Industry Week – Aug. 30, 2021
Rebecca Morgan, a manufacturing veteran, former IndustryWeek columnist and president of Fulcrum ConsultingWorks, is an expert in making businesses more competitive. People familiar with her enterprise-wide, effective approach put her in the same league as Deming, Welch and Drucker.
It was my privilege to interview her in conjunction with the release of her latest book, Manufacturing Mastery: The Path to Building Successful and Enduring Manufacturing Businesses (Routledge Press).
Why did you write your book?
Two reasons: My passion for helping manufacturers, and frustration with many of them. Too many U.S. manufacturers have neither understood foreign competitors nor taken them seriously enough to ensure success over time, and they focus too much on today and not nearly enough on tomorrow.
Any ideas on how the U.S. manufacturing base reached this condition?
A focus on reducing labor costs by outsourcing to low-labor-rate countries put many manufacturers in jeopardy without them even realizing it. Often, this offshoring was a poor business decision that added complexity, variability and internal costs to maintain supply continuity. An unintended but predictable consequence is the current worker shortage, as it left the incumbent workforce to dangle and forced them to pursue careers outside of manufacturing.
What factors contributed to this status?
Hubris, lazy thinking and a lack of appreciation for the importance of both company and personal vulnerability. This implies leadership reluctant to learn and understand, value employees and supply chain partners as equals, and accept that they must make significant changes to their business.
Think about post World War II. While Japan and much of Europe were destroyed, American manufacturers faced little competition and believed that would be the case going forward. Japan, instead, understood the need to change and welcomed Edward Deming and his thinking on manufacturing strategy. The country rapidly transitioned from destroyed to making plastic trinkets to delivering high-end electronics and consumer durables while becoming a major source of automobiles and trucks worldwide. European and other countries also stepped up, placing increasing pressure on U.S. manufactures to reject mediocrity. U.S. manufacturers took too long to wake up.
Is there a difference in status between domestic OEMs and their small-and-medium-sized supplier/manufacturers in the U.S.?
No manufacturer gets a pass because it is small. Size only makes a difference when manufacturing leaders accept that. Large companies often unilaterally demand significant price reductions and extend payment terms without working with those suppliers to ensure they can do so profitably. Smaller companies tend to accept these demands from fear of losing the customer and its volume. The result of both is reduced investment in improvements – both small and step-function – that could reduce total costs to all involved. Short-term views and pressures lead to significant suboptimization. We need to understand that our suppliers are not the enemy! Any supply chain only wins when its members work together toward a common objective, regardless of individual perceived power.
What do you see as the potential outcomes if U.S. manufacturing doesn’t change its strategies and practices?
Continued demise. Focus on short-term and traditional accounting profitability is killing us. Making decisions to appease stockholders and impact stock prices at the expense of the other crucial constituencies while letting the IRS drive investment decisions sabotages the long term. Strategic profits are significantly different from traditional standard accounting profits.
Strategic profits are earned by continually identifying and building the capabilities and relationships that endurance requires and invested in pursuing a mission and vision that matters. A manufacturing business that is designed for profitability builds in the factors and capabilities for enduring success, knowing that stock price will reflect increasing value over time.
Ask yourself why, when traditional cash flow or accounting profits decline, the predominant first response is to stop training and lay off employees. Those lines on the expense part of the P&L are easy to see, and make easy, if short-sighted, targets. Focus on developing our employees – allegedly our most valuable resource–while working with supplier and customer partners committed to mutual success supports cost control, speed, responsiveness, and lowers supply chain risk. Facility and supplier locations are significant influencing factors on those fundamental aspects of our manufacturing businesses. More than direct costs should be considered.
Do you believe changes will be made in corporate purchasing departments?
They better be. Too many manufacturers look to purchasing only to reduce supplier purchase order prices. That misses all the opportunities within supply chain strategy and activities to increase profitability. Once again, standard costing leads to poor decision making. Supply chain professionals should be on top of evolving technologies and materials, as well as operational realities, to recognize and leverage opportunities. Manufacturers that design their businesses for profitability realize these investments are not optional. Sourcing should always consider potential impact on internal and supply chain risks, ensuring increasing value to the customer, not only component or material purchase order price.
How would these changes impact both the status of U.S. manufacturing and this country’s economy?
Very little of what I’ve written and said is limited to manufacturing in this country, except, perhaps, for hubris! We are competing in a global economy and nothing says that we deserve to “win” any more than any other country.
I identify five business stakeholder segments
4. Financial resources / investors
5. The community at large, which includes the future
Despite the 2019 announcement by the Business Roundtable rebuking Milton Friedman’s widely accepted “purpose of the corporation” and committing to serving all constituencies, it’s difficult to expect the short-term focus of manufacturing leaders to shift under current standard cost accounting principles. Privately-held companies are less subject to those pressures and can be making giant leaps forward right now. Wise corporate leaders will do the same.
Paul Ericksen’s new book is “Better Business: Breaking Down the Walls of the Purchasing Silo.” Ericksen is IndustryWeek’s supply chain advisor. He has 40 years of experience in industry, primarily in supply management at two large original equipment manufacturers.