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Lean and Foreign Trade Deficit
Aralık 26th, 2016Generaladmin 0 Comments

Foreign trade deficit is one of the most priority agenda topics for almost all countries. If your purchases (import) are more than your sells (export) as a country, it means you have foreign trade deficit.

I won’t go into the technical regulations as economists but I will try to explain with a brief example how contributes efficiency in production and being Lean to the both company and national economy with analytical approach such as engineers.

We have just talked about;

If Import > Export, foreign trade deficit occurs. Then, what do we do in order to reduce the foreign trade deficit?

The answer is easy; decrease Import, increase Export!

So, how is this going to be?

We can reduce our dependence to the foreign sources by producing our own technology with R&D and innovation issues for sure. This is already our one of long-term strategical goals we called as indispensible.
Well, what can we do in short-medium term? Here’s the real issue starts.

The answer is;

  • Being productive
  • Effective use of resources

 

 

Now, let me explain this situation.

Being productive

We use an indicator called OEE (Overall Equipment Effectiveness) in order to measure the efficiency of companies. The OEE indicator of world-class manufacturers called WCM is about the level of 0.85. Our OEE average is (except for some companies) on the order of 0.55 or below, I guess. This means that. While world spends 15 unit resources over 100 unit as loss in production process, we spend almost half of ours for loss.

On the other words;

  • While WCMs obtains 85 unit values or 85 unit product with 100 unit resources, they reduce resource amount used per product (machine, depreciation and raw material), produce the product cheaper and get competitive edge in the market.
  • While we obtain 55 unit values or 55 unit product with 100 unit resources, we increase resource amount used per product (machine, depreciation and raw material) according to WCMs, produce the product more expensive and lose competition advantage in the market.

Import: Machine / Raw Material

Export: Product

Malfunctioning of machine both makes the machine cannot produce and leads to the requirement of spare parts. In either case, import needs increase.

Wastage in production means more raw material input and more machine capacity use. Again, in these cases, import needs increase.

One of the reasons of lower export is that customer expectations cannot be met in the sense of speed and cost. If the efficiency is increased, both the costs reduce and the speed increase. These results effect on increasing export naturally.

Briefly, if we could be more productive with LEAN, we will be able to get more output with fewer resources.

It’s no big deal anymore to produce nowadays, everyone is able to produce. Almost everyone can provide the standard quality. Even quality issue does not be talked anymore- if you are unable to be good quality, you cannot even get into the market. In other words, quality is the first prerequisite but not a sufficient condition. The point that makes difference in competition is especially speed and cost. In other words, being able to produce efficiently and being fast / agile. So, adapting the concept we called LEAN and AGILE to each area.

Effective use of resources

A few years ago, I met with Europe sales director of Samsung Company. I asked him that South Korea has a remarkable growth in terms of both economical and technology in recent years and how they succeed this. He mentioned me that the state allocates the companies to segments according to their area of expertise and supports specialization and growth their own segments as possible. According to this situation, investing outside of expertise area was blocked in a way even they have capital, sending their existing investments to the segments they are in was encouraged. While Hyundai was producing computers twenty years ago, today they mainly move into the automotive segment or while Samsung existed partly on automotive sector years ago, they become an electronic giant today proves that it is quite correct strategy, I guess.

One of the most fundamental problems in developing countries like ours is fashion-indexed investment concept. For example, one investor in somewhere analyses the market needs and establish a factory or a business with a decision. Generally these investors obtain good results as a result of entering the market firstly, managing the business effectively with planning well and partly cyclical structure. This situation immediately attracts the other investors and many investors begin to open factory, business in same area. This choices, of course, is unquestionable under the free market conditions but investing same segment by more than enough manufacturers bring harm rather than benefit when it comes to certain threshold level.

I did an analysis when I was consulting in automotive industry.  When we compared injection machine amount needed for plastic-derivative component with installed plastic injection machine amount in capacity-based, I took the conclusion of idle capacity rate is up to 40%. In other words, you have 100 installed machines but you are using only 60 unit. The remaining 40 machines cause both spending working capital to the waste and increasing current account deficit of country and being not able to reach to ideal growth maturity as a result of inability of making necessary investments to the sector by creating unnecessary competition factor. If we estimated there are fifteen-twenty thousand plastic injection machines conjecturally and average unit price of a machine is 50.000$, we can see that the idle capacity of investment cost is a number between 300 billion $ and 400 billion $. This is the case of the situation just for this segment. We can see that this number is quite considerable when we consider the idle capacity in hundreds segments.

However, just opposite situation may be valid in the other segment. Being less than needed manufacturers led not to be enough strong in this segment as a country.

In this case, in my opinion, it should be one of the strategies that must be followed. We must define the segments, number of players, goals and capacities, specify the strengths and weaknesses, coordinate balancedly producer inflation and constraints by slipping our investments in hand to true areas which have need. Just like South Korea did.

 

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