Manufacturers seek efficiencies to survive a brutal recession

By Janet Rorholm

It’s been a rough year for every business sector, but especially manufacturing, which lost 2.1 million jobs since December 2007.

Even before the recession, manufacturing was losing jobs to other countries, be it Mexico, China or India. Never has it been so important for a manufacturing company to become more efficient, say business experts.

Inc. Magazine recently named In Tolerance Contract Manufacturing of Cedar Rapids to its Inc. 5000 list of fastest growing companies in 2009. Though the company made the list at No. 4,109, Jack Hardin, general manager at In Tolerance, isn’t sure it will make the prestigious list for 2010 considering the rough year. Still, he’s not complaining too much.

“This year we’re only down 14 percent,” he said.

Other manufacturing companies can only envy those kind of numbers.

“Everybody is having volume issues,” said K.P. Persaud, business coach with ActionCOACH in Amana. Persaud’s background is in manufacturing. He spent the last 10 years at Midland Forge as general manager.

Persaud said he’s working with one company who’s volume is down 40 percent. Revenue dropped from $19 million to $9 million. While layoffs have helped stop some of the bleeding, business owners have to ask themselves whether they can survive at that level. If they can, the next question is “For how long?” he said.

Another client, who’s volume has dropped 30 percent, has three months cash left and another three months line of credit.

Most companies will have to undergo major restructuring to survive, he said.

“The market was weak before the recession, so the question is ‘Can you get the business to survive?’” Persaud said.

If the business is there, manufacturing companies have to make their business “as efficient as they can to survive,” he said. That break even point has got to be as low as it can because “after you’ve run out of cash, there’s no survival.”

He’s troubled because he’s seen many manufacturing companies simply hedging or sitting on the fence, just waiting to see if the economy will turn around. Others are very aggressive and making as many changes as they can to survive.

“You’ve got to understand, this is the worst they’ve ever seen,” he said.

In the last 10 years, Iowa has lost about 52,200 manufacturing jobs, a 20.5 percent decline.

Business experts say that companies who haven’t embraced Lean practices and Six Sigma need to for their own survival.

It’s all about the three Ps: people, products and processes, Persaud said.

With low volumes, you have to reconfigure your processes to run with less people, he said. That may include downsizing not just staffing, but also building and equipment.

Lean and Six Sigma practices aren’t just for manufacturing. Other sectors like the service and health care industries are also embracing the practices, said Steve Wilson, quality expert and business consultant with WCTS Inc. of Cedar Rapids. Everyone is having to do more with less, he said.

Lean is about reducing waste in processes and increasing the speed that services and products flow out to the customer, Wilson said. Six Sigma is about reducing variations in the processes, he said.

You have to apply both, Wilson said. What’s the point of producing a great product and then being three weeks behind the competition in getting it out the door?

“In tough times you have to decide to look at things differently. That might mean you have to make some expenditures to reduce costs. But if you do some of these things, you’ll be so much further ahead from the competition who is putting their heads in the sand and waiting for things to blow over,” Wilson said.

Wilson works with clients on the seven types of waste:

• Defects/corrections

• Inventory

• Over production

• Over processing

• Motion

• Wait

• Transportation

“You need to reduce waste for the purpose of increasing market share and profitability and expansion. It’s all about opening up opportunities and reducing redundancies,” Wilson said.

He said getting buy-in from employees, especially top management, is crucial in instilling Lean and Six Sigma practices. Accepting responsibility is also important.

“Often quality is seen as the responsibility of some department or person. Responsibility is everybody, every day and unless you are able to communicate that, it will always be a challenge,” Wilson said.

Some area manufacturers have already embraced these ideas and have reaped the rewards. These are the businesses that will survive, experts say.

One of those is Pickwick Manufacturing Services of Cedar Rapids, which along with In Tolerance also made the 2009 Inc. 5000 list. Pickwick President Walt Corey said innovation, customer satisfaction and versatility are key to giving his company a competitive edge.

“If you’re selling equipment for various uses in different industries, you have no idea what you’re going to sell and you need versatility,” he said.

Pickwick engineers work with existing and potential customers to redesign existing products to reduce manufacturing time and trim material costs.

In Tolerance, the small, manufacturing company that makes piece parts largely for Rockwell Collins and other aeronautic firms is down five employees after layoffs in April. They currently employ 33 workers.

While being small may be seen as a disadvantage by some, Hardin and other business experts say that being small has helped them, especially in times like these.

“We’re small enough and flexible enough and we have cross trained our employees so that we can react as good as or better than most,” Hardin said.

Hardin believes a strong focus on customer service is key for his company in maintaining a competitive edge.

“We’re doing what we’ve always tried to do better than other companies, offer better customer service…” Hardin said. “You have to have a good price and quality, don’t get me wrong, but what we believe in is being good at customer relations.”

Hardin said In Tolerance empowers all of its employees to talk to customers, so that the company can respond to a client’s request immediately.

“It has definitely helped,” Hardin said.

In Tolerance stresses the belief that the customer is No. 1 and the customer is always right. That mantra seems to be working; most of its new customers come from word-of-mouth.

“In Wichita (Kan.) we picked up four new companies last year based on word-of-mouth,” Hardin said.

Also working in the company’s favor is an experienced staff. In Tolerance has little turnover, which Hardin attributes to “good employee relations.” “We treat employees like family,” he says.

The average service with the company is 17 years. The company also offers competitive wages and benefits. It pays 90 percent of an employee’s health insurance for single and family plans and it offers the standard vacation and 401(k). Employees can also earn leisure credits for coming to work on time and staying the full-day, which can later be used later to give the employee flexibility. As a result, “we have zero absenteeism problems,” Hardin said.

Hardin thinks things will start looking better soon for the company, now that the recession is lessening its grip.

“I’m actually optimistic that things will start to turn around within the next year,” Hardin said. “We see a lot of activity, a lot of quoting going on right now.”

Companies are just waiting for the right time to start increasing their production.

“There’s enough activity that if we can get a decent share of that, we could be bring back some people,” Hardin said.