China’s incredible shrinking factories – forced to downsize…

China’s incredible shrinking factories – forced to downsize…

Apr 22, 2015

“China’s incredible shrinking factories – forced to downsize just to survive” By South China Morning Post Rising labour costs, higher real estate prices, less favourable government policies and smaller order volumes are forcing Chinese plants to downsize – just to survive. Eight years ago, Pascal Lighting employed about 2,000 workers on a leafy campus in southern China. Today it has only 200. The Taiwanese light manufacturer has cut its workforce and leased most of its space to other companies: lamp workshops, a mobile phone maker, a logistics group, a liquor brand. “It used to be that as long as you had more orders, you could get everything you needed to expand your factory, and you could expand,” said Johnny Tsai, general manager of Pascal, in Huizhou , in central Guangdong province. That is no longer the case. The Chinese factory – an institution that was once so large that it was measured in sports fields – is shrinking. Rising labour costs, higher real estate prices, less favourable government policies and smaller order volumes are forcing Chinese plants to downsize just to survive. Their contraction suggests a new model of light manufacturing emerging from China’s economic slowdown: smaller plants are replacing the vertically integrated behemoths that defined Chinese manufacturing in the early 2000s. Cankun, a factory making kitchen and electrical in Foshan , southern China had more than 22,000 manufacturing employees in 2005, according to its annual report. Today, that number has shrunk to only 3,000, according to a senior executive. Some Hong Kong-owned factories in southern China have cut their staff numbers by between 50 per cent and 60 per cent, said Stanley Lau, chairman of the business lobby Federation of Hong Kong Industries. Certainly, the giant Chinese factory is hardly extinct. Taiwan’s Foxconn Technology Group still employs about 1.3 million people during peak production times – many of them piecing together Apple iPhones. Those factories that can afford to do so, including Foxconn, are increasing automation. However, for industries where the product design changes frequently, such as lighting, the use of robots adds little value. The contraction of Chinese factories illustrates how much the advantages they once enjoyed have eroded. In the 1990s...

Resolving Problems in the Modern Supply Chain

Resolving Problems in the Modern Supply Chain

Mar 19, 2015

By Bolaji Ojo, Electronic Purchasing Strategies As companies rushed to embrace globalization, the lean, complex and highly intertwined supply chains that they created over the past decade took on another, unexpected characteristic: fragility. Practices such as just-in-time manufacturing stripped cost and time out of supply chains, while globalization created highly extended supply and demand networks. The combination of these and other practices creates a perfect environment for disruption. A seemingly small event or outage in one region can and does quickly escalate into full-blown business interruption halfway across the world. Supply chain volatility can also carry a hefty price tag. More than 60 percent of respondents to a PricewaterhouseCoopers (PwC) survey reported that their performance indicators had dropped by three percent or more because of supply chain disruptions in the past year.However, few companies can afford to devote the capital and other resources needed to build the supply chain infrastructure and capacity to accommodate large surges, dips and disruptions in their supply chains. Even fewer maintain constant vigilance over operational, socio-political, regulatory, natural disaster and other risks that can compromise a company’s ability to deliver on its value proposition, whether that is defined by low cost, innovation, quality or outstanding customer service. These challenges are prompting world-class supply chain operators to look for alternative solutions with which to re-wire their networks for efficiency and resilience. One such solution is the lead logistics provider (LLP) outsourcing model. But not the traditional transaction-focused LLP solution, rather a “next-gen” LLP that operates as a strategic partner to deliver competitive advantage, ensure business continuity and drive growth. Today’s long, lean, interdependent, cost-aware and service-focused supply chains have grown more vulnerable at a time when the potential for interruption is unprecedented. Greater vulnerability is driven by a myriad of factors, including globalized sourcing and production, lean inventory practices, shifting demand and growth geographies, complex interdependencies between industries (e.g. automotive and high tech), shrinking product lifecycles, and rapidly changing consumer behaviors. This twin dynamic of complexity and interdependency makes supply chains brittle – and open to buffeting or disruption caused by developments occurring anywhere in the world. At the same time, supply chains have assumed a more strategic role in...

