Made In The U.S.A.

Can appliance-control maker ACT Inc. become both the low-cost producer and the high-quality provider?

In a business in which success has eluded the likes of Texas Instruments, National Semiconductor, and Motorola, Wallace Leyshon, the founder of two-year-old Appliance Control Technology Inc. (ACT), optimistically expects his company to succeed.

In an old-line industry in which potential customers -- companies with familiar brand names such as Whirlpool, Tappan, and General Electric -- usually take years to incorporate new product features, Leyshon brashly claims ACT can get its components designed into products within months.

In competition with rivals who do their manufacturing in Singapore and other low-wage locations, Leyshon confidently predicts that he'll beat their product quality, service, and prices by using stay-at-home U.S. labor.

Is Leyshon naïve? Just hopeful? Or does he know something that the others don't?

ACT, Leyshon's first solo business venture, designs and manufactures microprocessor-based controls for major kitchen and laundry appliances -- the electronic buttons and panels you use to make them work. The challenges confronting the company are prodigious. Its customers are the large, conservative U.S. and European corporations that manufacture the appliances, and persuading decision makers at such places to take a little company's claims seriously is a major hurdle for Leyshon and his crew. And the almost revolutionary ambitiousness of those claims does not make clearing that hurdle any easier.

ACT, promises Leyshon, 39, who has education and experience in management and engineering, will be the low-cost producer of electronic controls. Aggressively reducing its price will not only assure his company's entry into the market, he says, it will greatly expand the size of the market by helping to make electronic controls price-competitive with old-style electromechanical knobs and dials. But at the same time that he touts his company's lower prices, Leyshon claims that ACT delivers measurably higher quality than the competition and demonstrably better service. And one other thing: Leyshon says that ACT will make the entire appliance industry more responsive to consumer demand by changing the working relationship between vendors and their appliance-manufacturing customers.

That's an awful lot of challenges for any company -- but especially the youngest in the business -- to take on all at once.

In 1986 Leyshon was running Motorola's electronic appliance-control business. While Motorola was the market leader at the time, appliance controls were just a small part of its booming automotive and industrial-electronics group, whose main business was producing computer controls for the automobile industry. Leyshon's division shared a manufacturing facility with its parent group, which meant that Leyshon had only dotted-line control of that function so far as his products were concerned. When Motorola management decided to move the entire manufacturing operation to Taiwan, Leyshon took issue. The move offshore, along with his feeling that Motorola wasn't adequately funding his end of the business, precipitated his departure.

In December 1986 Leyshon incorporated ACT, headquartered in Addison, Ill., a western suburb of Chicago. Eventually some of his former Motorola colleagues joined him: Brian Althoff, engineering manager at the appliance-control division, became ACT's vice-president for engineering and R&D. Les Jones, director of quality at the Motorola unit, became vice-president of quality assurance in the new business. In March 1987 the Electrolux division that makes Tappan microwave ovens wrote a $3-million-plus purchase order to become ACT's first customer. In September of that year ACT produced its first controls on a single, $1-million automated assembly line. Now, more than a year later, the company is operating two lines and contemplating a third.

Leyshon wooed Tappan with promises of lower prices, higher quality, and better service, the same line he uses on other prospective buyers. The issue is whether ACT can deliver.

Leyshon predicated his venture's early survival on its ability to drive the price of electronic controls down, thereby expanding the potential market and quickly building ACT's volume. Major appliance makers produce more than 45 million of the so-called white goods for the U.S. market annually. In 1986, maybe 15% of those appliances incorporated electronic controls. But 60% to 75% of the unit volume in any appliance line, Leyshon's research revealed, is in the midprice models, which electronics still hadn't penetrated. That's the market he wanted ACT to get into. By 1991, according to his projections, it will be worth some $750 million in the United States alone. There was also the European market, about the same size, to compete in.

To meet his objective, Leyshon elected to use three strategies. The first involved design and engineering; the second, manufacturing. And the third, maybe the riskiest, involved selling and marketing.

Before and during Leyshon's management, Motorola's appliance-control group had concentrated on designing products that were proprietary to each of its customers. ACT's design, Leyshon decided, would aim for increased standardization. That doesn't mean that its controls will look alike to consumers who buy, say, different brands of microwave ovens incorporating the ACT product. They won't even look the same from model to model within the same brand. Higher-priced ovens will still have more features -- a defrost cycle or a meat-temperature probe, for instance. But in the ACT design scheme, underneath the touch pad, there's the same chassis, same microprocessor, and the same components mounted on the same printed circuit board. The differences lie mainly in the software that's embedded in the microprocessor chip and in the panel face presented to the user. ACT's first product replaced 12 separate controls Tappan had been using on its family of microwave ovens with just 2 standard control models -- one for domestic ovens and the other for export. The electronic ACT product was priced at $16.80, about 12% less than the competitor's electronic control it replaced.

Standardizing its products within and even across appliance lines -- from clothes washers to dishwashers, say -- will reward ACT and its customers with substantial cost benefits, Leyshon argues. Instead of buying a million each of 10 different electronic components, for instance, ACT can buy 10 million of just one and get the higher volume price from the component maker. That's an important savings, since as much as 70% of the cost of the control is in materials. But nearly as significant in the Leyshon scheme are the savings reaped from lower inventory costs and shorter lead times. ACT and its customers will have fewer different parts to inventory; Just in Time inventory demands will be easier to meet.