WorldCity Business Magazine

Go global, go lean or go out of business

by Brian Neff

An interesting phenomenon has occurred in U.S. manufacturing as a result of globalization

Rather than looking outward, manufacturers have tended to look inward first. It seems a bit counterintuitive, but for many companies the path to success isn’t to go global, but, instead, to close ranks and focus fiercely on doing what they do, and do it better and more cost effectively.

For American manufacturers, globalization has become a code word for tumbling prices to the point where it becomes nearly impossible to make a product and a profit at the same time. In fact, perhaps the term globalization isn’t quite right when it comes to manufacturing or manufacturing jobs, because, aside from China, there have been few winners in terms of increased manufacturing employment anywhere else in the world.

Chinese manufacturing has been the main driver in the intense downward price pressure of manufactured goods worldwide. That’s because Chinese businesses have a number of factors in their favor: lower labor costs, a government-controlled currency that is kept artificially low, a lack of patent protections, a partnership with Wal-Mart, and other governmental policies like low taxes, no health care expenses, and massive infrastructure investments. Together, these factors give Chinese manufacturers a sufficient advantage to overcome higher logistics costs.

Credit goes to the ingenuity of American manufacturers who have survived the Chinese onslaught with little assistance or support from the US government. Yes, companies have received a few tax breaks, the occasional incentives or a special program here and there. But that doesn’t compare to the level of support from the Chinese government to companies that have built factories in China.

So what’s a hardpressed U.S. manufacturer to do? The best example that I’ve seen recently of how American manufacturing can respond to the challenging global marketplace is DM Industries, a company based in Opa-Locka that makes spas and baths under the brand names Vita Spa and Vita Bath. Over the past two to three years, DM Industries has undergone what is known in manufacturing circles as a “lean transformation”.

Lean manufacturing encompasses a set of principles that distinguishes between value-added steps and non-value-added steps. There are other components to this business philosophy, such as low inventories, continuous flow, and smaller batch sizes. The key is to eliminate the non-value added steps and eliminate those obstacles to maximum production. The language of lean encompasses elements found in other operational strategies like Six Sigma and the theory of constraints.

Companies become unlean for a variety of reasons, and it’s not a problem unique to manufacturing. Most organizations adopt sub-optimal processes of some sort. If a company is able to absorb a sub-optimal process and still make a profit during good times, then that process tends to remain until tougher times require change.

With globalization, the tough times have come to manufacturing.

DM Industries’ lean transformation had so many positive impacts: quality was greatly improved, employee stability was improved (believe it or not, buying spas and bathtubs has a season of higher activity), inventories were substantially reduced, production capability went much higher, and the company was able to be more responsive to consumer tastes by adding more design features to their products.

Improving manufacturing processes was only half the story. Once DM Industries got control of its costs and felt assured it could make cost competitive items, leadership was freed up to focus on strategic initiatives. Herein lies the lesson that so many manufacturers learn get your house in order first, then focus on building and expanding next.

In DM Industries’ case, they have chosen to invest in an entirely new retail concept. They’ve teamed up with other manufacturers to open a new mega-store called Spaces. This store, located in Ft. Lauderdale, opened in January and is dedicated to the “patio lifestyle.” The patio lifestyle encompasses elements like extensive grilling systems, pools, spas, furniture, and anything that contributes to outdoor and comfortable living.

Manufacturers are often chastised for not thinking and acting strategically. Yet, when they know they can compete and have the ability to make a product that makes money, it’s amazing how strategic and intelligent they can be. Over the past five years, it’s been a struggle for most manufacturers to reach this point in their respective marketplaces. The combination of an improving economy and improved production processes has resulted in a number of companies only now emerging and beginning to assess how to grow their business in new and exciting ways.

At a time when many are still singing the blues for American manufacturing, there are signs that for some manufacturers, the sun is rising.