Is 2014 the Year to Retrench?

As we all return from the holiday break and get back to business, is it time to take a hard look at what it will take to be successful in 2014? With an economy that is showing little ability for sustainable growth, at least for the foreseeable future, will 2014 be the year that US manufacturers get back to basics? Redefining business models and returning to core competencies may be the only way to hold off the steady decline of the American manufacturing footprint.

Change Is Constant

When Asia started to threaten North American manufacturing, it began with Japan, which was replaced by Taiwan, which was replaced by China as the current dominant low-cost solution for a broad range of technologies. One thing is certain, the evolution will continue as a new low-cost country (LCC) will emerge in the next 3-5 years to replace China and the cycle will perpetuate. To stay in the game, America needs to reshape, realign, and refocus on supporting the niche pockets that LCCs cannot.

Technology & Speed

Two of the niche areas that America has always maintained an advantage over LCC’s on are technology & speed. We must take steps to preserve these offerings and avoid complacency believing that these are “untouchable”. Case in point: when I ordered our first iPod, I did so on the Apple website because they offered free custom laser engraving on each unit (a side note on the customer experience: as I typed my message in the dialog box, I could see it magically appear on the back of an iPod displayed on my screen so I could see exactly how it would look). I was told I would receive an email with tracking information when my order was shipped. First thing in the morning I received an email with the tracking number, not from Cupertino CA, but from Shenzhen China. 72 hours after placing the order, my custom laser engraved iPod arrived on my doorstep! Technology & Speed …

Strategic Alliances

One strategic decision that is being made more frequently each year is for US manufacturers to align in some fashion with a partner in a LCC. There are three basic ways to accomplish this: alliance (partnership), joint venture (partial equity position), and direct ownership (full equity position). Each will serve its purpose under the right circumstances, however, care must be taken to choose the right partner if going down the alliance path. Without an equity position there is little to stop a partner to eventually “cut out the middleman” in this relationship (kind of like pulling your best customer from a salesperson and making it a house account). Properly executed though, this strategy is extremely effective in allowing US companies to capture business that would have been lost had they not had this option to offer their customers.

Embrace Lean

Only recently have American companies begun to get serious about lean; not because they want to but because their foreign competition is forcing them to. US manufacturers as a whole have resisted the lean manufacturing philosophy that Asia has embraced for decades, which has a direct correlation to our inability to remain globally competitive. It’s always about the dollars, and the bottom line is that customers end up paying for any companies inefficiencies in one way or another. And in the highly dynamic environment that we all play in today, the major cost drivers are cost, flexibility and speed; all of which can be improved dramatically by lean practices.

Survival Is Not Mandatory

In the global economy that is today’s business environment, there are no guarantees. In this environment, big-box retailers want to be your one-stop shop, where you can wander through stadium-sized warehouses purchasing anything from enormous High Definition TVs to equally enormous jars of pickles, and everything in between. In this environment, your small neighborhood grocer, drug store and gas station can no longer compete and are being pushed away by the giants of industry. In this environment, the big continue to get bigger through acquisition or elimination of the competition. Never before has American manufacturing had to look in our rearview mirror as we do now. With the exodus of American products, jobs and technology to LCCs accelerating at unprecedented rates, the threat has reached critical mass. Indeed, survival is not mandatory!