The competition is fierce
But Dacor, Riverdale Mills prove midsize U.S. manufacturers have what it takes
By Dann Anthony Maurno, contributing editor -- Manufacturing Business Technology, 1/1/2006 7:00:00 AM
American manufacturers aren't crybabies—they face pressures the rest of the world doesn't. According to the National Association of Manufacturers (NAM), the U.S. is the most open market in the world. U.S. manufacturers face duties and tariffs of about 30 percent on exports, while this country imposes duties and tariffs of only about 3 percent on its imports. Import penetration has increased markedly since the late 1990s, particularly from countries with lower labor costs. Pile on top of that the U.S.'s highest-in-the-world regulatory compliance and labor costs, and U.S. manufacturers end up facing a real profit squeeze.
Relocating work to lower-cost labor regions is one solution. Distinctive Appliances(Dacor), Diamond Bar, Calif., considered relocating its manufacturing outside the U.S., but after 30 years in Southern California, decided to stay where it was.
Neither has the manufacturer of high-end kitchen appliances lowered prices, skimped on quality, slashed staff, or cut services—all desperate measures U.S. companies might take in the face of stiffening pressure.
Many small and midsize U.S. manufacturers compete with a value proposition based not on price, but rather a singular focus on one or more of the following:
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Enhanced quality
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Value-adding services
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Agile manufacturing and distribution
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Product innovation
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Use of information technology as a means to better operations
"The question to ask is, 'How important is labor cost to the total value proposition you bring the consumer?' " says Dacor CFO Ralph Heiman.
Dacor does 95 percent of its business in the U.S., with the remainder in Canada and Mexico, while facing stiff competition from high-end brands like Viking, SubZero, Miele, and Bosch Thermador; and from lower-cost brands like KitchenAid and Monogram, whose products are made largely in lower-cost labor regions.
Dacor's clear strategic differentiator, it says, is that it is closer to its customers than any of those competitors. That intimate relationship, combined with an agile manufacturing and distribution system, allows the company to furnish products and services for which buyers are willing to pay full market value.
Dacor tracks demand through its marketing department, its dealer network—which provides feedback as to consumer interest—and a cadre of interior designers. Delivery windows for products in demand are tight, which gives Dacor a leg up on European competitors that must build to stock and rely on U.S. inventories.
"They market through independent distributors, then to dealers," says Heiman, a model that adds intervening layers between maker and user. "There's no filter between Dacor and the dealers. More than 60 Dacor employees support a network of 1,200 independent dealers. That gives us another advantage, in that we get feedback from our salespeople on how consumers respond."
For its enterprise resources planning, Dacor uses QAD's MFG/PRO eB2 enterprise suite—implemented in 2004—and Dacor will go live with QAD's Lean module in Q1 2006.
QAD's Customer Self Service (CSS) Web portal front end allows Dacor's dealer base to place orders directly. Dacor and its dealers know when a unit arrives at a third-party logistics provider warehouse.
"Production is aware of any electronic order immediately, can get it made within 36 hours, and have it available for shipment on the next truck," says VP of manufacturing Michael Laiman.
Dacor contracts with 1,100 independent post-sales service agents, and has regional Dacor-employed technical experts.
"We have an internal bank of technical advisors for installers and repair people, plus a very large customer-service department for consumers," says Laiman. "These are real people who pick up the phone on the second or third ring."
Dacor believes its U.S. presence—combined with streamlined manufacturing, distribution, and service capabilities—gives it an edge in service and support. It's "around the corner" from anywhere in the U.S., which no offshore competitor can match.
"We compete on overall experience—from purchase to end use," says Laiman. "Going to a low-cost labor market won't help us deliver a quality product, and once you have one of our products, we stand by it. That's the value proposition that we bring to bear."
Why it works
Dacor takes advantage of close proximity to its customers using information technology to impart flexibility to the manufacturing system, and by its dedication to providing services.
In the industrial age, decisions pertaining to manufacturing were made in regard to cost or time attributes only. But in the 1970s, with the entrance of Germany and Japan into world markets, quality became a significant driving force. It's been suggested that a fourth factor, agility, is today becoming a key attribute vis-à-vis manufacturing systems.
Agility is needed to meet demand in a marketplace where most people in industrialized nations already are furnished with basic commodity goods. Consumers now seek more advanced products tailored to their own preferences. To meet that demand, manufacturers achieve affordable agility using computers as communication devices that automate coordination. By doing so, they are able to shorten order lead times, minimize inventory, and better deal with compressed life cycles.