U.S. Manufacturing No More Expensive Than Outsourcing to China By 2015: Study

By: Phil LeBeau, CNBC Walk onto the shop floor at Prince Industries in Shanghai, China and it looks like most other manufacturing plants in this country. It’s busy running two shifts, cranking out components that will be shipped to major manufacturers like Caterpillar, Siemens, and Honeywell. But change is in the air. The cost of manufacturing in China is going up and rising quickly. “It’s something that we anticipated when we went to China, we just didn’t know how quick it would happen,” said Mark Miller, CEO of Prince Industries. China and US Costs Even by ’15 China is no longer a slam dunk for manufacturers looking for the lowest cost for operations. In fact, a new study by the consulting firm AlixPartners estimates by 2015 the cost of outsourcing manufacturing to China will be equal to the cost of manufacturing in the U.S. “The Chinese manufacturing cost advantage has eroded dramatically in the last few years,” said Steve Maurer, AlixPartners managing director. “If you go back to 2005, it was pretty common for landed cost from China to be 25 to 30 percent less than the cost of manufacturing in the United States. Based on our analysis, two-thirds of that gap has closed.” Maurer said higher labor wages, the rising value of China’s currency, and the cost of shipping goods from China to points around the world have made manufacturing in China more expensive. “If trends continue, the China cost is going to be on par with U.S. cost in the next four to five years,” said Maurer. Higher Wages, Rising Currency Since Prince Industries opened its plant in Shanghai a decade ago, wages have increased an average of 12 percent annually, while China’s currency, the RMB, has appreciated 25 percent vs. the U.S. dollar. The rising value of the RMB was expected and has made it more costly to ship goods built in China around the world. Meanwhile, hourly wages have been going up steadily due to China raising minimum wages, while competition for labor has forced manufacturers to pay more to attract skilled workers and keep them. Pulling Out of China or Moving Further Inland? As the cost of manufacturing in...

How Walmart Plans to Bring Back ‘Made in America’

By: Bill Saporito, Time Walmart doesn’t make anything. But the giant retailer could play a part in the manufacturing rebound that is taking place in the U.S. with its promise to buy $50 billion more U.S. made goods over the next decade for its Walmart and Sam’s Club stores. It’s a bit ironic, given Walmart’s vast global sourcing organization. But the same forces that are making the U.S. a more hospitable place for manufacturing —higher shipping costs and wage rates overseas among them—have prompted the company to reevaluate its sourcing on a variety of products. “This is a commitment around manufacturing and more economic renewal.  We see it as a critical issue for us in the American economy,” says Duncan Mac Naughton chief merchandising and marketing officer for Walmart U.S. What Walmart sees is a way to lower costs while smoothing its supply cycle by looking more broadly at its distribution system. Although the company may be able to buy an item cheaper from China, the price it pays per piece doesn’t always reflect what it spends to get the product to the shelves.  “When we buy from overseas, we may buy more than we need to fill the container,” says Mac Naughton. “We’re looking at carrying costs through the system in addition to landed costs.” (Walmart has recently been criticized for being out of stock on items, due to a lack of store employees, but the company says its in-stock position is at record levels and that it hasn’t cut employee hours.) Walmart is also hitting some unexpected supply snags as local demand increases in the developing countries where it buys goods. Recently, it found itself short of memory foam for mattress toppers and had to add a U.S. supplier, Sleep Studio, to augment its foreign source. That need to increase capacity can only increase as the middle class grows in India, China and elsewhere. The company will still likely rely on foreign suppliers for those products, such as cut-and-sew garments, that have a very high labor input. But given the more robust regulatory environment in the U.S., domestic suppliers are far less likely to run shoddy plants that endanger workers, as some of...

Goldman Sachs Analysts Warn US Manufacturers That Performing Better Than Europe and Japan Is Nothing to Get Excited About

By: Malik Singleton, International Business Times Goldman Sachs has a sober analysis of the U.S. manufacturing renaissance. In its new report, “The US Manufacturing Renaissance: Fact or Fiction?” Goldman’s chief economist, Jan Hatzius, says that U.S. manufacturing’s positive figures are a good sign but warns that such recent figures actually show cyclical behavior that should be expected — not structural behavior that could be considered extraordinary. One of the main points he makes in the study, which was released Monday, is that the industry’s growth in the U.S. compared with the performances of manufacturing in other countries says more about the weakness in other parts of the global economy than about the strength of U.S. manufacturing. “Outside the goods-producing sector, U.S. real GDP has grown just 0.5 percent (annualized) since the start of the recovery in the middle of 2009, by far the slowest rate of any postwar cycle,” says Hatzius. “And of course, the gap between U.S. and foreign industrial output mostly reflects the weakness in Europe and Japan following the intensification of the European financial crisis and the Japan earthquake in early 2011.” Hatzius’ report also says there has not yet been a significant output pickup in the production of aluminum, steel, plastics, basic chemicals and fertilizer production as one would expect from currently low natural gas prices. “Total output in the truly energy-sensitive sectors shown account for 7 percent of overall industrial production, or around 1 percent of GDP,” says Hatzius. “So unless the impact of low U.S. energy prices on output growth in these sectors is dramatic, the macroeconomic repercussions are likely to be fairly limited.” “Over the next few years, the manufacturing sector should continue to grow a bit faster than the overall economy. But the main reason is likely to be a broad improvement in aggregate demand, rather than a structural U.S. manufacturing...