Aging Assets: Rebuilding U.S. Manufacturing

Aging Assets: Rebuilding U.S. Manufacturing

Manufacturers coping with aging plants and sagging performance have to decide whether to repair or relocate.

With some financial help from the local economic development folks, on Sept. 8, Brunton, a Riverton, Wyo.-based outdoor equipment manufacturer, began moving into a new facility in the city of 10,000. But the company might not have. Dissatisfied with the aging digs it had occupied since 1972, Brunton, one of the most recognizable business names in the country's least-populous state, considered moving out of Wyoming altogether.

The situation isn't unique and indeed could intensify dramatically, given the graying of America's factories.

Nearly three-quarters of U.S. plants surveyed this year by IndustryWeek and the Manufacturing Performance Institute (MPI) are more than 20 years old. Just 3.4% are less than five years old. Among plants with 250 to 499 full-time employees, the data are even starker. None of the plants is less than five years old, and 76.4% are more than 20 years old, according to the 2006 IW/MPI Census of Manufacturers.

See Below

Where Age Isn't An Issue

How Old Are America's Plants?
Other than shut down such plants completely and get out of the business, operating managers at aging facilities are left with this stark choice: repair or relocate.

Repair, on a massive scale, was Ford Motor Co.'s approach at its River Rouge manufacturing complex, which founder Henry Ford built in Dearborn, Mich., between 1917 and 1925. The $2 billion Rouge renovation project, begun in November 2000, was designed to include a "factory of the future" with assembly lines that could handle three different vehicle platforms and nine different models. The facility also went "green," with, among other things, an ecologically friendly roof of about 500,000 square feet that affects the surrounding watershed by holding several inches of rainfall.

ABB Inc. relocated high-voltage circuit breaker production to this greenfield plant in Mt. Pleasant, Pa.
Relocation was the choice that ABB Inc. made five years ago for its Greensburg, Pa., high-voltage circuit breaker factory. The plant had a good quality record, but customer concerns about the cleanliness of the manufacturing process persisted, a not-insignificant matter since reliability once the circuit breakers are installed in power distribution networks is critical. The building, built in 1914, was never intended to support a circuit breaker manufacturing operation, and the layout limited production efficiency.

The decision to disconnect from the facility and decamp to a new factory came in 2001, as a surge of orders from customers, mostly utilities, dramatically increased cycle times by 50% to 100%, relates Aftab Khan, vice president and general manager of the new facility. Lead times of 12 to 24 weeks went to as many as 30 weeks to about one year, depending upon the product, he says.

The new facility, which cost more than $10 million, is in Mt. Pleasant, 10 miles from Greensburg, and it's filled with improvements aimed at reducing cycle times and increasing quality. For example, a computer-controlled gas handling system significantly reduces the risk of moisture or other contaminants getting into the sealed environment of a breaker assembly.

However, not all the improvements are high-tech. Better lighting, battery-powered forklift trucks and bans on indoor grinding and wood pallets help keep dirt down. And the new layout cuts the distances parts and finished products must travel. Improvements sustained during the past three years include a 10% rise in productivity, a 15% decrease of work-in-progress and a 40% reduction in re-work.

Essential Questions

Where Age Isn't An Issue

Few plants in the U.S. date back to 1889. But the Bloomsburg, Pa., facility of Magee Rieter Automotive Systems, a 2006 IndustryWeek Best Plants winner, does. Over the years, relocation has been considered. But it hasn't happened.

The culture of cooperation between management and a unionized production workforce is one reason. Another reason is that Bloomsburg is a place where continuous improvement works. All the tools are there, from the philosophy of lean to the specifics of 5S and Six Sigma.

According to the company, "We have learned that by creating and effectively communicating the company's vision and strategy and actively involving our employees, process synergies and teamwork evolved, allowing us to make those significant improvements necessary to be competitive in today's business climate. Age does not matter."

In deciding whether to repair or replace, first ask yourself how serious are the things you think need to be fixed, urges Robert Spekman, a professor at the University of Virginia's Darden Graduate School of Business Administration in Charlottesville.

If you have version 1, and the technology has advanced to version 7, it's probably time to scrap the earlier stuff, he indicates. The same thing goes for machinery. If equipment has been repeatedly repaired, you are probably "throwing good money after bad" to repair it again, he suggests. Take that same analysis up to the plant level, and you may find a new facility will produce a better return on investment, with fuel-costs savings, a smaller physical space and fewer people, he says.

At the practical level, ABB, which is in a financially conservative but competitive industry, wanted to minimize any disruption to customers and avoid product quality risks tied to the retraining of a workforce. "We do have a union facility, and we have a very good workforce -- they're dedicated [with] very low turnover," says Khan. "With a 10-mile move, we were shut down only about a week," he says, with relief and pride. "The decision to build the factory probably wasn't a tough decision," he says, "but the way we did it, where it was, and things like that were pretty tough decisions."

Too often, Spekman contends, managers focus on quick fixes and "are not looking at the more important strategic issue of how we can do this better, smarter, faster and cheaper." And one answer, Spekman indicates, may be to relocate some production overseas while keeping the things you are doing well domestic. "This is a wonderful opportunity to think about the business you are in and what makes sense," he emphasizes.

Companies confronting a repair-or-relocate decision also should be asking the community, "What can you do for me?" There's a role -- perhaps a crucial role -- in hanging on to a manufacturer that economic development agencies can play. For example, a combination of federal and local assistance -- including grants, loans and a lease -- helped Brunton move into its new facility in Riverton, Wyo.

"To lose one of our largest employers would [have been] a severe hit to the town," admits Phil Christopherson, economic development director of IDEA Inc., Riverton's economic development group.

How Old Are America's Plants?

At the turn of the 21st century, at least one U.S. manufacturer was turning out products in a facility built at the turn of the 20th century. That's an extreme example of an aging plant, and there aren't a lot of 100-year-old factories still in operation. Nevertheless, the percentage of new plants -- those less than five years old -- is in single digits, according to data from the 2006 IndustryWeek/ Manufacturing Performance Institute Census of Manufacturers. And, significantly, nearly three-quarters of the plants are more than 20 years old. Here's a statistical profile on America's aging plants.

By number of employees

All plants >100 100-249 250-499 500+
Less than 5 years old 3.4% 5.5% 1.9% 0.0% 4.6%
5 - 10 years old 7.4% 8.1% 7.3% 6.5% 6.2%
11 - 20 years old 16.8% 16.6% 16.9% 17.1% 16.9%
More than 20 years old 72.4% 69.8% 73.9% 76.4% 72.3%
Source: 2006 IndustryWeek/Manufacturing Performance Institute Census of Manufacturers.
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