Chinese Manufacturing: Can the Dragon get Lean?

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Shady El Safty

7 Challenges for Lean transformation in China

Until recently, China's competitiveness was based on one key ingredient: an abundance of cheap, low-skilled labor, writes contributor Shady El Safty. But as market conditions change, is it time for the Dragon to get Lean?

Having lived and worked in different cities at China, over the years I have often been asked by people about what the challenges are for lean transformation in China.

When I think about my experiences, there are 7 key challenges that I often found impacted lean transformation at Chinese companies that I would like to share with you:

#1: Cultural norms can get the in way of addressing wasteful practices:

Chinese culture has the concept of "Mianzi" which means "face". Losing "face", saving "face" and giving "face" are very important cultural considerations in China. Confronting someone or putting someone on the spot in any way can cause them to lose face. This cultural norm of "Mianzi" can get in the way of addressing wasteful practices or identify the areas for improvement.

Can the dragon get Lean?

#2: Hierarchical organizational structures prevent employee engagement:

The hierarchical nature of Chinese organizations hinders cooperation and joint decision making across departmental boundaries as well as up and down the chain of command. This bureaucracy often hinders an organization’s speed of change.

Communication across different departments tends to be less effective than in flat organizations. Also, the centralized decision making process of hierarchical structure doesn’t promote employee involvement.

#3: Lack of reward systems/incentives:

The Chinese see competition as a threat to group harmony and don't link the payment and reward system to actual performance. "Danwei" which means "work unit" in the Mandarin language refers to a place of employment in the People's Republic of China when the Chinese economy was still more heavily social and still has important ramification today: Chinese don’t usually move from company to company as in many other economies. They usually spend an entire career in one place, and in one group of people.

Consequently, seniority determines rank and pay rather than actual performance.Also, operators usually get paid by the number of pieces that they produce rather than product quality, and seldom control the products they receive or produce.

#4: Reliance on low-skilled migrant workers drives short term thinking about the workforce

Until recently, China's competitiveness was based on one key ingredient: an abundance of cheap, low-skilled labor. Chinese manufacturers have short-term thinking about employees and depend on low-skilled migrant workers in particular who might not come back after Chinese New Year.

#5: Manufacturers encourage a batch and queue organization

Chinese factories often make products in big batches and thereby creating large inventories. Manufacturers are not focused on streamlining the flow in their supply chain. The manufacturers themselves encourage a batch-and-queue organization, because they often purchase full containers at a time. Their suppliers give low prices when materials are purchased in large quantities.

#6: Automation comes before process improvement:

Leadership don’t focus on process improvement. In Japanese factories, processes are automated only when they are physically hard or dangerous for workers. The objective is to keep improving each process by using the operators’ brains. In contrast, Chinese factory owners usually think automation is a solution to reduce their costs and their quality problems so they automate their existing bad processes.

#7: Lack of focus on efficiency:

All Chinese manufacturing industries experienced rapid technological progress in recent years, but this has not been accompanied by significant efficiency improvement.

In China, factories typically ramp up in a few weeks or months rather than the many months or years needed elsewhere. Companies feel tremendous pressure to build whatever capacity they can. In this fast moving environment , companies tend to grow by building new plants and by adding automation, machines and labor rather than eliminating waste or improving efficiency through common lean manufacturing techniques.

One would think that in the current environment, where many Chinese manufacturers make less than 2% of profit on their sales and many Chinese companies are losing money, their leadership would be ready to switch their strategies and management approach.