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IW's Blueprint For Manufacturing Success

Feb. 10, 2011
Can America craft a plan for ensuring a vibrant manufacturing future? These ideas can get us started.

It's not an unfamiliar story but it still provoked outrage. On Dec. 7, 2010, Phil Ramos Jr. found out that a customer of 25 years was dropping his company, Philatron Wire & Cable, and switching to a Chinese importer. Ramos, a U.S. Navy veteran, refuses to offshore jobs to China and says his company has lost millions in sales to competitors that outsource to China. His response: "We will continue to do what is right. Create jobs in America. We will continue to make high-quality 'Made in America' products. We will continue to re-engineer and rebuild our manufacturing infrastructure. And we will continue to win this economic battle!"

It's easy to see why some U.S. manufacturers look at their competitive environment in terms of a global conflict. Since 1979, U.S. manufacturing employment has fallen from 19.6 million to 11.6 million. American manufacturers produced $1.7 trillion in goods in 2009, but some analysts predict that China could overtake the United States as the largest manufacturer this year. While many manufacturers based in the United States are finding market opportunities in China, India and other emerging economies, the flip side is that outsourcing to low-cost countries over the past decade has resulted in the closing of more than 50,000 factories in the domestic supply chain.

With U.S. unemployment persisting at 9% or more, there have been a host of calls in political and business circles for a renaissance of American manufacturing. In June 2009, in the midst of the recession, Chip McClure, CEO of ArvinMeritor, told a manufacturing summit meeting in Detroit, "Prosperity comes from building, creating and producing. Tough choices must be made to create a pro-industry climate with policies on trade, taxes, energy, health care and education that make it competitive for U.S. and foreign manufacturers to build here."

Business leaders such as Andrew Liveris, chairman and CEO of the Dow Chemical Co., say the U.S is overdue for a comprehensive national manufacturing policy if it is to compete with countries where their governments intervene on behalf of their domestic companies. In his book, "Make It In America: The Case for Re-Inventing the Economy," Liveris writes that holding on to the "fiction that classic, laissez-faire capitalism" is the only alternative to the kind of government control exercised in China or Singapore will amount to the U.S. watching "helplessly as our standard of living steadily erodes."

Recently, President Obama has outlined in broad terms a set of policies to promote U.S. manufacturing and employment. In the State of the Union speech on Jan. 25, he called for a "Sputnik moment," an investment in research and development not seen since the space race. He singled out biomedical research, information technology and clean-energy technology for increased government support.

Education was cited next, with the president calling for the training of 100,000 teachers in science, technology, engineering and math over the next 10 years and revitalization of community colleges so they can help students prepare for rapidly changing job opportunities.

The president also called for greater investment in both traditional infrastructure and in new technologies such as high-speed Internet. He contrasted what was happening in the U.S. with some of its global competitors: "Our infrastructure used to be the best, but our lead has slipped. South Korean homes now have greater Internet access than we do. Countries in Europe and Russia invest more in their roads and railways than we do. China is building faster trains and newer airports. Meanwhile, when our own engineers graded our nation's infrastructure, they gave us a D.'"

At the U.S. Chamber of Commerce on Feb. 7, Obama listed these and other needs, including a permanent research and development tax credit, policies and trade agreements to promote exports, a reduction in the corporate tax rate and a review of government regulations.

Along with these efforts to help business, Obama reminded his audience of business executives that support was a two-way street. "The end result of tax breaks and investments can't simply be that new breakthroughs and technologies are discovered here in America, but then the manufacturing takes place overseas," he told the audience, adding that it broke the "social compact" and made people feel as if they were not benefiting from these discoveries. Obama urged business leaders to take the $2 trillion sitting on corporate balance sheets and "get in the game" by investing in America.

In an online post, Tom Collamore of the chamber said Obama had presented "an agenda that America's job creators can all get behind. The president's commitments in these areas are right on." But he called for more specifics in a number of areas, such as infrastructure investment. "On infrastructure, we've said all along that there's upwards of $180 billion in private capital waiting to be invested if regulatory roadblocks were cleared away. What we need from this administration is a comprehensive, multiyear plan for surface transportation that includes reform, strategic focus and strong accountability, plus a plan for paying for new investments in infrastructure."

