For years conventional wisdom has been that while North American manufacturing may migrate overseas at least R&D will never leave. Unfortunately, this is a short-sighted view that is already proving to be wishful thinking. One significant reason for this can be summarized in a recent quote from Paul Otellini, CEO of Intel:

"I can tell you definitively that it costs $1 billion more per factory for me to build, equip, and operate a semiconductor manufacturing facility in the United States."

While this is sobering to those involved in manufacturing it should be equally as alarming for people in other areas of business.

It is becoming increasingly clear that the physical location of production facilities is a leading indicator for the rest of the organization. As production moves overseas the pressure to relocate planning, materials, and sustaining engineering quickly becomes apparent. But more and more companies are also recognizing the integral relationship between manufacturing and product development.

World class development organizations leverage production experience for competitive advantage. These companies are continuously asking themselves:

• What improvement ideas are being generated from the manufacturing organization?
• How can R&D and manufacturing work more collaboratively to reduce the new product introduction cycle?
• What new manufacturing technologies can result in cost effective new products?
• Where are quality problems occurring most often and how can they be eliminated?
• What products can we produce at the lowest cost?

On one hand, video conferencing and other high-tech capabilities have made it easier to communicate between separate production and development facilities. But nothing can substitute for actually observing production in action and face-to-face discussion as the way to link development and manufacturing. So as more production moves offshore the pressure grows to move development as well.

Regular readers of Operational Excellence Insights know that we support a world-wide business strategy when done for the right reasons such as meeting local demand with local manufacturing. But as Lean Manufacturing Consultants, we caution against chasing after the low cost “region of the month” instead of focusing on ongoing process improvement.

What will it take to reverse the trend of manufacturing moving from North America? The answer is “much more than we can cover in one issue of Operational Excellence Insights”. However, it may be somewhat surprising to learn that labor costs are not the first item on the list. Declan McCullagh, writing in the August 24 issue of CNET News, states that “ninety percent of that additional cost of a $4 billion factory is not labor but the cost to comply with taxes and regulations that other nations don't impose”.

We can’t claim to be smart enough to have answers for all the obstacles facing North American manufacturing. But clearly Lean Technology to improve the effectiveness of operations reduces the incentive to relocate production to offshore locations. And preserving production also preserves the research and development that is critical to long term business success.

Have you read our latest white paper yet? If you are concerned that Lean is failing your company by not achieving the measurable bottom-line results it should, this white paper should help you jumpstart your Lean initiative. Click to download Mike Donovan’s “Lean Six Sigma: Accelerating and Achieving the Real Potential of Lean".

You are also welcome to browse the list of free white papers and other articles at Free Resources.

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Finally, if you have a topic that you would like addressed, or an Insight you would like to pass along, e-mail us at: Jack.Rink@rmdonovan.com

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