The New Competition : To Make It, Make It Differently

On the outskirts of this old New England mill town, in a nondescript aluminum building that once housed an indoor tennis club, a company called Shape Inc. is building a laboratory of American competitiveness.

Biddeford, which a century ago was a thriving center of the region’s now-decimated textile industry, today is the home base of Shape, a manufacturer of audio and video cassettes, computer disks, optical scanners and assembly-line automation equipment.

Using a combination of modern manufacturing technology, agile management, clever marketing and participative labor policies, Shape has beaten Japanese and Taiwanese firms on price and quality in a fiercely competitive business. In the process, the 2,800-worker company has become southern Maine’s largest private employer and provided an object lesson for other American firms trying to survive in the unglamorous business of making things.

‘Society Has Changed’

“What manufacturing is and what manufacturing does hasn’t changed,” said Shape co-founder Paul Gelardi, who with his brother Anthony started the company 14 years ago, making 8-track audio cartridges in an abandoned car wash. “But society has changed. Products have changed. Technology has changed. The rate of change has changed. So it shouldn’t surprise us that we have to change our methods.”

Shape is a success story that experts say points the way toward what it will take to make American manufacturing prosper in a relentlessly competitive world economy. The winning firms will be those--like Shape--capable of incorporating new factory-floor technology for flexible, decentralized manufacturing that can produce both low-cost mass goods and specialized products for an increasingly fragmented marketplace.

There is no magic formula for achieving or maintaining international competitiveness. But two strategies generally define the companies that are succeeding:

- Some of these companies have undertaken ambitious programs to install automated, computer-controlled assembly lines that allow them to turn out a variety of products and respond quickly to changes in demand.

- Others have discarded their autocratic, top-down management styles in favor of more flexible approaches that make greater use of the talents and the ideas of workers all the way down the scale.

What distinguishes the successes from the failures is a culture of innovation that encourages workers and managers to question all assumptions and to tinker constantly with every piece of the business, from assembly-line equipment to corporate structure.

A growing number of American firms are learning the harsh lessons of the last decade and better positioning themselves to compete on a global level. Examples of firms that have successfully applied this philosophy can be found across America in a wide range of manufacturing enterprises.

As a whole, however, American manufacturers in many industries still trail their Japanese and European competitors in modernizing their factories, production techniques and management thinking. Most U.S. companies, short on capital or short on imagination, have barely begun to tinker with their old ways to making things.

“The number of firms who have done a major change in their equipment is pretty small,” said Jerry Jasinowski, executive vice president and chief economist at the National Assn. of Manufacturers. People are going cautiously. The changes are coming a lot slower than a lot of us would have liked.”

Jasinowski identified three reasons why business is having difficulty: “Manufacturing has not been a high enough priority in the corporate culture. The application of advanced manufacturing equipment is very complicated. And it’s costly to install new equipment.

“A lot of firms,” he said, “have invested a lot of money without thinking through the process--and got burned.”

General Motors Corp. is a notable example. GM has spent an estimated $40 billion on automated plants and robot technology, only to see numerous facilities fall embarrassingly short of expectations.

In one GM “factory of the future” project, a $600-million assembly plant in Hamtramck, Mich., the robots that had been installed to paint cars instead painted each other because of a computer software foul-up. Other robots, employed to place windshields on car bodies, could not tell when to stop pushing and smashed a lot of glass. GM has canceled orders for thousands of industrial robots and is looking for cheaper, lower-tech solutions to its production problems.

Shape, on the other hand, prides itself on applying “appropriate” technology to its production methods. It once dumped a $30,000 robot in favor of a home-made $50 device that did the same job--flipping over a small piece of a video cassette--better. The robot was reassigned to another part of the assembly line.

South of downtown Milwaukee, an 80-year-old plant operated by Allen-Bradley Co., a manufacturer of industrial electrical equipment, demonstrates how proper planning and the skilled application of manufacturing automation can result in a quantum leap in factory efficiency and competitiveness.

On the eighth floor at 7:30 every morning, 26 fully automated devices come to life, ready for another workday. A mainframe computer elsewhere in the Allen-Bradley complex has already transmitted to the computer-controlled assembly facility the orders it received overnight from distributors around the world.

