitability for the factory owner.
A strategy mainly centered around foreign investment in countries with poor infrastructure and relying on repositioning expatriates to even middle management staff positions is problematical, expensive, and can be shown to be a strategy that does not increase long term stability, nor provide increased profitability.
DOES A FACTORY'S PROFITABILITY INCREASE BY MOVING TO A LOWER MINIMUM WAGE COUNTRY?
Simply moving operations to a lower minimum wage country is a strategy that has helped the branded customer to ensure its own profit margins, but has done little to help factory owners, who have 100% of the risk.
When your competition is on a global basis, if your factory's strategy centers around mostly taking immediate advantage of a a lower minimum wage, you have created a limited strategy, with a "Best By" date with expiration of 3 to 5 years down the road at best.
Clearly, from the very beginning, a strategy that involves moving an operation to a new country needs to ensure that local/national staff are being trained to take over key positions of responsibility as quickly as possible. Your own country's expatriate managers are often unable to actually develop the management systems in your new location.
Expatriate staff, usually thought to be required for an initial time period have a way of needing more and more years in-place than originally intended. And, in many cases, the number of expatriate staff tends to grow over time, as customers seek more value added processing and higher degrees of control, depressing margins even further.
INCREASE PROFITABILITY BY INCREASING PRODUCTIVITY
Not So Difficult
If You Know How
The key elements are definable and controllable.
There is no magic to it.
HERE IS WHAT YOU NEED TO DO
TO INCREASE PRODUCTIVITY
AND BEAT YOUR COMPETITORS
Transparency What happens on the factory floor is eventually known to everyone within your organization and to your customers.
Transparency has several meanings.
Transparency to customers facilitates their ability to understand what is happening with their business partnership with you, making them be able to be comfortable with your strategy and ethics.
Internally, factory floors and sales operations need transparency to weed out inconsistencies and waste, to make operations run more smoothly.
Control Your Supply Chain You will need to start a Supply Chain Improvement Task Force that firstly focuses on internal groups, but eventually needs to include your customers as well.
Supply Chain improvement takes several months to see any improvement. Starting this improvement immediately is critical to your factory running smoothly.
Since Supply Chain problems reveal themselves on the factory floor, usually it is the factory itself that needs to be the initial prime mover in getting the Headquarters to understand how severe the problems are.
Get Outside, Professional Support. You won't be able to do it with in-house staff, no matter what their functional know-how is.
GE, Microsoft, HSBC. No mater how big the company or factory is, companies that use outside professional support reach their goals faster and more often than those that don't use outside support.
Look for a supporting company that will understand your unique situation, and provide tailored plans for your specific requirements. No two factories are the same, and no two improvement plans are the same.
Limit Reliance on Expatriate Staff Unless you are a Fortune 500 company you will not be able to be competitive unless you limit and reduce your reliance on expatriates.
Our experience at AMC tells us that usually if there is a high number of expats, it indicates overall organizational weakness and lack of transparency.
Create a well-defined training plan for local, national managers at all levels. Your Expatriate staff's #1 work mission is to ensure that local staff are able to handle the management. Make a fixed timetable for this. And make your expatriate staff accountable for its deadlines.
You moved your factory to a foreign country seeking cost advantages but if you rely on (mostly) expatriate staff to ensure business success, your locally owned competitors, which don't have costly expatriates, will quickly underprice you, and your customers will move towards those competitors.
Start a Training Program With Well Defined, Numerical Goals That Focuses on Mid-Level Local Staff Nothing can be improved unless it is measured. Setting world-class expectations for your local mid-level staff is the most effective way to stay profitable for decades. In order to make this possible, your expatriate managers themselves must relentlessly followup in order to allow new managerial behavior to become the new, actual way for local staff. Expatriate staff usually have some kind of Technical know-how, but rarely do they have even any ability in how to create effective ways to transfer to local staff world-class managerial working habits that help you become more competitive.
If local managerial staff are not following up, in 100% of the instances expatriate staff themselves are not following up or have not been able to transfer their managerial knowhow through lack of understanding how to do so.
Understand Who In the Organization is Key to Improving Productivity Often times this know-how is not your Production Department Manager or your Quality Supervisor, or other key players as defined by an Organization Chart.
The key players who actually improve profitability are found much lower in your organization's pecking order. These persons tend to have the most involvement with how quickly your work-in-progress is moved, or the people most in touch with what kinds of defects are being made within the last hour. Your ability to firstly identify and then to tap into how these lower-level team members who in fact are actually defining and limiting your overall productivity potential is important to understand. These are the people you need to get to in order to actually increase your productivity and therefore your profitability.
Use CSR as a Means to Create Long-Term Longevity for the Operation
CSR is good for your factory.
If you view CSR as something that benefits your branded or license-business customers more than it does your own factory, you don't understand what CSR is all about. CSR is all about creating long term, sustainable enterprises that allow for a triple WIN for your customers, your workers and for your own profitability.
As long as you meet certain minimum levels of the CSR standard you are being asked to use, most branded customers will continue to work with you. But this alone gives you no competitive advantage over your competitors.
World-class branded customers want to work with suppliers that have a plan being implemented to achieve long-term sustainability. Since most of your competition is focused only on short term profitability, using CSR is the smart way to ensuring long term growth.
Create a Strict Definition of Who Are in the Group Defined as Direct Employees Define as narrowly as possible who is in your Definition of Direct Employee.
Machine operators are Direct Employees.
Cutting Room personnel are not Direct Employees. Quality Control personnel are not Direct employees.
This helps you to focus on setting headcount targets for specific Teams, both Direct and Indirect, with different, tailored Objectives and Measurable Performance Criteria for each Team.
Groups that are comprised of Direct headcount teams need to have their their specific performance achievement methodology tied to their specific job mission,
Decrease Indirect Employees From the Very Beginning Indirect employee growth, especially indirect employees within the actual Production Department itself, is a threat to your ability to price your product at a price that customers are willing to pay. Relentlessly reposition Indirect employees out of the Production Department by retraining them in other areas.
Indirect headcount control can take several years to accomplish, since indirect personnel turnover rate is usually lower than direct personnel turnover rate.
Without a plan being implemented to decrease Indirect headcount, you will never be fully competitive.
Implement a Value-Added Performance Strategy that Aligns with a Defined Customer Strategy, Customers want to do business with you long term if you make it possible for them to do so.
In order to do this, you need to increase your ability to perform better each year. You need to implement yearly improvements in all internal Teams, from development through production. Your customers expect to see value-added performance.
Don't worry too much about this.
If you have implemented Points 1 through 9 above, you will have a powerful, legitimate, and profitable brand story of your own, as a factory.
Growth will happen.
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