Half the cost of manufacturing enterprises? How did it work?

The “cost halving method” is not mysterious or complicated, but not every manufacturing enterprise can quickly grasp it in practice. The main reason is that to reduce costs on the premise of improving quality, it not only depends on the leadership of the enterprise, the design and development department, but also requires the joint efforts of all levels of the enterprise to gather staff skills to focus on development topics.

It is not surprising that Japanese enterprises and entrepreneurs put forward the slogan of halving costs. Many Japanese manufacturing enterprises have successively transferred their production workshops overseas since the 1980s, especially in mainland China and Southeast Asian countries, which is considered as a hedge against the rising labor costs in Japan at that time. Nevertheless, Japanese manufacturing enterprises in many categories still retain more workshops and jobs in their country, and the latter option has proved to be more long-term.

In fact, at the beginning of the 21st century, European countries, the United States and Japan, which had been actively transferring manufacturing capacity in the previous decades, all recognized the drawbacks of this approach. The most fundamental reason is that because the production line is separated from the design link, and these two links are more disconnected from the marketing, the information transmission between different links becomes very difficult.

In the marketing process, through customer feedback, non quality problems of products (such as functional design, which may lead to improper and insufficient design, as well as problems such as excessive design and redundant addition of functions not required by customers) are found, and it is difficult to quickly feed back to the design and production line, which means that customer information feedback, as the most important information information of the enterprise, cannot play a role at all. However, due to the separation of production and design, designers cannot easily find the problems exposed in production. If the former outputs information to the latter, they will face obstacles in the trunk road. Therefore, enterprises may eventually let defective products go on the market without knowing it.

In addition, outsourcing manufacturing will destroy rather than improve the intuitive grasp of the product by enterprise designers and R&D personnel. How to process, how to assemble, how to carry out inspection, these problems cannot be solved smoothly.

Hiroshi Mitsuki, a senior expert in the Japanese manufacturing industry and chairman of the Cost Development Research Institute of Japan Co., Ltd., has been engaged in the development and research of agricultural machinery and other products for a long time, and has been immersed in lean product development and cost minimization development for many years. Mitsuaki believes that it is technically feasible to reduce the cost of Japan’s manufacturing industry, and to achieve this goal, Japan should revitalize its local manufacturing industry. He affirmed the practice of American officials and industry to accelerate the return of manufacturing industry after 2008, and obviously hoped that Japanese enterprises could promote the return of manufacturing capacity and jobs.

Of course, not only manufacturing, but also all industries do not want to reduce costs. In his book Half the Cost, Mitsuaki Boxing pointed out that the common cost reduction method is to “reduce the cost of materials, purchase, logistics, etc., or improve the processing method, make the assembly method more reasonable, so as to shorten the time, on the premise of retaining the original shape of parts or assembly units” – this approach is difficult to avoid the reduction of manufacturing quality, or will aggravate the tension in the supply chain. The cost reduction method that he himself highly esteems is to thoroughly review the product structure and part form from the design link, and carry out cost reform related to product development, which will also avoid the decline of product quality after cost reduction.

Mitsubishi referred to the above cost reduction method as “cost halving method”. The reason why this method is feasible is that in the field of manufacturing industry, there is a widespread problem of excess quality, that is, excess functions, performance, and quality lead to higher costs and prices; If we introduce new technologies through more sophisticated design and manufacturing, improve the level of collaboration between employees in manufacturing, especially tacit knowledge sharing, and reduce or even significantly reduce product costs, it is certainly a reality.

In the book “Cost halving”, Mitsuki Boxing reviewed his experience in constantly driving down the cost of product development and design in his career, especially when improving some tractors and cultivators, and at the same time, he halved the number of parts, cost and quality by 20%. The book introduces the specific methods in this regard, including how to complete technical guidance in ten steps by taking workshops and business processes as units; It is very instructive and operable to find out multiple solutions to the problem and conduct necessary scientific analysis.

The “cost halving method” is not mysterious or complicated, but not every manufacturing enterprise can quickly grasp it in practice. The main reason is that to reduce costs on the premise of improving quality, it not only depends on the leadership of the enterprise, the design and development department, but also requires the joint efforts of all levels of the enterprise to gather staff skills to focus on development topics.

In his book, Mitsuaki pointed out in sharp criticism that, taking Japanese manufacturing enterprises as an example, many enterprises have fallen into operating difficulties in recent years. The fundamental reason is that the operators have left the scene and have not given enough support and incentives to the R&D department. Some enterprises announced layoffs whenever revenue was tight and other difficult situations, including the layoff of a large number of employees in R&D departments. On the contrary, when business turned better, they were more willing to spend huge amounts of money to acquire R&D departments or projects of other enterprises, or start-ups, and did not really favor R&D departments. In this case, it is inevitable that people from all walks of life, including employees in manufacturing enterprises, despise on-site management, and are unable to do a good job in on-site technology improvement and cost reduction.

