Fighting Through the Worst of Times

Fighting Through the Worst of Times

Armed with tough-minded strategies, Ford, Hormel Foods and General MetalWorks battled the recession and have their companies poised for solid growth.

The past year or two has been a bloodbath in the manufacturing world. But amidst the drumbeat of layoffs, losses and bankruptcies, some manufacturers have managed to fend off recessionary forces and keep their companies profitable and healthy.

Through implementation of a massive restructuring initiative architected by CEO Alan Mulally, Ford Motor Co. posted a profit in a year that saw its two Detroit rivals file for bankruptcy.

Hormel Foods, meanwhile, leveraged its strong cash position to expand its product offerings while closely scrutinizing capital expenditures.

And custom metal fabricator General MetalWorks saw its long-term commitment to lean manufacturing practices pay dividends.

The three case studies presented here show how the worst of times brought out the best in some manufacturers.

One Ford

While many companies scrambled to restructure after the economy collapsed, Ford began bracing for an economic downturn several years ago. Soon after Alan Mulally was hired as CEO in September 2006, Ford unveiled a transformation plan ("One Ford -- One Team, One Plan, One Goal") aiming to streamline the company's disjointed global operations, bolster its balance sheet, simplify its brand structure, reduce labor costs and match capacity to demand, among other objectives.

One of the first and most notable actions Ford took under Mulally was to borrow $23.5 billion against its domestic assets in December 2006, which provided Ford the liquidity to pass on government bailout funds last year when the automotive market went into a tailspin. Ford also has been engaged in "some pretty painful restructuring," as James Tetreault, Ford's vice president for North American manufacturing, describes it.

In 2007, Ford and the United Auto Workers signed what Ford has called a "transformational labor agreement," which created a lower wage structure for new hires and shifted Ford's responsibility for retiree health care benefits to a union-controlled trust fund, among other provisions.

And Since 2005 in North America, Ford has shuttered 16 manufacturing facilities and downsized more than 48,000 hourly employees and more than 14,000 salaried employees.

"Both the salaried and hourly work force have really made a lot of sacrifices," Tetreault tells IndustryWeek. "Since Alan came on board and we really went to work on the One Ford plan, I can honestly say all of our employees have really contributed to that plan, and almost all with equal pain."

Tetreault notes that continuous improvement practices have "played a significant role in reducing our manufacturing costs." He asserts that the maturation of the Ford Production System (FPS) -- Ford's standardized process for running its manufacturing facilitieshas led to increased throughput in all of Ford's plants, through improved equipment maintenance and decreased downtime.

For example, a decade ago, Ford operated all of its plants on two shifts. Today in North America, three assembly plants are running on three shifts, "and our target is to get all of our plants globally to three shifts where we have the market for it," according to Tetreault.

"And we never would've thought we could run on three shifts," Tetreault says. "Running a plant around the clock presents some real challenges on the maintenance side."

However, as Ford has refined its Maintenance Operating System, "we're pretty comfortable we can do that, and we've actually been doing it in Europe and North America now for some time."

To meet the company's stated goal of aligning "manufacturing capacity to meet real demand," Ford is converting three of its truck assembly plants to small-car production, supporting what the company sees as a permanent market shift to smaller, more fuel-efficient vehicles.

Ford also has been investing heavily in flexible manufacturing technology. By 2012, Ford says nearly all of its U.S. assembly plants will have flexible body shops and nearly half of its transmission and engine plants will be flexible.

"We view flexible manufacturing as a real key component to reducing costs and being able to respond quickly to market changes," Tetreault says.

As part of the One Ford plan, the company has taken a number of other actions in recent years. To simplify its global operations and focus more attention on its core "Blue Oval" brand, Ford sold Aston Martin, Jaguar and Land Rover as well as the majority of its ownership in Mazda. Earlier this year, Ford entered into an agreement to sell Volvo to Zhejiang Geely Holding Group Co. Ltd. Ford also has been working to improve its collaboration with suppliers.

