The cost reduction associated with offshore manufacturing can initially be very persuasive. However, most companies that opt for offshore manufacturing learn the hard way that reality is not so simple. The numbers on the board seldom translate directly to profits and routine technical problems can quickly spiral out of control.
Whenever we talk to the executives, managers and engineers who have been involved in offshore manufacturing , there are three main concerns which top their lists: quality, communication and personnel. It’s important to understand these problems and how their impact can be mitigated.
Issue: Quality problems can be disastrous for a company manufacturing offshore. The best case is the problem is caught internally and only requires expensive scrap or re-work. While in the worst case the problem is caught by customers resulting in even greater expenses: service, repair, recall, loss of future sales, and/or impairment of brand. Despite best efforts of engineering teams to make quality control objective and measurable, it isn’t possible to quantify every aspect of manufacturing a product. Ultimately many facets are still dependent upon human judgement—and all too often the individual with the knowledge and experience is at a different location than manufacturing.
Mitigation: Every contract manufacturer preaches the importance of quality, but what steps can you take to differentiate between lip-service and a real commitment? ISO standards and having a comprehensive Quality Management System in-place is a bare minimum. Quality requires a long-term investment of time and energy into training—and more importantly your team should approach the problem with focus on building a long-term relationship. Focus should be paid on transferring knowledge to the off-shore team with the goal that they should not only know what a defect is, but also why it’s a defect. Training and knowledge transfer is greatly facilitated by regular travel to the offhshore sites by technical teams.
Issue: Communicating complex technical information is challenging under the best of situations. It is even more challenging in offshore situations where you must deal with time zone, cultural, and language differences. Furthermore, verbal (e.g. phone call, meeting) and written (e.g. email, documentation) are the most common forms of communication, but are poorly suited for communicating technical information which is highly visual and experience based.
Mitigation: Technical communication can be improved by following some simple steps such as talking slowly and frequently checking to make sure participants understand and if they have any questions. Whenever possible, give objective/quantitative descriptions (e.g. 3 mm gap) instead of subjective descriptions (e.g. small gap) that are subject to interpretation. As you develop this habit you’ll be amazed at how frequently subjective descriptions are used in technical communication.
Many great technologies are available such as emails, instant messaging, web conferencing, and desktop sharing making communication faster and simpler. These are highly useful for certain issues such as product design and production planning. However, when it comes to problems faced on the actual manufacturing floor such as quality control, assembly and testing they are of limited use. In these cases having the technical experts flown in frequently to interact with the manufacturing team is the most effective but often is not an economically viable solution.
Issue: The reason most companies go in for offshore manufacturing facilities is the high availability and low cost of labor. But this too has a downside. The attrition rate is very high resulting in the frequent loss of trained labor. For example the Harvard Business Review reports that in China “turnover rates among low-skilled workers are frequently in the range of 30% to 40% annually—and sometimes rise above 100%. Compare those figures with industrialized countries, in which annual employee turnover rates in manufacturing are roughly 5%.” While The China Perspective reports 26.6% turnover among high-tech manufacturing industry.
In countries where the manufacturing industry is overheating, it’s likely that the people you invest so much time and effort to train may walk out the door. There is no way to guarantee that the team that has been recruited, trained and deployed for a particular product will still be on that line a few months later.
Mitigation: Cross-training is a good policy, but can be difficult if you are reliant upon a contract manufacturer. As much as possible, it’s important to ensure employees are well-motivated and see opportunities to further their carriers. Having good documentation can help bring new recruits up to speed on your products, but it is nearly impossible to deliver documentation with 100% coverage. Once again, travel to the site by technical teams to share their expertise is the most-effective but expensive option.
Cost of Travel
For all three problems the most-effective solution is to have your technical experts frequently travel to the manufacturing site; however, the cost associated with this travel can be significant for small and medium size companies. Stay tuned for our next blog post where we’ll discuss just how expensive travel can be.