- Everyone knows that manufacturing in low cost countries has become very popular all over the world, and Australia is not an exception.
- But what is the reason behind choosing low cost countries versus domestic manufacturing? Is relatively lower cost the only factor behind it?
- Here are some of the most prominent reasons why low cost countries are preferred over domestic Australian manufacturing and some tips on how you can get back on track to compete with those LCC countries and win.
Manufacturers in Australia, what is your real product?
No.. I don't mean the widget you make and sell to your customers. What is the key ingredient that your customers are willing to pay the extra premium to get an item that is not made in an LCC (low cost country) such as China (albeit not so low cost these days). As a procurement professional or business owner, why should I consider your factory above the offshore options?
Aussie Made is going to be the best!
So bring on the chorus of "It's Aussie made so it HAS to be better than cheap Chinese crap" - the good, well-worn rebuttal to offshoring manufacture. Unfortunately, this does not hold true these days. Sure, in early days when the LCC factory was doing the manufacturing equivalent of "whittling" your product out of crude materials with crude tools it was easy to say "We have the history and the experience that offshore manufacturers do not, that is why you need to buy from us!"
But over 2 decades of every first world country outsourcing their manufacture to an LCC to get costs down has given the foreign competition all the funding and incentive needed to improve and innovate. To bring about reliable and reproducible solutions to manufacturing issues and to put these in play so the days of cheap and nasty have disappeared.
We have now become the low tech solution to manufacturing in many cases. In some industries, the LCC solution is now so technologically advanced that any hope of returning the industry to Australia has vanished and faces not only cost implications but a lack of trained staff and modern equipment to facilitate the return.
I recently worked for a company that manufactured the same product in Australia and China. Same parts used from same suppliers in both cases. Both factories were given the same instructions for manufacture. As a trial I brought 2 completed products in a container of parts from China to do a comparison. I asked several staff to select the product from China and the product from Australia in a blind test. Virtually, everyone chose incorrectly.
The product from our Chinese supplier was cleaner, better finished and it was apparent that an extra level of care was taken when compared to their Australian counterparts. Considering the language barrier and the fact that instructions for manufacture were provided in English, it was indeed concerning that the native English speaking suppliers did not stack up as expected on quality.
It's easier to communicate with an Aussie company and we keep our word!
Unfortunately, once again, not entirely true.
Sure, it may be easier to pick up the phone and talk to an Aussie Manufacturer or even to have a long rant over a missed delivery and feel that your rant is being understood (at least) but does this translate into something real and tangible from a customer point of view?
Not unless it results in action. I have personally found and heard similar recounts from clients that responsiveness is lacking for a lot of Australian companies. We send an order.. no acknowledgement. Then we have to follow up with a phone call. Hopefully this results in at least a verbal acknowledgement of the order but, to be perfectly honest, this is an extra step and extra degree of micromanagement we need to employ to use a local factory at a higher premium. Where is the value add here?
When you receive an order, send through an acknowledgement ASAP, I assure you your LCC counterparts are doing this as a matter of process. If you do not use a system that generates an acknowledgement and ETA, then do so manually.
As customers we need to know that
- You have the order and
- When we can expect delivery.
We need to know these quickly as we often have customers that need to purchase the goods or we are using them in manufacture of other products.
Late delivery and wishful promises (based on a verbal confirmation/last delivery lead time) lead to frustrated and dissatisfied customers for us, which dramatically impacts the prospect of future orders.
Late delivery to a manufacturing line results in a stock out and stop-start situation which adds cost to our products and basically pisses us off.
Giving an ETA is not enough. You need to meet it! As your customer, we are planning around your quoted ETA. If you are late, this causes undue stress. As one factory owner once advised on how they stay in business:
"We always underpromise and overdeliver! That way if we are on time, it is no problem and if we are early, the customer is happy."
I had one supplier in particular who would receive a PO, not respond, I would call and get no answer or a message from the receptionist that the PM was busy and would call back (never did). It would take 5-6 attempts to get an ETA. A few days prior to this date we would call to check status and usually it would be 1-2 weeks after the date. Not exactly a way to foster trust or build your brand.
We are the victims here.. You all decided to go for the cheaper option!
No one is innocent, so please stop playing the victim card. We all contributed to the use of LCC sourcing and manufacture and continue to do so.
We were all very outspoken and critical when Pacific Brands decided to offshore their manufacture, but how many of the critics were happily walking into BigW/Kmart for low price kids clothes and underwear? By choosing the low cost alternative we created the situation where Aussie companies had no choice but to pursue low cost options to compete with the cheap culture we fostered.
Almost every industry has been similarly affected. Next time you want to play innocent victim, consider how your past buying habits may have contributed to the downfall of an Aussie industry. We are all guilty and we can't expect to trade on the innocent victim card.
Move on and find a way to actually outperform your LCC competitors.
Protectionism and sympathy is in abundance on social media but when it come to the purchasing dollar and value for money, sympathetic choices rarely come into the equation (unless it is charitable purposes for helping the impoverished or 3rd world).
Only you can make your company/service in demand
I used to repair TVs (years ago in a previous life). As a community, we all decided to pursue cheap electronics to get bigger, better features at the expense of longevity. We became a throw away society and the industry in which I was employed and trained was also something we threw away.
Maybe this gives me a long term perspective on the problem. I was one of the first to succumb to low cost imports before we all decided it is a bit of a problem. I moved on, retrained, managed a CEM (contract electronic manufacture) factory for several years until that industry also succumbed. So I learnt that you need to keep ahead of the competition in an ever changing global economy.
As a consultant, many of my clients did not perceive cost savings as a driving factor to transitioning to an LCC vendor. The predominant considerations were
- consistency and
Several went to LCC because they had been knocked back by several factories in Australia as their product did not exactly match the current offering (despite being willing to pay costs to modify and trial new tooling) or their order quantity was too low or too high.
So how do you compete?
- Become more reliable.
- Make your word your bond and stick to delivery dates like your life depends on it.
- Be flexible and adaptable to your customer's needs.
- Respond quickly to Orders/RFQs and ensure your customer does not need to "chase" you for an acknowledgement/delivery.
- Finally get the huge LCC chip off your shoulder and don't try to play victim.
Aussie manufacturers if you can make your word and level of service your product (regardless of the widget you may be contracted to manufacture), maybe we can stem the tide of industry collapses and return to a point where we can confidently say:
"It's AUSSIE made, we go the extra mile and make sure you are going to be happy!"