Tag: manufacturing

OM in the News: And China Outsources to— Ethiopia?

Workers on an assembly line at a Huajian International shoe factory in Dongguan.

With many workers in the Haijian International shoe factory in China complaining about excessive hours and seeking higher pay, that company is sending 1,000s of their jobs to Ethiopia. This as Huajian faces scrutiny from labor activists for how it treats workers. The activists’ focus points to changing labor conditions in China as manufacturers try to get more work out of an increasingly expensive labor pool.  But deep economic and demographic shifts mean a lot of low-end work — like making shoes — doesn’t offer huge profit in China.

Today, Chinese workers are less cheap and less willing. More young people are going to college and want office jobs. The blue-collar work force is aging. Long workdays in a factory no longer appeal to those older workers, even with the promise of overtime pay. Such tensions are fueling the drive of Huajian to move work to Ethiopia.

“In many respects, China’s economy is maturing,” writes The Wall Street Journal (June 1, 2017). The number of people who turn 18 each year and do not enroll in college — the group that might consider factory work — had plummeted to 10.5 million by 2015 from 18.5 million in 2000. Wages in Dongguan have increased ninefold since the late 1990s. Huajian peaked at 26,000 employees in China in 2006. Staffing is now down to 7,000-8,000 thanks to automation and the shift to Ethiopia. Citing labor costs and the country’s foreign investment push, Huajian is building a sprawling complex of factories on the southern outskirts of Ethiopia’s capital, Addis Ababa. Huajian’s shoe factories there already have 5,000 employees. When finished in 4 years, the Addis Ababa complex will be ringed by a replica of the Great Wall of China.

Classroom discussion questions:

  1. Why leave China?
  2. Why Ethiopia? Why not the US?

OM in the News: Intel’s $7 Billion Arizona Chip Plant

intel“New chip plants are tremendously expensive,” writes The New York Times (Feb. 9, 2017), “requiring large tracts of land, reliable electricity and water, and a skilled work force that includes people with doctorates in chemistry and technicians who can repair a malfunctioning robot.” Sophisticated equipment is necessary to deposit and etch microscopic layers of material on silicon wafers, which are then cut and packaged into the microprocessors that run PCs, servers, smartphones and, increasingly, other electronic devices.

Countries compete to land such plants, especially modern factories that produce the most valuable chips and bring high-paying R&D jobs. Government subsidies are common, with China vowing to spend tens of billions of dollars to expand its domestic chip industry. While most technology manufacturing, such as computers and smartphones, has moved overseas, American factories still account for 1/7 of global chip production and produce many of the most valuable computer chips, including Intel’s flagship processors. Seventy-six chip plants are scattered across the U.S., from Maine to California.

Intel’s new $7 billion, 3,000 employee, chip plant in Arizona plant will build ultradense chips that Intel refers to as 7 nanometer, with transistors packed more closely together than in the chips the company now builds. The tighter spacing allows for faster, more energy-efficient chips. “This factory will produce the most powerful computer chips on the planet,” says Intel’s CEO, who adds: “the company had decided to proceed because of the tax and regulatory policies we see the (Trump) administration pushing forward.” Intel also has factories in China, Ireland and Israel.

Classroom discussion questions:

  1. Why are chip factories important to the U.S?
  2. Why is chip manufacturing a tough business to enter and succeed in?

OM in the News: Small Factories Emerge as a Weapon in U.S. Cities

James Branch works as a skilled machine operator at Marlin, which makes specialized baskets.
James Branch works as a skilled machine operator at Marlin, which makes specialized baskets.

The New York Times (Oct. 30, 2016), tells the story of the unlikely survival of Baltimore’s Marlin Steel, a rare breed: the urban industrial manufacturer. Marlin, a 50-year old company that makes steel baskets, is a thriving factory in a place that factories have fled — first to the South, and later to Asia.

How did Marlin survive? Over the course of a decade, it invested in robots that churned out baskets 100 times as fast as human beings. Marlin trained its workers to operate the robots, which cost several $100,000 each, and hired engineers to help design ever-more-sophisticated products to win customers and stay ahead of overseas rivals. Automation did not mean the elimination of jobs– in fact, it saved the company– by producing many more baskets, with only a few more workers, each paid well over $50,000.

Factories will never employ the masses of Americans they once did. Automation and foreign competition will not abate. Over the last 20 years, industrial employment has dropped by 1/3. Only 12.3 million Americans work in the sector today, millions fewer than in leisure and hospitality. But small manufacturers like Marlin are vital if the U.S. is to build a society that offers greater opportunities for everyone.

