How Will We Beat China? One Word: Robots!
Two interesting trends:
1. Small businesses, it seems, are moving from outsourcing to insourcing. From Ars Technica:
In early 2010, somewhere high above the northern hemisphere, Mark Krywko decided he’d had enough. The CEO of Sleek Audio, a purveyor of high-end earphones, Krywko was flying home to Florida after yet another frustrating visit to Dongguan, China, where a contract factory assembled the majority of his company’s products. He and his son, Jason, Sleek Audio’s cofounder, made the long trip every few months to troubleshoot quality flaws. Every time the Krywkos visited Dongguan, their Chinese partners assured them everything was under control. Those promises almost always proved empty.
As he whiled away the airborne hours, Krywko made a mental list of all the manufacturing glitches that had nearly wrecked his company. There was the entire shipment of 10,000 earphones that Sleek Audio had to discard because they were improperly welded, a mistake that cost the company millions. Then there were the delivery delays caused by the factory’s lackadaisical approach to deadlines, which forced the Krywkos to spend a fortune air-freighting products to the US. Even when orders were produced on schedule, Krywko wasn’t too pleased with the situation: The company always had precious cash tied up in inventory that took months to arrive after the prototypes had been approved.
The headaches had finally become too exasperating to bear. And so, on that flight, he turned to Jason and said that he was done with Dongguan. “I can’t do it anymore,” he said. “Let’s bring it home.”
The Chinese have a growing problem with quality control. And because a huge part of their exports is made up high-end gadgets with tiny little pieces, or things that children play with, QC matters.
On the other hand, labor there is cheap. And that's been a key driver of China's growth in the past 15 years. But that may be changing:
“Companies are looking to base their decisions on more than just costs,” says Simon Ellis, head of supply-chain strategies practice at IDC Manufacturing Insights, a market research firm. “They’re looking to shorten lead times, to reduce the inventory they have to carry.” When accounting giant KPMG International recently asked 196 senior executives to list their top concerns for 2011 and 2012, labor costs ranked below product quality and fluctuations in shipping rates and currency values. And 19 percent of the companies that responded to an October survey by MFG.com, an online sourcing marketplace, said they had recently brought all or part of their manufacturing back to North America from overseas, up from 12 percent in the first quarter of 2010. This is one reason US factories managed to add 136,000 jobs last year—the first increase in manufacturing employment since 1997.
Labor cost is still an important part of an business decision, though. But aside from going to India, how can labor costs get lower?
2. Enter robots. That's one way to get the cost of labor down. Again, from Ars Technica:
When Mark and Jason Krywko started looking into how they could return Sleek Audio’s manufacturing to the US, they quickly realized there was only one way to make the move feasible: Minimize the role of humans on the assembly line. And that meant redesigning products to take advantage of automated tools. After all, Chinese labor may be cheap—but a robot works for less.
Sleek Audio’s SA6-R earphones featured plastic side panels that the Chinese factory had to weld into place by hand. The company decided to automate the process, replacing human labor with robots. The Krywkos redesigned the entire product around a solid aluminum center that the speaker gets fitted into; assembly requires neither welding nor human hands. “Two or three years ago, there was no way we could have afforded to do that,” Mark Krywko says. But robots have become markedly more skilled and less expensive.
This has become a common strategy among businesses that elect to manufacture in the US: Redesign with labor costs in mind. In essence, the companies are innovating around cheap labor. “We’ve redesigned products five or six times, trying to reduce the number of connectors, the number of screws, anything that would require additional labor,” says Albert VanLeeuwen, chief financial officer of QSI Corporation, a Salt Lake City manufacturer of rugged data terminals that has resisted the siren call of Asia. “With some of the products we’re introducing this year, we’ve decreased the labor content 40 percent.”
We're pretty advanced when it comes to robotics. NASA, in partnership with GM (which I know brings up other problems, but leave those aside for now) has developed a pretty advanced human-ish robot, called, with a spectacularly tin ear, Robonaut.
So my theory here is simple: the Chinese labor force has one thing going for it: it's cheap. (It's also cruel, deadly, and inhuman, but that's another story.) The iPhones and flat screens and other assorted things it exports could theoretically be manufactured more cheaply and efficiently here in the United States, by a combination of robots and actual people, as is already happening with small businesses like Sleek Audio. It wouldn't solve our unemployment problem, of course. But it might cause one for the Chinese.
