The Changing Face of Successful Manufacturers
Enterprise Minnesota president and CEO, Bob Kill, offers six tips for manufacturers looking to stay current on the 21st Century
BY BOB KILL
Decades ago,one of our clients here at Enterprise Minnesota patented one single item. From that one piece of creative engineering sprung a lucrative business, which has now lasted for more than 30 years. This company represents the end of an era. Thirty years from now, a similar business that can drive one successful product to decades of robust growth and profitability will not exist.
Among my many satisfactions of heading Enterprise Minnesota is that I get to spend time interacting with and learning from manufacturers. My calendar is filled with CEOs and managers, OEMs, suppliers, accountants, bankers and economic developers, all of whom are devoted to the field. All in all, it is a very savvy group.
From these relationships and experiences, I make two observations about the future of manufacturing in Minnesota:
First, manufacturing will continue to be the supporting backbone of Minnesota’s economy. Minnesota exported $4.3 billion in products in the fourth quarter of 2007 alone—$545 million more than a year ago. In March, while the number of U.S. manufacturing jobs decreased by 0.4 percent, Minnesota’s manufacturing sector added 1,300 jobs to its already powerful work force. Minnesota’s manufacturing companies are strong, and will continue to be.
Second, it is inevitable that the face and style of manufacturing success will change, and they will change quickly. A study conducted with thousands of manufacturing companies in the United States found that only 5 percent of manufacturers are truly advanced, embracing new methods enterprise-wide. Just 15 percent are considered “engaged,” and 50 percent are only in the earliest stages of growth, struggling to adapt. Unfortunately, the final 30 percent—what the study refers to as the “disengaged”—are not embracing the methodology of the top 20 percent, and will likely disappear altogether.
Manufacturers today compete on a dynamic landscape that requires foresight, creativity and agility in their products and customers. What follows is Enterprise Minnesota’s philosophy on how manufacturers will thrive in the 21st century.
NURTURE CONTINUOUS IMPROVEMENT SYSTEMATICALLY
The concept of continuous improvement has always been around, but wears different labels. The most popular one today is “Lean Enterprise.” A common misinterpretation of lean is that lean is a one-step process. You analyze your organization, “lean up” some of your manufacturing processes and you’re done. Wrong! Lean and other improvements should evolve from the awareness that your organization can always continue to gain more improvement in every process—that you can get rid of even more things that have no value to the process and ultimately the customer. Lean principles are not just limited to your factory floor. Instead, it is essential to think enterprisewide. Any part of your business that is process driven—and what isn’t?—can improve. Take out the ingredients that aren’t necessary for the final product.
In the Innovations section of this magazine is a story about Avicenna, a Montevideobased company that saved the cost and hassle of buying a new building and growing its work force by first analyzing its processes. Based on findings from its Synchronous Flow Manufacturing (SFM) analysis, the company has improved its production process and is now looking at a 45 percent increase in revenue with fewer resources than before.
On a larger scale, Toyota is a great example of a company that exemplifies continuous improvement. They have been on this journey for 50 years. While most of the world looks to Toyota as a model of continuous improvement, they say they’ve just scratched the surface, there is so much more to do. Companies that are the farthest out in front are often the ones that feel they have the furthest to go, because they are always thinking of new ways to improve.
BE A LEAN GREEN MACHINE
Going green does not mean recruiting a hippy for your board of directors. Green manufacturing is really a derivative of lean management of your resources. There is nothing wrong with adapting your operation so that it is energy conscious and good for the environment. With the double-digit growth rates of China’s and India’s economies, opportunities for trade are also growing. But this growth also means heightened competition for the world’s energy resources. Consider going green as a business proposition. The more efficient you are about the use of your resources, the healthier your business becomes.
Environmental advocates like to talk about “reduce, reuse, recycle.” That’s pretty good lean advice. Everything you produce doesn’t make it to the customer, so why not work to reduce the pieces that don’t? If you’ve reduced as much as you can, then try to take the waste and recycle it so that it contributes later on instead of ending up on top of a garbage dump. This is a perfect example of what Lean Enterprise is meant to do. Lean is about eliminating waste. Advocates of green manufacturing suggest that we become more conscious of what we’re wasting, not only to help keep the earth healthy, but to help keep our businesses thriving.