Today, smaller plants are particularly important to job creation in factory work. As megafactories are the exception, small manufacturing is holding its own. Out of 252,000 manufacturing companies in the U.S., only 3,700 had more than 500 workers. The vast majority employ fewer than 20.

While they may not rival the scale of 1950s assembly lines, these smaller craft-type producers hold out hope for cities, particularly as some companies look to move jobs back from overseas to be closer to customers and more nimble to supply customized, small-batch orders. And, these jobs pay more. Manufacturing workers typically earn over $26 an hour.

Classroom discussion questions:
1. What was Marlin’s OM strategy?

2. Why will millions of manufacturing jobs never return?

OM in the News: Revitalizing U.S. Manufacturing

The U.S. shed 5.7 million manufacturing jobs from 2000 to 2010—more than 1/3 of the manufacturing workforce—as companies abandoned plants and workers in favor of low-cost foreign countries. But in recent years, manufacturing employment has grown slightly as the auto industry rebounded and domestic plants became more cost-competitive with those of other countries where manufacturing expenses have escalated because of higher wages.

Welder at Work“Reviving the manufacturing sector won’t be easy—but it’s crucial,” writes The Wall Street Journal (June 8, 2016). Manufacturing is one of the best generators of wealth for an economy, requiring processes, materials and work skills that create employment and profits at each step in an assembly. Countries that don’t make anything eventually start to lose their edge in research and product development. “Manufacturing and design drive each other,” says a U. of Notre Dame prof. “If you lose one, you’ll lose the other, too.”

Here are just 3 possible strategies discussed in the article:

(1) Look at the true cost of offshoring. When companies decide to offshore production, they often simply seek the lowest initial price per unit. If they were required to take into account the hidden costs of foreign production, U.S.-made goods would become more cost-competitive. Manufacturing overseas carries dozens of uncounted expenses and consequences. Companies often don’t weigh costs for transportation, as well as expenses for dealing with reduced product reliability, undependable supply chains and the need to hold more inventory in case overseas deliveries are delayed.

(2) Turn community colleges into career factories. Despite low manufacturing payrolls in the past decade, companies continue to have difficulty finding welders, machinists and other skilled craft workers to replace retiring employees. Community colleges need to offer programs for skilled trades that are specialized to suit companies’ needs.

(3) Spend more on manufacturing R&D. Training workers isn’t enough. The government also needs to spend more on applied research to solve specific problems in manufacturing and bringing new products to market.

Classroom discussion questions:

  1. Name several other strategies proposed in the WSJ article.
  2. Can U.S. policy makers create this revival?

OM in the News: The Economics of L.L. Bean’s Boots

In Brunswick, L.L. Bean operates a 170,000-square-foot factory where the boot is assembled from start to finish.
In Brunswick, L.L. Bean operates a 170,000-square-foot factory where the boot is assembled from start to finish.

For over a hundred years, the company Leon Leonwood Bean founded has been making rubber boots and outdoor clothes in Maine. “L.L. Bean’s offerings have traditionally not been synonymous with cool,” writes The Atlantic (Oct. 19, 2015). But then something happened in 2011: The outdoorsy aesthetic that L.L. Bean had been selling for 100 years became trendy. That’s when the duck-boot shortage first began, and “Bean Boot heartbreak” spread as countless consumers found that retailers didn’t have what they wanted. The answer to why the signature Bean Boot has sold out every year since 2011 lies in the decisions the company has made that are different than other American manufacturers in the past few decades.

The rubber bottom of the Bean Boot is made by a machine, but after that it’s handmade by 200 people who split their time between 3 shifts. All in all, making the boot takes about 85 minutes worth of labor. Bean describes it as “a mix of old and new technology.” While the boots aren’t made exactly as they used to be, the assembly process and sewing are all done by hand.

There are two main reasons, then, the Bean Boot can’t keep up with demand. The first is the company’s decision to keep making the boot in Maine, rather than exporting operations out to China, where the majority of shoes sold to Americans are made. Fifty years ago, 98% of shoes for Americans were made in the U.S. Now, China makes 12.5 billion pairs of shoes–about 90% of shoes made worldwide. To preserve its brand, L.L. Bean keeps operations local, which lets sourcing for leather and steel remain local. The second reason that the boot keeps selling out is that it’s not as easy to find shoe makers here as it used to be when Maine was the epicenter of the U.S. shoe industry. So scaling up has become more difficult than in the past, when L.L. Bean could simply find workers in the area.

