American Manufacturers have done a good job of competing for the last 25 years. They employed a long list of internal initiatives like TQM, MRP, JIT, ERP, ISO, Six Sigma, and lean to improve manufacturing efficiency and reduce costs. The question is are these internal manufacturing programs going to be enough to allow American manufacturing to maintain or improve our long-term competitiveness against global competitors? The short answer is no. I believe that it will take thinking outside of the box (actually outside of the plant).
We must shift to external strategies and go on the attack. The good news is that many progressive U.S. manufacturers have implemented many creative strategies that are working well in the new economy and against foreign competitors. The following are 10 competitive strategies used by some of the most progressive manufacturers I have met in my travels:
1. Sell Value -- Pricing is relatively simple if you are willing to compete by offering the lowest price. But now with low cost foreign competitors coming into our markets, most American Manufacturers cannot compete with low prices. They need to sell value at a competitive price.
2. Diversified product line -- Sexton Can Company Inc. has been supplying steel containers for over a century. Over the years, Sexton has developed vital manufacturing competencies, such as deep drawing, ironing, decorating and press technology. Sexton has pioneered the use of drawn containers where none were previously used and has the capacity to develop and produce seamless containers specifically designed for each customer’s needs.
Sexton Can Company’s primary competitive advantage is they can manufacture a huge range of sizes, in small lots, and meet accelerated delivery requirements. They have designed their own proprietary hydraulic presses and processes and can produce high quality steel containers at competitive prices.
Sexton has survived several wars, many recessions and all of the changes to their products for many years. A great deal of their success is that they have continued to develop specialized products for niche markets where they could gain a competitive advantage and maintain profitability.
3. Market and Customer Diversification -- Nimet Industries is a job shop in South Bend, Ind., that offers proprietary processes using anodizing and nickel finishes. Nimet has consciously tried to diversify into industries such as medical, dental, pharmaceutical, food processing, fluid power, and electronics. Within these industries, there are many market niches defined by processes and application.
Vice President Guy Ellis says, “The advantage for us is that when one industry segment is down it’s hardly a blip in our sales. We really try to diversify as much as can to minimize the impact of business cycles on our company.”
4. Customization -- Customization can provide a competitive advantage and growth. Since the 1980s, 483,000 jobs have been lost in the apparel industry. But as the U.S. apparel industry continues to shrink, Jacquart Fabric Products has been growing at a rate of 18 percent per year.
The key to Jacquart’s success is their ability to customize products and deliver them quickly. For instance, the company offers 500 different SKUs of dog beds in hundreds of different colors and materials. From the time of order, they can deliver the custom bed to any town in the U.S. in three days. What Jacquart Fabrics has accomplished is instructive and should be considered by manufacturers trying to survive in many other mature industries that are threatened by foreign competitors.
5. Innovative New Products -- American Made and its subsidiary, U.S. Liner Co., have built their business on new product development. Their success is rooted in their ability to listen and pay attention to customers and their needs.
American Made has a 100 percent success rate at new product development launch, having introduced three major new products to heavy truck segments of the market. American Made is the fastest growing manufacturer in the Pittsburgh area and has had double-digit growth from the beginning.
6. Offer Superior Service and Support -- In the early 90s, Harry Brown at EBC Industries saw the writing on the wall for production work and changed his company to focus on emergency and short lead-time work. He identified two trends that made him carefully evaluate high volume production work:
- First, if the volume gets large enough, the customer is more likely to source from an overseas supplier -- often without warning.
- Second, there is a relentless pressure from customers to drive prices down. This may eventually erode the supplier’s margins to the point where there is simply no way of making a profit.
Brown observed “when customers get into trouble and need parts in a big rush -- price is not the priority -- time is the priority.” Brown decided that this new situation being presented by his largest customers could be a business opportunity. He created a “Rapid Response System” in his shop that included special machine cells, heat treating, roll threading, metallurgical testing and mechanical testing. The idea was to change the nature of some of the services he offered so that he would be able to respond in hours rather than days.
7. Change From a Defender to a Prospector -- Minster Machine, like most American manufacturers, used the traditional manufacturing organization (known as a functional organization in textbooks). I call it the “Defender Model” because all business units are centralized into one big organization, which is usually a pyramid structure.
The defender model worked pretty well when the markets were stable and the same product lines could service most customers. It also worked well when there was a sufficient demand to keep the organization’s utilization at high levels. It makes money when its heavy investment in capital equipment and technologies are totally utilized.
However, it doesn’t work so well for declining markets, when low price competition enters the market, or when the company decides to find new markets and opportunities. Customers, particularly new customers in new markets, want quicker response, more customization, new products, new services, and more flexibility -- all at a greater value.
Minster changed to a new type of organization that works well, in a dynamic environment, and in new markets. I call this new organization a “Prospector” organization -- prospector organizations are flat, have many business units or divisions, and are decentralized. The new organization utilizes commercially focused, multi-functional groups with the ability to find and exploit new product and market opportunities.
Unlike the defender organization, whose success comes primarily from efficiently servicing a stable, primary market, Minster’s new capability is that of finding and exploiting new product and market opportunities.
In focusing on new products and new markets, the logical extension of this approach is the product organization in which all resources needed to research, develop, produce, market, and sell related products are placed in self contained organizational Divisions. Minster has now organized itself into seven divisions with their own P&L responsibility.
Control is decentralized because the information needed to assess current performance and to take the appropriate corrective action is located in the operating divisions themselves, not in the upper echelons of management.
8. Vertical Integration -- Ron Davis, CEO of Davis Tool, also saw the writing on the wall as commodity job shop parts were sourced more and more from Asia.
“If customers have the time, they can get anything they buy from us for less money in China,” Davis said.
Davis decided there was a definite market niche for offering quick turnaround on custom or low volume jobs and he could redesign his plant to become vertically integrated. He knew that many of their customers were operating on a just in time basis and could not live with the uncertainties of using foreign suppliers as long as the deliveries were quick.
9. Invest in Training Highly Skilled Workers -- Haas Automation has long been aware of American manufacturing's need for skilled workers and the looming skills gap resulting from the decline of manufacturing training programs. As part of its service offering, Haas invested in training programs and pays for skills training and education classes for its factory employees.
Getting more people interested in working for manufacturers that use machine tools is a big challenge. Haas is addressing the challenge with its Haas Technical Education Center program. The company has developed partnerships with all types of learning institutions to offer students a way of gaining production floor experience before entering the real world. These programs not only help train skilled workers for today, but also develop the future owners and supervisors of operations who will buy Haas machine tools.
10. Customer Focused -- Unlike many American manufacturers, electric motor manufacturer Baldor has built a culture around customers providing job security. Management talks constantly about customers. In every communication to any employee throughout the company, they try to talk about customers and emphasize that job security can only come from one place: the customer. They make the point that a union cannot provide job security, the government cannot provide job security -- only customers can provide real job security.
We have always had foreign competitors coming into our markets, but American manufacturers have continued to be able to compete by adapting themselves to the changing situations. American manufacturing is in a period where we must recognize the new challenges and adapt if we are to maintain long-term competitiveness.
In his book “Three Billion New Capitalists,” Clyde Prestowitz summarized the need for long term American Manufacturing competitiveness. He said: “The first priority of American leaders -- even more important than fighting terror or spreading liberty -- should be to ensure long term competitiveness. Without it, nothing else will make any difference.”
Michael P. Collins is president of MPC Management, a manufacturing consulting company, and the author of the book, “Saving American Manufacturing.”