China this week has made a huge statement especially in their workforce and the growing unrest of the working conditions in many of their factories. Due to poor wages and conditions over 2000 employees at Foxxconn’s plant got into a fight last week with management, and of course this occurred right before Apple’s debut of the Iphone 5. After a decade of peaceful interactions with management the employees have appeared to have had enough.
Some of the U.S.’s largest companies, such as Apple and Caterpillar, use Foxxconn in the creation of many of their products. If the Foxxconn plant were to revolt and shut down due to the lack of workers, what would this mean for companies like Apple or Caterpillar?
Analysts are saying that the cost of production has increased 15-20% every year for the past 10 years. Even though the cost is still relatively cheap, if these suppliers fail to meet the demand for our companies, could we see production move closer to home? The statistic that was determined is that China will still be cheaper by 7% in 2015. If these employees in the factories push for better wages and conditions, the cost will obviously need to be factored into all of the orders put in by U.S. companies. If the cost gets increasingly closer to what it would cost for these manufacturers to produce these products on American soil, do you think the U.S. companies would consider it?
“If there’s going to be social unrest, either related to the conditions in factories, or if the government can’t enunciate clear policies and the domestic political uncertainty plays out in anti-Japanese unrest, businesses are going to be reluctant to make long-term commitments in China,”
As we have learned in class, there are many aspects that affect the making of a product. Companies are always working on improving their products, while at the same time trying to reduce their production costs. Nike is one out of many companies that is trying to achieve both with their newest invention, a shoe called the “Flyknit”.
For a long time now Nike has been working on achieving the request to “make shoes as comfortable as socks”. While they have been unsuccessful in the past, their new discovery is considered by Nike “the Holy Grail —a 5.6-ounce running shoe called the Flyknit, made from synthetic yarn ingeniously woven together by a knitting machine”. While the new product could possible be their biggest seller, the executives of Nike are more exited about the manufacturing of the product. The new computer controlled weaving technology “promises to cut labor costs and production time while also increasing profit margins and opportunities for personalization”. The new process eliminates the part that is most labor intensive, and knits the upper part of the shoe in one piece. It also provides some customization options that can alter a shoe’s stability and aesthetics. Due to the new and improved process, the “Flyknit” has fewer pieces to assemble and also fits in with Nike’s sustainability push, because it uses a lot less waste in comparison to the popular Air Pegasus+ 28. It is so efficient that eventually these shoes could be made all around the world and maybe even bring back some of the work to US. At this point, 96 percent of Nike’s shoes are being made outside the US in countries that have lower labor costs. I think now, since Nike has figured out a new and more efficient way of making shoes, they should work on where to manufacture. While the company is saving money on the production by outsourcing, at the same time they are facing time issues of getting the product out in the market. If they would be able to reduce the amount of time that it takes for a product to get to the store, they would be more successful at filling their demand faster.
Recently I watched a special on CNBC, called “J.Crew and the Man Who Dressed America.” The special highlights the CEO, Mickey Drexler, and demonstrates how he transformed the company from a state of free-fall to a booming power-player. In all honesty, fashion doesn’t really catch my eye, but the business of fashion, illustrated through Drexler’s performance, demanded my attention. Drexler took over this company and immediately made quality, supply chain management, and global sourcing critical priorities.
He started diving head first into all of the fine details, even customer complaints, which he sometimes personally takes care of. He takes the mistakes about clothes relayed by the unhappy customers-t-shirts getting holey, sweaters pilling, and actually targets those mistakes and directs his employees to improve upon them. The quality is hand inspected by him, the CEO. He does not just sit in the office somewhere and make decisions about products that he has very little contact with. On the contrary, he is in the store inspecting the product (the merchandise and the store itself) and he knows every single piece of product in each store. He even spends time analyzing with his team on whether to have push or pull doors at the front of the store, before finally settling on the push. Drexler says that 90% of studies show that people prefer a push door to a pull.
Drexler not only works with his suppliers but meets with them in person and inspects their product. He controls the supply chain very tightly and prefers to have the utmost control of both the production and the delivery of the product. J.Crew is a stand alone company that is not sold at department stores, uncommonly at malls and is not conglomerated with other clothes brands, except for its own offshoots. Drexler hand picks the finest fabric from family owned businesses in Italy and then has the fabric shipped to China, where nearly all of the products are assembled before being shipped to the U.S. and Canada. All of the actual design however, is all completely done at J. Crew’s headquarters in Manhattan.
Forever present in all the dimensions of the brand is an attention to detail so strong that it’s difficult not to notice. Not a piece of the company hasn’t been analyzed and rethought and it clearly shows. It’s no surprise that the message that J. Crew sends does cross industries and it proves that a company must be completely synced with its product, no matter what it is. As Mickey Drexler says, “Just have huge conviction about what you do…and don’t be afraid.”
Do you remember the Toyota recall in Bahrain? Have you ever thought what really went wrong and why Toyota is recalling those vehicles?
I’ve read an interesting paper What Really Happened to Toyota? that was analyzing the different recall acts of Toyota which took place in USA due to quality and safety issues. The paper analyzed the main reasons behind such issues as the brand image and sales revenue were severely impacted.
Toyota and its chain of suppliers had always pioneered quality management methodologies of total quality control since they believed that quality, customer satisfaction and profits are deeply connected. Quality is a major component of Toyota’s strategy and production system, and was always looked at as a role model by other competitors, such as Ford, GE and Honda.
So what really happened that made “Quality” suffer?
The paper states that there are two main reasons behind the quality issues:
Toyota executive management always believed that quality should have a high priority, however, when the new management came in, their focus has changed. The new focus was on rapid growth rather than quality. As Toyota expanded in new markets, from 2003 onward their sales grew faster than the company can manage, and therefore, growth had taken priority over the traditional focus on quality. The decisions were made in favor of meeting sales, cost cutting and profit target while sacrificing product development, supplier management and production.
The second reason is a result of the increasing complexity of car products due to technological changes. Government regulations on safety, emissions and fuel consumption and the rising customer demands for environment friendly cars with luxury features have all added to the complexity level. This point applies to other car manufacturer as well, but due to the continuous demand and market expansion, Toyota was faced with the challenge of changing its production process to meet the demand of safe, clean, fuel-efficient and comfortable cars.
Some of the process change decisions were to compress the lead time between exterior design approval and start of sales to less than 20 months. Another change in process was to introduce an accelerated design cycles that have stressed the development and production systems which have created conditions for quality failure.
Toyota’s supplier management and its performance were also affected by the above two points. To meet the rapid demand and product complexity, Toyota had to outsource engineers and contract with new suppliers because the current engineers and suppliers were not sufficient. Most of those contract engineers and suppliers were inexperienced with Toyota’s standards and practices, and they were overseas (none Japanese speakers) contacts which had lead to coordination and communication problems.
I think that for any company, risk assessment should be conducted before moving with growth and expansion decision. With Toyota, the quality has suffered because they banded their core values of quality and focused on growth.