Part 1/3 By Jukka Ropponen
This paper is written from a little different perspective than usual with focus on looking into competitiveness of the Finnish manufacturing industry from business point of view. It is very obvious that manufacturing industry can operate in Finland with good level of profitability if operations are well tuned and modernized. Too much of the focus in the past has been on salary levels only being the issue why manufacturing in Finland has not been attractive for companies.
1. Current situation & focus on labor costs only
Finnish manufacturers have been too eager to move their production to China etc areas instead of looking at how to make manufacturing in Finland competitive instead. Main focus has been on the high salaries / labor cost, which has been used as the main reason behind the movement for offshore manufacturing. This narrow viewpoint has created a situation where other areas of importance have been overlooked in many cases and decisions been made without full picture & complete data, not to mention a focus on whole process efficiency and final unit prices.
2. China effect, current reality and opportunities & threats to Finland
During a recent visit to China in January 2015 together with our finance minister, Mr. Antti Rinne I had a chance to meet several high ranking government, communist party and provincial officials. In these meetings at Chengdu area (Sichuan province) it became very obvious that labor costs at China have caught up with their manufacturing industry and they are facing what they called “the new normal” situation where they have to quickly accelerate their development and modernization of their manufacturing industry instead of just adding cheap labor to stay competitive. This feedback came from Ma Hui, Director General, Bureau for North America, Oceania & Nordic countries, International department, central committee, Communist party of China and Zhong Mian, Vice Governor, Sichuan Provincial People’s Government as well as Li Chang Hong, Deputy Director, Chengdu Municipal Economic & Informationization Committee. Li Chang Hong actually extended an invitation to Roima Intelligence Inc. to join them at their annual Chengdu region event for manufacturing companies and come & present to them how they should modernize their operations and what Roima could do for them.
This is a both a threat and an opportunity for Finnish manufacturing industry. With this information we know China is looking to modernize their manufacturing capabilities in order to gain better competitive position. If countries like China gain effectiveness via modernization of their manufacturing capabilities before Finnish industry “wakes up”, this could be a huge threat. But on the other hand we are smaller, can be much more agile and faster compared to Chinese industries. Once our manufacturing capabilities are modernized and we have gained better competitive position (which will lead to better financial results), number of manufacturing jobs in Finland will start rising again.
3. What can be gained by modernizing
It’s easy to talk about modern manufacturing, but what do we really mean buy it? What can be gained by modernizing manufacturing operations? Let’s look at some high level key goals that are applicable for almost any manufacturer.
Very obvious one to get started. More products equals more income and better bottom line. The answer for better productivity is a sum of many factors. Adding more people / labor is not an answer to this any more like China has learned with their rising labor costs.
Reduce scrap and waste
Too often overlooked to certain degree. Main reason for this lies within the old ways of running operations by “looking at rear view mirror”. What I mean by this is the common practice of looking at reports from the past, i.e. previous day, previous week etc. It is too late to do anything when looking at the facts after the incidents have already occurred.
Today most manufacturing operations have too much machine / production line downtimes and same problems are solved over and over again. Best practices are often knowledge of the operators and systems are not in place to guarantee that those best practices are shared between operators, shifts and other similar manufacturing operations that can be in different locations and countries.
Reduce floating assets
Lack of proper systems and manually driven & planned operations (usually via Excel) cause a lot of human errors. Best example is ordering of raw materials and parts. It is human nature that everyone makes sure that their area is not causing any downtimes or production stoppages due to lack of raw materials. When operations are planned and managed manually this will create ever increasing buffers for various areas and boost the value of floating assets and the amount of money company has tied into them.
Capture cost more precisely
Its amazing how often manufacturers really don’t have precise information on the cost of manufacturing their various products. Without this data and systems that support it companies often plan their production incorrectly so that certain products can be even manufactured at loss or very small margins. This precise data is also needed by company management so that pricing, sales etc. areas can be planned properly.
Avoid “fire drill” costs
This is one of the most expensive areas in manufacturing. The more often factory has to do fire drills to catch up with production to meet certain orders / demand, the less will it’s profit margins be. Once again this is matter of having proper systems in place.
Source: This blog article has been published originally in Finnish Automation Society’s publication series # 44, ISBN-13 978–952-5183-46-7