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| HongYing Vetanen (l) and Zumreta Hergic inspect color-ink cartridges at Epson Portland, a Hillsboro, Ore., plant enjoying a resurgence. (Photo by Benjamin Brink) |
Not All Outsourced Jobs Are Lost Forever
BY RICHARD READ
Posted on 12/27/2004 8:55:51 AM PST by Incorrigible
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Not All Outsourced Jobs Are Lost ForeverBY RICHARD READ |
PORTLAND, Ore. -- Three years ago, Epson Portland laid off 850 employees -- three-quarters of its work force -- as printer assembly moved to Asia. The Hillsboro company put its newest building up for sale, succumbing to the powerful riptide carrying manufacturing jobs to countries with cheap labor.
Epson appeared poised to vanish from Oregon like other big Japanese manufacturers. Its payroll plunged from 2,400 in 1998, when the state's manufacturing employment peaked, to 250.
But the factory is back, defying outsourcing's centrifugal force. Its payroll has ballooned to 600. It churns out record numbers of printer cartridges. Productivity is up. Defects are down. The factory spits out five times as many cartridges per worker as a sister plant in China.
"The trend to outsource to other countries is coming under question now," says Epson Portland President Dave Graham, a manufacturing veteran who led the comeback. "Companies are realizing that there are hidden costs."
Epson's success story shows that manufacturing needn't always take a one-way trip offshore. While consultants and business professors largely dismiss Epson's turnaround as an anomaly, the plant is not alone. Factories are switching to "lean" manufacturing, the art of making products efficiently, as global competition intensifies.
To Mike Doyle, Oregon Economic and Community Development Department international trade manager, Epson's rebound shows that "the bus marked Southeast Asia" won't necessarily mow down everything in its path. "If you don't see those headlights, that bus is going to hit you," Doyle says. "But you don't have to step on the bus. You can step to the side and still get where you're going, using a different strategy."
As the branch of a Japanese company, Epson Portland was an outsourcing venture when it opened in 1986. The parent firm, Seiko Epson Corp., is a giant that makes everything from watches to computer chips.
The Hillsboro plant, which led a wave of Japanese companies into Oregon, grew into a manufacturing mainstay. But in spring 2001, Seiko Epson moved labor-intensive printer manufacturing from Oregon to Indonesia and China.
Graham, 54, came from the financial side of the operation as Epson Portland's former comptroller. A mechanical engineer, he had spent years troubleshooting factories for Paccar, maker of Kenworth and Peterbilt trucks. He looked on the bright side, saying Epson's layoffs left him with his best employees. He told them the truth: If the plant didn't astronomically improve, they weren't going to be around.
"My mantra was, `If you guys want a future,"' Graham says, "`you're going to have to create it yourselves."'
The workers didn't need convincing, he says. They were hungry for direction.
Graham knew they would have to cut costs, reduce defects, master automation and boost productivity. The assembly-line workers, who make an average of $15 an hour, including benefits, would have to take all these steps at once to compete with Chinese workers, who earn one-sixth as much.
They would survive by boosting the number of cartridges made per worker, ultimately doubling the factory's production. "More throughput -- that's how we compete with the developing countries," Graham says. "I needed to teach the workers that if a line goes down, it changes from adding to your bank account to depleting it. Getting the line back up and running should be a very high priority."
The other big challenge was quality. In 2001, defects forced the plant to scrap 12,000 of every 1 million cartridges produced. Under Graham, the defect rate plunged to 250 per 1 million, astonishing Seiko Epson managers. He credits the increased technical prowess of his workers.
Graham constantly challenges his employees to devise improvements. He shares business results with his workers, who come from about 30 countries. "That way," he says, "I've got 600 more brains working on the same problem."
Case in point: Workers used to pack cartridges into boxes as they came off the assembly line, then remove and inspect them. Two workers automated the counting and sorting process. The $40,000 innovation saves more than $500,000 a year in labor costs.
Graham automated the plant and made it more efficient. Robotic arms emerge from injection-molding machines to place plastic parts in annealing ovens. Pairs of injection machines now share one oven, saving energy and space.
Epson workers traded visits and ideas with other factories, such as a Tillamook Cheese plant. They studied Toyota's famed manufacturing culture.
