The China Price
This week's Business Week cover speaks to manufacturing's need to meet the "China price" which is often 30-50% lower than U.S. prices. Is it even possible to meet or better this price in the U.S.?
Sure, if you embrace the essential principles of Lean and Six Sigma.
Lean thinking can reduce lead times by 90%, inventories by 90%, errors by 50%, and increase productivity by 100%. The actual time required to produce a product or service is only 5% of the total elapsed time, there's lots of opportunity to accelerate productivity and reduce costs. Stalk and Hout, authors of Competing Against Time, say that every 25% reduction in cycle time will double productivity and reduce costs by 20%.
Every team I've ever worked with has reduced cycle time by 75% or more. If that saves 60% of the costs for that activity, think how much you can save across an organization. Who cares about the China price; can you meet the America price?
Six Sigma can help business find and fix the 4% of any business that is creating 50% of the defects, rework, scrap, and associated costs. The Juran Institute says that a typical business is wasting 25-40% of every dollar spent. Cut that in half and you're getting close to the China price.
So, before you offshore to take advantage of the China price, make sure you've got your own processes in order. Tom Devane, author of Integrating Lean Six Sigma and High-Performance Organizations (Pfeiffer, 2003) says "The irony is this: If a company gets the process into tip-top shape before moving it, it may find that it doesn't need to go offshore after all."
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