"To enhance our competitiveness, businesses cannot continue to be faced with higher energy costs, higher taxes and government overregulation." -- Jay Timmons, President and CEO, National Association of Manufacturers.
At the National Association of Manufacturers, President and CEO Jay Timmons praised Obama for beginning the discussion on how to make the United States more competitive in the global marketplace. "The president's comments on increasing our exports, opening new markets and passing pending free-trade agreements are all important elements to achieving job creation, economic growth and competitiveness."

However, Timmons said the administration had much to do to remove "costly, unnecessary burdens" on U.S. firms and create an even playing field. Timmons said U.S. policy "cannot pick winners and losers and pit industry sectors against each other in order to achieve our goals. To enhance our competitiveness, businesses cannot continue to be faced with higher energy costs, higher taxes and government overregulation."

But while some business advocates are encouraged by these steps toward consensus on helping U.S. manufacturers, many think they simply don't go far enough. Peter Morici, commenting on the president's remarks, said: "Americans must produce more and use less energy to slash oil import costs, and the president needs to take substantive actions to offset the effects of China's undervalued currency and level the playing field for U.S. manufacturers."

However, Morici warned that the U.S "still won't be able to compete for jobs with the Chinese and other emerging powers in Asia if Washington refuses to tackle the burdens created by health care and retirement systems that push costs through the roof, whether paid for through burdensome taxes or employer mandates." He concluded: "Investments in education, high-speed rail and R&D the president recommends won't be worth much without tackling those tough problems."

Not Waiting for Washington

If anything is clear from talking to manufacturers, it's that they may welcome help from Washington, but they're not waiting around for a rescue. Take Neil Shillingford, CEO of Pexco, a manufacturer of extruded plastic parts with seven plants in the United States and Mexico and 900 employees. After a "pretty brutal year" in 2009, Shillingford says Pexco's orders rebounded strongly in the first quarter of 2010, but as customer stocks were replenished, business began to fall off again.

But Shillingford and his management team used the slower periods to implement a number of initiatives designed to make Pexco more efficient and more responsive to customers. The company uses a number of temporary workers, so it can scale its workforce up and down as business changes, but it continued to invest in its engineering and sales forces. Moreover, the company has started an apprenticeship program so that it can take students with technical educations and provide them the specific training needed for Pexco's operations.

Pexco also has taken lean manufacturing principles to heart. As a result, the company has become more adept at taking custom orders for short-runs and turning them out quickly. Shillingford notes that most of the firm's customers are in close proximity to its facilities and have considerable interaction with its engineers.

Shillingford says implementing lean began with top-down direction but it depends on employee engagement to be successful. Pexco held 50 kaizen events across its plants in 2010, and 34% of the workforce has been involved in at least one kaizen. Shillingford says the kaizens lead to a sense of pride in the workforce as they see how their efforts result in dramatic productivity improvements. The company uses conference calls and its company newsletter to make sure that the results of these events are shared throughout the company.

Pexco also is working to make itself more valuable to customers by providing additional services. For example, says Shillingford, a customer may want an extruded part but also two holes drilled in it or delivery in a partial assembly. Pexco takes care of that, simplifying the customer's supply chain.

Because Pexco operates across a number of markets, it has been able to smooth out the "peaks and troughs" of the business cycle. Shillingford says the aerospace market is particularly strong right now but that the general custom business also is experiencing good growth. He expects a good year in 2011 and an even stronger 2012.

So while manufacturers are pushing for more supportive policies from the government, it's clear that the actions they take will play a powerful role in their ultimate success. In the following pages, we explore some of the strategies that firms are implementing to make their operations more efficient, engage their employees, enhance customer satisfaction and seize new market opportunities -- their blueprints for manufacturing success.

See Also:
Leadership Starts at the Top
Average Isn't Good Enough
Fighting the War for Talent
Creating High-Value Supply Chains
What's Missing in Improvement Initiatives

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