Home-Run Hitters

Dec. 1, 2003
This is the final installment of a seven-part series that details the strategic and often gut-wrenching shifts taking place in manufacturing. It appears in the December 2003 issue of IndustryWeek.

You may not get a brand boost with the "Made in America" label anymore, but manufacturing in the United States still can be a lucrative business. Just ask a few of the companies that have chosen to capitalize on the advantages of U.S. production rather than dwell on its challenges.

By ignoring conventional wisdom, which urges them to move all but basic assembly production off shore, they've identified and implemented strategies in which U.S. production capability gives them a competitive advantage. Their success in the midst of one of the worst manufacturing recessions in U.S. history challenges the notion that winning in manufacturing today requires locating production in low-cost countries.

Think Global:

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

To survive as a U.S. manufacturer, you must "get global and figure out how to be a global solution provider, [or] you're going to have a problem," declares Brian Jones, president of Nypro Inc. It's the strategy he's used to double the size of his precision injection molding company in four years, while the recession eliminated nearly a third of the top 100 U.S. plastics manufacturers. Jones expects his $800 million company, which serves the health care, electronics and telecommunications, automotive and consumer industrial sectors, to grow 10% this year.

Key to executing the strategy, he says, is to locate facilities close to customers and in places that drive innovation in the industry, even if that means locating production in a high-cost country. "You need to figure out what we call a match-up zone: How are you going to match up with those sourcing, engineering, new product and [production] groups in different places of the world? And if you can't match up with them, you're not going to get the work."

To establish the necessary global footprint, Nypro formed 17 new companies in the past two years -- including five in the U.S. The company's U.S. production stands at 40% to 45%. He stays in the U.S., "because it's the best market in the world," and because his U.S.-based customers demand short supply chains. Similarly, Nypro has invested in relatively high-cost France so it can be within a 200-mile radius around Switzerland, Germany and France, the center of the plastic industry's technological innovation. Finally, Jones is investing in low cost regions -- China, India and Southeast Asia, not solely for low-cost production, but because, "10 years from now, those are going to be some of the biggest consumer markets in the world."

Web Exclusive: For more from Brian Jones, Click here

Think Productivity

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

Richard E. Dauch, CEO of the $3.5 billion American Axle & Manufacturing (AAM), Detroit, also says that to be successful in today's economy, a manufacturer has to be a global provider and systems integrator, and that U.S. production remains a significant part of that strategy for AAM. "We firmly believe the key to U.S. manufacturing is productivity and new products [and new technology] -- and making sure your workforce knows how to adapt to those new products and technology."

To that end, AAM invests heavily in training, product and process technology, and engineering and manufacturing research. Dauch says the company has invested well over $2 billion -- with about $130 million going to employee skill-set development, education and training -- since he purchased five "troubled" plants from General Motors and formed the company in 1994.

With the strategy, Dauch transformed the plants into a company that has turned a profit every year since, and that holds a 37% share of the North America driving axle and drive shaft market for light trucks and SUVs. In addition, four of the original plants, which are still union shops, adds Dauch, "are now approaching world class."

The aggressive moves put AAM in a solid position to compete in the hypercompetitive auto industry, where major U.S. OEMs recently laid down the gauntlet: "Meet China's prices, or go to China."

"We already have a competitive cost structure, we have that capability, and we just don't have to go to Asia" for low-cost manufacturing, says Dauch.

Instead, the company will continue to invest in U.S. factories as it pursues a "selective" global expansion strategy to meet today's global customer demands. The company now has 12 U.S. factories, as well as plants in Brazil, Mexico, England and Scotland. In the last six months, Dauch notes, AAM moved production of a drive train commodity component -- a drive shaft -- back to the U.S., from China, for a future program.

Web Exclusive: For more from Richard E. Dauch, Click here

Think Service

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

Running a small, under-$10 million privately held company, William B. Stockwell has dramatically changed the way he runs his company in response to globalization. "What I've had to do is look at our manufacturing business as a service company that happens to manufacture the product that we provide," he says. Though revenue growth is flat for 2003, the company grew a profitable 12% from 2001 to 2002.

"I'm trying to be smart enough not to go toe-to-toe with the off-shore manufacturers," says Stockwell. "I pick my spots: There's no way I could make a standard or generic component as cost-competitively as they can -- and they make good stuff."

Instead, Stockwell focuses on being the go-to guy during his customer's new product development phase, providing design assistance, material sampling, and prototype- and initial-run production of rubber components to the high-technology sectors, such as analytical instrumentation and medical equipment sectors.

With the strategy, Stockwell incorporates the reality that, at some point, the high-volume production of the new component will be moved off shore.

"We've had to grow up. We used to hate that a couple of years ago, but that's the deal. So we have to be smart: We can't over charge, [but must] charge enough money to make it worth our while.

"Basically our job is to be open to that next opportunity with the OEM, knowing that this is the new game. We can't close off a relationship with an OEM because [they moved production off shore]. It's part of how they keep competitive.

"As long as my OEM stays healthy, and they can continue to afford to have an innovative design team or design structure, that's good. If they stay alive, I'll stay alive."

Web Exclusive: For more from William B. Stockwell, Click here

Think Customer

Dov Charney, CEO, American Apparel, Los Angeles

With his 5-year old T-shirt manufacturing company, Dov Charney, is out to prove that a vertical manufacturing company, paying "rich-country wages" in the heart of downtown L.A. can be profitable in what is largely viewed as a commodity business, and so far he's on roll. American Apparel doubled sales for three years running, from $20 million in 2001 to an estimated $75 million in 2003.

Charney says his strategy is to know and serve the up-and-coming customer better and faster than his competitors, rather than to compete solely on price. "Our prices are higher than some of the off-shore producers, and rightly so. But ask a 20-year-old young woman if it makes a difference to her, $12 or $18, which T-shirt she wants to wear. If the $12 T-shirt is not fitting right, she won't wear it in public. In fact it has a negative value.

"Not [everybody] wants to be low-costed. So we produce products that young people love to wear and really study that and optimize that and concentrate all of our assets around doing that," rather than spending time and money managing a lengthy, complicated off-shore supply chain.

Charney rattles off a list of advantages to manufacturing close to the market he serves: The proximity to the market enables the company to react more quickly, with throughput of "maybe three days," versus an off shore time of 90 days. Small quantity manufacturing, including market tests, can be easily and quickly executed. Plus, he says, being able to walk through the factory on a daily basis keeps him apprised of quality issues and ensures the "evolution of the manufacturing process."

Web Exclusive: For more from Dov Charney, Click here

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