As of April, Ford said 90 suppliers were part of its Aligned Business Framework, which aims to forge long-term relationships with suppliers in hopes of bringing more leading-edge technology to Ford. Ford in 2009 posted a pre-tax operating profit of $454 million and net income of $2.7 billion, marking Ford's first full year of positive net income since 2005.

The momentum continued in the first quarter of 2010. The company in April reported a pre-tax operating profit of $2 billion -- a $4 billion improvement over first-quarter 2009 -- and said it now "expects to deliver solid profits this year."

Still, Tetreault says he is most proud of Ford's quality results, pointing to a recent RDA Group study concluding that Ford has the highest customer satisfaction with vehicle quality among all major automakers.

At its Chicago Assembly Plant, Ford has spent more than $130 million to equip the plant with key fobs, which require operators to confirm proper assembly of the vehicle for the assembly line to keep moving; an onboard diagnostics and tracking system that scans vehicles for quality issues; and a "rough-road" test track that enables workers to identify squeaks and rattles on vehicles before they leave the plant.

"We're certainly proud of our financial results too," Tetreault says, "especially in the worst market any of us have seen in our adult lifetime."

Meaty Earnings for Hormel

In fiscal 2009, Austin, Minn.-based Hormel Foods Corp., maker of Spam luncheon meat, proved that it has the right recipe for success during tough economic times. In the fiscal year ended Oct. 25, 2009, Hormel increased its net earnings by 20.1% (from $285.5 million to $342.8 million), boosted its diluted earnings per share by nearly 22% and posted its 44th consecutive year of dividend increases -- despite a 3.3% drop in net sales (from

"We put a very close eye on hiring . . . and we put a close eye on spending, deferring capital projects if they could wait."
-- Jeffrey Ettinger, Chairman, President and CEO, Hormel

$6.8 billion to $6.5 billion). Hormel, whose product portfolio also includes Dinty Moore stew, Hormel Compleats microwave meals, Jennie-O Turkey Store and Not-So-Sloppy-Joe sauce, dispersed more than $15.9 million to eligible employees as part of its largest annual profit sharing in company history.

Hormel Chairman, President and CEO Jeffrey Ettinger notes that the company in fiscal 2009 "put a high priority on restoring earnings growth" after experiencing a rare decline in net earnings in 2008. "We hunkered down in some ways," Ettinger tells IndustryWeek.

"We put a very close eye on hiring, even in terms of replacement jobs, and we put a close eye on spending, deferring capital projects if they could wait."

Ettinger adds that Hormel also has kept an eye on the future, dipping into its stash of cash -- the company had $385.3 million at the end of fiscal 2009 -- to grow its business through acquisition, expansion and advertising.

Last summer, Hormel announced that it was expanding its existing partnership with Mexico City-based food and beverage manufacturer Herdez Del Fuerte SA de CV, creating a 50-50 joint venture called MegaMex Foods. The joint venture is a freestanding entity based in Chino, Calif., and its product portfolio -- including the Chi-Chi's brand -- is worth about $200 million in initial revenue, according to the two companies.

Hormel also recently acquired the Country Crock chilled side-dish line from Englewood Cliffs, N.J.-based Unilever United States Inc. and announced its first single advertising campaign for the Hormel brand portfolio in the company's 119-year history.

Despite weak consumer spending during the recession, Hormel's focus on organic growth helped minimize its revenue drop-off. In 2000, the company unveiled its "Billion-Dollar Challenge" to generate $1 billion in sales from new products by fiscal 2009. The company met the goal by the end of fiscal 2007, and set a new target for $2 billion in total sales of products created since 2000 by the year 2012. The challenge yielded new products such as Hormel party trays, Hormel Compleats microwave meals and Hormel Natural Choice pre-sliced deli meats.

"I think we've had a long track record of success in delivering innovative products into the marketplace, and some of those newer items continued to pay dividends in 2009," Ettinger says. He adds that expanded product offerings, such as the addition of pepperoni minis (in regular and turkey versions) to its pepperoni brand also helped minimize sales declines.