- Comment (13)
- · Quote
- · UnfollowFollow (4)
Comments :
Jul '10
Re: How Will We Beat China? One Word: Robots!
The problem is that the robots will be made in China.
Feb '11
Re: How Will We Beat China? One Word: Robots!
It's certainly true that many offshoring decisions have been made without proper consideration of the effects of distance on operations: particularly the increasing difficulty of forecasting & inventory control when long lead times are required for shipment by sea. These problems are particularly plaguing for fashion goods and for products with large numbers of variants/options.
Regarding the robots, though....robots in manufacturing are hardly a new thing. The CNC machine tools, and the NC machine tools that preceded them, are basically robots, and have been around for 40 years or so. Robotic arms used in assembly operations are quite common, as are machine-vision systems for inspection.
Improved productivity is as much a matter of *thinking intelligently about workflow and process design* as it is a matter of automation per se....as I mentioned in comments to an earlier post, Toyota did much better with their focus on process improvement (although they certainly didn't ignore automation when appropriate) than GM did with Roger Smith's fanatical focus on robotics.
Dec '10
Re: How Will We Beat China? One Word: Robots!
We seem to have come full circle to 1980, except in place of worrying about Japan's superior quality focus, we're worrying about China's low wage rates.
david foster is right that companies need to stop looking narrowly at unit production cost and instead looking at life-cycle costs, including the marketing and finance impacts of the loss of agility of long shipping times from factory to store shelf. Robotic assembly is part of the solution, but not the most important part.
“We’ve redesigned products five or six times, trying to reduce the number of connectors, the number of screws, anything that would require additional labor,” the CFO says, What he isn't saying (what his shareholders better pray he knows) is that fewer connections and parts mean fewer potential points of failure, and reduction in number and types of parts means a reduction in parts inventory. Those effects in some industries can make a bigger contribution to the bottom line than the labor savings from those changes.
Jul '10
Re: How Will We Beat China? One Word: Robots!
I remember in the 1950's and 1960's, when prognosticators told us we'd all have flying cars and that machines would do all the work, so we could spend all hour days at leisure. I always wondered how that translated into an actual pay check, but, what the heck, the idea of robo-maids and food pills sounded pretty alluring.
Jul '10
Re: How Will We Beat China? One Word: Robots!
Feb '11
Re: How Will We Beat China? One Word: Robots!
For anyone interested in issues affecting manufacturing viability in the US, <a href="http://www.evolvingexcellence.com/">this blog</a>, which is run by people with a great deal of practical manufacturing experience as well as manufacturing consulting & education experience, is a great resource.
Feb '11
Re: How Will We Beat China? One Word: Robots!
...link to the manufacturing blog I mentioned: here
Dec '10
Re: How Will We Beat China? One Word: Robots!
Dec '10
Re: How Will We Beat China? One Word: Robots!
Jerry, I think your auto-commenting robot is on the fritz.
Feb '11
Re: How Will We Beat China? One Word: Robots!
Many of the problems of manufacturing in the US are due to bad public policy and also to a considerable extent to cultural issues. I discuss the cultural point here: faux manufacturing nostalgia.
Dec '10
Re: How Will We Beat China? One Word: Robots!
Economic theory suggests that countries compete based on comparative advantages and leveraging factor endowments. China has (generally, and with caveats) offered low cost labor, and the United States (generally, and with caveats) has had access to low cost capital. It stands to reason that the United States would leverage its capital advantage by purchasing capital equipment, like robots, and compete on that basis.
From the theoretical to the practical: Rob Long's post is terrific and illustrates the phenomenon. Thanks!
Aug '10
Re: How Will We Beat China? One Word: Robots!
Yeah - now that you mention it - where is my flying car????
Feb '11
Re: How Will We Beat China? One Word: Robots!
Christopher...if Siemens (for example) builds a factory in China, is the Chinese cost of capital even relevant? I would think that the appropriate number for deciding what to automate and what to do manually would be the Siemens' overall global cost of capital.