In fact, it could be said that coordination—the goal of agility—has gone from a pernicious task to be gotten out of the way as quickly as possible to the central task of the manufacturing system. And through its recent investment in a modern enterprise planning system, Dacor is able to furnish supply chain members with real-time information, regardless of whether they are suppliers, partners, or customers.
It's also the case that profit margins on parts orders and services are invariably higher than those of OEM products. As is made clear in his book, Straight from the Gut, when GE CEO Jack Welch made decisions about which of GE's manufacturing businesses it intended to keep and which it would divest, he did so at least in part based on which lent themselves to supporting services-based operations.
Another example
Riverdale Mills, Northbridge, Mass., proves smaller companies can compete based on innovation and quality. The privately held, $21-million company produces high-quality welded mesh using proprietary processes. Riverdale exports about 20 percent of its product, including providing 35 miles of security fencing at the border of Kuwait and Iraq.
The company occupies more than 300,000 square feet of modern manufacturing space, and has more than 100 employees.
CEO Jim Knott is both an accomplished inventor with several manufacturing patents, and a tenacious defender of America's small manufacturers. He sits on the NAM Council of Presidents, Board of Directors, and Small and Medium Manufacturers Department, which lobbies for its members before Congress and federal agencies. Knott is particularly proud of his work leading to implementation of the 1996 Small Business Regulatory Enforcement Fairness Act, which protects those businesses from regulatory harassment.
Knott's first product innovation was the wire-mesh lobster trap, in 1957. "I designed it to outlast wood many times over. The average life of our AquaMesh trap is 10 years, versus wood, which, if attacked by worms, is gone in six months."
Riverdale's key offshore competitors are Italian and Chinese companies that use the same combination of steel, zinc, and PVC plastic materials to make the traps. Says Knott, "Of course foreign competitors figured they could tap into the market, and their products look identical. But lab tests prove our quality is higher. The Italian product is only 80 percent as strong in tensile strength, and we use nearly twice as much zinc, which inhibits corrosion. The Chinese product is far below even that."
Riverdale itself designed and built proprietary equipment for the mesh and single-strand galvanizing lines, and plastic-coating line. Knott imported the first computer-controlled welding machine into the U.S. in 1985, and shortly thereafter, the first computer-controlled wire-drawing machine.
Aquamesh technology has other marine applications, as well as in the agricultural and construction industries. But in the early 1990s, Knott first saw welded wire mesh fence used for perimeter barrier security, and applied his technology there. Riverdale's WireWall security and architectural fencing now surrounds prisons and nuclear power plants around the globe, as well as Kuwaiti and Nigerian oil & gas complexes.
Innovation as institution
A survey by New York-based Deloitte of more than 600 manufacturers, Mastering complexity in global manufacturing, found that new products introduced within the last three years generated 29 percent of manufacturers' total revenue in 2003—up from 21 percent in 1998—and that by 2006, manufacturers expect that figure to rise to 35 percent.
However, it can be difficult to institutionalize a quality as elusive as "innovation."
It's not difficult to understand how a company such as Riverdale, run by an engaged entrepreneur like Knott, finds the wherewithal to exploit new market opportunities with superior products. But as companies grow, and entrepreneurs are replaced by professional managers, the challenge is greater.
A recent study by McLean, Va.-based Booz Allen points out that Toyota spent only 4.1 percent of revenue on R&D last year, but "has consistently outperformed Ford Motor Co., which spent 4.3 percent of sales on research & development." Says Barry Jaurzelski, Booz Allen VP of global technology practice, "It is the culture, the skills, and the process more than the absolute amount of money available."
In fact, the whole notion of being a competitor is, at the end of day, a cultural one.
As QAD's VP of Global Services, Murray Ray logs 180,000 flight miles a year helping companies achieve competitive advantage. Ray is Australian born, and watched the current global manufacturing dynamic play out previously on a regional stage.
"Australia went through the same mental trauma in the late 1960s and 1970s when Britain joined the European common market. We lost much of our business from the U.K., and came to realize we were an Anglo-Saxon nation sitting in the middle of a region of cheaper labor. The first reaction is to cry 'Unfair! God is not on our side anymore!' What you really have to ask is, 'What are our core competencies, and what do we do well?'"
Australia and New Zealand are competitive today in Asian markets, even given higher labor costs. And as Murray concludes, Dacor manages splendidly in Southern California, where labor costs may be the highest in the United States.