My favorite example of a lean green business is Interscapes Inc. Interscapes’ president, Ron Lyrek, has always said that the order of business priorities is people, then profit, then planet. But with a resounding theme of green in the news and more demand for certified green buildings, Lyrek hopes to became a certified Leadership in Energy and Environmental Design (LEED) green practitioner. He says that going green has helped his company just as much as it has helped the environment. “I’m pretty conservative. I approach this as a very common-sense, practical approach. Being sustainable just makes a lot of sense,” he says. The company used to spend $1,600 per month on trash pickup alone, plus more for labor charges. But after investing in a wood grinder, and beginning recycling and composting at the facility, Lyrek says Interscapes is well on its way to its goal of having no trash pickup service. “As we eliminate chemicals and we recycle, it really does help change the core values of the company and also increases the bond and the excitement in the company of what’s going on. I can tell you, there’s been nothing but excitement,” Lyrek says. After grinding up their used cardboard and paper materials, Interscapes gives the scraps away to be reused as animal bedding. In 2009, they even hope to start making a profit off of those scraps, which Lyrek says have increased in value by as much as 40 percent. This kind of thinking is what turns the problem of trash into an opportunity for treasure.
RECRUIT, RETAIN AND TRAIN THE TALENT PIPELINE
To have a talented, experienced and dedicated work force, you must do three things: recruit, retain and train. Recruit the best workers instead of simply having people come to you. Retain the benefit of experience by helping older workers stay in the work force. And train your current workers to be the best, not only in a technical capacity but also in the way they work with others.
State economists estimate that our aging work force will shrink Minnesota’s pool of available workers by 6 percent between now and 2020, and another 3 percent over the following decade. This is far greater than manufacturers will make up through efficiency or advances in technology.
The opportunity in that number is that the labor pool of potential employees aged 65 or older is expected to triple over the next couple decades. The challenge is to look for ways to retain and retrain these members of your work force in what will be non-traditional ways. Compensation, work hours and job descriptions may have to evolve into greater non-traditional flexibility and managerial relationships.
In good economies, healthy and growing businesses sometimes inflate the number of employees simply because they can accommodate that growth. We’ve all been in companies that are guilty of trying to meet the challenges of growth by throwing more people into the mix. Slower economies, however, demand more prudent use of employees. A part-time work force that is experienced and flexible can be just the answer for that mission.
Training is especially important for companies located in less populated areas. With fewer people available, companies have to develop not only technical skills, but also leadership qualities among the people they have. The “soft skills” of working relationships are not soft anymore. Now, they are an essential part of what makes companies so efficient.
One impressive example of this is Superior Industries. The 300-person conveyor, idler and pulley equipment manufacturer is located in the city of Morris. “We don’t have a real large pool to pick from as far as hiring managers, so it comes down to training our own,” says Stan Wulf, Superior’s director of continuous improvement. “The people that we put into supervisory positions often don’t have any training or experience with managing people.” The company has been training new supervisors through a program called Training Within Industry (TWI). Composed of three sections—job instruction, job methods and job relations—TWI helps employees in supervisory and team leader positions to succeed in training and working with their teams. Superior Industries has been using the job relations method for more than a decade to train new supervisors. Wulf says he always sees dramatically improved working relationships from job relations training, which probably has something to do with the company’s 2006 expansion to Prescott Valley, Ariz., where they are already doubling the size of the facility. “We have a strong belief that when you have good relationships and good teamwork and good people development, the increase in productivity is going to follow,” Wulf says. Training is also an excellent way to retain workers through a show of dedication to their personal success.
STOP WHINING ABOUT GOING GLOBAL
One crucial difference between companies that are advanced and those that are “struggling” is seen in their attitudes toward the growing global economy. Probably 80 percent of companies here in the United States see a global economy as something extremely frightening or at least unsettling—a competitive threat to their businesses. But cuttingedge companies see global as an opportunity to reach new markets.
If you’re thinking about going global, ask yourself this: Are you going to send production overseas, then send the product back to the United States, or are you going to manufacture your product in a different country, and then sell it in that new country? In other words, are you trying to take advantage of the cheaper manufacturing costs, or the new market? If you answered the former, don’t jump on the boat to China just yet. The cost of manufacturing overseas is rising, with many managers’ salaries having doubled since last year. Instead, consider selling the product that you know to a new market. You’ll cut inventory and the cost of shipping your goods back to the United States, and you might have an even bigger market than before. A global economy will mean global customers as well as global suppliers.
