New! Improved! Manufacturing

Suddenly, the shop floor is where the action is.
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Confronted with a dramatic increase in foreign competition over the past decade, American companies have fought back in many ways. Shoe manufacturers have screamed for tariffs. Garment makers and electronic-components companies have moved their operations offshore, hoping to match foreign competitors' low labor costs. Some consumer-electronics companies have stopped making television sets and videocassette recorders entirely, turning themselves into marketing-and-distribution organizations for products made in Japan. The echoes of these strategic moves can be heard in the national debates over protectionism, industrial policy, and the decline of America's manufacturing base.

Amidst all the noise, a few companies have responded quite differently to the new world economy. Instead of joining the Japanese or the Taiwanese, they are looking to beat them. And instead of hiding behind protective tariffs, they are doing whatever is necessary to meet the competition head-on. Unlike the other strategies, this one hasn't made many headlines, and it hasn't occasioned many debates in Congress. But there are signs that it has taken root, and that it is beginning to spread (see "Made in USA," INC., March 1985).

The key to the new strategy is manufacturing. "There's no doubt about it," avers Hal Mather, an Atlanta-based operations consultant who logs a quarter of a million miles a year advising his clients. "There's been a profound change in management's perception of the importance of manufacturing."

"In the past," agrees Joseph D. Romano of A.T. Kearney Inc., another operations consultant, "manufacturing was considered a cost center and therefore a liability. Now, because of the substantial savings that improved operations can bring, it's being regarded as a profit center -- and is getting much more attention from management."

The most visible example of a company with a new approach to production is General Motors Corp. GM has invested in computer-vision companies and has campaigned to establish a common computer language for the factory floor. Its newly formed Saturn Corp., for which it has earmarked some $5 billion, will develop heavily computer-integrated facilities."The whole area of manufacturing engineering has never before enjoyed the level of respectability and acclaim that it pressently does," says a GM spokesperson. "That's where the money is being spent, and that's where the talent is going."

A sampling of other companies, large and small, reveals similar priorities:

* Hewlett-Packard Co. has always been a leader in manufacturing -- but, says William Boller, manufacturing manager for HP's Data Systems Division, "It's only been within the past few years that we've realized that excellence in manufacturing had to be applied companywide." HP has increased its commitment to automation, introduced Just-in-Time inventory controls, moved toward kanban, or "demand-pull" production, and committed itself to new quality standards. "Before," says Boller, "HP encouraged innovativeness; now we're more willing to exchange information, to discuss developments, to borrow technology. Major things get picked up across the company pretty quickly."

* Fireplace Manufacturers Inc., a small, Santa Ana, Calif., company that produces fireplaces for the home-building industry, found itself facing competitors that undercut its prices by as much as 50%. A sales-driven company until then, FMI realized that new manufacturing efficiencies were its only hope for survival. With the help of operations specialist Kiyoshi Suzaki, then with the consulting firm of Theodore Barry & Associates, the company made low-tech improvements that brought major payoffs: in less than a year, machine setup times were reduced from an average of two hours to an average of 15 minutes, inventory was cut by 52%, and scrap rates dropped from 20% to 9%, representing a one-year savings of $300,000. Direct labor productivity rose by 28%. "We might well have seen a loss last year," says company president Willard P. Harris, "if it hadn't been for the changes we made in manufacturing."

* Inmed Corp., #125 on INC.'s 1984 list of the 500 fastest-growing privately held companies in America, began as a distributor of medical and surgical supplies, but has moved into manufacturing at a time when many of its competitors seem to be shying away from it. "We're emphasizing manufacturing both domestically and internationally," says Roland Petersen-Frey, chief executive officer of the Norcross, Ga.-based company. With 1984 sales of $35 million, the company earmarked a hefty $5 million to improve its manufacturing processes in 1985, including $3.5 million for automated cotton-bale-opening equipment at its South Carolina cotton mill and $1 million for its Indiana latex operation.

By itself, a sampling of companies doesn't make a trend. But signs of a renewed emphasis on manufacturing are showing up elsewhere as well. In the consulting business, a bellwether of business trends, such operations consulting firms as A. T. Kearney, Theodore Barry, and Rath & Strong are now booked solid months in advance, and are signing up new clients as quickly as they can identify and steal qualified consultants from other companies. "In the past year, we've grown 65% in terms of sales and number of employees," says Lawrence A. McKay, a senior vice-president with Barry, "and this year we're estimating growth in excess of that." Adds Kearney's Romano, "Most manufacturing consulting companies are running full-tilt-out."

These days, moreover, old-line manufacturing firms are competing for talent and business with Big Eight accounting firms."New products such as manufacturing consulting are the faster-growing areas [in accounting]," says Arthur Bowman, editor of Public Accounting Report. The chairman of Coopers & Lybrand, Bowman adds, recently confided that he needed engineers as much as he needed accountants. In the competition for talent, Coopers lured William Wheeler, one of its partners in manufacturing-consulting services, away from Rath & Strong Inc., while Arthur Young stole Kiyoshi Suzaki from Theodore Barry.