Classroom discussion questions:

  1. Why did L.L. Bean stay in Maine?
  2. Describe the process of making the Bean Boot.

OM in the News: Reengineering Apparel Production in the U.S.

180 miles: Most of American Giant’s production process—harvesting the cotton, then knitting, dyeing, napping, rolling, cutting, and sewing it—takes place within a few hours’ drive in North and South Carolina.
180 miles: Most of American Giant’s production process—harvesting the cotton, then knitting, dyeing, napping, rolling, cutting, and sewing it—takes place within a few hours’ drive in North and South Carolina.

American Giant is not yet a household name in the apparel market, like Levi’s or Gap, but it is proving that American manufacturing can be profitable again, reversing a devastating economic trend. No U.S. manufacturing industry has suffered more from outsourcing than textiles and apparel: The domestic workforce has shrunk by 3/4 since the 1990s.

American Giant is an e-commerce phenomenon: its clothes, sold only via the web, are comfortable, flattering, durable, and popular with a fanatical fan base. The company’s products routinely sell out and can be back-ordered for weeks. Located in the Carolinas, American Giant is also reengineering apparel production. Fast Company (March, 2015) rates the firm as one of the 50 most innovative in the U.S.

Traditional garment manufacturing works like this: A worker sits at a sewing machine all day long, making the same seam over and over. When she fills up a bin, someone comes along and moves the batch to the next seamstress, who adds on her piece, a process that continues until the garments are complete. Because some operations take more time than others—and people work at different paces—garments naturally tend to pile up. Seamstresses spend roughly 80% of their time performing tasks other than stitching.

In American Giant’s “Team Sew” approach, adapted from Toyota’s manufacturing process, the seamstresses work on their feet, performing multiple operations and collaborating on the fly.  They move along a horseshoe-shaped bank of workstations, seemingly in constant motion. When one falls behind on an operation, a teammate comes over to help her catch up. Above the team, a scoreboard displays how many items they complete and how that compares to efficiency targets. They are paid just over $13 an hour, almost twice North Carolina’s minimum wage of $7.25.

Classroom discussion questions:

1. What are the advantages and disadvantages of the “Team Sew” approach?

2. Why is it so hard for companies to manufacturing clothing in the U.S.?

OM in the News: The Rise of Industrial Robots

baxter robotRobots will replace a growing number of jobs in industries including automotive and electronics in the next few years, particularly in east Asia, according to The Financial Times (Feb.10, 2015). Worldwide sales of industrial robots rose 23% last year and are on course to double (to 400,000) by 2018, driving radical change in many manufacturing sectors. Although robots have been used in industry for decades, recent advances in technology have cut their costs and increased their capabilities, as a new generation of reprogrammable, multipurpose machines comes into service.

The prices of industrial robots have been falling steadily, dropping about 14% in the past 4 years to $133,000 for a typical system, while capabilities have been expanding. Some robots are even cheaper: the Baxter robot from Rethink Robotics has a listed base price of $25,000, making it accessible to smaller companies that might have found it difficult to invest in earlier generations.

Advanced robots are set to cut costs and raise productivity, reducing employment in manufacturing in developed countries, while raising the skill levels demanded of the staff that remain. They are also likely to make labor costs a less significant factor for manufacturers making decisions about where to invest. In the manufacturing sectors that are the most readily automated, including cars and other transport equipment, computers and electronics and electrical equipment, about 85% of tasks can be performed by robots. Historically robots have been very rigid, and unable to apply logic to what’s in front of them, but the new generation will be applying logic to the environment and making their own decisions

The fastest adoption will come in South Korea, Taiwan and Thailand, which have heavy concentrations of the industries that are capable of high levels of automation, higher labor costs than some of their regional competitors, and limited employment protections that would prevent job cuts. Other relatively rapid adopters are expected to be China, Japan, the US, the UK and Canada. The countries likely to be slowest to embrace the new robots include more heavily regulated economies of Europe including France, Italy and Spain, as well as Brazil and India.

