Australian companies urged to think “lean” to compete against China

Australian companies are being urged to think “lean” to be a competitive force against their Chinese counterparts.

That’s the message from TXM Principal Tim McLean who was the keynote speaker at the City of Monash Business Awards in Melbourne recently.

TXM is a leading Australian lean manufacturing and project management company. Its team of experts works with a wide range of manufacturing companies to improve efficiency, quality and customer service.

Tim McLean says China is a popular choice for businesses looking for a low cost supplier of goods because of the country’s low wages, construction and compliance costs and massive economies of scale through the size of its manufacturing sector.

He says despite these benefits there are significant hidden costs in doing business with China including extra inventory due to the long supply chain, freight, storage, travel, the cost of poor quality and rising Chinese currency and wages. The TXM analysis presented at the Awards showed these items can add over 50% to the cost of a typical item sourced from China.

“In the past Australian companies have struggled to compete against the blowtorch of Chinese competition, however the competitive landscape is changing in favour of Australian manufacturers but we need to change to compete,” says Tim.

“Unfortunately, the current slow and inflexible service provided by many Australian manufacturers removes their key competitive advantage against China, which is proximity to the customer. Local suppliers need to become more flexible and offer faster delivery of smaller amounts more often if they are to take advantage of being local.”

He says an approach to manufacturing developed by Toyota, called lean manufacturing, is the key to providing Australian manufacturers with the agility required to give them a competitive edge over Chinese imports.

“Lean manufacturing allows suppliers to offer faster service, better quality, smaller batch sizes and a greater degree of customisation then traditional manufacturing approaches without increasing unit costs.”

The TXM analysis shows how lean manufacturing can drive down the total cost for customers by reducing inventory holding and handling costs, obsolescence and the cost of poor quality. This can bridge the gap with the true cost of Chinese supply and make the Australian product cheaper in the long run.

Tim emphasises he is not suggesting buyers exclude using low cost offshore suppliers completely but says it’s vital to consider all the costs before making a decision.

“The extended length of the supply chain in China means any problems with quality of obsolescence are amplified. If a company has a product which is difficult to make and has frequent model or design changes then a local supplier is likely to offer better value in the long term.”

Tim says by implementing lean enterprise to a company lead times can be reduced by as much as 80 per cent allowing for a faster response and better service to customers. It also means lower inventory therefore a lower working capital and a 30 per cent decrease in the required space and a similar increase in productivity.

“Lean manufacturing can help Australian companies bridge the competitive gap with China.”

Contact TXM today to find out how the team can help your business.