Reducing manufacturing cost towards global competitiveness

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New Balance, a global athletic-shoe company, has manufacturing facilities in the United States and around the world. A few years ago, as reported in the Wall Street Journal, New Balance is lobbying the US government to extend tariffs on imported footwear (“New Balance Sweats Push to End U.S. Shoe Tariffs,” The Wall Street Journal, 02/28/2013).

New Balance argues that without the tariffs, New Balance’s US factories would have a harder time competing with cheaper shoes from overseas and may endanger the factories’ long-term survival. Ironically, 75% of New Balance footwear sold in the USA is imported with the balance 25% made in the US factories. New Balance wants to keep the US factories because even as local shoes may cost more to make than imports, the American factories’ high flexibility and delivery turnaround more than make up for the expense disadvantage.

Lower tariffs, however, would push the pricing difference with imported competition to a higher level and end the justification to operate the US factories.

The case of New Balance presents an interesting dilemma common in other countries.  On one hand, the US government wants New Balance to continue operating its factories on American soil to preserve jobs and sustain local economies. On the other hand, because of the tariffs, consumers have fewer options for lower-priced for just-as-good products.

Manufacturing is a source of economic wealth for nation-states and governments would not hesitate to provide incentives to firms to locate facilities in respective countries. Companies therefore are often on the look-out for sites that provide for attractive incentives such as tax exemptions, skilled labor, low utility costs, modern infrastructure, and minimal red tape.

But as much as firms may expect windfall benefits from locating factories in sites that provide significant financial incentives, companies still need to be proactive in ensuring their bottom-line operating expenses are competitive with the rest of the world.

Manufacturing is essentially a global enterprise in which virtually every factory is bench-marked against similar ones around the world. If factories such as those of New Balance USA make items that costs more to deliver than those made from a competitor in Asia, the viability of American facilities would be questioned.

Companies like New Balance are motivated to aggressively pursue cost-control programs to sustain competitiveness.  These programs may consist of:

Maximizing productivity

It’s always better to get more from available resources than to invest in costly capacity increases. Manufacturers, for instance, may opt to schedule more than one daily operating shift to utilize more of the 24-hour day. Aside from that, simple ergonomic designs in the workplace may also offer higher yields in output.

Reducing downtimes

When a facility is scheduled to produce but is not turning out any finished product, then the facility is said to be “down.” Downtimes are caused often by:

  1. Unavailable Materials. When suppliers fail to deliver on time or when production stations fail to deliver work-in-process items.
  2. Machine Breakdowns. When poorly-maintained equipment fail, which cause production lines to shut down.
  3. Unavailable Manpower. Absenteeism, tardiness, or the simple failure to hire enough workers can stop or delay production operations.
  4. Utilities Disruptions. Power and water supply interruptions always wreak havoc on production output.

Companies can reduce downtime via collaboration with vendors, applying preventive maintenance, and designing production lines with more reliable systems or equipment. For example, installing inexpensive industrial-rated voltage regulators can prevent machine breakdowns from electrical fluctuations.

Improving quality

When production lines churn too many off-quality items, chances are management will shut down operations until the quality issues are fixed. Manufacturing firms usually have quality control departments but quality is the job for every employee. Hence, every firm should continuously have total quality programs where everyone is accountable for how well a company makes its products.

Eliminating waste

Manufacturers should be very much aware on how much resources are really needed for every finished product produced. What amount of waste is generated in every operational step and how waste-reduction efforts are performing through time should be monitored. Waste, by the way, isn’t limited to not only materials but also includes time, manpower, and utilities.

As the case of New Balance shows, manufacturers face a new global order of competitiveness in which their facilities have to be the lowest-cost on a worldwide scale. Manufacturing companies therefore should have in place key cost-control programs if they want to keep up and survive.

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