The common belief in companies (especially manufacturing companies) is that the less that you pay for labor, the more successful that you will be. This sophistic reasoning is commonly associated with the movement of manufacturing responsibilities to countries that can provide labor at low cost. It is also the logic used by some companies to escape the influence of unions.
Manufacturing companies in countries that employ low cost workers are also deceived by the belief that not only is their economic future tied to their ability to offer low cost labor to foreign companies, but that productivity improvements would not work for them.
I can’t even begin to guess how many times I have heard a plant manager say that implementing a productivity improvement effort would “never work for them”. It was either their culture that would keep such an effort from succeeding or it would be something like low labor costs. “Why do we need productivity?”, they ask. “We pay peanuts for our labor!” To them, the prospect of implementing good manufacturing practices in their plant would not be worth the effort or the cost.
Here is the real truth: While it may be cost effective to “get away” from a union that is pushing a company to the brink of failure, it is not a reason for avoiding a significant productivity improvement unless that company is prepared to move again when the labor costs start to go up again. Companies in countries that offer low labor costs would be more than wise to work to combine productivity with low cost labor because the combination of the two would make it impossible to compete with them.
I have always believed the following to be true: Any change made to the process that even has the possibility of adversely affecting quality is a questionable change at best and probably a bad move. When a company subscribes to good production values such as Lean or Fast Cycle Production, the result is not only likely to result in improved quality, it is absolutely certain. The reason that I point this out is that the common argument against moving out of country is that quality will be degraded. In most executive minds, cheap labor comes with reduced quality.
That mindset: Cheap equals low quality was exploded after the Toyota Just-In Time revolution in the late 80’s and early 90’s. American auto companies didn’t take the Japanese seriously and even thought that Toyota was putting out tin cans instead of cars. They also believed that the main reason for the success that Toyota was achieving was because Toyota paid lower wages.
Just how wrong they were then should be sobering knowledge to companies that are thinking of going out of country today. It should also send a strong message to companies abroad that are competing for American business. Continuous improvement is the panacea for long term success and when the property strategy for productivity is employed, it could make competitors of the truly productive companies very scary to their competitors. Combine productivity with low wage cost and you have an unbeatable package.
What I have just pointed out is true and proven. But the part of the real truth is not as obvious to many because it would mean that they have to look inwardly to recognize this truth. It doesn’t matter what nationality your workers are, workers are never the problem. They want to be successful and to be seen as being successful. It is human to want to be successful. The real problem is management.
I am not saying that all managers are bad because that couldn’t be further from the truth. The problem with management is that more often than not, in a productivity improvement effort, there are values held by some managers that conflict with the values that are needed in order for the company to realize true and sustained productivity improvements. The problems could come from upper, middle or lower level managers, but if there are problems, it is very likely that it will come from management. I have seen resistance come from the very managers that hired me to come in.
The resistance need not be aggressive. It is more likely that it comes in the form of silence or delay when prompt action is necessary. This is especially true when an attempt is made to change a policy that was invented by management.
It is my strong belief that no matter where your company is located, and no matter what you pay for labor, it is imperative that you employ sound manufacturing values in your decision making and that you not use labor cost as the bottom line barometer for success. In today’s competitive environment, labor costs can certainly be significant, but don’t get caught up into believing that labor costs are the only bottom line measurement to consider.
Out there somewhere is an emerging company that is benefitting from low labor costs that will fail in the future because of their sole reliance upon cheap labor. And somewhere out there is a company that will one day be enormously successful because its management makes the commitment to committing to sound production values. Oh yes, as a final thought, this advice applies to ANY company in ANY industry. Now there is a news flash for you!
Tom Clason
Founder, Fast Cycle Production
