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What's
a Company to Do?
By Michael Alan Hamlin
April 09, 2001
So what’s a company to do when
its cheese gets moved (If you missed my column March 26, cheese
that gets moved is a metaphor for an unexpected and dramatic change
in circumstances.)? A client of our firm in Hong Kong and Singapore
says Hong Kong is in the business of helping companies prepare for
and respond to change.
I’ve discussed Thomas Group before in the context
of specific goals like reducing cycle time, enhancing quality, and
lowering inventory (October 2 and 9, last year). These are elements
that improve supply chain and manufacturing efficiency and productivity.
Thomas Group has helped companies like Esquel (one of Asia’s
largest and most profitable apparel manufacturers), Johnson Electric
(which makes the world’s smallest electric motors), and Clipsal,
(a major manufacturer of fixtures like light switches and electrical
outlets), among others, boost profitability by helping them look
for more cheese; or rather, improve supply chain management and
business and manufacturing processes. Soon, it will begin working
with an impressive client in Singapore that I look forward to telling
you about sometime in the future.
For companies like these to improve, their leaders
must acknowledge the need to change if they are to remain successful
in an increasingly competitive market, says one Thomas Group supply
chain expert.
"We all know that China’s entry into the
World Trade Organization this year will dramatically change business
conditions, especially the competitive environment, says James Sparks.
"But how many companies are anticipating these new circumstances
by adapting now? Those that are will clearly have an advantage over
those that don’t."
Now, that’s a question that every company in Asia
should be concerned with, not just Hong Kong and mainland China
companies. Why? Well, take Esquel. Esquel has manufacturing facilities
all over Asia, including the Philippines. And the principal reason
for these facilities has been garment quotas for exports to the
U.S. Like other apparel manufacturers, Esquel locates its facilities
in different countries so that it can take advantage of their export
quotas, and ship more to the U.S. than they would be allowed to
from just one manufacturing base.
Quotas were intended to enhance competition and spread
opportunity (supposedly). But the real effect was to protect large
manufacturers who were able to corner "the market" for
quotas. Quotas, however, are coming down by 2005, less than four
years from now, and competition will no longer be subject to protectionist
quotas, but overall corporate performance. Now, Esquel has always
been considered a quality manufacturer, but it’s taking no
chances and has worked hard to increase reliability and cycle time.
That’s apparel, but no sector is safe, even if
it hasn’t benefited from artificial market controlling mechanisms
like quotas. Evidence? Consider the US$40 billion poured into China
last year by companies that not only intend to eventually capitalize
on the domestic market, but to leverage lower operating costs to
shave the prices of their exports. To compete, companies in other
countries will either have to move to China (or some other low-cost
manufacturing base), or increase efficiency and productivity.
That brings us back to Thomas Group. Mr. Sparks claims
to have helped one of his clients, Clipsal, reduce inventory 38%
while improving quality of services 25%. The improvements came about
when the company applied Thomas Group’s supply chain management
methodology. The firm has also done work for a number of other Gold
Peak companies, under whose umbrella Clipsal operates.
"The key to addressing supply chain inefficiencies
is identifying the root causes of inefficient business, manufacturing,
or administrative processes," says Mr. Sparks. "Interestingly,
that’s the easiest — and the hardest — things for
companies to do."
Identifying root causes is difficult, he says, because
they are usually hidden from managers and executives who aren’t
involved in day-to-day operations. Another common problem is that
root causes disappear across functional boundaries. When departments
aren’t familiar with best practices in other areas, there is
no concern for improving overall corporate efficiency and productivity.
Mr. Sparks says that cross-functional teams make it
easy to both identify and develop new, more effective processes.
"Inefficiencies are often rooted in cross-functional processes.
When different functional personnel come together and establish
a common understanding of their collective roles in the organization,
they are able to identify and cooperatively address root causes
of inefficiency," he explains.
"In fact, using cross-functional teams to identify
root causes of inefficiency pretty much eliminates the difficulty
in identifying them. Instead, there is a shift toward deciding which
among many root causes should be addressed first. That’s also
an important issue."
Mr. Sparks — who has 25 years’ experience
in supply chain management, much of it in the complex aerospace
industry — says supply chain management is itself increasingly
complex because it is no longer just a company issue. "Efficient,
highly productive supply chains require management not just across
functional boundaries, but across corporate boundaries. Industry
leaders must be concerned with root causes of inefficiency in their
suppliers’ suppliers on one end and their customers’ customers
on the other."
Government also plays a role in efficient supply chain
management, says Mr. Sparks. "Government enhances the competitiveness
not just through the provision of infrastructure and support for
private-sector infrastructure investment. Government processes are
also important, such as customs efficiency at the border between
Hong Kong and Guangzhou. That’s particularly important since
so many of Hong Kong suppliers are located across the border."
And it’s also important for Philippine exporters
who have no trouble getting supplies to the Philippines, just getting
them through customs. And if those problems aren’t addressed,
government — and private enterprise — will find itself
without its cheese.
(Mr. Hamlin is managing director of the consultancy
TeamAsia and the author of two books on Asian economies and managing
in Asia. His latest book is The New Asian Corporation: Managing
for the Future in Post-Crisis Asia. His e-mail address is mahamlin@teamasia.com.ph.)
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