China makers are investing in various measures to boost productivity. This step aims to manage costs better and address labor shortage problems.
With manufacturing costs not likely to stabilize soon, improving production efficiency is a top priority for China manufacturers.
|To boost efficiency, Del has adopted an ERP system and consolidated its six foreign trade department branches into one.|
The cost of major raw materials, including cotton and steel, has been fluctuating heavily, often on the high side. While quotes may sometimes dip, they do not fall low enough for companies to reap significant cost savings.
The persistent labor shortage only adds to suppliers' woes. Efforts to ensure there is a sufficient workforce especially during peak manufacturing months have resulted in a substantial increase in labor-related expenses. These range from basic salaries, overtime pay and training, to better dormitories and recreational facilities.
While makers cannot control market and inflationary forces, they can manage their production processes more efficiently. In the past, only well-established enterprises took serious steps to improve and streamline their manufacturing. Now, even those that have been in the industry for four to six years are hiring industrial engineers and implementing ERP systems to raise productivity. By doing so, many have been able to cut costs by 10 to 15 percent.
The industrial engineers study each manufacturing process, noting down how long each step takes. Based on the best practices observed, they come up with a standard guide that all workers need to follow. At apparel and footwear factories, such guides have been able to improve efficiency 30 to 50 percent. Industrial engineers have also been able to reduce assembly time at electronics factories by 10 percent, resulting in 10 to 25 percent annual cost savings.
The ERP system, meanwhile, makes it easier to determine when materials and components need to be ordered and how much should be procured. Most purchasers and warehouse managers create their own bill of materials, where different models, colors and quantities are listed. The ERP system standardizes the BOM, ranks the components and materials based on the frequency with which they are used, and audits inventory. This minimizes unnecessary repeat procurements and overstocking.
Tracking and monitoring is done in real time, which facilitates interdepartmental communication.
LED maker Del Optoelectronics (Shenzhen) Co. Ltd, for instance, calculates the usage rate of each component. Those that are used more than 30 percent of the time are classified as special stock. General manager Lee Zhong Ming said the company orders more than required for such components to ensure there is sufficient inventory for urgent orders.
The ERP system has a more accurate calculation of the usage rate, which means Del is able to procure the right quantities of each component. It was also able to scale down the vendor pool. When in the past, the company sourced a particular component from 10 suppliers, now they purchase from one or two. This has resulted in lower shipping and labor costs, and faster communication and turnaround. And since the system tracks everything electronically, there is no need for warehouse staff to search for the manager to sign delivery receipts.
Apparel and footwear makers can rely on ERP systems to communicate accurate specifications to different departments, particularly during the pattern-making period. Doing so can avoid confusion among the designers, purchasers and the production department.
Apart from hiring industrial engineers and implementing ERP systems, companies are restructuring departments for optimum efficiency. Del's foreign trade department used to have six branches. These have been consolidated into just one, a move that has reduced communication time.
Larger enterprises hire managers from Taiwan and Hong Kong as many of them have greater foreign trade experience. Eighty of LED maker Neo-Neon LED Lighting International Ltd's managers come from Taiwan. Foshan Shunde Jaeyong Hardware Co. Ltd also hired managers from Taiwan to direct its product planning, certification and foreign trade departments, a move that has boosted the wheelchair company's efficiency significantly. Foshan Shunde had been working to gain FDA certification for a year before its Taiwan manager came on board. Since taking helm of the department, the manager was able to have all relevant documentation ready in just six months.
One of the most common measures suppliers are implementing to boost efficiency is to automate production. This improves productivity and lessens reliance on manual labor. But the pace with which manufacturers are converting their production has been growing in recent years. The number of electronic makers in Guangdong province that are installing SMT lines for PCB production has been growing by at least 30 percent annually. It is estimated that two SMT lines can boost efficiency 60 percent and take the place of 50 workers.
The same is true for other types of advanced equipment. Neo-Neon purchased $10 million worth of automated rope light manufacturing machinery, which handles punching, grooving, welding and light stuffing. One machine can perform the tasks of 35 workers. Three units can be operated by just one technician.
All of the printing machines at Zhejiang Zhida Printing Co. Ltd are now fully automated. The company can finish printing 1 million 3D stickers, and gift and shopping boxes in three to five days—around half the time of manual equipment.
Note: This article "Improving efficiency priority in China" was originally published by Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.
All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.
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