Create Value To Fight China Pricing
I read an article in our local paper entitled Furniture Industry fights China Price"
. Northeast Mississippi is a furniture manufacturing hub and is being hit hard by low cost imports. The article covered a workshop developed by the Mississippi State Franklin Furniture Institute and really provided few answers to the problem.
Having grown up in a steel mill town and seeing what happens to an industry that cannot compete with low cost competition I have some historical knowledge of what happens to a region when the key industry is decimated. My hometown has never recovered.
I"ve done some research on the subject of competing with low cost manufactures and competing on price simply doesn"t work. The average burdened labor rate in China in 2007 was between .70 cents and .92 cents per hour depending on where you get the data. The corresponding rate per hour in the United States for manufacturing jobs is about $25.27 fully burdened with benefits.
In addition the Chinese companies don"t have the regulations and environmental rules to follow and we can all agree it isn"t a level playing field.
But come companies are competing and doing well against low cost competition. Those companies are identifying and developing niches to operate within that take advantage of problems with Chinese production:
"Freight costs
"Increases inventory and safety stock necessitated by potential supply interruptions or poor quality
"Lost sales due to stock out and poor quality
"Poor logistics support within China
"Duties, fees and taxes.
The reality of the situation in furniture or in any industry if you allow the product to become a commodity, low price will win every time. In high volume production of the same product with no service or customization, low price is the only differentiator.
What are the companies doing that compete?
"Performance improvements alone such as automation or lean will not allow U.S. companies to compete on price. Certainly U.S. manufacturers must get lean and be as productive as possible, but they will never automate to .90 cent and hour.
"They take advantage of the close proximity to markets and stay close to their customers, quickly turning customer requirements into opportunities.
"The develop the capability to run low volume and high quality products based on customer orders, allowing retailers and distributors to save money on inventory levels. This can be accomplished through Lean Manufacturing.
"They market their competitive advantages such as some level of customization, build to order, or features based on regional preference.
"They provide excellent customer service and warranty policies that offset the Chinese manufacturers distance from the market.
"Identify and market to consumers that are looking for a higher quality, higher tolerance product that can"t be easily produced in China.
"Use logistics and information to develop a competitive advantage within the supply chain.
"Allow the consumer or end user to have some input to the design and selection of the final product.
There are numerous things that U.S. manufacturers can look at strategically to offset some of China"s weaknesses. Allowing a market to be driven by low price is allowing a market to become at risk and expendable, and once a product becomes a commodity it seldom returns, electronics is a great example.
Better strategic planning, better marketing, and better communications with the customer can all be used as a competitive advantage by U.S. Manufacturers, and directly exploit weaknesses of Chinese manufacturers. Allowing them to dictate the market in our regions and establish low prices as the only selling point is giving up on an industry. Government tariffs and tax credits will never be enough to bridge the gap in labor costs. We must find a different way to do business.
Back to northeast Mississippi the furniture industry seems to be more concerned about each other than trying to form a cohesive marketing strategy to change the market.
by: Martin Harshberger, President, Measurable Results LLC
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