Classroom discussion questions:

1. Robots have been around for decades. Why the growth spurt in their use?

2. Why is SE Asia the fastest growth area?

OM in the News: Why Manufacturing Still Counts in the U.S.

manufacturing“The U.S. economy,” writes The Wall Street Journal (Jan.14, 2015), “is dominated by service work but manufacturing matters because it includes many middle-class jobs.” The Bureau of Labor Statistics estimates that employers in manufacturing, mining and construction pay an average of $36.37 an hour in wages and benefits, compared with $31.46 paid by stores, restaurants and other service companies. The U.S. lost more than 6 million manufacturing jobs between 1998 and 2010, largely to low-cost countries. Since then, the number of U.S. factory jobs has recovered nearly 7% to 12.2 million, compared with about 17.5 million in 1998.

Manufacturing creates demand for supplies and raw materials, as well as such services as delivery and machinery repair. Every $1 of sales by U.S. manufacturers yields $1.37 of output in other parts of the economy. A dollar of retail sales adds 64 cents. Expanding U.S. manufacturing allows the country to export more and rely less on imports. (The U.S. has run trade deficits every year since 1976). Manufacturing also is a source of innovation. It accounted for 83% of R&D conducted by businesses in 2013.

More U.S. companies would shift production from abroad if they analyzed the costs of overseas production to include such things as the shuttling of executives abroad and holding large inventories as a hedge against supply disruptions, says the Reshoring Initiative. But Harvard Prof. Willy Shih is less optimistic. “China has really captured the whole electronic supply chain,” he said, “and that is unlikely to return to the U.S. Instead of trying to make established products in the U.S., we’re going to have to focus on next-generation technologies” in, for example, advanced pharmaceuticals.

Some of the hurdles are practical. The U.S. needs to rebuild its supplier base, as well as invest in more efficient manufacturing equipment. The average age of industrial equipment in the U.S. has passed 10 years old, the highest since 1938. This article is a good way to start off the new semester as it brings current OM issues to the fore.

Classroom discussion questions:

1. What factors work against the U.S. regaining the millions of manufacturing jobs that were lost?

2. Why is manufacturing so important?

OM in the News: The Customized Bicycle Industry

bike custom

The vast majority of bikes sold in the US are made in Asia and a handful of companies dominate the market, writes The Atlantic (April 3, 2014).  Custom-made bikes are a very small slice of the industry. “But right now is the Golden Age in custom frame building,” says one industry expert. “There have never been more builders producing, and the quality has never been higher.” Though thriving, the 100 or so builders in the hand-built bicycle scene make up about 3.3% of the overall U.S. bike industry, valued at $6.1 billion and is sourced almost completely overseas. Almost 99% of bicycles sold in the U.S.are assembled in Asia—93% in China and 6% in Taiwan.

Additionally, just four companies—Dorel, Accell, Trek Bicycle, and Specialized Bicycle—own about half of the 140 bicycle brands available in this country. Technology, though, is very accessible to a one-person or two-person shop or frame builder. A lot of the innovation and creativity comes from the thinking that smaller companies can produce. Technology has made the production side more important by lowering the cost of reaching customers. The internet opens up selling opportunities–and more competition. So production and design capabilities are critical.

Unlike production bicycles that come off the rack in standard shapes and sizes, custom bikes are designed specifically for their owners’ bodies, riding styles, and aesthetic preferences. In determining the angles, rigidity, and flex of the frames they construct, hand builders take into account dozens of measurements and factors—everything from customers’ inseams, arm length and hip flexibility to whether they prefer a stiff ride for efficiency or a softer ride for comfort. The customer also has a say in the bike’s finish, color scheme and design. Ranging in price from $3,000 to more than $15,000, the primary market for custom bikes is affluent people in their 40s or 50s—more men than women—who are steeped in the cycling lifestyle and already own one bike, if not 10.

Classroom discussion questions:

1. Which of the production processes described in Chapter 7 applies here?

2. Why is the industry surviving–and succeeding?

OM in the News: Harley-Davidson’s Manufacturing Strategy

harley2“Before the great recession, Harley-Davidson didn’t have to worry about counting the seconds,” writes The New York Times (Feb. 2, 2014). There was little competition for their core customers — “fat white guys,” as one employee called them. Harley charged a huge premium for its bikes, and its customers waited as long as 18 months to receive them. The union rep at Harley’s York plant said workers could assemble motorcycles at their own pace, music blaring. “We had 30% absenteeism every Monday and Friday,” added the plant manager. This all worked fine until the recession, when the company was close to collapse.