1. The manufacturing industry has been in trouble for a long time

From the electrical appliances craze of overseas workers in the early days of opening up, to the car quota craze later, to today’s hot toilet seats and rice cookers, and the craze of overseas shopping around the world, it is the result of people voting with their feet after their awareness of consumption. On the street of Akihabara Electric Appliances in Japan, anyone engaged in manufacturing industry will be distressed to see the purchasing army from China. Everything is just like what Thomas Friedman, the best-selling American writer, predicted in “The World is Flat: A Brief History of the 21st Century” ten years ago. Consumers get the freedom they want through the combination of technological progress and social agreements, such as mobile phones, the Internet, open source programs and other means.

Inadequate protection of property rights and marketization of intermediate links have resulted in abnormally high raw material costs, production costs, circulation costs and transaction costs, which are two major factors in the dilemma of China’s manufacturing industry.

As far as intellectual property rights are concerned, they have been greatly improved in recent years, both the government’s efforts to crack down on intellectual property infringement and the change of enterprises’ own ideas have been significantly improved, and they are basically on the track of sound development. Of course, there is still a lot of room for improvement in the protection of personal rights and property rights of enterprises.

The biggest problem is the rising costs in recent years. Looking at history, we can find that during the Asian financial crisis in 1998, the RMB began to come under the spotlight of the international stage for the first time relying on the strategy of non devaluation. The capital of developed countries has seriously underestimated the value of resources such as China, with low labor costs and abundant supply. The geomantic treasure land with low interest rates and low inflation has flocked to it, and the world’s advanced capital, brands and technologies have begun to enter this value depression, After joining the WTO, this advantage will become more and more prosperous.

However, in 2004, the reality that 800 million shirts could only be exported to return to a Boeing aircraft, coupled with the overly aggressive profit seeking methods of some foreign investors and the beheaded acquisition of domestic brands by some pseudo joint ventures, made some scholars and government officials start to worry about the cheap sale of resources and pollution of the environment. After that, the first shot was launched from the integration of small mines. The prices of coal, steel, refined oil for vehicles and other resources were rapidly and systematically pushed up. The cost of resources, labor, circulation and other rigid costs in manufacturing costs rose significantly, and the profit space of manufacturing was shrinking. The reason why the problem has not worsened is that the opening of the domestic real estate policy since 2004 has released the potential market demand, leveraging the building materials, transportation, large-scale equipment manufacturing and other real estate related industries, and alleviating the pain of the decline of the manufacturing industry.

It can be seen from this that it is not objective enough to attribute the manufacturing predicament in recent years to the resource siphon of the real estate industry. Behind the manufacturing predicament and the current situation of real estate are common problems, which are two forms of a problem. The impact of real estate on the manufacturing industry is far less serious than we thought. On the contrary, in 2004-2012, real estate has a certain feedback function on the manufacturing industry.

Today, the pull effect of the real estate industry has become weaker and weaker. With the reduction of exports, the long-standing manufacturing dilemma resurfaces. The reason why Wu Xiaobo’s “Buying Toilet Lids in Japan” has aroused strong resonance in the whole society and the whole industry is that he unintentionally tore up the fragile and unbearable mask wrapped in the manufacturing industry. The inconspicuous smart toilet lid in the article deeply hurt the government and manufacturing practitioners.

2. The cost pain that plagues the manufacturing industry is first the efficiency problem

In the middle of this year, the industrial policy debate between Lin Yifu and Zhang Weiying was in full swing, which reminded the author of Mr. Lin Yifu’s article How the Government Promotes Industrial Transformation and Upgrading under the New Normal. In the article, Mr. Lin, like a professional surgeon, used the theory of new structural economics to classify domestic industries and put forward targeted solutions. On the premise that the late mover advantage is still obvious, this targeted solution has the advantages of extremely high efficiency, instant effect, and is welcomed and relied on by decision-makers. The disadvantage is that it will damage the market’s own operating mechanism. However, Mr. Zhang Weiying, who believes in the supremacy of the market, also admitted that the market economy in China is faced with a stubborn disease that has both beneficial roots and is difficult to promote key links. When the economic situation is good, there is a lack of internal reform impetus, and no effective breakthrough can be formed; When the economic situation goes down, it is often too late for the market to automatically heal, and the government’s tangible hand will be forced to maintain stability.

Lin Yifu emphasized the tangible hand, but also highlighted the government’s responsibility. In this sense, if the industrial policy is formulated effectively, the government’s strong resource mobilization capability will have more advantages than disadvantages for the transformation and upgrading of the manufacturing industry. To solve the problem of excessively high raw material cost, production cost, circulation cost and transaction cost caused by insufficient marketization of intermediate links, the optimal industrial incentive policy and infrastructure construction plan should be formulated around the five key links of Industry 4.0 from the perspective of improving production efficiency.

