It is widely believed that the high cost of U.S. labor is the primary and uncontrollable force driving jobs overseas and companies out of the United States. That conclusion, shared by many people in the automotive industry, is completely, unfortunately and tragically wrong.
The high cost of U.S. labor is an inescapable reason, but it is not the only reason. A powerful, but usually ignored factor is the inefficiency of U.S. manufacturing plants. Harbour Consulting has visited more manufacturing plants around the world in the last 25 years than any other manufacturing consultant - hundreds of visits to more than 170 plants with about 50 plant visits every year. The waste and inefficiency we see on a regular basis is shocking, yet everyone in these plants insists they are as lean as possible.
The conclusion we have reached is simple and unavoidable: Outsourcing is often the easy answer. It is not always the right answer. This is a common pattern that Harbour Consulting has seen again and again: Moving to Mexico takes the problem south. Companies don't resolve the fundamental issue of inefficiency but merely reduce the hourly rate and the cost of the problem. Then they move the problem to China, or India, or another low-wage country.
To keep things in perspective, there are compelling reasons to go overseas. The Asian market is expected to grow 10-20 percent over the next decade while the U.S. market stagnates at 1-2 percent growth.
There is another advantage besides lower wages. The initial investment to build some of the most efficient plants in the world today can cost dramatically less in Asia than in the United States.
Skeptical U.S. companies should be aware that China today is not a repeat of Japan in 1950. The South Koreans learned from the Japanese and took half the time they did to catch up. The Chinese have learned from the Koreans and will cut the time in half again. As Asia accelerates to catch up with the rest of the industrial world, Asia is, in effect, raising the bar even higher for U.S. manufacturers.
That means it is even more critical for U.S. companies to improve manufacturing efficiency now to improve their competitiveness. Unless U.S. manufacturers take a hard look at the efficiency of their operations, the future will indeed lay overseas. Outsourcing jobs to Honduras or China isn't a viable business strategy, it's cutting corners until the problem returns.
The more accurate statement is that the loss of manufacturing jobs overseas is not a reality of the market economy, but a reflection of inefficient manufacturing processes and a mind-set opposed to change and adaptation.
DaimlerChrysler Chief Executive Officer Dieter Zetsche is correct when he says: ``Adapt or die.'' But it is off base for someone else to translate that directive to mean only ``keep moving.'' Adapt means re-evaluate and change.
When companies focus on a lower hourly rate as the primary reason for moving operations, they lose sight of the big picture of total cost. Wages are only one piece, albeit a big piece, of the puzzle. The cost of freight, foreign management issues, inventory carrying costs, as well as the cost of quality spills and missed delivery deadlines, can quickly erode the lower initial investment for many companies.
It is difficult to get companies to understand that spending more money on the right elements can increase revenue, customer satisfaction and market share in the long run. We have repeatedly encountered situations with clients who refuse to spend more money to make a better product because it costs more to produce per unit.
This narrow, but widespread, mind-set ignores the marketplace reality that the customer doesn't care where the money is spent in the manufacturing process but where it's spent enhancing the product they purchase.
Lean manufacturing is more than a Japanese business philosophy. Lean thinking is a basic, common-sense approach on how to run a plant, and it starts at the top of an organization.
The writing is on the wall: We will need fewer manufacturing jobs in the future.
If the industry can become more competitive and more efficient, more money can be put back into vehicles, which means automakers can sell more cars, which means they can create and sustain more jobs.
So, once again, as the auto industry learned when the Japanese automakers challenged it in the 1970s, the answer is in our own back yard.
Laurie Felax is vice president of Harbour Consulting, a Troy, Mich., manufacturing consulting firm that produces ``The Harbour Report,'' the annual scorecard on manufacturing efficiency in the automotive industry.