Hillsboro managers have grown closer to their parent company. Graham traveled repeatedly to Seiko Epson headquarters in Suwa, Japan. "He did a lot of relationship-building," says David Lawrence, Hillsboro deputy city manager. Lawrence, who visited Suwa, saw direct, comfortable communication between the Japanese and the manager of their only U.S. plant.
As a result, the Hillsboro plant more closely resembles a typical Seiko Epson factory.
Instead of expanding their offices to fill space in a large room vacated by printer makers, office workers follow a more Japanese approach, grouping cubicles at one end. Graham wants Seiko Epson executives to see that the 180,000-square-foot factory has room for more work. He also wants the Japanese managers to feel at home. He prominently displays framed photographs of the Japanese with their American colleagues.
Graham says Epson and other companies that outsource abroad encounter unexpected costs moving raw materials around. Firms can save money and time, he says, by manufacturing close to markets.
Global companies make those calculations constantly, says John Mosier, director of worldwide operations for material and logistics at FEI Co. The maker of nanotechnology tools distributes manufacturing among its plants at Hillsboro headquarters and in Massachusetts, Germany, the Netherlands and the Czech Republic.
Tariffs, currency fluctuations, freight charges and other costs can wipe out labor savings abroad, Mosier says. "Those considerations are always in play," he adds. "We look at total delivered cost."
Seiko Epson managers have asked Graham to write a case study explaining how the factory turned itself around. But Graham feels pressure to improve further. Sister plants in England, Mexico, China and Japan are already taking pages from Hillsboro's book, learning to share ovens between injection machines, for example.
"It never lets up," Graham says. "Continuous improvement is our constant mantra, because everyone else is trying to do the same thing, whatever the country."
Dec. 27, 2004
(Richard Read covers international affairs for The Oregonian of Portland, Ore. He can be contacted at richread@aol.com.)
Not for commercial use. For educational and discussion purposes only.
Kind of reminds me of that movie "Gung Ho!".
Manufacturing picking up in the USA with Bush as President! :-)
This is what happens when we kick our butts into gear.
We have advantages but have to appropriately use them to compete.
No, you don't say?
According to Willie, U.S. employers don't outsource for economic reasons, they do it because they are MEAN.
This is what my company found too, while outsourcing sounds good on paper, you lose good will, and you find that foreign workers don't work as hard, and often make more mistakes than US workers. We moved a plant to Mexico, then moved the operation back to the US when the Mexican product turned out to be riddled with errors that were not caught by Mexican inspectors. My guess is that this lesson will be learned over and over again as companies learn what works and what only seems like a good idea at the time.
IOW, they now show some pride in their work.....Hope it's catching.
It may cost more to have it done right, but no matter how much money you save if it is crud people will look elsewhere.
Actually this prove something Willie Green has been saying. Out sourcing in the long run will not save that much if at all. And the quality goes down hill potentially alienating customers.
Thats always been the case with outsourcing. When you have these people make the arguments for it, the word "quality" never gets mentioned in the discussion.
If that's true, which I agree that it is, then there really is no reason to run around like a chicken with its head cut off and shriek that the sky is falling, is there?
Nor is there any reason to pass punitive laws to be used as revenge against companies that outsource.
I wonder how many jobs Willie Green has created for other people in his lifetime?
Zero, is my bet.
Not to mention that Japanese loathe China has no impact here? It's American whore-like board rooms and Wharton graduate MBA's who have no clue about manufacturing that have a love affair with China.
I have been also reading more about those regions we have outsourced to desiring unions and more pay. In the end, I hope those companies who have outsourced are stuck with some long contracts with skyrocketing costs.
It all comes down to bottom line issues. Those little folks are looking at our $15/hr manufacturing positions and saying "Yes by golly, I think I like that".
Meanwhile, I mistakenly used Vonage VOIP, twice I have called customer service and twice I have had to figure out the problem myself, because they couldn't communicate with me.
grrrrrrrr. To my knowledge, my Charter Comm VOIP will not be outsourced to someone who cannot understand enough English to fix a problem. /rant off
We really DO have great resources here. Now let's get back the other electronic jobs that have blown to China in the past 10 years!
Cheap labor isn't always the answer.
Hand the Chinese a golf club and see what happens in the ensuing years! The prospect of leisure is a great leveler given time.
The answer was to hire temps to rework here whatever the engineers wouldn't just widen the specifications for on a lot by lot basis. B&D would then charge their China sister plant back for the costs on an internal basis. It got to the point that B&D's didtribution warehouses had to set up a hundred thousand square feet at each site just for rework operations. Pathetic!
