The Lean Manufacturing Transformation of the Taiwan Machine Tool Industry
The Taiwan machine tool industry spreads its wings
The level of development of the machine tools industry represents the overall industrial capabilities of a country. At the same time, it brings together technical challenges as diverse as machinery design, processing and manufacturing, automatic control, information software, electromechanical interfaces, and system integration; it is also a highly technology-intensive industry with a high degree of added value, which not only plays an important supporting role in the development of manufacturing industries, but also makes a substantial contribution to national economic growth. Looking at the Taiwan machine tool industry’s annual per capita output, Taiwan is second only to Switzerland, and is ahead of Germany. In terms of export value, Taiwan is ranked fourth, close behind Germany, Japan and Italy; in terms of output value, the Taiwan machine tool industry’s output value accounts for approximately 6% of total global machine tool output and is ranked sixth globally, behind China, Germany, Japan, Italy and South Korea. In comparison to the Japanese industry, the Taiwan machine tool industry is generally considered within the industry to offer 90% of the quality of comparable Japanese products, but at far more accessible prices.
Taiwan-based Machine tall manufacturers are focused on export sales, which account for 70 to 80% of sales, and it is fair to say that the machine tool industry is one of the minority of major industries where Taiwan based manufacturers are able to market their products internationally under their own brands. The Taiwan industry offers a high degree of customization and flexibility in manufacturing, as well as rapid response and adaptation capabilities, while many companies are SMEs concentrated in nearby geographical areas; the corporate synergy system (industry labor division system) is also comprehensive and vital to many companies. Thousands of component makers, processing factories and assembly plants of every kind are scattered throughout the paddy field landscapes of central Taiwan, forming a complex and comprehensive machine tool industry satellite system; this kind of dense industry cluster is a distinctive feature of the Taiwan machine tool industry. While the machine tool industries in Japan, South Korea and Mainland China are all supported by strong car industries and large domestic markets, the Taiwan machine tool and component industries have developed a comprehensive arsenal of marketing strategies in the absence of support from the domestic market or specific industries, and offer the global machine tool consumer market and industry clients with customized services. This is a vital weapon that has allowed the Taiwan machine tool industry to gain a foothold and continue to survive.
In 2007, the Taiwan machine tool industry’s output value surpassed NT$100 billion for the first time to hit NT$113.8 billion. In 2010, after the global financial crisis, output value still grew 77% from 2009 levels to reach US$3.9 billion, with exports growing 70% from 2009 levels to US$2.9 billion, sufficient to keep Taiwan’s place as the fourth-ranked global machine tools supplier region. Machine tool component exports grew 102.7% from 2009 levels to hit US$950 million in 2010; this huge growth in exports represented a record high. A study of global machine tool production and sales ranked Taiwan second in terms of annual per capita output, with an average output per man-year of US$192, behind first-ranked Switzerland with US$466, but ahead of third-ranked Germany with US$154. As the world economy sees steady growth, demand continues to grow in emerging countries such as India,Thailand and Malaysia, which, in combination with the ECFA trade agreement with China, will enable the Taiwan machine tools industry to achieve sustained growth in both output value and exports.
The arrival of M-Team heralds a new era of opportunity for the machine tool industry
The strength of which the Taiwan machine tool industry is most proud is that is has the best flexible production system in the world. The close integration of upstream and downstream supply chains enables manufacturers to quickly supply products and meet customer’s needs, getting the best possible result from the industry cluster effect; Taiwan’s sizable IT industry also has a comprehensive range of products and mature technology that help to support the development of the machine tool industry. In order to improve the global competitiveness of the Taiwan machine tool industry and truly maximize the potential of the industry cluster effect, the Corporate Synergy Development Center (CSD) held a Machine Tool Industry Summit in the city of Taichung in June 2006, following which an agreement was signed between Victor Taichung and Yeong Chin Machinery (YCM). This resulted in the formation of M-Team as a business model for collaboration between the two lynchpins of the machine tool industry, which strived to foster cooperation and teamwork, while also contributing to fundamental areas such as quality, cost and delivery times.
The launch ceremony for M-Team was held on September 1, 2006, and stressed the key operational and managerial points, with each manufacturer required to implement the basics of onsite management, including 5S, standard operating procedures (SOP), quality management systems, project improvement, contract R&D, and results publication. CSD plays a vital role in consensus building, system construction and organizational restructuring, allowing all sides to put aside any concerns, roll up their sleeves and get involved in results sharing and benchmark learning, a model that has been endorsed by the majority of whole-machine manufacturers. The ideas that “you have to get fit before you can go the distance”, and “if you can do it, you should tell people about it”, led to the door to collaboration being opened wider and wider. While the global financial crisis of 2008-2009 led to the majority of manufacturers losing orders and working a three days on, four days off schedule of virtual hibernation, M-Team’s efforts by no means slowed down. In fact, all its activities took place on schedule as planned, and with the utmost enthusiasm and dedication. As a result, once the economic recovery began, M-Team manufacturers that had patiently built up their capabilities were able to turn urgent or temporary orders into regular orders, and found that their order growth rates higher than non-members of M-Team across the industry.
The previous five years (2006-2010) of running in and improvement helped employees of M-Team members to build up greater awareness of damage, waste and wear, and gradually become more familiar with efficiency measures, streamlining and standardizing, as well as incorporating the use of methods such as rapid changeovers, small batch mass production, and production leveling. The changes in mentality and practical measures implemented as a result of lean management began to bear fruit, with waste reduced and inventories falling; hub center model line lead times also fell by from 23 days to a stunning 32 hours. Replacing fixed production with flow production and calculating lead times in hours rather than days were genuine innovations in terms of delivery rates. The establishment of rapid reaction and quality safeguard capabilities built up a high-value image of the Taiwan machine tool industry, which not only increased profits and delivery rates, but also made Taiwan-based firms the first choice for Japanese companies looking for industry partners.
Faced with the serious challenge recently presented by the strategic shift towards premium features at lower prices by competitors in advanced nations such as Japan and Germany, Taiwan’s machine tool manufacturers have adopted an all-out philosophy in the workplace, making sure that every effort is required in every aspect of the business, from technology R&D to practice. As a result, they have successfully made machine tools the industry in which Taiwan is least dependent on foreign technology, and has the greatest capacity for homegrown technical innovation. The formation of industry clusters and sharing of work by all concerned has been particularly important in making the machine tools industry the most localized industry with the strongest roots in Taiwan. At this time of continued global economic upheaval, it is vital to maximize the benefits of teamwork, build industry alliances and continue to develop solid infrastructure, in order to turn the dream of “transforming Taiwan into a global center for high-grade machine tool production and manufacturing” into a reality as soon as possible.