“If you control your factories, you control your quality. If you control your distribution, you control your image.”
–Bernard Arnault, Chairman and CEO of LVMH Moët Hennessy – Louis Vuitton
Poor factory conditions and illegal subcontractors are ongoing issues that have not been properly or effectively addressed. Since the 1,127 deaths from the collapse of the Rana Plaza garment factory in Bangladesh in April (the worst in Bangladesh history), few changes have been enforced at the more than 4,500 garment factories in Bangladesh. Just recently, a factory fire in Dhaka killed 9 workers. Countries with heavy manufacturing activity struggle to enforce factory standards and are careful to make policy decisions that could negatively impact profitability and workforce headcount. The pressure for these countries to maintain low costs, which involve restricting workers’ rights, and to sustain their export-led growth is the direct result of offshore manufacturing.
The golden years for offshore manufacturing are retiring as costs abroad are rising due to more expensive labor and energy costs. Manufacturing cost differences between China and the U.S. have dropped from an 18% discount in 2003 to only around 7% this year. A number of companies have shut down their factories in China as a result of increasing labor costs and moved their operations to Southeast Asia, India and Mexico (e.g. Addidas, GE, Nike, Lenovo), where the cost gap has remained fairly unchanged since 10 years ago. However, companies are now finding more challenges than cost in countries like Cambodia and Bangladesh, specifically illegal subcontracting, dangerous factory conditions, protests and quality control issues.
Illegal subcontracting is the result of orders that are too large to be filled by a single contracted factory. Portions of orders are subcontracted to smaller factories to help meet tight order deadlines. This has not only resulted in quality decline and product inconsistency, but also poor labor conditions because of the lack of monitoring and oversight of these factories. Corruption from this practice has even extended to prison facilities, where inmates are found producing goods to fulfill a small order to be sent back to the main factory.
Recent fires and deaths at illegal factories have increased concerns from brands, factory owners, governments and human rights organizations. Increasing foreign involvement in offshore manufacturing has resulted in a push for a wave of initiatives to regulate and transform the current factory conditions and processes at these manufacturing sites. This month, the International Labour Organization has announced the return of the Better Factories Cambodia program (2001-2005), in which factory conditions will be publicly reported. Bangladesh has also introduced an inspection program this year in response to the numerous factory deaths.
Companies also recognize the threat to their businesses if they do not respond to illegal manufacturing activities and poor labor conditions. Recall the global boycott against Nike in the 1990’s for its sweatshops in Asia. Today, protests are still ongoing in Bangladesh as workers demand for better pay and working conditions and represent those who died in the Rana Plaza collapse. Companies will need to invest in factory supervisors to facilitate manufacturing abroad and become more involved in the inspection process to ensure worker safety and rights as well as prevent future violent protests that would paralyze production and delay order requests.
As factories are forced to improve their factory conditions, improve workers’ rights, increase wages and invest in skilled inspectors, manufacturing costs in those countries will rise. The increasing burden and costs of manufacturing abroad have given rise to the opportunity to reshore U.S. manufacturing.
New technologies, materials, systems and processes are transforming the manufacturing environment in the U.S. to become one that is more automated and able to support mass customization. This is the New Manufacturing Economy. Technology and new platforms are entering at every stage of the production process to improve the efficiency and accuracy of development from design to finish and to ensure high quality products are delivered to the buyers. And already, many of the advanced manufacturing solutions, such as 3D printing (To learn more about 3D printing, see my previous post: 3D Printing is the New Black) and robotic technologies, are becoming cheaper and more effective, providing more incentive for manufacturers to produce locally. Having a local manufacturing process also allows companies to react quickly to consumer demands and market trends, and increase speed to market. And with a recent revival of an interest in craftsmanship, more individuals are interested in becoming makers of their own ideas and are looking for local manufacturers to produce smaller quantities of their own designs (outsourcing manufacturing requires large orders and does not support individuals interested in sampling their various designs).
New technologies are simplifying the production process and making manufacturing more transparent. The adoption of advanced manufacturing solutions will not only allow companies to achieve lean manufacturing and improved product quality, but also allow them to adapt their factories to the safety and needs of their workers’. Moreover, issues can be more easily addressed if local, compared to having to hire independent, oversea factory advisors and deal with local governments and foreign policies.
Below are a few of my favorite companies that are disrupting manufacturing today:
Maker’s Row is an online marketplace that connects product-based businesses or designers with American manufacturers. The platform separates the manufacturing process into 6 stages for the user to choose from: ideation, drafting, materials, sample-making, tooling and production. After choosing a stage of the process, a collection of manufacturers are recommended to the user. Included with each manufacturer listed are its contact information, capabilities, hours and location, target customers, and reviews. Maker’s Row has both standardized the selection method for a manufacturer and customized the manufacturing process for its users.
See this video to learn more about Maker’s Row: bit.ly/1azQlnC
Shapeways allows individuals to make, buy and sell their own products, creating a platform for online boutiques specialized in 3D printed products. Shapeways is enabling individuals to become designers and merchants of their own ideas.
See this video to learn more about Shapeways: http://bit.ly/QqPxb
3D Hubs is a collaborative production platform that enables 3D makers to connect with local 3D printer owners and print customized products locally. The company allows owners to earn money with their 3D printer by joining the Hubs listing in their city. Each Hub determines its own printing price and 3D Hubs facilitates the print order process and collects a 15% commission on the price for each customer quote. Talk about speed to consumer! The company is building a global network and growing local communities around 3D printing. The network currently has over 500 3D printers spread across 200 cities.
Interested to see a partnership between 3D Hubs and Shapeways…
See this video to learn more about 3D Hubs: http://bit.ly/1cqMV7Z
Sight Machine uses networked cameras, vision algorithms and cloud computing to control quality, manage spot inspections and perform process analyses. The software allows a company to determine why parts are failing, identify trends and variations, and track relationships among scores of parameters. The company’s products and services work in the plant and across the supply chain to improve production, quality control and efficiency. Sight Machine is automating the inspection process and helping streamline assessment and operational management tasks.
See this video to learn more about Sight Machine: http://sightmachine.com/product
Joor is an online wholesale fashion marketplace that provides a digital platform to help streamline communication, discovery, and transactions between designers and retailers. Brands can feature their collections, search for potential boutiques and manage all of their orders online. Boutiques are able to access real-time information on a brand’s sales team and inventory availability.
Earlier this year, the company had more than 40,000 retailers and 600 brands using the site, including Diane von Furstenberg, Rag & Bone and Zappos, compared to 250 brands and about 7,500 boutiques back in 2011.
See this video to learn more about JOOR: http://vimeo.com/58486006
Sources: http://online.wsj.com/article/SB10001424052702303818704579089810120675896.html, http://pulitzercenter.org/reporting/asia-bangladesh-rana-plaza-tragedy-building-collapse-death-garment-factory-faulty-inspections-dangerous-conditions, http://news.thomasnet.com/IMT/2012/07/10/offshoring-vs-reshoring-the-business-perspective/, http://www.nytimes.com/2012/12/18/world/asia/bangladesh-factory-fire-caused-by-gross-negligence.html?ref=asia, http://techcrunch.com/2013/07/25/online-fashion-marketplace-joor-raises-15m-in-series-b-funding/, http://yourstory.in/2011/11/joor-facebook-of-fashion-ecommerce/,