Many firms respond to global competition by breaking their unions, by moving to a right-to-work state (or out of the country), and by employing robots on the assembly line. But Harley has an “American blue-collar, working man” brand, and to get rid of its union or to make its motorcycles in Mexico would have been catastrophic. The company could only compete by redesigning the production system so that each worker created more value than they cost. So Harley tore down the existing plant and built a new one. Unlike most factories, the new plant has people everywhere. There are no robots on the main assembly line; instead, hundreds of workers, operating in teams of 5 or 6, manually build each motorcycle. There are around 1,200 different Harley configurations, and a new bike starts its way through the production line every 80 seconds. Virtually each one is unique.

Human beings can also solve thorny problems that lead to major inefficiencies. At Harley, there are 150 “problem solvers” whose entire job is to continuously monitor their small sections of the production line and search for better ways to make motorcycles. The average tenure of a line worker at the York plant is 18 years, and these workers are extremely devoted to the company. (“How many factory workers have the company logo tattooed on their arm?” asks the plant manager.) Costs have fallen by $100 million at the plant and quality has improved even more significantly. Customer demand is extremely high, especially now that people can get a bike within a few weeks.

Classroom discussion questions:

1. What type of production process does Harley use? (See the Global Company Profile that opens Ch. 7).

2. Why does Harley prefer people to robots?

OM in the News: Britain Promotes Apprenticeships to Help its Industrial Base

British apprentice learning high-integrity welding
British apprentice learning high-integrity welding

Despite relatively high unemployment in Britain, especially among young people, there is a marked shortage of skilled manufacturing workers, writes The New York Times (Jan. 20, 2014). The problem is so acute that the government and industrial companies are behind an unprecedented push to get teenagers into apprenticeships to close that gap. The British government is trying to catch up with Germany and Switzerland, which have retained their competitive edge with the help of well-honed apprenticeship programs.

 A third of employers across Europe say that the lack of skills is causing major business problems in terms of higher costs, insufficient quality and lost time.  27% of the 2,600 companies surveyed by McKinsey note they have left an entry-level vacancy unfilled over the past year because there were no eligible applicants. Statistics like that, and the fact that about a quarter of people under 25 are jobless in Europe, prompted Britain to act, committing £1.57 billion to apprenticeship training last year. About 2.7 million new jobs in British manufacturing are expected by 2020, of which 1.9 million will require engineering skills. Companies will need to double both the current number of qualified recruits and of apprenticeships to fill those positions.
Britain is among the worst in the developed world at equipping its young people with numeracy and literacy skills. The career aspirations of high school students showed them to be heavily skewed toward jobs in acting, media and professional sports. Part of the challenge for Britain is turning around the bad reputation that apprenticeships can have, often being associated with dull, menial tasks that evoke images of Oliver Twist, the Dickens character who faced life as an apprentice to a chimney sweep. Britain has a record of apprenticeships back to medieval times, when boys were hired as young as 7 and often worked in brutal conditions.

Classroom discussion questions:

1. What are your student’s views towards apprenticeships?

2. Why is such training as important in the US as in Europe?

OM in the News: Pakistan’s Manufacturing Hobbled by Power Outages

Power outages mean workers in Pakistan have to sit out much of their shifts
Power outages mean workers in Pakistan have to sit out much of their shifts

Until a few years ago, Chenab Ltd. made high end sportswear and bed linen for some of America’s best known retailers, from Macy’s to Tommy Hilfiger to Victoria’s Secret, in the industrial region of Punjab, Pakistan. A workforce of 14,000 fed rolls of cloth into state-of-the art Italian and German machines or sewed garments on sprawling automated production lines. Today, crippled by the shortages of electricity that have paralyzed the country in the past 5 years, most of the machinery stands idle, the staff has shrunk to 4,500 and sales are down nearly 75%. The plant, running at 1/3 of capacity and turning down orders, represents one of the biggest challenges for Pakistan: finding a way to end power outages of up to 12 hours a day in cities and 18 hours a day in the countryside that have enfeebled industrial production and added misery to day-to-day lives.

Industries in Punjab get gas to operate 3 days a week during summer, and none in winter, when gas is diverted to heat homes. For Chenab Ltd., which needs both gas and electricity, that means there isn’t enough power to run two 8-hour shifts. Textiles, which make up more than half of Pakistan’s $25 billion annual export earnings, have been particularly hard hit. The export volume of ready-made garments has fallen 32% in the past 6 years.