Asked what Hormel has learned from the recession, Ettinger say that "it reinforced the notion that you need to invest even in difficult times."

Evidence of that philosophy can be seen in a new 348,000-square-foot production plant in Dubuque, Iowa, which opened on Jan. 25. Run by Progressive Processing LLC, a wholly owned subsidiary of Hormel, the plant is the first new production facility Hormel has built in more than 25 years.

"We just announced the 75th anniversary of both Hormel chili and Dinty Moore, and two years from now will be the 75th anniversary of Spam," Ettinger says. "If you do the math, those items were introduced during the Great Depression. So part of the legacy of the company was to invest in times that are challenging."

Fortunately, Hormel has been able to weather the recession without the kind of epic layoff announcements that have dominated the headlines in recent years. Ettinger estimates that approximately 40 of the company's 18,600 workers were downsized permanently in 2009. Shortly after Ettinger was interviewed, Hormel in April announced that it plans to close its Turlock, Calif., production facility, but the company added that the plant's 163 employees "may have the opportunity to work at one of four other Hormel Foods facilities in California."

Lean Strategies for Lean Times

General MetalWorks (GenMet), a Mequon, Wis.-based custom metal fabricator, began laying the groundwork for surviving the current recession during the economic slowdown of the early 2000s. GenMet President Mary Isbister notes that the economy, and the mounting pressures of global competition, spurred the job shop in 2004 to undergo a "lean transformation."

"At that point, we had to look at our operations and say, OK, what are we going to do to differentiate GenMet from any of our competitors, local and global, and what are the things that are most important to our customers?'" recalls Isbister, who, along with her husband, purchased the century-old job shop in 1999. "And if you think about the fact that on-time delivery and quality are table stakes -- they're the going-in position, they're taken for granted -- it has to be something else."

GenMet, whose customers include truck and construction OEMs and point-of-purchase display manufacturers, concluded that its customers wanted to order in smaller quantities that more closely matched their production schedules.

"So instead of having to buy a month's worth or a quarter's worth or a year's worth of product and hold it in their inventory, we were able to say, No, if you want to order weekly or monthly or whatever frequency works for you, we will give you a price that is still competitive,'" Isbister says. "So we became very good at doing small lots quickly."

With the help of the Wisconsin Manufacturing Extension Partnership, the Isbisters applied lean principles to just about every aspect of their business, from the shop-floor design to supply chain management. GenMet invested in more efficient technology ("all of our equipment is designed to have changeovers of 15 minutes or less," Isbister says) and lean training for their workers (GenMet recently went through its third shop-floor lean training program).

The company reconfigured its shop floor to enable a natural flow of materials, most of which is processed within 12 hours of arrival, according to Isbister. She notes that all materials roll through GenMet's 43,000-square-foot facility on fabricated carts or grocery cartsits two fork trucks are mostly used in shipping.

"We didnt carry a lot of either finished-goods inventory or raw-stock inventory that would cause us cash-flow problems."
-- Mary Isbister, President, GenMet
 

GenMet's lean initiatives have yielded impressive results. Productivity has doubled, lead time for fabricated parts has been slashed in half to several weeks, and Isbister estimates that the company has increased its inventory turns from nine per year to 28 per year since beginning its lean transformation.

The Isbisters have grown GenMet from $3 million in annual revenue to an all-time high of $12.6 million in 2008. Even though revenue dipped 15% in 2009, Isbister notes that the company achieved a higher net profit as a percent of revenue in 2009 compared with the year before.

Perhaps most importantly, GenMet did not lay off any of its 68 workers -- "we actually hired people in 2009," Isbister points out -- and was able to provide average salary increases of 3%. Isbister firmly believes that GenMet's focus on lean manufacturing practices was the key to its success during the recession.

"We didn't carry a lot of either finished-goods inventory or raw-stock inventory that would cause us cash-flow problems, and I think that's where a lot of businesses got in trouble in 2009," Isbister asserts. " Because we were already very lean by 2009, we didn't have that problem."
 

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