The Allen-Bradley assembly line, which began as an effort to capture a new market, has become a showpiece of industrial automation. The line, which can be operated by as few as three workers, produces contactors, the electrical relays that control the flow of power in industrial and office machinery. It can produce 720 variations on the basic product in batches as small as one--the once-impossible dream of assembly-line designers.

No Jobs Lost

The basic black plastic shell is produced in an adjacent injection molding shop. Pasted onto it as it enters the assembly line is a bar-coded sticker that tells the laser light-reading equipment along the line which variation of the device to produce, which lot it belongs to and to whom the finished product is to be shipped. The choreographed line of buzzing, whirring, blinking machines inspect each device at 350 points and can replace faulty parts without human intervention.

Because the $15-million automated facility turns out a new product line for Allen-Bradley, it did not eliminate any existing jobs. Officials of the United Electrical Workers local gave the project their blessing because it represents expansion for Allen-Bradley and job security for its work force. The union has helped identify and train prospective workers for the advanced line and for future high-tech assembly projects.

Larry Yost, who oversaw the automation project as Allen-Bradley’s vice president for operations, said the company first identified a growing market for the contactors and then began to explore ways of making them cheaper than foreign competitors.

“We thought about buying a European or Japanese company already making them,” Yost said. “We considered buying the product and putting our brand-label on them. We considered building a new plant in Mexico, or non-union northern Wisconsin.”

The company rejected all these alternatives. Buying the product from another supplier would have left quality-control in outsiders’ hands. Building a plant in Mexico would have reduced hourly labor costs but required more workers, expensive training and long supply lines. A northern Wisconsin plant would have had the disadvantages of a Mexican operation but with higher labor costs.

Cost Too High

“We looked at all these choices, but still the costs were too high,” Yost said. “So we took the direct labor out” with full automation. As a result, Allen-Bradley claims it can make the devices, even one at a time, cheaper than any competitor anywhere in the world.

Allen-Bradley spent two years researching and installing its new line. It built more than 60% of the production machines and nearly all of the computerized controls.

The company did not make the mistake of designing the product first and then figuring out how to make it. Instead, the product was designed concurrently with the means of building it. That approach is called “design-for-assembly,” and it is a key to efficient manufacturing and quality control.

While Allen-Bradley surprised even itself with the success of the automated line, the system produced one unwanted side-effect--added stress for the operators.

Advanced automation “creates a feeling of human beings isolated in this technological monster,” said Peter Unterweger, a United Auto Workers researcher who studies the interplay of man and machine. “As you make these systems more highly technological, you’re enlarging the responsibility of the people that remain. The functioning of the entire system depends on them.”

Allen-Bradley’s Yost said the company found this to be a problem early in the project.

“You’ve got five or six machines you’re responsible for, buzzers going, lights flashing and a computer watching, and the boss can see you from the control room,” Yost said. “It’s a lot of pressure, no doubt about it.”

He said one worker needed job counseling and special training as a result of the pressure. But even this worker is still working in the department, Yost said, and there is no shortage of applications from other parts of the factory, where the work is dirtier and more monotonous.

“Technology alone is not the answer,” said John Ettlie, who heads the manufacturing research office at the University of Michigan business school. The companies that are succeeding, he said, are employing “new organizational techniques from the shop floor all the way up through management.”

Flexible manufacturing means more than an automated assembly line that can respond quickly to product demand. It defines a state of mind on the part of corporate managers: a willingness to change not just the way their machines operate on the assembly line but the way their people do their jobs.

Many American firms have borrowed their new operating styles from Japan. Fireplace Manufacturers, which produces small fireplaces in Santa Ana for pre-fabricated homes and trailers, turned to Kiyoshi Suzaki, a Japanese operations consultant.

Bill Harris, Fireplace’s president, met Suzaki at a 1984 seminar on “just-in-time,” a Japanese-developed inventory-control method that assures that parts flow smoothly to the production line as they are needed--but not so far in advance that they gather dust waiting to be used. Fireplace Manufacturers adopted the just-in-time system, and then hired Suzaki to go further.

