There is nothing I enjoy more than getting out and interacting with owners and employees of small- and medium-sized (SMEs) manufacturers. I had the opportunity to do just that last month.
At an Advanced Manufacturing Technology engagement hosted by the Iowa Association of Business and Industry (IABI), I spoke of the need for step-function type change by companies who want to increase their competitiveness, i.e., something that incremental changes rarely result in. My October 18 IndustryWeek column was an extended version of that talk.
I also gave a presentation on “The Business Case for Sourcing Locally” that would have been familiar to many of you as it built on several of my past articles. It specifically covered the current OEM strategy of focusing on piece-price and how that undercuts company financials. As an alternative, it presented the concept of lean-performing supply chain performance and how that should be the goal of all supply management functions, since it allows for the reduction of internal OEM costs, lower supplier costs and can deliver a step-function order fulfillment advantage in the market place.
Believe it or not, not everyone reads my weekly columns!—meaning that the topics in both my talk and presentation were new to many in the audience. Because of this they generated a lot of discussion and questions. If you’d like a copy of the presentation I gave, please send me an email. But the most important presentations at this conference were—at least in my opinion—those made by the SMEs themselves. The point of these presentations was to lay out how a company had successfully addressed a business issue with the hope that others could benefit from their example. Two such presentations caught my attention, and I will describe them below.
Daycare Makes a Big Difference
The first involved workforce retention. The SME in question was located in a small town within 25 miles of a major city. This company had about 50 employees and an annual turnover rate of about 20%. Based on this, you might think that this SME was a bad place to work. That wasn’t the case; i.e. feedback from employees who were leaving the company was that higher wages in the “big city”—not working conditions—were the major reason they were moving to another employer. The wage rate on those other jobs was about a dollar or two an hour higher than the SME could offer.
The owner of the business analyzed the situation and came to understand that much of the turnover was with single mothers having childcare needs. He owned a building adjacent to his factory and came up with the following idea. He offered to refurbish it and charge a sub-market rent if the towns’ single existing daycare facility would relocate to it. Since the addition of his worker’s children would represent a substantial increase in the daycare’s population, the daycare provider could offer the SME’s employee a discounted childcare fee. On top of this, the SME owner also anted up by offering to pay 50% of his employee’s childcare costs at the local facility. In a short period of time, his workforce turnover all but disappeared. And in the end, the cost to the SME ended up being less than the costs associated with the ongoing turnover. The company now has a waiting list of people wanting to work there to take advantage of the childcare benefit.
All I can say is WOW! Here’s an example of where a company that couldn’t compete for employees on wages but was able to compete with the “big boys” by offering a targeted “perk.”
True Lead Times
The second presentation was near and dear to my heart as it focused on reduced true lead-times. In this case, the lead-time reduction involved asset turnover and how it could positively impact cash flow, sometimes to the point of where companies are able to finance their business solely on cash flow. If you think about it, this idea aligns very closely with the concept of true lead-time reduction.
The presenter first offered up a series of operational questions and invited audience participation in answering them. It turns out most people could provide the correct “theoretical” answers. On the other hand, when the presenter would ask, “how many of your companies are operating along the lines of that answer,” there were a lot of embarrassed faces.
The presenter went on to offer strategies attendee companies could use for increasing their asset turnover, which is the key to improving cash flow. In talking to attendees after the presentation—mostly SMEs—I learned that that this perspective was new to many of them and that they would consider applying it to their own operations.
The IABI should be commended for putting together this conference. Based on my experience, I believe Iowa-based manufacturers should make themselves aware of and consider participating in future such events.
The day after this conference, I was invited to visit the University of Northern Iowa’s Metal Casting Center. Simply put, I was awed by what I saw. A couple of weeks ago I included in an article a comment along the lines that SMEs—as opposed to OEMs--were slower to adopt new technology due to the investment cost. To address this, the Metal Casting Center has developed new mold development technology that pays for itself over a very short term. There is not enough room in a multi-topic column to discuss this Center in detail, so I plan to dedicate an entire future column to what this organization has—and is—accomplishing up in Cedar Falls, Iowa.
The following week, I went to the annual North American Carbon Dioxide (CO2) Conference in Indianapolis (which I’ll talk about in a future column), and then joined a colleague on a pre-installation visit involving gas storage related products at a manufacturer that I once had responsibility for purchasing from. In fact, 20 years or so ago I had sponsored a successful six-month supplier development engagement at the plant. It turns out that the “inside” person my friend was working with on his project was the same guy I had worked with back-in-the-day.
Anyway, rather than getting straight to the matter at hand, I was given a detailed tour of the factory to see how it had grown and changed over the years, all the time my sharing stories about “the old days”. My colleague wasn’t (too) put out by this, and seemed to be impressed by the relationship we had established all of those years ago. It was great to see how successful this company had been in the meantime.
For an old guy like me, the above represents a pretty busy schedule. But from my perspective, it certainly was worth it.
Paul Ericksen is IndustryWeek’s supply chain advisor. He has 38 years of experience in industry, primarily in supply management at two large original equipment manufacturers.