What It Takes to Reshore Manufacturing Successfully by Shih Willy C

Author:Shih, Willy C.
Language: eng
Format: epub
Published: 2015-04-14T00:02:19.863000+00:00

Rethinking the Capital/Labor Ratio

When choosing a location for assembly operations, it is natural to assume that higher wage rates will justify a greater use of automation. When work was offshored from the United States or Europe to Asia over the last two decades, the principal driver was labor arbitrage. With that offshoring came substantial substitution of labor for capital — the replacement of “hard” automation using expensive capital equipment with manual processes. Manual processes were less expensive, and human operators were far more flexible than machines that had to be reprogrammed with every model change. So when work comes back, most people assume that we will simply go back to using more automation.

But that is not necessarily the case. Manufacturing in China enabled rapid product changeovers, and we trained consumer markets worldwide to expect this kind of flexibility. If you want to have five million new smartphones on hand to sell on the first weekend after a new phone model launches, you will need a lot of people, not automation. While the latest automation technologies often have reduced setup or changeover times, managers should not assume that we should necessarily use more robots.

The key considerations are length of product run and frequency of changeover. The Fort Worth lines were heavily manual, although automation was substituted in some highly repetitive tasks. Investments were expected to have a one-year payback for unique tools and a two-year payback for tools that could be reused.

In Austin, Flextronics managers built several “no-touch” electronic printed circuit board lines. In this particular case, the sophistication of the boards, the exacting quality level and the very low mix of product types to be produced justified investment in a higher level of automation. Direct labor content was therefore comparatively low. In Austin, a supervisor could oversee two no-touch lines; in China, a supervisor oversaw one line staffed with 13 dedicated operators.

I recently visited a medical products factory in Denmark where the production engineers were continually experimenting with the balance between manual and automated processing. Having a slightly higher mix of manual operations promoted significantly more flexibility, and as the production engineers configured processing equipment for locations in eastern Europe and the Far East, they adjusted the labor mix in accordance with the labor costs. Even in high-labor-cost Denmark, the engineers were careful to avoid over-automating. Striking the right balance between capital and labor can benefit from an open mind and some experimentation. The mix may change over time with production experience and learning.

The more important management issue is how to redeploy workers who are freed by process improvements or the substitution of automation. How does one translate these gains into sustaining growth?

Recognizing the critical link to workforce stability, Appliance Park managers established a strategy that would increase the amount of vertical integration — bringing work back in-house to utilize labor freed up from productivity improvements. That has risks, of course, because it means less flexibility in adjusting to demand variability. But if production operators are secure in the knowledge

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