“Kiyo,” as Suzaki came to be known around the shop, started by rearranging the machines on the factory floor to speed production. He then helped the company alter stamping machines so that metal-cutting dies could be changed in 15 minutes, rather than the two hours it had taken before. This quicker change-over time brought faster production and meant the company could get by with much smaller inventories.

These and other simple, low-cost innovations allowed Harris to triple production without expanding manufacturing space. The cost of storing unfinished parts was cut by 70%; scrap was cut in half. In less than three years, the cost of producing the company’s basic 36-inch-wide fireplace dropped from $142 to $70.

At the same time, Harris worked to upgrade his non-union work force, which consists mainly of non-English-speaking Latinos. The most important step, Harris said, was to begin English classes to improve communication between workers and supervisors. The company picks up half the cost of the classes, which are held during the lunch hour.

But the firm has had its problems, as well. The company recently bought a $23,000 metal-stamping machine that never worked as it was supposed to. After $20,000 in repairs and modifications, the machine’s performance is still sub-par. A second machine, purchased to make glass doors for the fireplaces, could not be modified to operate properly. These two mistakes created quality-control problems and caused weeks of downtime on the production line, Harris said.

“We have a long way to go,” Harris said. “But the biggest thing was just starting.”

If Fireplace, which has 145 employees and annual sales of about $18 million, can learn management techniques from the Japanese, so can America’s industrial giants.

GM, for example, borrowed the Japanese idea of “quality circles” for its joint venture with Toyota at Fremont, Calif., to produce the Chevrolet Nova, one of the highest-quality cars in the United States.

Quality circles, composed of workers and supervisors, meet daily to discuss production problems and seek ways to correct them. Each member of the circle is responsible for the quality of the part or process it contributes to the assembly line.

Other companies have also recognized that if they cannot lick the foreign competition outright, the next best alternative is to join them. Like GM’s, their managements have proved sufficiently nimble to undertake joint ventures with overseas firms.

Thus Air Products & Chemicals of Allentown, Pa., a producer of industrial gases, co-opted competitors by forming joint ventures with the Japanese and Chinese. In effect, it shared its capital and production technology in exchange for a piece of a foreign market.

To Gleason Corp. of Rochester, N.Y., a manufacturer of sophisticated gear-cutting machines, flexibility has meant loosening its formerly hierarchical management style.

James Gleason, president of the company, acknowledges that his executives failed for years to listen to the workers but says they are now taking steps toward greater democracy on the factory floor. He has found that the employees who operate machines often understand them better than the engineers who design them.

At Gleason Corp., production workers meet weekly with supervisors and executives in informal sessions that allow workers to air grievances and offer suggestions for greater efficiency or safety. That gives them more of a sense of control over their jobs.

And supervisors no longer undergo training on new equipment and procedures and then autocratically pass orders down the line. The company now trains workers and managers at the same time.

Gleason has made itself into a global leader in the machine-tool industry largely by making gear-cutting machines that most of its competitors cannot duplicate. The Japanese have tried but failed to duplicate the company’s technology, and today there are 2,000 Gleason machines in place in Japan. Toyota and Nissan use more than 500 Gleason machines each to produce precision gears for transmissions and axles.

Yet even Gleason is not exempt from the pain of international competition. It has had to slash labor costs mercilessly to keep the price of its gear-cutters competitive with similar West German products. In Rochester, Gleason reduced employment from 3,300 in 1980 to fewer than 1,500 today.

As Gleason noted, industrial renewal depends both on modernizing the equipment in factories and on altering the way management and labor interact. Billions of dollars have been spent trying to build the factory of the future in the United States, with slow but hopeful progress. The effort to create the worker and manager of the future lags far behind.

Jack Russell, director of the Michigan Modernization Service, a state agency that helps small manufacturers upgrade their facilities, says America must move quickly to decide its future as a manufacturing nation. The risks of failure, he contends, are enormous.

“If failure is defined as being unable to find the social resources within the United States to adjust to the terms of global competition,” he said, “failure means that America is simply unable to right the balance in its trade accounts--and the consequences of that will be a continued industrial slide. In market after market, we will become a secondary producer.

“It is the responsibility now of the public sector to express a sense of urgency about the time we have to effect the modernization and rapid redeployment of our industrial assets if we are not to become essentially a nation in which our industrial core is owned and managed by others.”