The Cultural Revolution and Operations Management.

I try to keep these posts fairly brief. People have limited attention spans. I read the news and a bunch of online magazines on a daily basis, but rarely get to the end of an article unless it’s really interesting. There is a lot of filler in stories these days.

Since I’m writing today about Operations Management I’m going to take a stab at being concise and efficient.

Those of you who worked in or with Chinese companies will attest to the fact that there is little in the way of operational efficiency at locally-owned companies compared to the cost-cutting, LEAN-focused environments more commonly found in the West.

Why is this?

I have a theory.

In 1949 China started its great Planned Economic System experiment. Money was a thing of the past. The people would work for the benefit of the country and everyone would be able to eat their fill while enjoying the fruits of everybody’s labor equally.

This didn’t work. But it DID cause some long-lasting, and unfortunate, management changes.

The largest impact in my opinion was on operations management.

Let’s use a factory as an example. Chinese companies generally start greenfield operations. This means they buy the newest equipment and install it in the newest factories built on newly-developed land with new utilities and wide, state-of-the-art roads.

So why do they have trouble competing with western manufacturing operations? Some people think it has to do with the education and technical skill of the employees.

I strongly disagree. The company I work for has highly-skilled technical guys who know metallurgy and know casting. They can break a casting down to its barest elements and tell you what molecules can be reduced to make a stronger, better product. The efficiency problem lies in two main areas: Culture and Process Control proficiency. The efficiency problem is exacerbated by two other things: Protection from Competition and the Cultural Revolution.

Since China opened up in 1979, it has experienced largely uninterrupted, recession-free explosive growth. So why reduce costs? A lot of raw materials and natural resources are subsidized by the government. Manufacturing operations open to fast-growing growth rates inside their country and production costs that until recently undercut the rest of the world.

Now that competition is beginning to tighten a little, Chinese companies are (or will soon be) starting to realize they need to improve their operational efficiency and process control systems in order to increase quality and maintain competitive advantage. But it’s tough to do. Across the board at my company, I see management practices with roots in the planned economy days. What are those practices?

1. Set extremely meet-able quotas.

2. Hire more people than you need.

3. Create a bloated budget.

4. Overload your subordinates with paperwork so they can’t siphon off what you’ve padded into your operating budget. 

This resulted in the lazy, high-cost, low-quality labor forces that existed in the 1960s.

China is not nearly as bad today, but I still see a management structure unconcerned about employees spending 20% of their time completing administrative work to prevent fraud because they assume that if more work is needed, people can work overtime. Multiple approval signatures are required to get reimbursed for company expenses. The amount of time required to submit and process reimbursement forms in many cases out-paces the cost to be reimbursed from a quantitative time-to-money conversion. Employees are monitored by a special department that simply does monitoring. Managers are overworked and their subordinates in some cases sit for weeks with no projects because the departments don’t plan operations from an efficiency perspective.

In the coming years, China will start reducing subsidization of natural resources and utilities. When this happens, people with fluency in Chinese and experience in Six Sigma, LEAN, and DMAIC will be highly employable.

Culturally, challenges exist because process control requires low-level employees to have a say in how the factory operates. In China the leaders are considered decision-makers. Companies are structured much more like the military. You do what your superior says because he says you should do it. No questions are to be asked.
The whole idea of process control programs like Six Sigma is that people at every level will be able to give input to how the factory operates in the interest of reducing waste and improving quality by knowing what caused any and every defect.

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2 Responses to “The Cultural Revolution and Operations Management.”

  1. Jennifer Lasko Says:

    Lean manufacturing started in Japan. It would be great that China would adopt Lean, because it can also be good for the environment with less use of energy and material resources.

  2. Yeah, LEAN started basically because of a need to cut costs due to recessions and competitive pressure. China has a long way to go before they get there. What they really need to do to curb pollution here is cut down on burning coal in general, and burn cleaner coal when they do. The air is filled with coal dust, diesel particulate, and tiny plastic molecules. I used a mask last year when riding my bike. It is currently broken and I desperately need a new one. Miss ya Jen!

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