The New Normal

New approaches that will help manufacturers prosper in today’s demanding marketplace.

BY ANDREA LAHOUZE

Manufacturing executives tempted to breathe a sigh of relief and coast for a while as the economy stabilizes might want to reconsider. The climate ushered in with the downturn that began in 2008—characterized by shorter lead times, intense cost pressure, greater demand for industry certification and diminished customer predictability—is here to stay.

In this “new normal” environment, companies that have embraced the tools that help them meet changing demands are seeing operational improvements as well as new growth opportunities. In fact, firms that have transformed their companies using lean principles, earned ISO and other certifications, and implemented thoughtful marketing plans to diversify their customer bases are finding they not only weathered the recession, but also came out of it quite strong. The good news is, for companies still struggling with the new normal, it’s not too late to make the changes needed to thrive in the new manufacturing marketplace.

Everything is tighter
One of the clearest effects of the recession is the increased pressure to produce products of the same or better quality faster and cheaper than ever before. “Coming out of the recession everyone was in a panic, and they’ve been that way ever since. Everyone, everything, is getting tighter: inventories, supply chain, lead times,” says Chuck Rau, immediate past president of RIE Coatings, a 75- employee company in Eden Valley with a market-leading, environmentally-sensitive coating process.

Benno Kuhl, RIE’s president, adds, “I’ve spent time in the fabrication, conveyor and machining industries and I’m getting feedback from large vendor presentations— this crosses all industries, customers and manufacturing types.”

Because of its position in the market, RIE has seen robust demand for its products—with the company experiencing 50 to 60 percent annual growth coming out of the recession. Still, meeting the new demands of customers is critical. “We need to embrace the new norm because the marketplace is coming to us,” Rau says. “We need to make sure we’re growing fast enough to stay ahead of the workload and keep our customers happy.”

The coating process is the final step in production, which creates challenges as well. “We’re at the end of the supply chain, so there’s a lot of extra pressure on us,” Rau says. Recognizing that pressure, RIE undertook a program to lean its operations several years ago, and one result was that it tightened lead times before the recession hit.

Kyle Zierke, vice president of Zierke Built Manufacturing in Winnebago, says his company also began feeling the pressure of shorter lead times beginning with the onset of the recession. “Customers expect more than they did five or six years ago. The lead times are shorter—they’re three to four weeks now, versus five or six. If you go five or six, you start losing jobs.”

Zierke Built manufactures steel and metal products, including specialty trailers and fuel tanks. Zierke says the recession forced the company to reconsider how it operates. “We’ve leaned back. We learned that we can do this with this amount of people and this amount of material on hand,” he says.

Greg Thomas, an Enterprise Minnesota business development specialist, says there isn’t a single approach for companies to take to become leaner. But, within a single lean program, manufacturers can address a number of the issues they face in the new normal environment. “If the organization needs to shorten cycle time, improve quality and decrease inventory, lean is a great way to do that,” he says. “It’s really rooted in employee empowerment—getting the most out of employees, not just from their physical work, but from their minds.”

Depending on the level of engagement, particularly among senior company leaders, the results can be dramatic. “If they just want to make some stuff work better on the floor, probably the culture won’t change much,” Thomas says. But, citing a company he’s working with where the senior leadership is fully engaged and driving the lean transformation, Thomas says, “It’s a whole cultural strategy and it will look and feel much different. I think they’ll be wildly successful over time because of that.”

A growth strategy—with added benefits
As the new normal takes hold across the economy, many companies feel pressure to earn ISO and other certification to increase their marketability. At the same time, the process itself yields other returns. Zierke, for example, says his company’s goal with ISO certification was 80 percent growth-related and 20 percent operations-related, but he’s pleased with the way certification set a new standard for consistency and documentation across his firm.

Thomas says Zierke is not alone. Most companies he works with say more than half the reason for seeking certification is growth potential. Two factors are driving more companies to seek certification, Thomas says. “They may have a large client forcing them to be ISO certified. Or they might be shut out of entry into some markets unless they have certification,” he says.

Tom Stenoien, chief operating officer of Stratasys, Inc. in Eden Prairie, says that without certification his company would clearly limit its marketability. “More and more customers require it and would never consider us as a supplier without those certifications,” he says, referring to both ISO 9001-2008 and aerospace AS-9100. Stratasys designs and manufactures parts and prototypes, as well as machinery for customers to produce their own parts, primarily using 3D printing technology.

While opening markets is important, Stenoien says going through the certification process improves underlying operations as well. “The certification process helps us get disciplines in place to allow us to grow without increasing infrastructure and costs accordingly,” he says.

Thomas agrees. “ISO is built around quality standards, but it’s a best business practices, business management system. It’s broader than writing a quality manual—the certification is built around certifying an entire facility, not just a product,” he says.