Black and decker has also moved a lot of their dewalt brand to Mexico. I have talked to the tool crip guys at both my Lowes and my Home Depot. They both say that the quality of the tools from Mexico is nowhere near the quality of those that where made in the US. In fact they both commented on seeing a sharp increase on returns.
""Companies are realizing that there are hidden costs."
You're absolutely right. My Company is discovering just how much it costs to outsource to other countries. We set up another datacenter in South America and the cultural differences are startling. The number of religious holidays where they supply a skeleton crew, the strict labor laws (they don't allow overworking of employees), the lackadaisical attitude toward deadlines and quality. It's really bad and the American employees have to take up the slack because the management won't admit they've made a mistake which is costing millions.
Dewalt's plant in Italy made the best stuff. B&D was unsatisfied with their low end image so they figured the best way to solve that in a Wharton MBA fashion was to just buy Dewalt and then make all the stuff at B&D plants using yellow housings and call them Dewalt too! So garbage firm A, acquires quality firm B, then destroys the brand name of product lines from B by whoring them into A's methods of manufacturing. A few Dewalts are still made in Italy. Mostly the precision routers. But by large, buying Dewalt today is just like buying the garbage B&D makes on the same line in a different color housing.
That is one of the reasons I bought a porter cable saw this month.
It does make me feel better that I'm being vindicated... I've maintained all along that government intervention was a bad idea, because the outsourcing fad would start to dry up for actual business reasons.
Exactly.
Those same people will NEVER be held accountable for their actions.
As many have stated before, wait until these companies that have built plants in China see them become nationalized, or their major products pirated. Their will be much wailing and gnashing of teeth.
^
Re: a previous hunch about "the outsourcing bubble and when it will burst."
Then how do you explain Walmart?
I do not shop there. They sell chicom crud. I may spend a little more but I get quality.
Very interesting info, thanks. What brand would you recommend as a good quality brand for power tools? I've always thought DeWalt, but you've blown that one apart!
Does this mean the cost is reduced to where I can buy a printer cartridge for less than the cost of my printer?
He and I have been saying that the hidden costs of outsourcing (only one is the reude quality often associated with outsourced manufactored good) would out weigh the cost savings. And in many cases end up costing more.
a company i used to work for had a 3%(i think) acceptable defect rate on the incoming parts we were getting from a Japanese company in the contract. the funny thing was... i think they must of misunderstood the wording because they gave us 100% good product ALONG WITH 3% bad in a separate box!!!
QC is a lost art to many companies these days.
Will do, thanks.
damn... brain cramp!!! what's the guy's name with the fourteen points??? him and him wife maybe, damn again... he did QC and Motion/Time StudyJapan embraced him and it took the US getting killed in he car market to get off their collective ass here and make better cars.
his only lement was that his time is short and there's still work to do. he's prolly dead by now though. RIP
... and that ties in with the recent common law story to which you referred me (tx).
I used to work for a big corp with initials H and P. They moved manufacturing for their cardiographs (EKG) to Qingdong China. For a long time, not only was quality pathetic but we also had a hard time doing anything about it due to the fact that when we got a problem, it's midnight over there and also need to find someone who can understand in English and get a message to the proper people. Then you have the unavoidable delays in shipping, redesigning, etc, not to mention the odd problems that can come up due to the Chinese government. All problems we never had when things were made locally. One often overlooked cost of outsourcing is loss of customer loyalty as outsourced products or services are perceived to suck.
Dr Deming?
Dr. Deming. Can't remember the first name.
I once worked for HP. The management shipped, against our recommendation, products that if they were any worse they would blow up when plugged in.
A friend of mine came up with what I thought was a good analogy. American businesses saying that they cannot compete without offshoring and using H1B's is like the athelete who says that they can't compete without using steroids. Sure the short term advantages may appear attractive but the long term consequenses can be deadly.
A Chinese made version of one of our pieces of equipment had the distinction of being the first one to catch fire!
Frank and Lillian Gilbreth were associates of Frederick Winslow Taylor. The Gilbreths, unlike Taylor, had experience in unionized industry, which presumably limited their enthusiasm for timing jobs.
In Frank Gilbreth's early career he was interested in standardization and method study.
Noticing, in the bricklaying, at construction sites where he worked, that no two bricklayers used exactly the same method or even the same set of motions when working fast as opposed to slow, he set about trying to find an improved method.