On the topic of customers and suppliers, the value chain also requires a global perspective. While successful suppliers are getting more sophisticated and nimble about understanding and anticipating the needs of their OEMs, they might be overlooking an opportunity to build valued and innovative relationships with their own suppliers. Many OEMs are saying their suppliers can’t be good enough by just fixing what goes on within their four walls. Today’s manufacturers have to manage the whole value chain. That means, on one hand, considering the opportunities with your OEM, and also trying to understand the needs of the OEM’s customers. On the other hand, you have suppliers and it is likely that your suppliers also have suppliers. Thinking broadly about your customer’s customer and your supplier’s supplier, and leveraging the strengths and assets of each, will help everyone win.
HAVE A CULTURE OF INNOVATION
In manufacturing today, the only constant is change. A generation ago, our management teams might have taken a moment to marvel at the dramatic changes that occurred in the previous decade. Today, those breathless business and market transformations occur almost annually (i.e. iPod generations advancing so fast that last year’s must-have is now the “old” version). If you are standing still orslowing down to admire your progress, you are losing ground. Globalization has you testing (and worrying about) new markets, exchange rates and intellectual property rights. It might have you studying offshore competition and identifying ways you can compete with their products. New technologies will provide ways for you (or your competition) to work more efficiently by creating more and better products with fewer resources. As the overall work force gets small, you’ll have to find creative ways to recruit, train and retain a non-traditional work force. Supply chain relationships will be more sophisticated and more competitive; even banking and finance is constantly evolving.
In short, your culture should thrive on innovation from the CEO’s office to the factory floor. Remember that innovation is not always a product. It might be thinking of new markets or developing a new message. It could be as simple as systematically analyzing and improving your processes. Or it could be as dramatic as serving markets that we don’t normally serve and using technologies that we don’t normally think about.
Many companies think that innovation is like mining for gold. Of course, everyone is looking for that big nugget—that big idea or invention—that will make everything else worthwhile. But in truth, innovation is more like panning for gold. You don’t often get the nugget, but you do get small flakes of gold that add up over time. In short, every idea and every change in process, method or technology counts because it moves the company forward, even if only a small distance.
Successful manufacturers will benefit from a never-ending pipeline of ideas, initiatives and innovations on which the business’ growth and success will be based. Even ideas from people you would not normally expect, such as a luxury car company that is proud to say it gets many innovation ideas from its suppliers. What are we doing now? What else could we be doing? Who else could we be doing it for? These are the questions that all manufacturers must ask when they walk into work each morning.
REMEMBER, THE LEAN JOURNEY NEVER ENDS
Most manufacturers think of their lean “journey” (if they think of it as a journey at all) as a linear trip, with a beginning, a middle and an end. But the modern lean organization should think of its path as a loop (as shown in the graphic to the right). Continuous improvement and growth is an ongoing journey, and includes the following:
Step 1: Control Assets. All startups begin withan investment in typical financial assets like building equipment and inventory and human investments by hiring people and finding contractors. This step involves controlling those assets, usually by establishing basic expectations about ROI. It is critical to understand the potential of your building sizes, the output from a particular piece of equipment and the return expectation attached to employees and other talent related to your business. What is the talent that you have engaged meant to get you in return? Manufacturers know what all those pieces cost, but should have hard-number, realistic expectations on what those pieces bring back to the company.
Step 2: Expand Capacity. Analyze your assets for efficiency. Remove wasteful components. Don’t think about adding a building or upgrading your equipment until you’re sure you can’t add more capacity through the facilities you have by makingthem more efficient and more productive.
Step 3: Maximize your Markets.Expanding capacity is only valuable if you can find someone to buy the additional product. If you’re selling 100 units of something today, and you learn how to use the same assets to produce 115, but you’re still only selling 100, you have no advantage. When you maximize your market, you are selling more product units to existing customers in the current market.
Step 4: Grow Strategically. After you have efficiently captured revenue by producing more from existing resources and then squeezed your existing market, it is time to sell more of your current offerings to a different market, or to sell new offerings to the current market. By this point, you know your customers. Figure out what else they need that you can make for them. Or, reach out to other customers who aren’t using your current product.
Step 5: Transform the business. Few businesses ever get here. This is the point in the business where you are selling something new to someone new. Once you are at this point in your lean journey, you are doing something very different than most businesses are today, an accomplishment that names you as truly advanced, and within the top 5 percent of manufacturing companies.
Step 6: Control Assets. Sound familiar? On your way to transforming your business, you’ve probably had to make new investments in building or equipment or people. That is when it is time to start the lean process all over again.
This continual loop often seems challenging and overwhelming. Recognizing this, our goal at Enterprise Minnesota is to help all manufacturing enterprises grow profitably. Wherever you are in your lean journey, we have experience that will help you get to the next step. And remember, as those who are very advanced in their journeys know, the journey never ends!