1.Define American manufacturing’s 'FUBO'
The world has changed. America’s manufacturing base must make serious, fundamental changes to survive. To continue to polish the same old rules, policies, and methods will get American manufacturing nowhere.
China’s success in manufacturing is not just about low wages but rather its sheer size. Apple sourced its latest production to China not just because of labor rates but also the number of engineers that could be hired in less than a week. The same kind of ramp-up would have taken a year in the US – if it could have happened at all.
The key question American manufacturers must ask is this: What is First, Unique, Best, or Only (FUBO) about American manufacturing? What can it offer that China or other places can’t?
Trends show that high-skill, high-tech production could regain a foothold here in the US. Growing demand for alternative energy and alternative vehicles promises other opportunities for American manufacturers.
American companies have the advantage of being closest to the world’s largest consuming nation – the US. As transportation costs continue to rise, the ability to sense and adapt to that market’s demands becomes increasingly important for competitiveness.
Develop and use “Thoughtware”
Companies must invest in and unleash the intellectual capital within their organizations. Too many companies are spending fortunes on hardware and software and getting little return on that investment. While technology continues to advance, there is still no substitute for thinking. Hardware and software are ineffective without the right “thoughtware.”
Currently America’s educational system prepares students for more education rather than teaching them to think critically and adapt to a changing environment.
The late Dr. Eliyahu Goldratt, author of “The Goal,” frequently commented that the average manager would rather spend $5 million than spend 5 minutes thinking. Economic recovery through the development of a strong manufacturing base is not as dependent on money as it is on creative critical analysis.
Such idea-generation has always been at the heart of success in American manufacturing and entrepreneurship. Companies and schools must continue to nurture that spirit – and tap into it.
Become demand driven
Build what the customer wants to buy rather than what the company wants to sell. Despite the advantage of being close to the American consumer market, American industry will not and cannot compete with operating methods designed in the 1950s that cater to detached boards of directors and financial markets rather than the consumer.
The post-World War II mode of “Push and Promote” based on low unit cost and high efficiency is a recipe for disaster in today’s intolerant fickle markets. The automotive industry is an excellent example. In January 2012, Ford had almost twice the inventory at the dealership as auto executives like to have on the lot and in the showroom, but the plants continue to push more Focus and Fiesta cars out of the plant. Ford isn’t alone.
American industry must start making decisions based on customers first and old-school accounting costs second. This requires a significant operating shift from making what the forecast says because it is more efficient to making what the customer wants because it is more profitable.
This is not a new idea. In the 1990’s, Chrysler increased its sales by 40 percent when shifting to this velocity model, which enables customer demand to pull products through the system. When Chrysler reverted to the old ways of doing business, sales plummeted consistent with the other Big Three automakers at that time.
Improved responsiveness doesn’t have to be synonymous with increased cost. However, the cost of being efficient but out of synch with the market is staggeringly high and is currently bankrupting companies daily. Successful American companies develop the ability to significantly reduce the time to manufacture the product, reduce working capital, and improve customer service – all at the same time.
Use sensible metrics
The current manufacturing metrics of efficiency, keeping all machines busy all the time (utilization), and overhead absorption were developed after the stock market crash of 1929. Any manufacturing manager can tell you what products are really the most profitable. Rarely does the formal accounting system come up with the same answer.
Sensible metrics must be deployed that encourage better integration of various components within the company. These metrics align resources, working capital, and activities to the company goal of being sustainably profitable. Sustainable profitability is far more important than short-term operational efficiency.
Learn from success
Even during these very dark times there are American manufacturing companies in a variety of industries that are not only surviving but thriving. These companies stripped out the common non-sense of prevailing practices and got on with the business of providing what the customer wants, when they want it, at a price that is competitive.
Take Le Tourneau Technologies – an American icon that supplied 70 percent of all Allied earth moving equipment in World War II. In more recent years, instead of falling into the trap of outsourcing a capital-intensive division of the company that made steel, the company leveraged its ability to supply this key raw material closer to home and significantly reduced the time it took to build its steel-intensive product.
Instead of following common practice, the company protected its supply chain and was able to sell highly specialized steel on the open market for even more profit. Overall company revenues and profits skyrocketed.
Similarly, Oregon Freeze Dry, the largest diversified freeze dryer in the world, recently realized a 13 times revenue increase while only increasing inventory by two times. Tube Forgings of America completely rethought its operational approach. It reduced inventory and increased serviceability to customers and as a result has been very successful during the recent economic crisis, according to management. There are a number of other examples of companies that adjusted to market demands and changed their operations to better respond to the customer.
Each company spent time thinking, and then it developed and implemented a unique competitive advantage supported by sensible metrics. There are many stories like this if other manufacturers are willing to listen and learn.
Carol Ptak is currently a founding partner with the Demand Driven Institute. She has authored seven books focused on manufacturing competitiveness and was most recently a visiting professor and distinguished executive in residence at Pacific Lutheran University. Previously, Ms. Ptak was vice president and global industry executive for manufacturing and distribution industries at PeopleSoft. Ptak is also a past president of APICS (the Association for Operations Management).