Zierke says the ISO certification process allowed his company to build regularity into its production system. “Sometimes you’ll figure out that two people are making the same thing different ways, so you can catch them and make them consistent, so if there ever is a problem, you know exactly how to address it,” he says.

Now Zierke documents its operations much more, both in the office and in the shop. “Up front, the documentation was hard—it’s a change and people try to avoid change. But now that we have it in place, it’s nice to be able to look at it,” Zierke says.

Kuhl, of RIE Coatings, says companies can be surprised by the outcome of the certification process. “You think it’s going to improve your sales line—improve your credentials for certain customers. What it does in the long run is create a method and process for continuous improvement,” he says.

RIE had help from Enterprise Minnesota as it went through ISO certification. “The person who facilitated the process forced us to do our own work, and that worked very effectively,” Rau says. He estimates about half the competitors in the coatings industry are ISO certified and he initially saw certification as a way to distinguish RIE from others in the field. “I went into this thinking, ‘We need to have this on our business card.’ But it truly does give you reasons to make changes in the company, and you come out a better company,” he says.

Marketing is a must
One of the most troubling trends executives are seeing in the new manufacturing climate is the lack of predictability from customers. For many manufacturers—particularly those that have traditionally relied on a small core of customers—this changing dynamic can be devastating.

Zierke Built is a classic example of the problem, as well as the solution. “Until the recession, we had one major customer and four smaller customers,” says Zierke. “Our one major customer got bought out and the relationship went south.”

Thomas says many companies he works with are similar to Zierke: they have a small group of customers, often concentrated in one industry. At the same time, they are challenged with very limited marketing expertise, and when one of those customers cuts back or goes away, they suffer. “They are phenomenally talented at engineering and putting things together. They make incredibly high quality products with high tolerances, but they struggle in the marketplace to make the case for new customers,” he says.

In other words, for the life of the company, good engineering and quality manufacturing were enough to fuel growth. A company could survive—even thrive—by word of mouth or repeat business. In the new environment, that’s not the case.

DyCast Specialties Corporation in Starbuck has experienced all the challenges of the new normal manufacturing climate. A custom job shop that produces precision aluminum and zinc castings, DyCast has recently faced pressure on costs, lead times and inventories, says Jon Haavig, the company’s president. DyCast also needed to broaden its base of customers.

In response, DyCast has completely transformed its business. “We aggressively grew the company back out of the recession by acquiring new customers and programs,” Haavig says. With a combination of lean marketing and lean manufacturing initiatives, DyCast has increased the number and types of customers it serves, and dramatically altered the product ratio of its sales.

Before the recession, DyCast’s marketing focus had been heavily weighted as a precision zinc die caster. A new marketing plan put into place in the first six months of the 2008 recession called for the company to increase the aluminum side of the business to 60 percent of total sales by 2012. At the same time, “We implemented lean marketing strategies and shifted to full web-browser marketing for increased global visibility,” says Haavig.

“Previous to engaging our new marketing plan, the company’s total percent of sales of aluminum die castings was at 27 percent,” Haavig says. Throughout 2010 and 2011, aluminum die casting sales have consistently contributed to 50 percent of total sales.

DyCast’s aggressive marketing effort has paid off nicely. “Our company increased its customer base by 22 new customers across eight additional SIC codes,” Haavig says. In addition, 12 months after initiating the new marketing plan, Haavig says the request for quotes from potential customers increased by 30 percent.

In this new normal environment, Thomas says nearly every manufacturing company would benefit by adopting a combination of lean manufacturing principles, ISO certification and a comprehensive marketing strategy. Realistically, most companies need to prioritize.

The investment in time and financial resources will differ with each strategy. “Virtually every company is doing some form of lean intuitively. Lean puts a formal framework around it,” Thomas says. The lean programs offered by Enterprise Minnesota are customized to fit the precise needs and goals of the company. The return on investment from lean can take a couple of years, and the extent of the benefits depends in large part on the level of commitment of senior management.

ISO certification is a more standardized process. Thomas says it usually takes about a year from start to finish, and while the cost will vary, it is usually around $30,000, not counting staff time.

Marketing programs, especially those offered by Enterprise Minnesota, are similar to lean—tailored to the company and industry. They involve helping companies analyze market trends to identify which opportunities offer the greatest return, then determining how best to pursue them. “They can’t pick everything. They can’t afford to,” Thomas says. “But they can’t afford to pick wrong.”

Zierke’s experience shows how a company can combine initiatives to thrive in the new climate. To counteract the loss of business, Zierke adopted lean principles and downsized its workforce from around 50 to 33 while becoming an industry leader in lead times. At the same time, the company developed a marketing strategy that combined a newly created sales team with the promotion of its competitive lead times and ISO certification. Now, instead of relying on a handful of customers, Zierke has more than 50. It was a difficult, but important transition. “I think then recession was good for the companies that are still here,” Zierke says.