Regular readers know I have a fascination for American Apparel, and even their CEO Dov Charney. I was lucky enough to get a tour a few months back.
Brief background on why I like them so much: this is a $500 million manufacturer of t-shirts, underwear, and the like. Typically low margin products, the kind of thing that usually comes from Asian and Central American sweatshops. Not American Apparel. This company makes over 1 million articles of clothing, per week, from their one factory in Los Angeles and they grew 40% this year. They pay their 5,000-person workforce significantly above minimum wage (average is $12-$15 per hour), give them full subsidized benefits (such as high quality health care insurance for $8 per week), and they turn a profit.
As I say each time, this should basically embarrass the heck out of any company executive that thinks they have to outsource in order to find cheap labor. Or at least call into question their fundamental competence as a leader. If American Apparel can manufacture low margin clothing efficiently enough at a U.S. factory (California no less) to beat the sweatshops, then anyone should be able to. If they try hard enough.
Most companies we read about are laying off, complaining about the economy and "unfair" trade barriers, dirty unions, incompetent management, high labor costs, regulations... you name it. Everything except recognizing the problems with the internals of their organizations, let alone doing something about it. And the executives are probably paying themselves bonuses to boot just for whining and moaning.
The economy is tough these days. The clothing business is typically very low margin. So how's American Apparel doing? Not too shabby.
And the prognosis is apparently good enough for Dov to invest a chunk 'o change himself.
Ok all you guys making high tech chips, helicopters... and dare I say cars? Here's a guy truly invested in his company, paying a decent wage making clothing in California of all places, and beating the socks off his competition. Does he do lean? No, he just does what works.
Here's my final and perhaps most important lesson: do what works. It's that simple. Tools, even lean tools, are just tools. Leadership requires people. At American Apparel there are no cheesy signs with "Teamwork" and "Challenge" on them. There are no glitzy glass lobbies. There is no sign of lean manufacturing in the traditional sense, and they don't profess to be lean. No heavy lean training of employees, no overwhelming visual controls besides the metrics charts at the cells, no Shingo Prizes or Baldrige Awards.
But there are bunch of people recognized and compensated for their knowledge, creativity, ideas, and experience. A group of people that realize that speed creates value, knowledge creates ideas, ideas create profit. They figure out what works, then they do it exceptionally well.
Impressive, eh? If you agree with me, I want you to do something. I want you to click here to go to Time magazine's Time 100 Finalists, move the slider all the way to the right, and give Dov a nice high ranking. He may have his peculiarities, some of which those of us in the traditional business world may wish we could partake in without invoking the wrath of HR, but at least he knows how to really run a business.
Let's give our buddy Dov some love.
Evolving Excellence
I am also a fan of American Apparel. I think their success is a combination of the production process, design, marketing, and critically, their in-house retail channel. Unlike other manufacturers who deal with buyers of large retail chains, AA runs their own stores and online sales. This gives them flexibility, speed, and cost advantages in the same manner as Dell in the computer world.
I must call you however, on your blanket description of "Asian and Central American sweatshops". I learned about globalization the hard way - my job and thousands of others went to Honduras, Mexico, and El Salvador. Poor conditions certainly exist in those places, but I have been in several apparel plants in Central America and found them equal to or better than US plants in terms of working conditions and production methods. The ones I worked in were not sweatshops by any definition.
It is also important to note where American Apparel competes in the market. They are very strong competitors with the likes of The Gap in the $18 T-shirt. They cannot compete however with the $6 shirt from Hanes or Jerzees. Even with an enlightened management philosophy, it's tough to overcome an 85% pay differential on a labor-intensive product. Still, it's a rare success story and I am pulling for them.
Posted by: Paul Todd | 26 March 2009 at 07:45 AM
Working at the world's largest turbine helicopter producer, I take note when the word helicopter appears in an article. Next time you're in Dallas, drop me a note and come tour our plant. We are very proud of the progress we have made and would stand our continuous improvement efforts up against anyone's. We have a fantastic team working to reduce cycle time, eliminate waste and improve the value delivered to our customers. We do all this in an environment that is insourcing work to the U.S. from abroad and hasn't had a lay-off since the 1980's.
Posted by: Gregg A. Smith | 26 March 2009 at 08:44 AM