Like many other recovering General Managers, I enjoy reminiscing about the good old days of manufacturing -- the golden years when America dominated the world in manufacturing and growth seemed endless.
I remember my first job out of college at Hyster lift trucks in 1964, when a senior manager showed us a chart of lift truck sales going up 45 degrees until the end of the century. His pitch was that if we stayed with the company for our entire careers, we would get a substantial retirement. His comments on the American lift truck market and the dominance at the time of American manufacturers were very up beat and the inference was that the markets would grow indefinitely with little competition.
At the beginning of a recession in 1980, the Japanese began invading many markets, including lift trucks. Within five years they had taken most of the lift truck, machine tool, and other industrial markets. The golden years were officially over by the mid-80s.
But, as it turned out, this was only the first invasion. By the 1990s, China and other Asian countries had developed a manufacturing industry and were offering imitations or even copies of our products at 40 to 50 percent lower prices.
At the same time, American policies allowed the trade deficit to balloon out of control, which ended up losing millions of American manufacturing jobs. All of this accelerated at the turn of the century and globalization still seems to be developing and changing customers, markets, industries, products and services.
A lot of manufacturers simply seem frozen in the headlights and do not know how to react to these ongoing changes, and 40,000 of these manufacturers have closed down since 2001 and 4 million manufacturing jobs have been lost.
If you are languishing in a situation where you are not growing and are worried about the future, then perhaps it is time to sit down and consider a different kind of future. I always think it is best to begin these “thought experiments” with what we have learned in recent years, particularly the first decade of the 21st century. Here are some things to consider:
Problem 1: American manufacturers can’t compete with the low cost countries on price. No matter how much time and effort you put into reducing costs and waste. There is always going to be a low cost country with a lower price. If you live by price you are going to die by price
Solution: Many progressive American manufacturers have proven that we can compete on value. Contrary to what you may hear, many customers will pay for value.
Problem 2: Lead time. If lead time is not an issue with the customer’s production, then foreign competitors have the edge and it is tough to compete.
Solution: Many U.S. customers operate on a just-in-time basis and they can’t live with the uncertainties of ordering overseas. Davis Tool, of Hillsboro Oregon, decided to change their strategy to offering quick turnaround on custom or low volume jobs. They have been very successful because they selected customers who had to have very short lead times and did not want to rely on foreign suppliers.
Problem 3: All customers are not good customers. American companies who were the main customers for America’s small and midsize supplier companies have moved product lines overseas, built plants in foreign countries, shut down U.S. factories, and are relentlessly pressing for price reductions. In pursuing price reductions, American suppliers are coerced by the security of sales volume to give up their margins. Many of these customers are in financial trouble and could take their suppliers down with them.
Solution: Getting rid of those customers and finding new customers to replace them (and new markets) are worth consideration. This will probably require reorganizing the company to find or invent new sales channels, but it is clearly a better alternative to hanging on to bad customers who don’t care if you make a profit.
Problem 4: Everyone agrees that American manufacturing must be more innovative, yet few articles explain how to do it or exactly what innovation means. Innovation can mean improving internal processes, but I think the biggest issue is that manufacturers need to increase the output of new products and services.
Solution: My own experience in developing new products for more than 35 years showed me that new products that sell enough to justify the investment come from new customer needs or offering unique solutions to customer problems. This of course suggests that the company must devote the time to physically being in the marketplace and monitoring customer problems. If you can accomplish this customer monitoring, you will also find that you can offer them creative new services along with the new products.
Problem 5: Almost every European country is good at exporting (including their small manufacturers). They are good because they recognized a long time ago that they had to sell internationally. Americans have been spoiled by being located in the biggest market in the world, but now every country in the world wants to sell to the American market, and every industry is being pursued by foreign competitors.
Solution: There are many market niches overseas that are just developing and can use existing U.S. products, so why not commit to simply taking the first steps at learning how to market to foreign countries.
What is unique about these five solutions is that they are all external strategies. The most popular program in manufacturing to compete is to practice lean manufacturing methods and continuous improvement. Continuous improvement methods have reduced costs and waste and have kept American manufacturing in the game, but lean is an internal discipline and is not a strategy for growth. It has little to do with top line sales growth or finding new market opportunities in the marketplace.
Hammering away at the bottom line with continuous improvement is absolutely necessary, but if you want to create a new future for your company you need to develop a growth plan with the new strategies to find these opportunities.
The alternative is keep doing what you do best and hope that conditions in the economy will improve. Perhaps the dollar will continue to decline and the price of imports will increase, forcing many customers to buy from American suppliers. Or perhaps some of the customers that now buy from foreign suppliers will tire of the hidden costs, late deliveries, and quality problems and come back to you.
This defensive "wait and see approach" is possible; but dangerous. Waiting for outside events to change while you perfect your internal processes is allowing events to create a future for you. I would guess that many suppliers to the Big Three in the auto industry now wish they would have been more proactive in finding new customers and markets.
After watching the events on Wall Street almost destroy our economy and many other economies around the world, I don’t think it prudent to hope for better economic times.
Remember, American manufacturers have some clear advantages: We can sell value instead of low prices; we are located in the market; we can offer short lead times and customized products; we can offer unique overnight services; and we are not dependent on some foreign supplier and the logistical problems of shipping products from another country.
A better strategy for growth would be to go on the offense and take matters into your own hands. It will take a growth plan that defines the right customers, new markets, new products, new services, and new types of sales channels. It is time to go on the attack and create your own future, rather then wait for events to create the future for you.
Michael P. Collins is president of MPC Management (www.mpcmgt.com), a manufacturing consulting company, and the author of the book, “Saving American Manufacturing."