Moving a factory – cutting pre-calculated costs by 50 %

The truth tellers around the coffee machines in the corporate world have, for a long time, been saying, ‘No manager will ever be sacked because he moved a factory to a low-cost country’. There are a clearly a lot of temptations involved in packing your bags. Should one respond to the call of the East?

Around 2010 there was a shift in the wind, and the number of factories moving back to the mother country started to outnumber the ones moving out (BCG report april 2012). The whole issue of offshoring and reshoring is clearly an interesting and complicated question. For a start, the labour and management costs in Asia are beginning to level with Europe and the US. Still the closeness to the market might be a valid argument for a move.

A not so obvious question, but much, much more interesting is this: Are these calculations, motivating a move or saying no to a potential move, based on a solid reality check? Or are they just based on a qualified guess backed up by some bean-counters’ number crunching?

A few years ago, one of our Integ Partners was assigned to manage the move of a factory to the East. Professional calculations and a qualified guess from management put the cost of the move of the factory at 20MUSD. Other expected fallouts from the move were significant decreases in quality and on-time-delivery due to low motivation as well as people leaving as soon as possible when they heard about the coming move.

When taking measure one and a half years later, the estimated project cost was cut in half, from 20 to 10MUSD, the cost-of-poor-quality was also cut in half, leaving an additional saving of another 0.6 MUSD. On-time-delivery remained high and throughput-time was lowered due to a lower number of problems with production equipment.

How could this be? How could it be that top management and the bean-counters were so utterly wrong in their calculations?

Well, what made a difference in this case was how our Integ Partner managed it. This Integ Partner knew beyond a doubt that most people want to do a great job, they want to contribute to the company they work for, they are prepared to work hard using all their resources and take on a lot of responsibility – if, and only if, some very important conditions are in place.

1 – They need to know why. In the case of the move to the East, the goal was shining clear like a supernova. Interesting to note, was that even when a goal is clearly negative for people, they were about to lose their jobs, but since it was clear and rational, it still was something people could get together around. In Integ Partner we have seen many similar examples over the years.

2 – They need to know they are trusted. In this case our Integ Partner asked for help in an open and humble way. The answer was, ‘Give us support and appreciation for a job well done. Make sure we can see the results of our initiatives and actions – and more important – have confidence in us’.

3 – They need an open on-going dialogue. In this case our Integ Partner spent the majority of her time down on the shop floor instead of hiding in her office. She made sure she was completely open about what was going on.

4 – They need a way to see progress as it unfolds. Our Integ Partner therefore organised co-worker forums where issues and questions could be raised and discussed. Based on these discussions, everyone was invited to take local actions that they could see were needed. She continuously updated everyone on progress through a set of easy to understand KPI’s.

5 – They must be treated as adults. This is the basic approach that lies at the core all of the above actions from our Integ Partner. This is quite different from the traditional approach where everything would be kept a secret within a small team sworn to silence – leaving the large majority to simply deal with their personal shock when they get fired just before the final move.

So, how did people actually respond? Let us highlight a few examples of what actually unfolded in this factory:

The upper management had worried lot about what could happen when people from the East came for training. Will it come to outright fights? Do we have to put security guards in production as a precaution? No, not at all. They took good care of the new guys in many different ways. Since the guys from the East were coming to a very expensive country with very limited resources, the Western guys readily invited them for free lunches. Since neither the guys from the East nor the ones from the West were fluent in English, they communicated with hands, feet, camera, dictionary and improvised interpreter help.

Expected increased short-term absence, due to the fact that people were going to lose their jobs, never materialised, it actually decreased.

When the shit hits the fan, as the saying goes, people are expected to look out for themselves, right? Better to find a new job as soon as possible than stay on a sinking Titanic? What happened instead was they initiated a collaborative self-organising job search. Everybody helping everybody in an open transparent way. At the end, over 95% of the people affected had a new job on the day of the closing!

Right at the end a couple of the employees even took an initiative to make a movie about the factory. A funeral film, one might ask? No, the movie that was shown at the farewell dinner, was filled with both humour and sadness, it had all the employees featuring, great music, drone image of the factory – all done by a couple of employees as a tribute to the factory.

Where were all these resources hiding before the move? Why were they not included in the calculated cost for the move? Maybe the qualified guess was severely limited by a blind spot?

In Integ Partner we are convinced that a huge untapped resource is hiding under an outdated way of managing people. We will never know the real power of an organisation, until our organisations are organised in a way that intentionally puts as much as possible of our human resources into play.

If this story inspires you we recommend the following:

  • Are you planning a major re-structuring of some kind that may be perceived negatively by your people? If so, how about trying out an approach based on our steps 1-5 above?
  • If instead you want to mobilise these ‘hidden resources’ in your existing organisation, you may want to modernise and upgrade your whole management model to better meet today’s complex and fast changing world? Read more about that here.

By: Mats Eriksson and Anna Lundquist