The China Syndrome, 2003
By Randy Burgess

If your company's board of directors had an opportunity to reduce manufacturing labor costs by up to 90%, with no negative impact on production levels or quality, would they do it?  Of course they would.  In a Shanghai minute they would.  This is the superheated core of China Syndrome, 2003 - a real life story that has one thing in common with the 1979 movie…people trying to avoid a meltdown.  In the movie it was a nuclear reactor core threatening to burn through the earth's crust to China, and in manufacturing, it's a meltdown of western industry, which is also burning through to China and other Asia Pacific countries.

In 1996, Levi Corporation (makers of the jeans that could only be MORE American if you rubbed apple pie into them) was riding high with sales of $7.1 Billion.  Last year, and dozens of North American plant closures later, that number had declined to $4.2 Billion, which helps to explain the company's announcement in September that its remaining NA plants will be shut down, throwing 2,000 more people out of work.       

Around the world, the price of finished goods is under attack.  China, with a one-two punch of unbeatable savings on labor and freer access to the largest consumer market in the world, is attracting manufacturers at an unprecedented rate.  In all sectors, Chinese manufacturing growth is outpacing that of every other country, and the trend is expected to continue, indefinitely.  A recently released study by the International Finance Group (IFC), a sister organization of the World Bank, concluded that, over the next two years, China, which already owns 8% of the world's electronics manufacturing market, will realize growth rates in the sector of 135%.  This compares to a growth rate of 42.8% in Europe and 17% in the USA.  China's industrial manufacturing sector, according to the National Bureau of Statistics, is growing at an annual rate of 12.7%, led by the automotive industry, which is expanding at a rate of 14.4%.  This compares to forecast growth rates of just over 2% in Britain and between 1% and 3% in the USA.  China's steel production industry, according to a recent report by the International Iron and Steel Institute, is also outpacing international industry standard growth rates. The Chinese market is growing at an annual rate of 20.9%, which compares to 5.5% in the US and 7% globally.

A recent survey by Minnesota Technology Inc., a non-profit research organization, found that most US manufacturers estimate they will lose an average of 20% of sales to Chinese companies this year, increasing to as much as 30% by the end of 2004.   Lobby groups are sighting the survey as proof that lower taxes and protectionist tariffs are needed for US industries to remain competitive.  Others say it proves that more innovative technologies need to be implemented to increase efficiency and asset utilization and drive costs from business processes.  Those technologies ARE, of course, being adopted, and Adexa is at the vanguard of delivering them.  Our enterprise global planning and performance management solutions have become survival imperatives for western manufacturers as they re-architect their business models to compete, rather than succumb.
 

Adexa customers, such as Siemens, have prospered by outsourcing facets of their operations to contract manufacturers and remotely managing their performance.  Other customers, such as Firmenich, the world's largest privately held perfumer, have implemented global planning models to develop the most profitable plans and schedules for production, and the highest possible levels of customer service.  One of Adexa's North American textile customers, facing intense cost and pricing competition from China, has made service and quality their focus.  Using Adexa, they can provide much faster response time, better visibility for their customers and higher mix of end products. They do this at lower cost of operations by reducing changeover times, lowering inventory costs and greatly reducing their dependency on a large staff to do planning. In contrast, their Chinese competitors' focus is on lower quality goods produced in bulk with little attention to how the demand pattern is changing.  The NA customer has changed the rules of the game using intelligent planning technology.

Adexa technologies provide manufacturers with remote visibility into their global supply and demand data; sales and operation planning requirements; multi-site, collaborative operations planning; and material and capacity constraints at every plant, no matter where in the world it might be located.  The technologies enable "intelligent" decision-making, by synchronizing planning and execution with customer orders, and monitoring and measuring global performance against corporate objectives and financial targets.  As a result, research and development, design, sales and marketing, finance and all divisions of any enterprise can be synchronized to achieve the highest returns on every action.  And when unexpected events occur, Adexa delivers the flexibility to re-plan and with minimal impact on costs and service levels.

The China Syndrome, 2003, is a story about avoiding meltdowns and adopting new, intelligent strategies for dealing with competitive challenges.   The rise of manufacturing in the east is a reality.  Its fall in the west does not have to be.

>>Next Article
<<Previous Article