Manufacturing execution systems (MES) and warehouse management systems (WMS) have been around since the 1980s. Today, despite rapid growth of the industrial sector in China as well as other Asian, Latin American, and Eastern European countries in recent years, the vast majority of MES and WMS installations are found in North America, Western Europe, and Japan. Is this because enterprises in China and other developing countries don't really need software like this? Or, looking ahead, can we expect demand for MES and WMS software to boom in the developing world?
Through the Past, Briefly
Paradoxically, the origins of MES and WMS coincide with the rise of Asian competition in the early 1980s. "Made in Japan," once a euphemism for cheap and shoddy merchandise, became a tagline for superior and affordable quality as enterprises such as Toyota, Sony, and Honda took up total quality management (TQM), just-in-time (JIT), and flexible manufacturing techniques that dramatically cut inventories, cycle times, and costs while achieving near-perfect quality and delivery performance.
Western manufacturers had to adapt fast in order to survive, but they ran into obstacles—powerful labor unions, work rules, minimum wage laws, and workweek restrictions—that made it all but impossible to redeploy their labor resources efficiently in the Japanese way. Indeed, unionization and labor policy were the root causes of wage and price hyperinflation during the 1970s that undercut Western competitiveness in the first place. So, to bring factor costs under control and retool their operations for higher productivity and quality, Western manufacturers made plant and warehouse automation their top priority. Unlike labor costs, capital spending on automation technology could at least be written off in declining real amounts as inflation cut the purchasing power of the original investment.
This strategic shift paid off by doubling the velocity of manufacture over the next twenty years. In the United States, for example, the number of manufacturing establishments was about the same in 2001 as it was twenty years earlier, but these establishments shed
one-sixth of their production workers and nearly as many supervisory employees. Meanwhile, manufacturing value-add per production worker grew more than twofold, from $81,000 to $165,000 (USD and in constant 2002 dollars), and total manufacturing value-add grew by almost 70 percent to $1.9 trillion per year (USD).
Improving the velocity of manufacture through automation, while simultaneously reducing the number of employees who oversee manufacturing and warehousing operations, creates the risk of communication breakdowns between enterprise-level back-office applications on the one hand, and floor-level equipment controllers on the other. Conventional MES and WMS applications bridge these communication gaps that might otherwise limit the benefits of automation. They connect to programmable logic controllers (PLC) and materials handling equipment on the plant and warehouse floor to give supervisors immediate visibility and control of events. Simultaneously, they receive orders from back-office applications and send transaction details back as tasks get done. To improve decision speed and accuracy, boost administrative productivity, and keep operations running smoothly, MES and WMS systems provide tools for detail scheduling, labor management, resource allocation, dispatching, navigation, process management, quality control, maintenance, approvals, record keeping, and performance measurement that was formerly done on paper and in people's heads—or not at all.
The Situation in China
Starting from virtually nowhere in the early 1980s, Chinese manufacturing value-add grew phenomenally to $0.7 trillion (USD) per year in 2001 measured by purchasing power parity—nearly 40 percent of the United States total—and continues to expand at a 26 percent compound annual rate. But Chinese industry is far more labor-intensive than in the West. In 2001, the average Chinese manufacturing enterprise had 331 employees versus 46 per establishment in the United States. Chinese wages and manufacturing value-add per employee were one-tenth of the American levels.
Nonetheless, the velocity of manufacture is definitely accelerating in China. Since 2001, employment at Chinese manufacturing enterprises has grown only 2 percent per year while manufacturing value-add per employee has grown at a 24 percent annual rate. In short, although manufacturing employment continues to expand, productivity improvement now accounts for well over 90 percent of the growth in China's industrial sector.
Why do Chinese manufacturers, with a seemingly endless supply of cheap labor at hand, see productivity enhancement as the key to profitable growth? Consider the following trends now affecting Chinese industry:
- Chinese state-owned enterprises and collectives are reforming themselves into industrial powerhouses. The days of government subsidies and quota-driven mass production of inferior goods are over. Inefficient state-owned enterprises and collectives are under pressure to adapt, or die. In response, most are abandoning mass production of standard (or substandard) products, implementing TQM to improve quality, laying off older workers with poor skills, and closing down their least-efficient operations to become profitable.
- Costs of imported material are rising, and spot shortages are developing. China is now one of the world's largest importers of industrial commodities, from oil to steel and cement, and its surging appetite is driving spot prices up in global markets. Western manufacturers criticize China for keeping the Yuan Renminbi's value artificially low, which protects China's competitive advantage as an exporter, but the currency peg also makes imports relatively expensive, putting margins under pressure.
