What if labor was free?
November 10th, 2010
The chase for low cost labor is still alive and well. And it’s still a mistake. Low cost labor is fleeting. Open a plant in a low cost country and capitalism takes immediate hold. Workers see others getting rich off their hard work and demand to be compensated. It’s an inevitable death spiral to a living wage. Time to find the next low cost country.
The truth is labor costs are an extremely small portion of product cost. (The major cost, by far, is the material and the associated costs of moving it around the planet and managing its movement.) And when design engineers actively design out labor costs (50% reductions are commonplace) it becomes so small it should be ignored altogether. That’s right – ignored. No labor costs. Free labor. What would you do if labor was free?
Eliminate labor costs from the equation and it’s clear what to do. Make it where you can achieve the highest product quality, make it where you can run the smallest batches, and make it where you sell it. Design out labor and you’re on your way.
Design engineers are the key. Only they can design out labor. Management can’t do it without engineers, but engineers can do it without management.
A call to arms for design engineers: organize yourselves, design out labor, and force your company to do the right thing. Your kids and your economy will thank you.
Posted in 5 Responses to “What if labor was free?”
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Mike Shipulski
Right on! Make it where you can CONTROL it. And it all starts on the drawing board.
From Dave – ” Right on! Make it where you can CONTROL it. And it all starts on the drawing board.”
Dave, just to let you know, no one uses drawing boards any more. Some don’t even know what they are. Mike
Uhhh…Right. CAD station…It all starts at the CAD station.
I agree that the Design function controls the product costs. But what I have been observing is that the product design is dictated by the options and this is mostly controlled by marketing. So my take is that both product design and marketing are the major sources which dictate product cost.
Agree with most of the comments, but…
Labour costs don’t just affect the pure manufacturing cost, and from what I am seeing in my role as a Freelance Cost Engineer, experienced (expensive) old school designers and buyers are being replaced by (cheap) enthusiastic younger models.
This almost always means a graduate with no practical experience of manufacturing or cost management. The buyers are very good at commercial/contract issues, and the designers are great CAD modelers, but in both cases they really struggle to grasp how the design becomes reality.
The (Product) Cost Engineering function successfully bridges this gap, and appears to be growing in profile as a discipline, which I am more than happy about! That said, if more companies were to include some manufacturing exposure in the graduate training programs it would help overcome some of the basic issues I see on a day to day basis.
Designing cost out is absolutely the way forward, but without the skills to do it I fear that some companies may be missing huge opportunities, and often don’t even realise!