Wheeler claims that Coopers's manufacturing-consulting practice has grown tenfold within the past five years, while Arthur Young boasts a 35% increase in just the past year.

According to personnel specialists, executives with manufacturing skills are an increasingly valuable commodity. "Companies are looking for people with strong manufacturing backgrounds now, particularly those with modern, state-of-the-art manufacturing expertise," says Lew Lenkaitis, managing vice-president for the Cleveland region of Korn/Ferry International, one of the world's largest recruiting firms. "They're looking for experience in flexible manufacturing systems, quality circles, sophisticated statistical process quality control -- it's a distinct trend."

Others echo Lenkaitis's theme, adding that manufacturing seems to be attracting a higher caliber of people than in the past. Joseph Romano notes that the consultants he hires and the operations employees he works with are "much broader people" these days."They need to have a better understanding of the various disciplines within manufacturing, and of the way manufacturing relates to the other functions of the company." Dan Ciampa, president of Rath & Strong Inc., agrees, identifying "a new breed of manufacturing guy, the charismatic manager of operations -- a person who can work with, build relationships with, and be the peer of the head of marketing, the head of engineering." John M. Nash, president of the National Association of Corporate Directors, adds that manufacturing experts are also being sought after for board duties.

If manufacturing is the hot new area of America's business future, then good manufacturing companies should be hot properties. Some think they are. "I take a longer, harder look at manufacturing than I would have 10 years ago," says Jerome S. Siebert, president of the mergers-and-acquisitions firm of Siebert Associates, in Fairfield, Conn. "When I walk through a plant, I'm looking for fewer people, more efficient operations, lower manufacturing costs." Susan McGarry, of The Yankee Group, a consulting firm in Boston, concurs. "Companies are considering the manufacturing strategy of acquisitions much more than they have in the past," she observes. "They're looking at manufacturing as a competitive weapon." Gary E. Roelke, senior vice-president of Geneva Business Services, in Teaneck, N.J., says that owners of manufacturing companies are seeing opportunities "to sell at a better price than they have previously."

In the long run, what happens to manufacturing in America depends not only on what's taking place today but on what's in the pipeline for tomorrow. In that connection, the renewed academic interest in manufacturing is a telling sign. In March 1984, for example, the Harvard Business School sponsored a colloquium on the subject, and faculty members Robert H. Hayes and Kim Clark, among others, have been pushing the operations perspective. At UCLA's Graduate School of Management, says professor Elwood S. Buffa, "We've already established a course in operations strategy, and I've been leading an effort to include new courses, one dealing with the operating manager and one dealing with new product process technology." F. F. Leimkuhler, head of the School of Industrial Engineering at Purdue University, describes an ongoing battle among engineering schools for preeminence in manufacturing engineering. "Faculties are looking for business and future markets, in terms of competing for grants and attracting new students," he explains, "so they want to lay claim to this territory."

Some schools have already seen such payoffs. "Last year," says Harvard's Hayes, "Johnson & Johnson and American Express came [recruiting], and instead of just saying, 'We want financial people or marketing people,' they said, 'We want people to help us in operations.' "In 1982, Purdue landed a $6.25-million grant from five corporations to create CIDMAC, the Computer-Integrated Design, Manufacturing & Automation Center. And the National Science Foundation plans to hand out up to $94.5 million in the next few years for six new engineering research centers. "The importance of manufacturing is finally being recognized by American industry," says Bernard Chern, director of the NSF's new Division of Design, Manufacturing & Computer Engineering. "Universities and their students understand that there are challenging and interesting problems to address in manuacturing research."

It's hard to tell, at this point, how widespread and how durable this renewed interest in manufacturing is. Plenty of corporations haven't yet done anything to upgrade their manufacturing systems, and there are plenty of skeptics who believe they shouldn't bother. "I think it's kind of like generals fighting the last war," says Charles J. Hess, a partner in Inferential Focus, a New York City consulting firm. "The new war is on the other side of the sales equation." The winning strategy, Hess says, is tactical alliance between foreign manufacturers and powerful domestic distributors. Reflecting this view is a phrase gaining currency at some companies: "Own markets, not manufacturing."

Field operatives like Hal Mather, however, aren't losing sleep over whether they will have clients tomorrow. To Mather, high-quality manufacturing isn't a simple matter, but neither is it a passing fancy. What has happened, in his view, is that the world has changed, and American companies will either learn to compete on the shop-floor or will lose out to those that do.

"The challenge," he says, "is not the Japanese per se, it's the goals they have set: world-class products and world-class competition." Some companies, somewhere, will make those products and lead that competition. The question is, How many U.S. companies will be among them.

Last updated: Jan 1, 1986




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