Lean Can Help Fight High Transport Costs
Lean thinkers have long advocated the benefits of having a shorter supply chain — faster response, keeping jobs at home, being close to the customer, and better quality. Add high oil prices (and resulting transportation costs) to the list, as rising energy costs are causing many to re-think their offshoring of production to low labor cost countries. From the WSJ:
The rising cost of shipping everything from industrial-pump parts to lawn-mower batteries to living-room sofas is forcing some manufacturers to bring production back to North America and freeze plans to send even more work overseas.
“My cost of getting a shipping container here from China just keeps going up — and I don't see any end in sight,” says Claude Hayes, president of the retail heating division at DESA LLC. He says that cost has jumped about 15%, to about $5,300, since January and is set to increase again next month to $5,600.
The privately held company, known for making the heaters that warm football players on the sidelines, recently moved most of its production back to Bowling Green, Ky., from China. Mr. Hayes says the company was lucky to have held onto its manufacturing machinery. “What looked like an albatross a year and a half ago,” he says, “today looks like a pretty good asset.”
They still have the equipment. But what happened to their greatest asset — the people?
Is this good news for U.S. manufacturing? Maybe… if we can get people to drive to work, considering high fuel prices!
Edward Zaninelli, vice president of trans-Pacific westbound trade at Orient Overseas Container Lines in San Ramon, Calif., a major shipping line, says he's heard from customers who are moving production back to the U.S., including a maker of steel pans for car engines.
“I believe a decent amount of production could come back into the States within five years, not everything,” he says. “But it won't be because of transport costs — it'll be because other production costs have gone up and companies have realized they can have better control over their production when it's closer to home.”
That's very much aligned with the Lean approach and older Lean arguments for keeping work close to customers.
Last fall, Crown Battery Manufacturing Co. decided to close a plant it bought in Reynosa, Mexico, and move the jobs to its Ohio home base, adding 25 workers to the 400 it already employed.
“We're shipping batteries, which are big and heavy,” says Hal Hawk, the company's chief executive.
Mr. Hawk estimates shipping to customers, who tend to be clustered in the Midwest, was adding 5% to 10% to the cost of the Mexican-made batteries, which he says also suffered from quality-control problems. The smallest batteries are 20-pounders for lawnmowers, but they also make 29,000-pound giants for running underground mining machines in places like southern Illinois.
“They were traveling 2,000 miles to get to those major customers,” says Mr. Hawk, and all indications are that fuel surcharges on the trucks would just keep growing.
The word “Lean” wasn't a part of that article, but it's hard to avoid thinking about Lean. Are any of you seeing your companies slow the movement of production to Asia, or are any bringing work back?
There's been a “local food” movement, where some people really pay attention to where their food comes from. It's mainly a sustainability and environmental question, with one of the factors being the “carbon footprint” of transporting food long distances. Will people start paying attention to this for manufactured goods? Will that just be a fringe movement?