- Labor costs are rising and the labor market is tight in urban areas. Although still very low by Western standards, wages of manufacturing workers are rising faster than gross domestic product due to a growing shortage of people. New factories are springing up, in the Chinese interior as well as coastal areas, faster than workers can be found, and living conditions are improving in rural China, reducing the influx of migrant workers to the cities.
- Price competition is intensifying. Rapid foreign as well as private domestic investment in new factories is accelerating domestic competition. As a result, Chinese manufacturers are unable to raise prices fast enough to cover increases in material and labor costs.
Improving China's Manufacturing Productivity
It's unlikely that Chinese manufacturers will take the Western automation route anytime soon, because labor costs in China are still a fraction of what they are in the West. Also, private enterprises in China lack access to the bank credit they need for capital expenditures, because infrastructure projects and state-owned manufacturing enterprises absorb the lion's share of investment capital and are financing these investments not from government revenues but through borrowings from state-owned banks.
In short, Chinese manufacturers cannot really afford to invest in "autonomation"—a pillar of conventional MES and WMS systems that transfers human intelligence to machinery and equipment, permitting one operator to oversee many machines without risk of producing defects. Moreover, autonomation is most suitable for high-volume, low-mix production, particularly when product life cycles are long. But it can be prohibitively costly in low-volume, high-mix situations—the more so when product life cycles are short—yet these are facts of life for most industries today, especially in the automotive and high-tech sectors where China excels.
More likely, Chinese manufacturers are finding ways for workers to work smarter—in effect, using people instead of PLCs to control machinery, equipment and deliveries. That's why it's hard to find any PLCs or automatic storage and retrieval systems (ASRS) in Chinese plants and warehouses today.
Case Study 1: Supply to Line at a Durable Consumer Goods Manufacturer
Here's an example. Flow racks feed high-speed production lines in many Western factories, keeping deliveries of material in synch with the pace of production by automatically sensing component material consumption as it occurs, and raising delivery orders in a WMS when replenishment becomes necessary. On the warehouse or receiving side, robotic pick-and-place equipment puts material in totes and onto conveyors to fulfill these orders. The WMS links each delivery to bar codes on the totes, which the conveyors scan during the journey and then divert each tote to the right flow rack. PLC devices control the flow racks, pick-and-place equipment, and the conveyors. A handful of workers oversee these operations, mostly using the WMS to deal with any problems that arise.
Conveyor systems feed high-speed production lines in China, too, but human workers on each end load fresh material onto conveyors and take material off the conveyors at the production line. But because the typical Chinese factory is a multi-story building—receiving and warehousing operations usually occupy different floors than the production lines—it's often impossible for workers at one end of the conveyor to see what's going on at the other end. As a result, warehouse workers aren't aware of production line stoppages and will continue loading material indefinitely until there is no more space on the conveyor. When multiple production lines share the same conveyor system, the shortage of space may lead to critical material shortages and downtime on some production lines, even as material piles up for other production lines. Productivity dwindles for production and warehouse workers alike.
One of China's largest appliance and air conditioning manufacturers found an inexpensive yet effective solution to this problem that puts touch-screen or wireless devices in the hands of workers at each end of the conveyor. Production line workers record component material consumption as it occurs, in pace with production, and raise delivery orders in the WMS when replenishment becomes necessary. On the warehouse or receiving side, people load material onto conveyors according to instructions given by the WMS. This approach optimizes the use of available conveyor space and eliminates the possibility of material shortages on production lines that share the same conveyor system, while avoiding any investments in PLCs, flow racks, or pick-and-place equipment.
Case Study 2: Quality Control and Accountability at an Electronics Manufacturer
Here's another example. Chinese manufacturers and their Western counterparts both do quality control, but Western manufacturers also use their MES to record as-built product genealogies that link the serial or lot numbers of production units to the serial or lot numbers of important components. Usually, placer machinery or industrial robots scan bar codes for the parent and its components during final assembly, and the information is fed immediately into a computer database. The genealogy enables manufacturers to quickly pinpoint and quarantine product that may be faulty due to defective components —as, for example, when suppliers notify their customers to recall a specific lot or consignment—without having to recall, hold, and inspect every production unit.
Although they commonly note failure histories on paper, Chinese manufacturers typically do not record product genealogies. When they receive a recall notification from a supplier, they need to put all product inventories on hold and inspect every production unit, just to identify the few faulty units. Or, even worse, they need to recall product from their customers in order to inspect and identify the handful of defects. This ultimately drives up the cost of quality and diminishes productivity.
