Global Lessons Learned

This article is a web-exclusive companion to Home-Run Hitters: Four manufacturers who are confronting globalization--and winning--by maximizing the competitive advantages of U.S.-based production. Here the leaders share additional insights on maximizing U.S.-based production in a global world. They include the following: Brian Jones, president, Nypro Inc., Clinton, Mass. Richard E. Dauch, co-founder, chairman and CEO, American Axle & Manufacturing, Detroit William B. Stockwell, president, Stockwell Rubber Co., Inc., Philadelphia Dov Charney, senior partner, American Apparel, Los Angeles  

Brian Jones, president, Nypro Inc., Clinton, Mass.

. . . on putting China in perspective: "People forget. All history repeats itself. Everything that they said about Japan [in 1981], they're saying about China now. And it's no more true about China than it was about Japan. To say that China has a very fast booming industrial sector -- yes, they've unleashed in the last 10 years the capitalistic interests and the desire of the Chinese people to improve the quality of their life. There's a billion of them trying to improve the quality of their life, so that should be a positive force, not a negative force, but it is definitely a force to be dealt with."

". . . up until a year ago, the whole Chinese economy wasn't the size of the California economy. So they're gaining a lot of ground and very quickly. Still, the U.S. is the best economy in the world, it's the best market in the world. And the only ones who don't realize it are the Americans. See the plants being built [in the United States] by Toyota, Honda and Nissan?"

. . . on the demand for short supply chains: "We sell to Toyota and their surrogates, and they have a rule that says you can't be farther than 100 miles away from the Toyota factory. They're looking for a supply base that can offer five-times-a-day shipments into the plant, and you can't do five-times-a-day shipments from Asia."

"The biggest marketplace [in the packaging business] is the U.S. The filling plants for shampoo, soap, deodorant, detergent and pills for pharmaceuticals -- all those filling plants are in North America because the marketplace is here. Nobody wants to ship a lot of bulk all over the place, so you need to be in short supply chains."

. . . on maintaining production capability in high-cost countries vs. low-cost countries: "I don't view them as high-cost. Usually, when you have high cost, you have high technology, so I view them as high technology versus the emerging marketplace. It's high cost in the UK, it's high cost in Ireland, it's high cost in France and it's high cost in Germany, but you also have some of the best technology that's applied anywhere. If you look at the productivity improvement range over the last three years, you're going to find out that the U.S., France and Germany are three [that have the] highest productivity-improvement, much higher than these so-called emerging marketplaces. It's because they bring more technology. There is [an] advantage that [they] bring to the game, and you pay to get that."

"If you're going to be a technology innovator and not just a commodity player, I don't think you can be absent from [high-cost] marketplaces. You have to be investing there at the same time that you're investing in emerging markets."

. . . on new product development: "The other thing that's happening in the industries that we're servicing is there's a dramatic increase in the rate of new product introduction to compete in a commoditized world. For instance, Nokia will go from 10 new phones per year two years ago to over 50 new phones this year. Samsung will introduce 70 new TVs this year alone in the 32-inch category and above. So you're talking about a three- four- five-time increase in the rate of new product introduction. We have one major OEM who's looking to do the new product design and full-production launch in 60 to 90 days. So the question is not what's the lowest cost to manufacture it, the question is how do you align -- from a supply-chain standpoint and design standpoint -- on a global basis to support that? How can you go fast enough to support that kind of business model? Otherwise you're going to have your products commoditized, and you're not going to be able to compete in the marketplace."

. . . on bundled solutions: "The business got a lot more integrated, so that you can't sell a single molded part any more unless it's very much a niche part . . . all the big OEMs are going to an outsourced play across all the markets, and they're looking for an integrated solution. So somebody selling just the molded part, just in the U.S.A., is going to have a very, very hard time. And the facts bear that out over the last couple of years."

Richard E. Dauch, co-founder, chairman and CEO, American Axle & Manufacturing, Detroit

. . . on the most important training a company can provide: "The first training is to have the CEO meet with the workforce face-to-face, eyeball-to-eyeball and discuss: Why is this company here? What is your charter? What is the role of the individual? What is the competitiveness [of the company and individual]? -- because nobody's entitled to a job and nobody's entitled to a business."

"We're in a globalized market, and people who have grown up competing city-to-city, or state-to-state or regional-to-regional, or just nationally need to be educated [about] globalization."

"We do town hall meetings three times per year. We talk about the state of the business, state of their factory, state of their gross national product within AAM, and what's their role. We always talk about product."

"I always tell my people: This [town hall meeting] is no event. This is a process and you're part of the family. We will give you and share with you very important and urgent data that you need to know, and then we will have at least 15 to 20 minutes at the end where you simply stand up, speak up, make your comment, ask your question, make your name known -- and then we'll discuss that right there in front of the family."

