Today I had the privilege of participating in the Manufacturing Business Conference, which is an annual event put on by Northwestern’s Kellogg School of Management. There were three keynoters and four panel discussions on Onshoring, Sustainable Manufacturing, Challenges of Outsourcing to China, and the Role of Operations in M&A and Private Equity. I must hand it to the Kellogg students that organized the conference; it was probably the most logistically perfect event I’ve been to in years.
I moderated the panel on Onshoring: Domestic Manufacturing as a Competitive Advantage, and I must also give kudos to the organizers for actually having a discussion on such a topic. Kellogg invited two of the panelists as a result of posts from this blog: Tony Sapienza, the President of Joseph Abboud, and Greg Owens, CEO of Sherrill Manufacturing. Other panelists included Michelle Kumbier, Director of New Product Purchasing for Harley-Davidson, and Conrad Winkler, a VP at Booz Allen Hamilton who has significant manufacturing experience in the automotive and aerospace industries.
Our panel discussion ran at the same time as the one on Sustainability, and I was pleased to note that at least 70% of the conference attendees attended ours. In fact, it appeared we had a higher attendance than any of the panels. Imagine that… a contrarian subject like Onshoring being more popular than going green, sustainability, and especially M&A topics at a top tier graduate management school.
Tony Sapienza [our original blog post on Joseph Abboud here] has been in the high end men’s clothing industry for thirty years and is currently implementing lean at the Joseph Abboud factory in New Bedford, Massachusetts. He has received quite a bit of press recently as a result of the partnership relationships he has created with the Abboud unions, and together they are trying to save one of the last remaining apparel manufacturers in the United States. Besides being the best-dressed person at the conference, Tony has a very amicable style, which he used to convey his passion for the apparel industry. I was fortunate to be able to have dinner with him the night before the conference, and it became obvious that he's been through a lot in the men's clothing industry.
I’m sure our fellow blogger Kathleen Fasanella already knows this, but some of the vagarities of the apparel industry can really play havoc with lean. Remember last week’s post on “demand quakes?” Unexpected and sudden radical shifts in demand are common. Tony told us of the days when Hugo Boss suddenly became popular. Very suddenly, and no competitor could compete with a bizarre consumer desire for pink Boss shirts. Of course those sudden changes in demand are a perfect example of why lean can be advantage… many manufacturers and designers were caught with months of inventory on the high seas. With many high end suit manufacturers requiring several weeks for special order suits, Tony is aiming for Joseph Abboud to be in a position to deliver a custom suit in less than a week. Short cycle times are becoming a new differentiator, and competitive advantage.
Greg Owens [our original blog post on Sherrill here] and his business partner purchased the manufacturing operations of Oneida in Sherrill, New York, in early 2005. Oneida wanted to outsource offshore all production, but Greg put together a proposal to buy the operations instead and sell back to Oneida. Oneida liked the idea as it gave them the benefits of a captured operation with the supposed benefits of outsourcing. Greg got the benefit of a couple years of guaranteed sales to get his new company off the ground. He has taken advantage of that short-term safety net to lean his operations and develop sales and marketing strategies for the future.
Greg’s operation also has a unique “problem”… his current demand only requires less than 10% of the floorspace and equipment capacity. Quick changeover? Why bother? He leaves machines set up for various different operations, and runs what he calls a “gypsy line” that moves within the plant to utilize whatever machines are required for a particular product. Obviously his intent is to eventually fill up that capacity as he goes after the smaller volume products where lean methods carry an advantage. He has also perfected “trash can analysis”… his group empties trash cans, analyzes what’s inside knowing that it is waste, and tries to identify and eliminate the root cause of the waste. Ever considered an operational metric along the lines of how many trash cans need to be emptied each week?
Michelle Kumbier is responsible for Harley-Davidson’s supply chain, which includes the identification and development of suppliers. Harley’s reasons for staying domestic are different from both Tony and Greg’s in that her customer base demands domestic content. All of the company’s manufacturing and a large majority of their suppliers are domestic. Consequently they develop long-term partnerships with suppliers and spend considerable time working to support and nurture those suppliers to ensure they remain competitive.
Those close partnerships with suppliers can sometimes change unexpectedly. Michelle told us about one instance where a supplier was acquired by a private equity group that was convinced they could wring some more profit out of Harley-Davidson by raising prices. Harley explained to the new company that they did not do business that way, and immediately worked on alternatives to find a more partnership-oriented supplier. The next few years will be interesting for the company as product demand from outside the U.S. is accelerating, and they will have to determine whether to manufacture from the U.S. for the global market or to move closer to foreign customer bases. At this time there are no plans for a factory outside the United States.
Conrad Winkler works with a wide variety of companies on manufacturing and supply strategy, and he told us of many of the pitfalls of offshoring. We’ve talked about many of them here… boatloads (literally) of inventory sitting on the high seas creating long cycle times, the cost of oversight exceeding the savings created by overseas ventures, and intellectual property being stolen. Since many of those companies are relying on cheaper overseas manufacturing to address competitiveness issues, they aren’t really improving internal operations, and therefore they have to continually chase lower costs as their competitors do the same… or get better.
When I rant against offshoring I usually talk about companies that don’t look inward and realize that their primary business cost isn’t labor or material, but unnecessary business complexity. However these panelists told us of other reasons not to offshore: to reduce cycle time, to target low volume high mix markets, and to satisfy a customer base that demands domestic content.
Coincidentally, or probably by design, the panel that followed ours was on the Challenges of Outsourcing Manufacturing to China. I think our panel set them up pretty well, and I’ll blog about some of that discussion at a later time [update: here it is]. Thanks to Tony, Greg, Michelle, and Conrad for a very engaging discussion that opened many minds to a new direction. One that runs counter to prevailing wisdom.