A leading Chinese maker of television sets and mobile phones won't be investing in industrial robots or placer machinery to build product genealogies anytime soon. All they need are a bar code label printer and a few touch-screen or wireless devices for workers at specific assembly points along the production line. They also require their suppliers or feeder production lines to put bar code labels on the components that they want to track. Assembly workers scan bar codes for the parent and its components, and the information is fed immediately into the computer database as if it came from industrial robots or placer machinery.
Case Study 3: Corrective Maintenance at a Printing Plant
Here's a third example. Machines run by PLC can automatically report faults and diagnostic information back to an MES, allowing people to dispatch the right corrective maintenance actions immediately. However, people run most machines in China. If a breakdown occurs, the operator has to summon a mechanic to diagnose the problem and perform corrective maintenance. A large printing plant in southern China gave
touch-screen devices to the press operators, allowing them to immediately communicate fault codes to mechanics when the presses break down. This saves the mechanic from running out to the machine and back just to diagnose the problem, a savings that directly reduces press downtime. It might not seem like much, but those downtime reductions add up to a 10 percent productivity improvement year-over-year, and overall equipment effectiveness (OEE) performance that exceeds global norms.
The Need for a New Generation of MES and WMS Software in China
As the preceding examples illustrate, Chinese manufacturers can really use MES and WMS to boost productivity in their plants and warehouses, but there's a catch. Conventional MES and WMS applications from Western software developers were built to communicate with PLCs, and not production or warehouse workers. Chinese manufacturers require a new breed of people-friendly MES and WMS applications to improve productivity in their plants and warehouses.
Take languages, for example. PLCs use machine languages, which are
border-independent. But Chinese production and warehouse workers require Simplified Chinese software on the mainland, and possibly Traditional Chinese also in Hong Kong and Taiwan. Ideally, they prefer software that uses graphics rather than text. Conventional MES and WMS applications require major reprogramming just to deal with graphics and wide Chinese characters, to say nothing of the translation effort into multiple versions of the Chinese language.
Process logic requirements are different, too. Processes built for PLCs are much less complex than people-friendly processes. With people, you have to consider the many things humans will do—unintentionally or not—to befuddle a computer. Machines are a lot more predictable and obedient. And, no matter how complex the process, it has to appear simple and intuitive for ordinary people like factory and warehouse workers.
Conclusion: A New Market Is Emerging for MES and WMS in Mainland China
Considering how inappropriate conventional Western MES and WMS software is for the Chinese market, it's no wonder that very few Chinese manufacturers use it today. But the urgent need to boost productivity in China—without making major investments in plant and warehouse automation—is creating a market for people-friendly and economical MES and WMS software that few Western software developers are in position to serve today.
Ideally, Chinese manufacturers would prefer not to waste time and money developing and maintaining their own applications. Instead, most will seek off-the-shelf solutions that embody proven productivity-enhancing business practices from the West while meeting the unique requirements of Chinese manufacturers such as
- Ability to define people-friendly processes, and error-proof them;
- Worker-centric tasking and resource management;
- Native ability to run in Simplified and Traditional Chinese;
- Native ability to display graphics instead of text on the browser in a wide variety of touch-screen and wireless devices;
- Affordability; easy and inexpensive to implement and support;
- No requirement for investment in PLCs or expensive machinery; and
- Ability to communicate with PLCs as well as people, when the need arises.
To successfully penetrate the Chinese market, commercial off-the-shelf MES and WMS vendors must build new products from scratch, or significantly retool their current product offerings. Chinese software developers are likely to try, but they lack the Western know-how pertaining to MES and WMS systems and the credibility that Chinese manufacturers desire. Numerous best-of-breed software developers in the West have deep MES and WMS expertise, but most of them offer legacy products and are completely unfamiliar with Chinese manufacturing needs. Only a handful of Western vendors possess the innovative technologies, proven track records, and physical presence to successfully exploit the emerging MES and WMS market in Mainland China. These vendors have the opportunity to dominate what is likely to become one of the world's fastest-growing markets for business software.
The market for conventional industrial automation, MES and WMS applications, by contrast, will remain a comparatively small niche comprising the handful of Chinese and multinational companies that have capital-intensive operations.
About the Author
Nelson Nones has over twenty-eight years of experience in manufacturing, information technology, and business consulting, and has spent many years working and living in Southeast Asia and China. He is the vice president and general manager of Asia-Pacific Operations and was previously the chief products officer for Apriso Corporation, a developer of application software for global enterprise operations management. Nones' professional background includes postgraduate study in economics and geography, and he is certified in production and inventory management (CPIM) by APICS, the Educational Society for Resource Management.
Nones can be reached at firstname.lastname@example.org.