Power shortages cost Pakistan about $12.5 billion, or 6% of gross domestic product, last fiscal year, reports The Wall Street Journal (Nov. 29, 2013). The country of 180 million is producing 12,000 megawatts of power, compared with demand of at least 18,000 megawatts. By comparison, California, with a population of about 40 million, produces nearly 60,000 megawatts. For households, life can seem preindustrial. Refrigerators don’t run; children can’t do homework in the dark. One Pakistani, complaining sleep is impossible in the heat without a working fan, called Pakistan “a nation of sleep-deprived zombies.”

Classroom discussion questions:

1. What factors should global firms consider in selecting a country to locate (see Chapter 8)?

2. Why is electricity shortage a critical OM issue?

OM in the News: Things China Makes

Even though economists expected that the Chinese manufacturing sector would contract in July 2013, it did exactly the opposite. China’s economy is heavily dependent on manufacturing and exports; its citizens consume only a fraction of all the goods made in the country, and the rest are exported to the U.S., Europe and other markets. In fact, China makes so much stuff that if it suddenly decided to stop, most of the rest of the world would experience impossibly high demand for many “essentials” of modern life — things like air conditioners, cell phones and personal computers.

OM in the News: The Turning of the Screw

Harley's York PA plant
Harley’s York PA plant

Companies’ pursuit of “big data”—collecting and crunching ever larger amounts of information—is often thought of as another way to figure out exactly what customers want. But big data is also a means of measuring millions of little things in factories, such as how many times each screw is turned. That is what Raytheon is doing at its Alabama missile plant, writes The Wall Street Journal (May 16, 2013). If a screw is supposed to be turned 13 times after it is inserted but is instead turned only 12 times, an error message flashes and production of the missile or component halts. Improvising with a defective screw or the wrong size screw isn’t an option.

Similarly, At Harley-Davidson’s plant in York, Pa., software keeps a constant record of the tiniest details of production, such as the speed of fans in the painting booth. When the software detects that fan speed, temperature, humidity or some other variable is drifting away from the prescribed setting, it automatically adjusts the machinery. In the past, says Harley’s VP, operators had leeway on paint jobs and each could do the work in a slightly different way. Harley has also used the software to find bottlenecks that could keep it from its goal of completing a motorcycle every 86 seconds. Harley managers recently determined that installation of the rear fender was taking too long. They changed a factory configuration so those fenders would flow directly to the assembly line rather than having to be put on carts and moved across an aisle.

Harley and Raytheon are just two of many manufacturers installing sophisticated, automated software systems, known as manufacturing execution systems, or MES, to gather and analyze factory-floor data. Semiconductor and other high-tech companies were early adopters of MES, but now others are catching up. Suppliers include Apriso, GE, SAP, Siemens, and Rockwell Automation.

Discussion questions:

1. Why is MES a valuable operations tool?

2.  By what other names is MES known in manufacturing?

OM in the News: China Holiday Roils Factories

Chinese migrant workers at Beijing RR station
Chinese migrant workers at Beijing RR station

Florida toy maker Laser Peg Ventures works with three different factories in China. Each year, about 25% of the workers there don’t return after the Chinese New Year holiday. Last year, the company received its orders 45 days late because of the holiday, meaning hundreds of thousands of dollars in missed revenue.

Every year, millions of China’s 250 million migrant workers leave their factories and travel across the country to visit their families at home, writes The Wall Street Journal (Feb. 21, 2013). The problem is that fewer and fewer workers are returning to the factories when the break is over. Guangdong Province estimates that 10 million workers, or 61% of the province’s migrant-labor pool, would head home to see their families for the New Year Holiday, with a return rate of around 90%, leaving a labor shortfall of 1.2 million workers after the holiday.

For the world’s manufacturers, post-holiday no-shows are an increasingly frustrating part of China’s tightening labor market. The trend reflects rising expectations among China’s workers, who are seeking out higher pay even as they show less inclination to work in factories. Many workers use the break to look for new jobs or start families. In 2010, 34% of rural migrant workers left their factory jobs to move back home.

The exodus is putting a kink in a long supply relationships. For years, American companies have worked closely with Chinese factory owners to improve production times and reduce error rates. Now, changes in China’s labor patterns are setting back that progress. The New Year exodus typically forces factories to rush to hire new employees, which often creates quality-control issues. Following the holiday last year, apparel maker Jordache found loose seams, holes and other problems, which meant goods had to be resewn or made over. The developments have American companies scouring other countries for factory sites.

Discussion questions:

1. Why is the Chinese holiday a concern to US operations managers?

2. What can American companies do to compensate for the post-holiday problems and shortages?