Higher wages: one solution to cheap labor

We often hear about cheap overseas labor destroying the US manufacturing base. The response of threatened manufacturers is often to pull in, cut spending and try to beat the foreign competition at their own game by squeezing labor costs. But, you can't save your way to prosperity. A better solution might be to reinvest in people and advanced technology.

Lights-out manufacturing is a reality in a number of industries. In a lights-out environment, variable labor costs are not what makes your operation more expensive than those in the lowest wage countries. Depreciation and fixed labor costs will be significant, but more easily managed.

Operations with the highest level of productivity will be found somewhere between where most packaging operations are today and lights out. What is preventing packagers and other manufacturers from moving to this point is largely lack of skills; and the availability of skills is related to compensation, working conditions and quality of life for a given employer.

The machine tool industry is a good example of an industry constrained by inadequate investment in technology and skills. Highly flexible, highly automated tools are readily available. Robotic, software-driven work cells can turn out high-quality precision parts with little to no manual intervention. CAM software and rapid prototyping streamline the supply chain. But, too many shops fail to use these tools, don't employ skilled programmers, and operate as they did 10 or 20 years ago. Managers and supervisors are not trained in the latest CNC technology and manage from their old paradigms. Operators are often little more than button-pushers who are paid comparably to convenience store clerks.

There are at least three legs to any stable stool. New technology is but one leg of a stool. The other legs, people and processes, often require, but rarely receive, a comparable level of investment to what is spent on equipment. Perhaps a higher level of investment, including pay, would go a long way toward enabling operations with higher productivity that could compete with operations in the lowest wage areas of the world.

Don't get me wrong, higher pay must be accompanied by higher expectations. But why should we expect a CNC programmer to make less than any other software professional? And why is it acceptable to have an IT software specialist on staff of your business, yet not have a CNC, HMI, packaging machine or robot programmer? Shouldn't IT be more universal and easier to outsource than manufacturing support? Why shouldn't maintenance people and skilled operators possess education at least comparable to an associates degree, and be paid and managed accordingly?

As a packager, you may find it easy to agree with what is described as an impediment to the machine tool industry. But what about your industry? Do the same or similar conditions apply? If so, what are you going to do about it?

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Comments You got right once again: people, technology and processes. That is all that is required! Posted by: Jorge Romero on June 30, 2009 so very true. I know exactly what you mean. We need unselfish, un-greedy leaders and a government, Management that invests in the people before investing in technology that is beyond their understanding. Help keep the older force but heavily invest in the new generation, challenging them from day one. Posted by: Arvind Verma on June 30, 2009 Managers and supervisors need to be more technically aware and literate in the latest technologies and also in the latest skills needed to keep up such as mechatronics. Successful process improvements depend on good technology and good people to implement and sustain/improve them over time. Posted by: Glenn Whiteside on June 30, 2009 Dream is always a dream. There is only one way to be more competitive. Work harder and smarter. Try to get used to the curve of life change, don't always expect you will gain more and more while you are doing less and less. We've got to realize what our strength is, and how to combine with other's(cheaper labor countries) strength. How can you compete your physical labor of 40 hours a one week, and enjoying more than 130 days of holidays every year, to a typical labor in China who works 60-70 hours a week with no more than 70 days of holidays a year. Do the math yourself. To give a raise is an ideal, but maybe you have layoff more others who are not capable. Why don't you propose some advice with promising on how you work together with other nations and how to develop their marketplaces. Remember they are all catching up, but hiding is not the right answer rather than attacking. Good luck. Posted by: Richard on July 1, 2009 Any manager who suggests that labour costs need to be cut must first ask themselves would their company be very profitable if hourly wages were zero. If not, talk of wage cuts is focusing on an irrelevancy while heading for disaster. If a manager only has one way to reduce costs, fire people, then it is highly likely that that manager must be replaced if the company is to have a future. An Economist article perhaps 2 years ago discussed the cost break down of an ipod. The screen and hard drive came from Japan, the screws, plastic shell and other bits that were worth almost nothing came from China. Where is the profit being made? Not from low cost labour. Posted by: nemo on August 24, 2009 Post a comment (If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.) Name: Email Address: URL: Remember personal info? Comments: (you may use HTML tags for style) Type the word 'packaging' (required):