An Avoidable Manufacturing Failure?

Google announced in May that it has decided to close its Motorola MotoX smartphone plant. The Texas plant has been in operation for one year. Its smartphones will be manufactured in China and Brazil.  

One goal for this plant was to “challenge conventional wisdom that manufacturing in the U.S. is too expensive.” But unit quarterly sales were so low that economies of scale could not be realized.

Keeping manufacturing operations in this country depends on several criteria:

• Quality management down through the 3rd organization tier;
• Disciplined strategic focus – with an honest and periodically updated Situation Analysis;
• Superior culture with the absence of hubris and politics;
• Best Cost Producer – utilizing Lean, Kanban and Kaizen protocols;
• Productive, lean salaried employee organization – not just lean for hourly manufacturing employees;
• Regular Competitive Benchmarking and Value Analysis of the product lines;
• Effective application of capital spending – which is essential.

The photographs of Motorola’s Texas plant show an unusually large number of hourly direct labor employees assembling product. This seems excessive.

This raises questions of how effectively “Best Cost Producer” and capital spending protocols were applied to create a low cost, high thru-put operation normally found in this type of technical product. Did Google Motorola have an engineering and manufacturing team capable of putting together an equipment plan to reduce direct labor headcount and increase thru-put resulting in a profitable USA plant? Was the equipment plan supported by the correct level of capital expenditures? Advanced manufacturing technology such as robotics is fairly easy to do.

Is the Moto X smartphone competitive in features, performance and price point? CNET’s review concludes that it is a good quality and relatively competitive smartphone. Not perfect. But if the price points were set correctly and its manufacturing costs yielded positive profit margins, profitable unit sales should have been realized.

While Motorola has struggled, Google appears to be well-run. It is hard to believe that Google did not put top people and resources behind making its Texas smartphone facility successful. But did they?

Google’s failure does not bode poorly for manufacturing operations being successful in this country. It is certainly possible that the USA’s manufacturing base can be increased if the criteria for successful operations are in-place – particularly for technical products.

Is China Facing a Growth and Debt Crisis?

"Will China Shake the World Again?” is a recent article written by Robert Preston. Preston is the Business Editor for the BBC. The piece discusses China’s ability to sustain its growth, manage its heavy debt positions and avoid a disaster equal to or greater than the 2007-2008 financial crisis

Preston believes China has an "unbalanced economy whose recent sources of growth are not sustainable.”

In 2007-2008 “…the Chinese government unleashed a stimulus programme of mammoth scale: £400bn…growth accelerated... But the sources of growth…have a limited life.” “…China's growth rate…really looking at 4%."

 “But what makes much of the spending and investment toxic is the way it was financed: there has been an explosion of lending. China's debts…have increased since 2008 from 125% of GDP to 200%.”

“…investing at that pace…it is a…certainty that much of it will never generate an economic return…debtors unable to meet their obligations…large losses for creditors; the question is not whether this will happen but when, and on what scale.”

Based on my experience working with operating companies in Shanghai and Guangdong, I have to agree. My expectation for China’s future is negative, as their potential for serious growth and continued competitiveness will prove to be very difficult.

Having inspected a number of Chinese owned manufacturing companies in mainland China, it becomes apparent manufacturing knowledge, processes, and systems are woefully behind the times. Contemporary manufacturing in China corresponds to the USA’s 1970 manufacturing capabilities.

Therefore, cost increases from higher wages and inefficient operations are to be expected. Also, unfavorable changes in currency valuation will be a factor. This will result in lower growth, employment and capital availability. This will make it far more difficult to service its debts and fund necessary initiatives.

Judging from my visits, the young and educated Chinese appear much more independent, aggressive and spontaneous. It may make its citizens more difficult to control. Social unrest could be a major issue affecting China's economic development as well.

Click on this link to read Mr. Preston’s article.

Here are some other posts on China:

Is China’s decline permanent?

China to surpass USA as World Leader in manufacturing?

Can Manufacturing Return to the USA?