Story of Three Velocity Titans

We started this section with the goal of showing that lean manufacturing is not just theory, and covered the following (supported by actual case studies):

• How China reduced manufacturing costs using approaches such as Industrial Clustering

• How costs are minimized through Cellular Manufacturing and Takt-Time production runs and

• Why control systems have to focus on the shop floor rather than on spreadsheets and historical data

We conclude this section with a look at the real world achievements of three velocity titans:

• Foxconn, who delivered a prototype and made operational an entire assembly line within 12 hours

• Haier, who removed entire layers of middle management to eliminate bureaucratic decision making delays and

• Shein, who eliminated inventories by using real time market data to guide production runs.  

Case Study 1: How the Foxconn Shenzhen Industrial Ecosystem Outbid Global Competitors

The Scenario

Six weeks before the iPhone was to be released there was a major design change. The scratch-prone plastic screen was replaced by a hardened glass screen. Manufacturing bidders had to develop, produce and deliver a prototype in the short time available.

Foxconn Response

Foxconn activated its local, multi-tier supply chain ecosystem in the middle of the night. Glass cutters, specialized mold makers, chemical treatment processors, and final assembly cells, all located within a local, tight industrial cluster, moved instantly. In 12 hours:

• A brand-new component prototype was engineered, reviewed, and approved,

• Heavy factory tooling and machinery configurations were re-machined and retrofitted, and

• The single-piece assembly line was fully operational.

The Foxconn bid was accepted by Apple.

The same hyper-localized cluster was able to scale up deployment of labour and engineering seamlessly to ramp up production, meeting Apple's strict yield metrics and high volumes. Market launch dates were always met in time.

Forensic Costing Significance of Foxconn Response

• Avoided Logistics Nightmare: With all suppliers inside a tight, 30-minute radius, Foxconn was able to eliminate the typical logistics nightmare. In a traditional setup, component suppliers could be located all over the country, or even overseas. Beyond coordination overhead, traditional transit delays could span weeks. In the Foxconn case, the transit time was practically zero. Resultant impact on cash flows was nothing less than dramatic

• Eliminated Tooling Overhead: A major tooling retrofit as in this case would normally have taken weeks with all fixed assets remaining idle during that period. By completing it in 12 hours, Foxconn was able to prevent the margin loss resulting from such a long idle time.

The Cost Architect's Lesson

Physical proximity and shared ecosystem velocity erase the multi-week transport buffers and administrative lag that kill asset velocity.

Case Study 2: How Haier Liquidated Middle Management and Speeded up Business Decision-Making

The Scenario

The Qingdao Refrigerator Co. was a struggling Chinese state enterprise where business decisions were made in a typical bureaucratic fashion. Information traveled up several levels to decision makers and (typically late) business decisions traveled down to the shop floor. These delayed decisions proved detached from shop-floor and market realities. 

The RenDanHeyi Response

Zhang Ruimin was appointed director of Qingdao in 1984. He focused first on establishing basic workplace rules and strict quality control. Qingdao was renamed the Haier group in 1992.

By 2005, Zhang had become frustrated with the bureaucratic functioning of the company. He implemented a new model, the Rendanheyi model. The model involved removing 10,000 middle management roles so that production teams had a direct interface with market realities.

Haier was divided into 4,000-plus self-governing units with the employees interfacing directly with customers (instead of reporting to bosses). They had the freedom to make their own business decisions, and hire and fire members. They could also hire external HR, IT and other service providers if the company's providers did not deliver desired value. Instead of salaries, team members received a share of the profits made by their unit.

Micro-enterprises that made the right decisions and delivered good customer value prospered while units that took poor decisions were either restructured or had to cease operations.

Central management became a support platform for coordination and services, and also a venture capital source. It did not have any supervisory role over the micro enterprises.

Haier group went on to become a global brand, entering highly competitive markets first to validate themselves. With local design centers, manufacturing plants and marketing teams, Haier was also able to cater to local preferences.

The Cost Architect's Lesson

By removing the approval hierarchy, it became possible to synchronize remedial actions with operational problems. Direct contact between the micro enterprises and customers made it practical to synchronize production with market demand.

Case Study 3: How Shein Eliminated Cash-Flow-Blocking Inventories

The Scenario

Like all traditional apparel manufacturers, the apparel clusters of Guangdong also used months-old historical data to make demand forecasts and develop their production plans.

The On-Demand Manufacturing Ecosystem Pioneered by Shein

Shein deployed a Manufacturing Execution System (MES) directly into the floorboards of thousands of independent contract manufacturers. The system provided visibility into the fabric inventories, production capacities and order flows of these contractors.

Instead of depending on historical market data, Shein tracks real-time clicks, add-to-carts and social media discussions to arrive at a design to test. The design is passed to an appropriate factory for producing 100 to 200 units.

If the test design moves in the market fast, a large-scale reorder is automatically generated, initiating instructions to partners for:

• Procurement of raw materials

• Step-by-step assembly rules and workflow routing

• Real-time inventory levels and dynamic labor tracking

• Production deadlines, typically compressing standard clothing lead times to just 7 to 9 days.

If a test design does not move in the market, it is swiftly killed. 

As a result, unsold inventory is kept at negligible levels.

The MES constantly evaluates every workshop. Suppliers are tracked on delivery timeliness, raw material defect rates, and new product success rates. Factories in the lowest 30% tier face swift removal from the ecosystem, thus forcing strict adherence to quality and speed.

The Cost Architect's Lesson

By using real-time market data to plan Takt-Time production runs, you can eliminate unsold inventories.

Conclusion

This is a story of three Chinese industrial titans that achieved incredible business results by moving at high velocity.

Foxconn activated its local, multi-tier supply chain ecosystem, and developed, reviewed and approved a brand new component prototype, and made operational a production assembly line for Apple’s iPhone within 12 hours.

Haier flattened a bureaucratic organization using the Rendanheyi model, liquidating 10,000 middle management roles and creating a network of 4,000 self-governing micro enterprises. Each of these micro enterprises prospered or disappeared depending on whether it delivered just the right customer value.

Shein deployed their proprietary Manufacturing Execution System (MES) across the floorboards of thousands of independent contractors. Using automated real-time market research and testing, and scaling up production of market-accepted designs and killing the others, unsold inventories were practically eliminated.