The result was that he was able to raise output from 1000 to 2700 bricks per day.
From their various studies the Gilbreths developed, the laws of human motion from which evolved the principles of motion economy.
It was they who coined the term 'motion study' to cover their field of research and as a way of distinguishing it from those involved in 'time study'; it is a technique that they believed should always precede method study. This still holds true today.
The use of the camera in motion study stems from this time and the Gilbreths used micro-motion study in order to record and examine detailed short-cycled movements as well as inventing cyclographs and chronocycle graphs to observe rhythm and movement.
Frank and Lillian Gilbreth carried their work to extremes and their treatise 'Cheaper by the Dozen' is exemplified by their family of twelve. This was also made into a Hollywood movie.
This incorporation of their work into family life is now legendary.
The third well-known pioneer in the early days of scientific management was Henry Gantt. Gantt worked for Frederick Winslow Taylor in the USA and is to be remembered for his humanizing influence on management, emphasizing the conditions that have favorable psychological effects on the worker.
The Gantt chart for which he will also be remembered, is a visual display chart used for scheduling which is based on time, rather than quantity, volume or weight.
From the doctrines of Taylor and the Gilbreths, there followed rapid developments in machinery and technology and with the improvement of materials came the moving assembly line.
Towards the end of the nineteenth century the internal combustion engine was invented, leading to the development of the motor car. There was a move towards streamlining production, and the first assembly line method of manufacture can probably be attributed to the mail order factory of Sears and Roebuck of America.
More famous was, of course, Henry Ford. His car factory in the United States is the best example of the change to modern assembly-line techniques. Before the 'line' was set up each car chassis was assembled by one man, taking a time of about twelve and a half hours.
Eight months later with standardization and division of labor, the total labor time had been reduced to just ninety-three minutes per car. (It is interesting to note that the idea of assembly line came to him when he was watching a moving conveyor of carcasses in a Chicago slaughterhouse. A similar creative innovation to Gutenberg's conception of the printing press.)
Another pioneering contributor to the field of scientific management was Charles Bedaux. Although not embarking on his career until after Taylor's death, he was to have widespread influence, firstly in the USA and later in Europe.
Many major European companies were his clients, although many who experienced his work had unscrupulous managers who brought his name into disrepute.
Bedaux introduced the concept of rating assessment in timing work.
He adhered to Gilbreth's introduction of a rest allowance to allow recovery from fatigue. Although crude and poorly received at first, his system has been of great consequence to the subsequent development of work study.
He is also known for extending the range of techniques employed in work study which included value analysis.
YES!!! thankx both of you... to me he's the Father of it all.
YES TO YOU TOOO!!!! i had them AND Dr.Deming combined into the same person... damn---1989 was a long time ago
As another poster mentioned, Porter Cable makes the best tools. Hands down.
8. W. EDWARD DEMING'S 14 POINTS
· These set the tone for the modern concern with quality [ get source]
1. Innovate and allocate resources to fulfill the long-term needs of the company and customer rather than short-term profitability.
2. Discard the old philosophy of accepting nonconforming products and services.
3. Eliminate dependance on mass inspection for quality control; instead, depend on process control, through statistical techniques.
4. Reduce the number of multiple source suppliers. Price has no meaning without an integral consideration for quality. Encourage suppliers to use statistical process control.
5. Use statistical techniques to identify the two sources of waste -- system (85%) and local faults (15%); strive to constantly reduce this waste.
6. Institute more through, better job related training.
7. Provide supervision with knowledge of statistical methods; encourage use of these methods to identify which nonconformities should be investigated for solution.
8. Reduce fear throughout the organization by encouraging open, two-way, non-punitive communication. The economic loss resulting from fear to ask questions or reporting trouble is appalling.
9. Help reduce waste by encouraging design, research, and sales people to learn more about the problems of production.
10. Eliminate the use of goals and slogans to encourage productivity, unless training and management support is also provided.
11. Closely examine the impact of work standards. Do they consider quality or help anyone do a better job? They often act as an impediment to productivity improvement.
12. Institute rudimentary statistical training on a broad scale.
13. Institute a vigorous program for retraining people in new skills, to keep up with changes in materials, methods, product designs and machinery.
14. Create a structure in top management that will push every day for continuous quality improvement.
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If only they could teach "Google" in MBA school -- instead of Misuse of Buzzwords and Acronyms ...
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