Faced with rising costs in China and sluggish markets overseas, one local factory's reaction building a facility inland and adopting sophisticated lean manufacturing techniques shows how some companies are adapting to the new business climate.
CBL Group, which operates a 500-employee injection molding and metals factory in Guangzhou, is being hit by rising costs, with prices for some components increasing more than 30 percent, and by continued uncertainty in its core North American market.
So the British-owned company has responded by completely revamping its operations to bring in lean manufacturing, building an $8 million factory in central China to cut costs, and targeting emerging markets like China, India and Africa.
The firm was started in 2004 by British businessman Gideon Milstein and his wife after an unhappy experience in a joint venture with a Chinese plastic extrusion firm. They said CBL has seen solid growth.
But as the economic crisis, higher costs and labor strife have raised questions about the future of China's low-cost export model, manufacturers have been forced to change.
One of South China's largest manufacturers, Foxconn Technology Group, for example, is moving large plants inland to cut costs.
CBL's example shows how smaller firms are trying to cope. Perhaps its biggest response has been to modernize, with significant gains in efficiency coming from adopting lean manufacturing tech- niques over the last two years, said Milstein, who is chairman.
The company can now produce 50 percent more with the same staff and with substantially reduced overtime. Some of its new techniques include making production more linear and removing waste, Milstein said in an Aug. 12 interview at his factory.
For example, the company reworked a production line for a plastic and metal assembly for the gaming industry. The product previously was made with a staff of 26, but now CBL gets the same output from two work cells with a total of eight employees.
In another area, CBL was able to reduce administrative staff from about 100 to 75, eliminating different departments and grouping employees in common work areas. As a result, the time to process a sales order dropped from 10 days passing documents between departments to one hour, he said.
All of it means the company is more nimble and has been able to absorb its own suppliers' price increases without raising prices for its customers, he said.
CBL, Milstein claims, now has production costs equal to domestic Chinese competitors.
The only way you can do that is by going lean, he said. The domestic Chinese businesses are even more inefficient. There is a lot of waste in their systems.
CBL has also broadened its lean work to Six Sigma projects, a longer-term, data-driven exercise to tackle complex problems.
The company did not have mass layoffs in the economic crisis, and told its staff no one would lose their job as the company went lean, although Milstein quipped, I missed the part where it said first get rid of your deadwood before you announce that no one will lose their job from going lean.
Employees were retrained and taught how to use kaizen teams to analyze work practices.
The privately owned company, with annual sales of $30 million, has more plans. It's looking at an initial public offering on the Hong Kong stock market in three years, and this summer it hired its first industrial designer, an American, to help it upgrade its offerings, said Milstein, who also is chairman of a newly formed industry group in China, the Foreign Manufacturers Association.
FMA formed this year in partnership with the British Chamber of Commerce office in Guangzhou to help factories cope with the dramatic changes in Chinese manufacturing.
CBL's new factory will be in Wuhan, in central China, where Milstein said energy, labor and metals are up to 25 percent cheaper than in Guangzhou.
The facility will have 700,000 square feet of production space, almost three times more than the Guanghzou plant, and will have 600 workers when it is fully operational next year, he said.
The Guangzhou plant will remain focused on complex products that mix plastics, metals and electronics and depend on the more sophisticated supply chains around Guangzhou, he said. CBL makes products for other firms in a variety of industries, including health care, gaming and sporting goods.
The Wuhan factory will focus on large parts and metals, given that city's strength in metal and automobile production, but the site will have some plastic molding capabilities, he said.
Unlike the Guangzhou facility, Wuhan is being built with lean principles in mind, with power and floor space designed to allow machines to be easily moved to accommodate the more linear and flexible production models, he said.
The Wuhan expansion is also needed because an expansion of that size in South China would have been almost impossible with rising costs and the region's desire to upgrade its industrial base, he said.
Beyond cutting costs, Milstein believes the Wuhan factory will help CBL as its customers, generally global Western-based firms, want to target the Chinese domestic market. Wuhan can help with their distribution networks, for example, he said.
The company is looking for vibrant and emerging economies, he said, and is less certain about its traditional markets in developed economies.
I'd be very pessimistic if I was deeply entrenched in the European market extremely pessimistic and America, I'm not very optimistic about, he said, although his company will continue to target them.
Australia is a growth market for us. It seems to be pretty strong. Africa is a growth market for us. And also obviously we're looking at the Asian market.
The company also might form an assembly joint venture in India to help one of its customers move into that market.