Best Practices -- The Virtues Of Vertical Integration

Dec. 21, 2004
An intense focus on design supported by vertically integrated manufacturing gives Crown Equipment Corp. an edge in a mature market.

Crown Equipment Corp. seems on first impression to be a company that time forgot. Tucked away in the small Ohio town of New Bremen (population: 2,909) that prides itself on its 19th century streetscape, the company has leveraged vertically integrated manufacturing facilities to produce products for the mature material-handling industry.

Yet with its passionate attention to the products it makes and uncommon attention to the needs of the people who use them, the company represents at least one aspect of U.S. manufacturing's future: the ability to design, manufacture, distribute and service innovative, high-tech products in mature segments for which buyers are willing to pay a little bit more.

Consider Crown's achievements: the privately held company entered the material-handling industry late, in the early 1950s. The last North American entrant to the lift-truck manufacturing market, the company thrived amid a consolidating industry, rising to become the fifth-largest lift-truck company in the world and capturing the top spot in the electric lift-truck segment.

It's now a $1 billion company. Its financial success is complemented by its innovation and design accomplishments, represented by a substantial list of design awards -- including an international award that ranks Crown ahead of such design stalwarts as Audi, Jaguar and Porsche.

Company executives insist that no grand strategy or implementation of the latest management trend drives their success. They contend that what might be considered their "management strategies" are simply work processes that work for them, given the company's mission.

Take the vertically integrated manufacturing "strategy," for example. The fact that Crown plants produce 85% of the parts in its products came about not because of "some big strategic thing that 'we want to be vertically integrated and by golly that's what we're going to do,' " says Senior Vice President Don Luebrecht.

He notes that executives rarely even employ the term "vertical integration." Rather, the company's bias toward in-house manufacturing evolves from a "product-focused, product passionate" mindset, says Mike Gallagher, vice president, Crown Design Center.

Vertical integration gives the company "the ability to cook more of ourselves and this passion into the product," enabling them to build a product that is more central to the Crown brand. Both men are quick to point out that they and other executives at the company are not adamantly opposed to outsourcing manufacturing and other functions.

"We do tend to review these things, and revisit them to make sure we're still competitive," says Luebrecht. Most often though, says Gallagher, "It would be harder to achieve the brand promise with everyone else's supplied content."

Both executives stress that the company's focus on meeting the forklift operator's needs and their emphasis on ergonomics and safety has set Crown apart from its competitors. But it's also created the type of manufacturing challenges that few or no outside vendors address.

He explains that the company's breakthrough product, Crown's first counterbalance truck introduced in the '70s, is a good example. In developing the lift, the first in the industry to combine a multi-function control handle with a side-stance operator position, Crown could have found suppliers to contribute components to the control device but no supplier had the technology to build it.

Says Luebrecht, "That first multi-function handle was an incredible mechanical and electronic combination of things. That combination of things just wasn't around in those days."

Ultimately, says Luebrecht, the company's intense customer and product focus inspires designers, engineers and production employees at the company to be "more willing to be challenged and find new ways of solving problems -- to sweat the details of each component -- than somebody else who is one or two times removed from that feeling.

I think at times we've found ways of doing things that weren't impossible in other ways, but [most companies] wouldn't have had the patience or taken the time to get there." Tight integration between the design and production also accelerates product innovation, say company executives.

They note that once they've solved technological or ergonomic challenges for one product, they can quickly adapt the innovation to other products. When the company started development of its three-wheel sit-down counterbalance lift truck, the design team all had in mind the future development of a four-wheel model.

This allowed them to consider design challenges associated with both applications and essentially address them for both models at the same time. One question that remains to be answered is whether low-cost, overseas manufacturers will redefine competition in the electric lift-truck industry and render the vertical manufacturing approach obsolete, as it has in so many other industries.

The executives readily admit they are very aware of the possibility, noting that they do not only compete on price: "We're at the higher end of the price continuum," notes Joe Ritter, director of marketing. They also allow that they've been somewhat insulated from low-cost competition from overseas: "The electric lift truck industry has not been impacted over the years nearly the way the internal combustion industry has with off shore products," says Ritter.

He notes that while low-cost, overseas manufacturers tend to be good at mass manufacturing, "electric lift trucks tend to be more specialized. Our products are not cookie cutter and that's a different challenge for manufacturers, and those challenges have not created opportunities for those other countries in the electric lift truck industry."

No one can say for sure, but many speculate that U.S. manufacturers will survive by producing highly specialized products that do not compete on price, but rather better meet customer needs and provide better customer service.

Who knows? Maybe this smallish company, steeped in history and practicing what many think is an outmoded vertical manufacturing strategy, just might represent U.S. manufacturing's future.

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