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How to compete against low cost manufacturing

How to compete against low cost manufacturing

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An essay for the 2011 Undergraduate Awards Competition by Vincent Kirk. Originally submitted for Manufacturing Systems at Cork Institute of Technology, with lecturer Michael O'Mahony in the category of Business & Economics
An essay for the 2011 Undergraduate Awards Competition by Vincent Kirk. Originally submitted for Manufacturing Systems at Cork Institute of Technology, with lecturer Michael O'Mahony in the category of Business & Economics

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Published by: Undergraduate Awards on Aug 29, 2012
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10/27/2013

 
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How to compete against low cost manufacturing
Author:Due Date: 03 May 20102010 Bsc Advanced Manufacturing TechnologyCork Institute of Technology
 
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How to compete against low cost manufacturing
The city of Suzhou is situated 90 miles west of Shanghai and is the location of the veryimpressive Suzhou Industrial Park. This state of the art industrial manufacturing area is home tosome 3200 manufacturing companies, employing 500,000 people within the industrial park. Atpresent 133 companies from the USA fortune 500 list have taken up a residence in Suzhou.Johnson and Johnson recently opened
a €100 million manufacturing fa
cility, Stryker arecurrently building a manufacturing site and others such as Bombardier, Phillips, Siemens, Kraft,General motors, Wal-Mart and Bosch are all well established within the park. The commondenominator for all western companies relocating or expanding into China is simple; labour andmaterials are cheaper, much cheaper. Suzhou Industrial Park is only one industrial zone thereare many more, with others in the pipeline. All designed to provide solutions for all the requiredneeds; transport, utilities, education, etc.
In today’s recessionary times t
he need to compete against this low cost manufacturing is moreevident than ever before. Emerging countries have demonstrated the ability to produce thesame product at much lower costs. While s
ome large corporations have ‘jumped in’ and are
reaping huge rewards from the much cheaper labour costs, others are watching & waitingtrying to determine potential pitfalls before committing. The 700million people in westernChina are seeking a better way of life; these manufacturing jobs provide just that. Offeringimproved pay and living conditions, including free accommodation, food and medical schemes.This almost endless supply of labour combined with the improved standard of living on offer,could help to keep wages low for years to come. At present these wages are on average 30times less than that in
Ireland, €21 per hour V’s 0.70c in China.
Also, when sourced locally thereduced labour costs may mean cheaper raw materials and supplies. Manufacturing is moving,this relocation is beginning to seriously affect many countries. What should our response be,how do we counter attack, how do we compete, is it possible to compete?Owing to so many people being involved in manufacturing within Ireland, this is a subjectdiscussed at all levels. We hear and talk about it in work and class, as do the media report on it,relaying similar and inter related opinions each time:
‘’ Innovation is the key to continued success’’
 
‘’ China cannot consistently meet the required quality levels’’
 
‘’Niche markets are the way forward’’
 
‘’
We are a smarter workforce and should work
on new products’’
 
‘’
Specialized products and processes hold the
key to continued manufacturing ‘’
 
‘’ Automation can be used to combat labour costs’’
 
While each opinion has merits, we are in urgent need of a strategy. Competing directly againstthe cost savings available in foreign countries is largely not a viable option; while the standardof living here remains high, the cost of the manufactured product will also remain high.Changing takes time and as changes are related to lower wages, lower standard of living and
 
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increased productivity, etc all will not understand or welcome the required sacrifices and thechanges will take some time to introduce. However, we do have some distinct advantages, asChina have some distinct disadvantages and when combined there are ways of reducing thechallenge posed by this low cost manufacturing and possibly competing, but this can only bepossible if we have a strategy that works, that is clearly understood and bought into by all.This strategy could be formulated under the following headings:
 
What are the disadvantages or weaknesses of foreign low cost manufacturing?
 
What are our advantages or strengths?
 
What is available to improve our competiveness?
What are the disadvantages or weaknesses of foreign low cost manufacturing?
Quality problems, used to high volumes with big tolerances and low complexity.
Lower skill level, ‘new to precision manufacturing
.Increased inventory costs, carrying increased safety stocks. Increased container Qtyswhich reduce response times to growth changes.Hidden costs relating to overseas management of operations.High costs involved through backorder, product availability and unreliable delivery.Ability to provide pharmaceutical and medical with validated process controls whichmeet FDA approval is unproved, Poor GMP.Patent infringement, lack of copyright protection, corruption.Currency shifts.Unstable government.
What are our advantages or strengths?
 
Educated and experienced workforce.
 
Ability to manufacture specialty products with proven process capability.
 
 
Quality can be achieved;
 
numerous FDA approved and regulated facilities.
 
 
Proven track record of innovation and new patented technologies
.
 
 
Close proximity to the customer; Europe, UK, Ireland & USA.
 
Good knowledge and understanding of supply chain management.
 
Civilized manufacturing economy.
What is available to improve our competiveness?
 
Lean manufacturing techniques
 –
Elimination of both waste and non-value addoperations; Streamlined processes.
 
Automation
 –
Highly automated robust processes; reduce headcount requirements.
 
Green Technology
 –
Energy reductions and alternative sources
 
Low cost manufacturing in foreign countries
 –
sourcing of cheap components
 
New product development and process development (niche markets)

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