. . . on the importance of building U.S. manufacturing strength: "We have got to take a look: Do we care about our society? Do we care about our quality of life? Do we want to take our work standard and our quality standard of life down to where we eat two bowls of rice a day? Not me. I don't want to do that to my children, my grandchildren or the people that I have the privilege to lead or [to] those who have had the confidence to invest in our company."

. . . on being global: "You have to be at least selectively global. You don't have to be everywhere in the world, but you have to decide: What is your product niche? Where is your market? Who are your customers? Then you have to selectively decide where will you give your global presence."

"When I started here at AAM 10 years ago, I only had two customers, and we only shipped to two countries. Now we have 75 customers. We now produce in eight different countries and ship to 10 different countries."

"This is a very big world, and everyone says it's getting smaller -- and that's [not true]. It's 126,000 miles around that circumference, and you still have to be able to get your part to where it's supposed to be just in time, or [in] sequence parts delivery. And the farther you source from the user, the more difficult [it becomes] because you can't predict the weather, you cannot predict labor strife . . . . So you have to do a lot of strategy on people, on product, on process, on capacity, on logistics, on ROIC."

William B. Stockwell, president, Stockwell Rubber Co. Inc., Philadelphia

 . . . on the future of U.S. manufacturing: "I still think we're going to see new devices, new instruments, new products created in the high-technology areas of the U.S. As long as we're still allowing innovation to occur in this country, and as long as the model still looks like we'll be making the first X number of units or developing the product in the U.S., we'll be fine."

"Frankly, we're probably going to see China and India grow in their ability to create new products, because they are very bright people, they are very bright engineers. I'm not saying we have to play the dominant role, but as long as we're one of the leaders in developing new product technology, I think we'll be OK."

. . . on Stockwell's best customer: "[We] continually search for those makers of equipment [whose] production run might be 5,000 to10,000 units -- but it's a high-value product where the performance of the product is critical, and the role of the gasket or cushioning pad that we make also makes a big difference in the performance of their product."

"My typical customer has needs for very rapid turnaround time in terms of the initial production schedule, and my best customers tend to need us to be really . . . fast in terms of being able to fulfill a sudden change in an MRP requirement."

"None of my best customers tell me that I'm the least expensive out there. What they will tell me is the overall value we provide earns us the business, and that overall value goes beyond the lowest unit-cost production. It's the design assistance, it's the assistance with prototyping, it's the rapid deployment for initial production."

"We cater best to these smaller niche innovative companies that are rather lean in their engineering staffs, where we become an extension of their engineering team."

Dov Charney, sr. partner, American Apparel, Los Angeles

. . . on the often unseen problems with off-shore manufacturing: "People underestimate the cost of [going] off shore. Instead of investing more money in R&D and investing money in innovation, a lot of companies find themselves putting an insurmountable amount of capital into financing the supply chain because you need to constantly have stuff on the water and you need deeper inventories. In order to compete with domestic manufacturers, you have to have a lot of foreign product stocked. Those deeper inventories end up costing a lot of money."

"[With deeper inventories] sometimes you find yourself in the position where you find it's hard to phase out obsolete products -- especially in the fashion cycle. Even in electronics there's fashion involved in cell phones now. A bad color, a bad shape, a bad body style to the cell phone, and you're stuck with them and you have 9 million of them in inventory. If they are made domestically, then you have fewer of them in inventory."

"Cheap labor is a false crutch, and it's actually preventing the automation of manufacturing. It's slowing down evolution. Instead of figuring out how to automate where labor costs are $30 to $40 [an hour] if labor costs are a dollar you don't really care."

. . . on vertical manufacturing and the herd instinct: "I say the next step is on shore. It's vertical integration. It's this herd effect. The herd [effect] right now has been to outsource. . .the general dogma is that outsourcing is better, [that] it's too expensive to do business domestically [because] you're going to have to deal with labor unions, or you're going to have to deal with workman's comp costs that are astronomical."

"If you swim against the tide sometimes that's where the money's at . . .so that's what I'm doing. All of our cut-and-sewn labor is done on site; we don't outsource anything. Whether you outsource across the street, or you outsource south of the border, it's the same thing."

. . . on Wal-Mart and fashion trendsetting: "I don't bother [selling to Wal-Mart and other high-volume, low-cost department stores] because I don't think those companies are a reflection of the future. I think the youth generation is rejecting those low-cost producers. The Boomers are into those things. Boomers love Wal-Mart, but I don't see Generation X and Generation Y shopping at Wal-Mart."

"If you want to be a trendsetter, [you have to] go to the places where things happen. You've got to go to Los Angeles or New York, and even in that pool you've got to [go to] the hippest of hip. . .you've got to go to the top 5% of the kids that really set trends. You have to make products that they are going to want to buy two years from now or three years from now. And if you're going to focus on that, and then you're going to say, well I'm off shore and I have this elongated supply chain, and I want the cheap, cheap, cheapest cost, you're going lose that ability to be the trend setter."

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