Archive for July, 2005

Jul 01 2005

Upgrading the Tao of the Estimator: Faster, Easier Mold and Part Quotes?

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Everyone’s wish is to design a part and in a matter of minutes / days have a budget for the tooling and mold costs.  This is the budget that will allow the project to go forward or sink it faster than a torpedo hitting the ammunition compartment of a submarine. Continue Reading »

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Jul 01 2005

The Competitive Edge: You Can Compete with the Offshore Guys

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They have low wages and therefore low prices.  But they’re very far away.  This mean customer service, design consulting, JIT, Short Supply Chain, and negotiations over quality and quantities are cards we have in our hand that they don’t.  This is our competitive edge.  We hear a lot of moaning of jobs lost in the USA and that have been relocated to China.  The Big Box companies (Walmart, Target etc) that appear to be solely price driven have lead with charge.  China has stated in the near future it will be a First World nation and (if they can) reduce us to a Third World economy.

Without bashing anyone further lets look at the advantages (?) folks have when they go to China.
They get low labor costs.  Why? Wages are much lower there.  They get faster tooling times.  Why? Chinese mold shops tend to run 24/7.

When considering how to compete with China, reading the Art of War with an eye towards business will give you both an insight into the Chinese way of thinking and how to profit from it. Advantages always come with disadvantages: There is no control over quality because nobody’s auditing them.  JIT, Supply Chain Management and the predatory practice (brought to an art form by the Big Box folks) of renting shelf space and returning all goods that aren’t sold; can’t be done.
Horror Stories abound about lack of control.
We have some interesting tools and philosophies that just can’t exist when the distance to your supplier is counted in time zones and not miles: CPI “continuing Process Improvement, Robust Processing, Just In Time process flow improvement, Lean Manufacturing, Fact-based decisions making (Can you believe that one?), the variants of Supply Chain Management, specifically Short Supply Chain and the multiple Japanese manufacturing philosophies.

Buyers will tell you they are “cost driven ”but they aren’t.  They want supplier loyalty, free product design consulting, flexible shipping quantities (JIT), plus the ubiquitous “Inexpensive Perfect Parts, On Time, All the Time, Every Time.  I’ve spent several hours on my Internet Instant Messaging talking with a guy in China who is convinced I should direct business to him. When I express the above disadvantages he counters that we in the US should provide service to our customers, the free consulting, broker the parts from the international freight containers, and completely define and control both the part and it’s quality from the building of the mold through the retirement of the project.  Sit back and think about that  . . . . . How is anyone in the USA supposed to stay profitably in business using his requirements?  Can’t be done BUT he just told you the secret to keep business in the US. I’ll explain by analogy:

I once worked with a wonderfully arrogant company in Wisconsin.  They proudly told me they would never be the low bidder on tooling and/or parts and would never be brow beaten into a price reduction.  However they would always delivered their tools early and under the amount they quoted. In effect they gave rebates on molds. Their closing invoice on tooling reflected their
‘Cost’. Once in production they had a + 5% window.  If their sales price was within this tolerance band to their quote they never complained.  They continually tried to reduce costs not to help their clients but to more productively use their own equipment.  Their efficiencies routinely gifted clients with price reductions NOT increases.  If costs were beyond their control and above the 5% they automatically raised it, always offering their clients the option to pull the job and place it elsewhere.  Would a Chinese company do that?

This company extensively used the Internet.  They told every customer they get only one visit a year. If the customers wanted several face-to-face visits, they were always welcome for as much free consulting as they needed if they came to the plant and talked with the engineers.  The company encouraged Internet Audio/Video Teleconferencing and kept their costs down by not being at their customer’s beck-and-call with a credit card and an airplane ticket.  While they would point their customers to a nice restaurant, they went out of their way not to entertain their customers when they ended up with a free evening on the Prairie.  Their minimized travel and entertainment budget kept their costs low, profits high, and tooling and part prices continually dropping. Would a Chinese company do that?

How about time zones?  While every engineer/buyer in the USA is salivating to spend his company’s profits on a trip to the orient, even if you established a relationship with a supplier you still have to accommodate an 11-hour time zone differential.  Someone is going to lose a lot of sleep on this project.  When you travel the trip is 22 clock hours.  It’s brutal on your body and you have a pile of work when you get back. This type of travel gets old quickly
How about language, customs and holidays?  While the Chinese are humping along on a 24/7 basis literally ‘who ya gonna call?’  While most people speak “Engrish” many things get lost both in translation verbally as well as some hilarious mistakes in writing. If you don’t think so, try to explain the theory of ‘decoupled molding’ to your Chinese counterpart.