The biggest attraction of Industry 4.0 to China’s manufacturing industry is that it creatively reduces the cost of the whole process by relying on the Internet and the Internet of Things, optimizing transaction links, reducing resource utilization, reducing human costs, and streamlining turnover times. Our industrial foundation and R&D capability are far from Industry 4.0, but facing this gap squarely and catching up is a barrier that the manufacturing industry cannot avoid. In addition to the grand strategy, we should also plan the enterprise matrix, hardware construction, technical support, talent reserve, etc. in each link in detail, increase investment in the infrastructure construction of the Internet of Things, and build a rudimentary industrial 4.0 ecological chain as soon as possible to attract more manufacturing industries and capital to participate.

High technology and new technology can greatly improve productivity. In addition, good industrial policies and an open business oriented business environment can effectively alleviate the growing pain of high costs. From this perspective, the industrial policy debate between Lin Yifu and Zhang Weiying is like the two wings of an eagle.

3. Force all parties to reform through the Internet

It is also important to solve the dilemma of China’s manufacturing industry to continue to promote the transformation and upgrading of the government service model and reduce institutional transaction costs by taking advantage of the Internet’s backward force effect. The high institutional transaction cost is also one of the problems that perplex the manufacturing industry. Throughout the history of major transformation since the founding of the People’s Republic of China, the Internet may be such a transformation handle to promote the innovation of government service model through reverse force.

Pushing back the government service model through the Internet is conducive to building consensus on reform. The Internet has strong controllability, avoids human interference to the maximum extent, is the most efficient, has the least social shock and the highest acceptance. Under the premise that the traditional governance model is in trouble, we will set up a high standard Internet government architecture department to study and formulate how to promote the transformation and upgrading of the government governance model and service innovation through the Internet’s backward force effect.

The basic process of modern government governance is data collection, policy formulation, centralized decision-making and process supervision. The basic principle is controllable. In essence, the Internet is a large platform for information flow, which plays a role in circulation and integration of information flow. It can just meet this demand. It not only solves the problem of efficiency, but also has fairness, openness and justice. The latter is of great significance to reality.

In fact, the push back effect of the Internet has already begun. Alibaba and other companies have used the Internet to provide online users with standard financial services such as cloud computing and big data, which force traditional finance to accelerate reform; New communication tools such as Tencent WeChat force operators to provide services; The advent of Didi Travel Software has promoted the great innovation of the traditional taxi industry; The online lottery broke the traditional regional and monopoly mode, forcing the General Administration of Sport to call an emergency stop. It can be said that since 2012, almost all industries have felt the power of the Internet.

The advantage of taking the Internet as a starting point to promote government governance model and service innovation lies in its controllable process, controllable risk, and highly mechanical nature. The effectiveness depends entirely on the policy makers themselves. Secondly, it can better quantify management elements. Senior managers can complete the real-time data retrieval with a mouse click while sitting in the office. In addition, they can better control and predict the future with big data mining.

4. Solve the dilemma of the manufacturing industry, focusing on improving the added value of products

By improving efficiency and forcing the transformation of government service model to reduce costs, the “toilet lid” phenomenon of consumers voting with their feet cannot be fundamentally eliminated. The focus should also be on improving the added value of products.

The improvement of product quality is the basis of product added value. By constantly updating the product style, manufacturing process and quality improvement, we can provide users with high-quality experience, which requires manufacturing practitioners to have strong craftsmanship and inheritance awareness.

The core requirement of improving product added value is technology research and development. In addition to the stability of mass production of a single product, the formation of a complete upstream and downstream industrial chain is a more important indicator to determine a country’s industrial base. This is why we can make satellites go to the sky, but we can’t make a good bearing. The weak foundation means that even if you introduce a full set of production lines, you may be stuck in a screw, a technician, or a trivial detail.

There is a technological gap between domestic manufacturing industry and foreign countries in many fields. It is unrealistic to rely solely on the accumulation of enterprises or the strength of the market to tackle key problems, and the gap will only get bigger and bigger. In this case, we need the tangible hand of the government as Lin Yifu said. Open up the application link, make breakthroughs from both basic R&D and cutting-edge technology R&D, break the situation of fighting independently, re plan and integrate existing scientific research resources, concentrate financial and material resources to establish a number of national level industrial laboratories and basic experimental platforms, implement the internal bidding system for the technical problems urgently needed by basic R&D and manufacturing, formulate the R&D schedule and roadmap, and make individual breakthroughs and share achievements. For some major scientific research projects, open bidding around the world can be carried out. Build a first-class experimental platform to attract talents from all over the world to join the domestic innovation work.

There is no contradiction between independent research and development and the introduction of foreign capital with advanced production technologies and concepts. We should also formulate some special preferential policies to continue attracting multinational enterprises to invest and develop in China. These multinational enterprises have strong resource absorption capacity, which is very important for the improvement of domestic industrial base and the cultivation of technical strength. Of course, the globalization oriented resource integration capability is also a new perspective to improve the added value of products. How to break out of the cost dilemma of Made in China, there are still many things to be done, and all the strengths that can be drawn should not be abandoned.