From the Desk of Jack Healy
Create Your Own Stimulus Program
By Jack Healy, Director, MassMEP
While the economists attempt to understand the causes of the biggest financial failure in the last 80 years, the manufacturing community has been forced to act quickly and make decisions relative to their immediate future. Manufacturing, unlike other sectors of our economy that have been recognized as job generators, is forced to immediately adapt to the realities of the marketplace and reset their financial breakevens.
The primary way manufacturing organizations usually react to such market turmoil and loss of income is through an immediate reduction in staffing. Given this, it comes as a surprise that Massachusetts, as shown in the table below, has not followed this trend during this, the most significant recession in our lifetimes.
% of Mfg. Job Decline since June 08 to 09 *
*Source: Bureau of Labor statistics, 2009 Economic News Release #6
What happened or what is happening that has caused the Massachusetts manufacturing community to differentiate themselves from the surrounding states?
One reason could be the diversity of growing manufacturing sectors such as the pharmaceutical, defense, and renewable energy industries housed within the state. Given the number of small, high value-added enterprises with sales per employee of over $250,000 per year per employee, those companies would not have to initiate a significant layoff of staff to make up for a corresponding loss of sales.
However, our experience indicates that the primary reason may lie in the fact that many of the Massachusetts manufacturers have recognized the investment they have made in training their workforces and have chosen other strategies to avoid losing skilled staff.
One of the main vehicles for avoiding reductions has been the Work Sharing program offered by the state. This program allows for a reduction of operating time while still keeping the staff intact. A company employing Work Share can reduce the staff's work week and the employees are allowed to collect a percentage of their unemployment insurance benefit in proportion to the reduction in wages and hours. This program allows the manufacturer to keep the entire workforce intact and to limit production without building inventory, as well as ensures the workforce continues with most of their income and all of their benefits intact.
Other manufacturers avoided layoffs all together by having employees perform functions that were previously outsourced, such as janitorial and ground keeping services, and other work and assemblies that were formerly outsourced. Still other companies, recognizing that purchased goods and materials were two to three times more than their direct labor, renegotiated more favorable long-term material and assembly contracts.
Checkerboard's Lean Manufacturing Stimulus Plan
The majority of manufacturers that we have seen reasonably weathering today's challenging times are the ones who have implemented their own "stimulus plan" through Lean manufacturing methods. IndustryWeek magazine's "2009 Survey of Manufacturers" indicated that 70% of the surveyed enterprises now employ Lean. We also have surveys in Massachusetts showing an 80% utilization of Lean methods. Unfortunately, while most of manufacturing employs Lean, very few sustain it to the point that it results in a paradigm-changing process for the company.
One of the companies that recently made Lean in to a real continuous improvement process is Checkerboard Ltd. A West Boylston manufacturer, Checkerboard, led by its President Micah Chase, will be telling their story as to how the company changed since implementing Lean at the upcoming Association for Manufacturing Excellence Conference in Covington Kentucky, October 19 -23, 2009.
How sizeable this change is was noted in a recent news release in the Worcester Telegram and Gazette that stated, "Checkerboard, a privately-held designer and printer of high end stationery, has been ranked No. 4,437 on Inc. Magazine's annual ranking of the 5,000 fastest growing companies in America." Checkerboard, posted 2008 revenues of $15 million, up nearly 34 % over 2005. Checkerboard's results are not just a single year phenomenon but the result of a sustained effort that has seen them continually apply Lean, connecting their employees to their customers. They have seen their sales increase by 75% and profits by 226% over the last five years. Read the details of how they made this happen in their Successful Implementations of Lean article.
Lean is the Path to Growth
While Lean is widely recognized as a good cost reduction methodology, there is little or no recognition of the fact that Lean is the foundation for successful growth strategies. MassMEP has all of their clients surveyed through a separate outside organization one year after the client has implemented Lean. Four years of survey results clearly indicate that MassMEP's client realized, as a result of Lean implementation, an average $5 dollars of increased sales for every $1 experienced in cost savings. Lean is not something to implement once and put away, but an enabler for companies to become a "next generation manufacturer."
Implement or restarting Lean to connect with customers will become more essential during the coming restructuring of industries. The supplier reduction program being under taken will displace an enormous amount of manufacturing capacity that will be in search of new home. Disenfranchised automotive suppliers efforts to reposition themselves will be felt in many non-automotive sectors such as aerospace, medical devices, as well as new and emerging industries such as renewable energy or robotics.
Typically, a manufacturing enterprise's reaction to such market disruptions are constrained because of limited working capital, capacity, and organization staffing, all of which can be overcome with the proper implementation of Lean.
Anyone interested in obtaining more information on how you can start your own "stimulus program" through the implementation or restarting of Lean, can do so by contacting Glenn Gertridge, MEP Growth Services Manager, at 508-831-7020.
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