What about the inevitable reject? The most economical way to ship from Singapore to Los Angeles is with a freight container. This probably means your supply management system is now buying orders of magnitude higher than the Economic Order Quantity as in the days of Olde. Even worse, it isn’t JIT. While there may be good quality definitions, what if your supplier doesn’t agree with the reject and won’t replace it? What court will you sue in? If you think Chinese Court will listen, you’re wrong. Quietly take the buyer who shipped everything offshore to lunch. Quietly ask to also take the ‘expediter’ to lunch also. Ask the percentage and amount of money spent on expediting shipments (air freight) from their current US supplier base. Politely point out the cost will go up by a factor of 10 AND you’ll now have the hassles of dealing with the customs people to get your expedited parts.

What about the Headache factor? There are some excellent, precise, low-cost fast-delivery shops in China, India, Viet Nam and Thailand. The problem is who are they? Where are they? And can you work with each other? This is an on-going problem with any shop.

Here are the advantages the Offshore shops tell the buyers:
1. Fast Delivery Time
2. Low Cost Molds assuming you:
a. Don’t have to repair it, or have a shop in the US who will repair it.
b. Can afford shipping your mold by air back and forth for repairs
3. Possible quality tools and quality parts. That’s a historic determination.

Here are on-shore supplier advantages you need to tell the buyers:
1. Immediate / accurate customer service from design consultation to tooling specifications to part qualifications.
2. No headache factor. This possibly offsetting the cost differentials in mold and part costs, in proportion to the delivery schedule and tolerances required.
3. Capable of JIT and immediate resolution of problems.
4. No problems with customs or excessive expedited freight costs.
5. A provable history of quality parts and delivery performance.
6. Time zone, Internet communication problems, Language and cultural differences are minimized.
7. References can be reliably checked.

What on-shore suppliers need to do to compete with the shift of parts going offshore:
1. On shore suppliers need to emphasize their customer service that Offshore Suppliers don’t have.
2. Shorten lead times
3. Ask customers if offshore counterparts are really building tools to the SPI or the customer’s tooling standards and molding parts out of the material that is actually specified.
4. Improve JIT warehousing,
5. Improve communication not on quality standards but on the understanding of the definition of quality to avoid misunderstanding.
6. Invest in productivity not gadgets. There is nothing wrong with CPI (Continuing Process/Quality Improvement). However don’t make a fetish out of it.
7. There is nothing wrong with a return on investment before passing the savings along to the customer.
8. Invest in People:  training and rewarding the results at every level is the best motivator for everyone.
9. Learn to ‘thin the herd’. Let money losing, high maintenance or personal service jobs or customers go offshore you don’t need them or the headache.
10. Make something proprietary. Proprietary jobs allow sales at a known profit without some buyer beating you up over the price. It balances out your cash flow and doesn’t make you totally dependant on the outside market. If you sell your product at retail, especially with the Target’s and Walmart’s of the world, make sure you don’t get burned with high administrative costs of labeling, shipping, small orders, or get stuck with returns that simply didn’t sell. If it is your product you also have the right not to sell it if you cannot come to terms.
11. Take care of the people who take care of you. Call on your current customers; offer them some free consulting in return for the job. If your are competitively quoted “Just to keep you Honest’ send the buyer a bill for your engineering services with a note you’ll never consult again without a purchase order. While you won’t get the invoice paid, if you send a copy to the head of purchasing the message will get out.

Let’s say your customer has sent the job offshore without you even having a chance at it. What do you do?

1. Understand some (not all) jobs are best produced offshore. Remember it was the customer’s choice and NOT yours to cut you off the bid list and send the job offshore
2. Continue to call, go to lunch and ask how things are going. As soon as the honeymoon is over, he’ll realize the mistake he made.
3. Explain on why certain jobs belong here and others don’t. Counter the cost driven argument with how long it took to get replacement parts and how expensive the replacement was (air freight) compared being on-shore. Be patient, continue to offer help and sympathy and gently point out the advantages of doing business with you.
4. Commodity jobs will probably never stay in the USA but where a job has quality specifications, this is your time to point out it should stay here.

Things always have a habit of evening out.

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